Real Property Law

Assignee from MERS May Not Foreclose Without Proof That MERSP ossessed Note

Aurora Loan Services, LLC v. Weisblum

NYLJ 5/25/11, p. 29, col. 4

AppDiv, Second Dept.

(Angiolillo, J.)

In a foreclosure action, mortgagors appealed from Supreme Court's grant of summary judgment to assignee from the original mortgagee. The Appellate Division reversed and dismissed the complaint, holding that the assignee did not strictly comply with the notice provisions of RPAPL 1304, and that the assignee had not established that its purported assignor ' Mortgage Electronic Registrations Systems, Inc. (MERS) ' ever possessed the note or authority to assign that note.

In April 2006, mortgagors obtained a mortgage loan from Credit Suisse in the amount of $672,000. They gave a first mortgage to MERS as nominee for Credit Suisse. After a series of assignments, the mortgage was assigned to MERS as nominee for Lehman Brothers. In December 2006, mortgagors obtained a $32,000 mortgage loan from Lehman, and then executed a consolidated mortgage and extension agreement (CEMA) into a single lien in the amount of $704,000 held by MERS as nominee for Lehman. The parties to the consolidated note are Lehman and mortgagor Steven Weisblum. In January 2009, MERS, as nominee for Lehman, executed a written document purporting to assign the original first mortgage to Aurora, but has never produced an assignment of the second note and mortgage, or of the consolidated note. The Weisblums defaulted on the consolidated note in 2007. Aurora ' then acting as a debt collector, because it had not yet received any assignment ' addressed a notice pursuant to RPAPL 1304 informing Steven Weisblum that the mortgage was in default, that Weisblum had the right to cure, and that failure to cure within 90 days might result in commencement of an action against him. The notice, however, was defective in two respects: first, it was addressed only to Steven Weisblum and not to his wife, and second, it did not include the statutorily required list of five housing counseling agencies. Subsequently, when Aurora brought its foreclosure action, the mortgagors moved to dismiss, alleging that Aurora did not have standing because of the defective notice and the failure to establish an assignment of the note. Supreme Court granted summary judgment to mortgagee, holding that any defective in the notice had not prejudiced either Weisblum, because they had both participated in the settlement conference. The Weisblums appealed.

In reversing, the Appellate Division first held that proper service of the RPAPL 1304 notice is a condition precedent to commencement of a foreclosure action. Here, Aurora had not satisfied its prima facie burden of establishing that the notice was proper. The court rejected Aurora's argument that the wife was not prejudiced because she learned of the notice from her husband. The court then went on to indicate that even if the notice had been properly served, Aurora could not prevail in the foreclosure action without proof that MERS physically possessed the note or had the authority from Credit Suisse to assign that note. Here, Aurora produced the first mortgage, but not the accompanying note, and did not produce any documents indicating an assignment of the second note and mortgage or the CEMA. As a result, Aurora would have lacked standing to bring the foreclosure action even if Aurora had properly served the notice.

No Preliminary Injunction in Adverse Possession
Dispute

Jeffers v. Stein

NYLJ 5/27/11

Supreme Ct., Kings Cty.

(Lewis, J.)

In an action to enjoin the public administrator from conveying title to a parcel, plaintiff Jeffers, who occupies the parcel, sought a preliminary injunction. The court denied the preliminary injunction, holding that Jeffers, who claims title by adverse possession, had established neither irreparable injury nor a likelihood of success on the merits.

Jeffers operates a moving and storage business on the subject property, which he leased from Storey
in 1997. By the terms of the lease, Jeffers would collect rent from two residential tenants, and would make all repairs to the property. By the terms of the lease, Storey represented that title had not yet vested in him,
but covenanted that he would use due diligence to obtain title within a reasonable time, and then convey title to Jeffers for $200,000. Jeffers made nearly $200,000 in repairs and evicted one of the residential tenants for nonpayment of rent, only to learn in 2003 that the City of New York was about to sell the property for unpaid real estate taxes. Jeffers then arranged to pay more than $200,000 to extinguish various tax liens on the property. He then brought an action against Storey to compel him to obtain and convey title to the property, but Storey died during the pendency of the action, and the court stayed the action to that the Surrogate's Court could administer Storey's estate.

