Real Property Law

Court of Appeals

(Opinion by Jones, J.)

In an action for a declaration that landowner had obtained title by adverse possession to a dock located on neighbor's land, adverse possessor appealed from the Appellate Division's reversal of Supreme Court's grant of summary judgment to adverse possessor. The Court of Appeals reversed, holding that adverse possessor had established the requisite hostility and exclusivity.

Adverse possessor and true owner hold long-term leases on beachfront parcels owned by the town. The leases are set to expire in 2050. Around 1963, all of the beachfront owners, at their own expense, constructed wooden jetties to stem beachfront erosion. Although the parties intended to build the jetties on the boundaries between parcels, it appears that adverse possessor build his jetty about five feet over the boundary line, on the parcel now owned by true owner. Adverse possessor also built a dock using the jetty for support, and built a boardwalk extension to reach the dock. Adverse possessor repaired and painted the boardwalk and dock consistently until 1984, and both adverse possessor and his immediate neighbors believed that adverse possessor owned the dock and boardwalk. Adverse possessor permitted several neighbors (including true owner's predecessor) to use the dock and boardwalk, but did not allow the general public to use them. In 1984, true owner's predecessor commissioned a survey, which revealed the encroachment. The predecessor took no action to prevent adverse possessor or other neighbors from using the boardwalk and dock. In 2004, true owner bought the parcel, and true owner notified adverse possessor and other neighbors that they would no longer be permitted to use the boardwalk or dock (or the beach on true owner's land). Adverse possessor then brought this declaratory judgment action. Supreme Court granted summary judgment to adverse possessor, but the Appellate Division reversed, holding that adverse possessor's use was neither hostile nor exclusive.

In reversing, the Court of Appeals first held that adverse possessor had established that his possession was adverse and under claim of right. The court emphasized that he had constructed and maintained the facilities, and that there was no evidence that he did so with permission of true owner's predecessor; because true owner's predecessor conceded that she believed the facilities were on adverse possessor's land until she did the 1984 survey, adverse possessor's occupation could not have been based on her permission. The court then held that adverse possessor's implied grant of permission to a limited number of neighbors to use the dock and boardwalk did not negate his exclusive possession of the facilities. His exclusion of the general public was enough to establish exclusivity.

Mortgagors Cannot Require Modification of Terms

J.P. Morgan Chase Bank v. Ilardo

NYLJ 4/11/12, p. 21, col. 3

Supreme Ct., Suffolk Cty.

(Whelan, J.)

In an action to foreclose a mortgage, mortgagors sought dismissal and an order requiring mortgagee bank to provide mortgagors with a permanent loan modification. The court awarded the mortgagee bank summary judgment dismissing mortgagors' counterclaims.

Mortgagors purchased a home in 2004 with the aid of a $320,000 mortgage from Chase. They first defaulted on a mortgage payment in August 2009, allegedly on the advice of Chase's representatives, who supposedly indicated that mortgagors would not qualify for a loan modification program unless they defaulted. On Sept. 10, 2009, Chase provided written confirmation that mortgagors were in a affordable modification trial period plan (TPP), beginning Oct. 1, 2009 and lasting for a three-month trial period. In April, 2010, however, Chase sent mortgagors a letter indicating that Chase was unable to offer a loan modification because mortgagors' housing expense amounted to less than 31% of their gross monthly income. Mortgagors nevertheless contended that the TPP itself provided that if the mortgagors were in compliance with the trial period and their representations were true in all material respects, the lender would provide mortgagors with a loan modification agreement. Chase, however, relied on language in the TPP under which the mortgagors certified that they understood that loan documents would not be modified unless and until they met all conditions required for loan modification and received a fully executed copy of a modification agreement.

In dismissing mortgagors' counterclaims, the court first held that the federal Home Affordable Modification Program (HAMP) does not require loan servicers to modify eligible loans. The court then held that the express terms of the TPP agreement, which state that any permanent modification is subject to Chase's approval, preclude any breach of contract claim based on the TPP. Finally, the court held that mortgagors could not rely on equitable principles to require the bank to modify the mortgage over the bank's objections.

