Real Property Law

Mortgagee Does Not Obtain Protection of the Recording Act

Mortgage Electronic Registration Systems, Inc. v. Pagan

NYLJ 7/18/14, p. 30. col. 3

AppDiv, Second Dept.

(memorandum opinion)

In a mortgage foreclosure action by mortgagee who had lent money to wife, the latter's mortgagee appealed from Supreme Court's award of summary judgment to a subsequent mortgagee who had lent money to husband, who had record title to the premises. The Appellate Division reversed and awarded summary judgment to wife's mortgagee, holding that husband's mortgagee had not recorded before the wife filed a notice of pendency against husband, and that in any event, husband's mortgagee was on inquiry notice of wife's interest in the property.

Before their divorce, husband held record title to the property. As part of the divorce settlement, husband agreed to convey title to wife, and he apparently executed a quitclaim deed to the wife, which was never recorded. On the strength of the quitclaim deed, wife obtained a mortgage loan. The following year, in 2003, she refinanced the loan with Full Spectrum, which recorded its mortgage on Feb. 7, 2004. Subsequently, husband executed a deed to his brother in violation of the stipulation of settlement. Wife then defaulted on her loan, and Full Spectrum brought this foreclosure action on Aug. 14, 2006, serving a notice of pendency indexed against husband. On the same day, the husband's brother reconveyed the land to husband, who subsequently obtained a mortgage from Deutsche Bank. The deed and the Deutsche Bank mortgage were recorded on Aug. 26, 2006.

When husband subsequently defaulted, Deutsche Bank brought a separate foreclosure action against husband. Meanwhile, in October 2006, Supreme Court granted wife's motion to vacate the deed executed by husband to his brother. Deutsche Bank then intervened in Full Spectrum's foreclosure action, and Supreme Court held that Deutsche Bank's mortgage was superior to the Full Spectrum mortgage. Full Spectrum appealed.

In reversing, the Appellate Division held that Full Spectrum acquired a mortgage on the wife's equitable interest when it lent money to her in 2003 and recorded the mortgage in 2004. The court then held that as a subsequent mortgagee, Deutsche Bank could prevail only if it took without notice of the prior lien and recorded first. Here, the court noted that Deutsche Bank did not record until after Full Spectrum had filed a notice of pendency against husband. The court treated that notice as a recording of Full Spectrum's interest, a recording that precluded Deutsche Bank from obtaining the protection of the recording act. Moreover, in any event, the court held that because the wife had consistently been in possession of the premises, Deutsche Bank was on inquiry notice of the wife's interest, which precluded Deutsche Bank from asserting bona fide purchaser status.

COMMENT

Although CPLR 6501 makes it clear that filing a notice of pendency puts all transferees on constructive notice of the filer's interests, the First and Second Department disagree about whether filing a notice of pendency serves as a recording for purposes of winning the race to the recording office under New York's race-notice recording statute.

The court in MERS v. Pagan followed established Second Department authority in holding that a notice of pendency is equivalent to recordation for purposes of determining who has recorded first. In Goldstein v. Gold, 106 A.D.2d 100, the Second Department held that a purchaser who bought in reliance on a fraudulent satisfaction of a prior mortgage was nevertheless bound by that mortgage because the defrauded mortgagee had filed a notice of pendency after purchaser's purchase, but before purchaser recorded the deed. After mortgagor fraudulently induced mortgagee to sign a satisfaction of the mortgage, mortgagor showed the satisfaction to purchaser, who completed the purchase. Although purchaser recorded the deed, he did not record until after the mortgagee uncovered the fraud and filed a notice of pendency. The court held that the purchaser had not won the race to the record, and could not therefore claim the protection of the recording act.

