Real Property Law

AppDiv, First Dept

(memorandum opinion)

In an action by two separate mortgagors against mortgagees for breach of contract in failing to execute assignments of the respective mortgages, mortgagee appealed from Supreme Court's denial of its summary judgment motion. The Appellate Division modified to grant summary judgment to mortgagee, holding that mortgagee was not obligated to execute assignments rather than satisfactions of the mortgages when mortgagors prepaid their mortgage loans.

When mortgagors sought to refinance their mortgage loans, they sought assignments of the mortgages to the new mortgagees in order to save on the mortgage recording tax associated with the new mortgage loans. Mortgagee contended that it was not obligated to execute assignments, but then agreed to execute the assignments for a fee. One mortgagor accepted the deal, and then signed an agreement releasing mortgagee from any claim challenging payment of the assignment fee. The other mortgagee received a satisfaction, and paid 'extra' mortgage recording tax as a result. Mortgagors then brought this action, contending that section 275 of the Real Property Law created an implied right to obtain an assignment upon prepayment of a mortgage. The mortgagor who had signed the release agreement sought to void that agreement on grounds of fraud and economic duress. Supreme Court declined to dismiss the complaint, and mortgagee appealed.

In modifying to grant summary judgment to mortgagee, the Appellate Division acknowledged that an assignment would save mortgagors hundreds of thousands of dollars in mortgage recording tax, but nevertheless rejected the argument that section 275 creates an implied right to an assignment. The court went on to hold that there was no ambiguity in the loan documents, which did not mention any right to assignment. In the absence of ambiguity, the court held that there was no basis to admit evidence of current industry practice or custom. Moreover, the court rejected one mortgagor's claim that the release should be invalidated on fraud or duress grounds, concluding that mortgagee had made no false representation. Mortgagee simply represented that it would not execute the assignment unless mortgagor paid the fee ' a position the mortgagee was entitled to take in light of the court's construction of the statute and the loan documents. As a result, mortgagee was entitled to summary judgment, and the mortgagor who executed the release was not entitled to recover the $413,819.77 assignment fee it paid; the other mortgagor was not entitled to reimbursement for $160,875 in 'extra' recording tax it paid as a result of mortgagee's refusal to execute the assignment.

Right of First Refusal Expired with Lease Termination

Johnnie's Pelham Road Service, Inc. v. Thomas

NYLJ 2/27/06, p. 35, col. 4

AppDiv, Second Dept

(memorandum opinion)

In an action by lessee for specific performance of a right of first refusal, lessor appealed from a Supreme Court order granting summary judgment to lessee and enjoining transfer of the premises to a third party. The Appellate Division reversed and dismissed the complaint, holding that once the lease expired, lessor was entitled to sell the premises to the third party without interference by the lessee.

In 1993, lessor leased the subject parcel to the lessee, who used it to operate a gas station. The lease contained a right of first refusal that would be triggered by a bona fide offer to purchase the leased premises during the term of the lease. Lessor also owned an adjacent property that included a private residence. That adjacent property was not subject to the lease or the right of first refusal. In 2004, a third party offered to purchase both the gas station parcel and the adjacent residence. Lessee declined to exercise its right of first refusal, but the third-party sale was never consummated. In August, lessor offered to sell both parcels to lessee at the price offered by the third party, but lessee was unable to obtain financing. In October 2004, lessor received another third-party offer for the two parcels, and, on Nov. 5, entered into a contract of sale without consulting lessee. In February 2005, lessee approaches lessor with a purchase offer, only to learn of the sale contract. Lessee then brought this action to compel specific performance, and to enjoin sale to the third party.

The Supreme Court awarded summary judgment to lessee, and ordered lessor to convey the property to lessee within 60 days. Lessor appealed, and the Appellate Division stayed enforcement pending the appeal. During the pendency of the appeal, the lease expired.

In reversing the Supreme Court's award of summary judgment to lessee, the Appellate Division first conceded that lessee's failure to exercise the first refusal right in March 2004 did not result in waiver of that right, because the March offer encompassed both the leased premises and the adjacent premises. Because lessee could not be forced to choose between purchasing both parcels and losing its right of first refusal with respect to the leased parcel alone, the right of first refusal was never triggered. The Appellate Division nevertheless held that Supreme Court erred in awarding summary judgment to lessee because the lessee had no right to compel conveyance of the leased premises alone when the lessor intended to sell both the leased premises and the neighboring parcel, nor did the lessee have a right to compel conveyance of both parcels when the right of first refusal applied only to the leased premises. At the same time, during the pendency of the lease, the lessee was entitled to enjoin the proposed sale to the third party because the proposed sale would defeat the lessee's first refusal right. Once the lease expired, however, the right of first refusal expired with it, and the lessor was entitled to sell to the third party. As a result, even though Supreme Court correctly enjoined the sale, enforcement of the injunction was no longer warranted once the lease expired. Hence, lessor was entitled to summary judgment.

