United States v. Parsons ( 2001 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
UNITED STATES OF AMERICA, 
Plaintiff-Appellee,
v.
THEODORE BRIAN SCHECTER,
Defendant,  No. 00-1707
v.
LEE PARSONS,
Claimant-Appellant.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Catherine C. Blake, District Judge.
(CR-96-362-CCB)
Argued: April 3, 2001
Decided: May 24, 2001
Before NIEMEYER, MICHAEL, and MOTZ, Circuit Judges.
Affirmed by published opinion. Judge Niemeyer wrote the opinion,
in which Judge Michael and Judge Motz joined.
COUNSEL
ARGUED: Steven Richard Freeman, FREEMAN, WOLFE &
GREENBAUM, P.A., Towson, Maryland, for Appellant. Susan Leslie
Strawn, Trial Attorney, Office of Consumer Litigation, Civil Divi-
2 UNITED STATES v. SCHECTER
sion, UNITED STATES DEPARTMENT OF JUSTICE, Washington,
D.C., for Appellee. ON BRIEF: David W. Ogden, Assistant Attorney
General, Lynne A. Battaglia, United States Attorney, Office of Con-
sumer Litigation, Civil Division, UNITED STATES DEPARTMENT
OF JUSTICE, Washington, D.C., for Appellee.
OPINION
NIEMEYER, Circuit Judge:
In connection with the criminal forfeiture to the United States of
real property known as 4 Franklin Valley Circle, Reisterstown, Mary-
land, Lee Parsons filed a petition, asserting a third-party interest in the
property, pursuant to 21 U.S.C. § 853. Parsons contends that the
owner of the forfeited property was in default of a prior-recorded land
installment contract with Parsons, thus giving Parsons a "superior"
interest in the property. He also contends that in any event he reac-
quired the property as a "bona fide purchaser for value" without
knowledge of the forfeiture. Because the United States has fully com-
pensated Parsons for his interest in the property, we affirm the district
court’s summary judgment entered in favor of the United States.
I
On August 8, 1997, a jury convicted Theodore Schecter of multiple
crimes, including money laundering. The jury also returned a special
verdict finding that Schecter used illegally laundered money to pur-
chase 4 Franklin Valley Circle and therefore forfeited the property to
the United States pursuant to 18 U.S.C. § 982(a)(1). The district court
ordered the forfeiture on December 29, 1997, subject to claims of
third persons to protect their interests in the property.
After receiving written notice of the forfeiture from the United
States, Lee Parsons filed a timely petition claiming legal title to the
property, or alternatively, a security interest in the property as seller
of it to Schecter pursuant to a land installment contract dated Novem-
ber 24, 1987, which Schecter later breached. He also claimed that he
reacquired the property subsequent to forfeiture as a bona fide pur-
UNITED STATES v. SCHECTER 3
chaser for value without knowledge of the forfeiture. In response to
Parsons’ petition, both parties filed motions for summary judgment,
and the relevant facts presented by the parties’ papers are uncontro-
verted.
Lee Parsons — along with his wife, whose interest Parsons later
obtained when the two were divorced — acquired 4 Franklin Valley
Circle in 1980. In connection with Parsons’ purchase of the property,
Parsons borrowed a portion of the purchase price and secured the loan
with a mortgage recorded against the property.
On November 24, 1987, Parsons sold the property to Theodore
Schecter for $170,000 by means of a land installment contract, which
the parties recorded in the land records of Baltimore County. The con-
tract required Schecter to make a down payment of $60,000 and an
"additional down payment" of $38,000 by February 5, 1988. It also
required Schecter to pay Parsons 84 monthly installments of $1,013
each. Under the contract, Parsons retained the obligation to pay off
his original mortgage.
By March 1994, Schecter had fulfilled a substantial portion of his
obligation under the land installment contract. He had paid the initial
down payment of $60,000 and 75 of 84 monthly payments. He had
failed, however, to make 9 of the 84 monthly payments, as well as the
"additional down payment" of $38,000. Thus, by March 1994, Schec-
ter had paid Parsons $135,975, but still owed him $47,117.
In March 1994, Schecter left the property and Parsons moved back
into it. According to Parsons, Schecter had run the property down and
was misusing it, violating the provisions of both the land installment
contract and Baltimore County zoning laws. After Parsons moved
back in, he spent over $25,000 to restore the property. He also under-
took to pay the property taxes and insurance.
Unknown to Parsons, before March 1994, while Schecter was in
possession of the property, Schecter committed numerous federal
money laundering and conspiracy offenses, giving rise to his federal
criminal convictions and to the forfeiture of his interest in 4 Franklin
Valley Circle.
