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09/09/94 HOMECORP v. SECOR BANK

September 9, 1994

HOMECORP, A CORPORATION, ET AL.
v.
SECOR BANK, A FEDERAL SAVINGS BANK



Appeal from Jefferson Circuit Court. (CV-90-2154). Marvin Cherner, Trial Judge.

Rehearing Denied April 14, 1995. Released for Publication August 25, 1995.

Maddox, Houston, Steagall, Kennedy, and Ingram, JJ., concur.

The opinion of the court was delivered by: Maddox

MADDOX, JUSTICE.

This case involves a dispute between a mortgagor and a mortgagee over entitlement to (1) pre-foreclosure and post-foreclosure rents, issues, and profits from an apartment complex; (2) security deposits paid by tenants who continued in possession after foreclosure; and (3) ad valorem taxes that had been escrowed but not paid.

One of the principal issues presented is the legal effect of a "nonrecourse" provision in the mortgage and loan agreements. The trial court interpreted the provisions of the agreement in favor of the mortgagee and entered a summary judgment against the mortgagor and its property manager.

Secor Bank (formerly Alabama Federal Savings and Loan Association) is a federally chartered thrift institution and successor party to a December 23, 1985, loan agreement whereby a $3,000,000 loan was made to Sandpiper Associates, Ltd. ("Sandpiper"), to purchase the Sandpiper Apartments. In November 1988, Sandpiper designated HomeCorp, a corporation, as its agent to manage the Sandpiper Apartments. Under the management agreement, HomeCorp assumed, among other responsibilities, the obligations to collect the rents and to pay the operating expenses, the monthly mortgage payments, and the real estate taxes.

Under the terms of the promissory note, Sandpiper was required to pay a monthly installment of $24,496 to Secor. The monthly payments were made on a regular basis until July 1988. Beginning with the July 1, 1988, payment, HomeCorp paid only an amount equal to the net operating cash flow generated by the apartments for the previous month. In November 1988, it made no payment.

By letter dated July 5, 1989, Secor notified both HomeCorp and Sandpiper that Sandpiper was in default in making the payments due under the mortgage note. The letter referred to a provision in the mortgage providing that the rents could be intercepted in the event of default and applied to reduce the indebtedness. The same letter stated:

"This is formal notice to you to withhold payment of any rents to any party other than Secor Bank until you have been advised further."

On July 11, 1989, Secor's counsel informed Sandpiper that Secor was taking over the rentals of Sandpiper Apartments effective July 1, 1989, and that it would be responsible for operating expenses beginning July 1, 1989, upon receiving the rents beginning that date.

On July 14, 1989, Secor notified Sandpiper again of monetary defaults in the payments required of Sandpiper under the promissory note secured by the mortgage against the Sandpiper Apartments. This letter referred to the requirement that all monetary defaults be cured within 10 days and advised Sandpiper that Secor intended to declare all indebtedness payable under the promissory note due and payable and to take the necessary steps to protect its interest in the Sandpiper Apartments.

The next letter relevant to the issues in this case is the July 19, 1989, letter from Secor to HomeCorp again notifying HomeCorp to withhold payment of any rents to any party other than Secor except that the letter authorized HomeCorp to pay customary and necessary expenses incurred in the management of the apartments from rents withheld from July 1 forward.

HomeCorp continued collecting rents from the tenants of the Sandpiper Apartments from July 1, 1989, to September 7, 1989, that last date being the date when the foreclosure sale under Secor's mortgage took place. HomeCorp also continued paying current operating expenses from those funds. On November 1, 1989, Secor requested from HomeCorp "any cash funds ... [including] operating and escrow deposits" that it held "in the name of Sandpiper Apartments." Sandpiper subsequently refused Secor's demand, contending that Secor was not legally entitled to the funds. Based on Sandpiper's directions, HomeCorp also refused, and it turned over $24,500 to Sandpiper's counsel in December 1989; that was all of the funds held by HomeCorp that had not already been paid for expenses or otherwise distributed. Secor sued, seeking the net rents, issues, and profits from the Sandpiper Apartments, the security deposits collected from the tenants of the Sandpiper Apartments, and reimbursement of the ad valorem taxes that Secor had to pay that were due for three years ending September 30, 1988, 1989, and 1990, plus interest and penalties, in order to redeem the Sandpiper Apartments from a tax sale to the State of Alabama.

Sandpiper counterclaimed, alleging that Secor had improperly interfered with Sandpiper's contractual relationship with HomeCorp and that Secor had improperly induced Sandpiper to continue holding the property while Secor pursued a sale to a potential buyer; that sale ultimately was not consummated.

On November 17, 1992, the trial court entered a summary judgment in favor of Secor with respect to its claims against HomeCorp and Sandpiper. That summary judgment provided:

"(1) The assignment of the rents by Sandpiper to Secor became absolute upon the occurrence of an uncured event of ...


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