(citing Wesley A. Sturges & Samuel O. Clark, Legal Theory and Real Property Mortgages, 37 Yale L.J. LEXIS 2120, at *3. [68] The court focused on the fact that [t]he rights of the holder of the mortgage were therefore paramount to [the mortgagors] rights, and any attempt on his part to impair the mortgage as a security, was a violation of the plaintiffs rights.[69] The court concluded that the law would support a case for waste, because [t]he plaintiffs security was thereby impaired.[70] The court noted that when the mortgagee sues for waste, the action is not based upon the assumption that the plaintiffs land has been injured, but that his mortgage as a security has been impaired.[71] Because of this, the court determined that [h]is damages, therefore, would be limited to the amount of injury to the mortgage, however great the injury to the land might be.[72] Notably, the court went on to conclude that the timing of the suit for waste vis--vis foreclosure proceedings was irrelevant: It could, therefore, be of no consequence whether the injury occurred before or after forfeiture of the mortgage.[73] As other courts adopted the rule of standing for the mortgagee, not all followed the remainder of the courts lenient approach for such cases. Because of this, the court noted the emphasis must be on the impairment of its security resulting from the wrongful act of the defendant.[166] Based on this, the court found the plaintiff must prove (1) a wrongful act of the defendant; (2) impairment of security resulting from that act; and (3) the amount of such impairment.[167] Thus, the title in the borrower convinced the court that it was important to establish the impairment of the security before the mortgagee could have an action for waste. Yool, supra note 44, at 56. [5] Instead, the bank noted that the Mirners had removed some fixtures from the house and filed a tort claim in waste[6] for $102,000.[7]. [1] By May 2009, the Mirners defaulted on the loan and would later file for Chapter Seven bankruptcy. Waste 18 (2019); 78 Am. As the Oregon Supreme Court explained, in the context of seeking an injunction, [s]uch acts as will render the security insufficient for the satisfaction of the debt, or of doubtful sufficiency, constitute, according to the consensus of authority, an impairment of the security, through the commission of waste.[112] The important point is not clear impairment, but indeed, acts that would so far impair the value of the property as to render the security of doubtful sufficiency. [265] See, e.g., First Natl Bank v. Clark & Lund Boat Co., 229 N.W.2d 221, 223 (Wis. 1975) (finding waste liability for failure to pay taxes). This distinction was made for the reason that tenancies of the character first named were created by law, and the law must therefore furnish a remedy for a violation of the rights of the owner of the inheritance; and lessees for life or for years acquired their interest by contract with the owner of the fee, who could have protected himself against loss in this respect. Some jurisdictions have concluded that it is possible for a breach of a contract to be simultaneously a breach of a tort duty that arises independently. The Washington Supreme Court concluded in 2010 that an independent tort duty can overlap with a contractual obligation. Id. The Kansas Supreme Court, for example, found that when a mortgagor impairs the mortgage security the remedy of the mortgagee is not at law, but in equity. Problems of Remedies: Contract-Based Remedies & Duplication, E. Traditionally, common law courts distinguished between voluntary and permissive waste. Scholars have repeatedly argued that circumstances requiring a creditor to be repaid with future earnings may create a constitutional problem of peonage, or separation of a person from their labor in a way that resembles involuntary servitude. [168] The Tennessee Supreme Court explained, [t]he title that passes to the mortgagee where the mortgagor remains in possession is a potential right to protect the estate from impairment of the security to such extent as would defeat payment of the debt secured.[169] The court concluded that interest in the property was sufficient to allow the mortgagee to restrain waste by the mortgagor or a third person, or to sue and recover damages for acts done to the estate which impair the security.[170], States may also put a great deal of emphasis on which party is in possession of the property as of the time of filing suit. [43] While the standing side has evolved to include mortgagees, the focus of this Article, the liability side, has also expanded broadly. [195] Additionally, the time spent struggling before filing bankruptcy reduces overall wealth and well-being, further diminishing their chances of that fresh start. [171] E.g., BRE, Inc. v. Superior Block & Supply Co., CV 95380707, 1997 Conn. Super. Property Law and Hardships of Waste Law for Borrowers, B. Such doctrines evolved in very different economic circumstances and with very different property interests being protected. 1969). [339] Wesley Newcomb Hohfeld, Fundamental Legal Conceptions as Applied in Judicial Reasoning, 26 Yale L.J. at 396. [262] Permissive waste arises not through malicious actions,[263] but instead through some omission or failure to act in a timely fashion. (iv) 'Equitable waste' refers to acts of wanton destruction such as the stripping of lead from a roof, the destruction of ornamental trees along a driveway, the pulling down of a house, or the cutting down of trees which were intended to provide shelter. [134], In response to the financial crisis, the majority of states enacted laws that restricted subprime lending. 