Real Property Law

Mortgagee Entitled to Second Chance at Deficiency Judgment

Flushing Savings Bank v. Bitar

25 N.Y.3d 307, Court of Appeals

(Opinion by Pigott, J.)

In a mortgage foreclosure action, mortgagee bank appealed from the Appellate Division's affirmance of Supreme Court's denial of its motion for a deficiency judgment. The Court of Appeals modified to direct Supreme Court to give the lender an opportunity to submit additional proof of the property's fair market value.

Mortgagor Bitar defaulted on a mortgage held by mortgagee bank. When mortgagee foreclosed, a court-appointed referee determined that mortgagor owed $690,642.23 plus interest and fees, and directed sale of the property. The property was then sold at auction, and mortgagee was the highest bidder at $125,000. By that time, the amount owing to mortgagee was $793,724.75, leaving a deficiency of $668,724.75. Mortgagee then hired a licensed appraiser, who concluded that the fair market value of the property on the date of sale was $475,000. Mortgagee then moved for an order confirming the referee's report of sale, and for a deficiency in the amount of $318,724.75, the difference between the amount due and the fair market value of the property. Although mortgagor did not appear to oppose the motion, Supreme Court denied the motion for a deficiency judgment, holding that the appraiser's four-paragraph affidavit about fair market value was conclusory. The Appellate Division affirmed, and mortgagee appealed.

In modifying, the Court of Appeals first agreed with the courts that mortgagee had failed to meet its burden of establishing the property's fair market value. The court noted that the appraiser's affidavit did little more than cover his qualifications and make conclusory reference to comparable sales and an examination of the neighborhood. In the absence of evidence to substantiate the appraiser's conclusion, Supreme Court was entitled to conclude that mortgagee had not met its burden of demonstrating fair market value. The court then held, however, that when a court concludes that mortgagee's evidence is insufficient to establish fair market value, the court must give the lender an additional opportunity to submit sufficient proof to enable it to make a determination of market value. The court emphasized the language of RPAPL 1371(2), which provides that a court “shall determine, upon affidavit or otherwise as it shall direct, the fair and reasonable market value of the mortgaged premises ' ” In light of that language, the court indicated that it is within the trial court's discretion “ to elucidate the type of proof it requires so it can render a proper determination” of fair market value.

NYU Expansion Plan Upheld; No Implied Dedication of Parkland

Matter of Glick v. Harvey

NYLJ 7/1/15, p. 26, col. 3

Court of Appeals

(memorandum opinion)

In a combined article 78 proceeding and declaratory judgment action, opponents of an NYU expansion plan appealed from the Appellate Division's denial of the petition and dismissal of the proceeding. The Court of Appeals affirmed, holding that there had been no implied dedication of parkland with respect to the areas in dispute.

In 2012, the New York City Council approved NYU's plan for expanding its campus. The plan requires demapping of areas currently designated as streets and using them, either permanently or for some part of 20 years, in connection with building construction. Although several of the parcels have been used as parks for years and have been developed in conjunction with the Department of Parks and Recreation, documentary evidence establishes that the parcels would remain under the jurisdiction of the Department of Transportation. Nevertheless, a group of individuals and neighborhood groups opposed to the NYU expansion challenged the City Council's approval on the ground that the city had unlawfully alienated public parkland. Although there had been no formal dedication, the petitioners contended that the land had been impliedly dedicated to park purposes. Supreme Court largely agreed, holding that the city's alienation of impliedly dedicated parkland violated the public trust doctrine. The Appellate Division modified to deny the petition and dismiss the proceeding. Petitioners appealed.

In affirming, the Court of Appeals concluded that in this case, the city had never manifested an unequivocal intent to dedicate the disputed parcels as parkland. The court emphasized the documentary evidence establishing that any management of the parcels by the Department of Parks and Recreation was understood to be temporary and provisional.

Former Tenant's Adverse Possession Claim Fails

Jeffers v. Stein

NYLJ 6/24/15, Supreme Court, Kings Cty.

(Rivera, J.)

