Cooperatives & Condominiums

Inadequacy of Statutory Notice Results in Preliminary Injunction

Newman v. Federal National Mortgage Association

NYLJ 1/5/15

Supreme Ct., Kings Cty.

(Silber, J.)

In an action to set aside a non-judicial foreclosure of a mortgage on the shares associated with her co-op apartment, shareholder sought a preliminary injunction preventing sale of the shares and enjoining purchaser of the shares from evicting her from the apartment. The court granted the preliminary injunction, relying on inadequacy of the statutory notice provided to shareholder.

When shareholder bought the shares allocated to her apartment, she obtained a coop loan from JP Morgan Chase. When she defaulted on the loan, JP Morgan Chase began non-judicial foreclosure proceedings, publishing notice in The Tablet, a paper published by the New York archdiocese, and provided shareholder with a notice of the sale. Chase sent the notice on Nov. 22, 2010, and the notice announced a sale on Feb. 11, 2011. Because no one else bid at the sale, Chase purchased the shares, and later assigned its bid to Federal National Mortgage Association (Fannie Mae.). The coop corporation issued a stock certificate and proprietary lease to Fannie Mae on Jan. 26, 2012, and Fannie Mae then brought an eviction proceeding. Shareholder then brought this action, alleging that publication and notice were inadequate to support the foreclosure sale.

In granting the preliminary injunction, the court first rejected shareholder's argument that publication in The Tablet , rather than in a newspaper listed in the Rules of the City of New York for auctions of personal property, should invalidate the sale. The court held that publication in The Tablet did not prejudice a substantial right of the shareholder. The court then turned to UCC 9-611(f), which imposes a notice requirement for non-judicial foreclosures. Because the state requires 90 days' notice before auction of a cooperative apartment, the court concluded that the notice provided by Chase was inadequate to support the foreclosure sale. As a result, the court granted shareholder a preliminary injunction pending ultimate resolution of the action, preventing Fannie Mae from interfering with shareholder's use and quiet enjoyment of the apartment.

'

Exit from Mitchell-Lama Program and Reconstitution of Corporation Did Not Trigger Transfer Tax Obligation

Trump Village Section 3, Inc. v. City of New York

NYLJ 12/18/14, p. 23, col.1

Court of Appeals

(Opinion by Abdus-Salaam, J.)

In a declaratory judgment action brought by the corporate owners of three 23-story buildings that had previously operated as a Mitchell-Lama cooperative complex, the city appealed from the Appellate Division's reversal of Supreme Court's determination that the exit from the Mitchell-Lama program triggered an obligation to pay a Real Property Transfer Tax. A unanimous Court of Appeals affirmed, holding that exit and reconstitution of the corporation did not trigger a transfer tax obligation.

Trump Village was initially incorporated in 1961 pursuant to the Limited-Profit Housing Companies Law. In 2007, upon a vote of shareholders and with permission from the state, Trump Village terminated its participation in the Mitchell-Lama program and reconstituted itself as a corporation under the Business Corporation Law. Trump Village accomplished this result by amending its certificate of incorporation. The City of New York then issued a notice of tax deficiency for more than $21 million, contending that the amendment of the certificate of incorporation and the termination of participation in the Mitchell-Lama program constituted a conveyance of the underlying real property, generating liability for the Real Property Transfer Tax. Trump Village brought this declaratory judgment action.

In an opinion by Judge Sheila Abdus-Salaam, the Court of Appeals started with section 11-2102(a) of the New York City Administrative Code, which imposes a tax “on each deed at the time of delivery by a grantor to a grantee ' ” The court then rejected the argument that the amendment to the certificate of incorporation constituted a deed, noting that any doubts about a tax statute's scope should be resolved in favor of the taxpayer. The court concluded that the reconstitution of Trump Village should not be treated as the formation of a new corporation, but as the continuation of the existing one. The court acknowledged that Trump Village shareholders had realized a tremendous increase in value upon the reconstitution of the corporation, but noted that the RPTT does not impose tax simply because increase in value.

