In the case United States v. Queri, the federal government indicted Joseph Queri on charges of mail fraud, wire fraud, securities fraud and money laundering, among other things. The indictment included a forfeiture allegation, seeking to have Queri turn over to the government any property that could be traced to the alleged crimes.
If property directly linked to the crimes was unavailable, the indictment specifies that an apartment complex owned by an LLC in which Queri was an 80 percent member would be forfeited as a substitute.
The United States recorded a lis pendens — a notice of pending action — against the apartment complex, The Bradford, the day after the indictment came down. The lis pendens prevented the LLC from refinancing or renegotiating a mortgage loan secured by The Bradford, causing the mortgage to become past due.
Queri filed a motion for the U.S. District Court for the Northern District of New York to order the U.S. government to remove or cancel the lis pendens, so that the mortgage on the Bradford could be renegotiated.
Queri’s motion was granted, and the court ordered the government to remove the lis pendens.
In argument on the motion, the government acknowledged "that federal law does not expressly authorize the filing of a notice of lis pendens on potential substitute property." Citing United States v. Gotti, 155 F.3d 144, 149 (2d Cir. 1998), the court explained that the law authorizes the government to place a pretrial restraint to ensure that property directly connected to the charged offenses is preserved, but may not place pretrial restraints on substitute property.
In Gotti, the pretrial restraint the government was not allowed to place on substitute property was a restraining order prohibiting the sale of the property; in this case, the restraint the government sought was a lis pendens.
Following the rationale of a similar opinion issued by the Southern District of New York Court, the court ruled that there was virtually no difference between a lis pendens and a restraining order against the sale of the property in this case, because a lis pendens recorded by the U.S. government would in effect prevent the property from being transferred, realistically speaking.
The court rejected the government’s argument that the lis pendens on Queri’s substitute property was authorized by sections 6501 and 1343 of the New York Civil Practice Law and Rules, both of which "provide that such notices may only be filed in any action ‘in which the judgment demanded would affect the title to, or the possession, use or enjoyment of real property …’ " The judgment sought by the indictment against Queri, explained the court, is Queri’s conviction — which affects only the title and possession of property connected to that offense, not substitute property.
Additionally, the government neither alleged nor provided evidence that Queri’s interest in The Bradford was acquired using assets he obtained by committing the crimes with which he was charged, as required for The Bradford to be forfeited as substitute property.
Accordingly, the court ruled, until the government satisfies the elements required to establish its right to forfeit Queri’s substitute property, the government is prohibited from recording a lis pendens against The Bradford. Queri’s motion was granted and the lis pendens was ordered to be lifted.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.
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