Tenant under an expired lease brought an action to establish title by adverse possession against the estate of a true owner who was not tenant's landlord. After a nonjury trial, the court awarded judgment to the estate of the former owner, holding that tenant could not tack his possession on to that of his landlord, and that tenant's own claim of hostile possession could not begin until 10 years after the expiration of tenant's lease.

Alice Gordon and J. Gordon, wife and husband, were record owners of the subject commercial property at the time of their respective deaths in 1987 and 1995. In 1997, Storey, whose claim to the property is not clear, leased the property to tenant Jeffers. The lease was for a 10-year term, and provided explicitly that tenant understood that Storey did not hold legal title to the premises. The lease provided that when Storey did acquire legal title, he would convey it to tenant for $200,000. Storey never acquired legal title, and, in 2005, served a 30-day notice of termination on tenant. Tenant responded by bringing an action for specific performance against Storey. While the action was still pending, Storey died. Four years later, in 2010, tenant brought this action seeking to establish title by adverse possession, naming both Storey's administrators and Gordon's administrators as defendants. Storey's administrators did not appear, and a default judgment was entered Storey's administrator.

In awarding judgment to Gordon's administrators, the court rejected tenant's argument that he could tack his possession on to Storey's prior possession. The court relied on RPAPL 531, which requires that 10 years elapse from the end point of a lease before tenant can assert a claim that its occupation was hostile. In this case, because the lease expired in 2007, the next 10 years were presumed to be permissive, so the adverse possession statute cannot run in tenant's favor until 2027. The court then held that in any event, Storey himself did not hold himself out as the owner, and destroyed the element of hostility by admitting, in the lease itself, that title belonged to someone else. As a result, tenant could not establish title by adverse possession.

COMMENT

Because RPAPL 531 provides only that “the possession of the tenant is deemed the possession of the landlord until the expiration of ten years after the termination of the tenancy,” the Third Department has held that the statute does not preclude a tenant from claiming title by adverse possession, as the landlord's agent, against a third party. In Bradt v. Giovannone, 35 A.D.2d 322, the court held that a tenant who had purchased land from his landlord could claim title by adverse possession to an adjacent strip, not owned by landlord, that tenant had occupied during the entire 14-year tenancy. The court reasoned that the tenant had occupied the adjacent strip as the landlord's agent. Since the landlord could have obtained title be adverse possession against the third party, the tenant, who purchased landlord's rights, could claim title by adverse possession.

The Bradt analysis appears inconsistent with the approach the court took in Jeffers . Jeffers occupied the disputed property as Storey's tenant. If Jeffers' possession were attributable to Storey, the latter might have a good adverse possession claim against the Gordons, and to the extent Jeffers succeeded to Storey's interest, Jeffers, too would have an adverse possession claim against the Gordons.

By contrast, courts have held that the statute precludes a tenant from making an adverse possession claim against tenant's own landlord, even if the claim is to land not subject to the lease. Thus, in Gallea v. Hess Realty Corp., 515 N.Y.S.2d 683, tenants who leased one parcel of land occupied a portion of the adjoining lot owned by the their landlord. Tenants later purchased the leased parcel, and asserted title by adverse possession to the portion of the adjoining parcel, which was not included in either the lease or the subsequent deed. Although tenants had been occupying the adjoining parcel for 20 years, the court rejected their adverse possession claim, holding that the statutory period did not begin to run until the termination of the landlord-tenant relationship.

Mortgage Contingency Clause Excuses Purchaser

Walsh v. Catalan

NYLJ 6/26/16, p. 28, col. 1

AppDiv, Second Dept.

(memorandum opinion)

In an action for return of a down payment, purchasers appealed from Supreme Court's denial of their summary judgment motion. The Appellate Division reversed, holding that the mortgage contingency clause in the sale contract excused purchaser from the obligation to close on the contract.

Purchasers paid a $45,500 down payment when they contracted to buy the subject house. The contract's mortgage contingency clause entitled purchasers to return of the down payment if they could not obtain a mortgage commitment from an institutional lender, and provided expressly that a commitment conditioned on lender's approval of an appraisal “shall not be deemed a 'Commitment' hereunder.” Purchasers secured two mortgage commitments contingent upon satisfactory appraisal. Before the appraisal could be completed, Hurricane Sandy struck, causing damage to the property. The appraisals then demonstrated that the property's value was not sufficient to secure the proposed loan amount. Purchasers sought return of the down payment, but Supreme Court denied their summary judgment motion.

