Contracts of Sale/Caveat Emptor
The certificate of occupancy for a barn on property in the Town of Farmington was voided because the barn encroached onto adjoining land. After the sale of the land with the barn, the purchaser was ordered by the Town to relocate or remove the barn. The Plaintiff knew of the encroachment before the closing but he did not know that the certificate of occupancy had been voided. He believed that any issue as to the encroachment had been resolved by a boundary line agreement. The purchaser commenced an action, claiming that the Defendants-sellers had committed fraud in representing that there was a certificate of occupancy. The dismissal of the cause of action by the Supreme Court, Ontario County, was upheld by the Appellate Division, Fourth Department. According to the Appellate Division,
“[h]ere, even assuming, arguendo, that defendants’ alleged representations in the property condition disclosure statement constituted active concealment, we conclude that defendants met their initial burden on the motion by establishing that those representations did not ‘thwart’ plaintiff’s ability to conduct his own investigation into the property [citation omitted] inasmuch as the status of the certificate of occupancy ‘was readily ascertainable from the public record’ [citation omitted]…Further, an action for fraud requires, inter alia, ‘justifiable reliance by the plaintiff [citation omitted]. Here, defendants met their initial burden of establishing the absence of justifiable reliance on defendants’ alleged representations by submitting evidence that plaintiff was aware, prior to closing, that the barn encroached on the adjoining property [citation omitted].”
Chapman v. Jacobs, 2021 NY Slip Op 04794, decided August 26, 2021, is posted at
https://www.nycourts.gov/reporter/3dseries/2021/2021_04794.htm .Reprinted with permission from Current Developments dated September 27, 2021, issued by First American Title Insurance Company
As reported by the Real Deal on July 12, 2021, a Long Island man indicted for deed theft of two Harlem brownstones.
The city council introduced legislation last year that would increase reporting of deed fraud and encourage the state to boost protections for homeowners. More than 3,000 deed theft complaints were filed with the city’s Department of Finance between 2014 and 2020.
One bill would require the sheriff to report details of complaints and investigations associated with recorded document fraud. The other would give property owners a better sense of fraud being conducted by notifying owners when deeds, mortgages and ownership documents for their properties have been recorded with the department of finance.
ECB judgments – reduced payoff:
Beginning on September 20, 2021, and continuing through December 20, 2021, New York City’s FAIRER Program (Fines And Interest Reduction Enabling Recovery) will permit select Environmental Control Board judgments (“ECBs”) to be resolved by reduced payment. In order to participate in the FAIRER Program, eligible ECBs must be paid in full by December 20, 2021. Generally speaking, violations that were reduced to judgment and docketed on or before June 23, 2021, are eligible for the FAIRER Program. Eligibility may be confirmed by visiting CityPay (https://a836-citypay.nyc.gov/) and selecting “Violations”. Once the Ticket Number, Name and Address, or OATH ID is entered, any outstanding ECBs will be listed, along with an indication of whether it is eligible for the FAIRER Program.
Laura Tiozzo and Pascal Dangin, as husband and wife, purchased a condominium unit in 2003. In 2004, they entered into a stipulation of divorce, which, that year, was incorporated by reference into the judgment of divorce. Under the stipulation, Tiozzo was granted the “sole ownership and exclusive use and occupancy” of the unit, and Dangin was to convey his interest to Tiozzo if doing so would not “cause a termination or modification of the terms of the existing mortgage.” In 2019, Tiozzo demanded that Dangin deed his interest to her; he refused to do so.
In 2018, Dangin executed a confession of judgment in favor of Lenz Capital Group LLC (“Lenz”) for $1,948,909.50, which judgment was entered in New York County. In July 2019, Tiozzo brought an action seeking a ruling that she held a 100% equitable interest in the unit and that the Lenz judgment was of no legal effect as to her interest. The Supreme Court, New York County, denied Tiozzo’s motion for summary judgment on her causes of action seeking a declaration that she held all equitable interests in the condominium unit and an injunction barring Dangin and Lenz from creating, perfecting or enforcing any lien against the unit. The Appellate Division, First Department, reversed and granted Tiozzo’s motion. According to the Appellate Division, the stipulation of divorce “divested Dangin of his rights in the subject property. Under CPLR article 52 a judgment creditor may only seek to enforce its money judgment against a judgment debtor’s property…[T]he determining factor as to whether a judgment debtor’s interest can constitute property vulnerable to a judgment creditor is whether it ‘could be assigned or transferred’ [citation omitted]. In the stipulation of divorce Dangin gave up any right to assign or transfer to a third party an interest in the subject property. The subject property is therefore beyond the reach of Lenz [citations omitted].
