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Real Property Law

By ALM Staff | Law Journal Newsletters |
September 27, 2007

Inquiry Notice Presents Questions of Fact

Ferdico v. Zweig

NYLJ 8/7/07, p. 27, col. 3

Supreme Ct., Queens Cty

(Grays, J.)

In an action by contract vendees against seller and subsequent purchasers for breach of contract, tortious interference, and deprivation of possession, all parties moved for summary judgment. The court denied the summary judgment motion, concluding that questions of fact existed about whether subsequent purchasers purchased in good faith.

Contract vendees contracted to buy the subject premises on July 15, 2004. They did not record the sale contract. In October 2005, subsequent purchasers brought an action against seller for specific performance of an earlier unsigned contract of sale. Subsequent purchasers had allegedly made a down payment pursuant to that contract. Subsequent purchasers filed a lis pendens, but the Supreme Court dismissed their action and canceled the lis pendens. Seller's son, acting as seller's lawyer, then agreed to close on the contract with contract vendees. Before the scheduled closing, however, the son informed contract vendees that seller had sold the premises to subsequent purchasers. Contract vendees then brought this action for breach of contract against seller, for tortious interference against seller's lawyer-son, and for deprivation of possession against subsequent purchasers. All parties sought summary judgment.

The court started by observing that a contract vendee is entitled to obtain specific performance of a contract with a seller who subsequently sells to a purchaser who is not a good-faith purchaser for value. If a subsequent purchaser has knowledge of a prior purchaser, or has knowledge of facts that would lead a prudent purchaser to make inquiries, then the subsequent purchaser is not a good faith purchaser for value. In this case, contract vendees contend that subsequent purchasers admitted observing the subject property being surveyed before they purchased the property, suggesting knowledge of a prior contract. But subsequent purchasers contended that seller had insured them that contract vendees were no longer interested in purchasing the property, and that subsequent purchasers did not know the identity of the contract vendees. In light of these contentions, the court concluded that there were unresolved questions of fact about whether subsequent purchasers were good faith purchasers for value. As a result, summary judgment was not warranted on the claim for specific performance.

The court also denied summary judgment on contract vendees' claim against seller's son for tortious interference with contract. The court noted that credibility questions might be critical with respect to contract vendees' claim that the son induced seller to breach his contract with them.

COMMENT

A subsequent purchaser bears a duty to inquire about an unrecorded sales contract where the subsequent purchaser knows of the existence of a prior sales contract or knows that a party, even if unidentified, has asserted a legal right to the subject property. Thus, in Chen v. Geranium Development Corp., 243 A.D.2d 708, the Appellate Division held that subsequent purchasers were not good faith purchasers when they possessed actual knowledge of a prior contract for sale of the property they sought to purchase but opted to rely on the seller's representation that the prior contract had been cancelled. The court emphasized that the subsequent purchasers had neglected to inquire independently about whether or not the prior contract had in fact been cancelled.

Similarly, in Morrocoy Marina v. Altengarten, 120 A.D.2d 500, the court held that a subsequent purchaser had a duty to inquire when he became aware that an unidentified prior purchaser was asserting a legal claim to the subject property. In Morrocoy, the subsequent purchaser could not assert good faith purchaser status because he 'was advised that there was some other buyer that could tie the property up for two or three years by litigation.'

In contrast, where a subsequent purchaser's knowledge of prior dealings is limited to knowledge of preliminary negotiations, the subsequent purchaser does not bear a burden to inquire. Thus, in Berger v. Polizzotto, 148 A.D.2d 651,, the court held that a subsequent purchaser, who was aware of a 'prior 'deal that broke up” but not of the contract resulting from that deal, did not have a duty to make additional inquiries, and did qualify as a good faith purchaser.

