In July 2000, the city of Long Beach, Calif., recorded a “Declaration of Substandard Property” against a four-unit apartment building. The building inspector estimated it would cost $20,000 to bring the property into building code compliance and repair deficiencies in the vacant building.

On Dec. 13, 2000, the property was sold to Aztec Financial at a foreclosure sale. In February 2001, Aztec sold the property to Rahim Pashmaki, who obtained a $247,500 mortgage from Daaz Financial Services, which later assigned the loan to D & M Financial Corp.

Purchase Bob Bruss reports online.

Because the necessary repairs were not made to the building, the city sent several intent-to-demolish notices to new owner Pashmaki, but not to the mortgage lender, D & M Financial.

On Friday, Aug. 10, 2001, the city mailed a “48-Hour Notice of Intent to Demolish” to Pashmaki and a copy to D & M Financial Corp. in Belleville, NJ. On Monday, Aug. 13, 2001, an employee of D & M phoned city building inspector Dale Wiersma who had authority to stop the demolition. But Wiersma refused to do so.

The building was demolished. The city sent Pashmaki a demand for the $11,615.20 in demolition costs.

On July 29, 2003, the property was sold at a foreclosure sale to D & M for only $70,500 (presumably the land value). D & M then sued the city for the $330,000 value of the property before demolition, alleging it suffered inverse condemnation damages.

If you were the judge, would you award the mortgage lender damages for demolishing the building, which was the security for the mortgage?

The judge said yes!

The mortgage lender has legal standing to bring this action for inverse condemnation damages caused by the city’s demolition of the building, which was security for D & M’s mortgage, the judge began. The city violated its own ordinances by failure to properly notify both the property title owner and the mortgage lender more than just 48 hours before the building was torn down, he continued.

In the absence of an emergency, the city had a duty to provide both the property owner and the mortgage lender with the opportunity to correct the substandard conditions as an alternative to demolition, the judge emphasized.

The recorded “Declaration of Substandard Property,” which was recorded by the city under prior building ownership, was insufficient to notify the current owner, Pashmaki, and the current lender, D & M Financial Corp., that demolition will occur, or was even contemplated, the judge noted.

The city could easily have notified the out-of-state lender well in advance of the demolition, rather than waiting until just 48 hours before tearing down the building, which could have been repaired for about $20,000, the judge commented.

Because D & M Financial’s secured mortgage interest in the property was terminated without adequate advance notice, the city is liable to D & M for inverse condemnation damages of $260,000 and the city is ordered to remove its $11,615.20 demolition cost lien from the property title, the judge ruled.

Based on the 2006 California Court of Appeals decision in D & M Financial Corp. v. City of Long Beach, 38 Cal.Rptr.3d 562.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

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