Real Property Law

Second Dept.

(memorandum opinion)

In an action by homeowners for a declaration that a notice of violation issued by a homeowner's association was void, the association appealed from Supreme Court's grant of the declaratory judgment. The Appellate Division affirmed, holding that the Declaration of Restrictions, Covenants, and Easements did not authorize the association to issue the violation.

In the fall of 2004, homeowners built a shed on their property. The town building inspector approved the shed and issued a certificate of occupancy. Other homeowners in the 20-unit subdivision complained about the shed to the homeowner's association, and the association issued a “Determination and Notice of Violation,” contending that the shed violated provisions in the Declaration. Homeowner then brought this declaratory judgment action.

In affirming Supreme Court's grant of homeowner's requested declaratory judgment, the Appellate Division noted that the business judgment rule does not apply when the board of an association exceeds its authority. Here, the court noted that the Declaration requires lot owners to prevent development of “unclear, unsightly or unkempt conditions of buildings or found on such lot,” but emphasized that the Declaration gives the board power only to regulate the condition of buildings, not the type or shape of buildings. Because the board of the association failed to raise any other authority for its action, the court held that homeowner was entitled to summary judgment.

Setback Line Rendered Title Unmarketable

Rasul v. O'Brien

NYLJ 6/12/08, p. 30, col. 1

Civil Ct., Richmond Cty

(Straniere, J.)

In an action by home purchaser for return of a down payment and for damages, purchaser and seller each sought summary judgment. The court granted purchaser's motion for summary judgment on its claim for return of the down payment, concluding that a setback line adopted by the City of New York rendered title unmarketable.

A rider to the sale contract provided that the sale was subject to “[a]ny proposed or actual widening of the street on which this property is situated … provided however, that the building or buildings thereon are not affected thereby.” The rider then added “provided same do not render premises unmarketable or uninsurable.” The subject parcel is 46 feet wide and 100 feet deep, but a title report revealed that a 30-foot setback line adopted by the city ran along the entire depth of the parcel. That line ran through about 15 feet of the building for its entire length. When purchaser discovered the setback line, purchaser sought to rescind agreement and sought return of the down payment.

In holding that purchaser was entitled to return of the down payment, the court held that the setback line rendered title unmarketable. The court noted that if the city decided to widen the street, 30 feet of a 46 foot wide parcel would be lost, and concluded that no reasonably intelligent person would want to purchase a home with these legal problems. As a result, even if title was insurable, it was not marketable, entitling purchaser to rescind the contract. The court held, however, that purchaser did not establish that he was ready, willing, and able to close, and purchaser was not, therefore, entitled to damages for breach by the seller in failing to deliver marketable title.

TILA Violation Does Not Prevent Expiration of Right to Rescind

Fiorenza v. Fremont Investment & Loan

NYLJ 7/1/08, p. 30, col. 3

U.S. Dist. Ct, S.D.N.Y.

(Scheindlin, J.)

In an action by mortgagor seeking rescission of a mortgage loan, mortgagee HSBC sought summary judgment. The court granted HSBC's motion, holding that even if the original mortgagee had failed to provide disclosure required under the
federal Truth in Lending Act (TILA), mortgagor's right to rescind had expired.

In 2006, mortgagor received a cold call soliciting interest in refinancing. Based on representations made to her, mortgagor applied for refinancing with a significant “cash out.” Mortgagor never received any documents about the loan terms until closing. At closing, the original mortgagee did provide a mortgage, a note, a settlement statement, and a “Federal Truth-in-Lending Disclosure Statement.” Mortgagee also provided a “Notice of Right to Cancel.” The mortgage loan closed, and mortgagee assigned the mortgage and note to HSBC. After mortgagor defaulted on the loan, HSBC brought a foreclosure action. In addition to defending the foreclosure action, mortgagor sent a notice of rescission of the loan to both the original mortgagee and to HSBC. Mortgagor then brought the instant action seeking rescission of the loan and termination of the security interest. HSBC sought summary judgment for failure to state a claim on which rescission could be granted.

In granting HSBC's summary judgment motion, the court noted that under TILA, mortgagor had only three days from closing to assert a rescission remedy. Because mortgagee provided all of the necessary material disclosures at closing, the three-day period began to run at closing, even if mortgagee had violated TILA obligations by not providing disclosure before closing. Only if mortgagee had not provided those disclosures at closing would mortgagor have been entitled to extension of the rescission period. The court noted that mortgagor might have had a damage claim against original mortgagee for failing to provide pre-closing disclosure, but liability would have been limited to statutory damages, and the one-year statute of limitations on the damage claim has now expired. As a result, HSBC was entitled to summary judgment.

