Real Property Law

Questions of Fact About Standing to Foreclose

US Bank National Association v. Weinman

NYLJ 1/6/15, p. 27, col. 5

AppDiv, Second Dept.

(memorandum opinion)

In a mortgage foreclosure action, mortgagor appealed from Supreme Court's grant of summary judgment to mortgagee bank. The Appellate Division modified to deny summary judgment to both parties, holding that questions of fact remained about mortgagee bank's standing to foreclose.

When mortgagor purchased her home in 2005, she obtained a mortgage loan of $600,000 from Wall Street Mortgage Brokers, Ltd. In 2010, US Bank brought this foreclosure action, and sought summary judgment. Mortgagor challenged US Bank's standing to bring the action, and both parties sought summary judgment. When Supreme Court granted US Bank's motion, mortgagor appealed.

In modifying, the Appellate Division emphasized that in order to obtain summary judgment in a foreclosure action, mortgagee must produce the mortgage, the unpaid note, and evidence of default. In this case, US Bank produced an affidavit of a servicing agent, which did not give factual details of physical delivery of the note, and also produced excerpts from a pooling and servicing agreement which did not demonstrate either the existence of a written assignment of the note or delivery of the note. As a result, the court concluded that mortgagee bank was not entitled to summary judgment. The court also held, however, that Supreme Court had properly denied mortgagor's summary judgment motion because mortgagor had failed to establish that US Bank was not the holder or assignee of the note or mortgage.

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Error in Identifying Property Owner Was Not'a Jurisdictional Defect in Lien

Matter of Rigano v. Vibar Construction, Inc.

NYLJ 12/17/14, p. 22, col. 1

Court of Appeals

(Opinion by Lippman, Ch. J.)

On a petition to discharge a mechanic's lien, lienor appealed from the Appellate Division's affirmance of Supreme Court's grant of landowner's petition to discharge the lien and denial of lienor's petition to amend the notice of lien. The Court of Appeals reversed, holding that the error in identifying the property owner was not a jurisdictional defect in the lien, and was curable by amendment.

Lienor's principal, Vignogna, and landowner Rigano had been business partners for 35 years before a dispute over the current construction contract. Because of their long-standing relationship, the parties rarely reduced their agreements to writing. On the job at issue, lienor built a driveway to access the disputed property, and contends that landowner never paid him for the work. A construction and easement agreement establishes that landowner's principal consented to the construction work. Lienor then filed a mechanic's lien against the property, identifying landowner's solely owned corporation, Fawn Builders, as the owner of the property. In fact, however, Rigano, as president of Fawn Builders, had executed a deed to himself as an individual on Feb. 14, 2007. Based on that deed, Rigano moved to have the mechanic's lien discharged, while lienor sought to amend the notice of lien to name Rigano as the owner. Supreme Court initially concluded that the lien substantially complied with the Lien Law, but then reversed itself and discharged the lien. The Second Department Division affirmed, holding that the misidentification of the owner was a jurisdictional defect that could not be cured by an amendment nunc pro tunc . Lienor appealed.

In reversing, the Court of Appeals emphasized Lien Law section 23, which provides that the Lien Law is to be construed liberally, section 9[7], which provides that failure to state the name of the owner, or misdescription of the owner, shall not affect the validity of the lien, and section 12-a[2], which authorizes amendment, provides that it does not prejudice an existing lienor, mortgagee, or purchaser in good faith. The court noted that First and Third Department cases had construed the Lien Law liberally to permit amendment in case of misidentification, and concluded that the Second Department's stricter construction in this case contravened the statute's intent. In particular, the court relied on the close relationship between landowner Rigano and the named party, Rigano's solely owner corporation. The court emphasized that Rigano, whose address is the same as his corporation's, received notice of the lien, and concluded that the lien filed against the corporation gave the public inquiry notice of a lien against the property. Because neither the landowner nor any third party would be prejudiced by the amendment, the court remanded to the Appellate Division for consideration of other issues not determined on the appeal.

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Right of First Refusal Does Not Preclude Foreclosure Action

Centech LLC v. Yippie Holdings, LLC

NYLJ 1/6/15, p. 21, col. 2

Supreme Ct., N.Y. Cty.

(Oing, J.)

In a foreclosure action, holder of a right of first refusal opposed mortgagee's motion for summary judgment. The court granted the summary judgment motion, holding that the first refusal right did not preclude foreclosure.

9 Bleecker acquired the subject property in 2002. Two years later, 9 Bleecker conveyed the property to mortgagors in return for $1.2 million and a tax deduction in the amount of $600,000 as a charitable contribution to one of the mortgagors, a tax-exempt entity. The indenture provided that 9 Bleecker would have “a right of first refusal in the event that, within fifteen (15) years following the date of Closing herein, the Property is to be sold by the party of the second part '” The indenture provided that 9 Bleecker would have the right to purchase at a price equal to the lesser of the price set forth in the third party contract or $1.8 million.

