Real Property Law

Equitable Estoppel Precludes Summary Judgment in Foreclosure Proceeding

Malik v. Bernett

NYLJ 4/13/05, p. 19, col. 3

Supreme Ct., Kings Cty

(Schack, J.)

In an action to foreclose a mortgage, mortgagee moved for summary judgment. The court denied the motion, holding that mortgagors raised issues of fact about mortgagee's fraud in the inducement, bad faith, and material misrepresentations. The court also held that equitable estoppel might preclude mortgagee from foreclosing.

When mortgagors purchased the property from a corporation owned by mortgage, mortgagors were not represented by counsel. The sale contract included no mortgage contingency clause, but did include a liquidated damages clause that would have permitted seller to retain the deposit if purchasers defaulted. At closing, mortgagee informed mortgagors that they had qualified for a $279,000 mortgage, but that for them to purchase the home and not lose the down payment, they would have to give a second mortgage to mortgagee. That second mortgage, the subject of the instant foreclosure action, had a provision for a $22,000 balloon payment after 1 year, a payment mortgagors did not make, prompting the instant foreclosure action.

In denying summary judgment to mortgagee, the court concluded that when the evidence is viewed in a light most favorable to mortgagors, it appeared as if they might have been fraudulently induced into signing the contract of sale, particularly in light of their allegations that mortgagee informed them that they did not need a lawyer and that he would arrange everything, including financing. The court also concluded that if mortgagee had indeed promised that mortgagors did not need an attorney, and that mortgagee would take care of financing, mortgagors might have relied on that representation to their detriment. As a result, mortgagors might have a defense based on equitable estoppel. As a result, questions of fact precluded award of summary judgment to mortgagee.

COMMENT

Since the Court of Appeals' decision in Nassau Trust Company v. Montrose Concrete Products Corp., 56 N.Y.2d 175, 182, mortgagors have been able to survive motions for summary judgment in foreclosure proceedings by presenting detailed written support that would create a triable issue of fact sufficient to warrant a trial on an estoppel defense. The written support could substantiate allegations that mortgagee made representations at the time of non-payment or during pre-mortgage negotiation. See Id. Thus, in First Union Nat'l Bank v. Tecklenburg, 2 A.D.3d 575, the court denied the mortgagee's motion for summary judgment, holding that a mortgagor, who presented the court with a recorded satisfaction of mortgage on the same mortgage that was the subject of the current foreclosure proceeding, was entitled to a trial based on the asserted estoppel defense. The mortgagee bank erroneously applied funds to the mortgagor's account and pre-maturely issued a satisfaction of mortgage. When the mortgagee discovered its error, it sought foreclosure for non-payment. Despite the evidence presented by the mortgagee that the mortgage was indeed not satisfied, the mortgagor presented sufficient written support to be entitled to a full hearing to determine if the mortgagor relied to his detriment on the satisfaction document.

A mortgagor need not allege bad faith on the part of the mortgagee in order to assert a defense of estoppel. First Union Nat'l Bank, 2 A.D.3d at 575. Estoppel requires merely that a mortgagor show a detrimental change of position based on representations made by the mortgagee, although a showing of collusive or oppressive conduct could help strengthen a claim. Nassau Trust Company, 56 N.Y.2d at 182.

Courts seem reluctant, however, to find for a mortgagor on a motion for summary judgment when the mortgagor makes unsubstantiated allegations of detrimental reliance based only on allegations that the mortgagee made oral representations. For example, in N.Y.S. Urban Dev. Corp. v. Marcus Garvey Brownstone Housing, 98 A.D.2d 767 (1983), the court granted the mortgagee's (UDC) motion for summary judgment when the mortgagor alleged that the mortgagee, through its agents, orally made assurances that in the event of mortgagor's default the lender would not foreclose but would create a work out plan, thus prompting his additional investment. Mortgagor alleged that it had been reluctant to invest in the project, and that the oral representations had induced mortgagor to take out the mortgage. When the mortgagor defaulted and the mortgagee foreclosed, the court held that since the oral representations were not evidenced in any writing presented by the mortgagor, the mortgagee was entitled to summary judgment. Moreover, the court, though silent on the strength of the reliance claim noted, that even absent a writing the alleged oral representations were counterintuitive because the parties had executed a detailed foreclosure plan in the written mortgage.

Purchaser May Not Waive Mortgage Contingency Clause

Degree Security Systems, Inc. v. F.A.B. Land Corp.

NYLJ 4/25/05, p. 36, col. 1

AppDiv, Second Dept

(memorandum opinion)

In contract vendee's action for specific performance of a contract for the sale of real property, contract vendee appealed from Supreme Court's grant of seller's summary judgment motion. The Appellate Division affirmed, holding that the purchaser could not waive the sale contract's mortgage contingency clause.

The parties entered into a sale contract which provided that the contract was subject to and conditioned upon contract vendee obtaining a firm mortgage commitment for a conventional mortgage of $1,010,000 within 30 days from the date of the contract. The contract also provided that in the event contract vendee did not obtain such a mortgage, either party could cancel the contract and the down payment would be returned. Contract vendee did not obtain the required mortgage. When seller returned the down payment and informed contract vendee that it was canceling the contract, contract vendee advised seller that it would purchase the property on an “all cash” basis with no mortgage contingency. Seller refused to accept contract vendee's tender of the down payment and continued to treat the contract as canceled. Contract vendee then brought this action.

In affirming Supreme Court's grant of summary judgment to seller, the court noted that in this case, the mortgage contingency clause was a condition precedent inuring to the benefit of both parties. As a result, contract vendee could not unilaterally waive the provision. Because seller timely exercised its right to cancel the contract, seller was entitled to summary judgment.

