Tuesday, June 22, 2010

You’re On Notice, Lenders!

Our Court of Appeals recently issued an opinion that raises a few questions without giving altogether satisfactory answers. In 3502 Lending, LLC v. CTC Real Estate Service, decided in late April, the court held that notice available to a lender precluded it from claiming the insufficiency of prior liens in a quiet title action. Seems that the appellant, 3502, signed an August, 2006 agreement with a junior trust deed holder (Camis, Inc.) under which it would substitute for that holder under a debt structure (secured by a Paradise Valley residence) where the lien it purchased from Camis held third position (had “third lien priority,” according to the opinion). It’s an expensive house, and it’s in Arizona; naturally, that means it was foreclosed upon, and 3502 ended up with title at the foreclosure auction on its third position note.

Not wanting to pay on the senior notes, 3502 sued to quiet title, seeking a declaration that the first and second position trust deeds were extinguished by the foreclosure. Why? Because they were re-recorded on May 10, 2006, after the initial recordings of the first and second lien instruments (in August, 2005) failed to include legal descriptions of the residence. Those instruments did have the residence’s street address and Maricopa County Tax Assessor’s Parcel numbers, however. “Inadequate under the deed of trust statutes!” howled 3502. But when the instruments were signed in August, 2005, so said an affidavit, the legal descriptions were attached – they just fell off before recording happened, I suppose.

The trial court rendered judgment for the senior secured party, on exactly what premise cannot be inferred from the opinion. 3502 raised two issues on appeal. First, it contended that the senior liens were void because they lacked a true legal description (Argument I). Second, it argued that even if the liens were not void, there should still be a finding of inferiority of those first and second encumbrances because 3502 had no actual or constructive notice of these liens (Argument II). Apparently, either 3502’s principals did not obtain a title commitment, or do a title search themselves, or did not read the results of anyone who did perform a title search. If all of those assumptions are true then the $156,475 deed of trust (the remaining balance on the third lien) 3502 picked off must have been acquired from Camis at a smokin’ price. (The credit bid that prevailed on 3502’s lien was $202,000, but that included fees and costs and fluff, more than likely).

The Court of Appeals consumed some ink and paper blunting Arguments I and II; it’s unclear how much of a service it did in the process. First, it seems to me that Argument II was easily disposed of by pointing out that the contract under which 3502 acquired the third lien position explicitly stated the lien priority. Bingo! Game over on Argument II; you contracted for a junior position, and that’s what you own. But the court proceeds to explain why 3502 had constructive notice of the senior liens, and cites an Arizona case, Watson Const. Co. v. Amfac Mortg. Corp., that isn’t great authority for the proposition - because what was missing in Watson was two pages of text of the deed of trust, not the legal description of the collateral. A better statement of the principle is found in In re Wonderfair Stores of Ariz., albeit it’s a federal appeals court decision with Arizona roots. I wouldn’t have offered to argue the point of constructive notice at all, in the circumstances.

Argument I is a tricky one. Citing an Alaskan case, the Court of Appeals says that since an unrecorded instrument is fully enforceable between its original parties, and since the legal description was attached to the original instrument, the senior deeds of trust, when executed, fully complied with the deed of trust statute. Okay, the initial proposition is a correct statement of the law, but that’s not what A.R.S. §33-802(A) provides for a trust deed; that statute says to refer to the parcel by its subdivision lot number, if it’s a lot identified in a recorded plat.

So, here’s a few things I would have ventured from the bench on Argument I:

One, I’m not sure that the statutory language is jurisdictional; there’s a pre-statute Arizona Supreme Court opinion that says that the “description of property mortgaged must be such as to identify it.” Granted, the legislature isn’t the court; but I’m not sure that, constitutionally, real property must be described in one fashion only - or the deed of trust is void. Two, a federal court said in 1938, interpreting Arizona law, that “as between the parties thereto and their successors in interest with actual notice,” an unacknowledged and unrecorded declaration of trust “was as good as though all formalities had been complied with.” Since Argument II was resolved by a finding (as a matter of law) by the Court of Appeals that there was actual notice of the senior trust deeds, the federal court opinion at a minimum could be bootstrapped upon to find that the supposedly invalidly-recorded deeds of trust here are no “worse” than the unrecorded deed of trust referenced in the federal case. Therefore, I might rule, the descriptions in the senior deeds of trust are sufficient as a matter of law. In effect, however, that would be overruling the statutory provision in §33-802; that’s some heavy lifting for the Court.

Three, I would have discussed the availability of the equitable subrogation to the senior lienholder under the circumstances presented – a doctrine that equity produces the just and proper result. In effect, that’s fundamentally the same as item “two” above – based upon the notion of actual notice of a prior lien, a junior lienholder equitably is denied seniority in rank. I think that may be the best justification for the resolution of Argument I. (In fairness to the Court, however, I don’t know if that was raised by the appellee as a basis for denying the appeal.) Four, in the worst case, I might have remanded the matter back to the trial court, to find out to whom the May 2, 2006 Notice of Trustee’s sale was mailed by the agent for 3502, so that I could hold as a matter of law that 3502 had waived its claim to have been harmed by the failure of attachment of a legal description to the senior trust deeds when they were recorded. In any event, the Court’s disposition of Argument I troubles me, without further Court explanation.


