Real Property Law

AppDiv, Second Dept.

(memorandum opinion)

In purchaser'fs action for return of a down payment, seller appealed from Supreme Court'fs award of summary judgment to purchaser, and from Supreme Court'fs award of attorneys'f fees. The Appellate Division modified to award summary judgment to seller on the claim for attorneys'f fees, but otherwise affirmed, holding that mortgagee'fs withdrawal of its mortgage commitment entitled purchaser to return of the down payment.

The contract for sale of real property included a mortgage contingency clause requiring purchaser to notify seller by a certain date if purchaser could not obtain mortgage financing. Purchaser paid a $55,000 down payment into escrow, and subsequently obtained a mortgage commitment. When a survey later revealed encroachments on the property, the lender revoked the mortgage commitment, leading purchaser to seek return of the down payment. Supreme Court granted summary judgment to purchaser, and awarded attorneys'f fees.

In modifying, the Appellate Division first affirmed Supreme Court'fs grant of summary judgment to purchaser. The court rejected seller'fs argument that once purchaser failed to notify the seller of the failure to obtain a commitment by the date specified in the contract, purchaser was no longer entitled to return of the down payment. Instead, the court held that once the period for notification has elapsed, the question becomes whether the lender'fs subsequent revocation was attributable to the purchaser'fs bad faith. Here, the seller did not come forward with evidence of the purchaser'fs bad faith, and as a result, purchaser was entitled to return of the down payment. On the other hand, because the sale contract made no provision for the award of attorneys fees, Supreme Court had no basis for making an award of fees to the purchaser, and the seller was entitled to summary judgment on that issue.

Constructive Trust Claim Fails

Kunkel v. Kunkel

NYLJ 7/6/11, p. 25

Supreme Ct., Nassau Cty.

(Destefano, J.)

In an action by son and his wife against father to impress a constructive trust on real property, the father sought judgment dismissing the constructive trust claim. After a non-jury trial, the court awarded summary judgment to the father, holding that the son had not established unjust enrichment.

At the time of the son'fs first marriage in 1980, he planned to move to Suffolk County. The father offered to help, or, in the alternative, to turn the upstairs of the family home into an apartment for the son. The father represented that in 15 years, the apartment would belong to the son if the son made payments for that period. The son accepted. Construction on a conversion into an apartment began in 1985 after the father received approval to convert the house (a legal one-family house) into a “mother-daughter” house. The son paid the father on a monthly basis for long after the expiration of the 15-year period, and made improvements to the house (almost all of which were improvements to the upstairs apartment in which he lived). Ultimately, the relationship between father and son soured, perhaps in part due to the father'fs remarriage. The son then brought this action to establish a constructive trust on the upstairs apartment.

In awarding judgment to the father, the court started by noting that the evidence established that the father had a confidential relationship with the son, and had made the promise to give the apartment to the son. But the court then held that the son had not established that the payments he made to the father were made in reliance on the promise; the payments could well have constituted rent for the upstairs apartment. Finally, the court emphasized that the son could establish no unjust enrichment. The repair expenditures the son made over the years all benefited him in the apartment he occupied; they did not unjustly enrich the father. Similarly, the monthly payments did not constitute unjust enrichment because the son received the right to occupy the apartment in exchange for those payments.

Inquiry Notice Defeats Mortgagee'fs Summary
Judgment Motion

Mortgage Electronic Registration Systems, Inc. v. Rambaran

NYLJ 6/15/11, p. 17

Supreme Court, Kings Cty.

(Kramer, J.)

In an action by mortgagee holding an unrecorded first mortgage, subsequent mortgagee moved for summary judgment dismissing the complaint. The court denied the motion, holding that questions of fact remained about whether subsequent mortgagee had sufficiently inquired into the facts surrounding the transactions.

Father held title to the disputed property until April 2005, when he transferred the property to himself and Baldeo. Father and Baldeo then obtained a loan from Freemont in the amount of $302,250, and executed a mortgage to Freemont. The latter did not record the note and mortgage, and does not currently possess the documents. Then, in 2007, father executed a deed purportedly conveying his entire interest in the property to his daughters. On the same day, the daughters executed a note and mortgage for $423,750 to Mortgage Electronic Registration Systems (MERS) as nominee for Delta Funding. The deed and the mortgage were immediately recorded. Delta subsequently transferred the mortgage to HSBC. Freemont now asserts that father'fs transfer to his daughters was fraudulent, and that HSBC was on notice of the fraudulent transfer. In particular, Freemont relies on the fact that two transfer tax documents accompanying the transfer to the daughters recite that the consideration was $0, while the HUD-1 form states that father received $296,000 for the transfer. HSBC moved for summary judgment, claiming protection as a subsequent bona fide purchaser.

In denying HSBC'fs summary judgment motion, the court held that the discrepancy in the closing documents were sufficient to put HSBC on notice to inquire further into the bona fides of the transaction. HSBC had not submitted any evidence that it engaged in investigation of the discrepancies. The court indicated that a lending institution has an affirmative duty to inquire into the bona fides of the documents before taking a mortgage on property.'@

Withdrawal of Mortgage Commitment Entitles Purchaser to Return of Down Payment

Blair v. O'fDonnell

NYLJ 6/27/11, p. 33, col. 3

AppDiv, Second Dept.

