Real Property Law

Lender Obtains Equitable Lien

M & B Joint Venture, Inc. v. Laurus Master Fund, Ltd.

NYLJ 3/5/08, p. 31, col. 1

AppDiv, First Dept.

(3-2 decision; memorandum opinion; dissenting memorandum by McGuire, J.)

In an action by lender M & B to establish an equitable lien on real property, first mortgagee appealed from Supreme Court's denial of its motion to dismiss the complaint. The Appellate Division modified to dismiss M & B's unjust enrichment claim, but otherwise affirmed, holding that evidence of the loan, together with evidence of an oral conversation between M & B and first mortgagee, was sufficient to state a cause of action for an equitable lien.

On Feb. 23, 2004, mortgagor borrowed $24 million from first mortgagee, secured by the first mortgage. Mortgagor simultaneously conveyed the mortgaged property to a related entity, which delivered a deed in lieu of foreclosure to first mortgagee. That deed was placed in escrow, and the mortgage agreements together with the deed conveying the mortgaged property were all properly recorded. M & B alleges, however, that in January and February 2004, it extended a $490,000 bridge loan to mortgagor to enable mortgagor to proceed with the refinancing. M & B also alleges that this loan was intended to be secured by a mortgage subordinate to the $24 million first mortgage. That subordinate mortgage agreement, however,
was never executed. Subsequently, when mortgagor defaulted on the first mortgage, first mortgagee obtained a judgment of foreclosure, and conveyed the property to an entity wholly owned by first mortgagee. M & B then brought this action seeking imposition of an equitable lien and damages
for unjust enrichment. The Supreme Court denied first mortgagee's motion to dismiss.

In upholding the Supreme Court's denial of the motion to dismiss, the Appellate Division majority relied on evidence of the bridge loan, combined with evidence that first mortgagee had been aware of the intended mortgage. The majority held, however, that the unjust enrichment claim should have been dismissed because M & B had failed to demonstrate how first mortgagee was benefited by the bridge loan.

The dissenting justices concluded that the averments offered by M & B failed to establish an intent that the premises be given as security for the M & B loan. In particular, the dissenting justices emphasized that the affidavit of an M & B official stated only that during conversations with first mortgagee 'it was understood that' M & B's loan would be secured by a mortgage, but provided no evidence that anyone other than M & B had that understanding. Moreover, the attorney who acted as escrow agent for the fund advanced by M & B had no knowledge of M & B's existence, because another corporate entity had forwarded the funds to the escrow agent, and had represented that the funds were its own. Finally, the escrow agent testified that he did not obtain a second mortgage in favor of that other entity because the agreements between mortgagor and first mortgagee prohibited additional encumbrances. In light of this testimony, the dissenters concluded that M & B had established nothing more than an agreement to pay a debt out of a designated fund, which was insufficient to create an equitable lien.

COMMENT

A creditor holds an equitable lien against the debtor's property when evidence in writing establishes that the parties intended a specific property to secure an obligation to repay a loan. Thus, in F.D.I.C. v. Five Star Management, Inc., 258 A.D.2d 15, the court enforced an equitable lien where a mortgagee's recorded deed incorrectly identified the property, but the mortgage instrument correctly identified the property. The court reasoned that documentary evidence clearly established the existence of the loan, the intent that it be secured by such premises and the specific property intended to secure the loan. Absent adequate evidence in writing, courts have generally denied an equitable lien to creditors. Thus, in Datlof v. Turetsky, 111 A.D.2d 364, the court dismissed the creditor's claim, holding that an alleged statement by the debtor that the loan would be repaid from the sale of their home was insufficient evidence to uphold an equitable lien. The court indicated that an agreement to pay a debt from the proceeds of a sale of the property does not create a security interest in the property without additional evidence of the parties' intent to do so. In Kaya v. B & G Holding Co., LLC, 2008 WL 391057 (N.Y.A.D. 2d Dept.), the court dismissed a cause of action for an equitable lien where the purchaser sought to recover real estate taxes from the seller, paid during pre-closing possession pursuant to the contract. In Kaya, the possession agreement provided that the seller would reimburse the buyer for the amount of the real estate taxes if the seller cancelled the contract before closing, which the court concluded did not evidence an intent that the property would secure the obligation to repay.