Similarly, in Novastar Mortgage, Inc. v. Mendoza, 26 A.D.3d 479, 480, the Second Department held that a transferee could not assert the protection of the recording act against a mortgagee who had filed a notice of pendency before the transferee recorded his deed. In Novastar, a deed conveying a one-half interest in the relevant premises to transferee Mendoza was recorded one month after mortgagee Novastar commenced a foreclosure action and filed a notice of pendency. The court noted that Mendoza had constructive notice of the foreclosure action at the time the conveyance was recorded, and that his interest in the property was foreclosed upon entry of the judgment of foreclosure.

By contrast, the First Department has held that a subsequent bona fide purchaser who records before a prior contract vendee obtains the protection of the recording act even if the contract vendee has filed a notice of pendency before the subsequent purchaser records. In 2386 Creston Ave. Realty, LLC v. M-P-M Management Corp., 58 A.D.3d 158, the First Department court granted subsequent purchaser's motion for summary judgment, and cancelled contract vendee's notice of pendency when the subsequent purchaser recorded before the contract vendee. Contract vendee's contract to purchase did not close due to outstanding violations which seller was obligated to remedy. Meanwhile, seller sold the premises to subsequent purchaser, who was not aware of contract vendee's prior unrecorded contract. Although contract vendee apparently filed a notice of pendency before purchaser recorded, the court dismissed contract vendee's action for specific performance, conceding that the notice of pendency puts subsequent parties on constructive notice of prior interests, but holding that “a plaintiff's failure to avail itself of the protection of [Real Property Law] ' 291 or ' 294 deprives it of the right to substitute a notice of pendency for the recording of a conveyance or a contract.

Purchaser May Not Recover Down Payment

Martocci v. Schneider

NYLJ 7/18/14, p. 30, col. 3

AppDiv, Second Dept.

(memorandum opinion)

In an action by purchaser for return of her down payment, sellers appealed from Supreme Court's grant of summary judgment to purchaser. The Appellate Division reversed and awarded summary judgment to sellers, holding that purchaser's concerns about the certificate of occupancy did not permit purchaser to return of the down payment without giving sellers an opportunity to cure any defect in the certificate.

Purchaser contracted to buy the house and paid $98,000 as a 10% down payment. The contract required sellers to deliver a valid certificate of occupancy or evidence that no certificate was required. The contract also provided that if the contract was cancelled for any reason other than default by the purchaser, purchaser would be entitled to return of the down payment. The contract called for a closing on Aug. 15, 2008, but no closing occurred on that date. Three days later, sellers' lawyer wrote to purchaser's lawyer declaring time of the essence and making Sept. 18, 2008, the closing date. Before the time-of-the-essence closing date, purchaser became concerned about the validity of the certificate of occupancy, which had been issued when the house was built, because since that time there had been numerous improvements to the house. Although purchaser discussed the matter with her lawyer, neither purchaser nor her lawyer informed the sellers of purchaser's concern.

On Sept. 18, purchaser did not appear at the closing, and her lawyer declared that sellers had breached by not obtaining a valid certificate of occupancy. Purchaser's lawyer declined to consent to an adjournment to permit sellers to cure, despite a contract provision allowing seller to adjourn the closing for up to 60 days, contending that seller's notice making time of the essence essentially eliminated seller's right to cure. Purchaser brought this action for return of the down payment, and Supreme Court awarded summary judgment to purchaser.

In reversing, the Appellate Division emphasized that purchaser had failed to demonstrate that the certificate of occupancy provided by sellers violated any code or ordinance, and had failed to demonstrate that the certificate was no longer valid. Moreover, purchaser also failed to demonstrate that she was ready, willing, and able to close on the scheduled closing date. The court also noted that sellers had received no notice of the alleged defects, and that they were entitled to a reasonable adjournment to address purchaser's objections, even though they had declared time of the essence. Because purchasers never gave sellers that opportunity, sellers were entitled to summary judgment, and were entitled to retain the down payment.

Sanctions Against Mortgagee Bank

U.S. Bank National Association v. Sarmiento

NYLJ 8/1/14, p. 23, col. 4

AppDiv, Second Dept.