(memorandum opinion)

In purchaser'fs action for return of a down payment, seller appealed from Supreme Court'fs award of summary judgment to purchaser, and from Supreme Court'fs award of attorneys'f fees. The Appellate Division modified to award summary judgment to seller on the claim for attorneys'f fees, but otherwise affirmed, holding that mortgagee'fs withdrawal of its mortgage commitment entitled purchaser to return of the down payment.

The contract for sale of real property included a mortgage contingency clause requiring purchaser to notify seller by a certain date if purchaser could not obtain mortgage financing. Purchaser paid a $55,000 down payment into escrow, and subsequently obtained a mortgage commitment. When a survey later revealed encroachments on the property, the lender revoked the mortgage commitment, leading purchaser to seek return of the down payment. Supreme Court granted summary judgment to purchaser, and awarded attorneys'f fees.

In modifying, the Appellate Division first affirmed Supreme Court'fs grant of summary judgment to purchaser. The court rejected seller'fs argument that once purchaser failed to notify the seller of the failure to obtain a commitment by the date specified in the contract, purchaser was no longer entitled to return of the down payment. Instead, the court held that once the period for notification has elapsed, the question becomes whether the lender'fs subsequent revocation was attributable to the purchaser'fs bad faith. Here, the seller did not come forward with evidence of the purchaser'fs bad faith, and as a result, purchaser was entitled to return of the down payment. On the other hand, because the sale contract made no provision for the award of attorneys fees, Supreme Court had no basis for making an award of fees to the purchaser, and the seller was entitled to summary judgment on that issue.

Constructive Trust Claim Fails

Kunkel v. Kunkel

NYLJ 7/6/11, p. 25

Supreme Ct., Nassau Cty.

(Destefano, J.)

In an action by son and his wife against father to impress a constructive trust on real property, the father sought judgment dismissing the constructive trust claim. After a non-jury trial, the court awarded summary judgment to the father, holding that the son had not established unjust enrichment.

At the time of the son'fs first marriage in 1980, he planned to move to Suffolk County. The father offered to help, or, in the alternative, to turn the upstairs of the family home into an apartment for the son. The father represented that in 15 years, the apartment would belong to the son if the son made payments for that period. The son accepted. Construction on a conversion into an apartment began in 1985 after the father received approval to convert the house (a legal one-family house) into a “mother-daughter” house. The son paid the father on a monthly basis for long after the expiration of the 15-year period, and made improvements to the house (almost all of which were improvements to the upstairs apartment in which he lived). Ultimately, the relationship between father and son soured, perhaps in part due to the father'fs remarriage. The son then brought this action to establish a constructive trust on the upstairs apartment.

In awarding judgment to the father, the court started by noting that the evidence established that the father had a confidential relationship with the son, and had made the promise to give the apartment to the son. But the court then held that the son had not established that the payments he made to the father were made in reliance on the promise; the payments could well have constituted rent for the upstairs apartment. Finally, the court emphasized that the son could establish no unjust enrichment. The repair expenditures the son made over the years all benefited him in the apartment he occupied; they did not unjustly enrich the father. Similarly, the monthly payments did not constitute unjust enrichment because the son received the right to occupy the apartment in exchange for those payments.

Inquiry Notice Defeats Mortgagee'fs Summary
Judgment Motion

Mortgage Electronic Registration Systems, Inc. v. Rambaran

NYLJ 6/15/11, p. 17

Supreme Court, Kings Cty.

(Kramer, J.)

In an action by mortgagee holding an unrecorded first mortgage, subsequent mortgagee moved for summary judgment dismissing the complaint. The court denied the motion, holding that questions of fact remained about whether subsequent mortgagee had sufficiently inquired into the facts surrounding the transactions.

Father held title to the disputed property until April 2005, when he transferred the property to himself and Baldeo. Father and Baldeo then obtained a loan from Freemont in the amount of $302,250, and executed a mortgage to Freemont. The latter did not record the note and mortgage, and does not currently possess the documents. Then, in 2007, father executed a deed purportedly conveying his entire interest in the property to his daughters. On the same day, the daughters executed a note and mortgage for $423,750 to Mortgage Electronic Registration Systems (MERS) as nominee for Delta Funding. The deed and the mortgage were immediately recorded. Delta subsequently transferred the mortgage to HSBC. Freemont now asserts that father'fs transfer to his daughters was fraudulent, and that HSBC was on notice of the fraudulent transfer. In particular, Freemont relies on the fact that two transfer tax documents accompanying the transfer to the daughters recite that the consideration was $0, while the HUD-1 form states that father received $296,000 for the transfer. HSBC moved for summary judgment, claiming protection as a subsequent bona fide purchaser.

In denying HSBC'fs summary judgment motion, the court held that the discrepancy in the closing documents were sufficient to put HSBC on notice to inquire further into the bona fides of the transaction. HSBC had not submitted any evidence that it engaged in investigation of the discrepancies. The court indicated that a lending institution has an affirmative duty to inquire into the bona fides of the documents before taking a mortgage on property.'@