COMMENT

When a lessee holds a right of first refusal, the lessee may enjoin the lessor from selling the property subject to that right to a third party as part of a larger parcel, even if the lessee is unwilling to purchase the larger. Thus, in C&B Wholesale Stationery v. S. De Bella Dresses, Inc. et al., 43 A.D.2d 579, the Second Department held that lessee's right of first refusal survived lessor's attempt to sell the property subject to the right as part of a larger parcel. Lessee had declined lessor's offer to buy the larger parcel at the price offered by a third party, and the lessor completed the sale to the third party. The court held the sale ineffective and enjoined lessor from selling to any third party, explaining that the lessee was not obligated to buy the larger parcel, not did it waive its right to first refusal by declining to buy that larger parcel. Instead, the court observed that lessee's right to first refusal would not triggered until lessor presented lessee with a bona fide offer to purchase the property subject to the first refusal right. Conversely, a lessee may not enforce its right of first refusal unless and until seller is prepared to accept a bona fide offer to purchase the property subject to the right. Thus, in Tarallo v. Northstar Bank, 144 A.D.2d 157, the court held that lessee was not entitled to specific performance of its right to first refusal when lessor attempted to sell more property than covered by lessee's right of first refusal. As in C & B, the court required lessor to regain title to the property subject to the first refusal right, and enjoined its sale until lessor gave the lessee an opportunity to meet a bona fide offer. In Tarallo, lessor sought to convey the leased premises and two other buildings to a real estate developer after attempting to break its lease with lessee. Lessor consummated the sale with the third party after lessee did not offer to purchase the combined parcel. The court explained that lessee's right of first refusal was never triggered because lessor never intended to sell only the demised piece and thus lessor could not be compelled to sell the demised parcel alone.

In Tarallo, the lessee sought an injunction against sale of the property subject to the first refusal right, and the court granted the injunction. If, however, the lessee had not sought an injunction against sale, but had sought only specific performance of the first refusal right, lessee would not have been entitled to relief. Thus, in Sautkulis v. Conklin, 1 A.D.2d 962, the court held that less was not entitled to specific performance of a first refusal right when lessor agreed to sell the demised property and an adjacent parcel to a third party. The court explained that because lessor sold more than the property over which the lessee had a first refusal right, lessee was not entitled to compel lessor to sell the demised parcel alone. Because the lessee did not seek to enjoin the sale to the third party, the court did not address lessee's right to injunctive relief, the usual remedy for a lessee in this situation.

Neighbors Not Entitled to Enjoin Violation of Zoning Ordinance

East Sixties Property Owners Association v. Cohane

NYLJ 2/22/06, p. 25, col. 1

Supreme Ct., N.Y. Cty

(Soto, J.)

In an action by property owners association to enjoin operation of dental practices in alleged violation of restrictive covenants and zoning restrictions, defendant, the dentists and property owner, moved to dismiss the complaint. The court granted the dismissal motion, holding that the covenants did not prohibit operation of dental practices and that the association had failed to exhaust administrative remedies in challenging findings that the dental practices did not violate applicable zoning ordinances.

The owner of the bottom two stories of a brownstone on East 61^st Street in Manhattan leases his space to several dentists who operate practices in the space. Restrictive covenants, recorded in 1868, provide that no 'business or occupation known as nuisances in the law or which may be dangerous or offensive to neighboring inhabitants shall ever be made, erected or permitted' on lots subject to the restrictions. Moreover, the brownstone lies in a zoning district that permits residential use. The property owners association brought this action, contending that use of the space for dental practices violated both the restrictive covenants and the zoning ordinance.

In dismissing the complaint, the court first concluded that a dental practice was neither a nuisance nor a business dangerous or offensive to neighboring inhabitants within the meaning of the covenants. The court emphasized that restrictive covenants are to be construed narrowly, and that the dental offices in this case are marked only by a small brass plate. With respect to the contention that the practices violate the zoning ordinance, the court noted that the city zoning ordinance provides a 'home occupation' exception within residential districts. Although the home occupation exception by its terms requires the person conducting the occupation to reside in the premises, the court emphasized that the city Department of Buildings and Environmental Control Board had already determined that the dental practices did not violate the zoning ordinance. The court noted that the property owners association had not sought review of these determinations administratively, with the Board of Standards and Appeals, nor had the association brought an article 78 proceeding challenging the administrative determinations. Those were, in the court's judgment, the remedies available to the association. As a result, the court dismissed the complaint.