Equitable Estoppel Precludes Summary Judgment in Foreclosure Proceeding

Malik v. Bernett

NYLJ 4/13/05, p. 19, col. 3

Supreme Ct., Kings Cty

(Schack, J.)

In an action to foreclose a mortgage, mortgagee moved for summary judgment. The court denied the motion, holding that mortgagors raised issues of fact about mortgagee's fraud in the inducement, bad faith, and material misrepresentations. The court also held that equitable estoppel might preclude mortgagee from foreclosing.

When mortgagors purchased the property from a corporation owned by mortgage, mortgagors were not represented by counsel. The sale contract included no mortgage contingency clause, but did include a liquidated damages clause that would have permitted seller to retain the deposit if purchasers defaulted. At closing, mortgagee informed mortgagors that they had qualified for a $279,000 mortgage, but that for them to purchase the home and not lose the down payment, they would have to give a second mortgage to mortgagee. That second mortgage, the subject of the instant foreclosure action, had a provision for a $22,000 balloon payment after 1 year, a payment mortgagors did not make, prompting the instant foreclosure action.

In denying summary judgment to mortgagee, the court concluded that when the evidence is viewed in a light most favorable to mortgagors, it appeared as if they might have been fraudulently induced into signing the contract of sale, particularly in light of their allegations that mortgagee informed them that they did not need a lawyer and that he would arrange everything, including financing. The court also concluded that if mortgagee had indeed promised that mortgagors did not need an attorney, and that mortgagee would take care of financing, mortgagors might have relied on that representation to their detriment. As a result, mortgagors might have a defense based on equitable estoppel. As a result, questions of fact precluded award of summary judgment to mortgagee.

COMMENT

Since the Court of Appeals' decision in Nassau Trust Company v. Montrose Concrete Products Corp., 56 N.Y.2d 175, 182, mortgagors have been able to survive motions for summary judgment in foreclosure proceedings by presenting detailed written support that would create a triable issue of fact sufficient to warrant a trial on an estoppel defense. The written support could substantiate allegations that mortgagee made representations at the time of non-payment or during pre-mortgage negotiation. See Id. Thus, in First Union Nat'l Bank v. Tecklenburg, 2 A.D.3d 575, the court denied the mortgagee's motion for summary judgment, holding that a mortgagor, who presented the court with a recorded satisfaction of mortgage on the same mortgage that was the subject of the current foreclosure proceeding, was entitled to a trial based on the asserted estoppel defense. The mortgagee bank erroneously applied funds to the mortgagor's account and pre-maturely issued a satisfaction of mortgage. When the mortgagee discovered its error, it sought foreclosure for non-payment. Despite the evidence presented by the mortgagee that the mortgage was indeed not satisfied, the mortgagor presented sufficient written support to be entitled to a full hearing to determine if the mortgagor relied to his detriment on the satisfaction document.

A mortgagor need not allege bad faith on the part of the mortgagee in order to assert a defense of estoppel. First Union Nat'l Bank, 2 A.D.3d at 575. Estoppel requires merely that a mortgagor show a detrimental change of position based on representations made by the mortgagee, although a showing of collusive or oppressive conduct could help strengthen a claim. Nassau Trust Company, 56 N.Y.2d at 182.

Courts seem reluctant, however, to find for a mortgagor on a motion for summary judgment when the mortgagor makes unsubstantiated allegations of detrimental reliance based only on allegations that the mortgagee made oral representations. For example, in N.Y.S. Urban Dev. Corp. v. Marcus Garvey Brownstone Housing, 98 A.D.2d 767 (1983), the court granted the mortgagee's (UDC) motion for summary judgment when the mortgagor alleged that the mortgagee, through its agents, orally made assurances that in the event of mortgagor's default the lender would not foreclose but would create a work out plan, thus prompting his additional investment. Mortgagor alleged that it had been reluctant to invest in the project, and that the oral representations had induced mortgagor to take out the mortgage. When the mortgagor defaulted and the mortgagee foreclosed, the court held that since the oral representations were not evidenced in any writing presented by the mortgagor, the mortgagee was entitled to summary judgment. Moreover, the court, though silent on the strength of the reliance claim noted, that even absent a writing the alleged oral representations were counterintuitive because the parties had executed a detailed foreclosure plan in the written mortgage.

Purchaser May Not Waive Mortgage Contingency Clause

Degree Security Systems, Inc. v. F.A.B. Land Corp.

NYLJ 4/25/05, p. 36, col. 1

AppDiv, Second Dept

(memorandum opinion)

In contract vendee's action for specific performance of a contract for the sale of real property, contract vendee appealed from Supreme Court's grant of seller's summary judgment motion. The Appellate Division affirmed, holding that the purchaser could not waive the sale contract's mortgage contingency clause.

The parties entered into a sale contract which provided that the contract was subject to and conditioned upon contract vendee obtaining a firm mortgage commitment for a conventional mortgage of $1,010,000 within 30 days from the date of the contract. The contract also provided that in the event contract vendee did not obtain such a mortgage, either party could cancel the contract and the down payment would be returned. Contract vendee did not obtain the required mortgage. When seller returned the down payment and informed contract vendee that it was canceling the contract, contract vendee advised seller that it would purchase the property on an “all cash” basis with no mortgage contingency. Seller refused to accept contract vendee's tender of the down payment and continued to treat the contract as canceled. Contract vendee then brought this action.

In affirming Supreme Court's grant of summary judgment to seller, the court noted that in this case, the mortgage contingency clause was a condition precedent inuring to the benefit of both parties. As a result, contract vendee could not unilaterally waive the provision. Because seller timely exercised its right to cancel the contract, seller was entitled to summary judgment.