Real Property Law

City Restrictions Did Not Run with Land

328 Owners Corp. v. 330 West 86 Oaks Corp.

NYLJ 8/25/06, p. 22, col. 1

AppDiv, First Dept

(3-2 decision; opinion by Mazzarelli, J; dissenting opinion by Andrias, J.)

In an action by owner of an adjacent building for declaratory and injunctive relief designed to prevent landowner from constructing a high rise apartment building, landowner appealed from Supreme Court's grant of summary judgment to adjacent owner and the city. The Appellate Division reversed, holding that the restrictions imposed by the city in the deed to landowner's predecessor did not constitute covenants running with the land and were not binding on current landowner.

The subject building is a five-story, eight-unit apartment building on West 86^th Street in Manhattan. The city acquired the building through a tax foreclosure proceeding and invoked article 16 of the General Municipal Law, which permitted the city to dispose of city-owned real property without public auction or sealed bids in order to promote 'clearance, replanning, reconstruction, redevelopment, rehabilitation, restoration or conservation' of blighted areas. The requisite city agency submitted to the City Council a project summary describing the proposed 'conservation' of the property, and obtained approval for a proposed sale from the City Council and the Mayor. In 1999, the city then conveyed the parcel to 330 West 86 Oaks Corp., pursuant to a deed which included a recital stating that the 'project to be undertaken … consists solely of the rehabilitation or conservation of existing private or multiple dwellings or the construction of one to four unit dwellings ' ' The habendum clause of the deed included a number of other conditions and, in particular, included several covenants which explicitly provided for enforcement against 'successors and assigns.' Finally, the deed included a paragraph labeled 'Covenants Running with Land' which provided that the 'agreements and covenants set forth in this Deed shall run with the land ' Such covenants ' shall bind and be enforceable against Sponsor and its successor and assigns.'

330 West 86 Oaks Corp. failed to clear the building violations and then, in 2001, resold the building to 330 West 86^th Street LLC. By the time of sale, adjacent owner had brought this action for a declaration that use of the site was limited to rehabilitation of the current building or construction of one-to-four-unit dwellings. Adjacent owner also sought injunctive relief and had filed a lis pendens. The city, named as a co-defendant, cross-claimed against landowner, seeking essentially the same relief sought by adjacent owner. Supreme Court concluded that adjacent owner had standing, and then granted the requested relief, concluding that the restrictions imposed by article 16 bound current landowner because the restrictions were covenants running with the land.

In reversing, the Appellate Division first agreed with Supreme Court that adjacent landowner had standing because it had suffered an injury distinct from that suffered by the public at large. The court concluded that article 16 was designed to eliminate negative influences on adjacent properties, and that adjacent landowner was therefore a third-party beneficiary of any restrictions imposed pursuant to the statute. On the merits, however, the court found no intent to bind successors to the disputed restriction. The majority emphasized the difference between the covenants found in the habendum clause, which were explicitly designated to run against 'successors and assigns' and the disputed recital, which included no comparable language. The majority also held that the covenants did not touch and concern the land, noting that the deed recital, executed pursuant to article 16, had a definitive 2-year time frame during which projects were completed, which the court concluded was inconsistent with the perpetual encumbrance sought by the city and the adjacent owner. The court also concluded that with respect to adjacent owner, there was no privity of estate, creating yet another bar to enforcement of the covenant.

Judge Andrias, dissenting, emphasized that the habendum clause had provided that agreements and covenants set forth in the deed should be enforceable against successors and assigns. He also emphasized that construction of the proposed high-rise 'needle' apartment building was inconsistent with the language and intent of article 16. In particular, he argued that the city is not free to sell municipally owned property under any terms it chooses. Because its power to sell was derived solely from the General Municipal Law, the only purpose for which sale was permitted was to provide incentives for rehabilitation of substandard residential buildings.

Assignment of Note

Lasalle Bank National Association v. Lamy

NYLJ 8/17/06, p. 25, col. 3

Supreme Ct., Suffolk Cty

(Burke, J.)

In a mortgage foreclosure action, mortgagee sought an order fixing the defaults of the mortgagor and appointing a referee to compute amounts due. The court denied the motion, holding that mortgagee had not adequately established ownership of the mortgage or note.

When the original lender made the mortgage loan, the mortgage was recorded in the name of Mortgage Electronic Registration Systems, Inc. (MERS) as nominee of the original lender. The mortgage stated that MERS was the mortgagee of record for purposes of recording. Subsequently MERS issued an assignment of the mortgage to the current mortgagee plaintiff. The court, however, refused to recognize that assignment, following Suffolk County cases concluding that MERS, as nominee, cannot be the owner of a mortgage and cannot, therefore, issue a valid assignment. To cure this difficulty, plaintiff mortgagee submitted an undated document by the terms of which the original lender purported to indorse the mortgage and note over to current mortgagee. The document, however, was not part of the original note , and was not affixed so firmly as to become a part of the mortgage.

On these facts, the court denied mortgagee's motion. The court held that mortgagee had still failed to establish a proper assignment of the note or mortgage. As a result, in the court's view, the original lender remained the owner of the note and mortgage. Mortgagee was not, therefore, entitled to a default judgment.

