Real Property Law

Buyer's Broker Does Not Breach Fiduciary Duty by Failure to Disclose Agents Representing Other Prospective Buyers

Rivkin v. Century 21 Teran Realty LLC

NYLJ 4/25/08, p. 27, col. 4

Court of Appeals

(opinion by Read, J.)

In a federal action by a prospective purchaser of real property against a buyer's broker for breach of fiduciary duty, the Second Circuit certified a question to the Court of Appeals. The Court of Appeals answered the question by concluding that a buyer's broker does not breach its fiduciary duty by failing to disclose to its client the fact that other agents at the firm were representing other potential buyers with respect to the same property.

Rivkin was interested in purchasing the subject property. He acted through Luborsky, an associate at Century 21 Teran, and signed a written binder offering to purchase the property for $75,000. At the same time, he acknowledged that he had read and understood a form stating that the buyer's agent acted solely on the buyer's behalf and had fiduciary duties, including the duties of undivided loyalty and full disclosure, to the buyer. Rivkin indicated to Luborsky that he would be willing to pay asking price for the property if necessary, but didn't want to bid asking price to start. At roughly the same time, another associate at Century 21 Teran was representing another prospective purchaser. That purchaser bid asking price, and seller accepted that purchaser's offer. Rivkin then brought this action against Century 21 Teran, its principals, and Luborsky, alleging that their breach of fiduciary duty caused him to lose the property. Federal district court dismissed the case, but Rivkin appealed. The Second Circuit noted the absence of New York law on the scope of a buyer's broker's fiduciary duty, and certified the question to the Court of Appeals.

The Court of Appeals distinguished between the fiduciary duty owed by an individual agent and the duty owed by the agent's firm. The court noted that when an individual buyer's agent acts on behalf of multiple clients bidding on the same property, the agent cannot negotiate an optimal purchase price for all of them. The agent's interest in that situation is inevitably compromised. By contrast, when two different agents from the same firm act on behalf of separate buyers, each agent has an incentive to represent his or her own client zealously. As a result, the risk is not comparable, and no breach of fiduciary duty occurs. The court went on to indicate that unless a brokerage firm and a client agree otherwise, the firm is not obligated to insure that its affiliated agents forego making offers on behalf of other buyers on which the client has already bid.

 

When Mortgagee Took No Action to Enforce Deficiency Judgment After Failure of Foreclosure Sale, Mortgagor Retained Title

Wydra v. Chai

NYLJ 4/14/08, p. 41, col. 1

AppDiv, Second Dept.

(memorandum opinion)

In a mortgage foreclosure action, purchaser from a mortgagor appealed from the Supreme Court's order denying leave to intervene and denying its motion to set aside the foreclosure sale. The Appellate Division reversed, holding that mortgagees had abandoned their lien on the subject property.

A mortgage covered four separate properties in Brooklyn, including the subject property. When mortgagor defaulted on the mortgage, mortgagees foreclosed on all four properties. At the foreclosure sale, there were no bidders for two of the properties, a third sold for $1,000, and the subject property sold, but the sale was rescinded upon the stipulation of mortgagees and the auction sale purchaser. The referee certified that there was a deficiency, and the Supreme Court, in 1994, awarded mortgagees a deficiency judgment in the amount of $111,437.52. The deficiency judgment recited that the net value of all of the properties was $1,000 as of the date of the referee's sale. Because the foreclosure sale of the subject property was rescinded, mortgage debtors retained title and in 2004, sold the property to the intervenor in the current action. In 2005, mortgagees, without notice to intervenor, sought and obtained appointment of a substitute referee. In 2006, at a foreclosure sale, the property sold for $370,000. Intervenor then sought leave to set aside the foreclosure sale, contending that once mortgagees obtained a deficiency judgment, they were precluded from pursuing a foreclosure sale. The Supreme Court denied the motion, holding that intervenor was bound by the judgment of foreclosure and sale.

In reversing, the Appellate Division emphasized that once the original foreclosure sale was rescinded, mortgagees failed to proceed against the subject property, and instead secured a deficiency judgment. The court held that once the lien of the deficiency judgment expired (after 10 years), the mortgagees had abandoned their mortgage lien against the property. The court emphasized the general rule that a failure to proceed against all the security is an abandonment of the lien on the portion omitted.