Subsequently, Jeffers received a ten-day notice to quit from the public administrator of Kings County, who was administering the estate not of Storey, but of Alice Gordon, the alleged “true owner” of the property. He then received papers notifying him that the administrator (and the appointed administrator of the estate of another apparent true owner, James Gordon) had brought a summary holdover proceeding to remove him from the property. Jeffers then brought this action and sought a preliminary injunction preventing the administrators from selling the property.

In denying the preliminary injunction, the court first acknowledged that the balance of the equities favored Jeffers, who would could lose the property on which he operated a business, and in which he had invested substantial sums. But the court concluded the Jeffers had demonstrated no irreparable injury because he had submitted no proof that his client base or business relationships would be damaged. Turning to the likelihood of success on the merits, the court indicated that Jeffers had not established that he could “tack” his possession on to Storey's possession, because Storey's statements about exercising dominion and control would be inadmissible at trial. As a result, Jeffers had not established two of the three criteria necessary to justify grant of a preliminary injunction.

COMMENT

The court's conclusion that Jeffers would suffer no irreparable injury if the property were sold was undoubtedly correct, but perhaps not for the reasons the court offered for that conclusion. If Jeffers were to file a notice of pendency in the underlying action seeking to establish title by adverse possession, any purchaser from the administrator would take subject to any rights Jeffers might have in the property. A subsequent sale, therefore, would not jeopardize Jeffers' interest in the property. That fact alone would justify denial of the preliminary injunction.

The court's discussion of the merits of Jeffers' adverse possession claims was, therefore, unnecessary, but also problematic. Under New York's adverse possession law as it stood prior to July 2008, Storey's actions during the lease term ' collecting rent from Jeffers, without any objection from any true owner, who would have seen Jeffers and the residential tenants on the premises, would have been enough to establish title by adverse possession. The lease, which included an obligation to sell to Jeffers, should have been more than sufficient to permit Jeffers to “tack” on to Storey's period. The current New York statute, which applies to all claims filed after July, 2008, complicates the analysis, because it requires that a possessor ' including Storey ' have a “reasonable basis for the belief” that he had title (RPAPL section 501(3)). But the statute does not indicate who bears the burden of proof on that issue ' especially when, as in this case, the possessor is now dead and evidence has become stale. If the burden rests on the true owner ' as it did under prior law ' the new statute should not serve as a bar to Jeffers' claim (see City of Tonawanda v. Ellicott Creek Homeowners Association, 86 AD2d 118 (claim of right presumed when other elements established; true owner bears burden of rebutting claim of right).

Three-Year Delay in Closing Does Not Excuse Foreclosure Sale Purchaser

Zweig v. Tolchin

NYLJ 6/8/11, p. 17, col. 1

Supreme Ct., N.Y. Cty.

(Gische, J.)

In an action by foreclosure sale purchaser seeking to discharge her responsibilities under the Memorandum of Sale and Terms of Sale, mortgagee bank sought summary judgment. The court granted the bank's motion, holding that a three-year delay in closing did not excuse purchaser from its obligation to close on the sale.

In 2007, purchaser was the successful bidder on a condominium apartment sold at a judicial auction held pursuant to a judgment of foreclosure. Purchase put down a $60,000 deposit toward the $523,000 purchase price. Closing was scheduled for Oct. 12, 2007. The terms of sale set a closing date, and provided that time was of the essence as to the purchaser, but also provided that the successful bidder was buying the property subject to the rights of any notice of appeal of the judgment of foreclosure and sale filed by any of the defendants. After the foreclosure sale, one of the defendants, Hamari Ventures, claimed that it, not mortgagee bank, held the first mortgage on the property, and that it was entitled to the proceeds of the foreclosure sale. That issue was litigated to the Appellate Division, which did not decide in favor of mortgagee bank until Nov. 16, 2010, more than three years after the scheduled closing. Purchaser then sought to be relieved from her obligation to pay for the apartment, noting that she had borne the risk of loss attendant to the property for three years while the parties litigated lien priority.