COMMENT

Although Town Law section 268 expressly authorizes any three aggrieved taxpayers to institute a proceeding to enjoin violations of zoning ordinances when town officials have failed to act, the Court of Appeals held, in Little Joseph Realty v. Town of Babylon 41 N.Y.2d 738, that the statute does not provide the exclusive remedy for landowners aggrieved by a zoning violation. The court held that neighbor who suffers special damages can bring an action to enjoin the violation independent of the statutory provision.

A plaintiff has standing to enjoin a zoning violation when he can establish special damages, namely diminution in the value of real estate, arising from the conduct of defendant landowner's activities. The harm suffered, however, must be within the zone of interest protected by the zoning ordinance; loss of business volume due to increased competition does not confer standing on a neighboring landowner. Thus, in Cord Meyer Dev. Co. v. Bell Bay Drugs 20 N.Y.2d 211, the Court of Appeals held that a neighbor who leased a pharmacy in a commercially zoned area did not have standing to enjoin operation of a competing pharmacy in a neighboring zone where commercial uses were prohibited. Because plaintiff complained only of lost volume, and failed to provide detailed evidence of actual depreciation in the value of its property, the court held that plaintiff lacked standing.

However, where a neighbor in close proximity to the violation alleges harm within the zone of interest protected by the ordinance, courts may presume injury without concrete proof of special damages. Thus, in Zupa v. Paradise Point Association, 22 A.D. 843, the court held that residential homeowners had standing to maintain a private action to enjoin zoning prohibitions against excessive lights, noise, pollution and smoke, even without proving damages different from those incurred by the public at large. Defendants in Zupa operated a private marina in close proximity to the residential properties, and the court held that the proximity was sufficient to dispense with the need to prove special damages.

Foreclosure Improper with Respect to Interest Not Covered By Mortgage

Citifinancial Co. v. McKinney

NYLJ 3/10/06, p. 26, col. 3

AppDiv, First Dept

(memorandum opinion)

In an action to foreclose a mortgage, daughter of deceased mortgagor appealed from Supreme Court's order granting mortgagee's motion for a foreclosure order. The Appellate Division reversed and remanded for further proceedings, holding that the daughter held an interest not subject to the mortgage.

Carnes McKinney and his son Marcellus acquired the subject property in 1965, apparently as tenants-in-common with no right of survivorship. Father and son, and their respective wives, gave a mortgage on the property at that time. The father died in 1976 and his wife in 1982, survived by Marcellus and another son, Sydney. There is no indication that the father or mother ever left a will. Beginning in 1986, Marcellus engaged in refinancing transactions, culminating in execution of a mortgage in 1996 to secure a loan of $138,222.56. Marcellus represented to mortgagee that he was the sole owner of the property. He died in May, 1997, and the mortgage went into default in December 1997. The following year, Sydney executed an affidavit acknowledging that for $10,000, he had surrendered any right, title, and interest in the subject property to Marcellus' wife and daughter. In March 2003, mortgagee brought the instant foreclosure action and sought summary judgment. Marcellus' daughter, who was also administrator of his estate, opposed the motion, contending that no money was owed on the mortgage, that Sydney should have been a party, and that the mortgage was induced by fraud. Supreme Court granted mortgagee's summary judgment motion, concluding that there was no evidence to support the daughter's assertions as fraud or the balance due on the mortgage, and concluding that Sydney's affidavit rendered moot any failure to name Sydney as a party to the mortgage. Marcellus' daughter appealed.

In reversing, the Appellate Division noted that when Marcellus entered into the mortgage, he apparently was not the sole owner of the property, but instead shared an interest with Sydney, who appeared to have inherited an interest. Sydney's ownership interest did not render the mortgage invalid, but mortgagee acquired security up to the interest of the mortgagor. Moreover, Sydney's conveyance of his interest to Marcellus' wife and daughter did not inure to the benefit of mortgagee, because that conveyance was neither to Marcellus nor to Marcellus' estate, but directly to the wife and daughter. That interest passed to the daughter at the wife's death, and has never been subject to the 1996 mortgage. As a result, mortgagee cannot foreclose on that interest. Hence, Supreme Court erred in awarding summary judgment to mortgagee. The court remanded, however, because the record was less than clear as to whether Sydney had inherited an interest in the property, and what the nature of Sydney's interest was. The court concluded that further discovery and proceedings were needed with respect to those issues.