Where a subsequent purchaser has a duty to inquire about a prior purchaser's interest, that duty ordinarily requires that the subsequent purchaser direct that inquiry to the prior purchaser. Thus, in Mackenzie v. Augimeri, 210 A.D. 156, the court held that a subsequent mortgagee did not quality as a good faith purchaser when the mortgagee's real estate agent visited the property and noted the occupancy of the prior purchaser but made 'no inquiry as to the claims of those visibly in occupation.' The court emphasized that the agent was not 'misled or prevented from making inquiry by information or knowledge that the owners of the record title were in apparent possession,' suggesting that the real estate agent had a duty to inquire of the occupants ' not the sellers ' as to ownership of the mortgaged property. In Chen and Morroccoy, unlike in Mackenzie, the subsequent purchasers were aware of the existence of prior purchasers but not of the identity of these purchasers, making it more difficult to determine the scope of the subsequent purchaser's duty to inquire. In the Ferdico case, the court recognized the difficulty of inquiring about the rights of an unidentified prior purchaser when it found that triable issues of fact precluded summary judgment because subsequent purchasers alleged first, that they did not know the identity of prior purchasers and second, that seller had assured them that prior purchasers were no longer interested in the property

Adverse Possession Claim Satisfies Hostility Requirement

United Pickle Products Corp. v. Prayer Temple Community Church

NYLJ 8/10/07, p. 37, col. 5

AppDiv, First Dept.

(memorandum opinion)

In a quiet title action, possessor of land appealed from Supreme Court's denial of its summary judgment motion on its adverse possession claim. The Appellate Division reversed, concluding that possessor had established all the elements of an adverse possession claim.

Possessor owns two parcels of land that are leased to the family business for use as a pickle factory. The disputed parcel is a 25-foot-square parcel adjacent to the two parcels, but encroaching on land to which defendant church holds record title. The parcel is improved with a building that is accessible only from the factory. The building was previously used by another business that had leased the parcel from current possessor's predecessor. A survey dating from 1940 shows the disputed parcel to be walled off and included as part of possessor's parcel. The church acquired title to its parcel in 1976, but made no claim to the disputed parcel until 1997, when its bishop orally indicated that the 25-square foot parcel belonged to the church. Subsequently, possessor brought this quiet title action.

In holding that possessor had acquired title by adverse possession, the court noted that the parcel was both protected by a substantial enclosure and improved by a structure. The court rejected the church's argument that possession was not hostile because a milk producer, a former occupant of the church's parcel, had granted the pickle factory permission to use the disputed parcel to unload trucks. The court noted that the milk producer never owned the parcel, and that the church never alleged that the pickle factory had sought or received permission from the parcel's owner. As a result, the court concluded that the church had not negated the hostility element of possessor's adverse possession claim.

 

Disclosure Statement Can Constitute Basis for Fraud Claim

Simone v. Home-check Real Estate Services, Inc.

NYLJ 7/27/07, p. 37, col. 6

AppDiv, Second Dept.

(memorandum opinion).

In an action by home purchasers against sellers for fraud and breach
of contract, sellers appealed from Supreme Court's denial of their
motion for summary judgment dismissing the complaint. The Appellate Division modified to grant sellers summary judgment on the breach of contract claim, but held that sellers' statements on a Property Condition Disclosure Statement were enough to warrant denial of summary judgment on the fraud claim.

In conjunction with the sale of residential property, sellers completed a disclosure statement (Real Property Law, secs. 462, 465) on which they represented that there were no material defects in the footings, no rotting or water damage, no flooding, drainage or grading problems that resulted in standing water, no seepage in the basement, and no material defects in the plumbing system, and that no radon test had been done. Real estate broker then showed the statement to purchaser, who contracted to buy the house. After closing, buyer allegedly discovered water leaking throughthe porch, the rear deck sinking because of excess pooling of water, mold behind the sheetrock caused by water, an inoperative radon system blower, and a variety of other defects. Buyer then brought this action against sellers, and Supreme Court denied sellers' summary judgment motion.

In modifying, the Appellate Division first agreed with Supreme Court that sellers' alleged misstatements on the disclosure statement were enough to constitute active concealment, which would supplant the 'caveat emptor' rule and permit the purchaser's fraud claim to survive a summary judgment motion. But the court held that sellers were entitled to summary judgment on the breach of contract claims because the sale contract provided that the premises had been inspected and were being sold 'as is' without warranty as to condition. Moreover, a specific merger clause precluded the purchaser from arguing that he relied on any alleged misrepresentations. Finally, once sellers delivered title, the merger doctrine extinguished any claim purchasers might have had with respect to the sale contract.