COMMENT

If there is no sale at a foreclosure sale of real property, Holmes v. Gravenhorst, 263 N.Y. 148, suggests that the mortgagor retains title to the property. In Holmes, a mortgagee sought to have the mortgagor pay rent as an owner in possession to a receiver based on a clause in the mortgage instrument that gave mortgagee the right to appoint a receiver of rents and profits of the property. In denying relief to the mortgagee, the Court of Appeals held that, absent an express clause in the mortgage instrument or a court order, a mortgagor is entitled to maintain possession of the mortgaged premises until after a sale of the premises under a judgment of foreclosure and sale. In Wydra, a judgment of foreclosure and sale was entered, but there were no bidders on three of the properties and the sale of one of the properties was rescinded. While Holmes is not controlling authority, it suggests that in the absence of a sale, the property will remain with the mortgagor.

Although a deficiency judgment against real property expires after 10 years under CPLR ' 5203, the money judgment itself remains valid and can be enforced for 20 years under CPLR ' 211(b). Under CPLR ' 5235, a mortgagee with a money judgment can proceed against any property still owned by the mortgagor even after the expiration of the lien. In Quarant v. Ferrara, 111 Misc.2d 1042, a judgment creditor moved for an extension of the judgment lien after the 10-year period had expired and sought to enforce it against a subsequent purchaser of the real property. While the lien had expired, the court held that the judgment creditor could proceed against real property presently owned by the judgment debtors or bring a new suit on the judgment to acquire a new 10-year lien. However, the new lien under '5235 would not be applicable against bona fide purchasers of the original subject property of the lien, even if the purchasers had knowledge of the prior judgment.

In Wydra, the court held that the most recent foreclosure sale by the mortgagee was invalid because the mortgagee had allowed the initial deficiency judgment to expire, leaving the mortgagor as owner of the parcel. If the mortgagor still owns the property, Quarant suggests that the mortgagee could seek to enforce the money judgment against the subject property pursuant to CPLR '5235. In Wydra, the subject property was conveyed by the mortgagor to a third party prior to any enforcement of the deficiency judgment against the mortgagee or the foreclosure sale at issue. Because the deficiency is not enforceable against a subsequent purchaser of the subject property under Quarant, the mortgagee in Wydra could then proceed only against other property still owned by the mortgagor.

 

Broker Not Entitled to Commission When Purchaser Not Able to Obtain Necessary Financing

F. Richard Wolff & Son, Inc. v. Tutora

NYLJ 4/28/08, p. 39, col. 4

AppDiv, Second Dept.

(memorandum opinion)

In an action for a real estate brokerage commission, broker appealed from Supreme Court's judgment dismissing the complaint after a non-jury trial on stipulated facts. The Appellate Division affirmed, holding that broker had not established that purchaser was able to obtain the financing necessary to close the deal.

Seller contracted to give broker an exclusive right to sell its adult care resident facility and the land on which the business was situated. The initial agreement was to expire on Oct. 31, 1999, but the parties agreed to renew the agreement through June 30, 2000. The agreement also provided that broker would be entitled to a commission if the property were sold during a three-month 'tail period' after the expiration of the contract. Broker introduced purchaser to seller in May 2000, and the parties entered into an agreement on Sept. 1, 2000 ' within the 'tail period' ' which provided for purchaser to purchase both the business and the land for $1.3 million. The agreement was contingent on purchaser's ability to obtain bank financing for $1.17 million. Purchaser could not obtain the financing, and the parties cancelled the contract. Seller and purchaser continued discussions, and purchaser later bought the business only for $500,000. Seller separately leased the land, with an option to purchase, for $800,000. Broker then brought this action for a commission, but Supreme Court awarded judgment to seller. Broker appealed.

In affirming, the Appellate Division emphasized that broker would become entitled to a commission when it procured a purchaser ready, willing and able to purchase on the seller's terms. In this case, the court concluded that the purchaser's inability to obtain financing made it clear that purchaser was not able to complete the transaction. As a result, broker was not entitled to a commission.

