A mortgage was executed in favor of the insured by a woman holding herself out to be the Vice President of the corporation giving the mortgage. The alleged Vice President also executed a personal guaranty. The mortgage was secured by real property that was the only asset of the corporation.
The corporation defaulted on its mortgage payments, and the insured initiated an action for foreclosure naming the corporation and the alleged Vice President as defendants, who both defaulted despite proper service of process. A default judgment of foreclosure and sale was granted to the insured, and a non-party bought the property at the sale.
The corporation, however, moved by order to show cause to vacate the default, claiming that the mortgage was a result of fraudulent activity by the alleged Vice President. The Judge stayed the transfer of the deed pending an investigation into whether the mortgage was given fraudulently.
Adam Leitman Bailey, P.C. strategized an opposition on the basis of facially proper service on the corporation, as the person of suitable age and discretion was a family member of one of the dead family members. Furthermore, to vacate a default, one must show a reasonable excuse for the default and a meritorious defense. Adam Leitman Bailey, P.C. successfully argued that if the deceased shareholders made no plans for the management of the corporation upon their respective deaths, the fault lies with them and is, therefore, not excusable. The corporation, moreover, was on notice of the Vice President’s penchant for fraud since one of the members had sued her for fraud after the date of the mortgage, but before foreclosure, in which fraud action the Vice President had resisted discovery for many years. Notably, no corporate meetings had been held for several years, and Adam Leitman Bailey, P.C. argued that “the shareholders have displayed nothing but apathy for the better part of a decade, yet it expects this Court to believe that it would have been diligent in defending this action under different circumstances.”
Adam Leitman Bailey, P.C. victoriously convinced the Court that service was proper, and the deed transfer was ultimately allowed to proceed to conclusion. The Court held that although “the allegations of fraud and misuse of corporate property by [the Vice President] may well be true, [the] movant has not offered proof of wrong-doing relevant to this foreclosure action other than speculation and hearsay. Whatever fraud may have occurred was against [the Vice President’s] own family members and has not been shown …to be perpetrated by the ‘adverse party’…”