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Business duo sues bank and servicer over Franklin foreclosure

A house on Beech Street in Franklin which is being foreclosed on sits unoccupied on Sunday, December 15, 2013. 

(WILL PARSON / Monitor staff)

A house on Beech Street in Franklin which is being foreclosed on sits unoccupied on Sunday, December 15, 2013. (WILL PARSON / Monitor staff)

For James Lintner and Mary Embree, the house at 26 Beech Street in Franklin was always going to be a project. A modest 2,300-square-foot affair, it boasted wood floors, big windows and a stately fireplace. But it needed work, and the business duo planned to purchase the home, spruce it up and flip it for a small profit, Embree’s husband, Doug, said in an interview.

They got much more than they intended.

Nearly three years after signing a purchase and sale agreement on the property, which was pending foreclosure at the time, the pair has yet to obtain ownership and is instead locked in a legal dispute with its owner, the Bank of New York Mellon, and a mortgage servicer. Lintner and Embree say the bank and the servicer, Saxon Mortgage Services, unjustly reneged on the contract last year, soon after the foreclosure was finalized, and then went fishing for new buyers.

“They’re trying to prove a point, that they have the right to back out of an agreement whenever they want,” Doug Embree said. “I don’t think they do.”

The bank and Saxon argue that they were under no obligation to sell the property to Lintner and Embree, and, at any rate, returned the two’s deposit after canceling the pact, thereby freeing them from any legal burden. This summer, their attorneys asked a judge in Concord’s federal court to toss out Lintner and Embree’s lawsuit.

But the case is proceeding, at least for now. In an order issued Dec. 6, Judge Joseph Laplante said the bank and Saxon had yet to prove why they were legally justified to back out of the contract. Moreover, Laplante noted, if the returned deposit indeed qualifies as sufficient reparation, as the defendants have argued, then what serious obligation do they have to carry out their end of similar bargains -- ever?

“In essence, the defendants would have promised nothing more than to convey the property to the plaintiffs if they felt like doing so,” he wrote.

The case is unusual, according to local real estate officials and contract attorneys. Mary Stewart, a Concord-based lawyer specializing in contract disputes and foreclosure issues, said banks rarely sign contracts with potential buyers on pending foreclosures. But the lawsuit, she said, strikes a relevant question: can a bank “back out of a (purchase and sale contract) willy nilly?”

New York Mellon acquired the Franklin property in January 2011 at a foreclosure auction. A month later, it signed an agreement with Lintner and Embree, through Saxon, a de facto middleman. At the time, the deed on the foreclosure had yet to be finalized or recorded with county officials. Once each task was completed, according to the contract, Lintner and Embree would purchase the home for $62,000. They put $5,000 down as a deposit.

The deed was signed in June of that year, but the recording of it -- typically a routine administrative task, Stewart said -- dragged on for months. It was finally recorded in May of last year.

In their suit, Lintner and Embree allege that Saxon never informed them that the recording had taken place. They say Saxon only told them about it two months later, when they inquired about the status of the foreclosure. It was at that time that Saxon told them it was backing out of the sale.

Lintner and Embree continued to push for the deal, but in August 2012 Saxon returned their deposit. The pair refused the money, floating it in an untouchable escrow account. They filed suit last Fall, seeking completion of the deal and damages for breach of contract.

Attorneys for the bank and Saxon declined to comment for this story, but in their motion for dismissal they argued that the only binding piece of their contract with Lintner and Embree was the deposit, which they returned in full. They also said the pair tried once, just before the deed had been finalized in June 2011, to terminate the agreement. Neither Saxon nor the bank agreed to the termination at that time, but their attorneys told Laplante that the proposition alone effectively freed the parties from further legal obligation.

Laplante didn’t buy it. “This argument stumbles out of the gate,” he wrote in his order. “An agreement to cancel a contract ‘is itself a contract’ and, like any contract, requires ‘a meeting of the minds’” -- which, he said, there never appeared to be.

It’s unclear why Saxon and the bank chose to search for another buyer or why it took so long to record the deed. Lintner and Embree’s attorney, David Bownes, did not respond to a request for comment.

Doug Embree, who works as a real estate agent, said Lintner, he and his wife began investing in the property after they signed the 2011 pact, purchasing home insurance and acquiring work estimates from contractors. He said this is not the first time they’ve flipped a house, but it is the first time they’ve run into a contract conflict of this nature.

Stewart said a more common scenario is when a homeowner is in the process of modifying his or her loan and the company servicing the modification is replaced by another, which then fails to recognize agreements made between the homeowner and their original servicer.

Stewart is part of a state collaborative called the Foreclosure Relief Project that helps residents who are underwater on their mortgage, are struggling to enforce loan modifications or are facing possible foreclosure.

In spite of the collaborative’s work and the Franklin case, which is scheduled for trial in June, the foreclosure market has been shrinking of late. Deeds recorded on foreclosed properties in New Hampshire were down 22.8 percent in September compared with a year earlier, the New Hampshire Housing Finance Authority announced last month. Nearly 26 percent fewer deeds were recorded in the state in the first nine months of this year compared with 2012.

For more on the Foreclosure Relief Project, visit www.nhfrp.net.

(Jeremy Blackman can be reached at 369-3319, jblackman@cmonitor.com or on Twitter @JBlackmanCM.)

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