Real Property Law

AppDiv, Second Dept.

(memorandum opinion)

In an action for determination of claims to real property, transferee appealed from the Supreme Court's order setting aside a deed apparently executed by transferor, and restoring title to transferor. The Appellate Division affirmed, holding that the Supreme Court's determination that the presumption of due execution had been rebutted was supported by the record.

The deed from Lee to 1557 Park Place Realty Corp., dated March 1, 2002, purported to convey title to the subject premises. The deed included a certificate of acknowledgment, but transferor Lee testified that although her signature “possibly” appeared on the deed, she did not knowingly sign the deed and did not intend to convey the premises. At trial, the court heard other testimony, and was presented with documentary evidence, indicating that the deed had not been properly executed, acknowledged, and delivered. Crediting that evidence, the court set aside the deed, and transferee appealed.

In affirming, the Appellate Division noted that a certificate of acknowledgment creates a presumption of due execution, and noted that the presumption should not be rebutted based on the unsupported testimony of interested witnesses, but only based on evidence “so clear and convincing as to amount to a moral certainty.” Nevertheless, the court noted that in close cases, an appellate court should take account of the trial court's advantage of seeing the witnesses. In this case, the Appellate Division concluded that the trial court's determination was supported by the record.

COMMENT

A certificate of acknowledgment creates a very heavy presumption in favor of due execution, one that a transferor cannot overcome when its only evidence is the unsupported testimony of an interested witness. Thus, in Osborne v. Zornberg, 16 A.D.3d 643, the Appellate Division held that a transferor who submitted only her own affidavit attesting to the alleged forgery of her signature on the deed could not rebut the presumption of due execution since her affidavit constituted unsupported testimony of an interested witness.

When the transferor offers tangible evidence in addition to interested witness testimony, New York courts are more likely to hold that the certificate of acknowledgment's presumption of due execution has been overcome. In particular, where a transferor establishes discrepancies between the acknowledged document and business records, the transferor is likely to overcome the presumption. In Winfield Capital Corp. v. Green Point Sav. Bank, 261 A.D.2d 539, the court held that a corporate mortgagee was entitled to foreclose on a mortgage, despite two acknowledged and recorded satisfactions of the mortgage, where the mortgagee established, through its president's affidavit, as well as corporate documents, that the name of the person who supposedly signed the satisfactions was never associated with the mortgagee and that the mortgagee never had an office at the address stated in the satisfaction. Similarly, in Royal Inn, Ltd. v. M.A.F. Realty, Corp., 105 A.D.2d 835, the Appellate Division granted a new trial to a corporate transferor seeking to set aside as forged an acknowledged mortgage assignment. when the corporation's secretary-treasurer, established that the document incorrectly denominated him as president even though he had never held that office, and that the corporate seal affixed bearing the year 1971 was not genuine because the true corporate seal recited the year 1972.

Even when a transferor does offer tangible evidence to rebut the presumption of due execution, the transferor will not prevail if countervailing evidence supports the validity of the acknowledgment. Thus, in Son Fong Lum v. Antonelli, 102 A.D.2d 258, the transferor failed to overcome the presumption of due execution arising out of a notary's certificate of acknowledgment of her mark of X (her purported signature) upon a deed to her son and daughter-in-law Transferor contended that the deed was a forgery, brought forth documents bearing her authentic signature, and contended that she was at work the day of the closing. The court found this evidence insufficient, however, because the transferees, two grandsons and the notary public contradicted the transferor's testimony that she was not present when the deed was signed and three of the five witnesses testified that they personally witnessed the transferor place her mark upon the deed.

Creston Avenue Realty, LLC v. M-P-M Management Corp.

NYLJ 11/24/08, p. 18, col. 1

AppDiv, First Dept.

(Opinion by Acosta, J.)

In an action by contract vendee for specific performance of a contract for the sale of real property, contract vendee appealed from the Supreme Court's award of summary judgment dismissing the complaint as to a subsequent purchaser, and canceling contract vendee's notice of pendency. The Appellate Division affirmed, holding that a notice of pendency is not effective to protect a contract vendee's interest against a subsequent purchaser in good faith. Contract vendee contracted to purchase the subject property from seller in August 2004. The contract required seller to clear specified violations on the property, or to put funds in escrow for that purpose. The scheduled closing in November 2004 did not occur because seller had not cleared the violations, and refused to put money in escrow. Contract vendee alleges that seller agreed to clear the violations, and the parties continued to communicate about the violations until Feb. 14, 2005, when seller cancelled the contract. Before the cancellation, and without contract vendee's knowledge, seller had contracted, in January 2005, to sell the property to Pioneer. Pioneer had no knowledge of the earlier contract with contract vendee. Seller and Pioneer closed on that sale contract on Feb. 14, the same date on which seller cancelled the contract with contract vendee. Pioneer's deed was recorded on March 1, 2005. On Feb. 22, 2005, contract vendee filed a notice of pendency against the property and commenced an action against seller for specific performance. In April, contract vendee added Pioneer as an additional defendant. The Supreme Court granted Pioneer's motion to dismiss the complaint against it, and to cancel the notice of pendency. Contract vendee appealed.