Mortgagors then obtained a $1.4 million mortgage loan from mortgagees. Mortgagors defaulted on the loan, and mortgagee brought this foreclosure action. 9 Bleecker objected, relying on its first refusal right.

In granting mortgagee's summary judgment motion, the court concluded that 9 Bleecker's first refusal right would only be triggered by a direct sale by mortgagors, not by a judicial foreclosure sale. The court relied on the language in the indenture, which by its terms applied only if the property “is to be sold by the party of the second part.” The court emphasized that the indenture defined the party of the second part only to include the mortgagors, not the mortgagors' successors and assigns. As a result, the court held that the foreclosure sale did not trigger the first refusal right.

In a footnote, however, the court noted that the indenture provided that the first refusal right would “remain in effect with respect to any future sales of the Property for the duration of the fifteen year period.” Because of the language, the court made no finding about whether 9 Bleecker would be able to enforce the first refusal right against the purchaser of the property at any foreclosure sale.

COMMENT

When the language of an indenture conveys a right of first refusal, which by its terms appears to cover only voluntary sales by the original grantor of the right, the right of first refusal is subordinate to a subsequent mortgagee's right to foreclose on the property. In Huntington Nat. Bank v. Cornelius, 80 A.D.3d 245, 250, the court found that a foreclosure sale did not trigger a right of first refusal created in an agreement establishing a joint tenancy which stated that “[s]hould either party purchase the entire property and within twenty years thereafter offer it for sale, the other party has the option to purchase the property.” Id. at 246-47 (emphasis added). One joint tenant bought out the other, and then obtained a mortgage on the property. When the mortgagee foreclosed, the former joint tenant attempted to vacate the foreclosure sale, contending that he was a necessary party. The court focused on the use of the term “offer” in the indenture which , in the court's view, “was intended to cover a conscious and voluntary choice by the [mortgagor] to make the property available for sale.” Id. at 249 (Brackets added). Although the language was not identical, the indenture stated that the right “only applies if 'the Property is to be sold by the party of the second part.,'” The court focused on the literal terms of the indenture, concluding that the right was not triggered because the foreclosure sale referee is “clearly not 'a party of [the] second part.'” 2014 WL 7333877, at *3 (N.Y. Sup. Dec. 23, 2014) (Brackets added).

However, if the language in an indenture specifically anticipated a foreclosure sale or was sufficiently broad to encompass any sale of the property, a right of first refusal might be superior to the mortgagee's right and might also apply to any subsequent sale by a foreclosure sale purchaser. A footnote in Huntington court noted that “[d]ifferent language in an agreement may well create [a superior right of first refusal]. 80 A.D.3d at fn. 2 (Brackets added). In Centech itself, the court declined to indicate whether a foreclosure sale purchaser would be bound by the right of first refusal, citing ambiguous language in the grant providing that the right of first refusal applied against “any future sales of the Property for the duration of the fifteen (15) year period after the date of the Closing.” Moreover, in an agreement creating an option rather than a right of first refusal, the Court of Appeals has broadly stated that “[o]ne who purchases with notice of equities is bound thereby.” Wheeler v. Standard Oil Co., 263 N.Y. 34, 38 In Wheeler, the Court of Appeals enforced a lessee's exclusive option to purchase property against a subsequent lessor because, upon purchase, the lessor had full knowledge of the lessee's option, which could be enforced against subsequent lessors.

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Tax Sale Does Not Violate Taking or Due Process Clauses

Planavksy v. Broome County

NYLJ 12/16/14

U.S. Dist. Ct., N.D.N.Y.

(Scullin, J.)

In an action by former landowner to cancel deed filed after a tax sale, and for money damages, the county and county officials moved to dismiss. The court granted the motion to dismiss, rejecting former landowner's claims that the county's actions violated the taking and due process clauses of the federal constitution.

Former landowner had not paid real estate taxes on the subject property, and had been served with notice of tax foreclosure proceedings. Former landowner appeared in those proceedings, and served an answer. Ultimately, the proceedings resulted in a tax sale, and former landowner brought this federal proceeding alleging constitutional and state law claims.

In dismissing landowner's taking claim, the court held that a tax sale cannot be a taking for a public purpose because a tax sale is pursuant to the state's taxing power and not its power of eminent domain. The court then dismissed the due process claim, holding that notice and an opportunity to be heard was all the process to which former landowner was entitled. The court then declined to exercise supplemental jurisdiction over former landowner's state law claims asserting that the deed was invalid because executed in violation of a judicial stay. The court concluded that in light of the dismissal of the federal claims at an early stage in the litigation, there was no reason to exercise supplemental jurisdiction.