In granting the mortgagee bank's summary judgment motion, the court emphasized that she voluntarily assumed all risk of loss before closing, and provided that the successful bidder would be entitled to return of the deposit only if a party with an interest in the property files bankruptcy. The court could find no reason to relieve the foreclosure sale purchaser from the terms of sale.

Demolition of Unsafe Building Does Not Require Pre-Deprivation Process

432 East 11th Street Corp. v. City Of New York

NYLJ 5/24/11

Supreme Ct., N.Y. Cty.

(Kern, J.)

In landowner's action to recover damages as a result of the city's demolition of a portion of its building, the city sought summary judgment dismissing the complaint. The court granted the city's motion, holding that landowner was not entitled to pre-deprivation process, and that the city was immune from suit by landowner.

In response to a complaint, a city inspector inspected the subject premises and found that the west exterior of the building was bulging out of plumb, and that bricks were cracked creating a danger of collapse into an adjacent playground. Two supervisors then examined the building and confirmed the same problems, recommending that the front portion of the building be demolished immediately and that the owner appoint an engineer to investigate the structural integrity of the remaining three-story structure in the rear portion of the building. The Borough Commissioner of the Department of Buildings then issued an Immediate Emergency Declaration, and ordered the owner to demolish the structure at the front of the lot. When the owner received notice, an architect acting on the owner's behalf filed a work permit to repair a portion of the building, and obtained a work permit to repair the first story of the front building. The Emergency Declaration was amended to preserve the repaired portion, and the city's Housing Preservation Department demolished the rest of the building at a cost of $32,000. Landowner then brought this action seeking damages for destruction of the building without due process of law. The city moved for summary judgment.

The court first rejected landowner's procedural due process claim, holding that a landowner is not entitled to pre-deprivation process when exigent circumstances require immediate demolition of a building. The court then indicated that courts defer to the municipality's judgment about the exigency of the circumstances, and here there was no evidence to suggest that the emergency procedure was invoked in an abusive or arbitrary manner. The court also held that landowner could not sustain a substantive due process claim because the city's action was not arbitrary, conscience-shocking, or oppressive. Finally, the court held that in any event, the city was immune from landowner's claims because city officials were exercising discretion and judgment. As a result, the court granted the city's summary judgment motion.

Brokerage Contract May Be Implied

Poznanski v. Wang

NYLJ 5/25/11, p. 27, col. 4

AppDiv, Second Dept.

(memorandum opinion)

In an action to recover damages for breach of a joint venture agreement, plaintiffs appealed from Supreme Court's grant of defendant's summary judgment motion. The Appellate Division modified to deny summary judgment with respect to one of the two plaintiffs, noting that the contract of sale admitted the performance of services by that plaintiff.

Plaintiffs Affinity and Northern Bay sought commissions with respect to three real estate transactions involving the same defendants. Defendants sought summary judgment with respect to one of those transactions ' purchase of the Long Island Marriott Hotel. Plaintiffs and defendants both moved for summary judgment, and Supreme Court granted defendants' motion.

In modifying, the Appellate Division first noted that neither plaintiff was entitled to summary judgment because neither had submitted proof in admissible form that it was properly licensed. As a result, there were triable issues of fact about licensing. The court then held that defendants were not entitled to summary judgment against plaintiff Affinity even in the absence of an express brokerage agreement. The court relied on the contract of sale, which included a promise by purchaser to pay a commission to Affinity, and emphasized that a brokerage contract can be implied when the principal received a benefit under circumstances where fairness would preclude denial of an obligation to pay. The court indicated, however, that questions of fact remained about whether Affinity was the procuring cause of the transaction. With respect to plaintiff Northern Bay, by contrast, the court held that summary judgment for defendants was proper because Northern Bay had not raised an triable issue of fact about its entitlement to a commission.

