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Wrongful Foreclosure, Confirmation, and Debtors' Remedies #5: LSREF2 Baron, LLC v. Alexander SRP Apartments, LLC

As an example of a successful claim for wrongful foreclosure that this firm handled, we have included the decision from the Federal District Court for the Northern District of Georgia, Atlanta Division.LSREF2 Baron, LLC v. Alexander SRP Apartments, LLC, 1:12-CV-2545-AT, 2014 WL 1624088 (N.D. Ga. Mar. 31, 2014). This case demonstrates the circumstances resulting in proof of a grossly inadequate price in a claim for wrongful foreclosure.

In LSREF2 Baron, LLC v. Alexander SRP Apartments, LLC, this firm pursued a claim of wrongful foreclosure on behalf of a debtor whose personal property had been sold in a foreclosure sale. The creditor in this case foreclosed on the debtor's apartment complex and initiated the foreclosure sale process. As notice to third parties, the creditor "published one unitary advertisement for the sale of all [the debtor's] collateral, both real property and personal property."[1] After giving proper notice and advertisement the creditor proceeded with the auction of the property.

At the beginning of the auction the creditor declared that the lots would be conducted in two separate sales: one for the real property (the apartment buildings and land) and one for personalty (furniture and items inside the apartment complex). No one had known prior to the sale that the lots were going to be divided. The real property was auctioned first. The creditor placed a credit bid for the real property and won, as it was the only bid on the real property.[2] Once the sale was complete, the personal property was auctioned off. The creditor made a credit bid seven times less than the actual value of the personal property.[3] The debtor, who was present at the auction, was "shocked at the low opening bid for the personalty."[4] "Based on the low opening bid, [the debtor] questioned his understanding of what was included as part of the personal property and concluded that the personal property must not have included several items, of which were model home furniture, clubhouse furniture, refrigerators, electronic ranges, or a contract claims against an architect."[5] Two other potential bidders were present at the foreclosure sale, however, no one other than the creditor bid on the personal property.[6] Thus, the creditor purchased this personal property for significantly less than it was worth.[7]

Here, we argued that the confusing foreclosure notice and advertisement for the sale and the creditor's conduct at the foreclosure sale combined to chill the bidding on the property.[8] Specifically, this firm showed that the bidding at the sale was chilled because at the sale the property was suddenly split into separate personal property and real property lots; the definition of the personal property lot was confusing; valuable items were included in the personal property lot; and the opening bid was so grossly inadequate that it falsely signaled to all potential buyers that the lot of personal property had minimal value.[9] Furthermore, the creditor did not give potential buyers any indication that the personal property was worth more than the opening bid, even though the creditor itself knew the true value of the personal property.[10] As a result of these facts, the Federal District Court concluded that "a reasonable jury could conclude that [the creditor's] conduct at the foreclosure sale chilled the bidding" and that the creditor "conducted the sale in a manner meant to mislead buyers into thinking the personal property was worth far less than it was."[11]



[1] Id. ("The Notice listed 14 types of property securing [the debtors] loan. One type of property, "Improvements," included, among other things, "fixtures." Another category of property called "Fixtures and Personal Property" also listed fixtures. This section contained a collection of property that would be sold at the foreclosure sale including "machinery, equipment, fixtures (including, but not limited to, all heating and air conditioning, plumbing, lighting, communications and elevator fixtures) and other property." A separate section of the Notice defined the term "Funds." According to the Notice, "Funds" include only those funds, cash or other sums that are "held by Lender in any escrow, reserve or other accounts established under the Note, the Security Instrument, or Other Security Document if any." The Notice then states that all the property listed would be sold at the foreclosure sale "less and except Funds." Although the Notice did not separate real property from personal property, it provided that the lender could sell the property separately in this manner. The Security Deed likewise states that the lender could sell the property "in one or more parcels or in several interests or portions and in any order or manner.").

[2] Id.

[3] Id.

[4] Id.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

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