Real Property Law

In affirming, the Appellate Division rejected developer's argument that the agreement was ambiguous, and also rejected developer's impossibility defense. The court noted that the alleged impossibility was not produced by an unanticipated event that could not have been anticipated by the parties in drafting the agreement. The court also held that the temple had satisfied all of the factors necessary to hold the developer in contempt.

Inadequacy of Sale Price Insufficient to Set Aside Foreclosure Sale

Chase Manhattan Bank v. Nath, NYLJ 6/29/18, p. 37., col. 4., AppDiv, Second Dept. (memorandum opinion)

In a mortgage foreclosure action, mortgagor appealed from Supreme Court's denial of its motion to vacate the judgment of foreclosure and sale and denial of its motion to set aside the foreclosure sale and referee's deed. The Appellate Division affirmed, finding no basis to set aside the judgment or the sale.

After protracted litigation relating to a note and mortgage, mortgagee obtained a judgment of foreclosure and sale. Mortgagor moved to vacate the judgment, but Supreme Court denied the motion and mortgagor did not appeal. Mortgagor then moved a second and a third time to vacate the judgment, and, in 2016, also moved to set aside the foreclosure sale and the referee's deed Supreme Court denied the motions, and mortgagor appealed.

In affirming, the Appellate Division first held that because mortgagor's motion to set aside the judgment of foreclosure and sale raised the same issues as the first two motions, mortgagor was precluded from challenging the judgment. The court then turned to the motion to set aside the foreclosure sale and concluded that mortgagor had failed to establish fraud, collusion, mistake or misconduct that would justify setting aside the sale. Finally, the court rejected mortgagor's claim that the sale should be set aside for inadequacy of the sale price. The court noted that it is common for the fair market value of the property to exceed the winning bid at a foreclosure sale. The disparity between market value and winning bid justifies setting aside a sale only when the foreclosure sale price shocks the conscience of the court. Here, the court held that mortgagor did not meet that standard.

Comment

As the Second Department observed in Polish Nat. All. of Brooklyn, U.S.A. v. White Eagle Hall Co., 98 A.D.2d 400, courts have consistently set aside foreclosure sales when the sale price falls below 10% of the property's market value as it shocks the conscience of the court, while uniformly upholding foreclosure sales when the sale price is above 50% of the property's market value. In Polish National itself, the court held that the mortgagee's bid of $150 for property valued in excess of $190,000 did not shock the conscience of the court because the mortgagee held a mortgage of $96,057.33 and did not seek a deficiency judgment; the court deemed the mortgagee's bid to be the equivalent of the amount due on the mortgage. By contrast, in Alben Affiliates v. Astoria Terminal, Inc., 34 Misc.2d 246, the court vacated a foreclosure sale, holding it unconscionable after the Referee accepted a $24,000 bid on real property appraised at over $350,000.

Although there is no categorical number, the courts tend to deem a sale price unconscionable when it is closer to 10% than 50% of the market value. In Astoria Fed. Sav. & Loan Assoc. v. Hartridge, 869 N.Y.S.2d 921, the Second Department held that a purchase price shocked the conscience of the court. rejecting the argument advanced in mortgagee's brief that its bid of $48,500 for a property valued at $450,000 was adequate since it was greater than 10% of the market price. In comparison, in Crossland Mortg. Corp. v. Frankel, 192 A.D.2d 571, the Second Department upheld a $55,000 bid on a property valued between $160,000-$200,000, which would be between 27.5% and 36% of the market value, as the court recognized that foreclosure sales often result in a price substantially lower than market value and the sale was conducted with lawful procedure.

A court also has the power to set aside the foreclosure sale where circumstances of confusion or mistake create suspicion about the fairness of the sale. In Fleet Fin., Inc. v. Gillerson, 277 A.D.2d 279, the court held that the high bidder should be relieved from its bid because the parties had differing good faith beliefs regarding whether the sale of the premises was subject to outstanding tax liens. The mortgagee stated that it was announced that the sale was subject to tax liens, while the high bidder relied on a provision of the judgment of foreclosure requiring the referee to pay tax liens from the proceeds of the sale. By contrast, courts are less likely to relieve the mortgagee from the consequences of its unilateral mistake. The Second Department, in U.S. Bank Nat. Ass'n v. Testa, 140 A.D.3d 855, held that evidence of mortgagee's unilateral mistake did not provide a sufficient basis to invalidate a foreclosure sale that was otherwise lawful, as the mortgagee's counsel mistakenly relied on incorrect bidding instructions, which resulted in an unsuccessful bid.