(Opinion by Leventhal, J.)

In an action to foreclose a mortgage, mortgagee bank appealed from a Supreme Court order barring collection of any interest or fees after 2009, barring recovery of costs or attorneys fees, and requiring the bank to review mortgagor's eligibility for a loan modification pursuant to the federal Home Affordable Mortgage Program (HAMP). The Appellate Division affirmed, holding that the bank had not acted in good faith within the meaning of CPLR 3408, and that Supreme Court was entitled to impose the challenged sanctions against the bank.

In May 2009, mortgagee brought this action to foreclose a mortgage on residential property located in Brooklyn. The petition alleged that mortgagor Sarmiento had failed to make an Oct. 1, 2008. mortgage payment, and mortgagee had elected to call due the entire amount of the mortgage. Sarmiento responded by noting that he had lost much of his monthly income in May 2008, and that he had tried unsuccessfully to negotiate a loan modification, even after he found an additional tenant and additional rental income from the property. In September 2009, the court referred the matter to a referee for a mandatory settlement conference pursuant to CPLR 3408. Eighteen separate conferences were held between Sept. 14, 2009 and Jan. 14, 2011. During this period, on Oct. 20, 2009, Sarmiento applied to mortgagee for a loan modification pursuant to HAMP.

Mortgagee denied Sarmiento's HAMP application four separate times, on Jan. 12, 2010, April 7, 2010, May 11, 2010, and Oct. 6, 2010, each time for inadequacies in documentation that Sarmiento had actually supplied, or based on “facts” that were demonstrably false. Then, on Nov. 5, 2010, mortgagee offered Sarmiento a non-HAMP modification, which Sarmiento turned down. On Jan. 14, mortgagee indicated that it would make no further modification offers.

In light of the history, the referee issued a report indicating that mortgagee had not acted in good faith, and recommended that Supreme Court conduct a hearing to determine whether sanctions should be imposed on mortgagee. Supreme Court then imposed sanctions, barring mortgagee from recovering interest and fees after Dec. 1, 2009, barring recovery of any costs or attorneys fees, and directing mortgagee to review the request for HAMP modification using correct information and without regard to interest and fees accruing since Dec. 1, 2009. Mortgagee appealed.

In affirming, the Appellate Division first reviewed the HAMP program, and then turned to CPLR 3408, which requires mortgagee and mortgagor to negotiate in good faith toward a loan modification. The court rejected mortgagee's argument that mortgagee could only violate the statute by engaging in the egregious conduct that would constitute bad faith at common law. The court emphasized the remedial nature of the statute, and held that for a mortgagee to satisfy the good faith standard, it must make a meaningful effort at reaching a resolution of the dispute. In this case, while none of the individual denials by the bank might be sufficient to establish a lack of good faith, the multiple denials, all based on erroneous premises, together established an absence of good faith. Finally, the court rejected mortgagee's argument that Supreme Court lacked authority to impose sanctions for failure to negotiate in good faith. The court noted that mortgagee did not challenge the sanctions actually imposed as excessive, so the court concluded that the propriety of the particular sanctions imposed was not before it.

Holding a Hearing Improper

3615-15 Realty 1, LLC v. Bedford Avenue Associates I, LLC

NYLJ 8/8/14, p. 29, col. 5

AppDiv, Second Dept.

(memorandum opinion)

In an action by foreclosure sale bidder to compel the foreclosure plaintiff (a judgment creditor) to accept its bid, judgment creditor appealed from Supreme Court's denial of its motion to dismiss the complaint. The Appellate Division reversed and remanded, holding that Supreme Court had improperly held a hearing on the motion rather than deciding the motion based on the papers alone.

