Real Property Law

Survivorship Interest Not Terminated By Unilateral Conveyance

Hardin v. Rubin

NYLJ 7/28/04, p. 20, col. 1

Supreme Ct., Kings Cty

(Jacobson, J.)

In an action by the daughter of the original owner's deceased son to establish that she owns a 50% interest in the subject parcel, the transferee from the original owner's daughter moved to dismiss the complaint. The court granted the transferee's motion, holding that the son's conveyance to himself did not terminate the daughter's survivorship interest.

The original owner devised the property to his surviving children for their lives, with the remainder to vest in his last surviving child. The owner's son was the executor of his estate, and issued an executor's deed to himself and his sister as tenants in common. The following year, in 1985, the two siblings executed a correction deed conveying the property to themselves as joint tenants with right of survivorship. In 1994, the son conveyed his joint tenancy interest to himself as tenant-in-common, attempting to sever the joint tenancy. The son died the following year, devising his real property to his daughter. In 1995, after the son's death, his sister conveyed her interest in the property to the transferee, reserving for herself a life estate. The sister died in 2000. The son's daughter then brought this action to establish her interest in the property.

In dismissing the action, the court first noted that prior to Aug. 19,1994, a deed executed by a joint tenant to himself as tenant in common was ineffective to sever the joint tenancy. In this case, the son executed the deed to himself before the effective date of the new statute, Real Property Law, sec. 240-c, which permitted severance by a deed to oneself. Hence, the son's deed was ineffective to sever the joint tenancy. Moreover, the court held that neither the 1984 deed nor the 1985 corrective deed accurately captured the testamentary intent of the original owner, which was to assure that the contingent remainder in the property vested in the surviving child. Because the son was the executor, and failed to follow his father's wishes, the court concluded that the son's daughter lacked clean hands and could not expect a court, in equity, to accelerate the effective date of the 1994 statute. As a result, the sister's transferee was entitled to dismissal of the action.

COMMENT

Real Property Law ' 240-C was enacted in 1994 to eliminate the third-party or 'strawman' requirement to unilaterally sever a joint tenancy and transform it into a. tenancy in common. However, there is no case law that applies ' 240-C retroactively. Thus, because William conveyed his interest to himself before the effective date of the statute, the conveyance was insufficient to convert a joint tenancy into a tenancy in common.

Furthermore, the court did not apply ' 240-C because in this case, the will created neither a traditional joint tenancy, nor a common law tenancy in common. EPTL '6-2.2(a) states that, 'a disposition of property to two or more persons creates a tenancy in common, unless expressly declared to be a joint tenancy,' but does not explicitly discuss the alternative presented by this case concurrent life estates to William and Margaret with a contingent remainder to vest in the survivor. Moreover, New York case law provides no guidance on the language necessary to create a joint tenancy rather than concurrent life estates followed by a contingent remainder.

Even if the will created concurrent life estates followed by a contingent remainder, the corrective deed, executed by all of the parties with an interest in the property, had the potential to create a joint tenancy. But because William was both Margaret's brother and the executor of the estate, and Margaret was not represented by an attorney, the court found that their relationship gave rise to an inference of undue influence. This inference would shift to William or his heirs the burden of rebutting the presumption of undue influence. Hennessey v. Ecker, 567 N.Y.S.2d 74, illustrates this shift in burden. Property owner's son arranged for an attorney to transfer a building owned by his mother, who was confined to a nursing home. Even though th signature was notarized, and the woman responded to the notary's questions, the court held that the son, because of his relationship to his mother, bore the burden of demonstrating that he had not exercised undue influence. In Freitas v. Freitas, 454 N.Y.S.2d 22 , however, the court held that the transferor's representation by legal counsel rebuts any inference of undue influence. In Hardin, however, Margaret did not have separate legal counsel when she signed the corrective deed.

Foreclosure Denied When Defaults Did Not Prejudice Mortgagee

Wells Fargo Bank Minnesota, N.A. v. Zobe, LLC

NYLJ 8/5/04, p. 20, col. 3

Supreme Ct., Suffolk Cty

(Henry, J.)

