Source: http://updates.mwbllp.com/2014_08_03_archive.html
Timestamp: 2019-04-19 22:48:48+00:00

Document:
The U.S. Court of Appeals for the First Circuit recently upheld the denial of a motion to enforce an attorney’s lien filed by borrower’s counsel pursuant to Mass. Gen. Law. ch. 221, §50 in an underlying mortgage dispute, where a third-party short sale was negotiated without the borrower’s counsel’s assistance.
In so ruling, the Court held that the borrower’s counsel was not entitled to enforce its attorney’s lien against the short sale’s proceeds, where the sale was agreed upon outside the context of the litigation, and the borrower’s counsel did not “successfully secure” the value realized by the borrower in selling her home.
In June 2011, the lender commenced this action in the U.S. District Court for the District of Massachusetts against the borrower to collect on a $2.5 million loan secured by property on Nantucket. In May 2012, the borrower retained counsel and agreed to a fee arrangement that would provide either a contingent fee as a percentage of proceeds from her counterclaim against the lender, if any, or a flat fee of $25,000 ($15,000 paid up front).
Counsel for the borrower entered his appearance and filed an amended counterclaim against the bank, which moved to dismiss the counterclaim. Shortly after his appearance, the borrower’s counsel briefly left the state, and was partially granted a stay of proceedings; however, the court held that the non-judicial foreclosure of the borrower’s property would proceed regardless of counsel’s availability.
The borrower hired additional counsel who entered a limited appearance for the purpose of filing an emergency motion to enjoin the foreclosure sale. The emergency motion was denied and again defeated in a subsequent interlocutory appeal, and the district court ordered the parties to mediation.
In June 2012, the borrower notified her counsel that she received a third-party offer to purchase the property, and the lender was offering to forgive the loan and settle the case pursuant to the short sale agreement. After the borrower refused to pay the additional $10,000 allegedly owed to her counsel pursuant to the flat fee arrangement, borrower’s counsel filed a notice of attorney’s lien in accordance with MA Gen. Law. ch. 221, §50 (“Section 50”).
Three days later, as a result of the court-ordered mediation (and allegedly unbeknownst to borrower’s counsel), the borrower and lender reached settlement pursuant to a stipulation that the lender would receive $1.9 million of the $2.24 million short sale, and the remaining proceeds would be left to the borrower. Once the borrower settled her debts to her additional counsel and in order to transfer clear title to the property, over $175,000 in proceeds remained.
After the stipulation of dismissal was submitted to the trial court through her additional counsel, the borrower’s counsel moved to enforce the attorney’s lien against all parties, seeking almost $100,000, in accordance with the contingency fee provision.
The trial court denied the motion to enforce the lien, holding: (1) that the settlement reached in this case did not constitute a “judgment, decree or other order in the borrower’s favor within the meaning of Mass. Gen. Law. ch. 221, §50 (“Section 50”); (2) that the borrower received no “proceeds” upon which a lien could attach, and; (3) that the fees requested were not shown to be reasonable. After the district court denied borrower’s counsel’s subsequent motion for reconsideration, this appeal followed in order to review the district court’s determination that the attorney’s lien was not enforceable under Section 50.
Considering the issue of “judgment” under Section 50, the First Circuit observed that MA courts have consistently held that “for purposes of [Mass. Gen. Laws ch. 221, § 50], a ‘judgment’ includes a stipulation of dismissal.” Ne. Avionics, Inc. v. City of Westfield, 63 Mass. App. Ct. 509, 827 N.E.2d 721, 725 (Mass.App.Ct.2005). Accordingly, borrower’s counsel was correct in his assertion that the stipulation of dismissal could have provided the basis for its attorney’s lien.
However, for the attorney’s lien to attach, there must be ““proceeds derived’ from a ‘cause of action’ as a result of a settlement.” Ropes & Gray LLP v. Jalbert, 454 Mass. 418, 910 N.E.2d 339 n. 12 (Mass.2009). Here, the proceeds were not derived from the counterclaim against the borrower, which was dismissed as part of the settlement, but rather from a third party in the short sale transaction effectuated outside the context of the litigation.
The Court next addressed borrower’s counsel’s claim that the borrower experienced a “windfall” as a result of the sale price exceeding the amount paid to the lender. Borrower’s counsel likened the sale of the home to the sale of patents and patent applications which the Supreme Judicial Court of Massachusetts found to generate attachable “proceeds” in Ropes & Gray, 910 N.E. 2d at 338.
