Real Property Law

Supreme Ct., Kings Cty

(Battaglia, J.)

In an action by mortgagee against title insurance company hired by a subsequent purchaser for negligence in disregarding the mortgage, title insurance company moved for summary judgment dismissing the complaint. Supreme Court denied the motion, holding that there were unresolved questions of fact about whether title insurer had conspired with prior owner to obtain a discharge of mortgagee's mortgage.

Until May 1, 2007, the subject property was owned as joint tenants by Robert Ayres, Susan Ayers and William Arndt. Robert and Susan were married until Susan brought a divorce proceeding in 2005, which led to a judgment of divorce issued on March 29, 2006. On Oct. 5, 2006, Robert executed a mortgage on the property to mortgagee, securing a note in the amount of $95,620. On March 20, 2007, a court appointed Susan as receiver of the property for the purpose of executing documents necessary to transfer Robert's share to prospective purchasers. Those prospective purchasers ordered an abstract of title from one of title insurance company's agents, with the expectation of purchasing a title insurance policy. The abstract revealed the mortgage executed by Robert alone, and title insurer indicated that because of the infirmities associated with the mortgage, title insurer would omit the mortgage from its exceptions to the title insurance policy if Susan undertook to obtain a court order discharging the mortgage. Susan agreed to do so, and title insurer issued a policy to the purchasers. Susan then brought a proceeding to discharge the mortgage, and title insurer submitted an affidavit indicating that the mortgage was invalid because only one of three co-owners had executed it, and the execution took place after the divorce. Mortgagee was not a party to the discharge proceeding, and although mortgagee was present and represented by counsel, the transcript of the proceedings does not indicate that mortgagee was permitted to participate. The court discharged the mortgage. At that point, mortgagee brought the instant proceeding against Susan and Robert, and also against the title insurance company, alleging that the title insurer was negligent in allowing the closing to proceed without assuring that the mortgage was paid. The title insurer moved to dismiss.

In denying the motion to dismiss, the court started by observing that a title insurance company hired by one party is not liable to any other party for negligent performance of any duties. But the court noted that mortgagee's claim asserted not merely negligence, but also collusion with Susan Ayers to secure dismissal of the mortgage. Once title insurer agreed to issue the policy without listing the mortgage as an exception, title insurer had an interest in assuring that the mortgage was discharged, and mortgagee asserted that title insurer's agents made false statements in the discharge proceeding in order to secure discharge, leading to the possible existence of a conspiracy with Susan. On a dismissal motion, the court did not reach the merits of mortgagee's collusion claim, but did conclude that mortgagee had raised questions of fact that precluded summary judgment.

COMMENT

Only a plaintiff who can demonstrate contractual privity or the “functional equivalent of privity” with a title insurance company can recover damages for negligent performance of an abstract. When the title company knew or should have known that it was preparing an abstract for the benefit of a participant in a real estate transaction, the participant can bring a negligence claim even if the participant did not contract for or pay for the abstract. Thus, in Kidd v. Havens, 171 A.D.2d 336, sellers of real estate hired title company to prepare an abstract for the purchaser. The court held the title company liable to purchasers when the abstract negligently omitted a prior mortgage taken out by sellers. The court emphasized that the title company should have known that it was preparing the abstract for the purchaser, and concluded that the “functional equivalent of privity” existed between purchaser and the title company.

By contrast, when a purchaser contracts with a title insurer for preparation of an abstract, the parties do not expect the seller to rely on the abstract, and the absence of privity bars the seller from recovering for the title insurer's negligence. Thus, in Calamari v. Grace, 98 AD2d 74, where the title insurer's negligent certification of erroneous boundaries led the purchaser to pay the seller for land the seller could not convey, the court held that seller had no claim against the title insurer for damages seller might owe the purchaser to compensate for the defect in title. The court held that the absence of privity barred any recovery by seller.