COMMENT

When a mortgagee obtains an interest from fewer than all of the owners of a parcel of land, the mortgagee's remedy is to foreclose on the mortgagor's interest, and then to seek partition against any co-owners. In V.R.W., Inc. v. Klein, 68 NY2d 560, the Court of Appeals held that where a husband had given a mortgage on his marital residence without his wife's signature, and the parties were later divorced, the purchaser at the foreclosure sale became a tenant in common with the wife, obtaining all of the rights of a tenant in common including the right to partition. (See RPAPL Section 901(1), governing partition).

When a co-tenant brings a partition action, RPAPL section 915 authorizes a sale of the jointly-owned property only when a partition-in-kind cannot be made 'without great prejudice to the owners.' Courts, however, have ordered partitions by sale when division into smaller lots would have a negative impact on market value. Thus, in Bellnier v. Bellnier, 158 AD2d 747, the court held that partition by sale was appropriate where a partition-in-kind would leave each of the divided lots below the minimum lot size specified in the local zoning ordinance.

Notice of Pendency Puts Non-Party on Constructive Notice

Novastar Mortgage, Inc. v. Mendoza

NYLJ 3/8/06, p. 29, col. 6

AppDiv, Second Dept

(memorandum opinion)

In a mortgage foreclosure action, mortgagee appealed from a Supreme Court order vacating the judgment of foreclosure at the instance of a non-party to the foreclosure action. The Appellate Division reversed and reinstated the judgment of foreclosure, holding that a notice of pendency put the non-party on constructive notice of the foreclosure proceeding.

Mortgagor conveyed a one-half interest in the subject property to Mendoza, perhaps before mortgagee commenced a foreclosure action, although the court's opinion is not clear on that point. When mortgagee brought the foreclosure action, mortgagee filed a notice of pendency, but did not name Mendoza as a party. Mendoza did not record his deed until a month after the filing of the notice of pendency. After mortgagee obtained a judgment in the foreclosure action, Mendoza moved to vacate the judgment of foreclosure, and Supreme Court granted the motion.

In reversing, the Appellate Division emphasized that a person whose conveyance is recorded after the filing of a notice of pendency is bound by all proceedings taken in the action after the filing to the same extent as if the person had been a party to the proceeding. In this case, where the deed to Mendoza was recorded after filing of the notice of pendency, the court concluded that Mendoza had constructive notice of the foreclosure, and his interest in the property was foreclosed upon entry of the judgment of foreclosure. As a result, the foreclosure judgment should not have been vacated.

Bidder Not Entitled to Delivery of 15 Deeds

Matter of Toussie v. County of Suffolk

NYLJ 3/8/06, p. 27, col. 4

AppDiv, Second Dept (3-1 decision; memorandum opinion; dissenting memorandum by Spolzino, J.)

In a hybrid action/special proceeding brought by successful bidder at a public auction to annul a determination by the Suffolk County legislature disapproving the sale, the bidder appealed from Supreme Court's dismissal of the action and proceeding. The Appellate Division modified to declare that the bidder was not entitled to delivery of the 15 deeds, and otherwise affirmed, holding that the legislature had discretion to consider factors other than the successful bidder's fiscal qualifications.

The Suffolk County legislature sought to sell 15 surplus properties. The Suffolk County Administrative Code provides that execution of a deed to surplus property offered for sale at a public auction is subject to the county legislature's 'express approval.' The legislature authorized an auction sale for the 15 properties 'conditioned upon, and subject to the approval of the Suffolk County legislature.' After the auction, however, the legislature refused to approve sale to the high bidder, apparently because the bidder's son had pleaded guilty to making false statements in applying federally guaranteed loans, and because the legislature feared that the bidder might convey the property to his son. Supreme Court, citing the condition the legislature had imposed on the auction sale, upheld the legislature's refusal, and the high bidder appealed.

In affirming, the Appellate Division majority observed first that the auction documents did not impose limits on the county legislature's discretion to approve or disapprove a sale. As a matter of construction of the Suffolk County Administrative Code, the majority held that the legislature was authorized to disapprove sales on grounds other than inability to perform the sale contract, because other provisions of the bidding process assured that the successful bidder would be financially able to complete the contract. Hence, unless the Code conferred on the legislature broader discretion to disapprove, the Code provision would be meaningless. Moreover, the majority found no state constitutional or statutory basis for invalidating the code's grant of discretion to the legislature.

Justice Spolzino, dissenting, concluded that the county legislature's decision was arbitrary and capricious. He argued that the legislature's only concern with respect to sales of surplus land was with the price to be obtained for the land. Local villages and towns, not the county, have authority to regulate the uses to which the land is put.