The First District rejected this argument due to the borrower’s counsel’s admittedly nonexistent involvement in the short sale or settlement process, that did not “successfully secure” the value realized by the borrower in selling her home.
Accordingly, the First Circuit affirmed the denial of borrower’s counsel’s motion to enforce the attorney’s lien.
The Illinois Appellate Court, Second District, recently held that a non-titled spouse who maintains his/her primary residence at the property could not claim a homestead exemption under Illinois law.
In 2003, the husband borrower (“Titleholder Spouse”) purchased the Subject Property with a $244,900 purchase-money mortgage. The Titleholder Spouse’s wife (“Non-Titleholder Spouse”) (collectively the “Spouses”) never had a formalized interest in the Subject Property. The Titleholder Spouse refinanced twice and the note was subsequently sold to another entity (“Foreclosure Plaintiff”).
On November 2, 2011, the Foreclosure Plaintiff filed a complaint seeking a judgment of foreclosure against the Titleholder Spouse. The Foreclosure Plaintiff joined the Non-Titleholder Spouse as a defendant due to the possibility that she may claim an interest in the Subject Property.
The Spouses filed an answer to the foreclosure complaint and alleged three affirmative defenses, including unclean hands. Specifically, the Non-Titleholder Spouse claimed her signature on a waiver of homestead rights was forged, and that she was not present at the time of closing.
On November 6, 2012, both spouses filed a counterclaim for partition raising the same allegations contained in their unclean hands affirmative defense. They further claimed that at the time the Title Holder Spouse refinanced, the Subject Property was the Non-Titleholder Spouse’s primary residence, that she had homestead rights, and thus was entitled to a $15,000.00 estate of homestead.
The Foreclosure Plaintiff filed a combined motion to strike and motion to dismiss the Spouses’ affirmative defenses and counterclaim. The trial court granted the Foreclosure Plaintiff’s motion without prejudice.
The Non-Titleholder Spouse subsequently filed an amended complaint alleging she was entitled to her own homestead exemption because the Subject Property had been her primary residence since the time of the Title-Holder Spouse refinanced. She again claimed she did not sign the waiver of homestead rights and was not present at closing.
The Foreclosure Plaintiff moved to dismiss the amended complaint arguing that the Non-Titleholder Spouse cannot claim a statutory homestead exemption because she does not have any formalized interest or formalized possession of the home. The Foreclosure Plaintiff further argued that because the Non-Titleholder Spouse had no formalized interest in the Subject Property, it was irrelevant whether or not she expressly waived her homestead rights.
The trial court denied the Foreclosure Plaintiff’s motion to dismiss by relying on Brod v. Brod, 390 Ill. 312 (1945) (“Brod”). Specifically, the trial court determined that Brod held that a spouse’s interest in property need not be formalized for the purposes of homestead rights. However, the trial court acknowledged that more recent federal authority supported the Foreclosure Plaintiff’s position.
On appeal, the Foreclosure Plaintiff first argued that the plain language of Section 12-901 only allowed a party with a formalized interest in property to claim a homestead exemption. In support of its interpretation of Section 12-901, the Foreclosure Plaintiff cited bankruptcy case In re Belcher, 551 F.3d 688 (7th Cir. 2008) (“Belcher”) applying Illinois law.
In Belcher, a husband and wife filed for chapter 7 bankruptcy protection and, after the trustee sold their home to satisfy their debts, both claimed they were entitled to homestead exemptions. The trustee objected to the husband’s claim, arguing he was ineligible because his name was not on the title to the home.
The Belcher court agreed with the trustee and held that the husband could not claim a homestead exemption from the home’s sale proceeds because he was not on the title and he did not have any other formalized interest in the property. Id. at 689.
The Foreclosure Plaintiff next argued that the trial court erred in relying on Brod because it is factually distinguishable and addresses a pre-1982-amendment version of Section 12-901.
The Appellate Court next rejected the Spouses’ argument that Section 12-901 and its companion statutes demonstrated the legislature’s intent to create a homestead estate in all marital property. In support of this argument, the Spouses cited: (1) section 16 of the Rights of Married Persons Act which requires one spouse to provide a homestead for the other spouse before removing that spouse from the homestead without his or her consent; and (2) section 27 of the Conveyances Act which requires that a spouse’s release or waiver of homestead rights be express.
However, the Appellate Court held that neither statute touches upon the exemptions discussed under Section 12-901, and thus have no application here.

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