Cooperatives & Condominiums

Consolidated Mortgage Enjoys Priority over Lien for Common Charges

Plotch v. Citibank

NYLJ 9/12/14

AppDiv, Second Dept.

(memorandum opinion)

In an action for a declaration that a bank's second mortgage is subordinate to a subsequently recorded lien for common charges, condominium unit owner appealed from Supreme Court's grant of the bank's summary judgment motion. The Appellate Division affirmed, holding that the consolidation of two mortgages before the filing of a common charge lien entitled the bank's second mortgage lien to priority.

In 2010, the condominium board foreclosed on a lien for common charges, and current unit owner was the winning bidder at the foreclosure sale, buying the unit for $15,100. The judgment of foreclosure stated that the premises were to be sold subject to the “first Mortgage of record against the premises.” In 2000, Citibank acquired a first mortgage from the prior unit owner to secure a loan in the sum of $54,000, and the following year, Citibank acquired a second mortgage in the sum of $38,000. At that time, prior owner and Citibank executed a consolidation agreement consolidating the two mortgages into a single mortgage lien in the amount of $92,000. The two mortgages and the consolidation agreement were all recorded before the condominium filed its lien for common charges. In this action, the current unit owner claimed that the second mortgage lien, as a lien junior to the lien for common charges, was extinguished by the foreclosure sale. Supreme Court disagreed, and awarded summary judgment to Citibank.

In affirming, the Appellate Division held that the consolidation agreement is the first mortgage of record against the premises, giving the bank priority over the lien for common charges. The court also held that second mortgage came within the ambit of the statutory provision according priority to sums unpaid on a first mortgage over a lien for unpaid common charges.

COMMENT

Real Property Law ' 339'z[ii] accords “all sums unpaid on a first mortgage of record” priority over a subsequent lien for unpaid common charges. RPL ' 339-z grants liens for unpaid common charges priority over all other mortgages of record, even if the lien is filed after the recordation of the mortgage.

However, there has been tension among trial court judges as to whether a consolidated mortgage enjoys priority over a lien for common charges beyond the extent of the first mortgage. At least one court determined that a consolidated mortgage does not allow the second mortgage to share in the priority afforded the first mortgage of record under RPL ' 339'z. In Societe Generale v. Charles & Company Acquisition, Inc., 1 57 Misc.2d 643, the court held that a consolidation agreement does not change the priority of liens held by those not party to the agreement. According to the Societe Generale court, a lien for common charges enjoys priority over the second mortgage, even after consolidation of the first and second mortgage, regardless of the fact that the lien for common charges was filed after the consolidation agreement.

The Appellate Division in Plotch, however, takes the same position as trial courts rejecting Societe Generale and holding that RPL ' 339-z does not preclude condominium owners' consolidated mortgages from enjoying priority over subsequently recorded liens for common charges, so long as the liens had not been filed at the time the consolidated mortgage was recorded. In Greenpoint Bank v. El-Basary, 184 Misc.2d 888, the court held that a consolidated mortgage was the first mortgage of record and therefore had priority over a subsequent lien for common charges. In Greenpoint, Greenpoint Bank consolidated a first mortgage from the prior condominium owner with a second mortgage from El-Basary, the current condominium owner. The condominium board filed its lien after the consolidation of mortgages was recorded. See also Dime Savings Bank of New York, F.S.B. v. Levy, 161 Misc.2d 480.

In rejecting the analysis in Societe Generale, the Greenpoint court reasoned that a consolidation agreement is, in all practical respects, no different than the refinancing of a first mortgage by satisfying it with another first mortgage in a larger amount, and should therefore be treated in the same way. The Second Department's apparent endorsement of the Greenpoint a pproach reduces the uncertainty that surrounds consolidation agreements .

Transfer Upheld Against Undue Influence Allegation

Estate of Gorban

NYLJ 9/5/14, p. 21, col. 2

Surr. Ct., Richmond Cty.

(Gigante, J.)

Decedent's son, administrator of decedent's estate, sought to invalidate a transfer of co-op shares to decedent and his girlfriend as joint tenants. The court dismissed the action, holding that administrator had not established undue influence by the girlfriend.