 

Lien of Renewal Judgment Binding on Mortgagees Without Notice

Greenpoint Mortgage Funding, Inc. v. Gletzer

NYLJ 7/11/07, p. 18, col. 1

Supreme Ct., N.Y. Cty

(Cahn, J.).

Mortgagees brought an action to vacate judgment creditor's renewal judgment against mortgagor, or, in the alternative, for an order that mortgagees liens enjoy priority over the judgment creditor's judgment lien. The court denied the requested relief, holding that the judgment lien enjoyed priority even if the mortgagees had no notice of the judgment lien.

Judgment creditor obtained a judgment against mortgagor in 1991. The docketed judgment acted as a lien against mortgagor's condominium apartment for ten years. In 2001, just before the judgment lien's expiration, judgment creditor brought an action to renew the judgment lien for an additional ten years, pursuant to CPLR 5014. The Supreme Court granted judgment creditor's application for a renewal judgment in 2005, nunc pro tunc to the date in 2001 on which the original judgment lien expired. Meanwhile, in 2003, two separate mortgagees made mortgage loans to mortgagor, without notice of the renewal action or the renewal judgment. In this proceeding, mortgagors contended that they had no notice of the action for a renewal judgment, and that their mortgage liens should enjoy priority over the lien of that renewal judgment.

In denying mortgagors the relief they requested, Supreme Court relied on the language of CPLR 5014, which permits a judgment creditor to renew a judgment by commencing an action during the year prior to the expiration of ten years since the first docketing of the judgment, and which provides that once the action has been commenced, the 'lien of the renewal judgment shall take effect upon the expiration of ten years from the first docketing of the original judgment.'

Here, judgment creditors complied strictly with the provisions of the statute, and were entitled to its benefit. Moreover, the court rejected mortgagees' argument that they were entitled to notice from the judgment creditor, emphasizing that at the time judgment creditor brought the action for the renewal judgment, mortgagees had not made a mortgage loan to judgment debtor.

The court acknowledged that mortgagees' predicament might have arisen through no fault of their own, but suggested that correction lies in amendment of the CPLR or a change in the county clerk's procedure for docketing renewal judgments.

 

Post-Closing Fee Violates RESPA

Cohen v. JP Morgan Chase &Co.

NYLJ 8/10/07, p. 26, col. 1

U.S. Ct. App, Second Circuit

(Opinion by Raggi, J.)

In an action by mortgagor against mortgagee Chase for violating the Real Estate Settlement Procedures Act (RESPA), mortgagor appealed from the District Court's dismissal of the complaint. The Second Circuit reversed and reinstated the complaint, holding that charging a post-closing fee for no work constitutes a violation of RESPA.

When mortgagor refinanced her home mortgage, Chase presented her with a closing statement listing fees, including a $225 post-closing fee. Mortgagor alleges that Chase performed no services for this fee. Mortgagor then brought this action in federal district court, on behalf of herself and a class of persons who had paid similar fees, contending that the fee violated section 8(b) of ESPA, which provides: 'No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally relate mortgage loan other than for services actually performed.'

The district court dismissed the complaint on the ground that the statute prohibits only those fees split between two entities. Since the complaint included no allegation that Chase split the fee with any other entity, the district court concluded that the fee did not violate the statute. Mortgagor appealed.

In reversing, the Second Circuit noted first that Chase denied the allegation that it had provided services for the disputed fee, but the court recognized that on a motion to dismiss, it was obligated to treat mortgagor's allegation as true.

The court then concluded that the statutory language was ambiguous about whether it prohibited fees charged by a single entity or only fees split between two entities. In light of the ambiguity, the court held that Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467 U.S. 837, required deference to the interpretation of the agency charged with administration of the statute ' here, the Department of Housing and Urban Development ('HUD').

Because HUD had construed the statute to proscribe unearned fees charged by a single service provider when 'no, nominal, or duplicative work is done,' the court held that the complaint stated a claim. As a result, the court reversed and remanded to district court for further proceedings.

