Real Property Law

Court of Appeals

(Opinion by Smith, J.)

In an action by neighbors to enjoin landowners from using a pond adjacent to their land, landowners appealed from Supreme Court's judgment for neighbors, which brought up for review an earlier Appellate Division order holding that the deed to landowners did not include water rights. The Court of Appeals reversed, holding that a deed of land abutting water includes a conveyance of underwater land owned by the grantor unless the grantor expressly excludes the underwater land.

In 1968, the Furlanos received a deed conveying land “along the edge of Perch Pond” together with any of the grantor's rights “to the lands under the waters of Perch Pond which bound and abut unto the land hereinabove conveyed.” Five years later, the Furlanos conveyed most (but not all) of the abutting land to landowners. The deed conveyed land “along the waters [sic] edge of Perch Pond” and “along the edge of Perch Pond,” but made no reference to underwater land. Twenty years later, in 1993, the Furlanos conveyed their remaining waterfront land together with “all remaining lands of Grantors” to neighbors. Neighbors brought this action, contending that the 1973 deed to landowners included no rights to the pond itself, so that neighbors succeeded to ownership of the land under the pond by virtue of the 1993 deed. Supreme Court initially granted summary judgment to landowners, but the Appellate Division modified and held that the 1973 deed included no rights to the pond. As a result, Supreme Court entered judgment in favor of neighbors, and landowners appealed.

In reversing, the Court of Appeals started by indicating that most purchasers of waterfront land assume they are acquiring a right to use the water adjacent to their land. The court acknowledged that dictum in some prior cases suggested that a deed that conveyed land only to the “edge” of a lake would not convey any right to the adjacent water. The court held, however, that such dictum should not be followed, and that a conveyance of waterfront land also conveys whatever interest the grantor had in the adjacent underwater lands, unless the grantor explicitly reserves the right to the underwater lands.

COMMENT

The expansive rule the court articulates in Knapp reflects existing practice. New York courts have long held that the owner of land adjoining a non-navigable body of water enjoys a right to use the water, either by the terms of the conveyance or by
prescription or adverse possession. In White v. Knickerbocker Ice Co., 254 N.Y. 152, the Court of Appeals explained that a deed describing land as “by the shore” or or “along the shore of” a body of water conveys title to underwater lands to the center of the body of water. Thus, in White itself, a deed conveying land “along the south side of the Rockland Lake” conveyed underwater land to the center of that lake.

When the deed conveys land to a defined boundary at or near the edge of the lake, such as to the “high water mark,” some courts have held that the deed does not convey title to underwater land, but these courts have typically concluded that the purchaser has acquired water rights by either adverse possession or prescription. In Brant Lake Shores, Inc., v. Barton, 61 Misc.2d 902, although the court first determined that a deed conveying land to the “high water mark” of a lake did not convey water rights, the court held that owner had acquired title to center of lake by adverse possession under color of title. In Carlino v. Barton, 76 Misc.2d 240, the court found that a boundary running “to the shores of Brant Lake; thence easterly along the shores of Brant Lake ' ” similarly limited the conveyance to the land at the water's edge, but held that owner had acquired title to the low-tide beach by adverse possession and rights to recreational use of lake by prescription. The holding in Knapp would not alter the result in these cases, but would make resort to adverse possession or prescription unnecessary.

The one apparent departure from the general rule giving a riparian owner a right to use the adjacent body of water did not involve a claim by the owner to use the water. In City of Geneva v. Henson, 195 N.Y. 447 (1909), the court held that a course running “to Seneca Lake ' [then] southerly on the shore of said lake” conveyed only “uplands” and no express water rights, and did not find that the owner had acquired those rights by other means, but the issue in the case was whether the owner was entitled to compensation in a condemnation proceeding. The City of Geneva had condemned a strip of waterfront land along Seneca Lake for the creation of a towpath, alleging that it owned the strip in fee. Owner responded that he held title to the center of the lake, including the strip condemned along his land. Although the court held that the chain of mesne conveyances from the state to the owner did not give landowner a right to the underwater lands, the City of Geneva court was concerned with the narrow question of which party held title to the lake; the court was not asked to determine what other rights, if any, Owner had to the use and enjoyment of Seneca Lake.

Guarantee Trigger Does Not Constitute Unenforceable Penalty

G3-Purves Street, LLC v. Thomson Purves, LLC

NYLJ 10/19/12, p. 34, col. 5

AppDiv, Second Dept.

(Opinion by Florio, J.)

In lender's action to foreclose a mortgage and to obtain a deficiency judgment against guarantors, guarantors appealed from Supreme Court's order granting summary judgment to lender. The Appellate Division affirmed, rejecting guarantors' argument that the provision triggering the guarantee was an unenforceable penalty.