Assignee from MERS May Not Foreclose Without Proof That MERSP ossessed Note

Aurora Loan Services, LLC v. Weisblum

NYLJ 5/25/11, p. 29, col. 4

AppDiv, Second Dept.

(Angiolillo, J.)

In a foreclosure action, mortgagors appealed from Supreme Court's grant of summary judgment to assignee from the original mortgagee. The Appellate Division reversed and dismissed the complaint, holding that the assignee did not strictly comply with the notice provisions of RPAPL 1304, and that the assignee had not established that its purported assignor ' Mortgage Electronic Registrations Systems, Inc. (MERS) ' ever possessed the note or authority to assign that note.

In April 2006, mortgagors obtained a mortgage loan from Credit Suisse in the amount of $672,000. They gave a first mortgage to MERS as nominee for Credit Suisse. After a series of assignments, the mortgage was assigned to MERS as nominee for Lehman Brothers. In December 2006, mortgagors obtained a $32,000 mortgage loan from Lehman, and then executed a consolidated mortgage and extension agreement (CEMA) into a single lien in the amount of $704,000 held by MERS as nominee for Lehman. The parties to the consolidated note are Lehman and mortgagor Steven Weisblum. In January 2009, MERS, as nominee for Lehman, executed a written document purporting to assign the original first mortgage to Aurora, but has never produced an assignment of the second note and mortgage, or of the consolidated note. The Weisblums defaulted on the consolidated note in 2007. Aurora ' then acting as a debt collector, because it had not yet received any assignment ' addressed a notice pursuant to RPAPL 1304 informing Steven Weisblum that the mortgage was in default, that Weisblum had the right to cure, and that failure to cure within 90 days might result in commencement of an action against him. The notice, however, was defective in two respects: first, it was addressed only to Steven Weisblum and not to his wife, and second, it did not include the statutorily required list of five housing counseling agencies. Subsequently, when Aurora brought its foreclosure action, the mortgagors moved to dismiss, alleging that Aurora did not have standing because of the defective notice and the failure to establish an assignment of the note. Supreme Court granted summary judgment to mortgagee, holding that any defective in the notice had not prejudiced either Weisblum, because they had both participated in the settlement conference. The Weisblums appealed.

In reversing, the Appellate Division first held that proper service of the RPAPL 1304 notice is a condition precedent to commencement of a foreclosure action. Here, Aurora had not satisfied its prima facie burden of establishing that the notice was proper. The court rejected Aurora's argument that the wife was not prejudiced because she learned of the notice from her husband. The court then went on to indicate that even if the notice had been properly served, Aurora could not prevail in the foreclosure action without proof that MERS physically possessed the note or had the authority from Credit Suisse to assign that note. Here, Aurora produced the first mortgage, but not the accompanying note, and did not produce any documents indicating an assignment of the second note and mortgage or the CEMA. As a result, Aurora would have lacked standing to bring the foreclosure action even if Aurora had properly served the notice.

No Preliminary Injunction in Adverse Possession
Dispute

Jeffers v. Stein

NYLJ 5/27/11

Supreme Ct., Kings Cty.

(Lewis, J.)

In an action to enjoin the public administrator from conveying title to a parcel, plaintiff Jeffers, who occupies the parcel, sought a preliminary injunction. The court denied the preliminary injunction, holding that Jeffers, who claims title by adverse possession, had established neither irreparable injury nor a likelihood of success on the merits.

Jeffers operates a moving and storage business on the subject property, which he leased from Storey
in 1997. By the terms of the lease, Jeffers would collect rent from two residential tenants, and would make all repairs to the property. By the terms of the lease, Storey represented that title had not yet vested in him,
but covenanted that he would use due diligence to obtain title within a reasonable time, and then convey title to Jeffers for $200,000. Jeffers made nearly $200,000 in repairs and evicted one of the residential tenants for nonpayment of rent, only to learn in 2003 that the City of New York was about to sell the property for unpaid real estate taxes. Jeffers then arranged to pay more than $200,000 to extinguish various tax liens on the property. He then brought an action against Storey to compel him to obtain and convey title to the property, but Storey died during the pendency of the action, and the court stayed the action to that the Surrogate's Court could administer Storey's estate.