In reversing, the Appellate Division relied on the appraisal clause in the sale contract, and concluded that under the terms of that clause, purchasers had not obtained a firm mortgage commitment. As a result, they were entitled to return of the down payment.

Mortgagee Entitled to Set Aside Foreclosure Sale Despite Failure to Record or Extend Its Notice of Pendency

Althsuler Shaham Provident Funds, Ltd. V. GML Tower LLC

NYLJ 6/24/15, p. 17, col. 1

AppDiv, Fourth Dept.

(3-1 decision; memorandum opinion; dissenting opinion by DeJoseph, J.)

In mortgagee's foreclosure action, mortgagee appealed from Supreme Court's denial of its motion seeking to set aside a foreclosure sale. The Appellate Division reversed and set aside the sale, holding that the equities favored mortgagee despite mortgagee's failure to record its mortgage and failure to extend its notice of pendency.

Mortgagee lent mortgagors $10 million to fund purchase of the subject property. More than half of that amount ' $5.5 million ' was used to satisfy an existing mortgage on the property. Mortgagee did not, however file its loan agreement or an amendment to the agreement with the county clerk's office. Later, mortgagee brought this foreclosure action and filed a notice of pendency. By that time, mechanic's liens had been filed against the property. During the course of the foreclosure proceeding, Supreme Court and the Appellate Division had held that the entire $10 million mortgage was subordinate to the mechanic's liens. Mortgagee's notice of pendency expired by its terms, and mortgagee failed to extend it. The property was then sold at a public auction, and the auction purchaser resold the property to an LLC whose registered agent was the CEO of the foreclosure sale purchaser. The Court of Appeals then modified the earlier Appellate Division order, holding that mortgagee was entitled to priority over the mechanic's liens to the extent of the $5.5 million used to pay off the pre-existing mortgage. Mortgagee then sought to set aside the foreclosure sale, but Supreme Court denied the motion.

In reversing, the Appellate Division held that under the circumstances of the case, the judicial sale had been made the instrument of injustice. While acknowledging that mortgagee had contributed to its predicament, the court's majority emphasized that the foreclosure sale purchaser and the subsequent purchaser had notice of the pending Court of Appeals appeal at the time of the foreclosure sale, and concluded that it was appropriate to consider that knowledge in balancing the equities.

Justice DeJoseph, dissenting, com- plained that the majority had not demonstrated how the sale has been made the instrument of injustice, and concluded that in any event, mortgagee's failure to file the loan documents, and failure to bid at the foreclosure sale, mad it appropriate to provide mortgagee with equitable relief.

Action on a Note Not Barred By Earlier Abandoned Foreclosure Proceeding

Old Republic National Title Insurance Co. v. Conlin

NYLJ 6/12/15, p. 28, col. 5

AppDiv, Second Dept.

(memorandum opinion)

In an action to recover on a promissory note, borrower-mortgagee appealed from Supreme Court's denial of its motion to dismiss. The Appellate Division affirmed, holding that the action was not barred by an earlier abandoned foreclosure proceeding.

Current plaintiff's predecessor lent money to borrower secured by a junior mortgage. The predecessor brought a foreclosure action, but ultimately abandoned the action (without formally discontinuing it), when the predecessor realized that foreclosure of the junior mortgage was unlikely to generate proceeds to pay off the underlying debt. Predecessor then assigned the note and mortgage, and, four years later, current holder of the note brought this action on the note. Borrower moved to dismiss based on RPAPL 1301(3), which provides that when a foreclosure action is pending, no other action shall be commenced to recover on a mortgage debt. Supreme Court denied the motion to dismiss, and borrower appealed.

In affirming, the Appellate Division held the statute was designed to spare borrowers the annoyance of simultaneously defending two independent actions on the same debt. Here, because the prior foreclosure action had been effectively abandoned, the de facto discontinuance militated against dismissal of the current action.

Opposition to Partition of A Mixed-Use Building

BMM Four, LLC v. BMM Two, LLC

NYLJ 7/8/15, p. 21, col. 3

Supreme Ct., Westchester Cty.

