Real Property Law

Mortgagee's Predatory Practice Precludes Recovery Of Interest

Emigrant Mortgage Co., Inc. v. Corcione

NYLJ 4/21/10, p. 25, col. 3

Supreme Ct., Suffolk Cty.

(Spinner, J.)

In an action to foreclose a mortgage, mortgagee moved for summary judgment. The court denied the motion, holding that mortgagee's predatory practices precluded recovery of interest and attorney's fees, and warranted an award of punitive damages against mortgagee.

Mortgagee obtained the subject mortgage in 2007 as collateral for a loan in the principal amount of $302,500, with a n adjustable interest rate starting at 11.625%. Mortgagors defaulted on May 1, 2008, and sought to obtain modification of the loan agreement. Mortgagee resisted these efforts and, in August 2009, brought this foreclosure action. Mortgagee then sought summary judgment.

In denying mortgagee's motion, the court focused on a number of provisions in the mortgage agreement, drafted by mortgagee. The court noted that by the terms of that agreement, borrowers waived all claims, defenses and counterclaims of any kind, including claims for violation of the Truth in Lending Act and claims for fraud and deceptive practices. Borrowers also waived the benefits of the automatic stay in bankruptcy. Moreover, the court concluded that mortgagee's primary motivation in resisting loan modification was its hope to obtain more interest for the post-default period. The court also noted that mortgagee had claimed that it had advanced $10,000 for taxes and insurance, while the annual taxes on the property amounted to no more than $3209.94. The court emphasized that foreclosure is an equitable proceeding, and held that in light of the mortgagee's inequitable conduct, mortgagee should be forever barred from collecting any of the claimed interest accruing between the date of default and March 1, 2010. The court also fixed exemplary damages of $100,000 against mortgagee for its inequitable conduct.

Fraudulent Inducement Claim Dismissed

Berrocal v. Abrams, Garfinkel, Margolis Bergson LLP

NYLJ 5/5/10, p.29, col. 1

Supreme Ct., Queens Cty.

(Butler, J.)

In an action by purchaser of a two-family home alleging fraudulent inducement, mortgagee's law firm and assignee of the mortgage moved to dismiss the complaint. The court granted the motion, holding that the plaintiffs had failed to make sufficient allegations to sustain the complaint.

Purchasers bought a two-family house financed with a mortgage loan in the amount of $543,192 from defendant Premium. The sale was arranged by a broker, and purchasers brought this action against the sellers, the broker, the mortgagee, together with mortgagee's law firm and mortgagee's assignee. Purchasers allege that fraudulent representations were made that tenants in occupancy would vacate the premises, and that the various defendants failed to disclose the existence of residential leases. Purchasers also claimed that the HUD-1 settlement statement prepared in conjunction with the closing falsely stated that purchasers had paid $31,937.17 toward the purchase price, and that mortgagee had wrongfully assigned the mortgage to Wells Fargo, the assignee. The complaint also alleged that mortgagee's law firm had acted as attorney for both mortgagee and purchasers, and that the law firm had breached its fiduciary duty to the purchasers.

In dismissing the complaint against the law firm, the court relied on copies of an attendance sheet for the closing, prepared by the law firm, indicating that another lawyer had attended the closing as purchasers' lawyer, and copies of an escrow check paid to that lawyer's law firm. In light of these documents, and the affidavits of law firm's lawyers, the court held that purchasers had established no factual basis for their claim that law firm had represented them as well as mortgagee.

In dismissing the complaint against Wells Fargo, the court started by asserting that the assignee of a mortgage takes it subject to the equities attending the original transaction. Thus, if purchasers could establish that the original mortgagee had perpetrated a fraud, Wells Fargo would take subject to any fraud claims, even if Wells Fargo were a bona fide purchaser. But the court emphasized that purchasers knew that tenants were in possession of the property at the time of the sale, triggering an obligation to investigate whether tenants had leases to the property. Moreover, purchasers provided no factual detail for its allegation that mortgagee made oral assurances that the tenants would vacate. With respect to the HUD-1 statement, the court relied on purchasers' signed statement that they had reviewed the statement and that it was a true and accurate statement of all disbursements made on their account. The court also emphasized that purchasers had not alleged how any inaccuracies in that statement caused damages to them. Finally, the court noted that purchasers had never explained how the assignment to Wells Fargo was “wrongful.” As a result, the court dismissed the complaint with respect to Wells Fargo.