In the absence of evidence in writing, courts have enforced an equitable lien in exceptional circumstances where a creditor has expended money on the property in reliance on a promise to receive an interest in the property in the future. Thus, in Jacone v. DeRosa, 173 A.D.2d 525, the court upheld an equitable lien in favor of prospective grantees for amounts expended in making repairs to a home based on the promise from prospective grantors that they would receive the home. M & B Joint Venture, Inc. does not involve reliance on such a promise and does not seem to fall into the exception of Jacone. Because there is no evidence of written intent in M & B Joint Venture, Inc., the court seems to expand the notion of equitable liens by relying on oral statements to find intent to have specific property secure a loan.

An equitable lien can be enforced by foreclosing on the property intended to secure the debt. For instance, in Citibank, N.A. v. Kenney, 17 A.D.3d 305, first mortgagee's recorded mortgage was inadvertently discharged and later reinstated after second and third mortgagee obtained and recorded security interests in the property. The court held that because the subsequent mortgagees did not change their position in reliance on the inadvertent discharge of the first mortgage, the first mortgage had seniority over the other liens. In determining priority, the court cited Payne v. Wilson, 74 N.Y. 348, which distinguishes between circumstances where a bona fide mortgagee purchases property without notice of the equitable lien and a creditor who pays consideration in reliance upon the title to the land being unencumbered. An equitable lien would thus have priority over a judgment-creditor or a subsequent mortgagee with notice of the equitable lien, as in Citibank.

 

Seller's Fence Agreement Does Not Establish That Title Is Unmarketable

Francesa v. Scibeta

NYLJ 4/7/08, p. 36, col. 4

AppDiv, Second Dept.

(3-1 decision; memorandum opinion; partial dissenting memorandum by

Spolzino, J.)

In an action by purchasers for return of a down payment, sellers appealed from Supreme Court's award of summary judgment to purchasers. A divided Appellate Division reversed and denied summary judgment to both parties, holding that purchasers had not established that a fence agreement entered into by sellers with their neighbors had rendered title unmarketable.

The contract of sale gave sellers the right to take such action as they deemed advisable to remove or remedy any encumbrances or other objections to title made by purchasers. The contract also permitted the sellers to adjourn the closing by up to 60 days to remedy title objections. When it became apparent that fences and a retaining wall were not located on the record boundary to the property, sellers exercised their election, adjourned the closing, and negotiated an agreement with neighbors permitting sellers to relocate the fences and the retaining wall to the record boundary line. The agreement also provided that the new chain link fence to be erected 'shall thereafter be maintained in good condition
by [the seller or seller's] successor in title and any required repair or replacement shall be the sole expense' of seller or seller's successor in title. Purchasers contended that this agreement constituted an encumbrance rendering title unmarketable, and sought return of their down payment. Supreme Court granted purchasers' summary judgment motion, and sellers appealed.

In reversing, the Appellate Division majority held that the fence agreement did not preclude the sellers and their successors from removing or relocating the fence without the consent of the neighbors. As a result, the majority concluded that purchasers had not established, as a matter of law, that the agreement had rendered title unmarketable. The court also held, however, that sellers had failed to proffer sufficient evidentiary proof to support their summary judgment motion.

Justice Spolzino, dissenting, concluded that a natural reading of the fence agreement prevented the sellers and their successors from removing the fence, and imposed an affirmative obligation to maintain the fence. Moreover, he concluded that even if the meaning of the agreement was ambiguous, the purchasers should not have to accept the prospect of litigation over the meaning of the agreement. As a result, he concluded that the purchasers were entitled to cancel the contract and obtain return of their down payment.