Questions of Fact About Purchaser's Ability to Perform

Chester Green Estates, LLC v. Arlington Chester, LLC, NYLJ 5/25/18, p. 23., col. 6., AppDiv, Second Dept. (memorandum opinion)

In contract vendee's action for specific performance of two contracts for the sale of real property, contract vendee appealed from Supreme Court's grant of summary judgment to seller. The Appellate Division reversed and reinstated the action, holding that questions of fact precluded summary judgment.

On April 28, 2013, the parties entered into two separate contracts of sale for property located in Orange County. The sale price was $8,620,000 for the properties covered by one contract and $4,310,000 for properties covered by the other contract. The closing date for the first contract was tied to subdivision approval by the Town Planning Board, and the closing date for the second contract was to be three years later. On Sept. 9, 2013, seller's counsel informed contract vendee that the subdivision had been approved, although there were several conditions to be met prior to filing of the subdivision map. Counsel suggested that contract vendee should satisfy those conditions. Contract vendee's counsel contended that subdivision was not yet final, and that further payments were not yet due because seller had not yet obtained final subdivision approval. Nevertheless, contract vendee sent $800,000 to the escrow agent. When the parties could not agree on who was responsible for satisfying the conditions of approval, contract vendee stopped payment on the check. Seller then terminated the contracts, leading contract vendee to bring this specific performance action. Supreme Court declared that the specific performance claim would be dismissed unless contract vendee appeared at a closing to be scheduled by seller on 10 days' notice. The closing did not occur, and Supreme Court then awarded summary judgment to seller. Contract vendee appealed.

In reversing, the Appellate Division emphasized that seller had failed to show the absence of issues of fact as to whether contract vendee was ready, willing, and able to close, and as to whether seller had validly cancelled the contracts.

Knowledge of True Owner's Claim Does Not Defeat Adverse Possession Defense

SLC Coran, LLC v. 543 Middle Country Road Realty, LLC, NYLJ 5/25/18, p. 30., col. 2, AppDiv, Second Dept. (memorandum opinion).

In an action to recover real property, record title holder appealed from Supreme Court's award of summary judgment to adverse possessor. The Appellate Division affirmed, holding that actual knowledge by the possessor of a true owner's claim is not sufficient to defeat an adverse possession defense.

In 2012, when record owner bought property located in Coram, it commissioned a survey which showed that the neighboring owner had encroached on the property with a fence and paving. The neighbor asserted that when he acquired the property in 1985, the paving and fence were already present, so he assumed they were part of his parcel. He admitted that in 1999, he received a phone call from record owner's predecessor informing him of the encroachment, but neither the record owner nor the neighbor took any action until 2014, when current record owner notified the neighbor of the encroachment and then brought this action. As a defense to the action, the neighbor claimed title by adverse possession, and Supreme Court denied record owner's summary judgment motion. Record owner appealed.

In affirming, the Appellate Division started by noting that the 2008 amendments to the adverse possession law were not applicable because the adverse possessor's alleged rights would have vested before 2008. The court then held that under pre-amendment adverse possession doctrine actual knowledge by the possessor of the identity of the true owner was insufficient to defeat an adverse possession claim; the record owner would instead have to show that the adverse possessor had overtly acknowledged title of another party during the statutory period. In this case, there was no overt acknowledgment, and Supreme Court properly denied summary judgment to record owner.

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Contract Vendee Entitled to Specific Performance

Carpenter v. Crespo, NYLJ 5/18/18, p. 29., col. 1., AppDiv, Second Dept. (memorandum opinion)

In an action by contract vendee for specific performance of a contract of sale, subsequent purchaser appealed from Supreme Court's denial of its summary judgment motion. The Appellate Division affirmed, holding that subsequent purchaser had failed to demonstrate that it was a bona fide purchaser or that contract vendee was not ready, willing, and able to perform.