In affirming, the Appellate Division rejected contract vendee's argument that filing of the notice of pendency operated to protect its interest in the property, even against a subsequent bona fide purchaser. The court concluded that only by recording the sale contract could contract vendee acquire priority over the interest of a subsequent bona fide purchaser who recorded its deed. The court also dismissed contract vendee's claim for intentional interference with contract, noting that contract vendee had offered no facts from which it might be inferred that Pioneer had knowledge of the prior contract between seller and contract vendee.

COMMENT

Subject to exceptions, CPLR 6501 states that a notice of pendency serves as constructive notice to a purchasers from any named defendant, and such a purchaser whose conveyance is recorded after the filing of the notice is bound by any decisions made in the proceedings. In Goldstein v. Gold, 106 A.D.2d 100, affd 66 N.Y.2d 624, the majority held that the purchaser is charged with constructive notice of litigation when a notice of pendency is filed before the deed is recorded, even if the notice was filed after the closing of the sale. Goldstein's stepmother fraudulently obtained a satisfaction of the mortgage that she owed Goldstein in order to sell her property unencumbered. Goldstein filed his notice of pendency very shortly after the closing of the sale to Paul Adler, the intervening defendant in the case, before Adler was able to record his deed. The court held that Adler was unable to cut off Goldstein's mortgage because he failed to satisfy either prong of New York's race-notice statute (Real Property Law '291). First, the notice of pendency was recorded before his deed. Second, Adler was not a bona fide purchaser because he relied on an unrecorded satisfaction while Goldstein's mortgage remained on record.

Real Property Law '294(3), which states that an unrecorded executory contract for sale, purchase, or exchange of real property is void against any subsequent bona fide purchaser who records first, creates an exception to CPLR 6501. In La Marche v. Rosenblum, 50 A.D.2d 636, the court, on facts similar to those in Creston, dismissed the purchaser's complaint, holding that the explicit language of NY Real Prop '294(3) voided his unrecorded executory contract against the interest of subsequent purchasers who had no actual knowledge of the prior purchaser's interest. Upon learning of this subsequent transaction, the initial purchaser instituted the action and filed the notice of pendency. Several days later, the subsequent purchaser recorded their sale contract. The appellate court upheld the dismissal of the initial purchaser's complaint against the subsequent purchaser. Because the initial purchaser failed to record and therefore avail himself to NY Real Prop '294(3), the notice of pendency did not protect him.

Snyder Fulton Street LLC v. Fulton Interest LLC

NYLJ 12/9/08, p. 36, col. 5

AppDiv, Second Dept.

(memorandum opinion)

In an action for partition of real property, plaintiff co-tenant, who owns six-sevenths of the property, appealed from the Supreme Court's order that the property be physically partitioned. The Appellate Division reversed, holding that partition and sale was warranted because the evidence established that physical partition would significantly reduce the parcel's value.

The parties together own most, but not all, of a lot occupied by a 19th-century commercial building. A small portion of the lot is owned by another party, but the portion of the building on that party's lot is not separated by any wall from the rest of the lot. The property is encumbered by a ground-floor lease, which expires April 30, 2010. In 2006, the majority owner brought this partition action, seeking a partition and sale of the property. Minority owner opposed sale, contending that the court should physically partition the property instead. The Supreme Court designated three commissioners to divide the property physically so that each party would receive, as nearly as possible, parcels worth their respective interests in the market value of the property. The court also directed payment of owelty, if necessary, to adjust for any variance in value. Majority owner appealed.

In reversing, the Appellate Division agreed that physical partition is generally preferred, but noted that partition and sale should be ordered when one party establishes that physical partition would cause great prejudice. Whether physical partition would cause prejudice is a question of fact. In this case, majority owner's expert testified that the property is worth $88 million in its undivided state, and $44 million if partitioned. Minority owner's expert testified that the property is worth $77 million undivided, and that the parcel could be partitioned physically into two parcels, one worth $7.3 million and the other worth $68.5 million, for a total of $75.8 million. The Appellate Division held that even accepting the testimony of minority owner's expert, the $1.2 million diminution in value from a physical partition constituted prejudice sufficient to mandate a partition and sale.

