U.S. Court of Appeals for the Second Circuit Finds Standing for Homeowners in Suit Over Bank Delays in Recording a Mortgage Satisfaction
The U.S. Court of Appeals for the Second Circuit (the “Court”) heard an appeal from an order of the United States District Court for the Western District of New York denying the Bank of New York Mellon Trust Company’s (the “Bank”) motion for judgment on the pleadings.
Plaintiffs sought Article III standing to seek statutory damages from the Bank for its violations of New York’s mortgage satisfaction recording statutes RPL § 275 (certificate of discharge of mortgage required) and RPAPL § 1921 (discharge of mortgage). These statutes require mortgage lenders to record satisfactions of mortgages within thirty days of repayment. A failure to timely record the satisfaction renders the lender liable to the mortgagor for statutory damages (up to a $1,500 penalty against banks that report mortgage discharges more than 60 days after the loan is satisfied). Here, the Bank did not record the satisfaction until almost eleven months after full payment was received.
The Court found that the Plaintiff’s complaint supported a plausible inference that the Bank’s violation of the statutes both (1) harmed their financial reputations during the nearly ten-month period of the Bank’s noncompliance with the thirty-day filing deadline, and, relatedly, (2) created a material risk of particularized harm to them during that period by impairing their credit and limiting their borrowing capacity. The Court explained that these risks and interests, in addition to that of clouded title, are similar to those protected by traditional actions at law. The Court continued that these interests are protected by the state’s statutory timely filing requirements and its imposition of a penalty payment obligation on the noncompliant bank to the wronged borrower. Determining that the violations are most appropriately viewed as substantive wrongs to the borrower, the Court found that simple noncompliance by the Bank supported the Plaintiff’s claim of injury in fact. The ruling also cited federal courts’ lengthy history of adjudicating state-created rights and a lack of separation-of-power concerns in reaching its conclusion.
In deciding whether the Plaintiffs have Article III standing to sue the Bank for the statutory damages, the Court found (in a case of first impression) that the invasion of interests protected by state law can support Article III standing.
The case, filed in the Western District of New York, is captioned Maddox v. Bank of New York Mellon Trust Co., No. 19-1774 (2d Cir. 2021).
The following updates are from Current Developments Special Edition dated April 12, 2021, issued by First American Title Insurance Company:
TAX LAW SECTION 1404
New York State’s Real Estate Transfer Tax (“RETT”) and New York City’s Real Property Transfer Tax (“RPTT”) are payable by the grantor unless when the grantor is exempt (Tax Law §§1404 and 1406; New York City Admin. Code §§ 11-2104 and 11-2106). The grantee is jointly and severally liable for payment of the tax, and for any deficiency, including interest and penalties, if these taxes are not paid in full.
When a grantee is required by a contract of sale to pay the RETT and/or the RPTT, the consideration for each of those taxes is increased by the aggregate of the amounts of tax paid by the grantee, and transfer taxes are payable on this gross-up of consideration (20 NYCRR §575.4(b); 19 RCNY §23.02). The amount of tax paid by the grantee, as initially computed, has also been added to consideration for computing the Additional Tax under Tax Law §1402-a, generally known as the Mansion Tax, which is payable by the grantee.
Section 2 of Part O amends subdivision (a) of Tax Law §1404 (“Liability for tax”) to eliminate, effective July 1, 2021, for the conveyance of a one-to-four family house and an individual residential condominium unit, or interests therein, the requirement that consideration when computing the RETT and the Mansion Tax be increased when the RETT is paid by the grantee.
“In the case of a conveyance of residential real property as defined in subdivision (a) of section 1402-a [“Additional tax”] of this article [31; “Real estate transfer tax”], if the tax imposed by this article is paid by the grantee pursuant to a contract between the grantor and the grantee, the amount of such tax shall be excluded from the calculation of consideration subject to tax under this article.”
Under amended Tax Law §1404 (a), the grantee may only be required to pay the RETT when so “provided in a contract between grantor or grantee or as otherwise provided in this section.” Tax Law §1404 provides that the grantee has the duty to pay the RETT if the grantor is exempt.