COMMENT

In requesting that the court order a permanent loan modification, mortgagor relied on Wells Fargo Bank, N.A. v Meyers, 30 Misc. 3d 697. In both Meyers and Ilardo, mortgagees participated in the federal Home Affordable Modification Program (HAMP), which gives incentives for participating mortgagees to issue loan modifications to struggling mortgagors and which only obligates participating mortgagees to consider ' not issue ' loan modifications in certain situations. After the expiration of the trial loan modifications, mortgagees in both cases denied permanent modifications because, after reviewing mortgagors' financial information, they determined that under HAMP guidelines, mortgagors' mortgage payments accounted for too small a fraction of their income. Both courts cited the trial modification agreements ' which presumably contained identical terms. Meyers, however, relied exclusively on language providing that if mortgagor complies with the terms of the trial modification and if all representations submitted by the mortgagor in connection with the loan modifications are true, “then the Lender will provide [the defendants] with a [permanent] Loan Modification Agreement.” While Ilardo also cited this provision, the Ilardo court ultimately relied on other clauses in the agreement that gave mortgagee ultimate discretion in determining whether to issue a permanent modification.

Courts have most commonly ordered equitable relief on behalf of a mortgagee when the dispute revolves around mortgagee's conduct in CPLR 3408 conferences. Prior to 2010, CPLR 3408 mandated settlement conferences only for mortgages that were subprime or high-cost. The foreclosure action in Meyers, but not Ilardo, was commenced under this prior version of 3408. Courts appear more likely to provide equitable relief from these potentially predatory mortgages.

In Wells Fargo Bank, N.A. v Hughes, 27 Misc. 3d 628, for instance, the court found that mortgagee acted in bad faith during a CPLR 3408 conference and dismissed the foreclosure action. Specifically, during the 3408 conference, mortgagee offered a loan modification which included an adjustable-rate mortgage and various unexplained charges. Moreover, the proposed loan modification did not adjust the amortization term, “[resulting] in a monthly principal and interest payment in the Modification Agreement” of almost two hundred dollars more per month than in the original subprime mortgage agreement. Similarly, in Emigrant Mtge. Co. v. Corcione, 28 Misc. 3d 161, the court found that mortgagee proposed a loan modification in a 3408 conference that was “unconscionable, unreasonable, overreaching and is absolutely void as against public policy.” In imposing exemplary damages and precluding mortgagee from recovering “any sums other than the principal balance,” the court found that mortgagee's proposed loan modification “effectively attempts to deprive [mortgagor] of any ability, now or at any future date, to act in a legitimate manner to save their home by invoking the protection of the United States Bankruptcy Code.”

Part Performance Exception to Statute of Frauds

Sparks Associates, LLC v. North Hills Holding Co. II, LLC

NYLJ 4/16/12, p. 23, col. 1

AppDiv, Second Dept.

(memorandum opinion)

In buyer's action to recover damages for breach of contract, seller appealed from Supreme Court's award, after trial, of damages to buyer. The Appellate Division reversed and dismissed the complaint, holding that the statute of frauds barred buyer's claim.

Buyer contracted to purchase a residential condominium unit that was still under construction. The parties later entered into an extension agreement providing that buyer could show the unit to prospective purchasers, as buyer intended to resell the unit. As the extended closing date approached, the parties entered into a second extension agreement which would have extended the closing date by up to five months, and would have required buyer to make an additional payment for each month. Buyer signed the second extension agreement, but seller did not. Buyer tendered five checks to seller, one for each monthly extension, but seller then informed buyer that it would no longer provide access to the unit. Buyer did not appear at the scheduled closing a few weeks later, and then brought this action, initially seeking specific performance, but before trial, withdrawing that claim and seeking only damages in the amount of money it had paid to seller. After trial, Supreme Court held that the second extension agreement was enforceable against seller because buyer had partially performed, and because seller had ratified the agreement when it expressed its willingness to close. The court awarded buyer $309,823.10 in damages. Seller appealed.

In reversing, the Appellate Division held that the part performance exception to the statute of frauds is applicable only when a party seeks specific performance, not money damages. The court also held that on the facts of the case, seller had done nothing to ratify the oral contract. Moreover, because the contract itself provided that it could be modified only through a signed writing, buyer was not justified in relying on the extension agreement when it made payments to seller. As a result, seller was entitled to dismissal of the complaint.

