Real Property Law

In modifying, the Appellate Division first held that the notices of pendency should have been cancelled because the complaint does not seek relief that would affect title to, or possession, use or enjoyment of, real property. The court emphasized that the complaint alleged an ownership interest in the corporate entity, not an ownership interest in the real property itself. The court then held that because the notice of pendency should have been cancelled pursuant to Supreme Court's inherent power to determine whether the pleading complied with CPLR 6501, the court should not have awarded costs and disbursements under CPLR 6514(c). The court then held, however, that because the father-in-law's filing of the notices of pendency were completely without merit, the son-in-law was entitled to costs and attorneys fees pursuant to 22 NYCRR 130-1.1. The court emphasized that the son-in-law's counsel had advised the father-in-law of the impropriety of the notices, citing applicable case authority and requesting removal to avoid litigation, but the father-in-law nevertheless declined to remove the notices.

COMMENT

When a notice of pendency is cancelled pursuant to a motion under CPLR 6514, CPLR 6514(c) states that the court “may” award the aggrieved party “costs and expenses occasioned by the filing and cancellation, in addition to any costs of the action.” Id. When a party commences an action in bad faith, courts typically award costs and expenses pursuant to CPLR 6514(c). For example, in No. 1 Funding Ctr., Inc. v. H & G Operating Corp., 48 A.D.3d 908, 909, the court held that the seller defendant was entitled to costs and expenses related to the cancellation of a notice of pendency because the purchaser plaintiff, who had sought specific performance of a contract it could not have performed, had filed the notice in bad faith. By contrast, when a court cancels a notice of pendency due to a procedural error, courts are less likely to involved CPLR 6514(c) to award costs and expenses. For example, in Rabinowitz v. Larkfield Building Corp., 1996, 231 A.D.2d 703, 704 the court declined to award costs and expenses when the court cancelled the notice of pendency because the plaintiff did not serve the defendant within 30 days, failing to strictly comply with CPLR article 65, warranting cancellation under 6514(a). When a court cancels a notice of pendency for reasons other than CPLR 6514(a) or (b) — for instance, when it is cancelled under the courts “inherent power” under CPLR 6501 — section 6514(c) confers no power to award costs and expenses. Thus, in Congel v. Malfitano, 61 A.D.3d 807, the Appellate Division upheld the trial court's holding that it lacked the power to award costs and expenses to the plaintiff, where the court had cancelled the notice of pendency based on the its inherent power under 6501, rather than under 6514. Id.

Even if a court may not award costs and expenses under CPLR 6514(c) because the cancellation was not under the purview of 6514, the court may award costs and attorneys' fees pursuant to 22 NYCRR 130-1.1 (NYCRR), which authorizes such awards for frivolous conduct in any civil actions or proceeding. 22 NYCRR 130-1.1 defines frivolous conduct as conduct: 1) that it is completely without merit in law and has no reasonable argument for changing the law; 2) undertaken primarily to delay resolution of litigation or harass or maliciously injure another; or 3) it asserts material factual statements that are false. In applying the provision, the court in Makan Land Dev.—Three, LLC v. Prokopov, 42 A.D.3d 439, upheld the trial court's exercise of discretion to award attorneys' fees to a party seeking cancellation of a notice of pendency when the attorney who had filed the notice had freely acknowledged he had filed it improperly and that his complaint lacked merit. Because the attorney had refused to dismiss his complaint and cancel the notice of pendency, the court held that his actions were frivolous, and an award of costs and attorneys' fees was appropriate. See also Sorenson v. 257/117 Realty, LLC, 2009, 62 A.D.3d 618, (lack of merit to action in which plaintiff filed notice of pendency warranted costs and attorneys' fees).

Mortgagee Adequately Established Property Value, Is Entitled to Deficiency Judgment Flushing Savings Bank, FSB v. Viegas, NYLJ 10/7/16, p. 27, col. 3 AppDiv, Second Dept. (memorandum opinion)

In an action to foreclose a mortgage, mortgagee bank appealed from Supreme Court's order denying its motion seeking to confirm a referee's report and to obtain leave to enter a deficiency judgment against mortgagor. The Appellate Division reversed, confirming the referee's report and granting leave to enter a deficiency judgment for $331,221.96, holding that mortgagee had adequately established the fair market value of the property.