Buyer's Broker Does Not Breach Fiduciary Duty by Failure to Disclose Agents Representing Other Prospective Buyers

Rivkin v. Century 21 Teran Realty LLC

NYLJ 4/25/08, p. 27, col. 4

Court of Appeals

(opinion by Read, J.)

In a federal action by a prospective purchaser of real property against a buyer's broker for breach of fiduciary duty, the Second Circuit certified a question to the Court of Appeals. The Court of Appeals answered the question by concluding that a buyer's broker does not breach its fiduciary duty by failing to disclose to its client the fact that other agents at the firm were representing other potential buyers with respect to the same property.

Rivkin was interested in purchasing the subject property. He acted through Luborsky, an associate at Century 21 Teran, and signed a written binder offering to purchase the property for $75,000. At the same time, he acknowledged that he had read and understood a form stating that the buyer's agent acted solely on the buyer's behalf and had fiduciary duties, including the duties of undivided loyalty and full disclosure, to the buyer. Rivkin indicated to Luborsky that he would be willing to pay asking price for the property if necessary, but didn't want to bid asking price to start. At roughly the same time, another associate at Century 21 Teran was representing another prospective purchaser. That purchaser bid asking price, and seller accepted that purchaser's offer. Rivkin then brought this action against Century 21 Teran, its principals, and Luborsky, alleging that their breach of fiduciary duty caused him to lose the property. Federal district court dismissed the case, but Rivkin appealed. The Second Circuit noted the absence of New York law on the scope of a buyer's broker's fiduciary duty, and certified the question to the Court of Appeals.

The Court of Appeals distinguished between the fiduciary duty owed by an individual agent and the duty owed by the agent's firm. The court noted that when an individual buyer's agent acts on behalf of multiple clients bidding on the same property, the agent cannot negotiate an optimal purchase price for all of them. The agent's interest in that situation is inevitably compromised. By contrast, when two different agents from the same firm act on behalf of separate buyers, each agent has an incentive to represent his or her own client zealously. As a result, the risk is not comparable, and no breach of fiduciary duty occurs. The court went on to indicate that unless a brokerage firm and a client agree otherwise, the firm is not obligated to insure that its affiliated agents forego making offers on behalf of other buyers on which the client has already bid.

 

When Mortgagee Took No Action to Enforce Deficiency Judgment After Failure of Foreclosure Sale, Mortgagor Retained Title

Wydra v. Chai

NYLJ 4/14/08, p. 41, col. 1

AppDiv, Second Dept.

(memorandum opinion)

In a mortgage foreclosure action, purchaser from a mortgagor appealed from the Supreme Court's order denying leave to intervene and denying its motion to set aside the foreclosure sale. The Appellate Division reversed, holding that mortgagees had abandoned their lien on the subject property.

A mortgage covered four separate properties in Brooklyn, including the subject property. When mortgagor defaulted on the mortgage, mortgagees foreclosed on all four properties. At the foreclosure sale, there were no bidders for two of the properties, a third sold for $1,000, and the subject property sold, but the sale was rescinded upon the stipulation of mortgagees and the auction sale purchaser. The referee certified that there was a deficiency, and the Supreme Court, in 1994, awarded mortgagees a deficiency judgment in the amount of $111,437.52. The deficiency judgment recited that the net value of all of the properties was $1,000 as of the date of the referee's sale. Because the foreclosure sale of the subject property was rescinded, mortgage debtors retained title and in 2004, sold the property to the intervenor in the current action. In 2005, mortgagees, without notice to intervenor, sought and obtained appointment of a substitute referee. In 2006, at a foreclosure sale, the property sold for $370,000. Intervenor then sought leave to set aside the foreclosure sale, contending that once mortgagees obtained a deficiency judgment, they were precluded from pursuing a foreclosure sale. The Supreme Court denied the motion, holding that intervenor was bound by the judgment of foreclosure and sale.

In reversing, the Appellate Division emphasized that once the original foreclosure sale was rescinded, mortgagees failed to proceed against the subject property, and instead secured a deficiency judgment. The court held that once the lien of the deficiency judgment expired (after 10 years), the mortgagees had abandoned their mortgage lien against the property. The court emphasized the general rule that a failure to proceed against all the security is an abandonment of the lien on the portion omitted.