After decedent was diagnosed with leukemia, he negotiated the purchase of a co-op apartment. He arranged for the stock certificates to be issued in his own name and the name of his girlfriend, as joint tenants. The year after the purchased, decedent died and the girlfriend arranged for transfer of the certificate into her name as the surviving joint tenant. Decedent's son then brought this turnover proceeding, contending that the girlfriend had obtained her interest in the apartment through undue influence.

In dismissing the proceeding, the court emphasized that decedent had negotiated all of the details of the purchase, and that there was no evidence that he was acting with a weakened mind or that the girlfriend had disparate power over him. As a result, no presumption of undue influence arose, and the son came forward with no concrete evidence of undue influence.

No Proof That Shareholder Failed to Pay

300 East 85th Street Housing Corp. v. Dropkin

NYLJ 9/2/14, p. 17, col. 3

Civil Ct., N.Y.Cty.

(Stoller, J.)

A co-op corporation brought a proceeding to recover possession from a shareholder for nonpayment of rent. After trial, Civil Court dismissed the proceeding for failure to prove nonpayment.

The shareholder's proprietary lease obligated shareholder to pay, as rent, a proportionate share of the co-op's cash requirements, as determined by the co-op board. During a two-year period between June 2012 and May 2014, the co-op corporation's rent ledger shows that shareholder's liability for his two combined apartments totaled $103,109. For that period, tenant made payments of $90,199. The co-op corporation sought possession for failure to pay the balance, together with other charges allegedly due.

In dismissing the proceeding, the court emphasized the board's failure to produce evidence of a board resolution determining the co-op's aggregate cash requirements or the shareholder's proportionate share of those requirements. The court also rejected the board's argument that shareholder's payments established acceptance of the board's calculations, noting that this was not a case where the shareholder had made consistent monthly payments of the amount assessed by the board. (The court also rejected the board's invocation of the voluntary payment doctrine ' discussed in the lead article on page 1 ' by noting that this was not a case where the unit owner was seeking to recover payments voluntarily made). In the absence of other evidence, the court held that the co-op court had failed to prove its case.

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Consolidated Mortgage Enjoys Priority over Lien for Common Charges

Plotch v. Citibank

NYLJ 9/12/14

AppDiv, Second Dept.

(memorandum opinion)

In an action for a declaration that a bank's second mortgage is subordinate to a subsequently recorded lien for common charges, condominium unit owner appealed from Supreme Court's grant of the bank's summary judgment motion. The Appellate Division affirmed, holding that the consolidation of two mortgages before the filing of a common charge lien entitled the bank's second mortgage lien to priority.

In 2010, the condominium board foreclosed on a lien for common charges, and current unit owner was the winning bidder at the foreclosure sale, buying the unit for $15,100. The judgment of foreclosure stated that the premises were to be sold subject to the “first Mortgage of record against the premises.” In 2000, Citibank acquired a first mortgage from the prior unit owner to secure a loan in the sum of $54,000, and the following year, Citibank acquired a second mortgage in the sum of $38,000. At that time, prior owner and Citibank executed a consolidation agreement consolidating the two mortgages into a single mortgage lien in the amount of $92,000. The two mortgages and the consolidation agreement were all recorded before the condominium filed its lien for common charges. In this action, the current unit owner claimed that the second mortgage lien, as a lien junior to the lien for common charges, was extinguished by the foreclosure sale. Supreme Court disagreed, and awarded summary judgment to Citibank.

In affirming, the Appellate Division held that the consolidation agreement is the first mortgage of record against the premises, giving the bank priority over the lien for common charges. The court also held that second mortgage came within the ambit of the statutory provision according priority to sums unpaid on a first mortgage over a lien for unpaid common charges.

COMMENT

Real Property Law ' 339'z[ii] accords “all sums unpaid on a first mortgage of record” priority over a subsequent lien for unpaid common charges. RPL ' 339-z grants liens for unpaid common charges priority over all other mortgages of record, even if the lien is filed after the recordation of the mortgage.