Judgment creditor obtained a judgment of foreclosure and sale dated Jan. 13, 2011. At an auction sale conducted on July 14, 2011, judgment creditor allegedly announced an upset price of $1,400,000. Nevertheless, judgment creditor itself made a bid of $100. Plaintiff in this action allegedly submitted a bid of $950,000 through its representative. That bid was ignored, and judgment creditor purchased the property for the opening bid price of $100. Judgment creditor subsequently assigned its bid to a purchaser, who obtained a deed to the property. The disappointed bidder then brought this action to set aside the transfers to judgment creditor and its assignee, and to compel the judgment creditor and the auctioneer to accept its bid of $950,000. Supreme Court referred the matter to a referee to hold a hearing on issues of fact. The referee determined that there had been no valid bid of $950,000, and that there was no evidence that the auction was conducted improperly. Supreme Court, however, rejected the findings of the referee and directed that the deed be vacated and the property be conveyed to the $950,000 bidder. Judgment creditor and its assignee appealed.

In reversing, the Appellate Division held that no fact hearing should have been held on a motion to dismiss the complaint for failure to state a cause of action. The court therefore remanded to Supreme Court to decide the motion on the papers alone.

Constructive Trust Claim

Seerattan v. Seerattan

NYLJ 7/23/14, p. 21, col. 1

Supreme Ct., Queens Cty.

(McDonald, J.)

In an action by a mother to impose a constructive trust on real property held in her daughter's name, the daughter moved to dismiss for failure to state a cause of action. Supreme Court denied the motion.

In 1998, title to the subject property was acquired in the name of plaintiff mother's two adult children as tenants-in-common. Mother alleges that the parties entered into an oral agreement obligating mother to pay the down payment and to make the mortgage payments, while title would be held in the name of the children, who would ultimately convey title back to the mother. Mother paid off the mortgage, and in March 2011, her son transferred his share to himself and his mother. The daughter never made a transfer back to the mother, who had paid off the mortgage. Mother then brought this action to impose a constructive trust on the daughter's share.

In denying the daughter's motion to dismiss the complaint, the court emphasized that the mother had adequately alleged a confidential relationship between herself and her daughter, had alleged that the transfer was made in reliance on a promise by the daughter, and that the daughter would be unjustly enriched if no constructive trust were recognized. The court held that the statute of frauds does not serve as a bar to a constructive trust claim, and noted that construing the facts in the light most favorable to the mother, she had stated allegations sufficient to withstand a motion to dismiss.

Purchaser's Knowledge Of Prior Sale Contract

123 Powell, LLC v. Camacho

NYLJ 7/30/14, p. 21, col. 3

Supreme Ct., Queens Cty.

(McDonald, J.)

In contract vendee's action for specific performance of a contract to purchase real estate, a subsequent purchaser moved to cancel contract vendee's notice of pendency. The court denied subsequent purchaser's motion, holding that questions of fact remained about subsequent purchaser's knowledge of the prior contract.

Contract vendee entered into a short sale contract to purchase the subject property on July 12, 2013. Although the property was to close by Aug. 30, 2013, seller never closed, leading contract vendee to bring this action. Meanwhile, a subsequent purchaser from seller intervened, alleging that she had purchased the property from the same seller on Dec. 17, 2013. Because contract vendee's lis pendens in this action was filed on Dec. 31, 2013, subsequent purchaser alleges that the lis pendens is not binding on her, and she sought to have it cancelled. She emphasized that she recorded her deed, while contract vendee did not record its sale contract, and argued that her deed was entitled to priority under the recording act because she recorded first.

In denying subsequent purchaser's motion to cancel the notice of pendency, the court first acknowledged that a good faith purchaser who recorded enjoys priority over the interest of a party with a prior unrecorded sale contract. But the court noted that contract vendee had raised a question of fact about whether subsequent purchaser bought the property with knowledge of facts that would lead a prudent purchaser to make inquiry about whether there was a prior contract for sale of the property. As a result, subsequent purchaser was not entitled to cancellation because she had not established that she was a good-faith purchaser.