 

Public Trust Doctrine Does Not Preclude Village's Sale of Parking Lot

Matter of 10 East Realty, LLC v. Incorporated Village Of Valley Stream

NYLJ 3/24/08, p. 29, col. 1

AppDiv, Second Dept.

(memorandum opinion)

In an article 78 proceeding by neighbors challenging the village's sale of a parking lot to a private entity, neighbors appealed from Supreme Court's denial of the petition and dismissal of the proceeding. The Appellate Division modified, upholding the sale, but holding that the village was not entitled to provide financing through a purchase money mortgage.

Landowner proposed to build an office building adjacent to a municipal parking lot. Landowner wanted to acquire the lot for private parking for occupants of the office building. Because the village board wanted to encourage construction of the building to enhance the village's business district, the board agreed to sell the parking lot pursuant to an agreement in which landowner would pay the purchase price over 15 years, and the village would retain a purchase money mortgage. The owner of a neighboring parcel, together with members of a civic association, brought this article 78 proceeding challenging the transaction, but Supreme Court dismissed the proceeding.

In modifying, the Appellate Division conceded that municipal parking may constitute a public use of property. The court indicated that if the petitioners had established that the property had been dedicated to public use through an express provision in a deed or legislative enactment, the transfer to a private party might have been invalid. Petitioners, however, offered no proof of an express restriction, and the court concluded that no implied restriction on private transfer of land used for parking lot purposes ' unlike the public trust that may arise with respect to land held for park or recreational purposes. As a result, the public trust doctrine did not preclude sale of the parking lot. The court did, however, conclude that the financing arrangement violated article VIII, section 1 of the state constitution, which prohibits municipalities from giving or lending money in aid of an individual or private corporation.

 

Absence of Claim of Right Precludes Adverse Possession Claim

Perfito v. Einhorn

NYLJ 4/8/08, p. 28, col. 1

Supreme Ct., Westchester Cty

(Smith, J.)

In record owner's action for ejectment and to quiet title to disputed land, neighbor counterclaimed for judgment quieting title based on adverse possession. The court awarded judgment to the record owner, concluding that the neighbor had failed to establish a claim of right to the disputed area.

Record owner purchased its parcel in 2001. Adverse possessor's parcel is immediately adjacent to record owner's parcel. In 1971, adverse possessor's predecessor built a stockade fence against a prior chain link fence that had separated the two parcels. The stockade fence has been in place since that time, although it apparently encroaches approximately 8 to 14 feet onto record owner's property. Adverse possessor's predecessor and adverse possessor have conducted activities in the vicinity of the fence, and have maintained children's play equipment in the encroaching area. Adverse possessor contends that he had not knowledge that the record owner had any claim to the area on his side of the stockade fence until record owner's lawyers raised the issue. Testimony by the son of adverse possessor's predecessor indicated that the predecessor had never obtained permission from anyone to use that portion of what they believed to be their property.

On these facts, the court conceded that adverse possessor's possession had met the statutory enclosure requirement, and that the possession had been actual, exclusive, open and obvious. The court, however, held that there was no evidentiary support for the proposition that adverse possessors had occupied the property under a claim of right and without permission from record owner's predecessor. The court suggested that the record owner's predecessor might have failed to object as a 'neighborly accommodation,' which was inadequate to demonstrate any hostile claim of right.

 

Title Insurer Not Liable if Insured Mortgagee Enabled Forgery

Greenpoint Mortgage Funding, Inc. v. Stewart Title Insurance Co.

NYLJ 3/24/08, p. 33, col. 2

AppDiv, Second Dept.

(memorandum opinion)

In an action by mortgagee to recover on a title insurance policy, title insurer appealed from Supreme Court's award of summary judgment to mortgagee. The Appellate Division reversed and remanded, concluding that title insurer had raised questions of fact about whether mortgagee had enabled a forgery to be committed.