Inquiry Notice Presents Questions of Fact

Ferdico v. Zweig

NYLJ 8/7/07, p. 27, col. 3

Supreme Ct., Queens Cty

(Grays, J.)

In an action by contract vendees against seller and subsequent purchasers for breach of contract, tortious interference, and deprivation of possession, all parties moved for summary judgment. The court denied the summary judgment motion, concluding that questions of fact existed about whether subsequent purchasers purchased in good faith.

Contract vendees contracted to buy the subject premises on July 15, 2004. They did not record the sale contract. In October 2005, subsequent purchasers brought an action against seller for specific performance of an earlier unsigned contract of sale. Subsequent purchasers had allegedly made a down payment pursuant to that contract. Subsequent purchasers filed a lis pendens, but the Supreme Court dismissed their action and canceled the lis pendens. Seller's son, acting as seller's lawyer, then agreed to close on the contract with contract vendees. Before the scheduled closing, however, the son informed contract vendees that seller had sold the premises to subsequent purchasers. Contract vendees then brought this action for breach of contract against seller, for tortious interference against seller's lawyer-son, and for deprivation of possession against subsequent purchasers. All parties sought summary judgment.

The court started by observing that a contract vendee is entitled to obtain specific performance of a contract with a seller who subsequently sells to a purchaser who is not a good-faith purchaser for value. If a subsequent purchaser has knowledge of a prior purchaser, or has knowledge of facts that would lead a prudent purchaser to make inquiries, then the subsequent purchaser is not a good faith purchaser for value. In this case, contract vendees contend that subsequent purchasers admitted observing the subject property being surveyed before they purchased the property, suggesting knowledge of a prior contract. But subsequent purchasers contended that seller had insured them that contract vendees were no longer interested in purchasing the property, and that subsequent purchasers did not know the identity of the contract vendees. In light of these contentions, the court concluded that there were unresolved questions of fact about whether subsequent purchasers were good faith purchasers for value. As a result, summary judgment was not warranted on the claim for specific performance.

The court also denied summary judgment on contract vendees' claim against seller's son for tortious interference with contract. The court noted that credibility questions might be critical with respect to contract vendees' claim that the son induced seller to breach his contract with them.

COMMENT

A subsequent purchaser bears a duty to inquire about an unrecorded sales contract where the subsequent purchaser knows of the existence of a prior sales contract or knows that a party, even if unidentified, has asserted a legal right to the subject property. Thus, in Chen v. Geranium Development Corp., 243 A.D.2d 708, the Appellate Division held that subsequent purchasers were not good faith purchasers when they possessed actual knowledge of a prior contract for sale of the property they sought to purchase but opted to rely on the seller's representation that the prior contract had been cancelled. The court emphasized that the subsequent purchasers had neglected to inquire independently about whether or not the prior contract had in fact been cancelled.

Similarly, in Morrocoy Marina v. Altengarten, 120 A.D.2d 500, the court held that a subsequent purchaser had a duty to inquire when he became aware that an unidentified prior purchaser was asserting a legal claim to the subject property. In Morrocoy, the subsequent purchaser could not assert good faith purchaser status because he 'was advised that there was some other buyer that could tie the property up for two or three years by litigation.'

In contrast, where a subsequent purchaser's knowledge of prior dealings is limited to knowledge of preliminary negotiations, the subsequent purchaser does not bear a burden to inquire. Thus, in Berger v. Polizzotto, 148 A.D.2d 651,, the court held that a subsequent purchaser, who was aware of a 'prior 'deal that broke up” but not of the contract resulting from that deal, did not have a duty to make additional inquiries, and did qualify as a good faith purchaser.