Mortgagee Not Obligated to Execute Assignments Rather Than Satisfactions

767 Third Avenue LLC v. Orix Capital Markets, LLC

NYLJ 2/16/06, p. 25, col. 5

AppDiv, First Dept

(memorandum opinion)

In an action by two separate mortgagors against mortgagees for breach of contract in failing to execute assignments of the respective mortgages, mortgagee appealed from Supreme Court's denial of its summary judgment motion. The Appellate Division modified to grant summary judgment to mortgagee, holding that mortgagee was not obligated to execute assignments rather than satisfactions of the mortgages when mortgagors prepaid their mortgage loans.

When mortgagors sought to refinance their mortgage loans, they sought assignments of the mortgages to the new mortgagees in order to save on the mortgage recording tax associated with the new mortgage loans. Mortgagee contended that it was not obligated to execute assignments, but then agreed to execute the assignments for a fee. One mortgagor accepted the deal, and then signed an agreement releasing mortgagee from any claim challenging payment of the assignment fee. The other mortgagee received a satisfaction, and paid 'extra' mortgage recording tax as a result. Mortgagors then brought this action, contending that section 275 of the Real Property Law created an implied right to obtain an assignment upon prepayment of a mortgage. The mortgagor who had signed the release agreement sought to void that agreement on grounds of fraud and economic duress. Supreme Court declined to dismiss the complaint, and mortgagee appealed.

In modifying to grant summary judgment to mortgagee, the Appellate Division acknowledged that an assignment would save mortgagors hundreds of thousands of dollars in mortgage recording tax, but nevertheless rejected the argument that section 275 creates an implied right to an assignment. The court went on to hold that there was no ambiguity in the loan documents, which did not mention any right to assignment. In the absence of ambiguity, the court held that there was no basis to admit evidence of current industry practice or custom. Moreover, the court rejected one mortgagor's claim that the release should be invalidated on fraud or duress grounds, concluding that mortgagee had made no false representation. Mortgagee simply represented that it would not execute the assignment unless mortgagor paid the fee ' a position the mortgagee was entitled to take in light of the court's construction of the statute and the loan documents. As a result, mortgagee was entitled to summary judgment, and the mortgagor who executed the release was not entitled to recover the $413,819.77 assignment fee it paid; the other mortgagor was not entitled to reimbursement for $160,875 in 'extra' recording tax it paid as a result of mortgagee's refusal to execute the assignment.

Right of First Refusal Expired with Lease Termination

Johnnie's Pelham Road Service, Inc. v. Thomas

NYLJ 2/27/06, p. 35, col. 4

AppDiv, Second Dept

(memorandum opinion)

In an action by lessee for specific performance of a right of first refusal, lessor appealed from a Supreme Court order granting summary judgment to lessee and enjoining transfer of the premises to a third party. The Appellate Division reversed and dismissed the complaint, holding that once the lease expired, lessor was entitled to sell the premises to the third party without interference by the lessee.

In 1993, lessor leased the subject parcel to the lessee, who used it to operate a gas station. The lease contained a right of first refusal that would be triggered by a bona fide offer to purchase the leased premises during the term of the lease. Lessor also owned an adjacent property that included a private residence. That adjacent property was not subject to the lease or the right of first refusal. In 2004, a third party offered to purchase both the gas station parcel and the adjacent residence. Lessee declined to exercise its right of first refusal, but the third-party sale was never consummated. In August, lessor offered to sell both parcels to lessee at the price offered by the third party, but lessee was unable to obtain financing. In October 2004, lessor received another third-party offer for the two parcels, and, on Nov. 5, entered into a contract of sale without consulting lessee. In February 2005, lessee approaches lessor with a purchase offer, only to learn of the sale contract. Lessee then brought this action to compel specific performance, and to enjoin sale to the third party.

The Supreme Court awarded summary judgment to lessee, and ordered lessor to convey the property to lessee within 60 days. Lessor appealed, and the Appellate Division stayed enforcement pending the appeal. During the pendency of the appeal, the lease expired.

In reversing the Supreme Court's award of summary judgment to lessee, the Appellate Division first conceded that lessee's failure to exercise the first refusal right in March 2004 did not result in waiver of that right, because the March offer encompassed both the leased premises and the adjacent premises. Because lessee could not be forced to choose between purchasing both parcels and losing its right of first refusal with respect to the leased parcel alone, the right of first refusal was never triggered. The Appellate Division nevertheless held that Supreme Court erred in awarding summary judgment to lessee because the lessee had no right to compel conveyance of the leased premises alone when the lessor intended to sell both the leased premises and the neighboring parcel, nor did the lessee have a right to compel conveyance of both parcels when the right of first refusal applied only to the leased premises. At the same time, during the pendency of the lease, the lessee was entitled to enjoin the proposed sale to the third party because the proposed sale would defeat the lessee's first refusal right. Once the lease expired, however, the right of first refusal expired with it, and the lessor was entitled to sell to the third party. As a result, even though Supreme Court correctly enjoined the sale, enforcement of the injunction was no longer warranted once the lease expired. Hence, lessor was entitled to summary judgment.