Royal Mortgage Bankers, a licensed mortgage banking company, entered into an agreement with Greenpoint whereby Royal would originate mortgage loan applications, and Greenpoint would provide the funding. If applicants met Greenpoint's standards, Greenpoint would wire funds, Royal would make the mortgage loan, and then assign both the promissory note and the mortgage to Greenpoint. One of Royal's principals, Louis Crispino, applied to refinance a home he owned with his wife, Linda, as tenants by the entirety. Greenpoint approved the loan on condition that Louis obtain title to the house in his own name, and that the loan be made only to Louis. Greenpoint also approved using another principal of Royal, lawyer Beige, to supervise the closing of the loan. At closing, however, Beige never appeared, and designated another employee of Royal, a notary who was not a lawyer, to supervise the closing. The loan closed, Greenpoint secured title insurance from Stewart Title, wired the funds into an escrow account, and took an assignment of the note and mortgage from Royal.

Two years later, after the death of Louis Crispino, Linda brought an action to set aside the deed from her to Louis as a forgery, and for a judgment that the note and mortgage were nullities. Title insurer agreed to defend Greenpoint, but reserved its rights to assert any defenses it might have against Greenpoint, and to recover attorneys' fees if a court subsequently determined that Greenpoint was not covered by the policy. Supreme Court found that Louis had forged Linda's signature, and declared that the mortgage was void because Louis' interest in the property had been extinguished at his death. When Greenpoint then sought indemnification from title insurer, title insurer denied coverage. Greenpoint then brought this action, and Supreme Court awarded summary judgment to Greenpoint. Title insurer appealed.

In reversing, the Appellate Division started by acknowledging that Royal was not the alter ego of Greenpoint, and that Greenpoint was an insured under the policy because it had purchased the mortgage for value and without actual notice of the forged deed. But the court also concluded that title insurer had raised questions of fact about whether Greenpoint had enabled the forgery to be committed. The court noted that Greenpoint had assigned supervisory responsibility to lawyer Beige with knowledge that both Beige and Louis Cipriani were principals of Royal. Whether Beige had participated in the fraud perpetrated by Louis and Royal was not resolved, but Greenpoint had alleged, in the earlier action, both that Beige was its closing agent and that Beige was negligent in its responsibilities to Greenpoint. On this record, questions of fact remained about whether the policy's exemption for 'matters created, suffered, assumed or agreed to by the insured claimant' was applicable. Summary judgment, therefore, was inappropriate.

 

Bank May Be Liable for Lead Paint Injuries

Roni v. Rahim

NYLJ 3/31/08, p. 25, col. 3

AppDiv, Second Dept.

(memorandum opinion)

In an action for personal injuries resulting from lead paint, the bank, as a record owner of the building, appealed from Supreme Court's denial of its summary judgment motion. The Appellate Division affirmed, holding that the bank had not established that it was not the owner, nor had it established an absence of notice.

At some point before the plaintiffs became tenants in the building, the bank acquired a deed to the property on which the subject apartment building was located. The bank alleged, however, that the property was actually purchased by the Baitul Center, and that the bank took the deed pursuant to an Islamic financing program whereby the bank provided funding for the purchase without interest, took title as security for the loan, and leased the property back to Baitul Center with the intention of giving Baitul Center the loan at the end of the lease term. When the infant plaintiff became ill as a result of ingestion of lead paint, plaintiffs brought this action, naming the bank as defendant. The bank sought summary judgment, alleging that it was not the owner, and also that it had never received notice that a child under the age of six was residing in an apartment. Supreme Court denied the bank's motion.

In affirming, the Appellate Division acknowledged that under the version of Local Law 1 in effect at the time of plaintiffs' tenancy, an owner is liable only when the owner has notice that a child under six resides in the premises. But the court concluded that the bank had failed to establish that it was not the owner of the premises, and also failed to establish that it did not have the requisite notice. As a result, the bank was not entitled to summary judgment.