Corporate developer obtained a mortgage-backed loan from lender. Although the loan was generally a non-recourse loan, the loan did include a “springing” guarantee by developer's two principals. The agreement provided that lender's agreement not to hold the principals personally liable would become void, and the debt shall “be fully recourse to the Borrower in the event one or more of the following occurs.” The events specified included permitting a lien to exist on the property, not paying debts as they become due, or making an assignment for the benefit of creditors. Sixteen months later, the developer failed to pay real estate taxes, leading the lender to accelerate the loan's maturity date, foreclose on the mortgage, and seek a deficiency judgment on the guarantee. The lender moved for summary judgment, and the guarantors cross-moved for summary judgment dismissing the claim on the guarantee, contending that the springing guarantee constituted a liquidated damages provision that imposed an unenforceable penalty on guarantors because the liability imposed on guarantors was grossly disproportionate to the amounts of the liens filed against the property. Supreme Court awarded summary judgment to the lender, and the guarantors appealed.

In affirming, the Appellate Division noted that both the loan agreement and the guaranty had been negotiated at arm's length by sophisticated parties. The court then held that in any event, the agreement provided only for the actual damages incurred by the lender ' the debt remaining on the unpaid loan. As a result, the court held that the springing guarantee did not constitute an unenforceable penalty.

Tax Sale Does Not Extinguish Prescriptive Easement

Behar v. Wiblishauser

NYLJ 10/19/12, p. 37, col. 5

AppDiv, Second Dept.

(memorandum opinion)

In an action to compel a determination of claims to real property, encroaching neighbors appealed from Supreme Court's grant of summary judgment to record owners. The Appellate Division reversed, holding that if neighbors had acquired a prescriptive easement over the strip, the easement was not extinguished by a tax sale.

Neighbors purchased their parcel in 2006 from owners who had held title since 1979. A driveway used by neighbors and their predecessors since 1979 encroached on the adjacent parcel by three feet. When the record owners bought the adjacent parcel in 2008, they brought this action seeking removal of the encroaching portion of the driveway. They contended that whatever prescriptive easement might have been acquired had been extinguished by a 2003 tax sale and conveyance to Suffolk County. One of the record owners' predecessors had defaulted on the payment of taxes for the 1997/98 year. In 1998, the Suffolk County Treasurer sold the property at public auction to the County. The Treasurer conveyed the property by a tax deed dated 2003. In 2004, the defaulting owner applied to reacquire the parcel in exchange for payment of her delinquent bill plus authorized charges. The Suffolk County legislature authorized the sale, and in 2004, the County conveyed the property back to the predecessor, subject “to all covenants, restrictions, and easements of record, if any.” Supreme Court held that the tax sale extinguished any prescriptive easement, and neighbors appealed.

In reversing, the Appellate Division held that the defaulting owner had redeemed her property in 2004, and that, as a result, she had reacquired the same property she had previously owned, which was property burdened by any prescriptive easement neighbors might have acquired. Moreover, the court held that in any event, an adjoining owner's easement of light, air, or access is not extinguished by a tax sale. As a result, summary judgment was inappropriate, and the court remanded to determine whether neighbors' predecessors had acquired a prescriptive easement.

COMMENT

In Tax Lien Co. of N.Y. v. Schultze, 213 N.Y. 9, the Court of Appeals established that a tax sale does not extinguish an easement acquired prior to the tax lien. The court reasoned that the tax assessment of the servient estate reflected a value diminished by the burden of the easement, while the value of the dominant estate (and consequently its tax assessment) was enhanced by the easement. Therefore, extinguishing the property rights of the dominant estate during a tax sale would amount to a taking, because the dominant estate's tax assessment includes the value of the easement. Further, this rule prevents a servient estate from extinguishing its burden to the dominant estate by defaulting on tax payments and subsequently redeeming the property.

By contrast, the presence of an adverse possessor has no effect on the tax assessment of the adversely possessed land. The rationale for preserving easements does not apply, and a tax sale extinguishes an unrecorded title acquired through adverse possession prior to a tax lien. Nevertheless, owners of property can generally invalidate a tax sale if they do not receive proper notice, but New York statutes and the constitution require notice to the owner only when the owner's identity is ascertainable from recorded deeds or the tax rolls. In practice, then, adverse possessors will often have their interests extinguished without notice of the tax sale. For instance, in Congregation Yetev Lev D'Satmar v. Cnty. of Sullivan, 59 N.Y.2d 418, the Court of Appeals held that constructive notice barred an adverse possessor's claim when the assessor mailed notice of the tax sale to the last record owner of the land, but was unable to reasonably identify the adverse possessor from the recorded deed or tax rolls. In rejecting the adverse possessor's claim, the court held that “[t]here is no constitutional requirement of personal notice to an occupant simply because of occupancy.”