COMMENT

When a lessee holds a right of first refusal, the lessee may enjoin the lessor from selling the property subject to that right to a third party as part of a larger parcel, even if the lessee is unwilling to purchase the larger. Thus, in C&B Wholesale Stationery v. S. De Bella Dresses, Inc. et al., 43 A.D.2d 579, the Second Department held that lessee's right of first refusal survived lessor's attempt to sell the property subject to the right as part of a larger parcel. Lessee had declined lessor's offer to buy the larger parcel at the price offered by a third party, and the lessor completed the sale to the third party. The court held the sale ineffective and enjoined lessor from selling to any third party, explaining that the lessee was not obligated to buy the larger parcel, not did it waive its right to first refusal by declining to buy that larger parcel. Instead, the court observed that lessee's right to first refusal would not triggered until lessor presented lessee with a bona fide offer to purchase the property subject to the first refusal right. Conversely, a lessee may not enforce its right of first refusal unless and until seller is prepared to accept a bona fide offer to purchase the property subject to the right. Thus, in Tarallo v. Northstar Bank, 144 A.D.2d 157, the court held that lessee was not entitled to specific performance of its right to first refusal when lessor attempted to sell more property than covered by lessee's right of first refusal. As in C & B, the court required lessor to regain title to the property subject to the first refusal right, and enjoined its sale until lessor gave the lessee an opportunity to meet a bona fide offer. In Tarallo, lessor sought to convey the leased premises and two other buildings to a real estate developer after attempting to break its lease with lessee. Lessor consummated the sale with the third party after lessee did not offer to purchase the combined parcel. The court explained that lessee's right of first refusal was never triggered because lessor never intended to sell only the demised piece and thus lessor could not be compelled to sell the demised parcel alone.

In Tarallo, the lessee sought an injunction against sale of the property subject to the first refusal right, and the court granted the injunction. If, however, the lessee had not sought an injunction against sale, but had sought only specific performance of the first refusal right, lessee would not have been entitled to relief. Thus, in Sautkulis v. Conklin, 1 A.D.2d 962, the court held that less was not entitled to specific performance of a first refusal right when lessor agreed to sell the demised property and an adjacent parcel to a third party. The court explained that because lessor sold more than the property over which the lessee had a first refusal right, lessee was not entitled to compel lessor to sell the demised parcel alone. Because the lessee did not seek to enjoin the sale to the third party, the court did not address lessee's right to injunctive relief, the usual remedy for a lessee in this situation.

Neighbors Not Entitled to Enjoin Violation of Zoning Ordinance

East Sixties Property Owners Association v. Cohane

NYLJ 2/22/06, p. 25, col. 1

Supreme Ct., N.Y. Cty

(Soto, J.)

In an action by property owners association to enjoin operation of dental practices in alleged violation of restrictive covenants and zoning restrictions, defendant, the dentists and property owner, moved to dismiss the complaint. The court granted the dismissal motion, holding that the covenants did not prohibit operation of dental practices and that the association had failed to exhaust administrative remedies in challenging findings that the dental practices did not violate applicable zoning ordinances.

The owner of the bottom two stories of a brownstone on East 61^st Street in Manhattan leases his space to several dentists who operate practices in the space. Restrictive covenants, recorded in 1868, provide that no 'business or occupation known as nuisances in the law or which may be dangerous or offensive to neighboring inhabitants shall ever be made, erected or permitted' on lots subject to the restrictions. Moreover, the brownstone lies in a zoning district that permits residential use. The property owners association brought this action, contending that use of the space for dental practices violated both the restrictive covenants and the zoning ordinance.

In dismissing the complaint, the court first concluded that a dental practice was neither a nuisance nor a business dangerous or offensive to neighboring inhabitants within the meaning of the covenants. The court emphasized that restrictive covenants are to be construed narrowly, and that the dental offices in this case are marked only by a small brass plate. With respect to the contention that the practices violate the zoning ordinance, the court noted that the city zoning ordinance provides a 'home occupation' exception within residential districts. Although the home occupation exception by its terms requires the person conducting the occupation to reside in the premises, the court emphasized that the city Department of Buildings and Environmental Control Board had already determined that the dental practices did not violate the zoning ordinance. The court noted that the property owners association had not sought review of these determinations administratively, with the Board of Standards and Appeals, nor had the association brought an article 78 proceeding challenging the administrative determinations. Those were, in the court's judgment, the remedies available to the association. As a result, the court dismissed the complaint.

