Is This Too Good To Be True?

[Dst1]

Yes, he would actually have to do

True, it wasn't an active corporation at the time the note was made. It had been administratively dissolved because he hadn't paid his fees. But the reinstatement operates retroactively. It would be like it had never been dissolved.

You know the case law in your state better than I but I find this shocking. While it may be true that reinstatement operates retroactively I don't see why it would apply retroactively.

In other words, just because it operates administratively as if it always existed it remains a factual reality that at the time the note was signed it was not in existence. I don't see how a mere administrative change can come along and change the facts as you propose.

Edit: another way to attack this is contract law. Typically, a contract is governed by the applicable laws at the time the contract was signed. At the time the contacts was signed there was a five year period to reinstate the corporation. That period had passed in your client's case. So even if the law was changed and he reinstates the corporation now it has no impact of the contract that your client signed.

[tigergem]

How much time and effort might actually be wasted if you stand a chance of saving the lady's home on the basis of errors, lack of knowledge or non response on the part of the other party? Especially a party that let his business lapse for 10 years. You would be going in with eyes wide open, so you know there is a chance you might lose the motion and can strategize around that knowledge. But it's like the lottery. You have to play to win.

[MSbklawyer]

But it was dissolved 10 years ago. And he hasn't yet been troubled enough to go do the $150 stamp thing. And do you really think this is the first BK on any note of his? I think the odds are in your favor.

I doubt that he has ever been in danger of losing a loan repayment because of his corporation's disolution. There's no way he would stand by and lose 20 grand when all he has to do is reinstate his corporation. It just seems to me that filing the motion would be a waste of time and effort.

This really bums me out. I thought I had him.

[tigergem]

But it was dissolved 10 years ago. And he hasn't yet been troubled enough to go do the $150 stamp thing. And do you really think this is the first BK on any note of his? I think the odds are in your favor.

[MSbklawyer]

But what if he doesn't? Doesn't your argument hinge on him actually doing that? And would he go to that trouble for $20k? And... it still wasn't an active corporation at the time of the note, right? Shouldn't that have some bearing on the ability to enter a contract? It is my understanding that an administratively dissolved business is limited to conducting business to conclude it's affairs, not to generating new business. Yes/no?

Yes, he would actually have to do it, but I know he's not going to let $20K go down the tube when all it would cost to stop it is $150 and a stamp to get his corporation reinstated.

True, it wasn't an active corporation at the time the note was made. It had been administratively dissolved because he hadn't paid his fees. But the reinstatement operates retroactively. It would be like it had never been dissolved.

[tigergem]

Yes, it was too good to be true. On further research I found that the legislature changed to law last session to provide that an administratively dissolved corporation can retroactively reinstate itself at any time. It used to be a 5 year time limit, and that has passed. It would be pointless to file this motion -- they guy will just retroactively reinstate his corporation. Dang.

But what if he doesn't? Doesn't your argument hinge on him actually doing that? And would he go to that trouble for $20k? And... it still wasn't an active corporation at the time of the note, right? Shouldn't that have some bearing on the ability to enter a contract? It is my understanding that an administratively dissolved business is limited to conducting business to conclude it's affairs, not to generating new business. Yes/no?

[MSbklawyer]

Yes, it was too good to be true. On further research I found that the legislature changed to law last session to provide that an administratively dissolved corporation can retroactively reinstate itself at any time. It used to be a 5 year time limit, and that has passed. It would be pointless to file this motion -- they guy will just retroactively reinstate his corporation. Dang.

[tigergem]

Books! With citations!

I found this book that reads like an encyclopedia of statutes and case law citations on just about every aspect of corporate law. I didn't see this topic specifically in the preview, but I am willing to bet it is covered in this book.

Macey on corporation laws: Model business corporation act ..., Volume 1
By Jonathan R. Macey and there is a pretty extensive (50 pages or so...) preview of its contents on google books.

http://books.google.com/books?id=3zrt63k2vFsC&printsec=frontcover&source=gbs_navlinks_s#v=onepage&q=&f=false

It seems to be a little dated, but appears to possibly have annual supplements.

And some similar titles... the top 4 or 5 look like they might (maybe) be useful references.

http://books.google.com/books?q=related:ISBN1567063470&id=3zrt63k2vFsC&source=gbs_similarbooks_s&cad=1

The Macey book actually looks to me to be a little more thorough than a book with a similar title by the American Bar Association, Committee on Corporate Laws.