In an action to foreclose a mortgage, the mortgagee sought summary judgment. The court denied the motion, holding that the mortgagee had not demonstrated default in payment of income and principal.

The subject mortgage secures a loan of $2,980,000. The mortgagee has made demands of payments allegedly required by the mortgage instrument, and the mortgagor has not made those payments. The mortgagor contends that the mortgagee's demands reflect excess and premature amounts for escrow for taxes, insurance, and miscellaneous expenses. The mortgagor admits a default of $24,259.60 reflecting an oversight caused by confusion of records. The other alleged defaults include failure to disclose books and records and to comply with appraisal demands. As a result of these defaults, the mortgagee accelerated the mortgage and brought this foreclosure action.

In denying the mortgagee's summary judgment motion, the court noted that at the time the foreclosure action was commenced, the escrow amounts allocable to tax, insurance, and reserve, were not clearly in default, and there was no showing that the mortgagor was in default of payment of income and principal. The acceleration, instead, appeared to be based on irregular payments, and annoyance with the mortgagor's management. The court conceded that the mortgagor might not have complied with the strict terms of the mortgage, but the court concluded that acceleration and foreclosure was not warranted for contract defaults unrelated to payment of interest and principal, absent prejudice to the mortgagee. Because the court found no prejudice in this case, the court held that summary judgment was inappropriate.

Business Judgment Rule Precludes Attack on Parking Regulations

Kaiser v. Forest Hills Gardens Corp.

NYLJ 8/18/04, p. 19, col. 1

Supreme Ct., Queens Cty

(Polizzi, J.)

In an action by business owners against a community association for a declaration that the association lacks authority to enforce newly-promulgated parking regulations, business owners sought a preliminary injunction and the association sought summary judgment dismissing the complaint. The court granted the association's summary judgment motion, invoking the business judgment rule.

The association's predecessor imposed restrictions and covenants on all properties within Forest Hills Gardens. Among those covenants was one that subjected each parcel to an annual charge or assessment toward the payment of maintaining and improving streets. The predecessor then assigned all of its rights and powers to the association, whose articles of incorporation give it power to do 'all things deemed by the corporation advisable for promoting and maintaining any restrictions.' Forest Hills Gardens comprises about 900 homes and several commercial businesses. Until this year, residents and businesses in the Gardens have been permitted unlimited parking for guests and customers, who placed informal parking slips on the dashboards of their automobiles. On March 15, 2004, the association's board revised the parking regulations with respect to commercial and business visitors, giving each business the right to purchase up to five visitor passes for a cost of $250, requiring the business to copy and complete each parking pass, to keep a log relative to issuance of the passes, and to require any customers beyond five to park outside Forest Hills Gardens. The association cited wear and tear on the streets and inconvenience to residents as justifications for the new restrictions. Two business owners, a hair salon and a pediatrician, brought this action challenging the association's authority to enforce the new restrictions, and contending that the restrictions would destroy their businesses.

In granting summary judgment to the association, the court first noted that the business judgment rule applies to rule-making actions taken by the board of a not-for-profit corporation. The court then took it as settled that the association's board has authority to regulate use of streets in Forest Hills Gardens, including the authority to adopt and enforce parking regulations. In this case, board representatives testified that it was not the board's intent to eliminate commercial businesses and professional practices in the area. The court noted that business owners had not come forward with evidentiary proof raising a triable issues of fact about whether the board had acted in bad faith or in a discriminatory manner. As a result, the court granted summary judgment to the association.