Lender Obtains Equitable Lien

M & B Joint Venture, Inc. v. Laurus Master Fund, Ltd.

NYLJ 3/5/08, p. 31, col. 1

AppDiv, First Dept.

(3-2 decision; memorandum opinion; dissenting memorandum by McGuire, J.)

In an action by lender M & B to establish an equitable lien on real property, first mortgagee appealed from Supreme Court's denial of its motion to dismiss the complaint. The Appellate Division modified to dismiss M & B's unjust enrichment claim, but otherwise affirmed, holding that evidence of the loan, together with evidence of an oral conversation between M & B and first mortgagee, was sufficient to state a cause of action for an equitable lien.

On Feb. 23, 2004, mortgagor borrowed $24 million from first mortgagee, secured by the first mortgage. Mortgagor simultaneously conveyed the mortgaged property to a related entity, which delivered a deed in lieu of foreclosure to first mortgagee. That deed was placed in escrow, and the mortgage agreements together with the deed conveying the mortgaged property were all properly recorded. M & B alleges, however, that in January and February 2004, it extended a $490,000 bridge loan to mortgagor to enable mortgagor to proceed with the refinancing. M & B also alleges that this loan was intended to be secured by a mortgage subordinate to the $24 million first mortgage. That subordinate mortgage agreement, however,
was never executed. Subsequently, when mortgagor defaulted on the first mortgage, first mortgagee obtained a judgment of foreclosure, and conveyed the property to an entity wholly owned by first mortgagee. M & B then brought this action seeking imposition of an equitable lien and damages
for unjust enrichment. The Supreme Court denied first mortgagee's motion to dismiss.

In upholding the Supreme Court's denial of the motion to dismiss, the Appellate Division majority relied on evidence of the bridge loan, combined with evidence that first mortgagee had been aware of the intended mortgage. The majority held, however, that the unjust enrichment claim should have been dismissed because M & B had failed to demonstrate how first mortgagee was benefited by the bridge loan.

The dissenting justices concluded that the averments offered by M & B failed to establish an intent that the premises be given as security for the M & B loan. In particular, the dissenting justices emphasized that the affidavit of an M & B official stated only that during conversations with first mortgagee 'it was understood that' M & B's loan would be secured by a mortgage, but provided no evidence that anyone other than M & B had that understanding. Moreover, the attorney who acted as escrow agent for the fund advanced by M & B had no knowledge of M & B's existence, because another corporate entity had forwarded the funds to the escrow agent, and had represented that the funds were its own. Finally, the escrow agent testified that he did not obtain a second mortgage in favor of that other entity because the agreements between mortgagor and first mortgagee prohibited additional encumbrances. In light of this testimony, the dissenters concluded that M & B had established nothing more than an agreement to pay a debt out of a designated fund, which was insufficient to create an equitable lien.

COMMENT

A creditor holds an equitable lien against the debtor's property when evidence in writing establishes that the parties intended a specific property to secure an obligation to repay a loan. Thus, in F.D.I.C. v. Five Star Management, Inc., 258 A.D.2d 15, the court enforced an equitable lien where a mortgagee's recorded deed incorrectly identified the property, but the mortgage instrument correctly identified the property. The court reasoned that documentary evidence clearly established the existence of the loan, the intent that it be secured by such premises and the specific property intended to secure the loan. Absent adequate evidence in writing, courts have generally denied an equitable lien to creditors. Thus, in Datlof v. Turetsky, 111 A.D.2d 364, the court dismissed the creditor's claim, holding that an alleged statement by the debtor that the loan would be repaid from the sale of their home was insufficient evidence to uphold an equitable lien. The court indicated that an agreement to pay a debt from the proceeds of a sale of the property does not create a security interest in the property without additional evidence of the parties' intent to do so. In Kaya v. B & G Holding Co., LLC, 2008 WL 391057 (N.Y.A.D. 2d Dept.), the court dismissed a cause of action for an equitable lien where the purchaser sought to recover real estate taxes from the seller, paid during pre-closing possession pursuant to the contract. In Kaya, the possession agreement provided that the seller would reimburse the buyer for the amount of the real estate taxes if the seller cancelled the contract before closing, which the court concluded did not evidence an intent that the property would secure the obligation to repay.