Subsequently, Jeffers received a ten-day notice to quit from the public administrator of Kings County, who was administering the estate not of Storey, but of Alice Gordon, the alleged “true owner” of the property. He then received papers notifying him that the administrator (and the appointed administrator of the estate of another apparent true owner, James Gordon) had brought a summary holdover proceeding to remove him from the property. Jeffers then brought this action and sought a preliminary injunction preventing the administrators from selling the property.

In denying the preliminary injunction, the court first acknowledged that the balance of the equities favored Jeffers, who would could lose the property on which he operated a business, and in which he had invested substantial sums. But the court concluded the Jeffers had demonstrated no irreparable injury because he had submitted no proof that his client base or business relationships would be damaged. Turning to the likelihood of success on the merits, the court indicated that Jeffers had not established that he could “tack” his possession on to Storey's possession, because Storey's statements about exercising dominion and control would be inadmissible at trial. As a result, Jeffers had not established two of the three criteria necessary to justify grant of a preliminary injunction.

COMMENT

The court's conclusion that Jeffers would suffer no irreparable injury if the property were sold was undoubtedly correct, but perhaps not for the reasons the court offered for that conclusion. If Jeffers were to file a notice of pendency in the underlying action seeking to establish title by adverse possession, any purchaser from the administrator would take subject to any rights Jeffers might have in the property. A subsequent sale, therefore, would not jeopardize Jeffers' interest in the property. That fact alone would justify denial of the preliminary injunction.

The court's discussion of the merits of Jeffers' adverse possession claims was, therefore, unnecessary, but also problematic. Under New York's adverse possession law as it stood prior to July 2008, Storey's actions during the lease term ' collecting rent from Jeffers, without any objection from any true owner, who would have seen Jeffers and the residential tenants on the premises, would have been enough to establish title by adverse possession. The lease, which included an obligation to sell to Jeffers, should have been more than sufficient to permit Jeffers to “tack” on to Storey's period. The current New York statute, which applies to all claims filed after July, 2008, complicates the analysis, because it requires that a possessor ' including Storey ' have a “reasonable basis for the belief” that he had title (RPAPL section 501(3)). But the statute does not indicate who bears the burden of proof on that issue ' especially when, as in this case, the possessor is now dead and evidence has become stale. If the burden rests on the true owner ' as it did under prior law ' the new statute should not serve as a bar to Jeffers' claim ( see City of Tonawanda v. Ellicott Creek Homeowners Association, 86 AD2d 118 (claim of right presumed when other elements established; true owner bears burden of rebutting claim of right).

Three-Year Delay in Closing Does Not Excuse Foreclosure Sale Purchaser

Zweig v. Tolchin

NYLJ 6/8/11, p. 17, col. 1

Supreme Ct., N.Y. Cty.

(Gische, J.)

In an action by foreclosure sale purchaser seeking to discharge her responsibilities under the Memorandum of Sale and Terms of Sale, mortgagee bank sought summary judgment. The court granted the bank's motion, holding that a three-year delay in closing did not excuse purchaser from its obligation to close on the sale.

In 2007, purchaser was the successful bidder on a condominium apartment sold at a judicial auction held pursuant to a judgment of foreclosure. Purchase put down a $60,000 deposit toward the $523,000 purchase price. Closing was scheduled for Oct. 12, 2007. The terms of sale set a closing date, and provided that time was of the essence as to the purchaser, but also provided that the successful bidder was buying the property subject to the rights of any notice of appeal of the judgment of foreclosure and sale filed by any of the defendants. After the foreclosure sale, one of the defendants, Hamari Ventures, claimed that it, not mortgagee bank, held the first mortgage on the property, and that it was entitled to the proceeds of the foreclosure sale. That issue was litigated to the Appellate Division, which did not decide in favor of mortgagee bank until Nov. 16, 2010, more than three years after the scheduled closing. Purchaser then sought to be relieved from her obligation to pay for the apartment, noting that she had borne the risk of loss attendant to the property for three years while the parties litigated lien priority.