Rafael and Aracelis Crespo owned the subject property as tenants by the entirety. Rafael contracted to sell the property to contract vendee on June 4, 2013. On Dec. 16, 2013, Rafael and Aracelis sold the property to subsequent purchaser, who recorded the deed of sale. Contract vendee then brought this action against both the Crespos and the subsequent purchaser, seeking specific performance of the sale contract. Subsequent purchaser moved for summary judgment, but Supreme Court denied the motion. Subsequent purchaser appealed.

In affirming, the Appellate Division started by noting that a sale contract executed by one tenant by the entirety is ineffective to bind the other tenant by the entirety unless the absent tenant by the entirety participated in or ratified the sale contract. As a result, subsequent purchaser demonstrated that contract vendee's interest was not enforceable against Aracelis' share of the property. But the court held that subsequent purchaser had failed to demonstrate that contract vendee's interest was not binding on Rafael's interest. The court noted that on Dec. 9, 2013, Rafael Crespo's lawyer had notified contract vendee that Crespo wanted to close by December 20, yet Crespo conveyed to subsequent purchaser before that deadline. As a result, subsequent purchaser failed to establish that contract vendee was not ready, willing, or able to close on that date or within a reasonable time, because the Crespos had already transferred the property before the date specified in the lawyer's letter. Subsequent purchaser also failed to show that it lacked notice of the sale to contract vendee, and therefore had not established that it enjoyed bona fide purchaser status. As a result, Supreme Court had properly denied subsequent purchaser's summary judgment motion.

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Land Seller Did Not Violate General Business Law Section 349

Keshin v. Montauk Homes, LLC, NYLJ 6/15/19, p. 40., col. 4., AppDiv, Second Dept. (memorandum opinion).

In an action by home purchaser against seller of land and contractor, purchaser appealed from Supreme Court's dismissal of the complaint against land seller. The Appellate Division affirmed, holding that purchaser had not made out a claim for violation of the General Business Law.

On Dec. 12, 2014, contracted to buy the subject parcel for $1,650,000. The contract included a general merger clause and provided that acceptance of the deed would constitute full performance of all of seller's obligations. Seller delivered the deed on Feb. 27, 2015. Three weeks later, purchaser contracted with contractor for construction of a home for $1,400,000. When contractor failed to complete the house (despite payment of 475,000), purchaser brought an action against contractor for breach of contract, and also named land seller as a defendant, contending that the lot was marketed to the public as a package deal with the house to be built. Purchaser contended that the marketing constituted a deceptive business practice under section 349 of the General Business Law. Supreme Court dismissed the complaint against land seller, and purchaser appealed.

In affirming, the Appellate Division held that purchaser's allegation did not state a complaint under section 349. The court noted that purchaser himself had conceded that land seller had not committed fraud. The court held that purchaser's allegation that seller had structure the transaction into separate contracts to avoid real estate transfer taxes did not suffice to state a claim under section 349 because purchasers would have been well aware of that scheme when they signed the contract. Finally, the court noted that the sale contract in this case involved a single property, and the dispute did not affect consumers at large.

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Statute of Limitations Bars Foreclosure Claim

Freedom Mortgage Corp. v. Engel, NYLJ 7/13/18, p. 31., col. 3., AppDiv, Second Dept. (memorandum opinion)

In an action to foreclose a mortgage, mortgagor appealed from Supreme Court's grant of summary judgment to mortgagee. The Appellate Division reversed and granted summary judgment to mortgagor, holding that the statute of limitations barred the foreclosure claim.

In May 2005, mortgagor borrowed $225,000, secured by a mortgage. Two months later, mortgagor executed an extension and modification agreement, creating a new loan with an unpaid balance of $224,806. Mortgagor apparently defaulted on the loan by failing to make a payment on March 1, 2008. In July 2008, mortgagee brought a foreclosure action. Mortgagor moved to dismiss for improper service. By the terms of a January 2013 stipulation, the parties agreed the mortgagor had been served, that the action would be dismissed without prejudice, and that parties would seek to amicably resolve the issues without further delay. More than two years later, in February 2015, mortgagee brought the instant foreclosure action. Both parties moved for summary judgment, and Supreme Court granted mortgagee's motion. Mortgagor appealed.

In reversing, the Appellate Division concluded that commencement of the earlier foreclosure action accelerated the mortgage and triggered the statute of limitations on all monthly installments. Because mortgagee never revoked its election to foreclose the mortgage, the six-year statute of limitations had now run on any foreclosure action.