In Absence of Active Concealment, Damage Limitation Provision Bars Claim Against Seller

Mancuso v. Rubin

NYLJ 6/19/08, p. 38, col. 1

AppDiv, Second Dept.

(memorandum opinion)

In an action by home purchaser for breach of contract and fraud, purchaser appealed from the Supreme Court's dismissal of the complaint against seller, and dismissal of several causes of action against the engineering inspector hired by purchaser. The Appellate Division affirmed, holding that the damage limitation provision in the contract with the engineering inspector was binding, and that purchaser had not alleged any active concealment by seller. In 2005, purchaser contracted to purchase a single-family house from seller, and hired engineering inspector to conduct a prepurchase inspection. The agreement provided that if the engineering company was found liable to purchaser for any loss or damage arising out of the inspection, damages would be limited to the $200 fee purchaser paid to the engineering inspector. The inspection report concluded that, upon observation of accessible portions of the house no “active termite or termite action was apparent.” The company's termite inspection certification included the same conclusion, but disclaimed responsibility for termite conditions that were not visible, and indicated that the certification was not a warranty. After closing, purchaser discovered extensive termite damage, which required significant repair. Purchaser then brought this action against sellers for breach of contract and fraudulent concealment, and against the engineering company for breach of contract, professional malpractice, and negligence. The Supreme Court dismissed the complaint against the engineering company to the extent that the alleged damages exceeded $200, and dismissed the complaint against the seller in its entirety. Purchase appealed.

In affirming, the Appellate Division first held that the damage limitation in the contract with the engineering inspector precluded any claim against the inspector for negligence. Although the court acknowledged that a party may not limit its liability for damages caused by its own gross negligence, the court held that plaintiff's complaint, which alleged that the company performed its inspection recklessly was insufficient to state a cause of action for gross negligence because plaintiff purchaser did not make any factual allegations of conduct evincing a reckless disregard for the rights of others. The court held that the Supreme Court had properly dismissed the fraud claim against the seller because the buyer's bare allegations that the sellers concealed and obstructed the termite infestation was insufficient to state a claim for active concealment without some factual details indicating what constituted the concealment. The court noted that mere failure to disclose information did not give rise to a claim against the seller when the contract explicitly provided that the premises were being sold “as is.”

Declaration Does Not Authorize Homeowners Association to Issue Violations

Cababe v. Estates at Brookview Homeowners Association

NYLJ 6/19/08, p. 38, col. 1

Second Dept.

(memorandum opinion)

In an action by homeowners for a declaration that a notice of violation issued by a homeowner's association was void, the association appealed from Supreme Court's grant of the declaratory judgment. The Appellate Division affirmed, holding that the Declaration of Restrictions, Covenants, and Easements did not authorize the association to issue the violation.

In the fall of 2004, homeowners built a shed on their property. The town building inspector approved the shed and issued a certificate of occupancy. Other homeowners in the 20-unit subdivision complained about the shed to the homeowner's association, and the association issued a “Determination and Notice of Violation,” contending that the shed violated provisions in the Declaration. Homeowner then brought this declaratory judgment action.

In affirming Supreme Court's grant of homeowner's requested declaratory judgment, the Appellate Division noted that the business judgment rule does not apply when the board of an association exceeds its authority. Here, the court noted that the Declaration requires lot owners to prevent development of “unclear, unsightly or unkempt conditions of buildings or found on such lot,” but emphasized that the Declaration gives the board power only to regulate the condition of buildings, not the type or shape of buildings. Because the board of the association failed to raise any other authority for its action, the court held that homeowner was entitled to summary judgment.

Setback Line Rendered Title Unmarketable

Rasul v. O'Brien

NYLJ 6/12/08, p. 30, col. 1

Civil Ct., Richmond Cty

(Straniere, J.)

In an action by home purchaser for return of a down payment and for damages, purchaser and seller each sought summary judgment. The court granted purchaser's motion for summary judgment on its claim for return of the down payment, concluding that a setback line adopted by the City of New York rendered title unmarketable.

A rider to the sale contract provided that the sale was subject to “[a]ny proposed or actual widening of the street on which this property is situated … provided however, that the building or buildings thereon are not affected thereby.” The rider then added “provided same do not render premises unmarketable or uninsurable.” The subject parcel is 46 feet wide and 100 feet deep, but a title report revealed that a 30-foot setback line adopted by the city ran along the entire depth of the parcel. That line ran through about 15 feet of the building for its entire length. When purchaser discovered the setback line, purchaser sought to rescind agreement and sought return of the down payment.

