Real Property Law

AppDiv, Second Dept.

(memorandum opinion)

In an action to reform a deed, plaintiff grantee appealed from Supreme Court's order dismissing the complaint as time-barred and also declaring that the deed is not reformed and that a subsequent deed is not void. The Appellate Division modified to eliminate the declarations, and otherwise affirmed, holding that the action for reformation was barred by the six-year statute of limitations in CPLR 213(6).

On Aug. 8, 2005, Serafin Lopez, the sole shareholder of 4330 New Utrecht Corp., executed a deed on behalf of the corporation to himself and his son, Serafin N. Lopez. At that time, however, title was held by 4326 New Utrecht Corp., not 4330 New Utrecht Corp. Seven years later, on Oct. 22, 2012, the father, acting on behalf of 4326 New Utrecht, conveyed title to himself. The son then brought this action to reform the 2005 deed, and to have the 2012 deed declared void. Supreme Court granted summary judgment to the father, and the son appealed.

The Appellate Division held that the six-year statute of limitations applies to an action to reform a deed based on mistake, including a scrivener's error. The court acknowledged an exception to the rule: the statute not run against a party in possession of real property until the party in possession receives notice of an adverse claim or until the party's possession is otherwise disturbed. Here, however, the court noted that the son had produced no evidence that he possessed the subject property under an instrument of title, and as a result, his claim was time-barred.

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Foreclosure Judgment Vacated

Wachovia Bank, N.A. v. Swenton

NYLJ 11/30/15, p. 20, col. 3

AppDiv, Second Dept.

(memorandum opinion)

In an action to foreclose a mortgage, subsequent purchaser not named in the foreclosure action appealed from Supreme Court's denial of her motion to vacate the judgment of foreclosure and compel mortgagee to accept her proposed answer. The Appellate Division reversed and granted the motion, holding that purchaser had established a potentially meritorious defense based on the recording act.

Swenton executed a mortgage to mortgagee bank on Jan. 23, 2004, but the bank did not record the mortgage until Sept. 1, 2006. Before the mortgage was recorded, Swenton conveyed the property to Rosato, who reconveyed to Island Real Estate. The latter conveyed the property to Sotomayor and another by a deed recorded about four months after the bank recorded its mortgage. When the bank foreclosed on the mortgage, it did not name Sotomayor as a defendant, and did not serve her with a copy of the summons and complaint. After the bank obtained a judgment of foreclosure and sale, Sotomayor moved to intervene and to vacate the judgment. Supreme Court granted the motion to intervene, but denied the motion to vacate.

In reversing, the Appellate Division noted that the recording act protects subsequent purchasers for value against a prior unrecorded interest in real property so long as the subsequent purchaser's interest is the first to be duly recorded. In this case, even though Sotomayor's deed was not recorded until after the mortgage, she would be entitled to prevail if she could demonstrate that either Rosato or Island Real Estate were bona-fide purchasers for value without notice of the bank's mortgage. If they were bona-fide purchasers, they would have been able to convey good title even to a person who had actual or constructive knowledge of the bank's mortgage. As a result, Sotomayor established a potentially meritorious defense to the foreclosure action, and because she had a reasonable excuse for failure to appear in the action, she was now entitled to have the foreclosure judgment vacated.

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Mortgagee's Interest

Bayview Loan Servicing, LLC v. White

NYLJ 12/11/15, p. 22, col. 6

AppDiv, Second Dept.

(memorandum opinion)

In an action to quiet title to real property and for declaratory relief, mortgagee appealed from Supreme Court's order dismissing the complaint against a co-tenant in the property. The Appellate Division reversed and reinstated the complaint, holding that the complaint should not have been dismissed even though the mortgage could not encumber the co-tenant's interest in the property.

Winston and Reginald White owned the subject property as tenants in common. In 2006, Reginald purported to convey the entire property to 1070 Park Place LLC, a company of which Reginald was the principal. 1070 Park then mortgaged the property, and the mortgage was later assigned to current mortgagee. In 2008, Winston brought an action to partition the property, naming both Reginald and 1070 Park as defendants, but not naming mortgagee or its predecessor. Winston obtained a default judgment declaring that the conveyance from Reginald to 1070 Park was void ab initio. Then in 2013, mortgagee brought this action against Reginald, Park, and Winston, contending that it was not bound by the 2008 action, that mortgagee's interest encumbers Park's 50% interest in the property, and, in the alternative, that mortgagee holds an equitable lien against Reginald's interest in the property. Winston moved to dismiss the complaint against him, and Supreme Court granted the motion.

In reversing, the Appellate Division started by noting that because mortgagee was neither a party to the partition action nor in privity with a party, the partition action was not binding on mortgagee. Moreover, the court noted that when a tenant in common executes a deed that purports to encumber the entire property, the deed is not entirely invalid, but instead is effective to convey only the grantor's own interest. Hence, even though the mortgage could not have bound Winston's interest, the complaint should not have been dismissed against Winston because documentary evidence did not refute mortgagee's contention that it was entitled to a declaratory judgment establishing that it was not bound by the partition action and continues to hold a mortgage encumbering a 50% interest in the property.

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Deficiency Judgment

New York Commercial Bank v. 18 RVC, LLC

NYLJ 12/11/15, p. 25, col. 4

AppDiv, Second Dept.

(memorandum opinion)

In an action to foreclose a mortgage, mortgagors appealed from Supreme Court's grant of mortgagee's motion for leave to enter a deficiency judgment against mortgagors. The Appellate Division reversed, holding that mortgagee had not adequately established the value of the subject property.

Following entry of a judgment of foreclosure, the subject property was sold at public auction. Mortgagee then moved to confirm the sale and for leave to enter a deficiency judgment. In support of its motion, mortgagee submitted a certified appraisal estimating the value of the property at $850,000. Mortgagors opposed the motion, and submitted an appraisal review concluding that the fair and reasonable market value was $1,450,000. Supreme Court granted mortgagee's motion, and mortgagor appealed.

In reversing, the Appellate Division started by noting that mortgagee bears the initial burden of establishing the property's fair market value as of the date of the auction sale. Here, the court noted that mortgagee's appraisal report was prepared without an inspection of the building's interior, and did not account for the commercial use of the finished basement. As a result, mortgagee did not satisfy its burden. At the same time, the court concluded that mortgagor had not presented sufficient evidence about the property's value as of the date of the auction sale, apparently because both appraisals valued the property as of eight months before the auction sale. As a result, the court remanded to Supreme Court to allow the parties to submit additional proof of fair market value as of the date of the auction sale.

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