COMMENT

Evidence that a particular group of owners will be singled out for harm by a board's action is insufficient to overcome the business judgment rule unless the owners can demonstrate discriminatory motive. Thus, in Caruso v. Murray Hill Terrace Condominium, 146 Misc. 2d 405, the cooperative board restricted the ability of owners to use brokers to rent their apartments, and required owners to pay a 'move in/move out' fee, which singled out for harm the non-resident owners who had purchased their units as a rental investment. The owners who challenged the regulations failed to present any evidence of discrimination or malice on the part of the board and the court applied the business judgment rule, concluding that the regulations had been enacted in good faith to protect the safety and security of the residents. By contrast, evidence that calls into question the board's motives will provide the court with a basis to overcome the business judgment. Thus, in Abrons Found., v. 29 East 64^th Street Corp, 297 A.D.2d 258, the board's resolution to impose a sublet fee on all shareholders applied only to the lone commercial unit owner because subletting by residential tenants was entirely prohibited. In challenging the sublet fee, the commercial owner presented evidence of prior disputes with the board and minutes of board meetings where members discussed requiring the owner to pay a fee. This evidence led the court to rule that the board's actions might have been taken in bad faith and designed to 'solely impact' that one particular owner. Hence, the court remanded the case for review rather than dismissing in reliance on the business judgment rule.

The court in Kaiser upheld the authority of the board to regulate parking in the community even though neither Declaration No. 3 nor the Certificate of Incorporation, expressly granted the board the authority to do so. In concluding that the board had the authority, the court relied on the broad prior judicial interpretations of the board's authority to regulate the use of the streets in the community. See Forest Hills Gardens Corp. v. Knowler, 80 A.D.2d 630, affd 55 N.Y.2d 768; Forest Hills Gardens Corp. v. Baroth, 147 Misc.2d 404. In Knowler and Baroth, the court went beyond upholding the board's parking regulations, holding in addition that the board had the authority to implement more drastic 'traditional common law remedies' such as the towing and booting of cars to enforce measures consistent with the regulation and maintenance of their streets.

Replacement Mortgage Enjoys Limited Priority

Citibank, N.A. v. Kenney

NYLJ 8/12/04, p. 25, col. 6

AppDiv, Second Dept

(memorandum opinion)

In an action to foreclose a senior mortgage, Kenney, a junior mortgagee, appealed from a Supreme Court order determining that her mortgage should be equitably subordinated to a more junior mortgage that had served as a 'replacement' for a more senior mortgage. The Appellate Division reversed, and held that the replacement mortgage enjoyed priority only with respect to the land encumbered by the mortgage it had replaced.

Citibank held the senior mortgage on the subject premises, which includes 14 lots. In this action, Citibank sought to foreclose the senior mortgage. In 1987, Citibank also obtained and recorded a separate mortgage, in the amount of $750,000, encumbering 11 of the lots. Then, in 1993, Kenney obtained and recorded a $170,000 mortgage, encumbering all of the lots. Later that year, the Small Business Administration (SBA) obtained and recorded a mortgage in the amount of $143,400, encumbering only 11 lots. Then, in 1994, Citibank's agent erroneously executed and recorded an instrument discharging the 1987 mortgage. When Citibank discovered the error, it, in 1997, obtained and recorded a new mortgage in the amount of $694,753.73, this time encumbering all of the lots, not just the 11 lots encumbered by its earlier mortgage. In this foreclosure action, Citibank contended that the Kenney mortgage should be equitably subordinated to the 1997 replacement mortgage. The Supreme Court agreed, and Kenney appealed. Pursuant to a stipulation entered into by the parties, the Supreme Court ordered sale of the property free and clear of all mortgages, with the mortgage liens to attach to the sale proceeds.

In reversing the Supreme Court's determination that the replacement mortgage enjoyed priority over the Kenney mortgage, the Appellate Division began by emphasizing that the Replacement mortgage had a broader scope than the 1987 Citibank mortgage, so that Kenney's lien had to enjoy priority over the Citibank lien with respect to proceeds derived from the three lots not encumbered by the 1987 mortgage. With respect to the proceeds derived from the other 11 lots, however, the Appellate Division agreed with the Supreme Court that the replacement mortgage enjoyed priority over the Kenney mortgage. The court conceded that Citibank could have sought reinstatement of the original mortgage because no junior mortgagee had changed its position in reliance on the discharge of that mortgage, but rejected Kenney's contention that Citibank's failure to seek reinstatement constituted waiver of its seniority under the original mortgage. Instead, the court concluded that Citibank retained an equitable lien superior to the Kenney mortgage with respect to the lots encumbered by the original mortgage.