Amended Tax Law §1404 (a) also affords a grantee who has paid the RETT for the grantor with “a cause of action against the grantor for recovery of [the] payment of such tax, interest and penalties by the grantee.”
The amendment to Tax Law §1404 “shall apply to conveyances occurring on and after [July 1, 2021]…other than conveyances that are made pursuant to binding written contracts entered into on or before April 1, 2021, provided that the date of execution of such contract is confirmed by independent evidence, such as the recording of the contract, payment of a deposit or other facts and circumstances as determined by the commissioner of taxation and finance.”
The legislation does not address the increase in consideration for the RETT when the grantee pays the RPTT for the grantor or the gross up of consideration for the RPTT when the RETT and/or the RPTT payable by the grantor is paid by the grantee.
TAX LAW SECTION 1409
Under Tax Law Section 1409(a), as amended by Chapter 297 of the Laws of 2019, “[w]hen the grantor or grantee for a deed to residential property containing one to four-family dwelling units is a limited liability company, the joint [transfer tax return, the TP-584]…is [to be] accompanied by a document which identifies the names and business addresses of all member, managers, and any other authorized persons, if any, of such limited liability company and the names and business addresses or, if none, the business addresses of all shareholders, directors, members, managers or authorized persons, if any, of such limited liability company…If any such member, manager or authorized person of the limited liability company is itself a limited liability company or other business entity, the names and addresses of the shareholders, directors, officers, members, managers and partners of the limited liability company or other business entity shall also be disclosed until full disclosure of ultimate ownership by natural persons is achieved.”
Section 3 of Part O further amends Tax Law Section 1409(a) to provide that this disclosure requirement does not apply to “a publicly traded entity, a REIT, a UPREIT, or a mutual fund…” which is a member, manager or authorized person of a limited liability company.
This amendment is effective “immediately.”
The legislation is posted at A3009c.pdf (nyassembly.gov).
The following updates are from Current Developments dated April 26, 2021, issued by First American Title Insurance Company:
The Plaintiff claimed that the Defendant and she agreed that the Defendant would take title to property, and the Plaintiff would pay the down payment for the purchase, occupy the property and pay all carrying costs. The Plaintiff further alleged that it was agreed that the Defendant would convey the property to the Plaintiff on her demand. The Plaintiff sought the imposition of a constructive trust.
The Appellate Division, Second Department, affirmed the Supreme Court, Queens County, grant of the Defendant’s motion for summary judgment dismissing the complaint. There must be a fiduciary or confidential relationship to establish a constructive trust. According to the Appellate Division, “the plaintiff adduced evidence demonstrating that her relationship with the defendant was merely a friendship.” Further, “[t]he plaintiff’s evidence concerning the superior experience and skill of the defendant’s husband in real estate and financial matters was insufficient to raise a triable issue of fact as to whether the plaintiff relied on that expertise with respect to the acquisition of the subject property.” Bekas v. Valiotis, 2021 NY Slip Op 08161, decided February 24, 2021, is posted at https://www.nycourts.gov/reporter/3dseries/2021/2021_08161.htm.
The Plaintiff, who acquired landlocked property at a tax sale, brought an action seeking a judgment declaring that his property had the benefit of an easement by necessity over a private road within the Defendant’s adjoining land, which road leads to a public street. The Appellate Division, Second Department, remitted the case to the Supreme Court, Orange County, for entry of a judgment declaring that the Plaintiff did not have an easement by necessity over the Defendant’s property. According to the Appellate Division,
“‘[t[he party asserting that it has an easement by necessity bears the burden of establishing by clear and convincing evidence that there was a unity and subsequent separation of title, and that at the time of severance, an easement over the servient estate was absolutely necessary to obtain access to the party’s land…Here, [the Defendant] demonstrated her entitlement to judgment as a matter of law by demonstrating, prima facie, that the [Plaintiff’s] Property did not have unity of title with the [Defendant’s] Property.”
