Raymond was struggling for years to make his steep monthly home mortgage payments, only to recently lose his business and fall drastically behind. The bank ultimately foreclosed on his property and put his home up for sale to the highest bidder. Elliott, an affluent local businessman, heard of the foreclosure and swooped in, purchasing the property from the bank at approximately 50 percent less than full market rate. In the interim, Raymond quickly reorganized and managed to collect money to negotiate a deal with the bank, only to be disheartened when he discovered that his home was already sold. Raymond heard that Elliott purchased his home and approached him with the funds he collected, seeking to retake possession of his property. Elliott turned Raymond’s offer down, since the value of his newly acquired property was far more than what Raymond offered. In Bet Din, Raymond claimed that his offer was more than what Elliott paid the bank, and that it is simply unjust of Elliott to purchase his property right underneath his nose. Elliott responded that had he not made the purchase immediately, the property would have been taken by another buyer.
Is Raymond entitled to repossess his property from Elliott? How should the Bet Din rule and why?
According to the ruling of the Shulhan Aruch, a creditor that forcibly collects property from a debtor who defaults on his payment, is required to return the property to the debtor when he later pays back his debt. Although the underlying reasoning for this law is only based on a moral obligation to act in a kind and just manner and return collected property, it is nevertheless recorded in the Shulhan Aruch as Jewish law.
Some contemporary halachic authorities apply the above ruling to bank foreclosures of today. According to this view, one who purchases a foreclosed property from a bank, is required to return the property to the homeowner upon reimbursement of the funds spent to purchase the property. Since the homeowner lost his property to the bank on account of an outstanding debt, the ultimate buyer of the home is required to act morally and justly and upon reimbursement, is required to return the home to its original owner.
Furthermore, according to this view, seemingly, one is to refrain from purchasing a property from a bank foreclosure especially when the owner is seeking to repossess the property. Since the original owner is still linked to the property even after it was collected by the bank, he is entitled to the first right of refusal when seeking to repossess his property.
Nevertheless, most contemporary halachic authorities differentiate between the ruling of the Shulhan Aruch and modern-day bank foreclosures.
This latter view explains that since at the time the bank extended the loan to the borrower, he explicitly agreed to impose a collectable lien on his property in the event of default, the borrower effectively waived his right to redeem his property in the future. The borrower agreed to take a loan from the bank with a clear stipulation that in case of default the bank has the right to sell his property without hesitation. This is opposed to the ruling of the Shulhan Aruch, in which the borrower is extended the right to redeem his property since no such stipulation was made from the onset. In short, only in the instance in which a property is forcibly collected by a creditor does the borrower maintain the right of redemption. In the instance of a bank foreclosure in which the homeowner willingly agreed to pay his debt with his property in case of default, no such consideration is extended.
A further distinction between modern-day foreclosures and the above ruling of the Shulhan Aruch is an obvious one. The Shulhan Aruch required of the creditor to allow the borrower an opportunity to redeem his property. Since the creditor extended cash to the borrower, he is required to accept a cash payment in redemption of the collected property. If, however, the creditor already sold the property to a third party, no such requirement is imposed on an outside third party. A third party that purchases property extended his cash to buy real estate and is not required to receive cash in return to nullify the sale.
In short, in a case in which the bank sells the property to a third party, the buyer is not required to allow the original owner to nullify his purchase.
According to this latter view, not only is the buyer not required to allow the original owner to redeem his property, but he is also entitled to bid against the original owner for its purchase. Since the bank is unwilling to limit the sale to only the original owner, all parties interested in purchasing the property are permitted to bid for its purchase.
VERDICT: No, It’s Mine
Our Bet Din ruled in favor of Elliott, the buyer, by rejecting Raymond’s claim that he was entitled to repossess his property. As explained in Torah law, since Raymond originally signed on documentation that enabled the bank to sell his property if he defaults on payment, even by rule of the Shulhan Aruch his claim to later repossess his property is null and void. Furthermore, the ruling of the Shulhan Aruch is applicable only to a lender that collects property as payment for his debt. Since the lender extended money to the borrower, he is required to accept money in redemption of the property collected. In our case at hand, Elliott purchased real estate with the money he paid to the bank, he is thus not required to receive his money in return to nullify his purchase. In short, Elliott is viewed as a third party unaffiliated with the loan and any of the laws that apply to Raymond the borrower.
Nevertheless, our Bet Din requested of Elliott to consider selling the property to Raymond if he can pay close to the market rate. Unfortunately, Raymond was unable to come up with the extra funds needed and walked away from the property.
In Loving Memory of Vera Bat Carol, A”H
YOU BE THE JUDGE
Bobby rented a four-bedroom summer home, with a pool, on the Jersey Shore, at a cost of $55,000. Four families resided at the summer home, with a total of twenty-seven people. The three families other than Bobby’s included his son’s family, his son-in-law’s family, and his nephew’s family. Alan, the landlord, was informed by the neighbor across the street of the number of people residing in his home. Alan sent a friend to converse with Bobby’s son-in-law and he discovered that the three extra families were each contributing $13,750 towards the $55,000 cost of rent. Thereafter, Alan contacted our Bet Din claiming that by contract Bobby was restricted from subletting all or part of his home. Alan is therefore claiming that all money collected from the three tenants is to be forwarded to him in addition to Bobby’s $55,000 contractual obligation. Bobby rejected Alan’s claim and responded that on the Jersey Shore it is customary to bring other family members to share the rented home. Bobby continued that the premium price of $55,000 clearly includes as many residents as possible who could fit in the property. Alan countered that Bobby is abusive and irrational in his one-sided position, since there are inflatable beds all over the living room, dining room, and hallways of his home.
Is Alan entitled to his monetary claim? Does Bobby have to pay anything more for the additional families? Or, is Bobby entitled to bring in three other families into a four bedroom house? How should the Bet Din rule and why?