In granting the mortgagee bank's summary judgment motion, the court emphasized that she voluntarily assumed all risk of loss before closing, and provided that the successful bidder would be entitled to return of the deposit only if a party with an interest in the property files bankruptcy. The court could find no reason to relieve the foreclosure sale purchaser from the terms of sale.

Demolition of Unsafe Building Does Not Require Pre-Deprivation Process

432 East 11th Street Corp. v. City Of New York

NYLJ 5/24/11

Supreme Ct., N.Y. Cty.

(Kern, J.)

In landowner's action to recover damages as a result of the city's demolition of a portion of its building, the city sought summary judgment dismissing the complaint. The court granted the city's motion, holding that landowner was not entitled to pre-deprivation process, and that the city was immune from suit by landowner.

In response to a complaint, a city inspector inspected the subject premises and found that the west exterior of the building was bulging out of plumb, and that bricks were cracked creating a danger of collapse into an adjacent playground. Two supervisors then examined the building and confirmed the same problems, recommending that the front portion of the building be demolished immediately and that the owner appoint an engineer to investigate the structural integrity of the remaining three-story structure in the rear portion of the building. The Borough Commissioner of the Department of Buildings then issued an Immediate Emergency Declaration, and ordered the owner to demolish the structure at the front of the lot. When the owner received notice, an architect acting on the owner's behalf filed a work permit to repair a portion of the building, and obtained a work permit to repair the first story of the front building. The Emergency Declaration was amended to preserve the repaired portion, and the city's Housing Preservation Department demolished the rest of the building at a cost of $32,000. Landowner then brought this action seeking damages for destruction of the building without due process of law. The city moved for summary judgment.

The court first rejected landowner's procedural due process claim, holding that a landowner is not entitled to pre-deprivation process when exigent circumstances require immediate demolition of a building. The court then indicated that courts defer to the municipality's judgment about the exigency of the circumstances, and here there was no evidence to suggest that the emergency procedure was invoked in an abusive or arbitrary manner. The court also held that landowner could not sustain a substantive due process claim because the city's action was not arbitrary, conscience-shocking, or oppressive. Finally, the court held that in any event, the city was immune from landowner's claims because city officials were exercising discretion and judgment. As a result, the court granted the city's summary judgment motion.

Brokerage Contract May Be Implied

Poznanski v. Wang

NYLJ 5/25/11, p. 27, col. 4

AppDiv, Second Dept.

(memorandum opinion)

In an action to recover damages for breach of a joint venture agreement, plaintiffs appealed from Supreme Court's grant of defendant's summary judgment motion. The Appellate Division modified to deny summary judgment with respect to one of the two plaintiffs, noting that the contract of sale admitted the performance of services by that plaintiff.

Plaintiffs Affinity and Northern Bay sought commissions with respect to three real estate transactions involving the same defendants. Defendants sought summary judgment with respect to one of those transactions ' purchase of the Long Island Marriott Hotel. Plaintiffs and defendants both moved for summary judgment, and Supreme Court granted defendants' motion.

In modifying, the Appellate Division first noted that neither plaintiff was entitled to summary judgment because neither had submitted proof in admissible form that it was properly licensed. As a result, there were triable issues of fact about licensing. The court then held that defendants were not entitled to summary judgment against plaintiff Affinity even in the absence of an express brokerage agreement. The court relied on the contract of sale, which included a promise by purchaser to pay a commission to Affinity, and emphasized that a brokerage contract can be implied when the principal received a benefit under circumstances where fairness would preclude denial of an obligation to pay. The court indicated, however, that questions of fact remained about whether Affinity was the procuring cause of the transaction. With respect to plaintiff Northern Bay, by contrast, the court held that summary judgment for defendants was proper because Northern Bay had not raised an triable issue of fact about its entitlement to a commission.