Presumption of Due Execution Rebutted

Olympus Servicing, L.P. v. Lee

NYLJ 11/17/08, p. 30, col. 1

AppDiv, Second Dept.

(memorandum opinion)

In an action for determination of claims to real property, transferee appealed from the Supreme Court's order setting aside a deed apparently executed by transferor, and restoring title to transferor. The Appellate Division affirmed, holding that the Supreme Court's determination that the presumption of due execution had been rebutted was supported by the record.

The deed from Lee to 1557 Park Place Realty Corp., dated March 1, 2002, purported to convey title to the subject premises. The deed included a certificate of acknowledgment, but transferor Lee testified that although her signature “possibly” appeared on the deed, she did not knowingly sign the deed and did not intend to convey the premises. At trial, the court heard other testimony, and was presented with documentary evidence, indicating that the deed had not been properly executed, acknowledged, and delivered. Crediting that evidence, the court set aside the deed, and transferee appealed.

In affirming, the Appellate Division noted that a certificate of acknowledgment creates a presumption of due execution, and noted that the presumption should not be rebutted based on the unsupported testimony of interested witnesses, but only based on evidence “so clear and convincing as to amount to a moral certainty.” Nevertheless, the court noted that in close cases, an appellate court should take account of the trial court's advantage of seeing the witnesses. In this case, the Appellate Division concluded that the trial court's determination was supported by the record.

COMMENT

A certificate of acknowledgment creates a very heavy presumption in favor of due execution, one that a transferor cannot overcome when its only evidence is the unsupported testimony of an interested witness. Thus, in Osborne v. Zornberg, 16 A.D.3d 643, the Appellate Division held that a transferor who submitted only her own affidavit attesting to the alleged forgery of her signature on the deed could not rebut the presumption of due execution since her affidavit constituted unsupported testimony of an interested witness.

When the transferor offers tangible evidence in addition to interested witness testimony, New York courts are more likely to hold that the certificate of acknowledgment's presumption of due execution has been overcome. In particular, where a transferor establishes discrepancies between the acknowledged document and business records, the transferor is likely to overcome the presumption. In Winfield Capital Corp. v. Green Point Sav. Bank, 261 A.D.2d 539, the court held that a corporate mortgagee was entitled to foreclose on a mortgage, despite two acknowledged and recorded satisfactions of the mortgage, where the mortgagee established, through its president's affidavit, as well as corporate documents, that the name of the person who supposedly signed the satisfactions was never associated with the mortgagee and that the mortgagee never had an office at the address stated in the satisfaction. Similarly, in Royal Inn, Ltd. v. M.A.F. Realty, Corp., 105 A.D.2d 835, the Appellate Division granted a new trial to a corporate transferor seeking to set aside as forged an acknowledged mortgage assignment. when the corporation's secretary-treasurer, established that the document incorrectly denominated him as president even though he had never held that office, and that the corporate seal affixed bearing the year 1971 was not genuine because the true corporate seal recited the year 1972.

Even when a transferor does offer tangible evidence to rebut the presumption of due execution, the transferor will not prevail if countervailing evidence supports the validity of the acknowledgment. Thus, in Son Fong Lum v. Antonelli, 102 A.D.2d 258, the transferor failed to overcome the presumption of due execution arising out of a notary's certificate of acknowledgment of her mark of X (her purported signature) upon a deed to her son and daughter-in-law Transferor contended that the deed was a forgery, brought forth documents bearing her authentic signature, and contended that she was at work the day of the closing. The court found this evidence insufficient, however, because the transferees, two grandsons and the notary public contradicted the transferor's testimony that she was not present when the deed was signed and three of the five witnesses testified that they personally witnessed the transferor place her mark upon the deed.

Creston Avenue Realty, LLC v. M-P-M Management Corp.

NYLJ 11/24/08, p. 18, col. 1

AppDiv, First Dept.

(Opinion by Acosta, J.)

In an action by contract vendee for specific performance of a contract for the sale of real property, contract vendee appealed from the Supreme Court's award of summary judgment dismissing the complaint as to a subsequent purchaser, and canceling contract vendee's notice of pendency. The Appellate Division affirmed, holding that a notice of pendency is not effective to protect a contract vendee's interest against a subsequent purchaser in good faith. Contract vendee contracted to purchase the subject property from seller in August 2004. The contract required seller to clear specified violations on the property, or to put funds in escrow for that purpose. The scheduled closing in November 2004 did not occur because seller had not cleared the violations, and refused to put money in escrow. Contract vendee alleges that seller agreed to clear the violations, and the parties continued to communicate about the violations until Feb. 14, 2005, when seller cancelled the contract. Before the cancellation, and without contract vendee's knowledge, seller had contracted, in January 2005, to sell the property to Pioneer. Pioneer had no knowledge of the earlier contract with contract vendee. Seller and Pioneer closed on that sale contract on Feb. 14, the same date on which seller cancelled the contract with contract vendee. Pioneer's deed was recorded on March 1, 2005. On Feb. 22, 2005, contract vendee filed a notice of pendency against the property and commenced an action against seller for specific performance. In April, contract vendee added Pioneer as an additional defendant. The Supreme Court granted Pioneer's motion to dismiss the complaint against it, and to cancel the notice of pendency. Contract vendee appealed.

