Real Property Law

Owner Entitled to Challenge Legal Fees After Tax Foreclosure Sale Without Depositing Money into Court

NYCTL 1998-1 Trust v. Oneg Shabbos Inc.

NYLJ 6/1/05, p. 21, col. 3

Supreme Ct., Kings Cty

(Kramer, J.)

In a proceeding to foreclose a tax lien, defaulting owner moved to set aside the foreclosure sale, contending that the legal fee awarded in the judgment of foreclosure were unreasonable. The court granted defaulting owner's motion, holding that an owner is entitled to challenge legal fees, even after sale, without depositing money into court pursuant to RPAPL 1341(2).

In a proceeding to foreclose a $59,000 tax lien, current defendant defaulted while a co-defendant raised defenses that raised the cost of litigation for the foreclosing plaintiff. Current defendant's motion to stay transfer of the deed was denied because defendant did not make a payment into court as required by RPAPL 1341(2). Defendant then sought to set aside the sale on the ground that the $88,000 legal fee awarded to plaintiff's lawyer was excessive.

In granting defendant's motion, the court started by conceding that the requirements of RPAPL 1341 are mandatory in nature. It nevertheless held that a court, in exercising equitable powers, has discretion to set aside a judicial sale based on excessiveness of legal fees. The court reasoned that in many cases, the application for fees is made after the default has occurred. The fees awarded, therefore, have the potential to inflate unreasonably the amount owed on the debt, limiting the original owner's ability to stay the sale and redeem the property. The court went on to note that in a tax foreclosure proceeding, a plaintiff is entitled to “reasonable” attorneys' fees. To determine what is reasonable, the court examined the practice in mortgage foreclosure proceedings, where there is no statutory allowance for fees, and where even when the contract provides for fees, courts scrutinize the amount of the fee to ensure that it bears a fair relationship to the services necessarily occurred.

Turning to the case at hand, the court acknowledged that based only upon the work actually performed, the fee was not unreasonable. But the court observed that the fee amounted to 1.5 times the amount of the tax lien, and in light of the public policy considerations in favor of keeping foreclosure costs low in order to give owners an opportunity to redeem or to recoup losses in a surplus money proceeding, a fee so grossly disproportionate to the amount of the lien was unreasonable. The court concluded that an award of $5000 in fees was reasonable, and amended the judgment of foreclosure to substitute that amount. It then set aside any foreclosure sale held pursuant to the judgment of foreclosure.

Homeowner Obligated to Pay Association Dues Despite Late Recording of Declaration

Board of Directors of Millennium Homeowners Association v. Bosco

NYLJ 6/8/05, p. 23, col. 1

Civil Ct., Richmond Cty

(Straniere, J.)

In an action by homeowners association to collect dues from homeowner, said homeowner moved to dismiss for failure to state a claim. The court granted the association's cross-motion determining that homeowner was obligated to pay dues as a member of the association, even though the association's declaration was not recorded until after homeowner's deed was recorded.

Homeowner contracted to purchase a home on March 19, 1999. The sale contract provided that purchaser recognize that the premises were “a part of a Homeowners Association not yet accepted for filing by the Office of the Attorney General,” and also provided that the purpose of the association was to maintain a common internal storm and sanitary sewer system. The sale closed on Dec. 28, 1999, and homeowner's deed was recorded on Feb. 1, 2000. The association's declaration, dated Jan. 12, 2000, was not recorded until April 6, 2000. Hence, when the association sought to collect annual dues from homeowner, homeowner refused, contending that the association had not been validly constituted, and that homeowner's parcel was free of any obligations imposed by the association. The association then brought this action.

