Real Property Law

Fair Housing Act Claim Against Broker Raises Issues of Fact Requiring Trial

Mitchell v. Shane, NYLJ

12/4/03, p. 18, col. 1

U.S. Court of Appeals, Second Circuit

(Opinion by Calabresi, J.)

In an action by prospective home purchasers alleging violations of the federal Fair Housing Act and New York Executive Law section 296(5)(a)(1), prospective purchasers appealed from the District court's grant of summary judgment to sellers and real estate broker. The Second Circuit affirmed the grant of summary judgment to sellers, but reversed with respect to the broker, holding that questions of fact remained about whether the broker had engaged in discrimination on the basis of race.

Prospective purchasers, who are African-American, first saw the property in late November or early December 2001, and made an offer of $655,000. When the agent who showed them the property informed them that sellers had received a higher offer, prospective purchasers increased their own offer to $685,000, subject to an engineer's report and 80% financing. An engineer, however, discovered several problems that would entail repair costs of $20,000 to $25,000. Prospective purchasers sought a reduction in the purchase price, and the showing agent conveyed their request to the listing agent. Sellers then agreed to an $8000 reduction on condition that the contracts be signed and returned by January 17. Listing agent informed showing agent that the property would remain on the market until contracts were signed, and that another agent had an interested client. The following day, prospective purchasers obtained a certified check for 10% of the renegotiated price, and sent the check together with the modified sale contract to their lawyer. The modifications reduced the price, as the parties had agreed, and replaced the 80% mortgage contingency with a 90% contingency. Meanwhile, another agent informed listing agent that her clients were prepared to offer $685,000 with a 42% mortgage contingency. When listing agent presented that offer to sellers, sellers indicated his preference for that offer. Listing agent did not inform prospective purchasers of the competing, higher, offer. On January 23, listing agent called sellers' lawyer to tell her that sellers had decided to go ahead with the deal with prospective purchasers. When the lawyer received the sale contract, however, she was surprised to see the change to a 90% contingency. The following day, listing agent issued an “offer and acceptance” to the competing purchaser. Competing purchaser and sellers signed the sale contract, and prospective purchasers brought this action, contending that sellers, listing agent, and Century 21 (listing agent's employer) had violated the federal and state anti-discrimination statutes. Federal district court granted summary judgment to sellers, listing agent, and Century 21.

In affirming the grant of summary judgment in favor of sellers, the Second Circuit noted that there was no evidence that sellers knew that prospective purchasers were African American until after they had rejected the contract and signed a new contract with competing purchaser. Sellers conducted all of their negotiations from Florida, and never met prospective purchasers. With respect to listing agent, however, the court held that prospective purchasers had made out a prima facie case, requiring listing agent to establish that he had not been motivated by racial discrimination. The court focused in particular on listing agent's failure to communicate to prospective purchasers the fact that competing purchasers had made a higher offer. The court held that this failure raised a question of fact: Was there an established practice of communicating higher offers, and if so, did listing agent violate that practice? Because of that question of fact, summary judgment was inappropriate. Moreover, because listing agent's employer would be liable without fault for listing agent's violation of the statute, summary judgment should have been denied to Century 21 as well.

Mortgagee Estopped from Foreclosing after Erroneously Issuing Satisfaction

First Union National Bank v. Tecklenberg

NYLJ 12/18/03, p. 34, col. 6

AppDiv, Second Dept

(memorandum opinion)