Recording Act Protects Subsequent Purchaser When Initial Purchaser Did Not Record Sale Contract

Khadka v. American Home Mortgage Servicing, Inc.

NYLJ 11/8/12, p. 21, col. 3

Supreme Ct., Queens Cty.

(Markey, J.)

In an action for specific performance of a real estate contract, a subsequent purchaser of the subject property moved to intervene, and to dismiss the complaint. Supreme Court granted the motion, holding that the recording act protected the subsequent purchaser because the initial purchasers had never recorded their sale contract.

The Khadkas contracted to purchase the property from American Home, contingent upon their ability to obtain a conventional first mortgage in the amount of $296,000. Although the written contract did not require the Khadkas to obtain a loan from any particular lender, the Khadkas allege that American Home advised them that they were required to apply to a lender affiliated with American Home. That lender did not approve a conventional mortgage by the date specified in the contract, so the Khadkas applied to another lender that approved the mortgage, but not until after the date specified in the contract. American Home canceled the contract, and apparently sold to a third party, who in turn resold to intervenor NYRP, which promptly recorded its deed. Meanwhile, the Khadkas brought this action against American Home, alleging breach of contract and seeking specific performance. They filed a notice of pendency, but that notice apparently named only American Home, which had already transferred its title. NYRP moved to intervene and to dismiss the complaint, claiming bona fide purchaser status.

In dismissing the complaint, the court relied on section 294(3) of the Real Property Law, which provides that an unrecorded executor contract of sale is void against a subsequent purchaser in good faith who first records. Here, the Khadkas did not record their sale contract. The court held that the notice of pendency filed by the Khadkas was invalid because the Khadkas failed to serve persons who had an ownership interest in the property at the time their complaint was filed. The court also suggested that the notice of pendency would have been ineffective anyway because it protected only those rights the Khadkas already had, and if their failure to record the sale contract rendered that contract ineffective against NYRP, filing of a notice of pendency would not rescue the contract.

Deed to Land Adjacent to Pond Includes Right to Underwater Land

Knapp v. Hughes

NYLJ 10/19/12, p. 24, col. 3

Court of Appeals

(Opinion by Smith, J.)

In an action by neighbors to enjoin landowners from using a pond adjacent to their land, landowners appealed from Supreme Court's judgment for neighbors, which brought up for review an earlier Appellate Division order holding that the deed to landowners did not include water rights. The Court of Appeals reversed, holding that a deed of land abutting water includes a conveyance of underwater land owned by the grantor unless the grantor expressly excludes the underwater land.

In 1968, the Furlanos received a deed conveying land “along the edge of Perch Pond” together with any of the grantor's rights “to the lands under the waters of Perch Pond which bound and abut unto the land hereinabove conveyed.” Five years later, the Furlanos conveyed most (but not all) of the abutting land to landowners. The deed conveyed land “along the waters [sic] edge of Perch Pond” and “along the edge of Perch Pond,” but made no reference to underwater land. Twenty years later, in 1993, the Furlanos conveyed their remaining waterfront land together with “all remaining lands of Grantors” to neighbors. Neighbors brought this action, contending that the 1973 deed to landowners included no rights to the pond itself, so that neighbors succeeded to ownership of the land under the pond by virtue of the 1993 deed. Supreme Court initially granted summary judgment to landowners, but the Appellate Division modified and held that the 1973 deed included no rights to the pond. As a result, Supreme Court entered judgment in favor of neighbors, and landowners appealed.

In reversing, the Court of Appeals started by indicating that most purchasers of waterfront land assume they are acquiring a right to use the water adjacent to their land. The court acknowledged that dictum in some prior cases suggested that a deed that conveyed land only to the “edge” of a lake would not convey any right to the adjacent water. The court held, however, that such dictum should not be followed, and that a conveyance of waterfront land also conveys whatever interest the grantor had in the adjacent underwater lands, unless the grantor explicitly reserves the right to the underwater lands.

COMMENT

The expansive rule the court articulates in Knapp reflects existing practice. New York courts have long held that the owner of land adjoining a non-navigable body of water enjoys a right to use the water, either by the terms of the conveyance or by
prescription or adverse possession. In White v. Knickerbocker Ice Co., 254 N.Y. 152, the Court of Appeals explained that a deed describing land as “by the shore” or or “along the shore of” a body of water conveys title to underwater lands to the center of the body of water. Thus, in White itself, a deed conveying land “along the south side of the Rockland Lake” conveyed underwater land to the center of that lake.

