Cooperatives & Condominiums

Acceptance of Payments Results in Vacatur of Foreclosure Judgment

Hamlet Golf & Country Club Homeowners Assoc. Inc. v. Prager

NYLJ 8/14/07, p. 28, col. 3

Supreme Ct., Suffolk Cty

(Cohalan, J.)

In a foreclosure action, condominium unit owner moved to vacate the judgment of foreclosure and sale of her condominium unit, and to annul the subsequent sale. The court granted the motion, holding that the condominium association's acceptance of payments during the pendency of the proceeding warranted vacatur of the sale.

On Oct. 18, 2005, the condominium association brought this action to foreclose for nonpayment of assessed common charges. Service was by 'nail and mail'; unit owner denies receiving notice. On Jan. 26, 2006, the court appointed a referee to hear and compute amounts owed. The referee issued a report on June 21, 2006 indicating that as of Feb. 2006, unit owner owed $7156.25 in common charges and arrears. However, on April 4, 2006, unit owner had made a payment of $3500, which was accepted by the condominium association's managing agent. The condominium did not inform the referee or the court of this payment. As a result, the property was noticed for sale, and subsequently sold for $326,000 ' allegedly far less that the unit's market value. Purchaser at the foreclosure sale assigned his bid to a company owned by the lawyer for the condominium association. Eleven days prior to the sale, unit owner had tendered a second payment, for $4100, for the remaining arrears. That amount was credited to the unit owner on the condominium association's records, but later returned to her. When two notices to quit were subsequently served on unit owner, unit owner move to vacate the foreclosure judgment.

In vacating the judgment, the court observed that the condominium itself and its lawyer appeared not to be on the same page; the condominium accepted payments from unit owner, while the lawyer proceeded in litigation as if no payments had been made. The court concluded that the receipt, acknowledgment, and credit of the payments, while simultaneously proceeding with the foreclosure action, constituted bad faith and waiver of the right to foreclose. As a result, the court granted the motion to vacate the foreclosure action.

COMMENT

Although no prior cases examine the effect of a creditor's acceptance of full payment after commencement of a foreclosure proceeding, a creditor's acceptance of payment satisfying the full amount in arrears prior to a foreclosure action results in waiver of the right to foreclose where the creditor fails to indicate that acceptance of payment was not intended in lieu of foreclosure. In Lopez v. Highmount Associates, 101 A.D.2d 618, the Third Department held that acceptance of a check paid to satisfy the full amount in default, prior to commencement of foreclosure proceedings, was sufficient to constitute a waiver of the creditor's right to foreclose, even though the creditor did not cash the check. Lopez appears to conclude that it is reasonable for the debtor to believe that the creditor's acceptance of payment of the full amount in default evinces the intent not to foreclose when the creditor provides no notice of intent to retain the right to foreclose. Hamlet held that acceptance of payment after instigating foreclosure proceedings similarly results in waiver when the foreclosing party provides no indication of an contrary intent.

Landlord/tenant law furnishes another analogous situation, where courts have held that a landlord's acceptance of late payment after initiation of eviction proceedings generally results in a waiver of the right to evict. In Malloy v. Club Marakesh, Inc., 71 A.D.2d 614, the Second Department affirmed dismissal of the landlord's petition to recover the premises, holding that a landlord's acceptance of payment after serving the tenant with an eviction notice constitutes a waiver of the right of re-entry despite a non-waiver provision in the lease. Similarly, in Woollard v. Schaffer Stores Co., 272 N.Y. 304, the New York Court of Appeals held that a landlord's acceptance of rent subsequent to the notice of forfeiture operated as a waiver of claims for noncompliance with the lease. In Woollard, after learning of the tenant's violation of the lease, the landlord notified the tenant that as a result of such default landlord was electing to terminate the lease and reenter the premises, but landlord continued to accept rental payments thereafter. The Court reasoned that acceptance of payments demonstrated the landlord's recognition of the defendant as his tenant, thereby waiving his forfeiture right.

By contrast, where the mortgagee accepts full payment of the amount in default, but simultaneously notifies the mortgagor that he intends to retain the right to foreclose, it would be unreasonable for the mortgagor to infer a contrary intent, and the creditor may proceed with the foreclosure. Thus, in P.T. Bank Cent. Asia v. Ho Ho Ho Realty Co., 273 A.D.2d 212, where the bank sent letters to the mortgagor advising that in order to be excused from its default the mortgagor would have to pay off all arrears and secure the bank's independent approval, the Second Department held that despite satisfying the full debt, the bank retained its right to foreclose. The P.T. court explained that the mortgagor could not reasonably have believed that payments accepted after the note matured would result in a waiver of the bank's right to foreclose because of the letters' explicit content. See also Southold Sav. Bank v. Cutino, 118 A.D.2d 555 (holding that despite acceptance of late payments, creditor did not waive its rights under the contract 'because the mortgagee repeated and unequivocally informed the mortgagor of a contrary intent').