In an action to foreclose a mortgage, mortgagor appealed from Supreme Court's order dismissing the complaint “without prejudice” to commencement of a new foreclosure action if mortgagor remained in default. The Appellate Division reversed and dismissed the complaint with prejudice, holding mortgagee equitably estopped from foreclosing. On Feb. 20, 1988, mortgagee erroneously applied payoff funds to mortgagor's account. On March 4, 1998, mortgagee notified mortgagor that his mortgage had been paid in full. Mortgagor made numerous inquiries seeking an explanation, but was consistently assured that the mortgage had been paid off. Mortgagor then obtained anew mortgage on Aug. 5, 1998. The new mortgagee was also informed that the prior mortgage had been satisfied. On Sept. 11, mortgagee finally notified mortgagor that it had mistakenly credited his account with the payoff funds. Nevertheless, a satisfaction was recorded, and the original mortgage documents were returned to mortgagor. Nevertheless, on Dec. 24, 1998, mortgagee foreclosed on the mortgage, which was in default. Mortgagor sought to dismiss based on equitable estoppel. Supreme Court concluded that mortgagor had not satisfied the requisites of an equitable estoppel defense, and mortgagor appealed.

In reversing, the Appellate Division emphasized that by securing a subsequent mortgage loan after mortgagee mistakenly informed him that the mortgage had been satisfied, mortgagor underwent a detrimental change in his position. If still subject to the original mortgage, he would now be required to make two mortgage payments rather than one. Hence, mortgagor relied, and made a prejudicial change in his position.

Action to Remove Easement Encroachment Subject to 6-Year Statute of Limitations

Berardi v. Palomba

NYLJ 12/31/03, p. 19, col. 3

Supreme Ct., Richmond Cty

(Minardo, J.)

In landowner's action to compel removal of neighbor's encroachment on landowner's easement, neighbor moved for summary judgment, contending that the action was untimely. The court denied the motion, holding that an action to remove an encroachment to an affirmative easement is subject to a 6-year statute of limitations.

In 1983, when landowner sold a parcel to neighbor, landowner allegedly reserved a 30-foot wide easement in anticipation of future development of the parcel landowner retained. In 1998, neighbor built a two-family house on the parcel neighbor had earlier purchased, and the driveway and front steps allegedly encroach on the easement by 15 feet. Landowner contends that the encroachment drastically lowers the development potential and the market value of the retained land, and a contract vendee of landowner's retained parcel joined the action as a plaintiff. Neighbor sought summary judgment, contending that the action was subject to a 2-year statute of limitations, and was therefore barred because landowner did not bring the action until 2003.

In denying neighbor's summary judgment motion, the court held that RPAPL 2001, which imposes a 2-year statute of limitations on actions to enforce or recover damages for infringement on an easement, applies only to infringement of negative easements, not affirmative easements. Because the subject easement was an affirmative easement, the court held that the action was subject to the 6-year statute of limitations contained in CPLR 213(1).

COMMENT

RPAPL Section 2001 was enacted in 1963 to limit the right of landowners to enforce building restrictions imposed by deed on neighboring land. The statute's title refers to “covenants restricting use of land,” and the section imposes a 2-year limitation period only “to the extent that the restriction relates to structures that may be erected on the premises and limits such structures with respect to set-back or side-lines, the area that may be built upon, the location, independent character or number of structures, height, or general purpose for which they shall be designed or typically suited.” The intent of the statute was to protect landowners who had built structures in violation of building restrictions against litigation seeking damages or injunctive relief long after the structures had been completed.

Of course, easements can sometimes operate to limit the height or location of buildings on land. And, in Oneida County Mobile Home Sales, Inc. v. Niagara Mohawk Power Corp., 47 NY2d 954, the Court of Appeals held RPAPL 2001 applicable to negative easements that restrict height or location. In Oneida County, prior owner of a mobile home park had granted the power company express easements to run power lines over the park. Later, when the parties learned that the proximity of the power lines to mobile homes created a potential hazard, the power company contended that it had acquired a negative easement by implication to operate the power lines, and that the mobile home owners bore the responsibility to pay for any relocation of the power lines. The Court of Appeals held that the power company's claim was subject to the 2-year statute of limitations, and remanded to determine when the homes had been built under the power lines.

Subsequent cases establish that the statute does not apply to actions to enforce easements and covenants when the alleged infringement does not relate to construction of a structure that violates restrictions on the height and location of buildings. Thus, in Newcomb v. Congdon, 160 AD2d 1192, the court held that the statute applied only to restrictions on structures, and did not apply to an action prohibiting use of the premises as a car dealership. More recently, in Ram Island Homeowners Assn v. Hathaway Realty, 305 AD2d 390, the court held the statute inapplicable to an action to enjoin operation of a parking lot on land subject to restrictive covenants.