COMMENT

Although Town Law section 268 expressly authorizes any three aggrieved taxpayers to institute a proceeding to enjoin violations of zoning ordinances when town officials have failed to act, the Court of Appeals held, in Little Joseph Realty v. Town of Babylon 41 N.Y.2d 738, that the statute does not provide the exclusive remedy for landowners aggrieved by a zoning violation. The court held that neighbor who suffers special damages can bring an action to enjoin the violation independent of the statutory provision.

A plaintiff has standing to enjoin a zoning violation when he can establish special damages, namely diminution in the value of real estate, arising from the conduct of defendant landowner's activities. The harm suffered, however, must be within the zone of interest protected by the zoning ordinance; loss of business volume due to increased competition does not confer standing on a neighboring landowner. Thus, in Cord Meyer Dev. Co. v. Bell Bay Drugs 20 N.Y.2d 211, the Court of Appeals held that a neighbor who leased a pharmacy in a commercially zoned area did not have standing to enjoin operation of a competing pharmacy in a neighboring zone where commercial uses were prohibited. Because plaintiff complained only of lost volume, and failed to provide detailed evidence of actual depreciation in the value of its property, the court held that plaintiff lacked standing.

However, where a neighbor in close proximity to the violation alleges harm within the zone of interest protected by the ordinance, courts may presume injury without concrete proof of special damages. Thus, in Zupa v. Paradise Point Association, 22 A.D. 843, the court held that residential homeowners had standing to maintain a private action to enjoin zoning prohibitions against excessive lights, noise, pollution and smoke, even without proving damages different from those incurred by the public at large. Defendants in Zupa operated a private marina in close proximity to the residential properties, and the court held that the proximity was sufficient to dispense with the need to prove special damages.

Foreclosure Improper with Respect to Interest Not Covered By Mortgage

Citifinancial Co. v. McKinney

NYLJ 3/10/06, p. 26, col. 3

AppDiv, First Dept

(memorandum opinion)

In an action to foreclose a mortgage, daughter of deceased mortgagor appealed from Supreme Court's order granting mortgagee's motion for a foreclosure order. The Appellate Division reversed and remanded for further proceedings, holding that the daughter held an interest not subject to the mortgage.

Carnes McKinney and his son Marcellus acquired the subject property in 1965, apparently as tenants-in-common with no right of survivorship. Father and son, and their respective wives, gave a mortgage on the property at that time. The father died in 1976 and his wife in 1982, survived by Marcellus and another son, Sydney. There is no indication that the father or mother ever left a will. Beginning in 1986, Marcellus engaged in refinancing transactions, culminating in execution of a mortgage in 1996 to secure a loan of $138,222.56. Marcellus represented to mortgagee that he was the sole owner of the property. He died in May, 1997, and the mortgage went into default in December 1997. The following year, Sydney executed an affidavit acknowledging that for $10,000, he had surrendered any right, title, and interest in the subject property to Marcellus' wife and daughter. In March 2003, mortgagee brought the instant foreclosure action and sought summary judgment. Marcellus' daughter, who was also administrator of his estate, opposed the motion, contending that no money was owed on the mortgage, that Sydney should have been a party, and that the mortgage was induced by fraud. Supreme Court granted mortgagee's summary judgment motion, concluding that there was no evidence to support the daughter's assertions as fraud or the balance due on the mortgage, and concluding that Sydney's affidavit rendered moot any failure to name Sydney as a party to the mortgage. Marcellus' daughter appealed.

In reversing, the Appellate Division noted that when Marcellus entered into the mortgage, he apparently was not the sole owner of the property, but instead shared an interest with Sydney, who appeared to have inherited an interest. Sydney's ownership interest did not render the mortgage invalid, but mortgagee acquired security up to the interest of the mortgagor. Moreover, Sydney's conveyance of his interest to Marcellus' wife and daughter did not inure to the benefit of mortgagee, because that conveyance was neither to Marcellus nor to Marcellus' estate, but directly to the wife and daughter. That interest passed to the daughter at the wife's death, and has never been subject to the 1996 mortgage. As a result, mortgagee cannot foreclose on that interest. Hence, Supreme Court erred in awarding summary judgment to mortgagee. The court remanded, however, because the record was less than clear as to whether Sydney had inherited an interest in the property, and what the nature of Sydney's interest was. The court concluded that further discovery and proceedings were needed with respect to those issues.