COMMENT

As a general rule, a bona fide purchaser takes a mortgage subject to any claims or defenses to which it was subject while in the hands of the mortgagee. The rule is based on the principle that an assignee takes no rights in excess of those held by the assignor. Thus, in Liebowitz v. Arrow Roofing Co., 259 N.Y. 391, the Court of Appeals held that, in a foreclosure action, the defense of want of consideration is available against an assignee, even where the assignee is a bona fide purchaser. Similarly, in Granick v. Mobach, 13 A.D.2d 534, the Appellate Division held that assignee of a mortgage was not entitled, in a foreclosure action, to dismissal of mortgagor's defense and counterclaim based on an ostensible agreement between mortgagor and the original mortgagee. Specifically, mortgagor claimed that assignor had promised to cure certain construction defects as partial consideration for the mortgage, but failed to do so. The court held that if mortgagor prevailed at trial, mortgagor could offset any damages against the amount due on the mortgage because assignee took the mortgage subject to any equities of the original transaction, including the agreement between mortgagor and original mortgagee.

The liability assumed by an assignee also extends to claims that a third party could have asserted against the assignor. For example, in Greene v. Warnick, 64 N.Y. 220, The Court of Appeals held that assignee of a mortgage was subject to an agreement between assignor and another mortgagee of the same land, even though assignee had no knowledge of the agreement. The case involved a mortgagor who simultaneously executed two mortgages for identical amounts, one to M.G. and one to D. M.G. and D agreed that the mortgages were equal liens and were to be recorded at the same time, although M.G. ultimately recorded her mortgage 15 minutes before D recorded his. M.G. subsequently assigned her mortgage to E.G., who then assigned it to W. Neither E.G. nor W were aware of D's mortgage or the agreement between M.G. and D, both believing that the mortgage they acquired had priority over all other liens. Nevertheless, the court held that W held the mortgage subject to the equities of the original transaction, meaning his mortgage was of equal priority to D's mortgage.

In contrast to the assignee of a mortgage, a bona fide purchaser of a deed takes title free of any claim that would lie against the grantor, so long as the grantee is without constructive or actual notice of the claim. In Anderson v. Blood, 152 N.Y. 285, for example, the Court of Appeals held that grantee was not on constructive notice that grantor fraudulently acquired the subject property prior to selling it to grantee, and thus grantee held the deed free of any claims that could have been brought against grantor by the defrauded parties. Courts have rarely discussed the rationale for treating grantees differently than mortgage assignees in this respect, but the result may be to encourage mortgagees engaging in fraud to fashion their transactions as deeds rather than as mortgages, because the deeds may be easier to market to bona fide purchasers.

There are exceptions to the general rule that the assignee of a mortgage takes subject to the equities of the original transaction. For instance, a mortgagor may be estopped from challenging the validity of the mortgage. This usually happens when, at assignee's request, mortgagor executes an estoppel certificate stating that there are no offsets or defenses to the mortgage or underlying note. In Hammelburger v. Foursome Inn, Corp., 54 N.Y.2d 580, the Court of Appeals held that a valid estoppel certificate, executed by mortgagor and reasonably relied upon by assignee, precluded mortgagor from asserting the defense of usury in a foreclosure action, unless mortgagor could show that assignee had knowledge of the usurious nature of the original transaction.

Misuse of Easement Does Not Lead to Extinguishment

Cale v. P.O.H.R.C.N.Y. Inc.

NYLJ 4/28/10, p. 29, col. 1

Supreme Ct., N.Y. Cty.

(Madden, J.)

In two consolidated actions, adjacent building owners each sought relief in a dispute over maintenance of shared heating equipment located in the basement of both buildings. The court granted Plnc's motion for summary judgment on Cale's claim for extinguishment of an easement over basement space, holding that misuse of the easement would not lead to extinguishment.