Mortgagee foreclosed on the subject property and obtained a judgment of foreclosure and sale. After a sale at public auction, mortgagee sought to confirm the referee's report, and sought leave to enter a deficiency judgment. Mortgagee submitted an affidavit of a certified appraiser as to the fair market value as of the date of the sale. Supreme Court denied the motion because the appraiser's affidavit was conclusory. Mortgagee then renewed its motion, supported by a certified appraisal report prepared by the same appraiser. Supreme Court denied mortgagee's motion for leave to renew. Mortgagee appealed.

In reversing, the Appellate Division started by noting that RPAPL 1371(2) permits a mortgagee to recover a deficiency judgment for the difference between the amount of the indebtedness and the higher of: 1) the foreclosure sale price; and 2) the fair market value of the property. Mortgagee bears the initial burden of establishing the property's fair market value, but the court must ultimately determine fair market value. In this case, the Appellate Division concluded that Supreme Court was obligated to grant mortgagee's motion to renew. In light of the evidence mortgagee submitted (which indicated that the property's fair market value at the time of the foreclosure sale was $350,000), mortgagor failed to raise an issue of fact warranting an evidentiary hearing. As a result, mortgagee was entitled to the requested deficiency judgment.

Costs and Fees Awarded for Cancellation of Frivolous Notice of Pendency Delidimitroupoulos v. Karantinidis, NYLJ 9/22/16, p. 20, col. 6 AppDiv, Second Dept. (memorandum opinion)

In an action by a father-in-law against his son-in-law, alleging breach of fiduciary duty and breach of contract, the latter appealed from Supreme Court's denial of his motion to cancel notices of pendency relating to real estate owned by his corporation, and his motion for costs and expenses. The Appellate Division modified to grant the motion to cancel the notices of pendency, holding that the complaint did not affect title to real property. The court also awarded costs and attorneys fees pursuant to 22 NYCRR 1310-1.1.

After the son-in-law sought a divorce, the father-in law brought an action for breach of contract and breach of fiduciary duty, alleging that he held an ownership interest in a corporate entity that owns several parcels of real estate. He filed a notice of pendency with respect to each of those properties. The son-in-law, the principal in the corporations, moved to cancel the notices of pendency, and for costs and expenses pursuant to CPLR 6514(c) or costs and attorneys' fees pursuant to 22 NYCRR 130-1.1. Supreme Court denied the motions, and the son-in-law appealed.

In modifying, the Appellate Division first held that the notices of pendency should have been cancelled because the complaint does not seek relief that would affect title to, or possession, use or enjoyment of, real property. The court emphasized that the complaint alleged an ownership interest in the corporate entity, not an ownership interest in the real property itself. The court then held that because the notice of pendency should have been cancelled pursuant to Supreme Court's inherent power to determine whether the pleading complied with CPLR 6501, the court should not have awarded costs and disbursements under CPLR 6514(c). The court then held, however, that because the father-in-law's filing of the notices of pendency were completely without merit, the son-in-law was entitled to costs and attorneys fees pursuant to 22 NYCRR 130-1.1. The court emphasized that the son-in-law's counsel had advised the father-in-law of the impropriety of the notices, citing applicable case authority and requesting removal to avoid litigation, but the father-in-law nevertheless declined to remove the notices.