Creagan v. Stein, 2021 NY Slip Op 08164, decided February 24, 2021, is posted at https://www.nycourts.gov/reporter/3dseries/2021/2021_08164.htm.
The Supreme Court, Richmond County, held that a perpetual easement granted over part of the Defendant’s property was invalid because it was not plottable. The Appellate Division, Second Department, modified the lower court’s order, remitting the matter to the Supreme Court for entry of a judgment declaring that the easement was valid. According to the Appellate Division,
“[t]he fact that easement grant does not give the precise location of the easement is not fatal to a finding that the an easement was intended [citation omitted]…The evidence presented at the hearing …demonstrated that the grantor intended to grant a perpetual easement…containing improvements of a stucco wall and a covered wooden deck. The easement was specifically referenced on a survey dated July 2, 2002 [before the easement was granted in 2003]. Accordingly, the court should have determined that
the subject easement was valid.”
Marino v. Mazzuoccola, 2021 NY Slip Op 08176, decided February 24, 2001, is posted at https://www.nycourts.gov/reporter/3dseries/2021/2021_08176.htm.
Equitable Mortgages/Tenants by the Entirety
Notwithstanding that the property in question was owned by a husband and his wife as tenants by the entirety, the mortgage being foreclosed and the note it secured were executed only by the husband. The Supreme Court, Kings County, held that the Plaintiff held an equitable mortgage on the wife’s interest in the property and granted judgment of foreclosure and sale. The Appellate Division, Second Department, reversed the lower court’s ruling.
According to the Appellate Division,
“[T]he plaintiff failed to demonstrate that Wells Fargo intended to obtain a mortgage on [the wife’s] interest in the property. The mortgage loan application submitted by the plaintiff was for [the husband] only, and [his wife] is not mentioned therein. The note and mortgage, similarly, were executed by [the husband] alone, and [his wife] is not mentioned therein. Under the circumstances, the plaintiff failed to demonstrate, prima facie, that the parties unequivocally intended to create a mortgage on [the wife’s] interest in the subject property [citations omitted].”
U.S. Bank N.A. v. Saff, 2021 NY Slip Op 00590, decided February 3, 2021, is posted at
Lien Law/Building Loans
A note, secured by a mortgage on the borrower’s property in Oswego County, provided for a line of credit to be used, in part, to fund the completion of a residential housing development being constructed in a different county. No building loan agreement was filed. In an action to foreclose the mortgage, the holder of a mechanic’s lien filed after the mortgage was recorded asserted, in a third-party action, that the lender was liable for the
diversion of trust funds. The Supreme Court, Oswego County, granted the mortgagee’s motion for an Order of reference and for summary judgment. The Court also denied the mechanic lienor’s cross-motion seeking a finding that its lien had priority over the mortgage and dismissed the cause of action alleging the diversion of trust assets.
The Appellate Division, Third Department, affirmed the lower court’s rulings. According to the Appellate Division, the foreclosing mortgagee
“established that the mortgage did not constitute a building loan mortgage because it was not ‘made pursuant to a building loan contract’ ([Lien Law} Section 2 ).The note provided that the line of credit would be used to fund the completion of construction work on a residential housing development on real property in a different county, to pay [the borrower’s] pre existing debt with the Bank, and for other purposes that [the borrower] deemed appropriate, but there was no ‘express promise’ by [the borrower] to make an improvement on the Oswego County property [citations omitted].”
Generations Bank v. Donnelly, 2021 NY Slip Op 00719, decided February 5, 2021, is posted at https://www.nycourts.gov/reporter/3dseries/2021/2021_00719.htm.