In holding that purchaser was entitled to return of the down payment, the court held that the setback line rendered title unmarketable. The court noted that if the city decided to widen the street, 30 feet of a 46 foot wide parcel would be lost, and concluded that no reasonably intelligent person would want to purchase a home with these legal problems. As a result, even if title was insurable, it was not marketable, entitling purchaser to rescind the contract. The court held, however, that purchaser did not establish that he was ready, willing, and able to close, and purchaser was not, therefore, entitled to damages for breach by the seller in failing to deliver marketable title.

TILA Violation Does Not Prevent Expiration of Right to Rescind

Fiorenza v. Fremont Investment & Loan

NYLJ 7/1/08, p. 30, col. 3

U.S. Dist. Ct, S.D.N.Y.

(Scheindlin, J.)

In an action by mortgagor seeking rescission of a mortgage loan, mortgagee HSBC sought summary judgment. The court granted HSBC's motion, holding that even if the original mortgagee had failed to provide disclosure required under the
federal Truth in Lending Act (TILA), mortgagor's right to rescind had expired.

In 2006, mortgagor received a cold call soliciting interest in refinancing. Based on representations made to her, mortgagor applied for refinancing with a significant “cash out.” Mortgagor never received any documents about the loan terms until closing. At closing, the original mortgagee did provide a mortgage, a note, a settlement statement, and a “Federal Truth-in-Lending Disclosure Statement.” Mortgagee also provided a “Notice of Right to Cancel.” The mortgage loan closed, and mortgagee assigned the mortgage and note to HSBC. After mortgagor defaulted on the loan, HSBC brought a foreclosure action. In addition to defending the foreclosure action, mortgagor sent a notice of rescission of the loan to both the original mortgagee and to HSBC. Mortgagor then brought the instant action seeking rescission of the loan and termination of the security interest. HSBC sought summary judgment for failure to state a claim on which rescission could be granted.

In granting HSBC's summary judgment motion, the court noted that under TILA, mortgagor had only three days from closing to assert a rescission remedy. Because mortgagee provided all of the necessary material disclosures at closing, the three-day period began to run at closing, even if mortgagee had violated TILA obligations by not providing disclosure before closing. Only if mortgagee had not provided those disclosures at closing would mortgagor have been entitled to extension of the rescission period. The court noted that mortgagor might have had a damage claim against original mortgagee for failing to provide pre-closing disclosure, but liability would have been limited to statutory damages, and the one-year statute of limitations on the damage claim has now expired. As a result, HSBC was entitled to summary judgment.

In Absence of Active Concealment, Damage Limitation Provision Bars Claim Against Seller

Mancuso v. Rubin

NYLJ 6/19/08, p. 38, col. 1

AppDiv, Second Dept.

(memorandum opinion)

In an action by home purchaser for breach of contract and fraud, purchaser appealed from the Supreme Court's dismissal of the complaint against seller, and dismissal of several causes of action against the engineering inspector hired by purchaser. The Appellate Division affirmed, holding that the damage limitation provision in the contract with the engineering inspector was binding, and that purchaser had not alleged any active concealment by seller. In 2005, purchaser contracted to purchase a single-family house from seller, and hired engineering inspector to conduct a prepurchase inspection. The agreement provided that if the engineering company was found liable to purchaser for any loss or damage arising out of the inspection, damages would be limited to the $200 fee purchaser paid to the engineering inspector. The inspection report concluded that, upon observation of accessible portions of the house no “active termite or termite action was apparent.” The company's termite inspection certification included the same conclusion, but disclaimed responsibility for termite conditions that were not visible, and indicated that the certification was not a warranty. After closing, purchaser discovered extensive termite damage, which required significant repair. Purchaser then brought this action against sellers for breach of contract and fraudulent concealment, and against the engineering company for breach of contract, professional malpractice, and negligence. The Supreme Court dismissed the complaint against the engineering company to the extent that the alleged damages exceeded $200, and dismissed the complaint against the seller in its entirety. Purchase appealed.

In affirming, the Appellate Division first held that the damage limitation in the contract with the engineering inspector precluded any claim against the inspector for negligence. Although the court acknowledged that a party may not limit its liability for damages caused by its own gross negligence, the court held that plaintiff's complaint, which alleged that the company performed its inspection recklessly was insufficient to state a cause of action for gross negligence because plaintiff purchaser did not make any factual allegations of conduct evincing a reckless disregard for the rights of others. The court held that the Supreme Court had properly dismissed the fraud claim against the seller because the buyer's bare allegations that the sellers concealed and obstructed the termite infestation was insufficient to state a claim for active concealment without some factual details indicating what constituted the concealment. The court noted that mere failure to disclose information did not give rise to a claim against the seller when the contract explicitly provided that the premises were being sold “as is.”