Where a subsequent purchaser has a duty to inquire about a prior purchaser's interest, that duty ordinarily requires that the subsequent purchaser direct that inquiry to the prior purchaser. Thus, in Mackenzie v. Augimeri, 210 A.D. 156, the court held that a subsequent mortgagee did not quality as a good faith purchaser when the mortgagee's real estate agent visited the property and noted the occupancy of the prior purchaser but made 'no inquiry as to the claims of those visibly in occupation.' The court emphasized that the agent was not 'misled or prevented from making inquiry by information or knowledge that the owners of the record title were in apparent possession,' suggesting that the real estate agent had a duty to inquire of the occupants ' not the sellers ' as to ownership of the mortgaged property. In Chen and Morroccoy, unlike in Mackenzie, the subsequent purchasers were aware of the existence of prior purchasers but not of the identity of these purchasers, making it more difficult to determine the scope of the subsequent purchaser's duty to inquire. In the Ferdico case, the court recognized the difficulty of inquiring about the rights of an unidentified prior purchaser when it found that triable issues of fact precluded summary judgment because subsequent purchasers alleged first, that they did not know the identity of prior purchasers and second, that seller had assured them that prior purchasers were no longer interested in the property

Adverse Possession Claim Satisfies Hostility Requirement

United Pickle Products Corp. v. Prayer Temple Community Church

NYLJ 8/10/07, p. 37, col. 5

AppDiv, First Dept.

(memorandum opinion)

In a quiet title action, possessor of land appealed from Supreme Court's denial of its summary judgment motion on its adverse possession claim. The Appellate Division reversed, concluding that possessor had established all the elements of an adverse possession claim.

Possessor owns two parcels of land that are leased to the family business for use as a pickle factory. The disputed parcel is a 25-foot-square parcel adjacent to the two parcels, but encroaching on land to which defendant church holds record title. The parcel is improved with a building that is accessible only from the factory. The building was previously used by another business that had leased the parcel from current possessor's predecessor. A survey dating from 1940 shows the disputed parcel to be walled off and included as part of possessor's parcel. The church acquired title to its parcel in 1976, but made no claim to the disputed parcel until 1997, when its bishop orally indicated that the 25-square foot parcel belonged to the church. Subsequently, possessor brought this quiet title action.

In holding that possessor had acquired title by adverse possession, the court noted that the parcel was both protected by a substantial enclosure and improved by a structure. The court rejected the church's argument that possession was not hostile because a milk producer, a former occupant of the church's parcel, had granted the pickle factory permission to use the disputed parcel to unload trucks. The court noted that the milk producer never owned the parcel, and that the church never alleged that the pickle factory had sought or received permission from the parcel's owner. As a result, the court concluded that the church had not negated the hostility element of possessor's adverse possession claim.

 

Disclosure Statement Can Constitute Basis for Fraud Claim

Simone v. Home-check Real Estate Services, Inc.

NYLJ 7/27/07, p. 37, col. 6

AppDiv, Second Dept.

(memorandum opinion).

In an action by home purchasers against sellers for fraud and breach
of contract, sellers appealed from Supreme Court's denial of their
motion for summary judgment dismissing the complaint. The Appellate Division modified to grant sellers summary judgment on the breach of contract claim, but held that sellers' statements on a Property Condition Disclosure Statement were enough to warrant denial of summary judgment on the fraud claim.

In conjunction with the sale of residential property, sellers completed a disclosure statement (Real Property Law, secs. 462, 465) on which they represented that there were no material defects in the footings, no rotting or water damage, no flooding, drainage or grading problems that resulted in standing water, no seepage in the basement, and no material defects in the plumbing system, and that no radon test had been done. Real estate broker then showed the statement to purchaser, who contracted to buy the house. After closing, buyer allegedly discovered water leaking throughthe porch, the rear deck sinking because of excess pooling of water, mold behind the sheetrock caused by water, an inoperative radon system blower, and a variety of other defects. Buyer then brought this action against sellers, and Supreme Court denied sellers' summary judgment motion.

In modifying, the Appellate Division first agreed with Supreme Court that sellers' alleged misstatements on the disclosure statement were enough to constitute active concealment, which would supplant the 'caveat emptor' rule and permit the purchaser's fraud claim to survive a summary judgment motion. But the court held that sellers were entitled to summary judgment on the breach of contract claims because the sale contract provided that the premises had been inspected and were being sold 'as is' without warranty as to condition. Moreover, a specific merger clause precluded the purchaser from arguing that he relied on any alleged misrepresentations. Finally, once sellers delivered title, the merger doctrine extinguished any claim purchasers might have had with respect to the sale contract.