When the deed conveys land to a defined boundary at or near the edge of the lake, such as to the “high water mark,” some courts have held that the deed does not convey title to underwater land, but these courts have typically concluded that the purchaser has acquired water rights by either adverse possession or prescription. In Brant Lake Shores, Inc., v. Barton, 61 Misc.2d 902, although the court first determined that a deed conveying land to the “high water mark” of a lake did not convey water rights, the court held that owner had acquired title to center of lake by adverse possession under color of title. In Carlino v. Barton, 76 Misc.2d 240, the court found that a boundary running “to the shores of Brant Lake; thence easterly along the shores of Brant Lake ' ” similarly limited the conveyance to the land at the water's edge, but held that owner had acquired title to the low-tide beach by adverse possession and rights to recreational use of lake by prescription. The holding in Knapp would not alter the result in these cases, but would make resort to adverse possession or prescription unnecessary.

The one apparent departure from the general rule giving a riparian owner a right to use the adjacent body of water did not involve a claim by the owner to use the water. In City of Geneva v. Henson, 1 95 N.Y. 447 (1909), the court held that a course running “to Seneca Lake ' [then] southerly on the shore of said lake” conveyed only “uplands” and no express water rights, and did not find that the owner had acquired those rights by other means, but the issue in the case was whether the owner was entitled to compensation in a condemnation proceeding. The City of Geneva had condemned a strip of waterfront land along Seneca Lake for the creation of a towpath, alleging that it owned the strip in fee. Owner responded that he held title to the center of the lake, including the strip condemned along his land. Although the court held that the chain of mesne conveyances from the state to the owner did not give landowner a right to the underwater lands, the City of Geneva court was concerned with the narrow question of which party held title to the lake; the court was not asked to determine what other rights, if any, Owner had to the use and enjoyment of Seneca Lake.

Guarantee Trigger Does Not Constitute Unenforceable Penalty

G3-Purves Street, LLC v. Thomson Purves, LLC

NYLJ 10/19/12, p. 34, col. 5

AppDiv, Second Dept.

(Opinion by Florio, J.)

In lender's action to foreclose a mortgage and to obtain a deficiency judgment against guarantors, guarantors appealed from Supreme Court's order granting summary judgment to lender. The Appellate Division affirmed, rejecting guarantors' argument that the provision triggering the guarantee was an unenforceable penalty.

Corporate developer obtained a mortgage-backed loan from lender. Although the loan was generally a non-recourse loan, the loan did include a “springing” guarantee by developer's two principals. The agreement provided that lender's agreement not to hold the principals personally liable would become void, and the debt shall “be fully recourse to the Borrower in the event one or more of the following occurs.” The events specified included permitting a lien to exist on the property, not paying debts as they become due, or making an assignment for the benefit of creditors. Sixteen months later, the developer failed to pay real estate taxes, leading the lender to accelerate the loan's maturity date, foreclose on the mortgage, and seek a deficiency judgment on the guarantee. The lender moved for summary judgment, and the guarantors cross-moved for summary judgment dismissing the claim on the guarantee, contending that the springing guarantee constituted a liquidated damages provision that imposed an unenforceable penalty on guarantors because the liability imposed on guarantors was grossly disproportionate to the amounts of the liens filed against the property. Supreme Court awarded summary judgment to the lender, and the guarantors appealed.

In affirming, the Appellate Division noted that both the loan agreement and the guaranty had been negotiated at arm's length by sophisticated parties. The court then held that in any event, the agreement provided only for the actual damages incurred by the lender ' the debt remaining on the unpaid loan. As a result, the court held that the springing guarantee did not constitute an unenforceable penalty.

Tax Sale Does Not Extinguish Prescriptive Easement

Behar v. Wiblishauser

NYLJ 10/19/12, p. 37, col. 5

AppDiv, Second Dept.

(memorandum opinion)

In an action to compel a determination of claims to real property, encroaching neighbors appealed from Supreme Court's grant of summary judgment to record owners. The Appellate Division reversed, holding that if neighbors had acquired a prescriptive easement over the strip, the easement was not extinguished by a tax sale.