As to application of the statute of limitations, ”[a]s there was no deadline for delivery of a quitclaim deed under the stipulation of divorce, the court correctly concluded that Tiozzo’s conduct in this regard would not provide a basis for Lenz to assert a statute of limitations or equitable estoppel defense against Tiozzo’s claims.”
Defenses of laches or of unclean hands did not apply. “…Tiozzo’s interest in the subject property vested when the judgment of divorce was entered. Her decision to delay her demand for a quitclaim deed from Dangin was pursuant to a right provided to her under the stipulation of divorce…Accordingly, Tiozzo is entitled to what she bargained for in settling her divorce: a 100% interest in the subject property that is beyond the reach of Dangin, and of Lenz.” Tiozzo v. Dangin, 2021 NY Slip Op 04739, decided August 19, 2021, is posted at http://www.nycourts.gov/reporter/3dseries/2021/2021_04739.htm. Reprinted with permission from Current Developments dated September 27, 2021, issued by First American Title Insurance Company
Under New York City Administrative Code Section 22-1005 (“Personal liability provisions in commercial leases”), also known as the “Guaranty Law”, as amended effective September 28, 2020, “[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…[certain conditions, including the following] are satisfied…(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; and…2. [t]he 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.”
Due to the pandemic, after transitioning the operation of its restaurant to take-out and delivery service, the tenant notified its landlord in April 2020 that it would vacate and surrender the premises in six months, and it stopped paying rent in May 2020.The lessor sued to enforce the Defendant’s personal guarantee. The Defendant cross-moved to dismiss based on the Guaranty Law and counterclaimed for damages under the “Commercial harassment law”, Administrative Code Section 22-902.
The Supreme Court, New York County, found that the temporary use of the premises for take-out and delivery did not frustrate the overall purpose of the lease, eliminating defenses of impossibility or frustration of purpose. The Court also ruled that although the guarantee was not contained in the lease itself, but was in a separate document, Section 22-1005 applies to guarantee provisions “in and related to commercial lease agreements”, not merely guarantees contained in leases. The Court further held that the amendment to Section 22-1005, expanding the Section to include guarantees of commercial leases, could be retroactively applied, and that Section 22-1005 did not violate the Contracts Clause of the United States Constitution.
The Court dismissed the Defendant’s claim of harassment under Section 22-902 for lack of standing. The Section grants a right of action for harassment to commercial tenants but not to their guarantors. 45-47-49 Eighth Avenue LLC v. Conti, 2021 NY Slip Op 50691, decided July 23, 2021, is posted at http://www.nycourts.gov/reporter/3dseries/2021/2021_50691.htm. Reprinted with permission from Current Developments dated September 27, 2021, issued by First American Title Insurance Company
New York Court Grants Summary Judgment in Action to Void a Restrictive Covenant
The Supreme Court, Suffolk County, recently held that a purported restrictive covenant on a property was void. See U & Me Homes, LLC v. Cty. of Suffolk, 148 N.Y.S.3d 682 (N.Y. Sup. Ct. July 16, 2021).
The plaintiff purchased an undeveloped parcel of land that was zoned for residential development. Shortly after obtaining its permits for construction, a neighbor challenged the plaintiff’s efforts to develop the property by alleging that a developmental restriction affected the property (both the deed and title search were silent as to development restrictions). The Town of Southampton and the County of Suffolk (the “County”) agreed that the proposed home could not be built because of the restriction. However, as it turns out, two (2) prior conveyances excluded restrictive language. Consequently, the plaintiff brought this action alleging that the covenant failed to run with the land and bind grantees, successors or assigns.