In the absence of evidence in writing, courts have enforced an equitable lien in exceptional circumstances where a creditor has expended money on the property in reliance on a promise to receive an interest in the property in the future. Thus, in Jacone v. DeRosa, 173 A.D.2d 525, the court upheld an equitable lien in favor of prospective grantees for amounts expended in making repairs to a home based on the promise from prospective grantors that they would receive the home. M & B Joint Venture, Inc. does not involve reliance on such a promise and does not seem to fall into the exception of Jacone. Because there is no evidence of written intent in M & B Joint Venture, Inc., the court seems to expand the notion of equitable liens by relying on oral statements to find intent to have specific property secure a loan.

An equitable lien can be enforced by foreclosing on the property intended to secure the debt. For instance, in Citibank, N.A. v. Kenney, 17 A.D.3d 305, first mortgagee's recorded mortgage was inadvertently discharged and later reinstated after second and third mortgagee obtained and recorded security interests in the property. The court held that because the subsequent mortgagees did not change their position in reliance on the inadvertent discharge of the first mortgage, the first mortgage had seniority over the other liens. In determining priority, the court cited Payne v. Wilson, 74 N.Y. 348, which distinguishes between circumstances where a bona fide mortgagee purchases property without notice of the equitable lien and a creditor who pays consideration in reliance upon the title to the land being unencumbered. An equitable lien would thus have priority over a judgment-creditor or a subsequent mortgagee with notice of the equitable lien, as in Citibank.

 

Seller's Fence Agreement Does Not Establish That Title Is Unmarketable

Francesa v. Scibeta

NYLJ 4/7/08, p. 36, col. 4

AppDiv, Second Dept.

(3-1 decision; memorandum opinion; partial dissenting memorandum by

Spolzino, J.)

In an action by purchasers for return of a down payment, sellers appealed from Supreme Court's award of summary judgment to purchasers. A divided Appellate Division reversed and denied summary judgment to both parties, holding that purchasers had not established that a fence agreement entered into by sellers with their neighbors had rendered title unmarketable.

The contract of sale gave sellers the right to take such action as they deemed advisable to remove or remedy any encumbrances or other objections to title made by purchasers. The contract also permitted the sellers to adjourn the closing by up to 60 days to remedy title objections. When it became apparent that fences and a retaining wall were not located on the record boundary to the property, sellers exercised their election, adjourned the closing, and negotiated an agreement with neighbors permitting sellers to relocate the fences and the retaining wall to the record boundary line. The agreement also provided that the new chain link fence to be erected 'shall thereafter be maintained in good condition
by [the seller or seller's] successor in title and any required repair or replacement shall be the sole expense' of seller or seller's successor in title. Purchasers contended that this agreement constituted an encumbrance rendering title unmarketable, and sought return of their down payment. Supreme Court granted purchasers' summary judgment motion, and sellers appealed.

In reversing, the Appellate Division majority held that the fence agreement did not preclude the sellers and their successors from removing or relocating the fence without the consent of the neighbors. As a result, the majority concluded that purchasers had not established, as a matter of law, that the agreement had rendered title unmarketable. The court also held, however, that sellers had failed to proffer sufficient evidentiary proof to support their summary judgment motion.

Justice Spolzino, dissenting, concluded that a natural reading of the fence agreement prevented the sellers and their successors from removing the fence, and imposed an affirmative obligation to maintain the fence. Moreover, he concluded that even if the meaning of the agreement was ambiguous, the purchasers should not have to accept the prospect of litigation over the meaning of the agreement. As a result, he concluded that the purchasers were entitled to cancel the contract and obtain return of their down payment.