Curable Breach Does Not Entitle Contract Vendee to Escape Liability

Hegner v. Reed

NYLJ 12/30/03, p. 31, col. 6

AppDiv, Second Dept

(memorandum opinion)

In contract vendee's action to recover a down payment, seller and contract vendee both appealed from Supreme Court's grant of summary judgment awarding part of the down payment to contract vendee. The Appellate Division reversed and granted summary judgment to sellers, holding that any breach by sellers was curable, and did not entitle contract vendee to escape liability under the contract.

In August 2001, sellers contracted to sell the subject house to contract vendees for $1,300,000. Contract vendees paid a deposit of $130,000, and the contract permitted seller to retain the down payment as liquidated damages in the event of willful default by contract vendees. The closing was scheduled for Oct. 15, 2001. After the events of 9/11, contract vendees sought rescission of the contract and return of the down payment. Sellers refused and set a “time of the essence” closing date of Nov. 13. Contract vendees appeared at the house that morning, and discovered that the premises were neither broom clean nor vacant.

The buyers deemed this a breach, and did not appear for the closing. Instead, they brought this action for return of the down payment, and Supreme Court awarded them $95,000 of the deposit, concluding that the down payment did not reflect a reasonable measure of sellers' actual damages. Both parties appealed.

In reversing and granting summary judgment to sellers, the Appellate Division agreed with Supreme Court that contract vendees had anticipatorily breached their contract. The sellers, however, chose to treat the contract as still valid, obligating the contract vendee to perform or forfeit the deposit. Moreover, even if the seller was in breach on the day of closing, the breach was curable within a reasonable period of time, obligating contract vendees to give sellers a reasonable time to cure. Because contract vendees did not do so, they were not entitled to return of any of their down payment.

Fair Housing Act Claim Against Broker Raises Issues of Fact Requiring Trial

Mitchell v. Shane, NYLJ

12/4/03, p. 18, col. 1

U.S. Court of Appeals, Second Circuit

(Opinion by Calabresi, J.)

In an action by prospective home purchasers alleging violations of the federal Fair Housing Act and New York Executive Law section 296(5)(a)(1), prospective purchasers appealed from the District court's grant of summary judgment to sellers and real estate broker. The Second Circuit affirmed the grant of summary judgment to sellers, but reversed with respect to the broker, holding that questions of fact remained about whether the broker had engaged in discrimination on the basis of race.

Prospective purchasers, who are African-American, first saw the property in late November or early December 2001, and made an offer of $655,000. When the agent who showed them the property informed them that sellers had received a higher offer, prospective purchasers increased their own offer to $685,000, subject to an engineer's report and 80% financing. An engineer, however, discovered several problems that would entail repair costs of $20,000 to $25,000. Prospective purchasers sought a reduction in the purchase price, and the showing agent conveyed their request to the listing agent. Sellers then agreed to an $8000 reduction on condition that the contracts be signed and returned by January 17. Listing agent informed showing agent that the property would remain on the market until contracts were signed, and that another agent had an interested client. The following day, prospective purchasers obtained a certified check for 10% of the renegotiated price, and sent the check together with the modified sale contract to their lawyer. The modifications reduced the price, as the parties had agreed, and replaced the 80% mortgage contingency with a 90% contingency. Meanwhile, another agent informed listing agent that her clients were prepared to offer $685,000 with a 42% mortgage contingency. When listing agent presented that offer to sellers, sellers indicated his preference for that offer. Listing agent did not inform prospective purchasers of the competing, higher, offer. On January 23, listing agent called sellers' lawyer to tell her that sellers had decided to go ahead with the deal with prospective purchasers. When the lawyer received the sale contract, however, she was surprised to see the change to a 90% contingency. The following day, listing agent issued an “offer and acceptance” to the competing purchaser. Competing purchaser and sellers signed the sale contract, and prospective purchasers brought this action, contending that sellers, listing agent, and Century 21 (listing agent's employer) had violated the federal and state anti-discrimination statutes. Federal district court granted summary judgment to sellers, listing agent, and Century 21.