Survivorship Interest Not Terminated By Unilateral Conveyance

Hardin v. Rubin

NYLJ 7/28/04, p. 20, col. 1

Supreme Ct., Kings Cty

(Jacobson, J.)

In an action by the daughter of the original owner's deceased son to establish that she owns a 50% interest in the subject parcel, the transferee from the original owner's daughter moved to dismiss the complaint. The court granted the transferee's motion, holding that the son's conveyance to himself did not terminate the daughter's survivorship interest.

The original owner devised the property to his surviving children for their lives, with the remainder to vest in his last surviving child. The owner's son was the executor of his estate, and issued an executor's deed to himself and his sister as tenants in common. The following year, in 1985, the two siblings executed a correction deed conveying the property to themselves as joint tenants with right of survivorship. In 1994, the son conveyed his joint tenancy interest to himself as tenant-in-common, attempting to sever the joint tenancy. The son died the following year, devising his real property to his daughter. In 1995, after the son's death, his sister conveyed her interest in the property to the transferee, reserving for herself a life estate. The sister died in 2000. The son's daughter then brought this action to establish her interest in the property.

In dismissing the action, the court first noted that prior to Aug. 19,1994, a deed executed by a joint tenant to himself as tenant in common was ineffective to sever the joint tenancy. In this case, the son executed the deed to himself before the effective date of the new statute, Real Property Law, sec. 240-c, which permitted severance by a deed to oneself. Hence, the son's deed was ineffective to sever the joint tenancy. Moreover, the court held that neither the 1984 deed nor the 1985 corrective deed accurately captured the testamentary intent of the original owner, which was to assure that the contingent remainder in the property vested in the surviving child. Because the son was the executor, and failed to follow his father's wishes, the court concluded that the son's daughter lacked clean hands and could not expect a court, in equity, to accelerate the effective date of the 1994 statute. As a result, the sister's transferee was entitled to dismissal of the action.

COMMENT

Real Property Law ' 240-C was enacted in 1994 to eliminate the third-party or 'strawman' requirement to unilaterally sever a joint tenancy and transform it into a. tenancy in common. However, there is no case law that applies ' 240-C retroactively. Thus, because William conveyed his interest to himself before the effective date of the statute, the conveyance was insufficient to convert a joint tenancy into a tenancy in common.

Furthermore, the court did not apply ' 240-C because in this case, the will created neither a traditional joint tenancy, nor a common law tenancy in common. EPTL '6-2.2(a) states that, 'a disposition of property to two or more persons creates a tenancy in common, unless expressly declared to be a joint tenancy,' but does not explicitly discuss the alternative presented by this case concurrent life estates to William and Margaret with a contingent remainder to vest in the survivor. Moreover, New York case law provides no guidance on the language necessary to create a joint tenancy rather than concurrent life estates followed by a contingent remainder.

Even if the will created concurrent life estates followed by a contingent remainder, the corrective deed, executed by all of the parties with an interest in the property, had the potential to create a joint tenancy. But because William was both Margaret's brother and the executor of the estate, and Margaret was not represented by an attorney, the court found that their relationship gave rise to an inference of undue influence. This inference would shift to William or his heirs the burden of rebutting the presumption of undue influence. Hennessey v. Ecker, 567 N.Y.S.2d 74, illustrates this shift in burden. Property owner's son arranged for an attorney to transfer a building owned by his mother, who was confined to a nursing home. Even though th signature was notarized, and the woman responded to the notary's questions, the court held that the son, because of his relationship to his mother, bore the burden of demonstrating that he had not exercised undue influence. In Freitas v. Freitas, 454 N.Y.S.2d 22 , however, the court held that the transferor's representation by legal counsel rebuts any inference of undue influence. In Hardin, however, Margaret did not have separate legal counsel when she signed the corrective deed.

Foreclosure Denied When Defaults Did Not Prejudice Mortgagee

Wells Fargo Bank Minnesota, N.A. v. Zobe, LLC

NYLJ 8/5/04, p. 20, col. 3

Supreme Ct., Suffolk Cty

(Henry, J.)