 

Public Trust Doctrine Does Not Preclude Village's Sale of Parking Lot

Matter of 10 East Realty, LLC v. Incorporated Village Of Valley Stream

NYLJ 3/24/08, p. 29, col. 1

AppDiv, Second Dept.

(memorandum opinion)

In an article 78 proceeding by neighbors challenging the village's sale of a parking lot to a private entity, neighbors appealed from Supreme Court's denial of the petition and dismissal of the proceeding. The Appellate Division modified, upholding the sale, but holding that the village was not entitled to provide financing through a purchase money mortgage.

Landowner proposed to build an office building adjacent to a municipal parking lot. Landowner wanted to acquire the lot for private parking for occupants of the office building. Because the village board wanted to encourage construction of the building to enhance the village's business district, the board agreed to sell the parking lot pursuant to an agreement in which landowner would pay the purchase price over 15 years, and the village would retain a purchase money mortgage. The owner of a neighboring parcel, together with members of a civic association, brought this article 78 proceeding challenging the transaction, but Supreme Court dismissed the proceeding.

In modifying, the Appellate Division conceded that municipal parking may constitute a public use of property. The court indicated that if the petitioners had established that the property had been dedicated to public use through an express provision in a deed or legislative enactment, the transfer to a private party might have been invalid. Petitioners, however, offered no proof of an express restriction, and the court concluded that no implied restriction on private transfer of land used for parking lot purposes ' unlike the public trust that may arise with respect to land held for park or recreational purposes. As a result, the public trust doctrine did not preclude sale of the parking lot. The court did, however, conclude that the financing arrangement violated article VIII, section 1 of the state constitution, which prohibits municipalities from giving or lending money in aid of an individual or private corporation.

 

Absence of Claim of Right Precludes Adverse Possession Claim

Perfito v. Einhorn

NYLJ 4/8/08, p. 28, col. 1

Supreme Ct., Westchester Cty

(Smith, J.)

In record owner's action for ejectment and to quiet title to disputed land, neighbor counterclaimed for judgment quieting title based on adverse possession. The court awarded judgment to the record owner, concluding that the neighbor had failed to establish a claim of right to the disputed area.

Record owner purchased its parcel in 2001. Adverse possessor's parcel is immediately adjacent to record owner's parcel. In 1971, adverse possessor's predecessor built a stockade fence against a prior chain link fence that had separated the two parcels. The stockade fence has been in place since that time, although it apparently encroaches approximately 8 to 14 feet onto record owner's property. Adverse possessor's predecessor and adverse possessor have conducted activities in the vicinity of the fence, and have maintained children's play equipment in the encroaching area. Adverse possessor contends that he had not knowledge that the record owner had any claim to the area on his side of the stockade fence until record owner's lawyers raised the issue. Testimony by the son of adverse possessor's predecessor indicated that the predecessor had never obtained permission from anyone to use that portion of what they believed to be their property.

On these facts, the court conceded that adverse possessor's possession had met the statutory enclosure requirement, and that the possession had been actual, exclusive, open and obvious. The court, however, held that there was no evidentiary support for the proposition that adverse possessors had occupied the property under a claim of right and without permission from record owner's predecessor. The court suggested that the record owner's predecessor might have failed to object as a 'neighborly accommodation,' which was inadequate to demonstrate any hostile claim of right.

 

Title Insurer Not Liable if Insured Mortgagee Enabled Forgery

Greenpoint Mortgage Funding, Inc. v. Stewart Title Insurance Co.

NYLJ 3/24/08, p. 33, col. 2

AppDiv, Second Dept.

(memorandum opinion)

In an action by mortgagee to recover on a title insurance policy, title insurer appealed from Supreme Court's award of summary judgment to mortgagee. The Appellate Division reversed and remanded, concluding that title insurer had raised questions of fact about whether mortgagee had enabled a forgery to be committed.

