Deficiency judgments are another dark corner, if not the darkest corner in foreclosure. The Dubin Law Offices filed a Class Action Complaint in Hawaii United States District Court today [4/29/13] because of the injustice of deficiency judgments.
It’s not bad enough to lose your home to the banksters that fraudulently inflated your appraisal, filed fraudulent robo-signed fabricated documents in your state recordation offices and in court, rigged your LIBOR interest rate, lied, cheated and stole your home getting away with everything; but then they turn around and sell your home to themselves for half price and then sell it again for less than you owe to someone else. Lord (and DeMarco) only know, why they won’t sell it back to you for the lower price. But they don’t.
As if that wasn’t bad enough, you’ve lost your life’s savings, all the equity you thought you were accumulating for retirement and the kids’ college, you’ve lost your job because the banksters crashed the economy – in essence your whole world has been turned upside down and destroyed – then the bastards file a deficiency judgment against you for the fictitious difference between what they gave the property away for and what your owed. In some cases it has been in the million$! And you’re stuck with a gawd-awful debt over your head for the rest of your life unless you file bankruptcy and ruin what little credit you may have left for another 10 years.
Is it any wonder why 99% of Americans want to take down the TBTF?
The COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF [Click for PDF] filed on behalf of Plaintiffs Jerry Agbannaoag, Merlita Agbannaoag, Severino Agbannaoag, Conchita Agbannaoag, and Cosmedin Tasani (“Agbannaoag Class Representatives”), and Ke Kailani Development LLC and Michael J. Fuchs (Ke Kailani Class Representatives”) was brought on an emergency basis on behalf of every past, present and future borrower and guarantor of every residential and commercial mortgage loan on real property situated in the State of Hawaii who has been, is being, or will be subject to a determination and/or enforcement of a foreclosure monetary deficiency judgment in this District and in Hawaii State Courts.
Dubin’s pleadings have always painted a detailed picture making the issues obvious as he writes, “[T]he Class Action Complaint presents a constitutional question of first impression in this District and throughout the United States, challenging for the first time on Federal Due Process Grounds the ancient common law judge-made arithmetic method for determining the amount of foreclosure deficiency judgments following confirmations of sale which merely subtracts the net proceeds of sale from the face value of the amount owing on mortgage loans.”
The Fifth and Fourteenth Amendments to the United States Constitution give the court “subject matter jurisdiction and pursuant to Section 1331 of Title 28 of the United States Code to enforce Federal Due Process of Law prohibiting, inter alia, any State to deprive any person of property rights without due process of law, which depravation heretofore has resulted in the unconstitutional confiscatory and punitive loss of hundreds of millions of dollars of mortgagor wealth and corresponding windfall unjust enrichment for foreclosing mortgagees.” Yeah, awesome isn’t it?
The Defendants are: “[T]he Circuit Judges of the First, Second, Third, and Fifth Circuits of the State of Hawaii are proper Judicial Defendants in this Class Action, who in their official capacities through assignment or reassignment are determining, awarding and enforcing such unconstitutional foreclosure deficiency judgments in the State of Hawaii and who unless enjoined will and are continuing to do so in violation of Federal Due Process of Law.” About time isn’t it?
The ” Judicial Defendants are named individually, since complaints may be brought in United States District Courts to enjoin state officials from acting unconstitutionally pursuant to the “stripping doctrine” of Ex Parte Young, 209 U.S. 123 (1908), which held that state officials, lacking authority to act contrary to the United States Constitution, in so doing as individuals are nevertheless classified as state actors for Fourteenth Amendment purposes while remaining private citizens for sovereign immunity purposes.”
Dubin writes, “[D]uring the Great Depression, Hawaii Courts like courts in other jurisdictions grappled with the perceived unfairness of forcing a foreclosure auction sale in a down economy. Ultimately, a common law practice was adopted whereby an upset sale price was set at a judicially determined value and the bidding at auction began at that price.” Dubin explains in detail the history that surrounds the current-day credit bidding fiasco.
At the core of the issue are the mathematical equations and formulas by which the courts allow mortgagees to determine the dollar amount of the deficiencies. Fair market value has been thrown out the window allowing banks to buy the home with a “credit bid.” No one even knows if the rules are followed and the bank posts a deposit.
Most people don’t bother to show up for the auction because they know that if they bid the bank will out bid them, so it’s worthless to try… that mixed with the clouded titles has kept potential bidders away from the so-called “auction.”
What this does is trash the fair market value of the property and the neighborhood because there is no fair market bidding on the home. Thus, the bank buys the house for half price – which should by all means establish the market value (or maybe it should be even less since nobody was actually bidding against the bank). By eliminating the competition the banks are free to throw any figure they want in for the credit bid and take possession of the house. In the past Hawaii law in the appellate courts have interpreted earlier case law to mean that “[t]he lower court’s authority to confirm a judicial sale is a matter of equitable discretion” and “[i]f the highest bid is so grossly inadequate as to shock the conscience, the court should refuse to confirm.” Hoge v. Kane, 4 Haw. App. 533, 540, 670 P.2d 36,40 (1983). But that doesn’t happen anymore – the courts just wave the gavel and rule for the banks.