In an action to foreclose a mortgage, the mortgagee sought summary judgment. The court denied the motion, holding that the mortgagee had not demonstrated default in payment of income and principal.

The subject mortgage secures a loan of $2,980,000. The mortgagee has made demands of payments allegedly required by the mortgage instrument, and the mortgagor has not made those payments. The mortgagor contends that the mortgagee's demands reflect excess and premature amounts for escrow for taxes, insurance, and miscellaneous expenses. The mortgagor admits a default of $24,259.60 reflecting an oversight caused by confusion of records. The other alleged defaults include failure to disclose books and records and to comply with appraisal demands. As a result of these defaults, the mortgagee accelerated the mortgage and brought this foreclosure action.

In denying the mortgagee's summary judgment motion, the court noted that at the time the foreclosure action was commenced, the escrow amounts allocable to tax, insurance, and reserve, were not clearly in default, and there was no showing that the mortgagor was in default of payment of income and principal. The acceleration, instead, appeared to be based on irregular payments, and annoyance with the mortgagor's management. The court conceded that the mortgagor might not have complied with the strict terms of the mortgage, but the court concluded that acceleration and foreclosure was not warranted for contract defaults unrelated to payment of interest and principal, absent prejudice to the mortgagee. Because the court found no prejudice in this case, the court held that summary judgment was inappropriate.

Business Judgment Rule Precludes Attack on Parking Regulations

Kaiser v. Forest Hills Gardens Corp.

NYLJ 8/18/04, p. 19, col. 1

Supreme Ct., Queens Cty

(Polizzi, J.)

In an action by business owners against a community association for a declaration that the association lacks authority to enforce newly-promulgated parking regulations, business owners sought a preliminary injunction and the association sought summary judgment dismissing the complaint. The court granted the association's summary judgment motion, invoking the business judgment rule.

The association's predecessor imposed restrictions and covenants on all properties within Forest Hills Gardens. Among those covenants was one that subjected each parcel to an annual charge or assessment toward the payment of maintaining and improving streets. The predecessor then assigned all of its rights and powers to the association, whose articles of incorporation give it power to do 'all things deemed by the corporation advisable for promoting and maintaining any restrictions.' Forest Hills Gardens comprises about 900 homes and several commercial businesses. Until this year, residents and businesses in the Gardens have been permitted unlimited parking for guests and customers, who placed informal parking slips on the dashboards of their automobiles. On March 15, 2004, the association's board revised the parking regulations with respect to commercial and business visitors, giving each business the right to purchase up to five visitor passes for a cost of $250, requiring the business to copy and complete each parking pass, to keep a log relative to issuance of the passes, and to require any customers beyond five to park outside Forest Hills Gardens. The association cited wear and tear on the streets and inconvenience to residents as justifications for the new restrictions. Two business owners, a hair salon and a pediatrician, brought this action challenging the association's authority to enforce the new restrictions, and contending that the restrictions would destroy their businesses.

In granting summary judgment to the association, the court first noted that the business judgment rule applies to rule-making actions taken by the board of a not-for-profit corporation. The court then took it as settled that the association's board has authority to regulate use of streets in Forest Hills Gardens, including the authority to adopt and enforce parking regulations. In this case, board representatives testified that it was not the board's intent to eliminate commercial businesses and professional practices in the area. The court noted that business owners had not come forward with evidentiary proof raising a triable issues of fact about whether the board had acted in bad faith or in a discriminatory manner. As a result, the court granted summary judgment to the association.