COMMENT

General Obligations Law ' 5-703(4) provides an exception to the statute of frauds based on part performance of an alleged oral agreement, but only in a suit for specific performance. For example, in Stainless Broadcasting Co. v. Clear Channel Broadcasting Licenses, L.P., 58 A.D.3d 1010, the court held that plaintiff could not avail himself of the part performance exception where he was only seeking money damages and not specific performance. Both the part performance exception and its unavailability in money damages cases, can be traced to Baldwin v. Palmer, 10 N.Y. 232, where the Court of Appeals held that only a court of equity, not a court of law, may grant an exception to the statute of frauds based on part performance.

Where the part performance exception is unavailable, courts have occasionally enforced oral contracts based on theories of promissory estoppel or ratification. Promissory estoppel requires that a party show “unconscionable injury” due to reliance on the opposing party's oral promise. 720 Lex Acquisition LLC v. Guess? Retail, Inc., 2011 WL 5039780 (S.D.N.Y.) (holding that Guess's promissory estoppel claim failed because lost profits and business opportunities due to reliance on an oral agreement to terminate a lease contract did not constitute “unconscionable injury.”). However, in Bellen v. Weiser, 2007 WL 2979827, a federal district court held that though plaintiff lessee did not partly perform the contract to purchase her apartment, her promissory estoppel claim raised a triable issue of fact whether she suffered “unconscionable injury” by remaining in the apartment for seven years, and paying for improvements, based on lessor's promises to convey the apartment to her.

The ratification doctrine may overcome the statute of frauds defense when a promisor claims that a contract is invalid because signed by an agent lacking written authority. See, e.g., 30 Carmine LLC v. Depierro, 7 Misc.3d 836 (holding that principal ratified the lease signed by her agent by allowing tenant to enter premises, accepting rent and confirming the lease and rent amount in writing). However, the only instance where a court has invoked the ratification doctrine to enforce an oral real estate agreement appears to have been in Richter v. Zabinsky, 257 A.D.2d 397. In that case however, an independent third party witnessed the promisor and promise enter into the oral agreement, making the case for enforcement particularly compelling.

In rare instances, courts have allowed recovery of money expended in reliance on an unenforceable oral agreement. For example, in MacKenzie v. MacKenzie, 13 A.D.3d 1010, the court found that though plaintiff purchaser had not sufficiently established part performance, he was entitled to recover his down payment that seller had yet to refund him. Similarly, though the appellate court found that lessor was not entitled to the part performance exception because he only sought money damages, not specific performance (Farash v. Sykes Datatronics, Inc., 90 A.D.2d 965), the Court of Appeals nevertheless allowed lessor to recover the value of the work he had done on the property in reliance on lessee's oral promises. Farash v. Sykes Datatronics, Inc., 59 N.Y.2d 500.

MERS May Have Duty to Inquire About Title Issues

Matter of Hill

NYLJ 5/4/12, p. 27, col. 6.

AppDiv, Second Dept.

(memorandum opinion)

In a turnover proceeding brought by one daughter of the deceased former owner against another daughter of the same owner and against Mortgage Electronic Registration Systems (MERS), which holds a mortgage from that daughter, MERS appealed from Supreme Court's denial of its summary judgment motion. The Appellate Division affirmed, holding that petitioning daughter had raised triable issues of fact about whether MERS was on notice of facts creating a duty to inquire.

Petitioning daughter alleges that her sister improperly obtained sole title to the property formerly owned by their mother. MERS holds a mortgage to secure a $215,000 loan made to respondent daughter in September 2009. Petitioning daughter sought an order directing respondent daughter to turn over the property, and also named MERS as a respondent. MERS sought summary judgment dismissing the petition, contending that it was protected as a bona fide encumbrancer for value.

In affirming Supreme Court's denial of MERS' summary judgment motion, the Appellate Division noted that if an encumbracer or purchaser knows facts which would excite the suspicion of an ordinarily prudent person, the encumbrancer is charged with facts that a reasonable inquiry would have revealed. Here, the court held that petitioning daughter had raised triable issues of fact about MERS' knowledge of facts that would have excited the suspicion of an ordinarily prudent person. As a result, MERS was not entitled to summary judgment.