 

Lien of Renewal Judgment Binding on Mortgagees Without Notice

Greenpoint Mortgage Funding, Inc. v. Gletzer

NYLJ 7/11/07, p. 18, col. 1

Supreme Ct., N.Y. Cty

(Cahn, J.).

Mortgagees brought an action to vacate judgment creditor's renewal judgment against mortgagor, or, in the alternative, for an order that mortgagees liens enjoy priority over the judgment creditor's judgment lien. The court denied the requested relief, holding that the judgment lien enjoyed priority even if the mortgagees had no notice of the judgment lien.

Judgment creditor obtained a judgment against mortgagor in 1991. The docketed judgment acted as a lien against mortgagor's condominium apartment for ten years. In 2001, just before the judgment lien's expiration, judgment creditor brought an action to renew the judgment lien for an additional ten years, pursuant to CPLR 5014. The Supreme Court granted judgment creditor's application for a renewal judgment in 2005, nunc pro tunc to the date in 2001 on which the original judgment lien expired. Meanwhile, in 2003, two separate mortgagees made mortgage loans to mortgagor, without notice of the renewal action or the renewal judgment. In this proceeding, mortgagors contended that they had no notice of the action for a renewal judgment, and that their mortgage liens should enjoy priority over the lien of that renewal judgment.

In denying mortgagors the relief they requested, Supreme Court relied on the language of CPLR 5014, which permits a judgment creditor to renew a judgment by commencing an action during the year prior to the expiration of ten years since the first docketing of the judgment, and which provides that once the action has been commenced, the 'lien of the renewal judgment shall take effect upon the expiration of ten years from the first docketing of the original judgment.'

Here, judgment creditors complied strictly with the provisions of the statute, and were entitled to its benefit. Moreover, the court rejected mortgagees' argument that they were entitled to notice from the judgment creditor, emphasizing that at the time judgment creditor brought the action for the renewal judgment, mortgagees had not made a mortgage loan to judgment debtor.

The court acknowledged that mortgagees' predicament might have arisen through no fault of their own, but suggested that correction lies in amendment of the CPLR or a change in the county clerk's procedure for docketing renewal judgments.

 

Post-Closing Fee Violates RESPA

Cohen v. JP Morgan Chase &Co.

NYLJ 8/10/07, p. 26, col. 1

U.S. Ct. App, Second Circuit

(Opinion by Raggi, J.)

In an action by mortgagor against mortgagee Chase for violating the Real Estate Settlement Procedures Act (RESPA), mortgagor appealed from the District Court's dismissal of the complaint. The Second Circuit reversed and reinstated the complaint, holding that charging a post-closing fee for no work constitutes a violation of RESPA.

When mortgagor refinanced her home mortgage, Chase presented her with a closing statement listing fees, including a $225 post-closing fee. Mortgagor alleges that Chase performed no services for this fee. Mortgagor then brought this action in federal district court, on behalf of herself and a class of persons who had paid similar fees, contending that the fee violated section 8(b) of ESPA, which provides: 'No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally relate mortgage loan other than for services actually performed.'

The district court dismissed the complaint on the ground that the statute prohibits only those fees split between two entities. Since the complaint included no allegation that Chase split the fee with any other entity, the district court concluded that the fee did not violate the statute. Mortgagor appealed.

In reversing, the Second Circuit noted first that Chase denied the allegation that it had provided services for the disputed fee, but the court recognized that on a motion to dismiss, it was obligated to treat mortgagor's allegation as true.

The court then concluded that the statutory language was ambiguous about whether it prohibited fees charged by a single entity or only fees split between two entities. In light of the ambiguity, the court held that Chevron U.S.A. Inc. v. Natural Resources Defense Council , 467 U.S. 837, required deference to the interpretation of the agency charged with administration of the statute ' here, the Department of Housing and Urban Development ('HUD').

Because HUD had construed the statute to proscribe unearned fees charged by a single service provider when 'no, nominal, or duplicative work is done,' the court held that the complaint stated a claim. As a result, the court reversed and remanded to district court for further proceedings.

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