In concluding that the association was entitled to collect dues, the court conceded that regulations promulgated by the state attorney general require that the sponsor of a homeowners association file a declaration prior to the closing of sale on the first lot in any phase of a subdivision. Here, sponsor did not do that. The court, however, noted that the applicable regulation (13 NYCRR 22.1(h)) authorizes the Department of Law to waive compliance with the regulations, and the court concluded that this provision implicitly authorized a court to waive compliance with the recording provision. The court concluded that the statutory scheme was not intended to permit homeowner to opt out of his obligation to pay assessments as due. Hence, the court concluded that the association was validly constituted, and that homeowner was a member of the association. The court went on to hold that even if the homeowner was not a member of the association, the homeowner would nevertheless be obligated to pay the assessment as a homeowner enjoying the benefit of the facilities and services provided by the association. The court set the matter for a trial on the issues of the amounts due and owing for common charges and assessments.

Lis Pendens Statute Upheld

Diaz v. Pataki

NYLJ 5/18/05, p. 21, col. 3

U.S.Dist. Ct

SDNY (Stein, J.)

Mortgagor brought this action for damages and declaratory relief, contending that New York's lis pendens statute violates the Due Process clause of the federal constitution. The court dismissed the complaint for failure to state a claim.

In 1992, mortgagor took out a mortgage on his home in the amount of $65,000. When mortgagor fell behind in mortgage payments, mortgagee brought foreclosure proceedings, and filed a notice of pendency (also known as a lis pendens) against mortgagor's home. Mortgagor then brought this action to declare unconstitutional the statute authorizing notices of pendency.

In dismissing the complaint, the court first held that the Eleventh Amendment barred mortgagor's claims for money damages against state officials, and then exercised its discretion to hear mortgagor's claim for equitable relief.

The court rejected mortgagor's claim that the statute makes it impossible to sell mortgagor's home, noting that the statute does nothing more than provide notice to potential purchasers of a lawsuit that is pending. In connection with a mortgage foreclosure suit like the one at issue in this case, the statute presents a negligible risk of erroneous deprivation, while the statute serves an important public interest — assuring that valid claims are not extinguished by transfers of property to bona fide purchasers. As a result, the court found no due process violation.

Owner Entitled to Challenge Legal Fees After Tax Foreclosure Sale Without Depositing Money into Court

NYCTL 1998-1 Trust v. Oneg Shabbos Inc.

NYLJ 6/1/05, p. 21, col. 3

Supreme Ct., Kings Cty

(Kramer, J.)

In a proceeding to foreclose a tax lien, defaulting owner moved to set aside the foreclosure sale, contending that the legal fee awarded in the judgment of foreclosure were unreasonable. The court granted defaulting owner's motion, holding that an owner is entitled to challenge legal fees, even after sale, without depositing money into court pursuant to RPAPL 1341(2).

In a proceeding to foreclose a $59,000 tax lien, current defendant defaulted while a co-defendant raised defenses that raised the cost of litigation for the foreclosing plaintiff. Current defendant's motion to stay transfer of the deed was denied because defendant did not make a payment into court as required by RPAPL 1341(2). Defendant then sought to set aside the sale on the ground that the $88,000 legal fee awarded to plaintiff's lawyer was excessive.

In granting defendant's motion, the court started by conceding that the requirements of RPAPL 1341 are mandatory in nature. It nevertheless held that a court, in exercising equitable powers, has discretion to set aside a judicial sale based on excessiveness of legal fees. The court reasoned that in many cases, the application for fees is made after the default has occurred. The fees awarded, therefore, have the potential to inflate unreasonably the amount owed on the debt, limiting the original owner's ability to stay the sale and redeem the property. The court went on to note that in a tax foreclosure proceeding, a plaintiff is entitled to “reasonable” attorneys' fees. To determine what is reasonable, the court examined the practice in mortgage foreclosure proceedings, where there is no statutory allowance for fees, and where even when the contract provides for fees, courts scrutinize the amount of the fee to ensure that it bears a fair relationship to the services necessarily occurred.