In affirming the grant of summary judgment in favor of sellers, the Second Circuit noted that there was no evidence that sellers knew that prospective purchasers were African American until after they had rejected the contract and signed a new contract with competing purchaser. Sellers conducted all of their negotiations from Florida, and never met prospective purchasers. With respect to listing agent, however, the court held that prospective purchasers had made out a prima facie case, requiring listing agent to establish that he had not been motivated by racial discrimination. The court focused in particular on listing agent's failure to communicate to prospective purchasers the fact that competing purchasers had made a higher offer. The court held that this failure raised a question of fact: Was there an established practice of communicating higher offers, and if so, did listing agent violate that practice? Because of that question of fact, summary judgment was inappropriate. Moreover, because listing agent's employer would be liable without fault for listing agent's violation of the statute, summary judgment should have been denied to Century 21 as well.

Mortgagee Estopped from Foreclosing after Erroneously Issuing Satisfaction

First Union National Bank v. Tecklenberg

NYLJ 12/18/03, p. 34, col. 6

AppDiv, Second Dept

(memorandum opinion)

In an action to foreclose a mortgage, mortgagor appealed from Supreme Court's order dismissing the complaint “without prejudice” to commencement of a new foreclosure action if mortgagor remained in default. The Appellate Division reversed and dismissed the complaint with prejudice, holding mortgagee equitably estopped from foreclosing. On Feb. 20, 1988, mortgagee erroneously applied payoff funds to mortgagor's account. On March 4, 1998, mortgagee notified mortgagor that his mortgage had been paid in full. Mortgagor made numerous inquiries seeking an explanation, but was consistently assured that the mortgage had been paid off. Mortgagor then obtained anew mortgage on Aug. 5, 1998. The new mortgagee was also informed that the prior mortgage had been satisfied. On Sept. 11, mortgagee finally notified mortgagor that it had mistakenly credited his account with the payoff funds. Nevertheless, a satisfaction was recorded, and the original mortgage documents were returned to mortgagor. Nevertheless, on Dec. 24, 1998, mortgagee foreclosed on the mortgage, which was in default. Mortgagor sought to dismiss based on equitable estoppel. Supreme Court concluded that mortgagor had not satisfied the requisites of an equitable estoppel defense, and mortgagor appealed.

In reversing, the Appellate Division emphasized that by securing a subsequent mortgage loan after mortgagee mistakenly informed him that the mortgage had been satisfied, mortgagor underwent a detrimental change in his position. If still subject to the original mortgage, he would now be required to make two mortgage payments rather than one. Hence, mortgagor relied, and made a prejudicial change in his position.

Action to Remove Easement Encroachment Subject to 6-Year Statute of Limitations

Berardi v. Palomba

NYLJ 12/31/03, p. 19, col. 3

Supreme Ct., Richmond Cty

(Minardo, J.)

In landowner's action to compel removal of neighbor's encroachment on landowner's easement, neighbor moved for summary judgment, contending that the action was untimely. The court denied the motion, holding that an action to remove an encroachment to an affirmative easement is subject to a 6-year statute of limitations.

In 1983, when landowner sold a parcel to neighbor, landowner allegedly reserved a 30-foot wide easement in anticipation of future development of the parcel landowner retained. In 1998, neighbor built a two-family house on the parcel neighbor had earlier purchased, and the driveway and front steps allegedly encroach on the easement by 15 feet. Landowner contends that the encroachment drastically lowers the development potential and the market value of the retained land, and a contract vendee of landowner's retained parcel joined the action as a plaintiff. Neighbor sought summary judgment, contending that the action was subject to a 2-year statute of limitations, and was therefore barred because landowner did not bring the action until 2003.