Defects in Terrace Structure Are Unit Owner's Responsibility

Messner v. 112 East 83^rd Street Tenants Corp.

NYLJ 7/23/07, p. 24, col. 1

AppDiv, First Dept.

(memorandum opinion)

In an action by unit owner for damages to her penthouse apartment, and for specific performance requiring the co-op board to connect her enclosed terrace to the building's heating system, unit owner appealed from Supreme Court's grant of summary judgment to the co-op corporation. The Appellate Division affirmed, holding that defects in the terrace structure were unit owner's responsibility, and that the co-op board had no obligation to heat the terrace area.

Unit owner's predecessor had obtained permission from the co-op board to enclose the terrace with a glass roof and windows, creating a greenhouse structure. Unit owner contends, however, that defects in the structure and in the building's roof enable water to leak into her apartment and the greenhouse. Moreover, unit owner contends that the co-op corporation has breached the warranty of habitability by failing to heat the greenhouse structure. Supreme Court granted the co-op corporation's summary judgment motion.

In affirming, the Appellate Division first emphasized that an indemnification agreement, executed simultaneously with the proprietary lease, obligates unit owner to perform repairs necessitated by alteration work undertaken by unit owner, or previously undertaken in the apartment. In light of that agreement, the co-op had no duty to make the repairs, and bore no liability for failure to make them. With respect to heating of the enclosed terrace, the court noted that the enclosed terrace was never considered a habitable part of the apartment. Although unit owner contended that she had received oral permission from the managing agent to use the building's heating system, she conceded that she had never obtained the written approval she was required to obtain. Finally, the court rejected unit owner's fraud claim for failure to disclose that the greenhouse lacked a certificate of occupancy, noting that the co-op did not stand in a fiduciary relationship with unit owner prior to her purchase of the apartment. Moreover, the co-op corporation had disclosed an engineer's report that questioned the legality of the greenhouse.

Acceptance of Payments Results in Vacatur of Foreclosure Judgment

Hamlet Golf & Country Club Homeowners Assoc. Inc. v. Prager

NYLJ 8/14/07, p. 28, col. 3

Supreme Ct., Suffolk Cty

(Cohalan, J.)

In a foreclosure action, condominium unit owner moved to vacate the judgment of foreclosure and sale of her condominium unit, and to annul the subsequent sale. The court granted the motion, holding that the condominium association's acceptance of payments during the pendency of the proceeding warranted vacatur of the sale.

On Oct. 18, 2005, the condominium association brought this action to foreclose for nonpayment of assessed common charges. Service was by 'nail and mail'; unit owner denies receiving notice. On Jan. 26, 2006, the court appointed a referee to hear and compute amounts owed. The referee issued a report on June 21, 2006 indicating that as of Feb. 2006, unit owner owed $7156.25 in common charges and arrears. However, on April 4, 2006, unit owner had made a payment of $3500, which was accepted by the condominium association's managing agent. The condominium did not inform the referee or the court of this payment. As a result, the property was noticed for sale, and subsequently sold for $326,000 ' allegedly far less that the unit's market value. Purchaser at the foreclosure sale assigned his bid to a company owned by the lawyer for the condominium association. Eleven days prior to the sale, unit owner had tendered a second payment, for $4100, for the remaining arrears. That amount was credited to the unit owner on the condominium association's records, but later returned to her. When two notices to quit were subsequently served on unit owner, unit owner move to vacate the foreclosure judgment.

In vacating the judgment, the court observed that the condominium itself and its lawyer appeared not to be on the same page; the condominium accepted payments from unit owner, while the lawyer proceeded in litigation as if no payments had been made. The court concluded that the receipt, acknowledgment, and credit of the payments, while simultaneously proceeding with the foreclosure action, constituted bad faith and waiver of the right to foreclose. As a result, the court granted the motion to vacate the foreclosure action.