Courts have suggested, however, that a plaintiff who can demonstrate fraud may recover damages from a title company even absent actual privity or its equivalent. Thus, in Goodman v. Title Guarantee and Trust Company, 11 AD2d 1003, a seller sought to recover from a title company for issuing an erroneous report to a prospective buyer, causing the buyer to rescind. While the court dismissed the seller's negligence claim for lack of privity between the parties, the court granted plaintiff leave to amend its complaint to allege fraud, stating that seller's allegations would be sufficient to make out a cause of action for fraud against the title company, a cause of action plaintiff had never pleaded. Further, in Velasquez v. Decaudin, 49 A.D.3d 712, the court overturned the grant of a motion to dismiss a claim that a title company participated in a scheme to defraud, stating that no privity is required to maintain a cause of action “based on fraud or intentional misconduct.”

Assignment of Mortgage After Filing of Foreclosure Action Requires Dismissal For Assignee's Lack of Standing

Wells Fargo Bank, N.A. v. Marchione

NYLJ 10/28/09, p. 29, col. 1.

AppDiv, Second Dept.

(Opinion by Leventhal, J.)

In a foreclosure action, mortgagee appealed from Supreme Court's dismissal of the complaint for lack of standing. The Appellate Division affirmed, concluding that the mortgagee lacked standing because it had not obtained an assignment of the mortgage until four days after mortgagee filed the complaint.

In September, 2005, mortgagors executed a mortgage to Option One. Mortgagor failed to make payments beginning in April 2007. On Nov. 30, 2007, current mortgagee commenced this foreclosure action by filing a summons and complaint with the Westchester County Clerk. On Dec. 4, Option One executed an instrument of assignment to the current mortgagee; the instrument contained a provision indicating that the assignment had become effective on Oct. 28, 2007. The complaint, verified by counsel on Nov. 29, recited that current mortgagee was the sole, true, and lawful owner of the note and mortgage. On Dec. 7, the complaint was served on mortgagors. The note and mortgage were appended to the complaint, but the assignment was not. Mortgagor moved to dismiss the complaint on a variety of grounds, and, in response, mortgagee appended the assignment to is papers. Mortgagor then moved to dismiss on the ground that mortgagee lacked standing. Supreme Court dismissed the complaint, and mortgagee appealed.

In affirming, the Appellate Division first rejected mortgagee's argument that it had standing because the assignment had been executed before mortgagor was served with the summons and complaint. The court concluded that to have standing, the mortgagee had to have received an assignment before filing of the complaint. The court then held that the mortgagee could not rely on the assignment's provision indicating that the assignment had become effective on Oct. 28, holding that a retroactivity provision should not be binding on third parties. Finally the court was unpersuaded by mortgagee's argument that dismissal would constitute a waste of judicial resources because mortgagee would simply commence a new foreclosure action.

Deed Ambiguities Preclude Summary Judgment

DePaulus Holding Corp. v. Vitale

NYLJ 10/27/09, p. 38, col. 4

AppDiv, Second Dept.

(memorandum opinion)

In an action to quiet title, landowner appealed from Supreme Court's denial of his summary judgment motion. The Appellate Division affirmed, concluding that ambiguities in landowner's deed precluded summary judgment.

In 1985, DePaulis acquired title to two lots in Staten Island, an improved lot (lot 17) and a vacant lot (lot 74). DePaulis then conveyed lot 74 to the Russos by a deed that included a metes and bounds description that encompassed both lots. DePaulis continued to pay taxes on lot 17, and continued to consider itself the owner. In 1998, the Russos contracted to sell lot 74 to landowner. The deed, however, included the same metes and bounds description as the 1985 deed. DePaulis continued to pay taxes on lot 17 and then, in 2006, brought the instant action to quiet title to lot 17. Landowner moved for summary judgment, but Supreme Court denied the motion, leading to this appeal.

In affirming, the Appellate Division rejected landowner's argument that extrinsic evidence of DePaulis' intent was inadmissible because the deed was unambiguous on its face. The court noted that in this case, at the end of the metes and bounds description in the 1998 deed, there is a handwritten and initialed notation that says “being the same premises as conveyed to the grantors by deed in Reel 39, page 3493.” Because that deed covers only lot 74, the court held that the 1998 deed was ambiguous on its face, making extrinsic evidence admissible. Because the extrinsic evidence did not negate beyond a substantial doubt DePaulis' claim to lot 17, landowner was not entitled to summary judgment.