(Giacomo, J.)

In an action for partition of a mixed-use commercial and residential building, two of the three tenants in common, together with a mortgagee, opposed partition. Supreme Court, after trial, held that an agreement between the co-tenants and the mortgagee precluding sale of the premises also precluded partition, but, upon agreement by the mortgagee and the plaintiff cotenant, the court ordered a partition sale conditioned on a reserve price that ensured the mortgage would be satisfied in full.

The subject building, which contains about 41 tenants, is owned by three entities, BMM Two, BMM Three and BMM Four, as tenants in common. Mortgagee Chase holds a mortgage executed by representatives of the three entities. BMM Four brought this action for partition, and the other two entities objected. They contended that Myrna Otis, the principal of BMM four, had improperly transferred her interest to her husband without the execution of formal documents, so that the husband had no standing to bring the partition action on BMM Four's behalf. They also contended that partition would violate an agreement between the parties that the property could not be sold without the consent of a supermajority of the parties. Mortgagee Chase asserted that partition would violate the mortgage agreement, which provides that ” [m]ortgagor shall not without the prior written consent of mortgagee ' sell transfer, or otherwise convey the Property ' without first repaying in full the note ' “

The court first rejected the arguments of BMM Two and BMM Three, finding first that the transfer of Myrna Otis' interest to her husband was entirely valid, and second, that the only agreement among the parties precluding sale was an agreement that involved sale of interests in BMM Two. BMM Four owns a 49.6% interest in BMM Two, and the court found that BMM Four had only agreed not to sell its interest in that entity without the vote of two-thirds of the members of BMM Two. The court found, however, that the three entities had never made any agreement that precluded sale of the subject property. As a result, BMM Four, as a co-owner of the property, was entitled to partition, subject only to the interest of mortgagee Chase. The court held that the proposed partition sale would violate the terms of the mortgage agreement with Chase, but noted that Chase and BMM Four agreed that sale of the premises could be conditioned upon payment in full of the outstanding loan. As a result, the court directed that the premises be sold subject to a minimum bid price to protect Chase's interest in the property.

'

Mortgagee Entitled to Second Chance at Deficiency Judgment

Flushing Savings Bank v. Bitar

25 N.Y.3d 307, Court of Appeals

(Opinion by Pigott, J.)

In a mortgage foreclosure action, mortgagee bank appealed from the Appellate Division's affirmance of Supreme Court's denial of its motion for a deficiency judgment. The Court of Appeals modified to direct Supreme Court to give the lender an opportunity to submit additional proof of the property's fair market value.

Mortgagor Bitar defaulted on a mortgage held by mortgagee bank. When mortgagee foreclosed, a court-appointed referee determined that mortgagor owed $690,642.23 plus interest and fees, and directed sale of the property. The property was then sold at auction, and mortgagee was the highest bidder at $125,000. By that time, the amount owing to mortgagee was $793,724.75, leaving a deficiency of $668,724.75. Mortgagee then hired a licensed appraiser, who concluded that the fair market value of the property on the date of sale was $475,000. Mortgagee then moved for an order confirming the referee's report of sale, and for a deficiency in the amount of $318,724.75, the difference between the amount due and the fair market value of the property. Although mortgagor did not appear to oppose the motion, Supreme Court denied the motion for a deficiency judgment, holding that the appraiser's four-paragraph affidavit about fair market value was conclusory. The Appellate Division affirmed, and mortgagee appealed.

In modifying, the Court of Appeals first agreed with the courts that mortgagee had failed to meet its burden of establishing the property's fair market value. The court noted that the appraiser's affidavit did little more than cover his qualifications and make conclusory reference to comparable sales and an examination of the neighborhood. In the absence of evidence to substantiate the appraiser's conclusion, Supreme Court was entitled to conclude that mortgagee had not met its burden of demonstrating fair market value. The court then held, however, that when a court concludes that mortgagee's evidence is insufficient to establish fair market value, the court must give the lender an additional opportunity to submit sufficient proof to enable it to make a determination of market value. The court emphasized the language of RPAPL 1371(2), which provides that a court “shall determine, upon affidavit or otherwise as it shall direct, the fair and reasonable market value of the mortgaged premises ' ” In light of that language, the court indicated that it is within the trial court's discretion “ to elucidate the type of proof it requires so it can render a proper determination” of fair market value.