Adverse Possession Is Exclusive

Estate of Becker v. Murtagh

NYLJ 4/4/12, p. 25, col. 3

Court of Appeals

(Opinion by Jones, J.)

In an action for a declaration that landowner had obtained title by adverse possession to a dock located on neighbor's land, adverse possessor appealed from the Appellate Division's reversal of Supreme Court's grant of summary judgment to adverse possessor. The Court of Appeals reversed, holding that adverse possessor had established the requisite hostility and exclusivity.

Adverse possessor and true owner hold long-term leases on beachfront parcels owned by the town. The leases are set to expire in 2050. Around 1963, all of the beachfront owners, at their own expense, constructed wooden jetties to stem beachfront erosion. Although the parties intended to build the jetties on the boundaries between parcels, it appears that adverse possessor build his jetty about five feet over the boundary line, on the parcel now owned by true owner. Adverse possessor also built a dock using the jetty for support, and built a boardwalk extension to reach the dock. Adverse possessor repaired and painted the boardwalk and dock consistently until 1984, and both adverse possessor and his immediate neighbors believed that adverse possessor owned the dock and boardwalk. Adverse possessor permitted several neighbors (including true owner's predecessor) to use the dock and boardwalk, but did not allow the general public to use them. In 1984, true owner's predecessor commissioned a survey, which revealed the encroachment. The predecessor took no action to prevent adverse possessor or other neighbors from using the boardwalk and dock. In 2004, true owner bought the parcel, and true owner notified adverse possessor and other neighbors that they would no longer be permitted to use the boardwalk or dock (or the beach on true owner's land). Adverse possessor then brought this declaratory judgment action. Supreme Court granted summary judgment to adverse possessor, but the Appellate Division reversed, holding that adverse possessor's use was neither hostile nor exclusive.

In reversing, the Court of Appeals first held that adverse possessor had established that his possession was adverse and under claim of right. The court emphasized that he had constructed and maintained the facilities, and that there was no evidence that he did so with permission of true owner's predecessor; because true owner's predecessor conceded that she believed the facilities were on adverse possessor's land until she did the 1984 survey, adverse possessor's occupation could not have been based on her permission. The court then held that adverse possessor's implied grant of permission to a limited number of neighbors to use the dock and boardwalk did not negate his exclusive possession of the facilities. His exclusion of the general public was enough to establish exclusivity.

Mortgagors Cannot Require Modification of Terms

J.P. Morgan Chase Bank v. Ilardo

NYLJ 4/11/12, p. 21, col. 3

Supreme Ct., Suffolk Cty.

(Whelan, J.)

In an action to foreclose a mortgage, mortgagors sought dismissal and an order requiring mortgagee bank to provide mortgagors with a permanent loan modification. The court awarded the mortgagee bank summary judgment dismissing mortgagors' counterclaims.

Mortgagors purchased a home in 2004 with the aid of a $320,000 mortgage from Chase. They first defaulted on a mortgage payment in August 2009, allegedly on the advice of Chase's representatives, who supposedly indicated that mortgagors would not qualify for a loan modification program unless they defaulted. On Sept. 10, 2009, Chase provided written confirmation that mortgagors were in a affordable modification trial period plan (TPP), beginning Oct. 1, 2009 and lasting for a three-month trial period. In April, 2010, however, Chase sent mortgagors a letter indicating that Chase was unable to offer a loan modification because mortgagors' housing expense amounted to less than 31% of their gross monthly income. Mortgagors nevertheless contended that the TPP itself provided that if the mortgagors were in compliance with the trial period and their representations were true in all material respects, the lender would provide mortgagors with a loan modification agreement. Chase, however, relied on language in the TPP under which the mortgagors certified that they understood that loan documents would not be modified unless and until they met all conditions required for loan modification and received a fully executed copy of a modification agreement.

In dismissing mortgagors' counterclaims, the court first held that the federal Home Affordable Modification Program (HAMP) does not require loan servicers to modify eligible loans. The court then held that the express terms of the TPP agreement, which state that any permanent modification is subject to Chase's approval, preclude any breach of contract claim based on the TPP. Finally, the court held that mortgagors could not rely on equitable principles to require the bank to modify the mortgage over the bank's objections.