City Restrictions Did Not Run with Land

328 Owners Corp. v. 330 West 86 Oaks Corp.

NYLJ 8/25/06, p. 22, col. 1

AppDiv, First Dept

(3-2 decision; opinion by Mazzarelli, J; dissenting opinion by Andrias, J.)

In an action by owner of an adjacent building for declaratory and injunctive relief designed to prevent landowner from constructing a high rise apartment building, landowner appealed from Supreme Court's grant of summary judgment to adjacent owner and the city. The Appellate Division reversed, holding that the restrictions imposed by the city in the deed to landowner's predecessor did not constitute covenants running with the land and were not binding on current landowner.

The subject building is a five-story, eight-unit apartment building on West 86^th Street in Manhattan. The city acquired the building through a tax foreclosure proceeding and invoked article 16 of the General Municipal Law, which permitted the city to dispose of city-owned real property without public auction or sealed bids in order to promote 'clearance, replanning, reconstruction, redevelopment, rehabilitation, restoration or conservation' of blighted areas. The requisite city agency submitted to the City Council a project summary describing the proposed 'conservation' of the property, and obtained approval for a proposed sale from the City Council and the Mayor. In 1999, the city then conveyed the parcel to 330 West 86 Oaks Corp., pursuant to a deed which included a recital stating that the 'project to be undertaken … consists solely of the rehabilitation or conservation of existing private or multiple dwellings or the construction of one to four unit dwellings ' ' The habendum clause of the deed included a number of other conditions and, in particular, included several covenants which explicitly provided for enforcement against 'successors and assigns.' Finally, the deed included a paragraph labeled 'Covenants Running with Land' which provided that the 'agreements and covenants set forth in this Deed shall run with the land ' Such covenants ' shall bind and be enforceable against Sponsor and its successor and assigns.'

330 West 86 Oaks Corp. failed to clear the building violations and then, in 2001, resold the building to 330 West 86^th Street LLC. By the time of sale, adjacent owner had brought this action for a declaration that use of the site was limited to rehabilitation of the current building or construction of one-to-four-unit dwellings. Adjacent owner also sought injunctive relief and had filed a lis pendens. The city, named as a co-defendant, cross-claimed against landowner, seeking essentially the same relief sought by adjacent owner. Supreme Court concluded that adjacent owner had standing, and then granted the requested relief, concluding that the restrictions imposed by article 16 bound current landowner because the restrictions were covenants running with the land.

In reversing, the Appellate Division first agreed with Supreme Court that adjacent landowner had standing because it had suffered an injury distinct from that suffered by the public at large. The court concluded that article 16 was designed to eliminate negative influences on adjacent properties, and that adjacent landowner was therefore a third-party beneficiary of any restrictions imposed pursuant to the statute. On the merits, however, the court found no intent to bind successors to the disputed restriction. The majority emphasized the difference between the covenants found in the habendum clause, which were explicitly designated to run against 'successors and assigns' and the disputed recital, which included no comparable language. The majority also held that the covenants did not touch and concern the land, noting that the deed recital, executed pursuant to article 16, had a definitive 2-year time frame during which projects were completed, which the court concluded was inconsistent with the perpetual encumbrance sought by the city and the adjacent owner. The court also concluded that with respect to adjacent owner, there was no privity of estate, creating yet another bar to enforcement of the covenant.

Judge Andrias, dissenting, emphasized that the habendum clause had provided that agreements and covenants set forth in the deed should be enforceable against successors and assigns. He also emphasized that construction of the proposed high-rise 'needle' apartment building was inconsistent with the language and intent of article 16. In particular, he argued that the city is not free to sell municipally owned property under any terms it chooses. Because its power to sell was derived solely from the General Municipal Law, the only purpose for which sale was permitted was to provide incentives for rehabilitation of substandard residential buildings.

Assignment of Note

Lasalle Bank National Association v. Lamy

NYLJ 8/17/06, p. 25, col. 3

Supreme Ct., Suffolk Cty

(Burke, J.)

In a mortgage foreclosure action, mortgagee sought an order fixing the defaults of the mortgagor and appointing a referee to compute amounts due. The court denied the motion, holding that mortgagee had not adequately established ownership of the mortgage or note.

When the original lender made the mortgage loan, the mortgage was recorded in the name of Mortgage Electronic Registration Systems, Inc. (MERS) as nominee of the original lender. The mortgage stated that MERS was the mortgagee of record for purposes of recording. Subsequently MERS issued an assignment of the mortgage to the current mortgagee plaintiff. The court, however, refused to recognize that assignment, following Suffolk County cases concluding that MERS, as nominee, cannot be the owner of a mortgage and cannot, therefore, issue a valid assignment. To cure this difficulty, plaintiff mortgagee submitted an undated document by the terms of which the original lender purported to indorse the mortgage and note over to current mortgagee. The document, however, was not part of the original note , and was not affixed so firmly as to become a part of the mortgage.

On these facts, the court denied mortgagee's motion. The court held that mortgagee had still failed to establish a proper assignment of the note or mortgage. As a result, in the court's view, the original lender remained the owner of the note and mortgage. Mortgagee was not, therefore, entitled to a default judgment.