--MNW

T-Rex Towers: Do Offices Face Extinction? (Part Four)

How will the American workforce work in another 30 years? The response to this question has much to do with whether today’s conventionally developed and occupied offices will be replaced by an entirely new paradigm. So, for a “part” or two, I’ll ruminate over this issue of tomorrow’s workers’ behaviors and attitudes, and how work “attitudes” and the norms of labor may change in the knowledge economy.

First, I confess an assumption. The assumption is that tomorrow’s work force will be led by, progressively, Generation Y (aka Millennials, or sometimes the “Net Generation”) and, thereafter, the iGeneration. In other words, my assumption is that there will not be a massive younger - adult “abandonment” of the work force in western industrial societies. Your reaction to the preceding sentence may be “what’s he talking about?” I’m thinking of the phenomenon in Japan of the rise of an underclass of youth and newly middle-aged working persons whose earnings place them below the poverty-line. This recent rise is largely based on the increasing rate of “unconventional” employment, resulting from restructuring within Japanese companies cutting costs and facing the challenges of globalization. An estimated one-third of the total workforce in Japan today is engaged in non-regular or temporary occupations, namely as freeters, as day laborers, part-timers, so-called dispatch workers (temps) and hybrids of these, forming a new “working-poor.”

Japan’s workforce dilemma arose from the now-distrusted relationship called 'kintractship', a form of 'adoption' by the worker’s employer, coupled with pressure on permanent employees to succeed that was manifested in little annual leave, long working hours, massive amounts of 'service-overtime', and death from overwork (karĊshi). These are just a few challenges that made some regular Japanese male employees' working lives miserable through the 1980s. When the Japanese economy hit the skids in the 1990s and the now-famous “salaryman” was riffed from the workforce in copious numbers, massive cynicism grew among Japan’s youth. They have come to doubt the loyalty of corporate Japan to its devoted workforce while witnessing the career fates of their (predominantly paternal) parents. What’s my point? I’m assuming that the iGeneration won’t “drop out and turn on,” but instead will succeed the Millennials in the ranks of professional and technical workers in America’s knowledge-economy workforce. (Just to plug any thought-gap, I’m not disrespecting the Japanese via this observation; I’m simply stating that I’m anticipating the workforce in America over the next 50 years will consist largely of persons who are task-oriented specialists if not career-oriented, whether or not driven with lust for the trappings of “success” that seemed to obsess workers in the 1980s in our land, and regardless of whether they elect to work alone, or within or among smaller or larger groups of persons. Whew!)

Second, I need to define the forthcoming generations of American workers, although I’m not sure there’s a bright-lined way to choose “cut dates,” or whether doing that even makes sense. I’m using the working definitions of Millennials as those born from approximately 1980 through roughly 1996, while iGeneration members are and will be those born thereafter. The basis of those definitions is that for those Millennials born about 1980, their teen years were reached during the popularization of Mosaic, which had a revolutionary impact on the World Wide Web. Mosaic's graphical user interface allowed the Web to become, by far, the most popular Internet protocol. When added to the availability of JavaScript after 1995, the interactivity of the Web was assured. With it, users could interact with a page even while data was being retrieved by the browser; so the currency and accessibility of the Web was a foregone conclusion. Millennials became the masters of the Internet, although doubtlessly they are viewed by some among the iGeneration (including the younger brothers and sisters of Millennials) as hopelessly static and their favorite technologies “so last week.”

The iGeneration, born (more or less) since 1997, became preteens and adolescents at the time of the universal availability to industrialized societies of iPods, iPhones and iTunes, among other things (hence the denomination “iGeneration; this is not a pitch for Apple technologies). I am inclined to agree with Professor Larry Rosen - the convention that a new “generation” arises every 25 years is no longer, well, conventional. Technology breakthroughs representing quantum leaps in human communications, once available to mass markets, have the capacity to influence radically children during their formative development years. When game-changing tech tools’ usage becomes second nature to youth, it’s a bit medieval to pretend that there has been no notable transformation between age-based groups. It may temporarily be a difference of degree rather than kind – but differences become magnified each time there’s a quantum leap in accessibility of a new technologies to succeeding groups of youth who embrace them fearlessly and instantly.

Here’s an illustration: Millennials are used to Skype and video conferencing hardware and software for communications with fellow workers, perhaps wary of the limitations of impersonal contact through electronic media. Today’s preteens, on the other hand, being intimately conversant with virtual worlds and online games, see little distinction between online friends and physical friends - some would sooner play with their imaginary friends online as attend a party with classmates from school. Here’s another one: Millennials appreciate the wonder of, and rely on, instant messenger-ing, emails and text-messaging, achieving cost and time-savings in their business and personal communications. They do accept-grudgingly perhaps-that occasionally, although increasingly less frequently, there are bandwidth or wireless limitations on their freedom. Today’s preteens don’t process that; they expect a near – instant response from everyone they communicate with. Finally, there is anecdotal evidence that toddlers increasingly are referring to their parents’ Kindles as “books,” and believe that “true” computers are hand-held devices.

I’ve heard the transition explained this way: iGeneration members have lived, from their first moments of cognition, in a ubiquitous environment of electronic communications. What does that mean for workplace dynamics? In the next post or two, I’ll start explaining my hypothesis of how these differing growth environments inform attitudes, and attending behaviors, may impact the performance (and expectations) of Millennials and the iGeneration in the workforce (the latter haven’t started working just yet), leading to ruminating about how that will affect the way that the workplace functions – or won’t function – for them as the next leaders of the economies of the “white collar” nations that conventionally gathered in offices to perform their labors.


--MNW