Is city liable to mortgage lender for building demolition?

In July 2000, the city of Long Beach, Calif., recorded a”Declaration of Substandard Property” against a four-unit apartmentbuilding. The building inspector estimated it would cost $20,000 to bring theproperty into building code compliance and repair deficiencies in the vacant building.

On Dec. 13, 2000, the property was sold to Aztec Financialat a foreclosure sale. In February 2001, Aztec sold the property to RahimPashmaki, who obtained a $247,500 mortgage from Daaz Financial Services, whichlater assigned the loan to D & M Financial Corp.

Purchase Bob Bruss reports online.

Because the necessary repairs were not made to the building,the city sent several intent-to-demolish notices to new owner Pashmaki, but notto the mortgage lender, D & M Financial.

On Friday, Aug. 10, 2001, the city mailed a “48-HourNotice of Intent to Demolish” to Pashmaki and a copy to D & MFinancial Corp. in Belleville, NJ. On Monday, Aug. 13, 2001, an employee of D& M phoned city building inspector Dale Wiersma who had authority to stopthe demolition. But Wiersma refused to do so.

The building was demolished. The city sent Pashmaki a demandfor the $11,615.20 in demolition costs.

On July 29, 2003, the property was sold at a foreclosuresale to D & M for only $70,500 (presumably the land value). D & M thensued the city for the $330,000 value of the property before demolition,alleging it suffered inverse condemnation damages.

If you were the judge, would you award the mortgage lenderdamages for demolishing the building, which was the security for the mortgage?

The judge said yes!

The mortgage lender has legal standing to bring this actionfor inverse condemnation damages caused by the city’s demolition of thebuilding, which was security for D & M’s mortgage, the judge began. Thecity violated its own ordinances by failure to properly notify both theproperty title owner and the mortgage lender more than just 48 hours before thebuilding was torn down, he continued.

In the absence of an emergency, the city had a duty toprovide both the property owner and the mortgage lender with the opportunity tocorrect the substandard conditions as an alternative to demolition, the judgeemphasized.

The recorded “Declaration of SubstandardProperty,” which was recorded by the city under prior building ownership,was insufficient to notify the current owner, Pashmaki, and the current lender,D & M Financial Corp., that demolition will occur, or was evencontemplated, the judge noted.

The city could easily have notified the out-of-state lenderwell in advance of the demolition, rather than waiting until just 48 hoursbefore tearing down the building, which could have been repaired for about$20,000, the judge commented.

Because D & M Financial’s secured mortgage interest inthe property was terminated without adequate advance notice, the city is liableto D & M for inverse condemnation damages of $260,000 and the city isordered to remove its $11,615.20 demolition cost lien from the property title,the judge ruled.

Based on the 2006 California Court of Appeals decision in D& M Financial Corp. v. City of Long Beach, 38 Cal.Rptr.3d 562.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

Copyright 2006 Inman News

Distributed by Inman News

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