COMMENT

When a mortgagee obtains an interest from fewer than all of the owners of a parcel of land, the mortgagee's remedy is to foreclose on the mortgagor's interest, and then to seek partition against any co-owners. In V.R.W., Inc. v. Klein, 68 NY2d 560, the Court of Appeals held that where a husband had given a mortgage on his marital residence without his wife's signature, and the parties were later divorced, the purchaser at the foreclosure sale became a tenant in common with the wife, obtaining all of the rights of a tenant in common including the right to partition. (See RPAPL Section 901(1), governing partition).

When a co-tenant brings a partition action, RPAPL section 915 authorizes a sale of the jointly-owned property only when a partition-in-kind cannot be made 'without great prejudice to the owners.' Courts, however, have ordered partitions by sale when division into smaller lots would have a negative impact on market value. Thus, in Bellnier v. Bellnier , 158 AD2d 747, the court held that partition by sale was appropriate where a partition-in-kind would leave each of the divided lots below the minimum lot size specified in the local zoning ordinance.

Notice of Pendency Puts Non-Party on Constructive Notice

Novastar Mortgage, Inc. v. Mendoza

NYLJ 3/8/06, p. 29, col. 6

AppDiv, Second Dept

(memorandum opinion)

In a mortgage foreclosure action, mortgagee appealed from a Supreme Court order vacating the judgment of foreclosure at the instance of a non-party to the foreclosure action. The Appellate Division reversed and reinstated the judgment of foreclosure, holding that a notice of pendency put the non-party on constructive notice of the foreclosure proceeding.

Mortgagor conveyed a one-half interest in the subject property to Mendoza, perhaps before mortgagee commenced a foreclosure action, although the court's opinion is not clear on that point. When mortgagee brought the foreclosure action, mortgagee filed a notice of pendency, but did not name Mendoza as a party. Mendoza did not record his deed until a month after the filing of the notice of pendency. After mortgagee obtained a judgment in the foreclosure action, Mendoza moved to vacate the judgment of foreclosure, and Supreme Court granted the motion.

In reversing, the Appellate Division emphasized that a person whose conveyance is recorded after the filing of a notice of pendency is bound by all proceedings taken in the action after the filing to the same extent as if the person had been a party to the proceeding. In this case, where the deed to Mendoza was recorded after filing of the notice of pendency, the court concluded that Mendoza had constructive notice of the foreclosure, and his interest in the property was foreclosed upon entry of the judgment of foreclosure. As a result, the foreclosure judgment should not have been vacated.

Bidder Not Entitled to Delivery of 15 Deeds

Matter of Toussie v. County of Suffolk

NYLJ 3/8/06, p. 27, col. 4

AppDiv, Second Dept (3-1 decision; memorandum opinion; dissenting memorandum by Spolzino, J.)

In a hybrid action/special proceeding brought by successful bidder at a public auction to annul a determination by the Suffolk County legislature disapproving the sale, the bidder appealed from Supreme Court's dismissal of the action and proceeding. The Appellate Division modified to declare that the bidder was not entitled to delivery of the 15 deeds, and otherwise affirmed, holding that the legislature had discretion to consider factors other than the successful bidder's fiscal qualifications.

The Suffolk County legislature sought to sell 15 surplus properties. The Suffolk County Administrative Code provides that execution of a deed to surplus property offered for sale at a public auction is subject to the county legislature's 'express approval.' The legislature authorized an auction sale for the 15 properties 'conditioned upon, and subject to the approval of the Suffolk County legislature.' After the auction, however, the legislature refused to approve sale to the high bidder, apparently because the bidder's son had pleaded guilty to making false statements in applying federally guaranteed loans, and because the legislature feared that the bidder might convey the property to his son. Supreme Court, citing the condition the legislature had imposed on the auction sale, upheld the legislature's refusal, and the high bidder appealed.

In affirming, the Appellate Division majority observed first that the auction documents did not impose limits on the county legislature's discretion to approve or disapprove a sale. As a matter of construction of the Suffolk County Administrative Code, the majority held that the legislature was authorized to disapprove sales on grounds other than inability to perform the sale contract, because other provisions of the bidding process assured that the successful bidder would be financially able to complete the contract. Hence, unless the Code conferred on the legislature broader discretion to disapprove, the Code provision would be meaningless. Moreover, the majority found no state constitutional or statutory basis for invalidating the code's grant of discretion to the legislature.

Justice Spolzino, dissenting, concluded that the county legislature's decision was arbitrary and capricious. He argued that the legislature's only concern with respect to sales of surplus land was with the price to be obtained for the land. Local villages and towns, not the county, have authority to regulate the uses to which the land is put.