Royal Mortgage Bankers, a licensed mortgage banking company, entered into an agreement with Greenpoint whereby Royal would originate mortgage loan applications, and Greenpoint would provide the funding. If applicants met Greenpoint's standards, Greenpoint would wire funds, Royal would make the mortgage loan, and then assign both the promissory note and the mortgage to Greenpoint. One of Royal's principals, Louis Crispino, applied to refinance a home he owned with his wife, Linda, as tenants by the entirety. Greenpoint approved the loan on condition that Louis obtain title to the house in his own name, and that the loan be made only to Louis. Greenpoint also approved using another principal of Royal, lawyer Beige, to supervise the closing of the loan. At closing, however, Beige never appeared, and designated another employee of Royal, a notary who was not a lawyer, to supervise the closing. The loan closed, Greenpoint secured title insurance from Stewart Title, wired the funds into an escrow account, and took an assignment of the note and mortgage from Royal.

Two years later, after the death of Louis Crispino, Linda brought an action to set aside the deed from her to Louis as a forgery, and for a judgment that the note and mortgage were nullities. Title insurer agreed to defend Greenpoint, but reserved its rights to assert any defenses it might have against Greenpoint, and to recover attorneys' fees if a court subsequently determined that Greenpoint was not covered by the policy. Supreme Court found that Louis had forged Linda's signature, and declared that the mortgage was void because Louis' interest in the property had been extinguished at his death. When Greenpoint then sought indemnification from title insurer, title insurer denied coverage. Greenpoint then brought this action, and Supreme Court awarded summary judgment to Greenpoint. Title insurer appealed.

In reversing, the Appellate Division started by acknowledging that Royal was not the alter ego of Greenpoint, and that Greenpoint was an insured under the policy because it had purchased the mortgage for value and without actual notice of the forged deed. But the court also concluded that title insurer had raised questions of fact about whether Greenpoint had enabled the forgery to be committed. The court noted that Greenpoint had assigned supervisory responsibility to lawyer Beige with knowledge that both Beige and Louis Cipriani were principals of Royal. Whether Beige had participated in the fraud perpetrated by Louis and Royal was not resolved, but Greenpoint had alleged, in the earlier action, both that Beige was its closing agent and that Beige was negligent in its responsibilities to Greenpoint. On this record, questions of fact remained about whether the policy's exemption for 'matters created, suffered, assumed or agreed to by the insured claimant' was applicable. Summary judgment, therefore, was inappropriate.

 

Bank May Be Liable for Lead Paint Injuries

Roni v. Rahim

NYLJ 3/31/08, p. 25, col. 3

AppDiv, Second Dept.

(memorandum opinion)

In an action for personal injuries resulting from lead paint, the bank, as a record owner of the building, appealed from Supreme Court's denial of its summary judgment motion. The Appellate Division affirmed, holding that the bank had not established that it was not the owner, nor had it established an absence of notice.

At some point before the plaintiffs became tenants in the building, the bank acquired a deed to the property on which the subject apartment building was located. The bank alleged, however, that the property was actually purchased by the Baitul Center, and that the bank took the deed pursuant to an Islamic financing program whereby the bank provided funding for the purchase without interest, took title as security for the loan, and leased the property back to Baitul Center with the intention of giving Baitul Center the loan at the end of the lease term. When the infant plaintiff became ill as a result of ingestion of lead paint, plaintiffs brought this action, naming the bank as defendant. The bank sought summary judgment, alleging that it was not the owner, and also that it had never received notice that a child under the age of six was residing in an apartment. Supreme Court denied the bank's motion.

In affirming, the Appellate Division acknowledged that under the version of Local Law 1 in effect at the time of plaintiffs' tenancy, an owner is liable only when the owner has notice that a child under six resides in the premises. But the court concluded that the bank had failed to establish that it was not the owner of the premises, and also failed to establish that it did not have the requisite notice. As a result, the bank was not entitled to summary judgment.