Lien Law/Itemized Statements
Under Lien Law Section 38 (“Itemized statement may be required of lienor”), “[a] lienor who has filed a notice of lien shall, on demand in writing, deliver to the owner or contractor making such demand a statement in writing which shall set forth the items of labor and/or material and the value thereof which make up the amount for which he claims a lien, and which shall also set forth the terms of the contract under which such items were furnished…”
In a Lien Law special proceeding, the Supreme Court, Kings County, ordered the Respondent, who had filed a mechanic’s lien, to serve a revised itemized statement identifying the terms of the contract under which each item of materials and labor was furnished. Although there would be discovery in the plenary action commenced in Suffolk County to foreclose on the lien, “Petitioner was within its rights to commence a separate proceeding in support of its demand for a complete Verified Statement to which it is entitled under the Lien Law.” Level 5 Carpentry Corp. v. 535 Construction LLC, 2021 NY Slip Op 30732, decided March 9, 2021, is posted at https://www.nycourts.gov/reporter/pdfs/2021/2021_30732.pdf.
In Danya Cebus Construction, LLC v. Bella Management Group, Inc., 2020 NY Slip Op 34098, the Supreme Court, Kings County, ordered the County Clerk to vacate and cancel of record a mechanic’s lien due to the failure of the lienor to provide an itemized verified statement as required by Section 38, as had been ordered by the Court. The case, decided December 8, 2020, is posted at https://www.nycourts.gov/reporter/pdfs/2020/2020_34098.pdf.
Lien Law/Trust Funds
The Plaintiff was engaged by the ground lessee (“Developer”) of the Port Authority Bus Terminal in Manhattan to renovate and construct improvements at the Terminal. The Bus Terminal is owned by the Port Authority of New York and New Jersey and the project undertaken by the Plaintiff is, therefore, considered a “public improvement” under the Lien Law.
In a case brought in the United States District Court for the Southern District of New York, the Plaintiff, alleging that it was not paid amounts owed for work done, sued the owners of the Developer and its related entities (collectively, the “Developer Affiliates”) and four Defendants who had each lent money to the ground lessee (collectively, the “Lenders”). The Developer is in Bankruptcy. The Plaintiff pled causes of action against the Developer Affiliates of common law conversion and constructive fraud. The constructive fraud claim was dismissed with prejudice because the complaint did not “…identify the speaker of any alleged misrepresentation.”
As to the Lenders, the Plaintiff sought a declaratory judgment that the Plaintiff’s interests in the project are superior to those of the Lenders. The Plaintiff asserted that the Lenders’ loans and the financial contribution made by the Port Authority for the project constituted a trust fund from which there was the improper diversion of funds by the repayment of loan principal. Under Lien Law Section 70 (“Definition of trusts”),
“1. The funds described in this section for or in connection with an improvement of property in this state…received by a contractor under or in connection with…a contract for a public improvement…shall constitute assets of a trust…”
The District Court found that the Developer was, in effect, a contractor and, therefore, the trustee of a Lien Law contractor trust. The Lien Law allows the recovery of trust assets from the recipient of funds diverted from a Lien Law Trust. Under Lien Law Section 77 (“Action to enforce trust”),
“[w]here the holder of any trust assets is a trustee or a transferee who received the assets with the knowledge that they were trust funds, an order for distribution and retention for future distribution of any trust assets shall include the amount of diverted funds plus interest from the time of the diversion to the date of such order.”
However, under Lien Law Section 72 (“Diversion of trust funds”), “[n]othing in this article [3-A] affects the rights of…a purchaser in good faith and without notice that a transfer to him is a diversion of trust assets.” The Court, in dismissing with prejudice the cause of action against the Lenders alleging the diversion of trust funds, found that the Plaintiff “has not plausibly alleged that the lenders received unlawfully diverted trust funds with knowledge that the funds were trust funds.” The Second Amended Complaint (“SAC”)
“…nowhere alleges that [the Lenders] had any knowledge – actual, constructive, objective, or subjective – that the funds they allegedly received from the Developer were assets of an Article 3-A trust…Article 3-A requires that [the Plaintiff] plead the lender transferees’ knowledge that the funds they received were part of a trust. The SAC fails to do so…The SAC…specifically identifies another source of revenue that just as likely could have funded the Developer’s transfers to the Lenders, without dipping into the Article 3-A trust.”