COMMENT

Evidence that a particular group of owners will be singled out for harm by a board's action is insufficient to overcome the business judgment rule unless the owners can demonstrate discriminatory motive. Thus, in Caruso v. Murray Hill Terrace Condominium, 146 Misc. 2d 405, the cooperative board restricted the ability of owners to use brokers to rent their apartments, and required owners to pay a 'move in/move out' fee, which singled out for harm the non-resident owners who had purchased their units as a rental investment. The owners who challenged the regulations failed to present any evidence of discrimination or malice on the part of the board and the court applied the business judgment rule, concluding that the regulations had been enacted in good faith to protect the safety and security of the residents. By contrast, evidence that calls into question the board's motives will provide the court with a basis to overcome the business judgment. Thus, in Abrons Found., v. 29 East 64^th Street Corp, 297 A.D.2d 258, the board's resolution to impose a sublet fee on all shareholders applied only to the lone commercial unit owner because subletting by residential tenants was entirely prohibited. In challenging the sublet fee, the commercial owner presented evidence of prior disputes with the board and minutes of board meetings where members discussed requiring the owner to pay a fee. This evidence led the court to rule that the board's actions might have been taken in bad faith and designed to 'solely impact' that one particular owner. Hence, the court remanded the case for review rather than dismissing in reliance on the business judgment rule.

The court in Kaiser upheld the authority of the board to regulate parking in the community even though neither Declaration No. 3 nor the Certificate of Incorporation, expressly granted the board the authority to do so. In concluding that the board had the authority, the court relied on the broad prior judicial interpretations of the board's authority to regulate the use of the streets in the community. See Forest Hills Gardens Corp. v. Knowler, 80 A.D.2d 630, affd 55 N.Y.2d 768; Forest Hills Gardens Corp. v. Baroth, 147 Misc.2d 404. In Knowler and Baroth, the court went beyond upholding the board's parking regulations, holding in addition that the board had the authority to implement more drastic 'traditional common law remedies' such as the towing and booting of cars to enforce measures consistent with the regulation and maintenance of their streets.

Replacement Mortgage Enjoys Limited Priority

Citibank, N.A. v. Kenney

NYLJ 8/12/04, p. 25, col. 6

AppDiv, Second Dept

(memorandum opinion)

In an action to foreclose a senior mortgage, Kenney, a junior mortgagee, appealed from a Supreme Court order determining that her mortgage should be equitably subordinated to a more junior mortgage that had served as a 'replacement' for a more senior mortgage. The Appellate Division reversed, and held that the replacement mortgage enjoyed priority only with respect to the land encumbered by the mortgage it had replaced.

Citibank held the senior mortgage on the subject premises, which includes 14 lots. In this action, Citibank sought to foreclose the senior mortgage. In 1987, Citibank also obtained and recorded a separate mortgage, in the amount of $750,000, encumbering 11 of the lots. Then, in 1993, Kenney obtained and recorded a $170,000 mortgage, encumbering all of the lots. Later that year, the Small Business Administration (SBA) obtained and recorded a mortgage in the amount of $143,400, encumbering only 11 lots. Then, in 1994, Citibank's agent erroneously executed and recorded an instrument discharging the 1987 mortgage. When Citibank discovered the error, it, in 1997, obtained and recorded a new mortgage in the amount of $694,753.73, this time encumbering all of the lots, not just the 11 lots encumbered by its earlier mortgage. In this foreclosure action, Citibank contended that the Kenney mortgage should be equitably subordinated to the 1997 replacement mortgage. The Supreme Court agreed, and Kenney appealed. Pursuant to a stipulation entered into by the parties, the Supreme Court ordered sale of the property free and clear of all mortgages, with the mortgage liens to attach to the sale proceeds.

In reversing the Supreme Court's determination that the replacement mortgage enjoyed priority over the Kenney mortgage, the Appellate Division began by emphasizing that the Replacement mortgage had a broader scope than the 1987 Citibank mortgage, so that Kenney's lien had to enjoy priority over the Citibank lien with respect to proceeds derived from the three lots not encumbered by the 1987 mortgage. With respect to the proceeds derived from the other 11 lots, however, the Appellate Division agreed with the Supreme Court that the replacement mortgage enjoyed priority over the Kenney mortgage. The court conceded that Citibank could have sought reinstatement of the original mortgage because no junior mortgagee had changed its position in reliance on the discharge of that mortgage, but rejected Kenney's contention that Citibank's failure to seek reinstatement constituted waiver of its seniority under the original mortgage. Instead, the court concluded that Citibank retained an equitable lien superior to the Kenney mortgage with respect to the lots encumbered by the original mortgage.