Questions of Fact Preclude Summary Judgment on Claim That Easement Was Extinguished by Adverse Possession

Janoff v. Disick

NYLJ 11/4/09, p. 34, col. 4

AppDiv, Second Dept.

(memorandum opinion)

In an action to compel a determination of claims to real property, landowner appealed from Supreme Court's grant of summary judgment to neighbor, who had claimed that an easement gave neighbor the right to erect a fence on landowner's land. The Appellate Division modified, holding that questions of fact remained about whether the easement had been extinguished by adverse possession.

In 1991, landowner's predecessor executed an agreement granting neighbor the right to an exclusive use and possession of the now-disputed area. The agreement, which was recorded, also gave neighbor the right to build a split-rail fence less than four-feet high within the disputed area, so long as neighbor obtained the consent of landowner's predecessor, which could not be unreasonably withheld. In 2007, neighbor notified current landowner that she planned to erect a split rail fence in the area, and landowner brought this action, contending that the location of the fence was unreasonable, and that landowner was not, therefore, required to consent to the fence. Landowner also contended that the 1991 easement had been extinguished by abandonment or by adverse possession. Supreme Court awarded summary judgment to neighbor.

In modifying, the Appellate Division agreed with Supreme Court that neighbor's proposed location of the fence was reasonable, but focused instead on whether the easement had been extinguished. The Appellate Division agreed that the easement had not been extinguished by abandonment, because abandonment requires more than non-use alone, and in this case, there was no unequivocal evidence of an intent to abandon. But the court concluded that landowner had raised questions of fact about whether landowner had excluded neighbor from use of the disputed area for a ten-year period, and about whether landowner's possession was pursuant to a claim of right. If the landowner establishes the elements of adverse possession with respect to the disputed area, landowner would have extinguished the easement by adverse possession. As a result, the court remitted to Supreme Court for further proceedings on the adverse possession claim.

COMMENT

A landowner's use of an easement across his land will not extinguish the easement through adverse possession where the landowner's use does not prevent the easement holder from using the easement for its intended purpose. Thus in McGinley v. Postel, 37 A.D.3d 783, 784, where landowner placed boulders and other obstructions on easement holder's right of way, the Second Department held that the easement had not been extinguished by adverse possession because the obstructions did not prevent easement holder from traversing the right of way with cars, motorcycles, and tractors. Similarly in Gold v. Di Cerbo, 41 A.D.3d 1051, 1054, the Third Department held that the easement had not been extinguished because landowner's use of the right of way to hike and cross country ski, and landowner's planting and mowing near the easement did not do anything which prevented easement holder from using and enjoying the easement.

A landowner who establishes the other elements of an adverse possession claim enjoys a presumption that his use of the easement was hostile. In Young v. Scully, 214 A.D.2d 905,, a water company granted two neighbors easements over its land to enable the neighbors to obtain access to an adjacent lake. On the area covered by the easement, Scully's family constructed a boat slip, and used it exclusively for 40 years. Id. at 906. The Third Department held that because Scully's use of the boat slip had been open, notorious, exclusive, and continuous for 40 years, Scully enjoyed a presumption that her use was hostile, and that use extinguished Young's easement by adverse possession. See also Koudellou v. Sakalis, 29 A.D.3d 640 [endorsing same presumption in dicta].

The presumption of hostility can be rebutted with a showing of permission. In Koudellou, landowner had, with the help of the easement holder's predecessor, fenced off the driveway over which easement holder had a right of way. The Second Department held that landowner's possession of the driveway was not hostile, concluding that the help easement holder's predecessor gave to landowner rebutted the presumption of hostility was thereby rebutted. Id. at 641.