4 UNITED STATES v. SCHECTER
After Parsons filed his petition for a hearing to adjudicate his
claimed interest in the property, the parties agreed to, and the court
approved, a sale of the property in September 1998 to a third party
for $200,000. From the proceeds, $59,481.65 was allocated to pay
Parsons’ mortgage and $10,043.50 to pay settlement costs. The
United States holds the remaining $130,474.85 in escrow, pending
resolution of this case.
On cross-motions for summary judgment filed by the parties, the
district court concluded that Parsons had "not met his burden" under
21 U.S.C. § 853(n)(6) of establishing either (1) that he had an interest
in the property that was superior to that of the United States or (2) that
he was a bona fide purchaser for value without cause to believe that
the property had been forfeited. The court therefore ruled that the
United States was entitled to retain the entire amount held by it in
escrow. From the district court’s judgment denying Parsons’ motion
for summary judgment and granting the United States’ motion for
summary judgment, Parsons noticed this appeal.
II
Parsons contends first that because the deed to the property
remained recorded in his name throughout the period during which
Schecter committed his illegal acts, he has continuously retained a
right to the property that was superior to the effect of forfeiture. Par-
sons contends alternatively that he should at least be given a "partial
interest" in the property represented by the amount that Schecter
owed him on the land installment contract plus what he invested in
it to restore it after he reoccupied it. He argues that the district court’s
"all or nothing" approach was inconsistent with the forfeiture statute.
Finally, he contends that when he returned to the property in March
1994, he in essence re-purchased the property through an implied
transaction created by Schecter’s abandonment of it and Parsons’
acceptance of it without requiring any further payments from Schec-
ter. Parsons claims that, through this implied transaction, he became
a "bona fide purchaser for value" who cannot be deprived of his inter-
est even by operation of a prior forfeiture. We address Parsons’ points
in order.
Under the terms of 21 U.S.C. § 853(n)(6), a third-party petitioner
can assert an interest in forfeited property in either of two ways. He
UNITED STATES v. SCHECTER 5
may demonstrate that (1) he "has a legal right, title, or interest in the
property . . . [that] was vested in [him] rather than the [criminal]
defendant or was superior to any right, title, or interest of the defen-
dant at the time of the commission of the acts which gave rise to the
forfeiture of the property under this section," id. § 853(n)(6)(A); or
(2) he "is a bona fide purchaser for value of the right, title, or interest
in the property and was at the time of purchase reasonably without
cause to believe that the property was subject to forfeiture under this
section," id. § 853(n)(6)(B). The term "legal interest in the property"
encompasses "all legally protected rights, claims, titles, or shares in
real or personal property." United States v. Reckmeyer, 836 F.2d 200,
205 (4th Cir. 1987). Thus, a petitioner may succeed in his claim
against forfeited property if he can demonstrate that he had such a
"legal interest" in the property at the time it was forfeited and that this
interest "exist[ed] in the property subject to the forfeiture." Id. A for-
feiture is effective at the time of the commission of the act giving rise
to the forfeiture. See id. at 203; 21 U.S.C. § 853(c).
On Parsons’ first argument that, because the recorded deed to the
property remained in his name throughout the time that Schecter’s
illegal acts were occurring, he retained a "legal interest" in the prop-
erty superior to Schecter’s, Parsons fails to recognize the nature of his
interest in the property under Maryland law. When Parsons sold 4
Franklin Valley Circle to Schecter in 1987 under a recorded land
installment contract, he conveyed the property to Schecter, retaining
only a security interest. Schecter received equitable title to the prop-
erty, see Russ v. Barnes, 329 A.2d 767, 769 (Md. App. 1974), and
Parsons retained legal title only to secure Schecter’s obligations, see
Md. Code, Real Prop. Art. § 10-101(b)(2). Parsons’ security interest
functioned under Maryland law in a manner similar to a lien created
by a deed of trust or a mortgage. See Md. Rule 14-201(b)(5). Thus,
although Parsons retained legal title to the property, which was indeed
superior to any interest forfeited by Schecter, that legal title only pro-
vided Parsons with the right to enforce Schecter’s obligation under
the land installment contract. If Parsons wished to enforce Schecter’s
obligations and obtain an interest in the property greater than this lien
or security interest, Parsons would have had to foreclose the lien pur-
suant to the procedures established in the Maryland Rules. See Md.
Rules 14-201 et seq.