'

Mortgagee Does Not Obtain Protection of the Recording Act

Mortgage Electronic Registration Systems, Inc. v. Pagan

NYLJ 7/18/14, p. 30. col. 3

AppDiv, Second Dept.

(memorandum opinion)

In a mortgage foreclosure action by mortgagee who had lent money to wife, the latter's mortgagee appealed from Supreme Court's award of summary judgment to a subsequent mortgagee who had lent money to husband, who had record title to the premises. The Appellate Division reversed and awarded summary judgment to wife's mortgagee, holding that husband's mortgagee had not recorded before the wife filed a notice of pendency against husband, and that in any event, husband's mortgagee was on inquiry notice of wife's interest in the property.

Before their divorce, husband held record title to the property. As part of the divorce settlement, husband agreed to convey title to wife, and he apparently executed a quitclaim deed to the wife, which was never recorded. On the strength of the quitclaim deed, wife obtained a mortgage loan. The following year, in 2003, she refinanced the loan with Full Spectrum, which recorded its mortgage on Feb. 7, 2004. Subsequently, husband executed a deed to his brother in violation of the stipulation of settlement. Wife then defaulted on her loan, and Full Spectrum brought this foreclosure action on Aug. 14, 2006, serving a notice of pendency indexed against husband. On the same day, the husband's brother reconveyed the land to husband, who subsequently obtained a mortgage from Deutsche Bank. The deed and the Deutsche Bank mortgage were recorded on Aug. 26, 2006.

When husband subsequently defaulted, Deutsche Bank brought a separate foreclosure action against husband. Meanwhile, in October 2006, Supreme Court granted wife's motion to vacate the deed executed by husband to his brother. Deutsche Bank then intervened in Full Spectrum's foreclosure action, and Supreme Court held that Deutsche Bank's mortgage was superior to the Full Spectrum mortgage. Full Spectrum appealed.

In reversing, the Appellate Division held that Full Spectrum acquired a mortgage on the wife's equitable interest when it lent money to her in 2003 and recorded the mortgage in 2004. The court then held that as a subsequent mortgagee, Deutsche Bank could prevail only if it took without notice of the prior lien and recorded first. Here, the court noted that Deutsche Bank did not record until after Full Spectrum had filed a notice of pendency against husband. The court treated that notice as a recording of Full Spectrum's interest, a recording that precluded Deutsche Bank from obtaining the protection of the recording act. Moreover, in any event, the court held that because the wife had consistently been in possession of the premises, Deutsche Bank was on inquiry notice of the wife's interest, which precluded Deutsche Bank from asserting bona fide purchaser status.

COMMENT

Although CPLR 6501 makes it clear that filing a notice of pendency puts all transferees on constructive notice of the filer's interests, the First and Second Department disagree about whether filing a notice of pendency serves as a recording for purposes of winning the race to the recording office under New York's race-notice recording statute.

The court in MERS v. Pagan followed established Second Department authority in holding that a notice of pendency is equivalent to recordation for purposes of determining who has recorded first. In Goldstein v. Gold, 106 A.D.2d 100, the Second Department held that a purchaser who bought in reliance on a fraudulent satisfaction of a prior mortgage was nevertheless bound by that mortgage because the defrauded mortgagee had filed a notice of pendency after purchaser's purchase, but before purchaser recorded the deed. After mortgagor fraudulently induced mortgagee to sign a satisfaction of the mortgage, mortgagor showed the satisfaction to purchaser, who completed the purchase. Although purchaser recorded the deed, he did not record until after the mortgagee uncovered the fraud and filed a notice of pendency. The court held that the purchaser had not won the race to the record, and could not therefore claim the protection of the recording act.

