For a number of reasons, real property usually sells for less at foreclosure than it would in an arms-length negotiated sale. A June 29, 2017 decision by the Maryland Court of Special Appeals provides an example of the kinds of unknown risks foreclosure sale purchasers, including lenders, may face that dictate that they not pay top dollar.
In 111 Scherr Lane, LLC v. Triangle General Contracting, Inc., a lender foreclosed on real property under a deed of trust granted by the owners of the property, Josiah and Joan Tice. TECO, an electrical contracting business owned by the Tice family and run by the property owners’ son, stored equipment and supplies in seven trailers located on the property. Triangle General Contracting also stored equipment and supplies in two additional trailers on the property under an oral lease with the Tices. Edward Gills was the successful bidder at the foreclosure sale. He assigned his bid to a newly-formed limited liability company which took title to the property after the court ratified the foreclosure sale.
Gills wanted to operate a seafood business on the property. Most of the supplies, equipment, and trailers located on the property were not useful for that purpose. Consequently, Gills wanted them removed from the property. Believing that the trailers and their contents belonged to the Tices, he called them a number of times to ask them to remove the trailers. When that failed, he sent them a letter informing them that they had ten days in which to remove their “stuff” from the property now owned by the LLC and that he would dispose of anything not removed within ten days.
TECO and the Tices’ son visited the property several times during the ten day period and removed some of TECO’s property. However, once the ten day period had expired, Gills refused to allow them access to the property.
Meanwhile, Triangle, which had not been given notice of the foreclosure sale, discovered that the new LLC now owned the real property on which its trailers, supplies, and equipment were located. Triangle contacted Gills and asked for access to the real property to remove them. Having already barred TECO from removing any more personal property because more than ten days had elapsed after he had notified them that he would dispose of property not removed within ten days, Gills told Triangle that its request came too late. Gills then sold most of the trailers, supplies, and equipment remaining on the property for scrap, retaining only a few items useful for the seafood business.
TECO and Triangle each sued Gills and the LLC for a writ of replevin to recover their property which they contended Gills and the LLC were retaining wrongfully or a judgment against Gills and the LLC for the value of their property. Gills and the LLC argued that TECO and Triangle could not recover their property or obtain a judgment for the value of their property because TECO and Triangle had abandoned the supplies, equipment, and trailers by failing to remove them and because a writ of replevin can only be obtained against someone who is wrongfully holding property at the time suit is filed and Gills and the LLC had disposed of the supplies, equipment, and trailers before MECO or Triangle filed suit. The trial court awarded TECO a judgment against Gills and the LLC for $9,856.40 and awarded Triangle a judgment against Gills and the LLC for $59,119. Gills and the LLC appealed to the Maryland Court of Special Appeals.
The Court first noted that a foreclosure sale purchaser is allowed to use self-help to dispose of personal property left on the real property that it purchases only if the personal property is abandoned. The Court rejected the contention that TECO and Triangle had abandoned the supplies, equipment, and trailers by failing to remove them from the LLC’s property. Abandonment, the Court said, “entails the relinquishment of any interest to the property” and may be shown by evidence that the “owner has ‘walk[ed] off and [left] [the property] with no intention to again claim it or exercise rights of ownership over it.’” TECO had demonstrated that it still exercised rights of ownership by removing its supplies and equipment from the property until Gills refused to allow further access. Triangle had asked Gills and the LLC for permission to remove its supplies, equipment, and trailers promptly after learning of the foreclosure sale and access had been refused by Gills.
The Court agreed that a defendant must normally have possession of the plaintiff’s property wrongfully at the time suit is filed to be liable to the plaintiff for the value of the property. However, surveying cases from other states, the Court of Special Appeals held that if the defendant had possession of the plaintiff’s property and “culpably” disposed of it before being sued, the defendant could be liable for the value of the property even if the defendant was no longer in possession when suit was filed. Because Gills knew that TECO wanted to remove more property and was prevented from doing so by Gills and because Triangle had requested permission to recover its property before Gills sold the supplies, equipment, and trailers for scrap, the Court of Special Appeals concluded the Gills had disposed of TECO’s and Triangle’s property culpably and could not assert lack of possession as a defense.
One lesson to be taken from 111 Scherr Lane is that it is risky for a foreclosure sale purchaser to use self-help to dispose of personal property left on the real property purchased unless the owner of the personal property unequivocally expresses the intention to abandon it. Although Gills and the LLC might have fared better had they given TECO twenty or thirty days rather than ten in which to remove its property, had TECO still expressed a desire to remove property after whatever period Gills and the LLC had chosen to give it expired, establishing that it had no intention of exercising rights of ownership still would have been problematic. In the absence of unequivocal abandonment by TECO and Triangle, only obtaining a court order before disposing of TECO’s and Triangle’s property could have protected Gills and the LLC fully. A foreclosure sale purchaser who does not factor in the potential for post-acquisition litigation and the attendant cost when bidding at a foreclosure sale may, like Gills and the LLC, find that true acquisition costs substantially exceed the amount bid at the sale.