I hope this is helpful.

[dscurlock]

$20k @ 30% on a 2nd mortg?? Thats loan sharking...

her payment most likely would have been high
if not higher then her 1st mortg...

[tigergem]

Something I have run into more than once, trying to research this type of matter is the court stating that it has no jurisdiction over an entity that does not exist.

[Dst1]

There was a good one that came out of Nevada recently (Joshua & Stephanie Mitchell http://www.nvb.uscourts.gov/Opinions...%20Opinion.pdf )

Good luck and keep us updated.
William

I thought this case was also worthwhile for the reiteration of the Federal Rules of Evidence that a "bald assertion that one has reviewed the file" is not enough. This seems to come up a lot when someone is sued by a JDB and the debtors response is to challenge their basis for believing they are debtor.

[BKDefender]

I agree that objecting based on a lack of standing (i.e. not the 'party in interest'). Look for some recent MERS cases where they were found not to be parties in interest and there's got to be a lot of case law cited there to kick start your research.
There was a good one that came out of Nevada recently (Joshua & Stephanie Mitchell http://www.nvb.uscourts.gov/Opinions...%20Opinion.pdf )

Good luck and keep us updated.
William

[justbroke]

MSbklawyer, I would just attack standing.

(I'm actually working on this myself, but for an existing lender that is now defunct, but that filed the original Mortgage with MERS, but kept the Note. But then sold the Note at least 2 times, but trying to foreclose as the 3rd noteholder, but no assignments or traceability as to their standing to foreclose.)

[MSbklawyer]

Just because the company doesn't exist in Mississippi doesn't meant it doesn't exist in another state somewhere. The complaint should include the address of the attorney who filed it. Since it is a corporation, it has to be represented by an attorney and cannot be represented by a shareholder if it's not a publicly traded company. At least that's the rules in Nevada, and I would hope most states too.

Thanks for your input William. What they have done is file a proof of claim in her bankruptcy listing the nonexistent corporation as a secured creditor. Mississippi is a non-judicial state for foreclosures, so they haven't had to file a complaint.

I seriously doubt he's organized in another state. I checked the states bordering Mississippi and it's not organized in any of those states. The owner is a small time, local, loan shark wannabe who runs a couple of payday loan places and a couple of finance companies.

Also, contact Mississippi's Division of Banking (if that's what it is called?) to ask them whether that entity was licensed to make real estate loans in your state at the time the loan was made. See if they know of any particular opinion issued by MS's Attorney General's office regarding validity of loans by unlicensed entities.

Done that, and he's NOT licensed. But the law provides that this does not affect the obligation of the borrower

In Nevada, if they weren't licensed, then they can't have a valid enforceable contract, nor a valid secured lien and would have to sue your client in state court first for unjust enrichment, breach of oral contract, etc - but it would be an unsecured loan dischargeable in bankruptcy. Hopefully it's the same in MS.

--William

I've been looking all afternoon and I cannot find an on-point case in Mississippi. There are several in Texas though that say that an administratively dissolved corporation is a nullity; a non-entity; that for legal purposes it is just like a dead person; that cannot enter into any contract and cannot enforce any contract it attempts to enter into.

My thinking is that I should object to the proof of claim in the bankruptcy court on the basis of the non-existence of the creditor corporation. If that is successful, the best he would have is a general unsecured claim.

GOD I would love to have the court treat this as unsecured, because she's not paying unsecureds anything.

[BKDefender]

Just because the company doesn't exist in Mississippi doesn't meant it doesn't exist in another state somewhere. The complaint should include the address of the attorney who filed it. Since it is a corporation, it has to be represented by an attorney and cannot be represented by a shareholder if it's not a publicly traded company. At least that's the rules in Nevada, and I would hope most states too.

Also, contact Mississippi's Division of Banking (if that's what it is called?) to ask them whether that entity was licensed to make real estate loans in your state at the time the loan was made. See if they know of any particular opinion issued by MS's Attorney General's office regarding validity of loans by unlicensed entities.

In Nevada, if they weren't licensed, then they can't have a valid enforceable contract, nor a valid secured lien and would have to sue your client in state court first for unjust enrichment, breach of oral contract, etc - but it would be an unsecured loan dischargeable in bankruptcy. Hopefully it's the same in MS.

--William