Real Property Law

In affirming, the Appellate Division acknowledged that clauses entitling seller to cancel and return the deposit when unable to convey title in accordance with the contract are enforceable only when the title defect is beyond the seller's control and where seller has acted in good faith. In this case, the court concluded that sellers had made out a prima facie case that they had acted in good faith, and purchaser had failed to raise triable issues of fact to rebut the evidence of good faith.

COMMENT

Generally, when a real property seller creates a title defect, a provision allowing the seller to cancel a sale contract if unable to convey clear title will not limit the buyer's remedies. In 9 Brothers Building Supply Corp. v. Buonamicia, 299 A.D.2d 529, the Second Department awarded summary judgment to buyer in its action for specific performance, despite a contract cancellation provision, when the seller had created a title defect by selling the property to a third party. After buyer contracted to purchase the property, a title search revealed that the seller had mistakenly conveyed the property in a prior transaction. Instead of making an effort to clear title, the seller attempted to cancel the buyer's contract, relying on a contract provision limiting buyer's remedy to return of the down payment and expenses incurred in the title search. Seller then sold the property to the record owner. Because the seller had failed to act in good faith, the Second Department reversed Supreme Court's dismissal of the buyer's complaint and awarded buyer summary judgment on the issue of liability

Courts also hold that limitations on buyer's remedies are unenforceable when seller could cure the defect by making paying money to clear an existing lien. For instance, in Naso v. Haque, 289 A.D.2d 309, the Second Department held that buyer was entitled to specific performance of a contract to purchase a condominium unit, despite a remedy limitation clause in the contract of sale, when seller could have cleared title by paying off a substantial lien on the property. On the other hand, seller can invoke a contractual limitation on remedies when a title search reveals defects that cannot be cured by an expenditure of effort or money. An example is an adverse claim to the property that the seller is unable to settle, dismiss, or defeat prior to closing. For instance, in 101123 LLC v. Solis Realty LLC, 23 A.D.3d 107, the First Department held that a seller may rely on a cancellation provision when the seller has no viable legal basis upon which to successfully oust an existing tenant. As a result, the buyer was not entitled to specific performance when the seller was unable to remove an elderly, rent-stabilized tenant.

When the buyer is entitled to specific performance because the seller has failed to clear title despite its ability to do so, the seller must convey clear title or abate the price in accordance with the costs necessary to remedy the defects. Thus, in Meisels v. 1295 Union Equities Corp., 306 A.D.2d 144, the First Department held that a seller may not rely on a cancellation provision because he is unwilling to bear the expense necessary to clear title. The court affirmed the trial court's grant of summary judgment in favor of the buyer requiring the seller to convey the property at a price abated to cover the expense to remove all liens and encumbrances. Id.

However, in Mehlman v. 592-600 Union Ave. Corp., 46 A.D.3d 338, the First Department held that when the sale contract limits the amount of money the seller is obligated to spend to clear title, the seller is not required to make an expenditure exceeding this amount. Under the contract, in the event that the seller was unable to convey clear title the buyer had two options: to cancel the contract, or take the property subject to the defect, with a credit limited to the maximum expense amount. A title report revealed three judgments against the seller, two of which the seller was unable to cure. After the seller refused to comply with the buyer's demand that the seller establish escrow accounts for the outstanding judgments, the buyer brought an action seeking specific performance. The First Department reversed the trial court's ruling in favor of the buyer, and dismissed the complaint, finding that the seller had fulfilled its obligation under the contract, and the buyer's remedies were limited to those expressly stated in the contract. Id.

Implied Permission Defeats Adverse Possession Claim Bratone v. Conforti-Brown NYLJ 5/26/17, p. 28, col. 4 AppDiv, Second Dept. (memorandum opinion)

In possessor's action to compel a determination of title to real property, possessor appealed from Supreme Court's dismissal of their claims, and record owners cross-appealed from Supreme Court's dismissal of their counterclaims or waste and mismanagement of corporate assets. The Appellate Division modified, concluding that record owners were entitled to a declaration that possessors had not acquired title by adverse possession.