Neighbors purchased their parcel in 2006 from owners who had held title since 1979. A driveway used by neighbors and their predecessors since 1979 encroached on the adjacent parcel by three feet. When the record owners bought the adjacent parcel in 2008, they brought this action seeking removal of the encroaching portion of the driveway. They contended that whatever prescriptive easement might have been acquired had been extinguished by a 2003 tax sale and conveyance to Suffolk County. One of the record owners' predecessors had defaulted on the payment of taxes for the 1997/98 year. In 1998, the Suffolk County Treasurer sold the property at public auction to the County. The Treasurer conveyed the property by a tax deed dated 2003. In 2004, the defaulting owner applied to reacquire the parcel in exchange for payment of her delinquent bill plus authorized charges. The Suffolk County legislature authorized the sale, and in 2004, the County conveyed the property back to the predecessor, subject “to all covenants, restrictions, and easements of record, if any.” Supreme Court held that the tax sale extinguished any prescriptive easement, and neighbors appealed.

In reversing, the Appellate Division held that the defaulting owner had redeemed her property in 2004, and that, as a result, she had reacquired the same property she had previously owned, which was property burdened by any prescriptive easement neighbors might have acquired. Moreover, the court held that in any event, an adjoining owner's easement of light, air, or access is not extinguished by a tax sale. As a result, summary judgment was inappropriate, and the court remanded to determine whether neighbors' predecessors had acquired a prescriptive easement.

COMMENT

In Tax Lien Co. of N.Y. v. Schultze, 213 N.Y. 9, the Court of Appeals established that a tax sale does not extinguish an easement acquired prior to the tax lien. The court reasoned that the tax assessment of the servient estate reflected a value diminished by the burden of the easement, while the value of the dominant estate (and consequently its tax assessment) was enhanced by the easement. Therefore, extinguishing the property rights of the dominant estate during a tax sale would amount to a taking, because the dominant estate's tax assessment includes the value of the easement. Further, this rule prevents a servient estate from extinguishing its burden to the dominant estate by defaulting on tax payments and subsequently redeeming the property.

By contrast, the presence of an adverse possessor has no effect on the tax assessment of the adversely possessed land. The rationale for preserving easements does not apply, and a tax sale extinguishes an unrecorded title acquired through adverse possession prior to a tax lien. Nevertheless, owners of property can generally invalidate a tax sale if they do not receive proper notice, but New York statutes and the constitution require notice to the owner only when the owner's identity is ascertainable from recorded deeds or the tax rolls. In practice, then, adverse possessors will often have their interests extinguished without notice of the tax sale. For instance, in Congregation Yetev Lev D'Satmar v. Cnty. of Sullivan, 59 N.Y.2d 418, the Court of Appeals held that constructive notice barred an adverse possessor's claim when the assessor mailed notice of the tax sale to the last record owner of the land, but was unable to reasonably identify the adverse possessor from the recorded deed or tax rolls. In rejecting the adverse possessor's claim, the court held that “[t]here is no constitutional requirement of personal notice to an occupant simply because of occupancy.”

Recording Act Protects Subsequent Purchaser When Initial Purchaser Did Not Record Sale Contract

Khadka v. American Home Mortgage Servicing, Inc.

NYLJ 11/8/12, p. 21, col. 3

Supreme Ct., Queens Cty.

(Markey, J.)

In an action for specific performance of a real estate contract, a subsequent purchaser of the subject property moved to intervene, and to dismiss the complaint. Supreme Court granted the motion, holding that the recording act protected the subsequent purchaser because the initial purchasers had never recorded their sale contract.

The Khadkas contracted to purchase the property from American Home, contingent upon their ability to obtain a conventional first mortgage in the amount of $296,000. Although the written contract did not require the Khadkas to obtain a loan from any particular lender, the Khadkas allege that American Home advised them that they were required to apply to a lender affiliated with American Home. That lender did not approve a conventional mortgage by the date specified in the contract, so the Khadkas applied to another lender that approved the mortgage, but not until after the date specified in the contract. American Home canceled the contract, and apparently sold to a third party, who in turn resold to intervenor NYRP, which promptly recorded its deed. Meanwhile, the Khadkas brought this action against American Home, alleging breach of contract and seeking specific performance. They filed a notice of pendency, but that notice apparently named only American Home, which had already transferred its title. NYRP moved to intervene and to dismiss the complaint, claiming bona fide purchaser status.

In dismissing the complaint, the court relied on section 294(3) of the Real Property Law, which provides that an unrecorded executor contract of sale is void against a subsequent purchaser in good faith who first records. Here, the Khadkas did not record their sale contract. The court held that the notice of pendency filed by the Khadkas was invalid because the Khadkas failed to serve persons who had an ownership interest in the property at the time their complaint was filed. The court also suggested that the notice of pendency would have been ineffective anyway because it protected only those rights the Khadkas already had, and if their failure to record the sale contract rendered that contract ineffective against NYRP, filing of a notice of pendency would not rescue the contract.