Hawaii Courts act like debt collectors and “matter-of-factly merely assume routinely when
determining and enforcing foreclosure deficiency judgments that the confirmed sale price minus the net proceeds of sale controls and mathematically determines by subtraction the monetary deficiency amount despite taking or considering any evidence of higher property valuations or subsequent higher sales (“flipping” by foreclosing mortgages or their related parties), unless the earlier auction price is said to “shock the conscience of the Court.””
“This procedure completely ignores reality — that due especially to the present housing market collapse, mortgagees have the ability to credit bid for much more than the property is usually worth, thus scarring away and effectively depressing competition and thus in effect “rigging” auction sales, enabling foreclosing mortgagees to recover property at less than fair market value, while at the same time using that artificial auction sales price to secure a windfall profit over and above what is actually owed, even double recoveries, by adding onto its below-market purchase a sizeable deficiency judgment.
Thus, by flipping the property, the foreclosing mortgagee can make, even relatively immediately, more than what it was actually owed, and more than what it had even loaned or paid for a loan assignment, sometimes being assigned to it during the foreclosure process itself. The result is frequently that borrowers are penalized beyond what their foreclosing mortgagee actually lost and subject to confiscatory judgments without a hearing to determine actual loss and thus actual liability.”
The deficiency judgment issue has been all over the courts throughout the country – all the way to the U.S. Supreme Court which Dubin pens so eloquently in detail, “[I]n the mortgage foreclosure context, the United States Supreme Court has recognized that allowing a foreclosing entity to collect a double recovery is constitutionally impermissible, stating “[m]ortgagees are constitutionally entitled to no more than payment in full.” Gelfert, 313 U.S. at 233. [Emphasis added. DC Ed.]
Addressing deficiency judgments, the United States Supreme Court in Gelfert noted that “[t]he ‘fair and reasonable market value’ of the property has an obvious and direct relevancy to a determination of the amount of the mortgagee’s prospective loss,” id. at 234.
Concerning the process of determining a deficiency judgment, especially during times of economic depression, the United States Supreme Court concluded, while the question here was not before it, id. at 232- 233:
“And so far as mortgage foreclosures are concerned numerous devices have been employed to safeguard mortgagors from sales which will or may result in mortgagees collecting more than their due . . . .
Underlying that change has been the realization that the price which property commands at a forced sale may be hardly even a rough measure of its value. The paralysis of real estate markets during periods of depression, the wide discrepancy between the money value of property to the mortgagee and the cash price which that property would receive at a forced sale, the fact that the price realized at such a sale may be a far cry from the price at which the property would be sold to a willing buyer by a willing seller reflect the considerations which have motivated departures from the theory that competitive bidding in this field amply protects the debtor.”
Thus, it “is constitutionally unfair and a violation of Federal Due Process of Law for a mortgagee to be able to suppress auction sale prices and then recover more than it should in the form of a deficiency judgment. A mortgagee should not recover more than it is owed by taking advantage of outdated procedures, originally intended ironically to protect borrowers and not to punish them.”
The Class Members
The Agbannaoags and Family
The class members as Dubin describes them have been hard hit by the deficiency judgments that are set to ruin their lives and their families. More people than you realize are suffering under depressing and damaging debt. The Agbannaoags are a young hard working couple that wanted to build a home of their own and raise their family. The construction boom was still rolling like thunder in Hawaii in 2007, yet in the mainland the construction markets were collapsing. Jerry Agbannaoag planned to do a lot of the construction himself as many folks in the industry do. However, the Agbannaoags knew nothing about mortgage financing and even less about the weakening mainland economy.
When the Agbannaoags went to search out a construction loan, the mortgage broker tied them up with Finance Factors, a lender some would say, appears to be “one step above hard money.” Finance Factors is a sophisticated lender. The President of the company was on the Board of the Federal Home Loan Bank of Seattle with an impressive financial resume. It would be hard to convince a jury that the executives at Finance Factors didn’t know how serious the financial lending market had become. Yet, in late 2007, Finance Factors authorized a construction loan mortgaging the Agbannaoag’s property for $710,000…on a short 1 year construction only loan – and NO PERMANENT MORTGAGE ROLL-OVER TAKE OUT AT THE END!
A jury would have to seriously question why a sophisticated lender would not supply a permanent take-out loan. Actually, the default insurance company should be questioning why the lender would not have provided the assurance that the loan could be handed off to a permanent lender, wouldn’t you think?
As the story goes, the economy slowed down. Construction took longer than originally estimated (that’s a whole story for another post) and the Agbannaoags couldn’t, of course, find a permanent lender. With each extension, Finance Factors wanted more security and eventually caused the parents of both Mr. & Mrs. Agbannaoag to sign on the extensions as well. Needless to say, the economy crashed, the Agbannaoags lost their house and are facing a huge deficiency which now also affects their retired parents’ homes and credit. It appears, however, Finance Factors got to credit bid the property back and re-sell it – maybe even making a profit.
Ke Kailani Development LLC and Michael J. Fuchs
Mr. Fuchs, former HBO CEO and Chairman of the Board has been living a legal saga beyond words. In addition to an egregious deficiency judgment, Fuchs has been manipulated by Hawaii lawyers and had a judge whose family had stock in the bank that was granted the $21 million plus deficiency judgment.
The Deficiency Judgment Class Action Complaint is well worth the read and of course, as with all of Gary Dubin’s pleadings, it is filled with research and case law. No doubt other states will follow suit and file similar actions in hopes of cleaning up the injustices attacking homeowners as a result of this foreclosure force majeure.