The request for declaratory relief was dismissed, without prejudice to pursuing that claim anew depending on the outcome of proceedings in the Bankruptcy Court. Tutor Perini Building Corp. v. New York City Regional Center, LLC, 20 Civ. 731, decided March 15, 2021, can be found at 2021 U.S. Dist. LEXIS 47964 and 2021 WL 965909.
Limited Liability Companies/Apparent Authority
An LLC’s operating agreement requires the “unanimous vote or consent of the [m]embers” in order for any member to transfer “all or any part of his interest” in the LLC. One of the members, Samuel Fleischman, without the consent of the other members, executed a contract for the LLC to sell its real property; the contract required the written consent of the members “to the extent required by the…operating agreement.” Plaintiff, the contract vendee’s assignee, sought to enforce the contract. The Appellate Division, Second Department, affirmed the dismissal of the complaint by the Supreme Court, Kings County. The execution of the contract without the consent of the other members violated
the operating agreement and Fleischman lacked apparent authority. “Here, the evidence demonstrated, at best, that the plaintiff relied upon conversations with Fleischman and the defendant’s attorney never communicated with the defendant’s other members and failed to make reasonable inquiry into Fleischman’s actual authority [citations omitted].”
Shefa Trading III, LLC v. E.N.Y. Plaza, LLC, 2021 NY Slip Op 08273, decided March 17, 2021, is posted at https://www.nycourts.gov/reporter/3dseries/2021/2021_08273.htm.
Limited Liability Companies/”De Facto Corporation” Doctrine
In an action to recover on a promissory note, the Defendant questioned whether the assignment of the note to the Plaintiff was a nullity because the Plaintiff, a limited liability company, was not formed on the date of the assignment. The Appellate Division, Second Department, affirming entry of a judgment in favor of the Plaintiff by the Supreme Court, Kings County, applying the de facto corporation doctrine, upheld the validity of the assignment. According to the Appellate Division,
“New York has recognized that an unincorporated entity can take title or acquire rights by contract if it is a de facto corporation [citation omitted]…Here, the plaintiff submitted affidavits that demonstrated the applicability of the de facto corporation doctrine [citations omitted]. Specifically, the plaintiff demonstrated that there was a law under which the LLC might be organized (see Limited Liability Company Law §§ 203, 209), that the plaintiff made a ‘colorable attempt’ to comply with the statutes governing the formation of an LLC, including the filing requirement, and that the plaintiff exercised its powers as an LLC thereafter (citations omitted).”
Torto Note Member, LLC v. Babad, 2021 NY Slip Op 01438, decided March 10, 2021, is posted at https://www.nycourts.gov/reporter/3dseries/2021/2021_01438.htm.
The Appellate Division, First Department, affirmed the ruling of the Supreme Court, New York County, denying the Defendant’s motion to dismiss the complaint as abandoned under subsection (c) of CPLR Section 3215 (“Default judgment”), which states the following:
“(c) Default not entered within one year. If the plaintiff fails to take proceedings for entry of judgment within one year after the default, the court shall…dismiss the complaint as abandoned…unless sufficient cause is shown why the complaint should not be dismissed…”
According to the Appellate Division, “[a]lthough plaintiff failed to timely seek an order of reference, its participation in the residential mortgage settlement conference before the time to seek an order of reference expired and defendant’s multiple repeated bankruptcies constituted a reasonable excuse for the delay [citations omitted].” U.S. Bank N.A. v. Nunez, 2021 NY Slip Op 00515, decided January 28, 2021, is posted at https://www.nycourts.gov/reporter/3dseries/2021/2021_00515.htm.
