Friday, January 26, 2018

Taxi Medallion Success Story No. 2


As many of the readers of our blog are aware, we’ve developed a practice representing taxi medallion owners who own “underwater” taxi medallions. An underwater taxi medallion is a medallion valued at less than the bank loan for the medallion.  This blog post is about a successful workout which we negotiated for the owner of an underwater taxi medallion.

The facts of the case are as follows: he owns a house with his wife. His other significant asset is the ownership of the medallion for the taxi that he drove each week. He was an extremely hard-working man (a new immigrant to America) and he was driving 60 to 90 hours a week. The taxi medallion loan was approximately $660,000 and we estimated the value of the taxi medallion at $175,000 to $185,000.

Unfortunately, due to the competition from Uber, Via and Lyft, notwithstanding the fact that my client was working 60 to 90 hours a week, he was barely making enough money to feed his family, pay the mortgage on his house and cover his driving expenses each week. Regrettably, he stopped making payments on the taxi medallion bank loan.  The bank that held the loan commenced a foreclosure action against the medallion.

Prior to retaining us to assist him with his taxi medallion issues, he retained another attorney who advised him to file a chapter 13 bankruptcy petition that listed the medallion as having no value. His case was dismissed because of the inaccurately low valuation for the medallion.

The medallion owner was extremely frustrated and was referred to us. We met with him and asked for a list of property he owned (assets), who he owed money to (his liabilities), his after tax monthly budget and the taxi medallion loan documents. The client indicated that he did not want to refile for personal bankruptcy, but he was amenable to a workout with the bank.  We contacted the bank’s counsel, who agreed to stay the state court action, so we could review the file and commence negotiations.

Prior to entering workout negotiation, we do “asset protection planning” for the client. As part of our due diligence, we requested that the client send us a copy of the deed for the house that he owns with his wife. Upon reviewing the deed, we discovered that his real estate attorney had improperly drafted the deed and the house was not held as “husband and wife” with tenancy by the entirety protection for house.

Under New York State law, in the New York metropolitan area, each owner of a house who resides in the house has a homestead exemption of $165,500 (for a married couple $331,000). If the house is owned as tenants by the entirety and one spouse owes money to a creditor, that creditor can obtain a judgment against the taxi medallion owner (debtor) and docket the judgment against the house (which is owned as tenants by the entirety) but cannot foreclose on the house. Effectively, the judgment, which under New York State law is good for 20 years, will prevent the husband and wife from selling or refinancing the house, but the creditor can’t force a sale of the house at a foreclosure or other sale of the house if the non-debtor spouse is alive and living there.

We advised the client to contact his real estate attorney immediately and correct the deed by filing a warranty deed – which they did. Because of the corrective deed being filed with the county clerk, the client’s house was now protected from the reach of the medallion lender bank due to the NYS homestead exemption and tenancy by the entirety protection!

Negotiations commenced, but unfortunately the medallion bank was unreasonable in their demand with respect to a settlement and the taxi needed to be repaired or replaced.  So, the strategy that we agreed upon was to voluntary surrender the medallion to the Taxi and Limousine Commission (TLC) and the meter and the taxi radio and other equipment were returned to their vendor.

The bank was then able to obtain the medallion from the TLC. The voluntary return of the taxi medallion to the TLC and the client’s asset protection planning were key to settling the action. Ultimately, when the “dust settled”, the bank obtained possession of the medallion (its collateral for the loan), the client kept his house, the State court litigation was discontinued and the client no longer had to worry or maintain an asset (the medallion) that had little value.

Jim Shenwick

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