In 1990, the parties' predecessors entered into an easement agreement by the terms of which each party was granted access to the portion of the other's basement in which heating and hot water equipment was located to provide for maintenance and replacement of the equipment. The agreement also provided that Plnc's predecessor and any successors in interest would be responsible for maintenance, and that Cale's predecessor and any successors would reimburse for 35% of the cost. If Plnc failed to maintain, Cale's would be entitled to maintain and obtain reimbursement for 65% of the cost. Each party would be entitled to the rights of an unpaid mechanic or material man in case the other failed to make required reimbursement payments. The dispute arose when Plnc made alterations to the equipment. Cale asserts that the alterations were made for Plnc's exclusive benefit, failed to provide heat and hot water to Cale's building, and interfered with Cale's efforts to operate and manually operate the boiler. Cale brought an action seeking a variety of relief, including extinguishment of the easement. Plnc brought a separate action for a determination that it has a valid mechanics' lien against Cale's property pursuant to the agreement.

The court first granted Plnc's summary judgment motion on Cale's claim for extinguishment of the easement. The court held that overuse and misuse of an easement does not result in extinguishment, and held that there was no evidence in this case that Plnc had abandoned the easement. The court then discharged Plnc's mechanics lien on the premises, noting that the lien had been filed in 2006, but expired one year later when Plnc had not filed a notice of pendency. The court held that Lien Law section 17 requires a mechanics lienor to satisfy two conditions to avoid expiration after one year: commencement of an action and filing of a notice of pendency. In this case, Plnc met only one of the conditions, resulting in expiration of the lien.

COMMENT

It is well settled in New York that misuse alone will not extinguish an easement. In Gerbig v. Zumpano, 7 N.Y.2d 327, the Court of Appeals rejected servient owner's argument that dominant owner's misuse had resulted in termination of the easement, remanding instead for a trial to determine whether the easement had been abandoned. Servient owner had purchased a residential lot encumbered by an easement for ingress and egress to dominant owner's property. Dominant owner had not used the easement for its intended purpose for several years, and instead had constructed a patio and a fenced enclosure on part of the property. Servient owner sued to extinguish defendant's claimed easement, and for the removal of the encroaching structures. In holding that dominant owner's misuse alone did not extinguish the easement, the court noted that an easement will only be extinguished by abandonment, conveyance, condemnation, or adverse possession. The court held that a trial was necessary to determine whether dominant owner had clearly and unequivocally expressed his intent to abandon his rights to the easement.

Attempts by litigants (such as Cale) to extinguish easements by characterizing the mere misuse of an easement as abandonment have routinely failed. In McIntyre v. Estate of Keller, 828 N.Y.S.2d 798, for instance, the court rejected servient owner's argument that dominant owner had abandoned an easement by using it for purposes not permitted by the easement's terms. The easement allowed dominant owner to use a driveway across plaintiff's property, but provided that dominant owner could only cross the property “by foot and with pleasure cars.” When servient owner sought to terminate the easement, the court rejected servient owner's argument that the easement had been abandoned because dominant owner had allowed “anyone and everyone” to use the easement, including commercial vehicles. Similarly, in Graziano v. Turiano, 266 A.D.2d 187, the Appellate Division held that allegations of excessive or unauthorized use of an easement fail to establish abandonment as a matter of law, thus entitling servient owners to summary judgment against dominant owner's abandonment claim.

While misuse alone will not extinguish an easement, a dominant owner's misuse or overuse may entitle the servient owner to injunctive relief. In Ledley v. D.J. & N.A. Management, Ltd., 71 A.D.3d 1096, for example, the Appellate Division enjoined dominant owner from misusing an easement and ordered the parties to take steps to prevent further misuse. The easement's terms allowed dominant owner to use a portion of servient owner's property for unloading delivery vehicles, but instead dominant owner's employees used the area for long-term parking. The court ordered the parties to implement portions of a traffic engineer's report that would, inter alia, clearly mark the easement as a designated place for the unloading of delivery vehicles only. Likewise, in Mandia v. King Lumber and Plywood Co., 179 A.D.2d 150, the court awarded servient owner injunctive relief when dominant owner misused a right of way across servient owner's property. Dominant owner, a lumber company, expanded and paved a “narrow dirt lane” spanning servient owner's property. The court held that Dominant owner's actions violated the terms of the easement, and it ordered the company to restore the right of way to its previous condition.

Buyer May Waive Right to Certificate of Occupancy

Cozza v. 50 Crossbay Realty Corp.

NYLJ 5/12/10, p. 33, col. 5

AppDiv, Second Dept.