Similarly, in Novastar Mortgage, Inc. v. Mendoza, 26 A.D.3d 479, 480, the Second Department held that a transferee could not assert the protection of the recording act against a mortgagee who had filed a notice of pendency before the transferee recorded his deed. In Novastar, a deed conveying a one-half interest in the relevant premises to transferee Mendoza was recorded one month after mortgagee Novastar commenced a foreclosure action and filed a notice of pendency. The court noted that Mendoza had constructive notice of the foreclosure action at the time the conveyance was recorded, and that his interest in the property was foreclosed upon entry of the judgment of foreclosure.

By contrast, the First Department has held that a subsequent bona fide purchaser who records before a prior contract vendee obtains the protection of the recording act even if the contract vendee has filed a notice of pendency before the subsequent purchaser records. In 2386 Creston Ave. Realty, LLC v. M-P-M Management Corp., 58 A.D.3d 158, the First Department court granted subsequent purchaser's motion for summary judgment, and cancelled contract vendee's notice of pendency when the subsequent purchaser recorded before the contract vendee. Contract vendee's contract to purchase did not close due to outstanding violations which seller was obligated to remedy. Meanwhile, seller sold the premises to subsequent purchaser, who was not aware of contract vendee's prior unrecorded contract. Although contract vendee apparently filed a notice of pendency before purchaser recorded, the court dismissed contract vendee's action for specific performance, conceding that the notice of pendency puts subsequent parties on constructive notice of prior interests, but holding that “a plaintiff's failure to avail itself of the protection of [Real Property Law] ' 291 or ' 294 deprives it of the right to substitute a notice of pendency for the recording of a conveyance or a contract.

Purchaser May Not Recover Down Payment

Martocci v. Schneider

NYLJ 7/18/14, p. 30, col. 3

AppDiv, Second Dept.

(memorandum opinion)

In an action by purchaser for return of her down payment, sellers appealed from Supreme Court's grant of summary judgment to purchaser. The Appellate Division reversed and awarded summary judgment to sellers, holding that purchaser's concerns about the certificate of occupancy did not permit purchaser to return of the down payment without giving sellers an opportunity to cure any defect in the certificate.

Purchaser contracted to buy the house and paid $98,000 as a 10% down payment. The contract required sellers to deliver a valid certificate of occupancy or evidence that no certificate was required. The contract also provided that if the contract was cancelled for any reason other than default by the purchaser, purchaser would be entitled to return of the down payment. The contract called for a closing on Aug. 15, 2008, but no closing occurred on that date. Three days later, sellers' lawyer wrote to purchaser's lawyer declaring time of the essence and making Sept. 18, 2008, the closing date. Before the time-of-the-essence closing date, purchaser became concerned about the validity of the certificate of occupancy, which had been issued when the house was built, because since that time there had been numerous improvements to the house. Although purchaser discussed the matter with her lawyer, neither purchaser nor her lawyer informed the sellers of purchaser's concern.

On Sept. 18, purchaser did not appear at the closing, and her lawyer declared that sellers had breached by not obtaining a valid certificate of occupancy. Purchaser's lawyer declined to consent to an adjournment to permit sellers to cure, despite a contract provision allowing seller to adjourn the closing for up to 60 days, contending that seller's notice making time of the essence essentially eliminated seller's right to cure. Purchaser brought this action for return of the down payment, and Supreme Court awarded summary judgment to purchaser.

In reversing, the Appellate Division emphasized that purchaser had failed to demonstrate that the certificate of occupancy provided by sellers violated any code or ordinance, and had failed to demonstrate that the certificate was no longer valid. Moreover, purchaser also failed to demonstrate that she was ready, willing, and able to close on the scheduled closing date. The court also noted that sellers had received no notice of the alleged defects, and that they were entitled to a reasonable adjournment to address purchaser's objections, even though they had declared time of the essence. Because purchasers never gave sellers that opportunity, sellers were entitled to summary judgment, and were entitled to retain the down payment.

Sanctions Against Mortgagee Bank

U.S. Bank National Association v. Sarmiento

NYLJ 8/1/14, p. 23, col. 4

AppDiv, Second Dept.