However, there has been tension among trial court judges as to whether a consolidated mortgage enjoys priority over a lien for common charges beyond the extent of the first mortgage. At least one court determined that a consolidated mortgage does not allow the second mortgage to share in the priority afforded the first mortgage of record under RPL ' 339'z. In Societe Generale v. Charles & Company Acquisition, Inc., 1 57 Misc.2d 643, the court held that a consolidation agreement does not change the priority of liens held by those not party to the agreement. According to the Societe Generale court, a lien for common charges enjoys priority over the second mortgage, even after consolidation of the first and second mortgage, regardless of the fact that the lien for common charges was filed after the consolidation agreement.

The Appellate Division in Plotch, however, takes the same position as trial courts rejecting Societe Generale and holding that RPL ' 339-z does not preclude condominium owners' consolidated mortgages from enjoying priority over subsequently recorded liens for common charges, so long as the liens had not been filed at the time the consolidated mortgage was recorded. In Greenpoint Bank v. El-Basary, 184 Misc.2d 888, the court held that a consolidated mortgage was the first mortgage of record and therefore had priority over a subsequent lien for common charges. In Greenpoint, Greenpoint Bank consolidated a first mortgage from the prior condominium owner with a second mortgage from El-Basary, the current condominium owner. The condominium board filed its lien after the consolidation of mortgages was recorded. See also Dime Savings Bank of New York, F.S.B. v. Levy , 161 Misc.2d 480.

In rejecting the analysis in Societe Generale, the Greenpoint court reasoned that a consolidation agreement is, in all practical respects, no different than the refinancing of a first mortgage by satisfying it with another first mortgage in a larger amount, and should therefore be treated in the same way. The Second Department's apparent endorsement of the Greenpoint a pproach reduces the uncertainty that surrounds consolidation agreements .

Transfer Upheld Against Undue Influence Allegation

Estate of Gorban

NYLJ 9/5/14, p. 21, col. 2

Surr. Ct., Richmond Cty.

(Gigante, J.)

Decedent's son, administrator of decedent's estate, sought to invalidate a transfer of co-op shares to decedent and his girlfriend as joint tenants. The court dismissed the action, holding that administrator had not established undue influence by the girlfriend.

After decedent was diagnosed with leukemia, he negotiated the purchase of a co-op apartment. He arranged for the stock certificates to be issued in his own name and the name of his girlfriend, as joint tenants. The year after the purchased, decedent died and the girlfriend arranged for transfer of the certificate into her name as the surviving joint tenant. Decedent's son then brought this turnover proceeding, contending that the girlfriend had obtained her interest in the apartment through undue influence.

In dismissing the proceeding, the court emphasized that decedent had negotiated all of the details of the purchase, and that there was no evidence that he was acting with a weakened mind or that the girlfriend had disparate power over him. As a result, no presumption of undue influence arose, and the son came forward with no concrete evidence of undue influence.

No Proof That Shareholder Failed to Pay

300 East 85th Street Housing Corp. v. Dropkin

NYLJ 9/2/14, p. 17, col. 3

Civil Ct., N.Y.Cty.

(Stoller, J.)

A co-op corporation brought a proceeding to recover possession from a shareholder for nonpayment of rent. After trial, Civil Court dismissed the proceeding for failure to prove nonpayment.

The shareholder's proprietary lease obligated shareholder to pay, as rent, a proportionate share of the co-op's cash requirements, as determined by the co-op board. During a two-year period between June 2012 and May 2014, the co-op corporation's rent ledger shows that shareholder's liability for his two combined apartments totaled $103,109. For that period, tenant made payments of $90,199. The co-op corporation sought possession for failure to pay the balance, together with other charges allegedly due.

In dismissing the proceeding, the court emphasized the board's failure to produce evidence of a board resolution determining the co-op's aggregate cash requirements or the shareholder's proportionate share of those requirements. The court also rejected the board's argument that shareholder's payments established acceptance of the board's calculations, noting that this was not a case where the shareholder had made consistent monthly payments of the amount assessed by the board. (The court also rejected the board's invocation of the voluntary payment doctrine ' discussed in the lead article on page 1 ' by noting that this was not a case where the unit owner was seeking to recover payments voluntarily made). In the absence of other evidence, the court held that the co-op court had failed to prove its case.

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