Title Insurer May Be Liable for Conspiring with Owner to Obtain Discharge of Mortgage

Locisano v. Ayers

NYLJ 10/13/09, p. 20, col 3

Supreme Ct., Kings Cty

(Battaglia, J.)

In an action by mortgagee against title insurance company hired by a subsequent purchaser for negligence in disregarding the mortgage, title insurance company moved for summary judgment dismissing the complaint. Supreme Court denied the motion, holding that there were unresolved questions of fact about whether title insurer had conspired with prior owner to obtain a discharge of mortgagee's mortgage.

Until May 1, 2007, the subject property was owned as joint tenants by Robert Ayres, Susan Ayers and William Arndt. Robert and Susan were married until Susan brought a divorce proceeding in 2005, which led to a judgment of divorce issued on March 29, 2006. On Oct. 5, 2006, Robert executed a mortgage on the property to mortgagee, securing a note in the amount of $95,620. On March 20, 2007, a court appointed Susan as receiver of the property for the purpose of executing documents necessary to transfer Robert's share to prospective purchasers. Those prospective purchasers ordered an abstract of title from one of title insurance company's agents, with the expectation of purchasing a title insurance policy. The abstract revealed the mortgage executed by Robert alone, and title insurer indicated that because of the infirmities associated with the mortgage, title insurer would omit the mortgage from its exceptions to the title insurance policy if Susan undertook to obtain a court order discharging the mortgage. Susan agreed to do so, and title insurer issued a policy to the purchasers. Susan then brought a proceeding to discharge the mortgage, and title insurer submitted an affidavit indicating that the mortgage was invalid because only one of three co-owners had executed it, and the execution took place after the divorce. Mortgagee was not a party to the discharge proceeding, and although mortgagee was present and represented by counsel, the transcript of the proceedings does not indicate that mortgagee was permitted to participate. The court discharged the mortgage. At that point, mortgagee brought the instant proceeding against Susan and Robert, and also against the title insurance company, alleging that the title insurer was negligent in allowing the closing to proceed without assuring that the mortgage was paid. The title insurer moved to dismiss.

In denying the motion to dismiss, the court started by observing that a title insurance company hired by one party is not liable to any other party for negligent performance of any duties. But the court noted that mortgagee's claim asserted not merely negligence, but also collusion with Susan Ayers to secure dismissal of the mortgage. Once title insurer agreed to issue the policy without listing the mortgage as an exception, title insurer had an interest in assuring that the mortgage was discharged, and mortgagee asserted that title insurer's agents made false statements in the discharge proceeding in order to secure discharge, leading to the possible existence of a conspiracy with Susan. On a dismissal motion, the court did not reach the merits of mortgagee's collusion claim, but did conclude that mortgagee had raised questions of fact that precluded summary judgment.

COMMENT

Only a plaintiff who can demonstrate contractual privity or the “functional equivalent of privity” with a title insurance company can recover damages for negligent performance of an abstract. When the title company knew or should have known that it was preparing an abstract for the benefit of a participant in a real estate transaction, the participant can bring a negligence claim even if the participant did not contract for or pay for the abstract. Thus, in Kidd v. Havens, 171 A.D.2d 336, sellers of real estate hired title company to prepare an abstract for the purchaser. The court held the title company liable to purchasers when the abstract negligently omitted a prior mortgage taken out by sellers. The court emphasized that the title company should have known that it was preparing the abstract for the purchaser, and concluded that the “functional equivalent of privity” existed between purchaser and the title company.

By contrast, when a purchaser contracts with a title insurer for preparation of an abstract, the parties do not expect the seller to rely on the abstract, and the absence of privity bars the seller from recovering for the title insurer's negligence. Thus, in Calamari v. Grace, 98 AD2d 74, where the title insurer's negligent certification of erroneous boundaries led the purchaser to pay the seller for land the seller could not convey, the court held that seller had no claim against the title insurer for damages seller might owe the purchaser to compensate for the defect in title. The court held that the absence of privity barred any recovery by seller.