COMMENT

Although no prior cases examine the effect of a creditor's acceptance of full payment after commencement of a foreclosure proceeding, a creditor's acceptance of payment satisfying the full amount in arrears prior to a foreclosure action results in waiver of the right to foreclose where the creditor fails to indicate that acceptance of payment was not intended in lieu of foreclosure. In Lopez v. Highmount Associates, 101 A.D.2d 618, the Third Department held that acceptance of a check paid to satisfy the full amount in default, prior to commencement of foreclosure proceedings, was sufficient to constitute a waiver of the creditor's right to foreclose, even though the creditor did not cash the check. Lopez appears to conclude that it is reasonable for the debtor to believe that the creditor's acceptance of payment of the full amount in default evinces the intent not to foreclose when the creditor provides no notice of intent to retain the right to foreclose. Hamlet held that acceptance of payment after instigating foreclosure proceedings similarly results in waiver when the foreclosing party provides no indication of an contrary intent.

Landlord/tenant law furnishes another analogous situation, where courts have held that a landlord's acceptance of late payment after initiation of eviction proceedings generally results in a waiver of the right to evict. In Malloy v. Club Marakesh, Inc., 71 A.D.2d 614, the Second Department affirmed dismissal of the landlord's petition to recover the premises, holding that a landlord's acceptance of payment after serving the tenant with an eviction notice constitutes a waiver of the right of re-entry despite a non-waiver provision in the lease. Similarly, in Woollard v. Schaffer Stores Co., 272 N.Y. 304, the New York Court of Appeals held that a landlord's acceptance of rent subsequent to the notice of forfeiture operated as a waiver of claims for noncompliance with the lease. In Woollard, after learning of the tenant's violation of the lease, the landlord notified the tenant that as a result of such default landlord was electing to terminate the lease and reenter the premises, but landlord continued to accept rental payments thereafter. The Court reasoned that acceptance of payments demonstrated the landlord's recognition of the defendant as his tenant, thereby waiving his forfeiture right.

By contrast, where the mortgagee accepts full payment of the amount in default, but simultaneously notifies the mortgagor that he intends to retain the right to foreclose, it would be unreasonable for the mortgagor to infer a contrary intent, and the creditor may proceed with the foreclosure. Thus, in P.T. Bank Cent. Asia v. Ho Ho Ho Realty Co., 273 A.D.2d 212, where the bank sent letters to the mortgagor advising that in order to be excused from its default the mortgagor would have to pay off all arrears and secure the bank's independent approval, the Second Department held that despite satisfying the full debt, the bank retained its right to foreclose. The P.T. court explained that the mortgagor could not reasonably have believed that payments accepted after the note matured would result in a waiver of the bank's right to foreclose because of the letters' explicit content. See also Southold Sav. Bank v. Cutino, 118 A.D.2d 555 (holding that despite acceptance of late payments, creditor did not waive its rights under the contract 'because the mortgagee repeated and unequivocally informed the mortgagor of a contrary intent').

Defects in Terrace Structure Are Unit Owner's Responsibility

Messner v. 112 East 83^rd Street Tenants Corp.

NYLJ 7/23/07, p. 24, col. 1

AppDiv, First Dept.

(memorandum opinion)

In an action by unit owner for damages to her penthouse apartment, and for specific performance requiring the co-op board to connect her enclosed terrace to the building's heating system, unit owner appealed from Supreme Court's grant of summary judgment to the co-op corporation. The Appellate Division affirmed, holding that defects in the terrace structure were unit owner's responsibility, and that the co-op board had no obligation to heat the terrace area.

Unit owner's predecessor had obtained permission from the co-op board to enclose the terrace with a glass roof and windows, creating a greenhouse structure. Unit owner contends, however, that defects in the structure and in the building's roof enable water to leak into her apartment and the greenhouse. Moreover, unit owner contends that the co-op corporation has breached the warranty of habitability by failing to heat the greenhouse structure. Supreme Court granted the co-op corporation's summary judgment motion.

In affirming, the Appellate Division first emphasized that an indemnification agreement, executed simultaneously with the proprietary lease, obligates unit owner to perform repairs necessitated by alteration work undertaken by unit owner, or previously undertaken in the apartment. In light of that agreement, the co-op had no duty to make the repairs, and bore no liability for failure to make them. With respect to heating of the enclosed terrace, the court noted that the enclosed terrace was never considered a habitable part of the apartment. Although unit owner contended that she had received oral permission from the managing agent to use the building's heating system, she conceded that she had never obtained the written approval she was required to obtain. Finally, the court rejected unit owner's fraud claim for failure to disclose that the greenhouse lacked a certificate of occupancy, noting that the co-op did not stand in a fiduciary relationship with unit owner prior to her purchase of the apartment. Moreover, the co-op corporation had disclosed an engineer's report that questioned the legality of the greenhouse.