The Court granted the plaintiff’s motion for summary judgment, reasoning that there was no proof that the original grantor and grantee intended the covenant to run with the land, noting that“[w]hen the purpose and effect of a covenant is to substantially alter the legal rights which otherwise would flow from the ownership of land and which are connected with the land, such requires a clear showing that the original grantee and grantor intended the covenant to run with the land.” The Court also found that the County offered no statutory authority to support its ability to enter into such a restriction given the inconsistent history of such restrictions appearing in the title chain. It should be noted that the County acquired title to the property twice pursuant to tax lien foreclosures. The Court observed that the County had two previous opportunities to restrict development on the property, but for whatever reason, chose not to. Here, according to the Court, the County failed to adequately protect the initial deed and, as such, that deed restriction did not run with the land.
Title Insurance Coverage:
New York Federal Court Holds Insured Not Entitled to Coverage Under Title Policy When Statute of Limitations for Potential Challenge to Title Had Run
The United States District Court for the Southern District of New York recently found that an insured was not entitled to coverage when the action giving rise to the alleged title defect occurred in 1982 and the statute of limitations for a challenge to title had run. See, Morris Builders, L.P. et al. v. Fidelity National Title Insurance Company, et al., 2021 WL 4066725 (S.D.N.Y. Sept. 7, 2021).
The action involved the conveyance of parklands from the City of Yonkers to various development agencies. In 1985, the City of Yonkers, the insured, and three other parties entered into an agreement whereby the Westchester Industrial Development Agency (“IDA”) acquired certain parcels of land from the City of Yonkers, which the IDA simultaneously leased to the insured. In 1989, the insured obtained title insurance policies covering the IDA’s interest in the property. Over 20 years later, the insured happened to investigate the chain of title to the parkland properties, and learned that a prior, 1982 transfer of the property was “unlawful under the public trust doctrine because it was not approved by an act of the State Legislature.”
The insured submitted a claim, which was ultimately covered with a reservation of rights. Although the defendant title insurers retained counsel to represent the insured, the insured cited a conflict and objected. In 2014, the insured brought an action against the other parties to the 1985 agreement and eventually reached a settlement obtaining clear title to the property. The insured then brought this action claiming the defendants were required to indemnify it for certain additional losses incurred in litigating the 2014 action, as well as other damages arising from the alleged defect.
In granting the defendants’ motion for summary judgment, the Court found that the question of coverage under the policy hinged on whether there was a title defect as of the time the insured discovered the alleged defect or the time it filed the prior action in 2014. As the claim arose from an allegedly improper 1982 transfer of the property, any challenge would be subject to a six-year (contract) statute of limitations. Accordingly, the Court found that the insured was not entitled to coverage because at the time the defect was purportedly discovered in 2011, the applicable statute of limitations had long since barred any claim challenging title.
Title Insurer Not Required to Inform Agent of Title Claim or Seek Agent’s Consent to Settle
In Fidelity National Title Insurance Co. v. Rockwell Abstract, et al., 652588/2021 (Sup Ct, NY County, Sept. 1, 2021), the Supreme Court, New York County, granted the plaintiff’s motion to dismiss the defendant’s counterclaim, finding that the plaintiff title insurer had no obligation to inform the defendant policy-issuing agent of a title claim arising from a policy the agent issued, nor did the insurer have to seek the agent’s consent before settling the claim.
A’s lender was insured by the defendant, as agent for the plaintiff, in 2006 when A mortgaged her property. In 2015, the children of B (A’s husband who passed prior to 2006) brought suit claiming that they were 50% owners of the property, and that, as such, A did not have the (sole) authority to mortgage the property. The insured lender submitted a claim to the plaintiff, which was ultimately settled. Following settlement, the plaintiff brought the extant action against its agent for indemnification under the parties’ agency agreement, claiming that the defendant failed to conduct a diligent review of the chain of title before issuing the policy on the plaintiff’s behalf. Specifically, the plaintiff questioned why its agent did not consult the deceased’s will or identify the children’s potential interest in the property, which would have revealed that A was not entitled to complete control of the property. In response, the defendant agent filed a counterclaim alleging that the plaintiff breached the duty of good faith and fair dealing because it did not inform the defendant of the claim or seek the defendant’s consent to settle.
