Friday, February 15, 2013

Sovereign Citizens

Jason Robert Williams allowed a default judgment to be entered against him in a nonpayment-of-rent case. Williams, represented by his brother “Julian Kevin: Williams” then sought to vacate the default judgment claiming that 2720 refused to credit his payment.
Jason had delivered to 2720 Realty, his Landlord, a “lawful Bill of Exchange.” It was a realistic looking but worthless money order.
2720 Realty deposited the instrument with its bank. It was returned uncashed and stamped “FRAUD.”
Jason appears to be part of a group of “Sovereign Citizens.” Sovereign Citizens have three basic beliefs. First, they adhere to the redemption theory, which is based on the premise that when the federal government abandoned the gold standard in 1933 it secretly pledged the physical bodies of its citizens as collateral to borrow money.
Second, Sovereign Citizens believe that the government created a fictitious entity for each citizen, and set up secret trust accounts through birth certificates and social security cards.
Third, SCs believe they can ‘redeem’ their birth certificates and in doing so, tap into their secret Treasury accounts. Using this theory, they further believe they can create money orders and sign drafts drawn on their Treasury Direct Accounts to pay for goods and services. And in this case, rent.
Marc Finkelstein, a Brooklyn Housing Court Judge, was not impressed and called the redemption theory “implausible,” “clearly nonsense,” “convoluted,” “peculiar,” “without merit,” and “equal parts revisionist legal history and conspiracy theory.”
Judge Finkelstein also allowed that “. . . Jason Robert: Williams will not prevail in this matter.” Unfortunately, Julian Kevin: Williams could not be reached for comment.
There have been numerous cases in the past few months in which the Sovereign Citizen theory has been advanced in eviction and other civil cases. At least in New York.
In Texas we have seen recently the specious public filings and recordations that mandated a fix by our Texas legislators. Even more recently we experienced “squatters” who thought they were gaining title to property by moving into vacant properties. Can the Sovereign Citizen movement – in the civil law context - be far behind?
See 2720 Realty v. Jason Robert Williams; L&T 077392/12; September 6, 2012.
Lessons learned (and one disclaimer):
1.      Beware the Sovereign Citizens. Terry Nichols, Oklahoma City bombing co-conspirator, was / is alleged to be a Sovereign Citizen.
2.      Sovereign Citizens may be using every means possible to disrupt America, including civil court proceedings.
3.      I tried diligently to review this case. I could not. It does not appear to be published in any manner. Consequently, these allegations are taken primarily from an article published in Texas Lawyer, and unless / until proven, should be assumed to be nothing more than allegations.

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

Friday, February 1, 2013

Note Guarantor vs. New Texas Laws

There was a foreclosure procedure used by lenders in Texas that increased leverage against borrowers. At foreclosure sales, some would offer a bid that was not only substantially less than the debt, but also significantly less than the property’s value. This created a deficiency balance. Lenders then decided to pursue the deficiency balance against the party that signed the Note. And, if / when applicable, the Guarantor.
Borrowers were unhappy. So, they lobbied their legislators. A fix was provided a few years ago. Our own Texas Property Code (yes THAT TPC – the one I am writing about constantly) was amended to provide some relief in the form of a fair market value offset. Check out 51.003 of the TPC.
Stated in its most simple manner, a debtor (borrower or guarantor) can complain that the lender bid an artificially low amount at the foreclosure sale, and created an inequitable deficiency balance. If the debtor is right, then through operation of TPC 51.003, the foreclosure sale bid is essentially increased to equal the property’s FMV as of the date of foreclosure.
And with that bit of introduction, here is today’s case.
Interstate 35/Chisam Road, LP and Malachi Development Corp loaned Villages LP $696,000. The Note was secured by a Deed of Trust on a Denton County property. Further securing the Note was a Guaranty signed by Mehrdad Moayedi.
When the gravy train . . . err umm the debt payments stopped, Villages foreclosed and bid $487,200. Villages then pursued Moayedi for $266,748 plus attorney’s fees and related expenses.
Moayedi defended the claim by citing the new provisions of the Texas Property Code and tendering evidence that the property had a FMV on the date of foreclosure of $840,000. I-35 responded by claiming that Moayedi had waived his right to rely on the Texas Property Code.
Moayedi had of course signed a Guaranty. The Guaranty did of course contain a waiver clause. However, the waiver clause did not specifically cite Section 51.003 of the TPC. And so – what lawyers dream about – a lawsuit was born.
The trial court sifted through most (maybe all) of this, and rendered a Judgment for Moayedi that since the Guaranty did not specifically waive his rights under 51.003, he was not liable for the uber-deficiency.
I-35 appealed.
The Dallas Court of Appeals evaluated the Note, property value, FMV, evidence, Texas laws, Texas cases and the potential that the Rangers might yet go to the World Series again. (That last part was a reading test.)
The Appellate Court concluded that the Guaranty did not need to specifically state “I WAIVE 51.003.” It was enough that Moayedi’s Guaranty Agreement waived “. . . any defense” and “. . . each and every defense . . .”
The trial court’s Judgment was reversed. I-35 wins. Moayedi loses.
See Interstate 35/ Chisam Road LP v. Moayedi; No. 05-11-00209-CV; Texas 5th Court of Appeals; August 8, 2012.
Lessons learned:
1.      There are Texas laws to protect borrowers and guarantors against too-low foreclosure bids.
2.      The protections offered by those laws can be waived, at least in a commercial context.
3.      Don’t conclude that there is no waiver in place just because the loan documents do not specifically reference TPC 51.003.

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.