3d 950 (N.D. Ill. 2018); City of Oakland v. Wells Fargo Bank, N.A., No. Indeed, the circuits have split over two different questions: (1) Did Kawaauhau address only one part of the willful and malicious standard or did the Court, in fact, collapse the two into a single standard? Gas Co., 162 Cal. 124, 132 (Wis. 1880) (finding nonpayment of taxes or interest to be waste). [18] The strongest statement of the peonage problem, as it exists in current bankruptcy law, is found in Margaret Howard, Bankruptcy Bondage, 2009 U. Ill. L. Rev. [206] Focusing on the breadth of the statute, the Supreme Court concluded that the City successfully met the standard and thus had standing under the FHA. The rule in the common law was that the writ of waste lay only against the tenants of estates created by the law, as distinguished from those which came into being through act of the owner.[59] The substantial remedies of waste, therefore, applied to protect property interests created by law, and not those that were created independently by contract, like leases and mortgages. [189] Bankruptcy law respects these social commitments. .). [56] 2 William Blackstone, Commentaries *281. [227], The Court concluded judgments arising from negligently or recklessly inflicted injuries could be discharged. Bank v. Onondaga Silk Co., 26 N.Y.S.2d 448, 450 (Sup. Ry. 1997). 99-3339, 2000 U.S. App. [99] The court ultimately concluded, [w]e agree that a mortgagee may state a cause of action against a mortgagor for actions or inactions which damage the collateral and thereby impair the mortgagees ability to satisfy the secured debt.[100], One product of the process of expanding standing for waste cases is that the very definition of the cause of action changed in many jurisdictions. In Barclays American/Business Credit, Inc. v. Long, the court described a business reorganization effort, which may well have been a long shot, but not necessarily a sham or hopeless from the beginning. Based on that, the court was willing to rely on the debtors intent to benefit himself and others by risking money to try to re-establish the business. USA v. Smithies, No. The Alabama Supreme Court dismissed a waste suit, reasoning that it could not be maintained once there was a foreclosure suit. [340] See, e.g., Joseph William Singer, Property and Social Relations: From Title to Entitlement, in Property and Values: Alternatives to Public and Private Ownership 320 (Charles Geisler & Gail Daneker eds., 2000); Stephen R. Munzer, Property as Social Relations, in New Essays in the Legal and Political Theory of Property 3675 (Stephen R. Munzer ed., 2001); Carol M. Rose, Property & Persuasion: Essays on the History, Theory, and Rhetoric of Ownership (1994). 235 (2018) (arguing that deregulation was not a cause of the subprime mortgage crisis). if they either have a purpose of producing injury or have a substantial certainty of producing injury.[238], Courts within the Fourth Circuit find that there is not a clear position. The remainder of this Section discusses this evolution in detail, because standing is the limiting factor of waste law for mortgagees. [47], Under the common law rule, whether the allegation was for permissive or voluntary waste, there was a single three-part test to determine whether waste had occurred. . DOT) jointly developed the hazardous waste transporter regulations. Problems of Remedies: Measuring When Waste Has Occurred, D. In addition to the bankruptcy and constitutional concerns, lender waste claims also pose problems for the logically and theoretically consistent development of property law. The expansion of the narrow common law approach to standing to include mortgagees fits with property theory more generally. 1. Id. 1 Affirmative waste occurs when the life tenant actively changes the 2005); see also Nw. This Part focuses on what happens when judgments from lender waste claims flow into the bankruptcy courts and the unique problems that arise in these circumstances. Lender waste claims provide a work around for state mortgage laws that prohibit personal deficiency judgments after foreclosure and are potentially non-dischargeable in bankruptcy. Holdings, LLC v. Green (In re Green), No. [282] Restatement (Third) of Prop. a (Am. [T]hey recklessly endangered the global economy.[131], In particular, studies have shown that a lack of regulation in home lending paved the way for the financial crisis. [133] Kurt Eggert, The Great Collapse: How Securitization Caused the Subprime Meltdown, 41 Conn. L. Rev. Ch. Managing and Reducing Wastes: A Guide for Commercial Buildings Aggregating willful and malicious into a unitary concept might be inappropriate if the word they modified were act, but treatment of the phrase as a collective concept is sensible given the Supreme Courts emphasis on the fact that the word they modify is injury.[246], With that said, the Fifth Circuit itself seems to have created a unitary standard: [T]he term willful and malicious injury is a single, unitary concept that is determined by a two-pronged test, namely, that an injury is willful and malicious where there is either an objective substantial certainty of harm or a subjective motive to cause harm.[247] The Fifth Circuit has clarified that it is not sufficient for the debtor to simply commit a willful or knowing act.[248], The Sixth Circuit has adopted the dual approach of considering either specific intent for the consequences or the more objective substantial certainty that those consequences will occur.
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