The Plaintiff, the owner of a building in Manhattan, sued the guarantor of a tenant’s obligations for unpaid rent. The tenant’s business is the licensing of office space. The Defendant claimed as defenses frustration of purpose and the protection of New York City Administrative Code Section 22-1005 (“Personal liability provisions in commercial leases”), also known as the “Guaranty Law.” The Guaranty Law provides, in part, the following:
“A provision in a commercial lease…that provides for one or more natural persons…to become, upon the occurrence of a default or other event, wholly or partially personally liable for [amounts] owed by the tenant under such agreement…shall not be enforceable against such natural persons if the conditions of paragraph 1 and 2 are satisfied:
- The tenant satisfies the conditions of subparagraphs (a), (b) or (c):
(a) The tenant was required to cease serving patrons food or beverage for on-premises consumption or to cease operation under executive order number 202.3 issued by the governor on March 16, 2020;
(b) the tenant was a non-essential retail establishment subject to in-person limitations under guidance issued by the New York state department of economic development pursuant to executive order number 202.6 issued by the governor on March 18, 2020; or
(c) the tenant was required to close to members of the public under executive order number 202.7 issued by the governor on March 19, 2020.
- The default or other event causing such natural persons to become wholly or partially personally liable for such obligation occurred between March 7, 2020 and March 31, 2021, inclusive.”
Judge Arlene Bluth held that the Guarantee Law did not apply because “the premises did not close pursuant to [the] various executive orders” issued by the Governor and “there is a demonstrated history of the Tenant not paying the rent prior to the pandemic.” As to the defense of the frustration of purpose, the Defendant claimed that limits on the occupancy of office space reduced the Tenant’s ability to meet its rental obligations. However, according to the Court, “a reduction in potential revenue is not the same as completely frustrating the purpose of the contract.”
The Court awarded the Plaintiff $500,000, the maximum amount payable under the guaranty, plus interest from the date of the decision with costs and disbursements. MEPT 757 Third Avenue LLC v. Grant, 2021 NY Slip Op 30592, decided March 1, 2021, is posted at https://www.nycourts.gov/reporter/pdfs/2021/2021_30592.pdf.
Judge Bluth also issued two decisions dealing with the impact of the pandemic on parking garage leases in Manhattan.
In RHP Hotels 51st Street Owner, LLC v. HJ Parking LLC, 2021 NY Slip Op 30286, decided January 28, 2021, the Defendant, the operator of a parking garage, sought to have vacated a default judgment entered in an action seeking to recover unpaid rent. The Defendant raised defenses of the doctrines of impossibility and frustration of purpose, as well as a defense based on the Governor’s Executive Orders barring commercial evictions due to the pandemic. The Court denied the motion to vacate. The Executive Orders did not bar the recovery of rent that was owed and, as to the equitable defenses,
“…a less profitable business is not a basis to find that these equitable doctrines could absolve defendant of its obligation to pay rent [citation omitted]…Quite simply, here, where there is a downturn in a tenant’s business–with or without Covid–it does not invoke the doctrine of impossibility of performance, especially when the business is operating. Nor does it invoke frustration of purpose – defendant’s purpose was to operate a garage,
and it certainly is doing just that.”
In 1515 Broadway Owner LLC v. Astor Parking LLC, 2021 NY Slip Op 30661, decided February 25, 2021, the Plaintiff landlord sought to recover unpaid rent on a garage lease in Times Square. The Court ordered the Defendant to pay the Plaintiff rent pendente lite “going forward”. The Court stated that “[t]he Tenant agreed to pay a certain amount each
month; that their business is less successful [due to the pandemic] does not mean that the Court should reduce the amount that the Tenant should pay pendente lite.”
These cases are posted at https://www.nycourts.gov/reporter/pdfs/2021/2021_30286.pdf and https://www.nycourts.gov/reporter/pdfs/2021/2021_30661.pdf.
In another case, decided by the Supreme Court, Queens County, the Plaintiff commenced an action against a corporate lessee of premises being used as a restaurant and its guarantor to recover damages for breach of the obligation to pay rent. The Court held that New York City’s Guaranty Law barred the action as against the guarantor, but that neither Local Law 55 (Adm. Code Section 22-1005; “Personal liability provisions in commercial leases”) nor New York State’s Executive Order 202.28 barred the action against the tenant. Local Law 55 protects a “natural person” from liability; here, the tenant is a corporation. EO 202.28, providing that “[t]here shall be no initiation of a proceeding or enforcement of…an eviction of any…commercial tenant, for nonpayment of rent…”, does not apply to an “action for a non-possessory money judgment based on breach of contract…” Able Motor Cars Corp. v. Three Brothers Chinese Cuisine Inc., 2021 NY Slip Op 30716, decided January 13, 2021, is posted at http://www.nycourts.gov/reporter/pdfs/2021/2021_30716.pdf.