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Questions of Fact About Standing to Foreclose

US Bank National Association v. Weinman

NYLJ 1/6/15, p. 27, col. 5

AppDiv, Second Dept.

(memorandum opinion)

In a mortgage foreclosure action, mortgagor appealed from Supreme Court's grant of summary judgment to mortgagee bank. The Appellate Division modified to deny summary judgment to both parties, holding that questions of fact remained about mortgagee bank's standing to foreclose.

When mortgagor purchased her home in 2005, she obtained a mortgage loan of $600,000 from Wall Street Mortgage Brokers, Ltd. In 2010, US Bank brought this foreclosure action, and sought summary judgment. Mortgagor challenged US Bank's standing to bring the action, and both parties sought summary judgment. When Supreme Court granted US Bank's motion, mortgagor appealed.

In modifying, the Appellate Division emphasized that in order to obtain summary judgment in a foreclosure action, mortgagee must produce the mortgage, the unpaid note, and evidence of default. In this case, US Bank produced an affidavit of a servicing agent, which did not give factual details of physical delivery of the note, and also produced excerpts from a pooling and servicing agreement which did not demonstrate either the existence of a written assignment of the note or delivery of the note. As a result, the court concluded that mortgagee bank was not entitled to summary judgment. The court also held, however, that Supreme Court had properly denied mortgagor's summary judgment motion because mortgagor had failed to establish that US Bank was not the holder or assignee of the note or mortgage.

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Error in Identifying Property Owner Was Not'a Jurisdictional Defect in Lien

Matter of Rigano v. Vibar Construction, Inc.

NYLJ 12/17/14, p. 22, col. 1

Court of Appeals

(Opinion by Lippman, Ch. J.)

On a petition to discharge a mechanic's lien, lienor appealed from the Appellate Division's affirmance of Supreme Court's grant of landowner's petition to discharge the lien and denial of lienor's petition to amend the notice of lien. The Court of Appeals reversed, holding that the error in identifying the property owner was not a jurisdictional defect in the lien, and was curable by amendment.

Lienor's principal, Vignogna, and landowner Rigano had been business partners for 35 years before a dispute over the current construction contract. Because of their long-standing relationship, the parties rarely reduced their agreements to writing. On the job at issue, lienor built a driveway to access the disputed property, and contends that landowner never paid him for the work. A construction and easement agreement establishes that landowner's principal consented to the construction work. Lienor then filed a mechanic's lien against the property, identifying landowner's solely owned corporation, Fawn Builders, as the owner of the property. In fact, however, Rigano, as president of Fawn Builders, had executed a deed to himself as an individual on Feb. 14, 2007. Based on that deed, Rigano moved to have the mechanic's lien discharged, while lienor sought to amend the notice of lien to name Rigano as the owner. Supreme Court initially concluded that the lien substantially complied with the Lien Law, but then reversed itself and discharged the lien. The Second Department Division affirmed, holding that the misidentification of the owner was a jurisdictional defect that could not be cured by an amendment nunc pro tunc . Lienor appealed.

In reversing, the Court of Appeals emphasized Lien Law section 23, which provides that the Lien Law is to be construed liberally, section 9[7], which provides that failure to state the name of the owner, or misdescription of the owner, shall not affect the validity of the lien, and section 12-a[2], which authorizes amendment, provides that it does not prejudice an existing lienor, mortgagee, or purchaser in good faith. The court noted that First and Third Department cases had construed the Lien Law liberally to permit amendment in case of misidentification, and concluded that the Second Department's stricter construction in this case contravened the statute's intent. In particular, the court relied on the close relationship between landowner Rigano and the named party, Rigano's solely owner corporation. The court emphasized that Rigano, whose address is the same as his corporation's, received notice of the lien, and concluded that the lien filed against the corporation gave the public inquiry notice of a lien against the property. Because neither the landowner nor any third party would be prejudiced by the amendment, the court remanded to the Appellate Division for consideration of other issues not determined on the appeal.

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Right of First Refusal Does Not Preclude Foreclosure Action

Centech LLC v. Yippie Holdings, LLC

NYLJ 1/6/15, p. 21, col. 2

Supreme Ct., N.Y. Cty.

(Oing, J.)

In a foreclosure action, holder of a right of first refusal opposed mortgagee's motion for summary judgment. The court granted the summary judgment motion, holding that the first refusal right did not preclude foreclosure.

9 Bleecker acquired the subject property in 2002. Two years later, 9 Bleecker conveyed the property to mortgagors in return for $1.2 million and a tax deduction in the amount of $600,000 as a charitable contribution to one of the mortgagors, a tax-exempt entity. The indenture provided that 9 Bleecker would have “a right of first refusal in the event that, within fifteen (15) years following the date of Closing herein, the Property is to be sold by the party of the second part '” The indenture provided that 9 Bleecker would have the right to purchase at a price equal to the lesser of the price set forth in the third party contract or $1.8 million.