(memorandum opinion)

In buyer's action for specific performance of a sale contract and for damages, both parties appealed from a Supreme Court order and judgment awarding summary judgment to purchaser on its specific performance claim, but denying summary judgment on purchaser's damages claim. The Appellate Division modified, holding that buyers were entitled to summary judgment on both the specific performance and the damages claim.

The sale contract called tor commercial property called for a purchase price of $1,200,000, to be financed by a purchase money mortgage. The contract also provided that seller would obtain a certificate of occupancy and convey insurable or marketable title. Finally, the contract provided that if the contract failed to close within 30 days of Jan. 15, 2003 for any reason (other than buyer's willful default), purchaser would be entitled to $100,000 liquidated damages. By contrast, the contract provided that seller's “sole remedy” for buyer's breach would be the sum of $5,000. Seller did not obtain the certificate of occupancy, and title did not close by the closing date, but buyer consistently expressed its intent to continue the contract. Buyer indicated that it would waive its right to have the certificate of occupancy in return for a reduced purchase price. On Nov. 1, 2004, buyer wrote seller indicating that closing would take place on Nov. 29, 2004, but also expressed a willingness to extend the closing date to one more convenient to seller. Seller responded that it was experiencing irreconcilable differences, and opting to cancel the contract and pay liquidated damages. Buyer then brought this action for specific performance and damages.

The Appellate Division first held that Supreme Court had correctly awarded buyer summary judgment on its specific performance claim, holding that buyers had established that they were ready, willing and able to close on the contract, and that seller had anticipatorily repudiated the contract. The Appellate Division also rejected seller's argument that the contract was voidable because the certificate of occupancy had not been obtained. The court noted that the certificate of occupancy provision had been inserted for the sole benefit of buyer, and buyer had waived that provision. Turning to buyer's claim for damages ' expenditures made to obtain the certificate of occupancy and losses arising form seller's alterations, modifications, and changes to the property without buyer's consent ' the court concluded that Supreme Court should have granted summary judgment to buyers on these claims as well. The court held that the “liquidated damages” provision did not limit buyer's right to recover because the clause did not specifically limit buyer's right to recover actual damages, and because the liquidated damages applied only to failure to close within 30 days of the specified closing date, not to the contingency that actually occurred. As a result, the court remanded for a determination of buyer's damages.

Mortgagee's Predatory Practice Precludes Recovery Of Interest

Emigrant Mortgage Co., Inc. v. Corcione

NYLJ 4/21/10, p. 25, col. 3

Supreme Ct., Suffolk Cty.

(Spinner, J.)

In an action to foreclose a mortgage, mortgagee moved for summary judgment. The court denied the motion, holding that mortgagee's predatory practices precluded recovery of interest and attorney's fees, and warranted an award of punitive damages against mortgagee.

Mortgagee obtained the subject mortgage in 2007 as collateral for a loan in the principal amount of $302,500, with a n adjustable interest rate starting at 11.625%. Mortgagors defaulted on May 1, 2008, and sought to obtain modification of the loan agreement. Mortgagee resisted these efforts and, in August 2009, brought this foreclosure action. Mortgagee then sought summary judgment.

In denying mortgagee's motion, the court focused on a number of provisions in the mortgage agreement, drafted by mortgagee. The court noted that by the terms of that agreement, borrowers waived all claims, defenses and counterclaims of any kind, including claims for violation of the Truth in Lending Act and claims for fraud and deceptive practices. Borrowers also waived the benefits of the automatic stay in bankruptcy. Moreover, the court concluded that mortgagee's primary motivation in resisting loan modification was its hope to obtain more interest for the post-default period. The court also noted that mortgagee had claimed that it had advanced $10,000 for taxes and insurance, while the annual taxes on the property amounted to no more than $3209.94. The court emphasized that foreclosure is an equitable proceeding, and held that in light of the mortgagee's inequitable conduct, mortgagee should be forever barred from collecting any of the claimed interest accruing between the date of default and March 1, 2010. The court also fixed exemplary damages of $100,000 against mortgagee for its inequitable conduct.

Fraudulent Inducement Claim Dismissed

Berrocal v. Abrams, Garfinkel, Margolis Bergson LLP

NYLJ 5/5/10, p.29, col. 1

Supreme Ct., Queens Cty.

(Butler, J.)

In an action by purchaser of a two-family home alleging fraudulent inducement, mortgagee's law firm and assignee of the mortgage moved to dismiss the complaint. The court granted the motion, holding that the plaintiffs had failed to make sufficient allegations to sustain the complaint.