Turning to the case at hand, the court acknowledged that based only upon the work actually performed, the fee was not unreasonable. But the court observed that the fee amounted to 1.5 times the amount of the tax lien, and in light of the public policy considerations in favor of keeping foreclosure costs low in order to give owners an opportunity to redeem or to recoup losses in a surplus money proceeding, a fee so grossly disproportionate to the amount of the lien was unreasonable. The court concluded that an award of $5000 in fees was reasonable, and amended the judgment of foreclosure to substitute that amount. It then set aside any foreclosure sale held pursuant to the judgment of foreclosure.

Homeowner Obligated to Pay Association Dues Despite Late Recording of Declaration

Board of Directors of Millennium Homeowners Association v. Bosco

NYLJ 6/8/05, p. 23, col. 1

Civil Ct., Richmond Cty

(Straniere, J.)

In an action by homeowners association to collect dues from homeowner, said homeowner moved to dismiss for failure to state a claim. The court granted the association's cross-motion determining that homeowner was obligated to pay dues as a member of the association, even though the association's declaration was not recorded until after homeowner's deed was recorded.

Homeowner contracted to purchase a home on March 19, 1999. The sale contract provided that purchaser recognize that the premises were “a part of a Homeowners Association not yet accepted for filing by the Office of the Attorney General,” and also provided that the purpose of the association was to maintain a common internal storm and sanitary sewer system. The sale closed on Dec. 28, 1999, and homeowner's deed was recorded on Feb. 1, 2000. The association's declaration, dated Jan. 12, 2000, was not recorded until April 6, 2000. Hence, when the association sought to collect annual dues from homeowner, homeowner refused, contending that the association had not been validly constituted, and that homeowner's parcel was free of any obligations imposed by the association. The association then brought this action.

In concluding that the association was entitled to collect dues, the court conceded that regulations promulgated by the state attorney general require that the sponsor of a homeowners association file a declaration prior to the closing of sale on the first lot in any phase of a subdivision. Here, sponsor did not do that. The court, however, noted that the applicable regulation (13 NYCRR 22.1(h)) authorizes the Department of Law to waive compliance with the regulations, and the court concluded that this provision implicitly authorized a court to waive compliance with the recording provision. The court concluded that the statutory scheme was not intended to permit homeowner to opt out of his obligation to pay assessments as due. Hence, the court concluded that the association was validly constituted, and that homeowner was a member of the association. The court went on to hold that even if the homeowner was not a member of the association, the homeowner would nevertheless be obligated to pay the assessment as a homeowner enjoying the benefit of the facilities and services provided by the association. The court set the matter for a trial on the issues of the amounts due and owing for common charges and assessments.

Lis Pendens Statute Upheld

Diaz v. Pataki

NYLJ 5/18/05, p. 21, col. 3

U.S.Dist. Ct

SDNY (Stein, J.)

Mortgagor brought this action for damages and declaratory relief, contending that New York's lis pendens statute violates the Due Process clause of the federal constitution. The court dismissed the complaint for failure to state a claim.

In 1992, mortgagor took out a mortgage on his home in the amount of $65,000. When mortgagor fell behind in mortgage payments, mortgagee brought foreclosure proceedings, and filed a notice of pendency (also known as a lis pendens) against mortgagor's home. Mortgagor then brought this action to declare unconstitutional the statute authorizing notices of pendency.

In dismissing the complaint, the court first held that the Eleventh Amendment barred mortgagor's claims for money damages against state officials, and then exercised its discretion to hear mortgagor's claim for equitable relief.

The court rejected mortgagor's claim that the statute makes it impossible to sell mortgagor's home, noting that the statute does nothing more than provide notice to potential purchasers of a lawsuit that is pending. In connection with a mortgage foreclosure suit like the one at issue in this case, the statute presents a negligible risk of erroneous deprivation, while the statute serves an important public interest — assuring that valid claims are not extinguished by transfers of property to bona fide purchasers. As a result, the court found no due process violation.