Brothers-in-law Bratone and Conforti acquired title to land in 1960. When Bratone died in 1966, Conforti became the sole owner. In 1971, he conveyed a portion of the property to VSI, a corporation owned half by the Conforti family and half by the Bratone family. Conforti retained title to the remainder of the property — the property in dispute in this case. In 2007, surviving members of the Bratone family brought this action contending that VSI had acquired title by adverse possession to the property Conforti had retained. The surviving Conforti members counterclaimed, contending that various fees incurred by the Bratones were a waste of VSI corporate assets. Supreme Court dismissed the adverse possession claim, and also dismissed the counterclaims.

In modifying, the Appellate Division upheld much of Supreme Court's adverse possession decisions, but concluded that the proper remedy was to grant record owners a declaration that they owned the property, rather than merely dismissal of the adverse possession claim. In rejecting the adverse possession claim, the court concluded that, in light of the close relationship between VSI and its shareholders, VSI's occupation should be deemed permissive rather than hostile, defeating any adverse possession claim. In finding implied permission, the court emphasized that Bratone and Conforti were agents of VSI, responsible for management of its daily operations. Because Bratone and Conforti knew of the ownership of the property, and also knew of VSI's use, the court inferred that its use was permissive. The court then concluded that Supreme Court had correctly dismissed the Conforti counterclaims, noting that the evidence did not establish any waste of corporate assets.

COMMENT

When, as in the Bratone case, a possessor enters onto land owned by someone with whom the possessor shared a family relationship, courts typically reject any adverse possession claim on the ground that the initial possession was permissive rather than hostile. For instance, in Chaner v. Calarco, 77 A.D.3d 1217, the court awarded summary judgment to true owner when the alleged adverse possession of a boundary strip began at a time when one of the possessors happened to hold title to the strip as a co-tenant with his estranged wife. The estranged husband and the adverse possession plaintiff owned a neighboring parcel, and built a driveway on the disputed strip. The estranged husband conveyed title to the neighboring parcel to the plaintiff, and then died leaving title to the parcel with the disputed strip in the estranged wife. Because the estranged husband owned an interest in both parcels, the court could easily infer that possession was with his permission, thus defeating the adverse possession claim.

Similarly, in Sugarman v. Malone, 48 A.D.3d 281 the court granted summary judgment to the record owner of a Manhattan cooperative apartment, dismissing the claim of his sister-in-law who had initially taken possession with her husband, whose father then owned the apartment. When the father died, he left the apartment to his daughter, who died the following year, leaving record title to her husband. In concluding that the sister-in-law's possession was permissive, the court emphasized both that the sister-in-law's initial possession had been because of her relationship by marriage, and that the sister-in-law had offered to purchase the shares from the record owner during the adverse possession.

Even when the adverse possessor and true owner do not share a family relationship, courts typically find an implied grant of permission where the true owner and adverse possessor initially maintained a friendly relationship and where the adverse possessor took actions that acknowledged the true owner's title. Thus, in McKeag v. Finley, 93 A.D.3d 925 the court granted summary judgment to the record owner of a 44-foot strip of lakefront property, dismissing the adverse possession claim of a neighbor whose predecessors in title had initially occupied the land based on a friendly and cooperative relationship with the true owner's predecessors in title. The court emphasized that the neighbor had asked permission to mow the grass and had apologized for a disabled jet ski left on the beach.

So long as a friendly relationship existed between the parties, courts reject implied permission defenses only when the true owner did not realize he or she owned the disputed land. In those cases, courts theorize that an owner cannot grant permission to use land he does not believe he owns. For example, in Becker v. Murtagh, 19 N.Y.3d 75 the court held that the adverse possessors had acquired title to the boardwalk and dock from true owners who did not even know they were the record owners of the land. Adverse possessors built a four-foot boardwalk on land they (and the true owners) believed to be on the adverse possessors' side of the boundary between their parcels. The court concluded that the possession had been hostile since both the true owner and adverse possessor believed that the dock and boardwalk were placed on the adverse possessor's property and the true owner could not have given implied permission to use land that she did not know she owned.

Abstract Company Not Entitled to Dismissal of Indemnification Claim Old Republic National Title Insurance Co. v. Junction Abstract, Inc. NYLJ 5/5/17, p. 33, col. 6 AppDiv, Second Dept. (memorandum opinion)

In an action by title insurance company seeking indemnification from an abstract company that had served as the insurer's agent, the abstract company appealed from Supreme Court's denial of its motion to dismiss the complaint. The Appellate Division affirmed, holding that documentary evidence did not establish a defense as a matter of law.

