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Fehl v. Paolina

Court of Chancery of Delaware

June 17, 2015

Joan Fehl
v.
Helena Paolina

Submitted: March 6, 2015

Dear Counsel:

When the petitioner's home had been foreclosed upon and was on the brink of sheriff's sale, her long-time friend – the respondent – agreed to buy the home and allow the petitioner to live there while she repaid the respondent and repurchased the home. After she lost her job, the petitioner stopped making payments, but contends the Court should void or rescind the sale of the property to the respondent on the theory that the agreement between the parties was unconscionable. The respondent, in turn, contends she is the rightful owner of the property and that the Court should award damages to her for the period in which the petitioner lived on the property and failed to make any payments. I agree that the respondent is the rightful owner of the property, but disagree that she is entitled to any damages. This is my final report.

FACTUAL BACKGROUND

The petitioner, Joan Fehl ("Ms. Fehl"), purchased a home at 723 Bayview Road, Middletown, Delaware (the "Property") in 1993 for $35, 000.[1] By May 2006, Ms. Fehl was delinquent on her mortgage and a foreclosure proceeding was filed against her. Judgment was entered against Ms. Fehl and the Property for $101, 785.61. The Property was scheduled to be sold at sheriff's sale on September 12, 2006.

Ms. Fehl discussed her financial difficulties with her close friend, the respondent, Helena Paolino ("Mrs. Paolino").[2] Ms. Fehl and Mrs. Paolino met when their children were infants and had been friends for decades. Over the years, Mrs. Paolino provided relatively minor financial assistance to Ms. Fehl when she was in need. In early September 2006, Mrs. Paolino agreed that she and her husband, Carmen Paolino ("Mr. Paolino") would purchase the Property to save it from sheriff's sale and allow Ms. Fehl to continue living there while she made payments to the Paolinos to repurchase the Property.[3]

The agreement between Ms. Fehl and the Paolinos was not reduced to writing, but the parties largely followed its terms for six years. On September 11, 2006, the Paolinos purchased the Property by paying off the mortgage. To make the purchase, the Paolinos initially drew down an existing line of credit, but in October 2006 they obtained a mortgage on the Property.[4] The taxes and insurance on the Property were escrowed, so that the mortgage payments included payments toward those items.[5] The mortgage payments were $969.02 per month.

The parties' course of performance indicates they agreed that Ms. Fehl would pay $1, 000 a month, continue to reside in the Property, and bear the cost of maintaining the Property. Although she made payments between 2006 and 2012, Ms. Fehl never paid $12, 000 a year.[6] In 2012, Ms. Fehl lost her job and was unable to continue making payments. Here the parties' relationship – already strained by their financial dealings – completely deteriorated. After Ms. Fehl ceased making payments in August 2012, the Paolinos bore all the costs associated with the Property, including the mortgage, taxes, and insurance.[7] Mr. Paolino died in January 2013, at which point Mrs. Paolino became the sole owner of the Property. In March 2013, Mrs. Paolino's son, acting on her behalf, notified Ms. Fehl that she was behind in her "rent" and an action would be filed against her if the "rent" was not paid.[8]

A landlord-tenant action was filed against Ms. Fehl in April 2013, but that action was dismissed because the Justice of the Peace Court determined it lacked jurisdiction because the parties' dispute was not a landlord-tenant matter.[9] Ms. Fehl was removed from the Property on July 23, 2013[10] and filed this action on October 29, 2013, seeking an order voiding and rescinding the 2006 transfer of the Property on several independent grounds. The petition contained 8 – at times cryptically described – counts: (1) fraud, (2) negligent misrepresentation, (3) undue influence, (4) lack of consideration, (5) no valid contract/no meeting of the minds, (6) unjust enrichment, (7) unconscionability, and (8) detrimental reliance/promissory estoppel.[11] Mrs. Paolino filed a counterclaim against Ms. Fehl, arguing that Ms. Fehl breached the parties' agreement by failing to make the payments required of her and by causing significant damage to the Property.

This case was tried on December 5, 2014. Several of Ms. Fehl's claims relied on her theory that the value of the Property at the time the Paolinos bought it vastly exceeded the purchase price. For that reason, Ms. Fehl presented at trial the expert testimony of Earl Loomis, a certified real estate appraiser, who issued a report opining that the Property was worth $240, 000 in 2006 when the Paolinos purchased it from Ms. Fehl.[12] Mr. Loomis's estimate of value was based on his assumption that the Property was in "average" condition in 2006. Mr. Loomis abandoned his estimate of value on cross-examination when Mrs. Paolino's counsel presented evidence that on September 6, 2006, New Castle County refused to issue a certificate of occupancy for the Property because of numerous code violations. Mr. Loomis disclaimed his valuation in the face of that evidence:

Q. (Mr. Marconi): Is this the first time that you've ever heard that New Castle County stated that as of September the 6th of 2006 no certificate of occupancy had been issued?
A. (Mr. Loomis): No, I had not heard that.
Q. Had you known either of those two things, would that have had any affect on your ...

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