Inadequacy of Statutory Notice Results in Preliminary Injunction

Newman v. Federal National Mortgage Association

NYLJ 1/5/15

Supreme Ct., Kings Cty.

(Silber, J.)

In an action to set aside a non-judicial foreclosure of a mortgage on the shares associated with her co-op apartment, shareholder sought a preliminary injunction preventing sale of the shares and enjoining purchaser of the shares from evicting her from the apartment. The court granted the preliminary injunction, relying on inadequacy of the statutory notice provided to shareholder.

When shareholder bought the shares allocated to her apartment, she obtained a coop loan from JP Morgan Chase. When she defaulted on the loan, JP Morgan Chase began non-judicial foreclosure proceedings, publishing notice in The Tablet, a paper published by the New York archdiocese, and provided shareholder with a notice of the sale. Chase sent the notice on Nov. 22, 2010, and the notice announced a sale on Feb. 11, 2011. Because no one else bid at the sale, Chase purchased the shares, and later assigned its bid to Federal National Mortgage Association (Fannie Mae.). The coop corporation issued a stock certificate and proprietary lease to Fannie Mae on Jan. 26, 2012, and Fannie Mae then brought an eviction proceeding. Shareholder then brought this action, alleging that publication and notice were inadequate to support the foreclosure sale.

In granting the preliminary injunction, the court first rejected shareholder's argument that publication in The Tablet , rather than in a newspaper listed in the Rules of the City of New York for auctions of personal property, should invalidate the sale. The court held that publication in The Tablet did not prejudice a substantial right of the shareholder. The court then turned to UCC 9-611(f), which imposes a notice requirement for non-judicial foreclosures. Because the state requires 90 days' notice before auction of a cooperative apartment, the court concluded that the notice provided by Chase was inadequate to support the foreclosure sale. As a result, the court granted shareholder a preliminary injunction pending ultimate resolution of the action, preventing Fannie Mae from interfering with shareholder's use and quiet enjoyment of the apartment.

'

Exit from Mitchell-Lama Program and Reconstitution of Corporation Did Not Trigger Transfer Tax Obligation

Trump Village Section 3, Inc. v. City of New York

NYLJ 12/18/14, p. 23, col.1

Court of Appeals

(Opinion by Abdus-Salaam, J.)

In a declaratory judgment action brought by the corporate owners of three 23-story buildings that had previously operated as a Mitchell-Lama cooperative complex, the city appealed from the Appellate Division's reversal of Supreme Court's determination that the exit from the Mitchell-Lama program triggered an obligation to pay a Real Property Transfer Tax. A unanimous Court of Appeals affirmed, holding that exit and reconstitution of the corporation did not trigger a transfer tax obligation.

Trump Village was initially incorporated in 1961 pursuant to the Limited-Profit Housing Companies Law. In 2007, upon a vote of shareholders and with permission from the state, Trump Village terminated its participation in the Mitchell-Lama program and reconstituted itself as a corporation under the Business Corporation Law. Trump Village accomplished this result by amending its certificate of incorporation. The City of New York then issued a notice of tax deficiency for more than $21 million, contending that the amendment of the certificate of incorporation and the termination of participation in the Mitchell-Lama program constituted a conveyance of the underlying real property, generating liability for the Real Property Transfer Tax. Trump Village brought this declaratory judgment action.

In an opinion by Judge Sheila Abdus-Salaam, the Court of Appeals started with section 11-2102(a) of the New York City Administrative Code, which imposes a tax “on each deed at the time of delivery by a grantor to a grantee ' ” The court then rejected the argument that the amendment to the certificate of incorporation constituted a deed, noting that any doubts about a tax statute's scope should be resolved in favor of the taxpayer. The court concluded that the reconstitution of Trump Village should not be treated as the formation of a new corporation, but as the continuation of the existing one. The court acknowledged that Trump Village shareholders had realized a tremendous increase in value upon the reconstitution of the corporation, but noted that the RPTT does not impose tax simply because increase in value.