In reliance on the express language of the contract/agency agreement, the plaintiff contended that (i) it did not have to notify defendants about the claim, (ii) defendants were not entitled to investigate the issue, and (iii) defendants’ consent was not necessary to settle the title dispute. The Court agreed and referenced the contract/agency agreement, which stated, in pertinent part, that “[A]gent agrees that Company shall be fully authorized and empowered, in its absolute discretion, to control, defend, prosecute, settle, compromise, and/or dispose of any claim, litigation or proceeding…..Unless specifically authorized by Company in writing, Agent shall have no right to defend, deny, settle, compromise, or dispose of any action against Company or an Insured.” Since the defendants contracted away their right to have input in a potential settlement, it was the plaintiff – and only the plaintiff – who was entitled to settle the title litigation “in its absolute discretion”.
Recording Act/Erroneous Satisfaction
The foreclosure of the Plaintiff’s mortgage was commenced in 2012. A satisfaction of that mortgage was recorded, purportedly in error, in 2013. The notice of pendency for the foreclosure expired in May 2015. The mortgage held by a Defendant was executed on July 14, 2015 and recorded on July 30, 2015. The Plaintiff sought to have the discharge of its mortgage expunged and its mortgage reinstated, asserting that the satisfaction was “recorded in error” and the debt was still “due and owing”. The Defendant-mortgagee’s answer stated that it had relied on the recorded satisfaction in making its mortgage loan.
The Appellate Division, Second Department, affirmed an Order of the Supreme Court, Kings County, granting the motion of the Defendant-mortgagee to dismiss the complaint as to it and for a judgment that the Plaintiff’s mortgage, if reinstated as a lien on the property, was subject and subordinate to the lien of the latter mortgage. The Defendant-mortgagee’s answer stated that it had relied on the recorded satisfaction in making its mortgage loan.
According to the Appellate Division, the Defendant’s mortgage had priority. It “gave valuable consideration for its recorded mortgage, and…it did not have actual knowledge of the plaintiff’s alleged mortgage or knowledge of facts that would have put it on ‘inquiry notice’ of that mortgage [citations omitted].” Deutsche Bank National Trust Company v. Rose, 2021 NY Slip Op 04907, decided September 1, 2021, is posted at http://www.nycourts.gov/reporter/3dseries/2021/2021_04907.htm.
It has been unlawful to plant running bamboo, an invasive species of plant, on any property in New York State since 2015. In the 1990s, the Defendants planted a grove of running bamboo on their property in Shelter Island. Asserting causes of action based on nuisance, negligence and trespass, the Plaintiffs, the owners of an adjoining property, sought damages to cover the cost of excavating and removing bamboo that had spread to their property from the Defendants’ property and to pay for the installation of a barrier to prevent the future spread of bamboo. The Plaintiffs also sought compensation for the resulting loss of the use of their property. The County Court of Suffolk County, although finding that the “plaintiffs have not met their burden of proof as to the value of the loss of use of plaintiffs’ real property causally connected to the spread of [the] bamboo from defendants’ property…”, found that “defendants are responsible for the eradication of the bamboo…and the installation of a barrier to prevent the spread in the future.” The Courts awarded the Plaintiffs $57,149.38 for bamboo eradication and to install a barrier.
As to the claim of private nuisance, “…the bamboo spread onto plaintiffs’ property was a substantial, intentional, unreasonable interference with plaintiffs’ right to use and enjoy their property and [that] it was caused by the failure of defendants to act to prevent the migration of the bamboo from their property onto plaintiffs’ property.” The Court also held that the encroachment of the bamboo constituted a trespass, and that “the defendants were negligent in failing to take timely action to prevent the spread of bamboo onto neighboring properties.”
The causes of action were not barred by the statute of limitations. The negligence cause of action ran from when the damages became “apparent”; the Plaintiffs first became aware of the bamboo encroachments in 2017. The nuisance and trespass claims were not barred “because of the continuing nature of the condition.”
The Defendants did not establish that their land benefitted from a prescriptive easement. There was “no evidence that any of the parties were aware of the encroachment of the defendants’ bamboo onto plaintiffs’ property…prior to 2017…[E]ncroachment of bamboo roots underground not visible hardly amounts to a ‘use’ of real property or [a use which is] ‘open and notorious.’” Sultan v. King, 2021 NY Slip Op 21227, decided August 19, 2021, is posted at http://www.nycourts.gov/reporter/3dseries/2021/2021_21227.htm. Reprinted with permission from Current Developments dated September 27, 2021, issued by First American Title Insurance Company
Jean Partridge and Jason Bergman, Benchmark Title Agency, LLC