6 UNITED STATES v. SCHECTER
At the same time, when Parsons held this lien to secure repayment
of the outstanding $47,117, he retained an obligation under the terms
of the land installment contract to discharge the mortgage recorded
against the property in 1980. It appears from the land installment con-
tract that the parties intended that Schecter’s monthly payments
would finance Parsons’ payment of the mortgage. The amounts of the
installments under the contract were geared to the monthly amounts
owed by Parsons on his mortgage. Moreover, the contract provides
explicitly that "the Seller, upon receipt from Buyer of the above-
stated payment and the annual charges set forth below, shall directly
apply said payments, on a monthly basis, to the payments due on the
outstanding mortgage between the seller as Mortgagor and the Lomas
and Nettleton Company as Mortgagee." At bottom, however, by the
terms of the contract, payment of Parsons’ mortgage remained Par-
sons’ obligation, and Schecter did not assume any responsibility to
discharge that mortgage.
Accordingly, when Schecter committed the illegal acts for which
he was convicted — at a time when he was occupying 4 Franklin Val-
ley Circle and making payments under the land installment contract
— a forfeiture of his interest in the property became effective. See 21
U.S.C. § 853(c) (providing that forfeiture occurs "upon the commis-
sion of the act giving rise to forfeiture under this section"). This for-
feiture did not, however, adversely affect Parsons’ preexisting
interest, which at the time was a lien to secure payment of the balance
of the amounts due under the land installment contract — i.e.,
$47,117. But at the same time, Parsons was obliged under the contract
to discharge the mortgage placed on the property when he first pur-
chased it in 1980.
When the property was sold in 1998 for $200,000 by agreement of
the parties, both Parsons’ interest in the property and his obligation
to pay the mortgage were recognized. At the settlement, $59,481.65
of the $200,000 proceeds were distributed on behalf of Parsons to dis-
charge the mortgage. And because this payment exceeded Parsons’
interest in the property by more than $12,000, he was paid in full the
sums to which he was entitled. He therefore cannot now succeed in
his claim to more, and the district court’s order denying him any fur-
ther distribution from the proceeds in escrow was correct.
UNITED STATES v. SCHECTER 7
Parsons argues that he should nevertheless recover the amounts he
invested in the property to restore it after he reoccupied the property
in March 1994. At that time, however, Parsons was at most a volun-
teer with respect to the property which had last belonged to Schecter
and had been forfeited to the United States. His payment of expenses
to restore the property could not become a lien against the property
unless he reduced his reimbursement claim to judgment, which would
operate as a lien against the property, see Md. Rule 2-621, or unless
he obtained a lien by reason of some statute such as the mechanics’
lien law, see Md. Code, Real Prop. Art. § 9-101 et seq.
Parsons relies on Reckmeyer for the proposition that any claim
against Schecter’s estate can be recovered against Schecter’s forfeited
property. But in Reckmeyer, the claimants were only able to recover
because the defendant’s "entire estate ha[d] been forfeited," which
"[i]n practical terms" meant that "petitioners’ interests necessarily
l[ay] within that estate." 836 F.2d at 206. The Reckmeyer court recog-
nized that in a case like this one, involving forfeiture of only a spe-
cific item of defendant’s property, claimants would often find
themselves unable to prevail because their interests would not lie in
the specific property subject to the forfeiture order:
Section 853 requires more than a showing of a legal interest
in the debtor’s property. It requires that the interest exist in
the property subject to forfeiture. This second hurdle may
well prove fatal to the claims of a number of general credi-
tors. Although general creditors can claim an interest in their
debtor’s estates, they cannot claim an interest in any particu-
lar asset that makes up that estate.
Id. at 205-06 (emphasis added).
Parsons’ second argument that the district court should not have
ruled in a manner that effected an "all or nothing" award to Parsons
is disposed of by our earlier discussion. Again, the district court did
not adopt an "all or nothing" approach. Rather, it affirmed the settle-
ment of the sale to a third party, giving Parsons credit for over
$59,000 to discharge his mortgage, which was greater than his
$47,117 interest in the property.
8 UNITED STATES v. SCHECTER
Finally, Parsons argues that when he reentered the property in
March 1994, he became a bona fide purchaser for value. But he is
unable to direct us to any express written agreement that conveyed to
him an interest in real property, as required under Maryland law. See
Md. Code, Real. Prop. Art. § 5-103. Absent an agreement, Parsons,
as a seller under a land installment contract, could repossess the prop-
erty only pursuant to a foreclosure proceeding. See Md. Rule 14-
201(a) (providing that "[t]he procedure set forth in these Rules shall
provide the sole remedy for the vendor for repossession of property
sold under a land installment contract executed pursuant to Code,
Real Property Article, Title 10, subtitle 1 or its statutory predeces-
sor"). Because Parsons has never produced any purchase contract
between him and Schecter, he cannot claim that he was a bona fide
purchaser for value when he reentered the property in March 1994.
In sum, because Parsons’ interest in the forfeited property was rec-
ognized in the settlement that yielded the proceeds now held by the
United States in escrow, he is not entitled to any further payments.
Accordingly, the judgment of the district court is
AFFIRMED.