NYU Expansion Plan Upheld; No Implied Dedication of Parkland

Matter of Glick v. Harvey

NYLJ 7/1/15, p. 26, col. 3

Court of Appeals

(memorandum opinion)

In a combined article 78 proceeding and declaratory judgment action, opponents of an NYU expansion plan appealed from the Appellate Division's denial of the petition and dismissal of the proceeding. The Court of Appeals affirmed, holding that there had been no implied dedication of parkland with respect to the areas in dispute.

In 2012, the New York City Council approved NYU's plan for expanding its campus. The plan requires demapping of areas currently designated as streets and using them, either permanently or for some part of 20 years, in connection with building construction. Although several of the parcels have been used as parks for years and have been developed in conjunction with the Department of Parks and Recreation, documentary evidence establishes that the parcels would remain under the jurisdiction of the Department of Transportation. Nevertheless, a group of individuals and neighborhood groups opposed to the NYU expansion challenged the City Council's approval on the ground that the city had unlawfully alienated public parkland. Although there had been no formal dedication, the petitioners contended that the land had been impliedly dedicated to park purposes. Supreme Court largely agreed, holding that the city's alienation of impliedly dedicated parkland violated the public trust doctrine. The Appellate Division modified to deny the petition and dismiss the proceeding. Petitioners appealed.

In affirming, the Court of Appeals concluded that in this case, the city had never manifested an unequivocal intent to dedicate the disputed parcels as parkland. The court emphasized the documentary evidence establishing that any management of the parcels by the Department of Parks and Recreation was understood to be temporary and provisional.

Former Tenant's Adverse Possession Claim Fails

Jeffers v. Stein

NYLJ 6/24/15, Supreme Court, Kings Cty.

(Rivera, J.)

Tenant under an expired lease brought an action to establish title by adverse possession against the estate of a true owner who was not tenant's landlord. After a nonjury trial, the court awarded judgment to the estate of the former owner, holding that tenant could not tack his possession on to that of his landlord, and that tenant's own claim of hostile possession could not begin until 10 years after the expiration of tenant's lease.

Alice Gordon and J. Gordon, wife and husband, were record owners of the subject commercial property at the time of their respective deaths in 1987 and 1995. In 1997, Storey, whose claim to the property is not clear, leased the property to tenant Jeffers. The lease was for a 10-year term, and provided explicitly that tenant understood that Storey did not hold legal title to the premises. The lease provided that when Storey did acquire legal title, he would convey it to tenant for $200,000. Storey never acquired legal title, and, in 2005, served a 30-day notice of termination on tenant. Tenant responded by bringing an action for specific performance against Storey. While the action was still pending, Storey died. Four years later, in 2010, tenant brought this action seeking to establish title by adverse possession, naming both Storey's administrators and Gordon's administrators as defendants. Storey's administrators did not appear, and a default judgment was entered Storey's administrator.

In awarding judgment to Gordon's administrators, the court rejected tenant's argument that he could tack his possession on to Storey's prior possession. The court relied on RPAPL 531, which requires that 10 years elapse from the end point of a lease before tenant can assert a claim that its occupation was hostile. In this case, because the lease expired in 2007, the next 10 years were presumed to be permissive, so the adverse possession statute cannot run in tenant's favor until 2027. The court then held that in any event, Storey himself did not hold himself out as the owner, and destroyed the element of hostility by admitting, in the lease itself, that title belonged to someone else. As a result, tenant could not establish title by adverse possession.

COMMENT

Because RPAPL 531 provides only that “the possession of the tenant is deemed the possession of the landlord until the expiration of ten years after the termination of the tenancy,” the Third Department has held that the statute does not preclude a tenant from claiming title by adverse possession, as the landlord's agent, against a third party. In Bradt v. Giovannone, 35 A.D.2d 322, the court held that a tenant who had purchased land from his landlord could claim title by adverse possession to an adjacent strip, not owned by landlord, that tenant had occupied during the entire 14-year tenancy. The court reasoned that the tenant had occupied the adjacent strip as the landlord's agent. Since the landlord could have obtained title be adverse possession against the third party, the tenant, who purchased landlord's rights, could claim title by adverse possession.