Courts have suggested, however, that a plaintiff who can demonstrate fraud may recover damages from a title company even absent actual privity or its equivalent. Thus, in Goodman v. Title Guarantee and Trust Company, 11 AD2d 1003, a seller sought to recover from a title company for issuing an erroneous report to a prospective buyer, causing the buyer to rescind. While the court dismissed the seller's negligence claim for lack of privity between the parties, the court granted plaintiff leave to amend its complaint to allege fraud, stating that seller's allegations would be sufficient to make out a cause of action for fraud against the title company, a cause of action plaintiff had never pleaded. Further, in Velasquez v. Decaudin, 49 A.D.3d 712, the court overturned the grant of a motion to dismiss a claim that a title company participated in a scheme to defraud, stating that no privity is required to maintain a cause of action “based on fraud or intentional misconduct.”

Assignment of Mortgage After Filing of Foreclosure Action Requires Dismissal For Assignee's Lack of Standing

Wells Fargo Bank, N.A. v. Marchione

NYLJ 10/28/09, p. 29, col. 1.

AppDiv, Second Dept.

(Opinion by Leventhal, J.)

In a foreclosure action, mortgagee appealed from Supreme Court's dismissal of the complaint for lack of standing. The Appellate Division affirmed, concluding that the mortgagee lacked standing because it had not obtained an assignment of the mortgage until four days after mortgagee filed the complaint.

In September, 2005, mortgagors executed a mortgage to Option One. Mortgagor failed to make payments beginning in April 2007. On Nov. 30, 2007, current mortgagee commenced this foreclosure action by filing a summons and complaint with the Westchester County Clerk. On Dec. 4, Option One executed an instrument of assignment to the current mortgagee; the instrument contained a provision indicating that the assignment had become effective on Oct. 28, 2007. The complaint, verified by counsel on Nov. 29, recited that current mortgagee was the sole, true, and lawful owner of the note and mortgage. On Dec. 7, the complaint was served on mortgagors. The note and mortgage were appended to the complaint, but the assignment was not. Mortgagor moved to dismiss the complaint on a variety of grounds, and, in response, mortgagee appended the assignment to is papers. Mortgagor then moved to dismiss on the ground that mortgagee lacked standing. Supreme Court dismissed the complaint, and mortgagee appealed.

In affirming, the Appellate Division first rejected mortgagee's argument that it had standing because the assignment had been executed before mortgagor was served with the summons and complaint. The court concluded that to have standing, the mortgagee had to have received an assignment before filing of the complaint. The court then held that the mortgagee could not rely on the assignment's provision indicating that the assignment had become effective on Oct. 28, holding that a retroactivity provision should not be binding on third parties. Finally the court was unpersuaded by mortgagee's argument that dismissal would constitute a waste of judicial resources because mortgagee would simply commence a new foreclosure action.

Deed Ambiguities Preclude Summary Judgment

DePaulus Holding Corp. v. Vitale

NYLJ 10/27/09, p. 38, col. 4

AppDiv, Second Dept.

(memorandum opinion)

In an action to quiet title, landowner appealed from Supreme Court's denial of his summary judgment motion. The Appellate Division affirmed, concluding that ambiguities in landowner's deed precluded summary judgment.

In 1985, DePaulis acquired title to two lots in Staten Island, an improved lot (lot 17) and a vacant lot (lot 74). DePaulis then conveyed lot 74 to the Russos by a deed that included a metes and bounds description that encompassed both lots. DePaulis continued to pay taxes on lot 17, and continued to consider itself the owner. In 1998, the Russos contracted to sell lot 74 to landowner. The deed, however, included the same metes and bounds description as the 1985 deed. DePaulis continued to pay taxes on lot 17 and then, in 2006, brought the instant action to quiet title to lot 17. Landowner moved for summary judgment, but Supreme Court denied the motion, leading to this appeal.