Purchasers bought a two-family house financed with a mortgage loan in the amount of $543,192 from defendant Premium. The sale was arranged by a broker, and purchasers brought this action against the sellers, the broker, the mortgagee, together with mortgagee's law firm and mortgagee's assignee. Purchasers allege that fraudulent representations were made that tenants in occupancy would vacate the premises, and that the various defendants failed to disclose the existence of residential leases. Purchasers also claimed that the HUD-1 settlement statement prepared in conjunction with the closing falsely stated that purchasers had paid $31,937.17 toward the purchase price, and that mortgagee had wrongfully assigned the mortgage to Wells Fargo, the assignee. The complaint also alleged that mortgagee's law firm had acted as attorney for both mortgagee and purchasers, and that the law firm had breached its fiduciary duty to the purchasers.

In dismissing the complaint against the law firm, the court relied on copies of an attendance sheet for the closing, prepared by the law firm, indicating that another lawyer had attended the closing as purchasers' lawyer, and copies of an escrow check paid to that lawyer's law firm. In light of these documents, and the affidavits of law firm's lawyers, the court held that purchasers had established no factual basis for their claim that law firm had represented them as well as mortgagee.

In dismissing the complaint against Wells Fargo, the court started by asserting that the assignee of a mortgage takes it subject to the equities attending the original transaction. Thus, if purchasers could establish that the original mortgagee had perpetrated a fraud, Wells Fargo would take subject to any fraud claims, even if Wells Fargo were a bona fide purchaser. But the court emphasized that purchasers knew that tenants were in possession of the property at the time of the sale, triggering an obligation to investigate whether tenants had leases to the property. Moreover, purchasers provided no factual detail for its allegation that mortgagee made oral assurances that the tenants would vacate. With respect to the HUD-1 statement, the court relied on purchasers' signed statement that they had reviewed the statement and that it was a true and accurate statement of all disbursements made on their account. The court also emphasized that purchasers had not alleged how any inaccuracies in that statement caused damages to them. Finally, the court noted that purchasers had never explained how the assignment to Wells Fargo was “wrongful.” As a result, the court dismissed the complaint with respect to Wells Fargo.

COMMENT

As a general rule, a bona fide purchaser takes a mortgage subject to any claims or defenses to which it was subject while in the hands of the mortgagee. The rule is based on the principle that an assignee takes no rights in excess of those held by the assignor. Thus, in Liebowitz v. Arrow Roofing Co., 259 N.Y. 391, the Court of Appeals held that, in a foreclosure action, the defense of want of consideration is available against an assignee, even where the assignee is a bona fide purchaser. Similarly, in Granick v. Mobach, 1 3 A.D.2d 534, the Appellate Division held that assignee of a mortgage was not entitled, in a foreclosure action, to dismissal of mortgagor's defense and counterclaim based on an ostensible agreement between mortgagor and the original mortgagee. Specifically, mortgagor claimed that assignor had promised to cure certain construction defects as partial consideration for the mortgage, but failed to do so. The court held that if mortgagor prevailed at trial, mortgagor could offset any damages against the amount due on the mortgage because assignee took the mortgage subject to any equities of the original transaction, including the agreement between mortgagor and original mortgagee.

The liability assumed by an assignee also extends to claims that a third party could have asserted against the assignor. For example, in Greene v. Warnick, 64 N.Y. 220, The Court of Appeals held that assignee of a mortgage was subject to an agreement between assignor and another mortgagee of the same land, even though assignee had no knowledge of the agreement. The case involved a mortgagor who simultaneously executed two mortgages for identical amounts, one to M.G. and one to D. M.G. and D agreed that the mortgages were equal liens and were to be recorded at the same time, although M.G. ultimately recorded her mortgage 15 minutes before D recorded his. M.G. subsequently assigned her mortgage to E.G., who then assigned it to W. Neither E.G. nor W were aware of D's mortgage or the agreement between M.G. and D, both believing that the mortgage they acquired had priority over all other liens. Nevertheless, the court held that W held the mortgage subject to the equities of the original transaction, meaning his mortgage was of equal priority to D's mortgage.