Chapter 126 of the Laws of 2020 added Section 9-x (“Mortgage forbearance”) to New York’s Banking Law effective March 7, 2020. Under Section 9-x, state regulated banking organizations and mortgage servicers are required to forbear monthly payments by a “qualified mortgagor” (an individual whose primary residence is encumbered by a “home loan”) when the mortgagor is in arrears , is on a “trial period plan”, or has applied for loss mitigation. A mortgagor with a financial hardship has the option to extend the loan term, accumulate arrears without penalty or late fees accruing, or “negotiate a loan modification or any other option that meets the [“qualified mortgagor’s] changed circumstances…”
Wells Fargo Bank, N.A. v. Kelsey, 2021 NY Slip Op 30806, involved a mortgage foreclosure brought in 2018. The Supreme Court, Dutchess County, denied the Defendant’s motion for a declaratory judgment determining his “eligibility for forbearance, waiver of late fees and interest.” The Court held that Banking Law Section 9-x did not apply; the mortgage was in default, the action was commenced before the pandemic and the action was brought before the law was enacted. The law was intended to address mortgages affected by the pandemic, not mortgages in default before March 7, 2020.
This case, decided March 16, 2021, is posted at https://www.nycourts.gov/reporter/pdfs/2021/2021_30806.pdf.
In the foreclosure of a mortgage on commercial property commenced in Kings County in October 2020, the Defendant sought dismissal of the action and cancellation of the notice of pendency under authority of the Governor’s Executive Orders (“EO”) 202.28 and EO 202.70 which, as extended, the Defendant claimed, prohibited the foreclosure of commercial property through January 1, 2021. Under EO 202.2, issued March 20, 2020, “[t]here shall be no…foreclosure of any residential or commercial property for a period of 90 days.” Under EO 202.28, issued May 7, 2020, “[t]here shall be no initiation of a proceeding or enforcement of…a foreclosure…of a…mortgage for nonpayment of such mortgage, owned or rented by someone…facing financial hardship due to COVID-19 pandemic for a period of sixty days…” The Supreme Court, Kings County, denied the Defendant’s motion, holding that EO 202.2 “merely provided a stay” and that the EOs “do not authorize the dismissal of commercial foreclosure actions commenced during the COVID-19 pause period…” U.S. Bank N.A. v. Middle Dam Street Inc., 2021 NY Slip Op 30686, decided March 4, 2021, is posted at http://www.nycourts.gov/reporter/pdfs/2021/2021_30686.pdf.
Powers of Attorney/Fraudulent Conveyance
In April 2010, the Plaintiff’s half-brother executed a power of attorney naming the Defendant as his agent. In May 2010, the Defendant, as attorney-in-fact for his half-brother, transferred real property to himself. In August 2010, the half-brother died intestate. The Plaintiff commenced an action seeking to set aside that conveyance as a fraudulent transfer. The Supreme Court, Kings County, dismissed, with prejudice, the cause of action seeking to set aside the deed. The Appellate Division, Second Department, reversed, holding that the Supreme Court should have set aside the transfer as a fraudulent conveyance, remitting the case for entry of an amended judgment in favor of the Plaintiff. According to the Appellate Division,
“‘[a]bsent a specific provision in the power of attorney document authorizing gifts, an attorney-in-fact,…may not make a gift to himself [or herself] or a third party of the money or property which is the subject of the agency relationship [citations omitted].’ Here, the plaintiff submitted evidence that the power of attorney did not grant the defendant gift-making authority, and that the defendant improperly used the power of attorney to gift the subject property to himself.”