In denying neighbor's summary judgment motion, the court held that RPAPL 2001, which imposes a 2-year statute of limitations on actions to enforce or recover damages for infringement on an easement, applies only to infringement of negative easements, not affirmative easements. Because the subject easement was an affirmative easement, the court held that the action was subject to the 6-year statute of limitations contained in CPLR 213(1).

COMMENT

RPAPL Section 2001 was enacted in 1963 to limit the right of landowners to enforce building restrictions imposed by deed on neighboring land. The statute's title refers to “covenants restricting use of land,” and the section imposes a 2-year limitation period only “to the extent that the restriction relates to structures that may be erected on the premises and limits such structures with respect to set-back or side-lines, the area that may be built upon, the location, independent character or number of structures, height, or general purpose for which they shall be designed or typically suited.” The intent of the statute was to protect landowners who had built structures in violation of building restrictions against litigation seeking damages or injunctive relief long after the structures had been completed.

Of course, easements can sometimes operate to limit the height or location of buildings on land. And, in Oneida County Mobile Home Sales, Inc. v. Niagara Mohawk Power Corp., 47 NY2d 954, the Court of Appeals held RPAPL 2001 applicable to negative easements that restrict height or location. In Oneida County, prior owner of a mobile home park had granted the power company express easements to run power lines over the park. Later, when the parties learned that the proximity of the power lines to mobile homes created a potential hazard, the power company contended that it had acquired a negative easement by implication to operate the power lines, and that the mobile home owners bore the responsibility to pay for any relocation of the power lines. The Court of Appeals held that the power company's claim was subject to the 2-year statute of limitations, and remanded to determine when the homes had been built under the power lines.

Subsequent cases establish that the statute does not apply to actions to enforce easements and covenants when the alleged infringement does not relate to construction of a structure that violates restrictions on the height and location of buildings. Thus, in Newcomb v. Congdon, 160 AD2d 1192, the court held that the statute applied only to restrictions on structures, and did not apply to an action prohibiting use of the premises as a car dealership. More recently, in Ram Island Homeowners Assn v. Hathaway Realty, 305 AD2d 390, the court held the statute inapplicable to an action to enjoin operation of a parking lot on land subject to restrictive covenants.

Curable Breach Does Not Entitle Contract Vendee to Escape Liability

Hegner v. Reed

NYLJ 12/30/03, p. 31, col. 6

AppDiv, Second Dept

(memorandum opinion)

In contract vendee's action to recover a down payment, seller and contract vendee both appealed from Supreme Court's grant of summary judgment awarding part of the down payment to contract vendee. The Appellate Division reversed and granted summary judgment to sellers, holding that any breach by sellers was curable, and did not entitle contract vendee to escape liability under the contract.

In August 2001, sellers contracted to sell the subject house to contract vendees for $1,300,000. Contract vendees paid a deposit of $130,000, and the contract permitted seller to retain the down payment as liquidated damages in the event of willful default by contract vendees. The closing was scheduled for Oct. 15, 2001. After the events of 9/11, contract vendees sought rescission of the contract and return of the down payment. Sellers refused and set a “time of the essence” closing date of Nov. 13. Contract vendees appeared at the house that morning, and discovered that the premises were neither broom clean nor vacant.

The buyers deemed this a breach, and did not appear for the closing. Instead, they brought this action for return of the down payment, and Supreme Court awarded them $95,000 of the deposit, concluding that the down payment did not reflect a reasonable measure of sellers' actual damages. Both parties appealed.

In reversing and granting summary judgment to sellers, the Appellate Division agreed with Supreme Court that contract vendees had anticipatorily breached their contract. The sellers, however, chose to treat the contract as still valid, obligating the contract vendee to perform or forfeit the deposit. Moreover, even if the seller was in breach on the day of closing, the breach was curable within a reasonable period of time, obligating contract vendees to give sellers a reasonable time to cure. Because contract vendees did not do so, they were not entitled to return of any of their down payment.