In contrast to the assignee of a mortgage, a bona fide purchaser of a deed takes title free of any claim that would lie against the grantor, so long as the grantee is without constructive or actual notice of the claim. In Anderson v. Blood, 152 N.Y. 285, for example, the Court of Appeals held that grantee was not on constructive notice that grantor fraudulently acquired the subject property prior to selling it to grantee, and thus grantee held the deed free of any claims that could have been brought against grantor by the defrauded parties. Courts have rarely discussed the rationale for treating grantees differently than mortgage assignees in this respect, but the result may be to encourage mortgagees engaging in fraud to fashion their transactions as deeds rather than as mortgages, because the deeds may be easier to market to bona fide purchasers.

There are exceptions to the general rule that the assignee of a mortgage takes subject to the equities of the original transaction. For instance, a mortgagor may be estopped from challenging the validity of the mortgage. This usually happens when, at assignee's request, mortgagor executes an estoppel certificate stating that there are no offsets or defenses to the mortgage or underlying note. In Hammelburger v. Foursome Inn, Corp., 54 N.Y.2d 580, the Court of Appeals held that a valid estoppel certificate, executed by mortgagor and reasonably relied upon by assignee, precluded mortgagor from asserting the defense of usury in a foreclosure action, unless mortgagor could show that assignee had knowledge of the usurious nature of the original transaction.

Misuse of Easement Does Not Lead to Extinguishment

Cale v. P.O.H.R.C.N.Y. Inc.

NYLJ 4/28/10, p. 29, col. 1

Supreme Ct., N.Y. Cty.

(Madden, J.)

In two consolidated actions, adjacent building owners each sought relief in a dispute over maintenance of shared heating equipment located in the basement of both buildings. The court granted Plnc's motion for summary judgment on Cale's claim for extinguishment of an easement over basement space, holding that misuse of the easement would not lead to extinguishment.

In 1990, the parties' predecessors entered into an easement agreement by the terms of which each party was granted access to the portion of the other's basement in which heating and hot water equipment was located to provide for maintenance and replacement of the equipment. The agreement also provided that Plnc's predecessor and any successors in interest would be responsible for maintenance, and that Cale's predecessor and any successors would reimburse for 35% of the cost. If Plnc failed to maintain, Cale's would be entitled to maintain and obtain reimbursement for 65% of the cost. Each party would be entitled to the rights of an unpaid mechanic or material man in case the other failed to make required reimbursement payments. The dispute arose when Plnc made alterations to the equipment. Cale asserts that the alterations were made for Plnc's exclusive benefit, failed to provide heat and hot water to Cale's building, and interfered with Cale's efforts to operate and manually operate the boiler. Cale brought an action seeking a variety of relief, including extinguishment of the easement. Plnc brought a separate action for a determination that it has a valid mechanics' lien against Cale's property pursuant to the agreement.

The court first granted Plnc's summary judgment motion on Cale's claim for extinguishment of the easement. The court held that overuse and misuse of an easement does not result in extinguishment, and held that there was no evidence in this case that Plnc had abandoned the easement. The court then discharged Plnc's mechanics lien on the premises, noting that the lien had been filed in 2006, but expired one year later when Plnc had not filed a notice of pendency. The court held that Lien Law section 17 requires a mechanics lienor to satisfy two conditions to avoid expiration after one year: commencement of an action and filing of a notice of pendency. In this case, Plnc met only one of the conditions, resulting in expiration of the lien.

COMMENT

It is well settled in New York that misuse alone will not extinguish an easement. In Gerbig v. Zumpano, 7 N.Y.2d 327, the Court of Appeals rejected servient owner's argument that dominant owner's misuse had resulted in termination of the easement, remanding instead for a trial to determine whether the easement had been abandoned. Servient owner had purchased a residential lot encumbered by an easement for ingress and egress to dominant owner's property. Dominant owner had not used the easement for its intended purpose for several years, and instead had constructed a patio and a fenced enclosure on part of the property. Servient owner sued to extinguish defendant's claimed easement, and for the removal of the encroaching structures. In holding that dominant owner's misuse alone did not extinguish the easement, the court noted that an easement will only be extinguished by abandonment, conveyance, condemnation, or adverse possession. The court held that a trial was necessary to determine whether dominant owner had clearly and unequivocally expressed his intent to abandon his rights to the easement.