The Bradt analysis appears inconsistent with the approach the court took in Jeffers . Jeffers occupied the disputed property as Storey's tenant. If Jeffers' possession were attributable to Storey, the latter might have a good adverse possession claim against the Gordons, and to the extent Jeffers succeeded to Storey's interest, Jeffers, too would have an adverse possession claim against the Gordons.

By contrast, courts have held that the statute precludes a tenant from making an adverse possession claim against tenant's own landlord, even if the claim is to land not subject to the lease. Thus, in Gallea v. Hess Realty Corp., 515 N.Y.S.2d 683, tenants who leased one parcel of land occupied a portion of the adjoining lot owned by the their landlord. Tenants later purchased the leased parcel, and asserted title by adverse possession to the portion of the adjoining parcel, which was not included in either the lease or the subsequent deed. Although tenants had been occupying the adjoining parcel for 20 years, the court rejected their adverse possession claim, holding that the statutory period did not begin to run until the termination of the landlord-tenant relationship.

Mortgage Contingency Clause Excuses Purchaser

Walsh v. Catalan

NYLJ 6/26/16, p. 28, col. 1

AppDiv, Second Dept.

(memorandum opinion)

In an action for return of a down payment, purchasers appealed from Supreme Court's denial of their summary judgment motion. The Appellate Division reversed, holding that the mortgage contingency clause in the sale contract excused purchaser from the obligation to close on the contract.

Purchasers paid a $45,500 down payment when they contracted to buy the subject house. The contract's mortgage contingency clause entitled purchasers to return of the down payment if they could not obtain a mortgage commitment from an institutional lender, and provided expressly that a commitment conditioned on lender's approval of an appraisal “shall not be deemed a 'Commitment' hereunder.” Purchasers secured two mortgage commitments contingent upon satisfactory appraisal. Before the appraisal could be completed, Hurricane Sandy struck, causing damage to the property. The appraisals then demonstrated that the property's value was not sufficient to secure the proposed loan amount. Purchasers sought return of the down payment, but Supreme Court denied their summary judgment motion.

In reversing, the Appellate Division relied on the appraisal clause in the sale contract, and concluded that under the terms of that clause, purchasers had not obtained a firm mortgage commitment. As a result, they were entitled to return of the down payment.

Mortgagee Entitled to Set Aside Foreclosure Sale Despite Failure to Record or Extend Its Notice of Pendency

Althsuler Shaham Provident Funds, Ltd. V. GML Tower LLC

NYLJ 6/24/15, p. 17, col. 1

AppDiv, Fourth Dept.

(3-1 decision; memorandum opinion; dissenting opinion by DeJoseph, J.)

In mortgagee's foreclosure action, mortgagee appealed from Supreme Court's denial of its motion seeking to set aside a foreclosure sale. The Appellate Division reversed and set aside the sale, holding that the equities favored mortgagee despite mortgagee's failure to record its mortgage and failure to extend its notice of pendency.

Mortgagee lent mortgagors $10 million to fund purchase of the subject property. More than half of that amount ' $5.5 million ' was used to satisfy an existing mortgage on the property. Mortgagee did not, however file its loan agreement or an amendment to the agreement with the county clerk's office. Later, mortgagee brought this foreclosure action and filed a notice of pendency. By that time, mechanic's liens had been filed against the property. During the course of the foreclosure proceeding, Supreme Court and the Appellate Division had held that the entire $10 million mortgage was subordinate to the mechanic's liens. Mortgagee's notice of pendency expired by its terms, and mortgagee failed to extend it. The property was then sold at a public auction, and the auction purchaser resold the property to an LLC whose registered agent was the CEO of the foreclosure sale purchaser. The Court of Appeals then modified the earlier Appellate Division order, holding that mortgagee was entitled to priority over the mechanic's liens to the extent of the $5.5 million used to pay off the pre-existing mortgage. Mortgagee then sought to set aside the foreclosure sale, but Supreme Court denied the motion.