In affirming, the Appellate Division rejected contract vendee's argument that filing of the notice of pendency operated to protect its interest in the property, even against a subsequent bona fide purchaser. The court concluded that only by recording the sale contract could contract vendee acquire priority over the interest of a subsequent bona fide purchaser who recorded its deed. The court also dismissed contract vendee's claim for intentional interference with contract, noting that contract vendee had offered no facts from which it might be inferred that Pioneer had knowledge of the prior contract between seller and contract vendee.

COMMENT

Subject to exceptions, CPLR 6501 states that a notice of pendency serves as constructive notice to a purchasers from any named defendant, and such a purchaser whose conveyance is recorded after the filing of the notice is bound by any decisions made in the proceedings. In Goldstein v. Gold, 106 A.D.2d 100, affd 66 N.Y.2d 624, the majority held that the purchaser is charged with constructive notice of litigation when a notice of pendency is filed before the deed is recorded, even if the notice was filed after the closing of the sale. Goldstein's stepmother fraudulently obtained a satisfaction of the mortgage that she owed Goldstein in order to sell her property unencumbered. Goldstein filed his notice of pendency very shortly after the closing of the sale to Paul Adler, the intervening defendant in the case, before Adler was able to record his deed. The court held that Adler was unable to cut off Goldstein's mortgage because he failed to satisfy either prong of New York's race-notice statute (Real Property Law '291). First, the notice of pendency was recorded before his deed. Second, Adler was not a bona fide purchaser because he relied on an unrecorded satisfaction while Goldstein's mortgage remained on record.

Real Property Law '294(3), which states that an unrecorded executory contract for sale, purchase, or exchange of real property is void against any subsequent bona fide purchaser who records first, creates an exception to CPLR 6501. In La Marche v. Rosenblum, 50 A.D.2d 636, the court, on facts similar to those in Creston, dismissed the purchaser's complaint, holding that the explicit language of NY Real Prop '294(3) voided his unrecorded executory contract against the interest of subsequent purchasers who had no actual knowledge of the prior purchaser's interest. Upon learning of this subsequent transaction, the initial purchaser instituted the action and filed the notice of pendency. Several days later, the subsequent purchaser recorded their sale contract. The appellate court upheld the dismissal of the initial purchaser's complaint against the subsequent purchaser. Because the initial purchaser failed to record and therefore avail himself to NY Real Prop '294(3), the notice of pendency did not protect him.

Snyder Fulton Street LLC v. Fulton Interest LLC

NYLJ 12/9/08, p. 36, col. 5

AppDiv, Second Dept.

(memorandum opinion)

In an action for partition of real property, plaintiff co-tenant, who owns six-sevenths of the property, appealed from the Supreme Court's order that the property be physically partitioned. The Appellate Division reversed, holding that partition and sale was warranted because the evidence established that physical partition would significantly reduce the parcel's value.

The parties together own most, but not all, of a lot occupied by a 19th-century commercial building. A small portion of the lot is owned by another party, but the portion of the building on that party's lot is not separated by any wall from the rest of the lot. The property is encumbered by a ground-floor lease, which expires April 30, 2010. In 2006, the majority owner brought this partition action, seeking a partition and sale of the property. Minority owner opposed sale, contending that the court should physically partition the property instead. The Supreme Court designated three commissioners to divide the property physically so that each party would receive, as nearly as possible, parcels worth their respective interests in the market value of the property. The court also directed payment of owelty, if necessary, to adjust for any variance in value. Majority owner appealed.

In reversing, the Appellate Division agreed that physical partition is generally preferred, but noted that partition and sale should be ordered when one party establishes that physical partition would cause great prejudice. Whether physical partition would cause prejudice is a question of fact. In this case, majority owner's expert testified that the property is worth $88 million in its undivided state, and $44 million if partitioned. Minority owner's expert testified that the property is worth $77 million undivided, and that the parcel could be partitioned physically into two parcels, one worth $7.3 million and the other worth $68.5 million, for a total of $75.8 million. The Appellate Division held that even accepting the testimony of minority owner's expert, the $1.2 million diminution in value from a physical partition constituted prejudice sufficient to mandate a partition and sale.