COMMENT

In requesting that the court order a permanent loan modification, mortgagor relied on Wells Fargo Bank, N.A. v Meyers, 30 Misc. 3d 697. In both Meyers and Ilardo, mortgagees participated in the federal Home Affordable Modification Program (HAMP), which gives incentives for participating mortgagees to issue loan modifications to struggling mortgagors and which only obligates participating mortgagees to consider ' not issue ' loan modifications in certain situations. After the expiration of the trial loan modifications, mortgagees in both cases denied permanent modifications because, after reviewing mortgagors' financial information, they determined that under HAMP guidelines, mortgagors' mortgage payments accounted for too small a fraction of their income. Both courts cited the trial modification agreements ' which presumably contained identical terms. Meyers, however, relied exclusively on language providing that if mortgagor complies with the terms of the trial modification and if all representations submitted by the mortgagor in connection with the loan modifications are true, “then the Lender will provide [the defendants] with a [permanent] Loan Modification Agreement.” While Ilardo also cited this provision, the Ilardo court ultimately relied on other clauses in the agreement that gave mortgagee ultimate discretion in determining whether to issue a permanent modification.

Courts have most commonly ordered equitable relief on behalf of a mortgagee when the dispute revolves around mortgagee's conduct in CPLR 3408 conferences. Prior to 2010, CPLR 3408 mandated settlement conferences only for mortgages that were subprime or high-cost. The foreclosure action in Meyers, but not Ilardo, was commenced under this prior version of 3408. Courts appear more likely to provide equitable relief from these potentially predatory mortgages.

In Wells Fargo Bank, N.A. v Hughes, 27 Misc. 3d 628, for instance, the court found that mortgagee acted in bad faith during a CPLR 3408 conference and dismissed the foreclosure action. Specifically, during the 3408 conference, mortgagee offered a loan modification which included an adjustable-rate mortgage and various unexplained charges. Moreover, the proposed loan modification did not adjust the amortization term, “[resulting] in a monthly principal and interest payment in the Modification Agreement” of almost two hundred dollars more per month than in the original subprime mortgage agreement. Similarly, in Emigrant Mtge. Co. v. Corcione, 28 Misc. 3d 161, the court found that mortgagee proposed a loan modification in a 3408 conference that was “unconscionable, unreasonable, overreaching and is absolutely void as against public policy.” In imposing exemplary damages and precluding mortgagee from recovering “any sums other than the principal balance,” the court found that mortgagee's proposed loan modification “effectively attempts to deprive [mortgagor] of any ability, now or at any future date, to act in a legitimate manner to save their home by invoking the protection of the United States Bankruptcy Code.”

Part Performance Exception to Statute of Frauds

Sparks Associates, LLC v. North Hills Holding Co. II, LLC

NYLJ 4/16/12, p. 23, col. 1

AppDiv, Second Dept.

(memorandum opinion)

In buyer's action to recover damages for breach of contract, seller appealed from Supreme Court's award, after trial, of damages to buyer. The Appellate Division reversed and dismissed the complaint, holding that the statute of frauds barred buyer's claim.

Buyer contracted to purchase a residential condominium unit that was still under construction. The parties later entered into an extension agreement providing that buyer could show the unit to prospective purchasers, as buyer intended to resell the unit. As the extended closing date approached, the parties entered into a second extension agreement which would have extended the closing date by up to five months, and would have required buyer to make an additional payment for each month. Buyer signed the second extension agreement, but seller did not. Buyer tendered five checks to seller, one for each monthly extension, but seller then informed buyer that it would no longer provide access to the unit. Buyer did not appear at the scheduled closing a few weeks later, and then brought this action, initially seeking specific performance, but before trial, withdrawing that claim and seeking only damages in the amount of money it had paid to seller. After trial, Supreme Court held that the second extension agreement was enforceable against seller because buyer had partially performed, and because seller had ratified the agreement when it expressed its willingness to close. The court awarded buyer $309,823.10 in damages. Seller appealed.

In reversing, the Appellate Division held that the part performance exception to the statute of frauds is applicable only when a party seeks specific performance, not money damages. The court also held that on the facts of the case, seller had done nothing to ratify the oral contract. Moreover, because the contract itself provided that it could be modified only through a signed writing, buyer was not justified in relying on the extension agreement when it made payments to seller. As a result, seller was entitled to dismissal of the complaint.