(Opinion by Leventhal, J.)

In an action to foreclose a mortgage, mortgagee bank appealed from a Supreme Court order barring collection of any interest or fees after 2009, barring recovery of costs or attorneys fees, and requiring the bank to review mortgagor's eligibility for a loan modification pursuant to the federal Home Affordable Mortgage Program (HAMP). The Appellate Division affirmed, holding that the bank had not acted in good faith within the meaning of CPLR 3408, and that Supreme Court was entitled to impose the challenged sanctions against the bank.

In May 2009, mortgagee brought this action to foreclose a mortgage on residential property located in Brooklyn. The petition alleged that mortgagor Sarmiento had failed to make an Oct. 1, 2008. mortgage payment, and mortgagee had elected to call due the entire amount of the mortgage. Sarmiento responded by noting that he had lost much of his monthly income in May 2008, and that he had tried unsuccessfully to negotiate a loan modification, even after he found an additional tenant and additional rental income from the property. In September 2009, the court referred the matter to a referee for a mandatory settlement conference pursuant to CPLR 3408. Eighteen separate conferences were held between Sept. 14, 2009 and Jan. 14, 2011. During this period, on Oct. 20, 2009, Sarmiento applied to mortgagee for a loan modification pursuant to HAMP.

Mortgagee denied Sarmiento's HAMP application four separate times, on Jan. 12, 2010, April 7, 2010, May 11, 2010, and Oct. 6, 2010, each time for inadequacies in documentation that Sarmiento had actually supplied, or based on “facts” that were demonstrably false. Then, on Nov. 5, 2010, mortgagee offered Sarmiento a non-HAMP modification, which Sarmiento turned down. On Jan. 14, mortgagee indicated that it would make no further modification offers.

In light of the history, the referee issued a report indicating that mortgagee had not acted in good faith, and recommended that Supreme Court conduct a hearing to determine whether sanctions should be imposed on mortgagee. Supreme Court then imposed sanctions, barring mortgagee from recovering interest and fees after Dec. 1, 2009, barring recovery of any costs or attorneys fees, and directing mortgagee to review the request for HAMP modification using correct information and without regard to interest and fees accruing since Dec. 1, 2009. Mortgagee appealed.

In affirming, the Appellate Division first reviewed the HAMP program, and then turned to CPLR 3408, which requires mortgagee and mortgagor to negotiate in good faith toward a loan modification. The court rejected mortgagee's argument that mortgagee could only violate the statute by engaging in the egregious conduct that would constitute bad faith at common law. The court emphasized the remedial nature of the statute, and held that for a mortgagee to satisfy the good faith standard, it must make a meaningful effort at reaching a resolution of the dispute. In this case, while none of the individual denials by the bank might be sufficient to establish a lack of good faith, the multiple denials, all based on erroneous premises, together established an absence of good faith. Finally, the court rejected mortgagee's argument that Supreme Court lacked authority to impose sanctions for failure to negotiate in good faith. The court noted that mortgagee did not challenge the sanctions actually imposed as excessive, so the court concluded that the propriety of the particular sanctions imposed was not before it.

Holding a Hearing Improper

3615-15 Realty 1, LLC v. Bedford Avenue Associates I, LLC

NYLJ 8/8/14, p. 29, col. 5

AppDiv, Second Dept.

(memorandum opinion)

In an action by foreclosure sale bidder to compel the foreclosure plaintiff (a judgment creditor) to accept its bid, judgment creditor appealed from Supreme Court's denial of its motion to dismiss the complaint. The Appellate Division reversed and remanded, holding that Supreme Court had improperly held a hearing on the motion rather than deciding the motion based on the papers alone.