Mortgagors then obtained a $1.4 million mortgage loan from mortgagees. Mortgagors defaulted on the loan, and mortgagee brought this foreclosure action. 9 Bleecker objected, relying on its first refusal right.

In granting mortgagee's summary judgment motion, the court concluded that 9 Bleecker's first refusal right would only be triggered by a direct sale by mortgagors, not by a judicial foreclosure sale. The court relied on the language in the indenture, which by its terms applied only if the property “is to be sold by the party of the second part.” The court emphasized that the indenture defined the party of the second part only to include the mortgagors, not the mortgagors' successors and assigns. As a result, the court held that the foreclosure sale did not trigger the first refusal right.

In a footnote, however, the court noted that the indenture provided that the first refusal right would “remain in effect with respect to any future sales of the Property for the duration of the fifteen year period.” Because of the language, the court made no finding about whether 9 Bleecker would be able to enforce the first refusal right against the purchaser of the property at any foreclosure sale.

COMMENT

When the language of an indenture conveys a right of first refusal, which by its terms appears to cover only voluntary sales by the original grantor of the right, the right of first refusal is subordinate to a subsequent mortgagee's right to foreclose on the property. In Huntington Nat. Bank v. Cornelius, 80 A.D.3d 245, 250, the court found that a foreclosure sale did not trigger a right of first refusal created in an agreement establishing a joint tenancy which stated that “[s]hould either party purchase the entire property and within twenty years thereafter offer it for sale, the other party has the option to purchase the property.” Id. at 246-47 (emphasis added). One joint tenant bought out the other, and then obtained a mortgage on the property. When the mortgagee foreclosed, the former joint tenant attempted to vacate the foreclosure sale, contending that he was a necessary party. The court focused on the use of the term “offer” in the indenture which , in the court's view, “was intended to cover a conscious and voluntary choice by the [mortgagor] to make the property available for sale.” Id. at 249 (Brackets added). Although the language was not identical, the indenture stated that the right “only applies if 'the Property is to be sold by the party of the second part.,'” The court focused on the literal terms of the indenture, concluding that the right was not triggered because the foreclosure sale referee is “clearly not 'a party of [the] second part.'” 2014 WL 7333877, at *3 (N.Y. Sup. Dec. 23, 2014) (Brackets added).

However, if the language in an indenture specifically anticipated a foreclosure sale or was sufficiently broad to encompass any sale of the property, a right of first refusal might be superior to the mortgagee's right and might also apply to any subsequent sale by a foreclosure sale purchaser. A footnote in Huntington court noted that “[d]ifferent language in an agreement may well create [a superior right of first refusal]. 80 A.D.3d at fn. 2 (Brackets added). In Centech itself, the court declined to indicate whether a foreclosure sale purchaser would be bound by the right of first refusal, citing ambiguous language in the grant providing that the right of first refusal applied against “any future sales of the Property for the duration of the fifteen (15) year period after the date of the Closing.” Moreover, in an agreement creating an option rather than a right of first refusal, the Court of Appeals has broadly stated that “[o]ne who purchases with notice of equities is bound thereby.” Wheeler v. Standard Oil Co., 263 N.Y. 34, 38 In Wheeler, the Court of Appeals enforced a lessee's exclusive option to purchase property against a subsequent lessor because, upon purchase, the lessor had full knowledge of the lessee's option, which could be enforced against subsequent lessors.

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Tax Sale Does Not Violate Taking or Due Process Clauses

Planavksy v. Broome County

NYLJ 12/16/14

U.S. Dist. Ct., N.D.N.Y.

(Scullin, J.)

In an action by former landowner to cancel deed filed after a tax sale, and for money damages, the county and county officials moved to dismiss. The court granted the motion to dismiss, rejecting former landowner's claims that the county's actions violated the taking and due process clauses of the federal constitution.

Former landowner had not paid real estate taxes on the subject property, and had been served with notice of tax foreclosure proceedings. Former landowner appeared in those proceedings, and served an answer. Ultimately, the proceedings resulted in a tax sale, and former landowner brought this federal proceeding alleging constitutional and state law claims.

In dismissing landowner's taking claim, the court held that a tax sale cannot be a taking for a public purpose because a tax sale is pursuant to the state's taxing power and not its power of eminent domain. The court then dismissed the due process claim, holding that notice and an opportunity to be heard was all the process to which former landowner was entitled. The court then declined to exercise supplemental jurisdiction over former landowner's state law claims asserting that the deed was invalid because executed in violation of a judicial stay. The court concluded that in light of the dismissal of the federal claims at an early stage in the litigation, there was no reason to exercise supplemental jurisdiction.

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