COMMENT

General Obligations Law ' 5-703(4) provides an exception to the statute of frauds based on part performance of an alleged oral agreement, but only in a suit for specific performance. For example, in Stainless Broadcasting Co. v. Clear Channel Broadcasting Licenses, L.P., 58 A.D.3d 1010, the court held that plaintiff could not avail himself of the part performance exception where he was only seeking money damages and not specific performance. Both the part performance exception and its unavailability in money damages cases, can be traced to Baldwin v. Palmer, 10 N.Y. 232, where the Court of Appeals held that only a court of equity, not a court of law, may grant an exception to the statute of frauds based on part performance.

Where the part performance exception is unavailable, courts have occasionally enforced oral contracts based on theories of promissory estoppel or ratification. Promissory estoppel requires that a party show “unconscionable injury” due to reliance on the opposing party's oral promise. 720 Lex Acquisition LLC v. Guess? Retail, Inc., 2011 WL 5039780 (S.D.N.Y.) (holding that Guess's promissory estoppel claim failed because lost profits and business opportunities due to reliance on an oral agreement to terminate a lease contract did not constitute “unconscionable injury.”). However, in Bellen v. Weiser, 2007 WL 2979827, a federal district court held that though plaintiff lessee did not partly perform the contract to purchase her apartment, her promissory estoppel claim raised a triable issue of fact whether she suffered “unconscionable injury” by remaining in the apartment for seven years, and paying for improvements, based on lessor's promises to convey the apartment to her.

The ratification doctrine may overcome the statute of frauds defense when a promisor claims that a contract is invalid because signed by an agent lacking written authority. See, e.g., 30 Carmine LLC v. Depierro, 7 Misc.3d 836 (holding that principal ratified the lease signed by her agent by allowing tenant to enter premises, accepting rent and confirming the lease and rent amount in writing). However, the only instance where a court has invoked the ratification doctrine to enforce an oral real estate agreement appears to have been in Richter v. Zabinsky, 257 A.D.2d 397. In that case however, an independent third party witnessed the promisor and promise enter into the oral agreement, making the case for enforcement particularly compelling.

In rare instances, courts have allowed recovery of money expended in reliance on an unenforceable oral agreement. For example, in MacKenzie v. MacKenzie, 13 A.D.3d 1010, the court found that though plaintiff purchaser had not sufficiently established part performance, he was entitled to recover his down payment that seller had yet to refund him. Similarly, though the appellate court found that lessor was not entitled to the part performance exception because he only sought money damages, not specific performance ( Farash v. Sykes Datatronics, Inc., 90 A.D.2d 965), the Court of Appeals nevertheless allowed lessor to recover the value of the work he had done on the property in reliance on lessee's oral promises. Farash v. Sykes Datatronics, Inc., 59 N.Y.2d 500 .

MERS May Have Duty to Inquire About Title Issues

Matter of Hill

NYLJ 5/4/12, p. 27, col. 6.

AppDiv, Second Dept.

(memorandum opinion)

In a turnover proceeding brought by one daughter of the deceased former owner against another daughter of the same owner and against Mortgage Electronic Registration Systems (MERS), which holds a mortgage from that daughter, MERS appealed from Supreme Court's denial of its summary judgment motion. The Appellate Division affirmed, holding that petitioning daughter had raised triable issues of fact about whether MERS was on notice of facts creating a duty to inquire.

Petitioning daughter alleges that her sister improperly obtained sole title to the property formerly owned by their mother. MERS holds a mortgage to secure a $215,000 loan made to respondent daughter in September 2009. Petitioning daughter sought an order directing respondent daughter to turn over the property, and also named MERS as a respondent. MERS sought summary judgment dismissing the petition, contending that it was protected as a bona fide encumbrancer for value.

In affirming Supreme Court's denial of MERS' summary judgment motion, the Appellate Division noted that if an encumbracer or purchaser knows facts which would excite the suspicion of an ordinarily prudent person, the encumbrancer is charged with facts that a reasonable inquiry would have revealed. Here, the court held that petitioning daughter had raised triable issues of fact about MERS' knowledge of facts that would have excited the suspicion of an ordinarily prudent person. As a result, MERS was not entitled to summary judgment.