On Feb. 2, 2007, Cornacchia obtained a mortgage interest in the sum of about $400,000, and obtained title insurance from title insurer. At the closing, abstract company served as title insurer's agent. Cornacchia's mortgage was not recorded until March 2009, one year after mortgagor conveyed another mortgage on the property. That mortgage was recorded in March 2008, one year before Cornacchia's mortgage. When the property went into foreclosure, title insurer paid Cornacchia $267,000 in settlement of Cornacchia's claim under the title insurance policy. In this action, title insurer sought contractual indemnification from the abstract company, alleging that the abstract company had assumed the task of recording the mortgage documents. Supreme Court denied abstract company's motion to dismiss.

In affirming, the Appellate Division held first that abstract company's documentary evidence did not utterly refute the factual allegations in the complaint. The court then concluded that, giving the title insurance company the benefit of every favorable inference, the complaint stated causes of action for contractual and common law indemnification.

Acceleration of Mortgage Started Statute of Limitations Beneficial Homeowner Service Corp. v. Tovar NYLJ 5/5/17, p. 34, col. 4 AppDiv, Second Dept. (memorandum opinion)

In an action to foreclose a mortgage, mortgagee appealed from Supreme Court's grant of mortgagor's motion to dismiss the complaint as time-barred. The Appellate Division affirmed, holding that mortgagee's acceleration of the mortgage had started the statute of limitations on its claim.

In October 2007, mortgagee brought an action to foreclose the mortgage. In the complaint, mortgagee, in a sworn statement, elected to accelerate the maturity of the mortgage debt. The complaint was dismissed in 2010 for failure to effect personal service on mortgagee. Mortgagee brought this second foreclosure action in 2014, and mortgagor moved to dismiss based on the statute of limitations. Supreme Court granted the motion.

In affirming, the Appellate Division started by noting that even if a mortgage calls for payments in installments, once the mortgage debt is accelerated, the statute of limitations begins to run on the entire debt. The court then rejected the argument that because the 2007 complaint was dismissed, the election to accelerate the debt was ineffective. The court held that the failure of mortgagor to receive notice of the election did not destroy the effect of mortgagee's sworn statement that it had elected to accelerate the mortgage debt. Because the 2007 election was effective, the statute of limitation had run on the entire debt by the time mortgagee brought its 2014 foreclosure action.

Purchaser's Stop Payment on Deposits Constituted Breach Ma v. Biaggi NYLJ 5/5/17, p. 34, col. 6 AppDiv, Second Dept. (memorandum opinion)

In contract vendee's action for return of a down payment, contract vendee appealed from Supreme Court's award of summary judgment to seller and escrow agent. The Appellate Division affirmed, holding that contract vendee's repeated stop payment orders on deposit checks constituted a breach that entitled seller to retain the down payment.

Contract vendee contracted with seller to purchase property for $26 million. The contract required contract vendee to pay a 10% deposit, or $2.6 million, upon execution of the contract. Contract vendee provided a $2.6 million check, but stopped payment six days later. Contract vendee then tendered a number of replacement checks, including bank checks totaling $840,000 and a company check for the balance. Escrow agent successfully deposited the bank checks, but contract vendee stopped payment on the $1.76 million company check. Seller then provided notice that it was terminating the contract for failure to tender the full down payment. Eight days later, contract vendee notified seller that she had elected to terminate the contract of sale. Contract vendee then sought to recover the $840,000 bank check deposit. Supreme Court awarded summary judgment to seller an escrow agent, and contract vendee appealed.

In affirming, the Appellate Division upheld Supreme Court's conclusion that contract vendee's repeated stop payments constituted a material breach of the contract, and entitled seller to terminate the contract and retain the $840,000 deposit on which contract vendee had not stopped payment. The court emphasized that a buyer who defaults without legal excuse may not obtain return of a deposit where the down payment is less than 10% of the sale price. The court also rejected contract vendee's argument that, by the terms of the contract, any breach by contract vendee would be held in abeyance until closing. The court found no language in the contract to support such a reading.