In affirming, the Appellate Division rejected landowner's argument that extrinsic evidence of DePaulis' intent was inadmissible because the deed was unambiguous on its face. The court noted that in this case, at the end of the metes and bounds description in the 1998 deed, there is a handwritten and initialed notation that says “being the same premises as conveyed to the grantors by deed in Reel 39, page 3493.” Because that deed covers only lot 74, the court held that the 1998 deed was ambiguous on its face, making extrinsic evidence admissible. Because the extrinsic evidence did not negate beyond a substantial doubt DePaulis' claim to lot 17, landowner was not entitled to summary judgment.

Questions of Fact Preclude Summary Judgment on Claim That Easement Was Extinguished by Adverse Possession

Janoff v. Disick

NYLJ 11/4/09, p. 34, col. 4

AppDiv, Second Dept.

(memorandum opinion)

In an action to compel a determination of claims to real property, landowner appealed from Supreme Court's grant of summary judgment to neighbor, who had claimed that an easement gave neighbor the right to erect a fence on landowner's land. The Appellate Division modified, holding that questions of fact remained about whether the easement had been extinguished by adverse possession.

In 1991, landowner's predecessor executed an agreement granting neighbor the right to an exclusive use and possession of the now-disputed area. The agreement, which was recorded, also gave neighbor the right to build a split-rail fence less than four-feet high within the disputed area, so long as neighbor obtained the consent of landowner's predecessor, which could not be unreasonably withheld. In 2007, neighbor notified current landowner that she planned to erect a split rail fence in the area, and landowner brought this action, contending that the location of the fence was unreasonable, and that landowner was not, therefore, required to consent to the fence. Landowner also contended that the 1991 easement had been extinguished by abandonment or by adverse possession. Supreme Court awarded summary judgment to neighbor.

In modifying, the Appellate Division agreed with Supreme Court that neighbor's proposed location of the fence was reasonable, but focused instead on whether the easement had been extinguished. The Appellate Division agreed that the easement had not been extinguished by abandonment, because abandonment requires more than non-use alone, and in this case, there was no unequivocal evidence of an intent to abandon. But the court concluded that landowner had raised questions of fact about whether landowner had excluded neighbor from use of the disputed area for a ten-year period, and about whether landowner's possession was pursuant to a claim of right. If the landowner establishes the elements of adverse possession with respect to the disputed area, landowner would have extinguished the easement by adverse possession. As a result, the court remitted to Supreme Court for further proceedings on the adverse possession claim.

COMMENT

A landowner's use of an easement across his land will not extinguish the easement through adverse possession where the landowner's use does not prevent the easement holder from using the easement for its intended purpose. Thus in McGinley v. Postel , 37 A.D.3d 783, 784, where landowner placed boulders and other obstructions on easement holder's right of way, the Second Department held that the easement had not been extinguished by adverse possession because the obstructions did not prevent easement holder from traversing the right of way with cars, motorcycles, and tractors. Similarly in Gold v. Di Cerbo , 41 A.D.3d 1051, 1054, the Third Department held that the easement had not been extinguished because landowner's use of the right of way to hike and cross country ski, and landowner's planting and mowing near the easement did not do anything which prevented easement holder from using and enjoying the easement.

A landowner who establishes the other elements of an adverse possession claim enjoys a presumption that his use of the easement was hostile. In Young v. Scully , 214 A.D.2d 905,, a water company granted two neighbors easements over its land to enable the neighbors to obtain access to an adjacent lake. On the area covered by the easement, Scully's family constructed a boat slip, and used it exclusively for 40 years. Id. at 906. The Third Department held that because Scully's use of the boat slip had been open, notorious, exclusive, and continuous for 40 years, Scully enjoyed a presumption that her use was hostile, and that use extinguished Young's easement by adverse possession. See also Koudellou v. Sakalis , 29 A.D.3d 640 [endorsing same presumption in dicta] .

The presumption of hostility can be rebutted with a showing of permission. In Koudellou, landowner had, with the help of the easement holder's predecessor, fenced off the driveway over which easement holder had a right of way. The Second Department held that landowner's possession of the driveway was not hostile, concluding that the help easement holder's predecessor gave to landowner rebutted the presumption of hostility was thereby rebutted. Id. at 641.