COMMENT

If there is no sale at a foreclosure sale of real property , Holmes v. Gravenhorst, 263 N.Y. 148, suggests that the mortgagor retains title to the property. In Holmes, a mortgagee sought to have the mortgagor pay rent as an owner in possession to a receiver based on a clause in the mortgage instrument that gave mortgagee the right to appoint a receiver of rents and profits of the property. In denying relief to the mortgagee, the Court of Appeals held that, absent an express clause in the mortgage instrument or a court order, a mortgagor is entitled to maintain possession of the mortgaged premises until after a sale of the premises under a judgment of foreclosure and sale. In Wydra, a judgment of foreclosure and sale was entered, but there were no bidders on three of the properties and the sale of one of the properties was rescinded. While Holmes is not controlling authority, it suggests that in the absence of a sale, the property will remain with the mortgagor.

Although a deficiency judgment against real property expires after 10 years under CPLR ' 5203, the money judgment itself remains valid and can be enforced for 20 years under CPLR ' 211(b). Under CPLR ' 5235, a mortgagee with a money judgment can proceed against any property still owned by the mortgagor even after the expiration of the lien. In Quarant v. Ferrara, 111 Misc.2d 1042, a judgment creditor moved for an extension of the judgment lien after the 10-year period had expired and sought to enforce it against a subsequent purchaser of the real property. While the lien had expired, the court held that the judgment creditor could proceed against real property presently owned by the judgment debtors or bring a new suit on the judgment to acquire a new 10-year lien. However, the new lien under '5235 would not be applicable against bona fide purchasers of the original subject property of the lien, even if the purchasers had knowledge of the prior judgment.

In Wydra, the court held that the most recent foreclosure sale by the mortgagee was invalid because the mortgagee had allowed the initial deficiency judgment to expire, leaving the mortgagor as owner of the parcel. If the mortgagor still owns the property, Quarant suggests that the mortgagee could seek to enforce the money judgment against the subject property pursuant to CPLR '5235. In Wydra, the subject property was conveyed by the mortgagor to a third party prior to any enforcement of the deficiency judgment against the mortgagee or the foreclosure sale at issue. Because the deficiency is not enforceable against a subsequent purchaser of the subject property under Quarant, the mortgagee in Wydra could then proceed only against other property still owned by the mortgagor.

 

Broker Not Entitled to Commission When Purchaser Not Able to Obtain Necessary Financing

F. Richard Wolff & Son, Inc. v. Tutora

NYLJ 4/28/08, p. 39, col. 4

AppDiv, Second Dept.

(memorandum opinion)

In an action for a real estate brokerage commission, broker appealed from Supreme Court's judgment dismissing the complaint after a non-jury trial on stipulated facts. The Appellate Division affirmed, holding that broker had not established that purchaser was able to obtain the financing necessary to close the deal.

Seller contracted to give broker an exclusive right to sell its adult care resident facility and the land on which the business was situated. The initial agreement was to expire on Oct. 31, 1999, but the parties agreed to renew the agreement through June 30, 2000. The agreement also provided that broker would be entitled to a commission if the property were sold during a three-month 'tail period' after the expiration of the contract. Broker introduced purchaser to seller in May 2000, and the parties entered into an agreement on Sept. 1, 2000 ' within the 'tail period' ' which provided for purchaser to purchase both the business and the land for $1.3 million. The agreement was contingent on purchaser's ability to obtain bank financing for $1.17 million. Purchaser could not obtain the financing, and the parties cancelled the contract. Seller and purchaser continued discussions, and purchaser later bought the business only for $500,000. Seller separately leased the land, with an option to purchase, for $800,000. Broker then brought this action for a commission, but Supreme Court awarded judgment to seller. Broker appealed.

In affirming, the Appellate Division emphasized that broker would become entitled to a commission when it procured a purchaser ready, willing and able to purchase on the seller's terms. In this case, the court concluded that the purchaser's inability to obtain financing made it clear that purchaser was not able to complete the transaction. As a result, broker was not entitled to a commission.