McGregor v. McGregor, 2021 NY Slip Op 08179, decided February 24, 2021, is posted at https://www.nycourts.gov/reporter/3dseries/2021/2021_08179.htm.
The Plaintiff purchased property from a Joseph Paul. A month before the conveyance, the Defendant’s judgment for $173,587.50 was docketed against a Dr. Joseph Paul. The judgment was not reported in the title search. The Plaintiff, having become aware that the Defendant was seeking to enforce the judgment against the property, commenced an action to quiet title. The Appellate Division, Second Department, affirmed the ruling of the Supreme Court, Kings County, which held that the judgment was not a valid lien against the real property. According to the Appellate Division,
“the judgment at issue was not docketed under ‘Paul” – the surname of the title owner of the property. Thus, no valid lien was created. [citations omitted]. Moreover, there is no dispute that the plaintiff had no actual or constructive notice of a judgment lien on his property [citation omitted].”
“The judgment creditor is obligated to ensure that the judgment lien is properly recorded [citations omitted].”
Charles v. Berman, 2021 NY Slip Op 00542, decided February 3, 2021, is posted at https://www.nycourts.gov/reporter/3dseries/2021/2021_00542.htm.
Rule Against Perpetuities/Right of First Refusal (“ROFR”)
Plaintiffs sought an adjudication of their rights under a ROFR granted in a 2009 deed which conveyed other, adjacent, property to the Plaintiffs. The Defendants, who conveyed the adjacent land to another person in 2017, contended that the ROFR violated the rule against perpetuities (Estates, Powers and Trusts Law, Section 9-1.1(b); “Rule against perpetuities”) because the ROFR was exercisable by the Plaintiffs’ heirs and distributees more than twenty-one years after the Plaintiffs’ deaths. The Supreme Court, Chautauqua County, denied the Defendants’ motion for summary judgment dismissing the complaint and for a ruling that the RORF was null and void.
Stating also that there were questions of fact as to whether the Defendants complied with the ROFR’s notice requirements, the Appellate Division, Fourth Department, affirmed the lower court’s ruling. The ROFR provided
that “‘[t]his [r]ight of [f]irst [r]efusal shall run with the land and inure to and be for the benefit of the [plaintiffs] but not their successor and assigns…’”.
According to the Appellate Division, “[w]e reject defendants’ contention that plaintiffs’ interest could vests in heirs and distributees more than 21 years after plaintiffs’ deaths inasmuch as it would not be possible for the right to vest in plaintiffs’ heirs and distributees without also necessarily vesting in their successors and assigns.” Martin v. Seeley, 2021 NY Slip Op 00727, decided February 5, 2021, is posted at http://www.nycourts.gov/reporter/3dseries/2021/2021_00727.htm.
Petitioner, a Jewish Community Center, sought to obtain a permit for a conditional use to enable it to expand its facilities to operate a Day School and a camp. The applicable zoning district permits the construction of detached single-familyd wellings and “nonresidential uses which may not be excluded pursuant to the state and federal laws.” Brookville Village’s Zoning Board of Appeals (“ZBA”) denied the application; the Supreme Court, Nassau County, dismissed the proceeding. The Appellate Division, Second Department, in an Article 78 proceeding, affirmed the lower court’s ruling.
According to the Appellate Division,
“…the ZBA’s determination that the Day School and Camp operated by the JCC does not qualify as either a religious or educational use entitled to deferential zoning treatment has a rational basis in the record. Although the JCC is a religious organization…the activities and programs offered at the Day School and Camp are standard recreational activities that are offered at any summer camp…Finally, the ZBA’s determination that the JCC’s proposed use would be detrimental to the neighborhood, and the residents thereof, is not arbitrary or capricious.”
Matter of Sid Jacobson Jewish Community Center, Inc. v. Zoning Board of Appeals of the Incorporated Village of Brookville, 2021 NY Slip Op 01264, decided March 3, 2021, is posted at https://www.nycourts.gov/reporter/3dseries/2021/2021_01264.htm.
Jason Bergman – Vice President & Senior Underwriting Counsel
Benchmark Title Agency, LLC