In reversing, the Appellate Division held that under the circumstances of the case, the judicial sale had been made the instrument of injustice. While acknowledging that mortgagee had contributed to its predicament, the court's majority emphasized that the foreclosure sale purchaser and the subsequent purchaser had notice of the pending Court of Appeals appeal at the time of the foreclosure sale, and concluded that it was appropriate to consider that knowledge in balancing the equities.

Justice DeJoseph, dissenting, com- plained that the majority had not demonstrated how the sale has been made the instrument of injustice, and concluded that in any event, mortgagee's failure to file the loan documents, and failure to bid at the foreclosure sale, mad it appropriate to provide mortgagee with equitable relief.

Action on a Note Not Barred By Earlier Abandoned Foreclosure Proceeding

Old Republic National Title Insurance Co. v. Conlin

NYLJ 6/12/15, p. 28, col. 5

AppDiv, Second Dept.

(memorandum opinion)

In an action to recover on a promissory note, borrower-mortgagee appealed from Supreme Court's denial of its motion to dismiss. The Appellate Division affirmed, holding that the action was not barred by an earlier abandoned foreclosure proceeding.

Current plaintiff's predecessor lent money to borrower secured by a junior mortgage. The predecessor brought a foreclosure action, but ultimately abandoned the action (without formally discontinuing it), when the predecessor realized that foreclosure of the junior mortgage was unlikely to generate proceeds to pay off the underlying debt. Predecessor then assigned the note and mortgage, and, four years later, current holder of the note brought this action on the note. Borrower moved to dismiss based on RPAPL 1301(3), which provides that when a foreclosure action is pending, no other action shall be commenced to recover on a mortgage debt. Supreme Court denied the motion to dismiss, and borrower appealed.

In affirming, the Appellate Division held the statute was designed to spare borrowers the annoyance of simultaneously defending two independent actions on the same debt. Here, because the prior foreclosure action had been effectively abandoned, the de facto discontinuance militated against dismissal of the current action.

Opposition to Partition of A Mixed-Use Building

BMM Four, LLC v. BMM Two, LLC

NYLJ 7/8/15, p. 21, col. 3

Supreme Ct., Westchester Cty.

(Giacomo, J.)

In an action for partition of a mixed-use commercial and residential building, two of the three tenants in common, together with a mortgagee, opposed partition. Supreme Court, after trial, held that an agreement between the co-tenants and the mortgagee precluding sale of the premises also precluded partition, but, upon agreement by the mortgagee and the plaintiff cotenant, the court ordered a partition sale conditioned on a reserve price that ensured the mortgage would be satisfied in full.

The subject building, which contains about 41 tenants, is owned by three entities, BMM Two, BMM Three and BMM Four, as tenants in common. Mortgagee Chase holds a mortgage executed by representatives of the three entities. BMM Four brought this action for partition, and the other two entities objected. They contended that Myrna Otis, the principal of BMM four, had improperly transferred her interest to her husband without the execution of formal documents, so that the husband had no standing to bring the partition action on BMM Four's behalf. They also contended that partition would violate an agreement between the parties that the property could not be sold without the consent of a supermajority of the parties. Mortgagee Chase asserted that partition would violate the mortgage agreement, which provides that ” [m]ortgagor shall not without the prior written consent of mortgagee ' sell transfer, or otherwise convey the Property ' without first repaying in full the note ' “

The court first rejected the arguments of BMM Two and BMM Three, finding first that the transfer of Myrna Otis' interest to her husband was entirely valid, and second, that the only agreement among the parties precluding sale was an agreement that involved sale of interests in BMM Two. BMM Four owns a 49.6% interest in BMM Two, and the court found that BMM Four had only agreed not to sell its interest in that entity without the vote of two-thirds of the members of BMM Two. The court found, however, that the three entities had never made any agreement that precluded sale of the subject property. As a result, BMM Four, as a co-owner of the property, was entitled to partition, subject only to the interest of mortgagee Chase. The court held that the proposed partition sale would violate the terms of the mortgage agreement with Chase, but noted that Chase and BMM Four agreed that sale of the premises could be conditioned upon payment in full of the outstanding loan. As a result, the court directed that the premises be sold subject to a minimum bid price to protect Chase's interest in the property.

'