COMMENT

When a notice of pendency is cancelled pursuant to a motion under CPLR 6514, CPLR 6514(c) states that the court “may” award the aggrieved party “costs and expenses occasioned by the filing and cancellation, in addition to any costs of the action.” Id. When a party commences an action in bad faith, courts typically award costs and expenses pursuant to CPLR 6514(c). For example, in No. 1 Funding Ctr., Inc. v. H & G Operating Corp., 48 A.D.3d 908, 909, the court held that the seller defendant was entitled to costs and expenses related to the cancellation of a notice of pendency because the purchaser plaintiff, who had sought specific performance of a contract it could not have performed, had filed the notice in bad faith. By contrast, when a court cancels a notice of pendency due to a procedural error, courts are less likely to involved CPLR 6514(c) to award costs and expenses. For example, in Rabinowitz v. Larkfield Building Corp., 1996, 231 A.D.2d 703, 704 the court declined to award costs and expenses when the court cancelled the notice of pendency because the plaintiff did not serve the defendant within 30 days, failing to strictly comply with CPLR article 65, warranting cancellation under 6514(a). When a court cancels a notice of pendency for reasons other than CPLR 6514(a) or (b) — for instance, when it is cancelled under the courts “inherent power” under CPLR 6501 — section 6514(c) confers no power to award costs and expenses. Thus, in Congel v. Malfitano, 61 A.D.3d 807, the Appellate Division upheld the trial court's holding that it lacked the power to award costs and expenses to the plaintiff, where the court had cancelled the notice of pendency based on the its inherent power under 6501, rather than under 6514. Id.

Even if a court may not award costs and expenses under CPLR 6514(c) because the cancellation was not under the purview of 6514, the court may award costs and attorneys' fees pursuant to 22 NYCRR 130-1.1 (NYCRR), which authorizes such awards for frivolous conduct in any civil actions or proceeding. 22 NYCRR 130-1.1 defines frivolous conduct as conduct: 1) that it is completely without merit in law and has no reasonable argument for changing the law; 2) undertaken primarily to delay resolution of litigation or harass or maliciously injure another; or 3) it asserts material factual statements that are false. In applying the provision, the court in Makan Land Dev.—Three, LLC v. Prokopov, 42 A.D.3d 439, upheld the trial court's exercise of discretion to award attorneys' fees to a party seeking cancellation of a notice of pendency when the attorney who had filed the notice had freely acknowledged he had filed it improperly and that his complaint lacked merit. Because the attorney had refused to dismiss his complaint and cancel the notice of pendency, the court held that his actions were frivolous, and an award of costs and attorneys' fees was appropriate. See also Sorenson v. 257/117 Realty, LLC, 2009, 62 A.D.3d 618, (lack of merit to action in which plaintiff filed notice of pendency warranted costs and attorneys' fees).

Mortgagee Adequately Established Property Value, Is Entitled to Deficiency Judgment Flushing Savings Bank, FSB v. Viegas, NYLJ 10/7/16, p. 27, col. 3 AppDiv, Second Dept. (memorandum opinion)

In an action to foreclose a mortgage, mortgagee bank appealed from Supreme Court's order denying its motion seeking to confirm a referee's report and to obtain leave to enter a deficiency judgment against mortgagor. The Appellate Division reversed, confirming the referee's report and granting leave to enter a deficiency judgment for $331,221.96, holding that mortgagee had adequately established the fair market value of the property.

Mortgagee foreclosed on the subject property and obtained a judgment of foreclosure and sale. After a sale at public auction, mortgagee sought to confirm the referee's report, and sought leave to enter a deficiency judgment. Mortgagee submitted an affidavit of a certified appraiser as to the fair market value as of the date of the sale. Supreme Court denied the motion because the appraiser's affidavit was conclusory. Mortgagee then renewed its motion, supported by a certified appraisal report prepared by the same appraiser. Supreme Court denied mortgagee's motion for leave to renew. Mortgagee appealed.

In reversing, the Appellate Division started by noting that RPAPL 1371(2) permits a mortgagee to recover a deficiency judgment for the difference between the amount of the indebtedness and the higher of: 1) the foreclosure sale price; and 2) the fair market value of the property. Mortgagee bears the initial burden of establishing the property's fair market value, but the court must ultimately determine fair market value. In this case, the Appellate Division concluded that Supreme Court was obligated to grant mortgagee's motion to renew. In light of the evidence mortgagee submitted (which indicated that the property's fair market value at the time of the foreclosure sale was $350,000), mortgagor failed to raise an issue of fact warranting an evidentiary hearing. As a result, mortgagee was entitled to the requested deficiency judgment.