Attempts by litigants (such as Cale) to extinguish easements by characterizing the mere misuse of an easement as abandonment have routinely failed. In McIntyre v. Estate of Keller, 828 N.Y.S.2d 798, for instance, the court rejected servient owner's argument that dominant owner had abandoned an easement by using it for purposes not permitted by the easement's terms. The easement allowed dominant owner to use a driveway across plaintiff's property, but provided that dominant owner could only cross the property “by foot and with pleasure cars.” When servient owner sought to terminate the easement, the court rejected servient owner's argument that the easement had been abandoned because dominant owner had allowed “anyone and everyone” to use the easement, including commercial vehicles. Similarly, in Graziano v. Turiano, 266 A.D.2d 187, the Appellate Division held that allegations of excessive or unauthorized use of an easement fail to establish abandonment as a matter of law, thus entitling servient owners to summary judgment against dominant owner's abandonment claim.

While misuse alone will not extinguish an easement, a dominant owner's misuse or overuse may entitle the servient owner to injunctive relief. In Ledley v. D.J. & N.A. Management, Ltd., 71 A.D.3d 1096, for example, the Appellate Division enjoined dominant owner from misusing an easement and ordered the parties to take steps to prevent further misuse. The easement's terms allowed dominant owner to use a portion of servient owner's property for unloading delivery vehicles, but instead dominant owner's employees used the area for long-term parking. The court ordered the parties to implement portions of a traffic engineer's report that would, inter alia, clearly mark the easement as a designated place for the unloading of delivery vehicles only. Likewise, in Mandia v. King Lumber and Plywood Co., 179 A.D.2d 150, the court awarded servient owner injunctive relief when dominant owner misused a right of way across servient owner's property. Dominant owner, a lumber company, expanded and paved a “narrow dirt lane” spanning servient owner's property. The court held that Dominant owner's actions violated the terms of the easement, and it ordered the company to restore the right of way to its previous condition.

Buyer May Waive Right to Certificate of Occupancy

Cozza v. 50 Crossbay Realty Corp.

NYLJ 5/12/10, p. 33, col. 5

AppDiv, Second Dept.

(memorandum opinion)

In buyer's action for specific performance of a sale contract and for damages, both parties appealed from a Supreme Court order and judgment awarding summary judgment to purchaser on its specific performance claim, but denying summary judgment on purchaser's damages claim. The Appellate Division modified, holding that buyers were entitled to summary judgment on both the specific performance and the damages claim.

The sale contract called tor commercial property called for a purchase price of $1,200,000, to be financed by a purchase money mortgage. The contract also provided that seller would obtain a certificate of occupancy and convey insurable or marketable title. Finally, the contract provided that if the contract failed to close within 30 days of Jan. 15, 2003 for any reason (other than buyer's willful default), purchaser would be entitled to $100,000 liquidated damages. By contrast, the contract provided that seller's “sole remedy” for buyer's breach would be the sum of $5,000. Seller did not obtain the certificate of occupancy, and title did not close by the closing date, but buyer consistently expressed its intent to continue the contract. Buyer indicated that it would waive its right to have the certificate of occupancy in return for a reduced purchase price. On Nov. 1, 2004, buyer wrote seller indicating that closing would take place on Nov. 29, 2004, but also expressed a willingness to extend the closing date to one more convenient to seller. Seller responded that it was experiencing irreconcilable differences, and opting to cancel the contract and pay liquidated damages. Buyer then brought this action for specific performance and damages.

The Appellate Division first held that Supreme Court had correctly awarded buyer summary judgment on its specific performance claim, holding that buyers had established that they were ready, willing and able to close on the contract, and that seller had anticipatorily repudiated the contract. The Appellate Division also rejected seller's argument that the contract was voidable because the certificate of occupancy had not been obtained. The court noted that the certificate of occupancy provision had been inserted for the sole benefit of buyer, and buyer had waived that provision. Turning to buyer's claim for damages ' expenditures made to obtain the certificate of occupancy and losses arising form seller's alterations, modifications, and changes to the property without buyer's consent ' the court concluded that Supreme Court should have granted summary judgment to buyers on these claims as well. The court held that the “liquidated damages” provision did not limit buyer's right to recover because the clause did not specifically limit buyer's right to recover actual damages, and because the liquidated damages applied only to failure to close within 30 days of the specified closing date, not to the contingency that actually occurred. As a result, the court remanded for a determination of buyer's damages.