Judgment creditor obtained a judgment of foreclosure and sale dated Jan. 13, 2011. At an auction sale conducted on July 14, 2011, judgment creditor allegedly announced an upset price of $1,400,000. Nevertheless, judgment creditor itself made a bid of $100. Plaintiff in this action allegedly submitted a bid of $950,000 through its representative. That bid was ignored, and judgment creditor purchased the property for the opening bid price of $100. Judgment creditor subsequently assigned its bid to a purchaser, who obtained a deed to the property. The disappointed bidder then brought this action to set aside the transfers to judgment creditor and its assignee, and to compel the judgment creditor and the auctioneer to accept its bid of $950,000. Supreme Court referred the matter to a referee to hold a hearing on issues of fact. The referee determined that there had been no valid bid of $950,000, and that there was no evidence that the auction was conducted improperly. Supreme Court, however, rejected the findings of the referee and directed that the deed be vacated and the property be conveyed to the $950,000 bidder. Judgment creditor and its assignee appealed.

In reversing, the Appellate Division held that no fact hearing should have been held on a motion to dismiss the complaint for failure to state a cause of action. The court therefore remanded to Supreme Court to decide the motion on the papers alone.

Constructive Trust Claim

Seerattan v. Seerattan

NYLJ 7/23/14, p. 21, col. 1

Supreme Ct., Queens Cty.

(McDonald, J.)

In an action by a mother to impose a constructive trust on real property held in her daughter's name, the daughter moved to dismiss for failure to state a cause of action. Supreme Court denied the motion.

In 1998, title to the subject property was acquired in the name of plaintiff mother's two adult children as tenants-in-common. Mother alleges that the parties entered into an oral agreement obligating mother to pay the down payment and to make the mortgage payments, while title would be held in the name of the children, who would ultimately convey title back to the mother. Mother paid off the mortgage, and in March 2011, her son transferred his share to himself and his mother. The daughter never made a transfer back to the mother, who had paid off the mortgage. Mother then brought this action to impose a constructive trust on the daughter's share.

In denying the daughter's motion to dismiss the complaint, the court emphasized that the mother had adequately alleged a confidential relationship between herself and her daughter, had alleged that the transfer was made in reliance on a promise by the daughter, and that the daughter would be unjustly enriched if no constructive trust were recognized. The court held that the statute of frauds does not serve as a bar to a constructive trust claim, and noted that construing the facts in the light most favorable to the mother, she had stated allegations sufficient to withstand a motion to dismiss.

Purchaser's Knowledge Of Prior Sale Contract

123 Powell, LLC v. Camacho

NYLJ 7/30/14, p. 21, col. 3

Supreme Ct., Queens Cty.

(McDonald, J.)

In contract vendee's action for specific performance of a contract to purchase real estate, a subsequent purchaser moved to cancel contract vendee's notice of pendency. The court denied subsequent purchaser's motion, holding that questions of fact remained about subsequent purchaser's knowledge of the prior contract.

Contract vendee entered into a short sale contract to purchase the subject property on July 12, 2013. Although the property was to close by Aug. 30, 2013, seller never closed, leading contract vendee to bring this action. Meanwhile, a subsequent purchaser from seller intervened, alleging that she had purchased the property from the same seller on Dec. 17, 2013. Because contract vendee's lis pendens in this action was filed on Dec. 31, 2013, subsequent purchaser alleges that the lis pendens is not binding on her, and she sought to have it cancelled. She emphasized that she recorded her deed, while contract vendee did not record its sale contract, and argued that her deed was entitled to priority under the recording act because she recorded first.

In denying subsequent purchaser's motion to cancel the notice of pendency, the court first acknowledged that a good faith purchaser who recorded enjoys priority over the interest of a party with a prior unrecorded sale contract. But the court noted that contract vendee had raised a question of fact about whether subsequent purchaser bought the property with knowledge of facts that would lead a prudent purchaser to make inquiry about whether there was a prior contract for sale of the property. As a result, subsequent purchaser was not entitled to cancellation because she had not established that she was a good-faith purchaser.

'