Real Property Law

In affirming denial of defendant co-tenant's summary judgment motion, the court noted that no language in the 2002 settlement agreement or the 1992 agreement made any reference to transfer of the subject real property. The court then noted that when co-tenants own real property, there is a presumption, lasting for 10 years, that possession of one co-tenant is for the benefit of the other co-tenant. The occupying co-tenant can rebut the presumption by proving that the absent co-tenant has been ousted from the property. In this case, plaintiff co-tenant occupied the parcel until 1994, so the presumption of possession ran until 2004, at which time a presumption of hostility arose, but 10 more years had not yet passed before plaintiff brought this partition action in 2013. Moreover, defendant committed no acts constituting actual or implied ouster. As a result, defendant was not entitled to summary judgment. The court then held that because plaintiff had established ownership and a right to possession, plaintiff was entitled to summary judgment on its claim for partition.

Comment

A possessory cotenant can establish ouster by showing that he provided unequivocal notice to the non-possessory cotenant, of an intent to exclude the non-possessory cotenant from the property. In Dunn v. Moore, 628 N.Y.S. 2d 195 (1995), the court ruled that the possessory cotenant had ousted the non-possessory cotenant when he cut off electricity and informed the co-tenant that he would not be permitted to operate his business on the premises anymore. Furthermore, in Johnston v. Martin, 183 A.D. 2d 1019 (1992), the court upheld an adverse possession claim when the possessory co-tenant had notified the other co-tenant that he had changed the locks on the house the couple had purchased together. The court held that the adverse possession period ran from the time the possessory co-tenant had provided notice of the change in locks.

However, courts have held that words or acts that do not provide sufficient notice of an intent to exclude will not constitute an ouster. In Lindine v Lasenza, 15 N.Y.S. 3d 248 (2015), the court held that the possessory co-tenant's statement that he would treat the property as his home and planned on living on the property indefinitely did not suffice to establish ouster. The parents of the two cotenants had originally purchased the property as tenants in common, and upon the death of the parents, the cotenants succeeded to their parents' respective shares. In rejecting the possessory cotenant's adverse possession claim, the court ruled that the conversations between the possessory and nonpossessory cotenant were not enough to prove an ouster. Id. Additionally, in Bank of America, N.A. v. 414 Midland Ave. Associates, LLC, 911 N.Y.S. 2d 157 (2010), the court, in a quiet title action, ruled that a recording of the deed, without any actual change in possession or notice to the allegedly ousted cotenant, is not enough to prove an ouster. In 414 Midland, the executor of the estate of the owner of a two-thirds interest in the property executed and recorded a deed purporting to convey all the property to himself and his brother. The court held that because the owner of the other one-third interest had no notice of the recording, and because there had been no change in possession, the recording could not trigger the running of the adverse possession period.

*****

Questions of Fact Remain About Violation of Covenant Requiring Use As a Catholic High School

Roman Catholic Diocese of Brooklyn v. Christ the King Regional High School NYLJ 9/21/18, p. 30., col. 4 AppDiv, Second Dept. (memorandum opinion)

In the Brooklyn Diocese's action to enforce a contract provision prohibiting use of property for purposes other than operation of a Catholic high school, Christ the King High School (CTK) appealed from Supreme Court's grant of summary judgment to the Diocese. The Appellate Division reversed, concluding that questions of fact remained about whether CTK's use of the premises violated the contract provision.

In 1976, the Diocese conveyed the subject property to CTK. By the terms of the transfer, CTK was “to have and to hold [the property] so long as [CTK] continues the operation of a Roman Catholic High School on the premises … upon the cessation of which all rights, title and interest herein conveyed shall revert to the [Diocese].” A separate provision provided that CTK “shall maintain and operate a Catholic high school” and “shall use the [premises] for no other purpose not customarily or usually associated with such use.” This separate provision also provided that the property would revert to the Diocese upon its violation.

Beginning in 2002, CTK leased a portion of the premises for operation of day care and continuing education. In 2010, the tenant leased additional space in the school, and in 2013, the tenant sublet some of its space for use as a charter middle school. The Diocese then brought this action seeking to enforce the reverter provision in the 1976 agreement, and also seeking to enforce the covenant prohibiting use for purposes other than a Catholic High School. In an earlier decision, the Second Department had held the reverter provision unenforceable because the Diocese had failed to comply with the recording requirements for possibilities of reverter and rights of entry (RPL section 345(1)). But in that earlier decision, the court held that the prohibition on use was separable from the reverter provision. While the earlier decision was pending, Supreme Court granted the Diocese summary judgment on its claim for breach of the 1976 agreement, and enjoined CTK from continuing use of part of the premises as a charter school. CTK appealed.

In reversing, the Appellate Division held that the language of the 1976 agreement requiring maintenance and operation of a Catholic high school did not have a precise meaning in light of the passage of time and changes in circumstance. The court noted that CTK had come forward with evidence of other instances in which unused portions of Catholic schools had been leased to charter schools. This, in the court's view, raised triable issues of fact about whether such use is customarily and usually associated with operation of a Catholic school in the current era of budgetary and enrollment constraints facing schools within the Diocese. As a result, the Diocese was not entitled to summary judgment.

Comment

An incidental use of property in a manner that would violate a restrictive covenant if it were the primary use is unlikely to violate the covenant if the use does not have an adverse effect on neighboring parcels. In Van Schaick v. Trustees of Union College, 285 A.D.2d 859, the Third Department affirmed a lower court ruling that the use of a portion of a property as an administrative office for a school did not violate the restrictive covenant prohibiting the use of a “trade or business.” The court reasoned that since the administrative office was incidental to the operation of the school it would not be prohibited where the use of the school was not in itself a violation of the covenant. The court relied in part on the general interpretive rule that restrictions are construed narrowly in a manner that maintains the “free and unencumbered use of property.” Id.

However, even an incidental use of a property violates a covenant if the use has the effect on the property that the restriction sought to curtail. An incidental use of a home as a business violates a restriction against use as a “trade or business” when the use threatens the residential ambiance the restrictive covenant was designed to protect. In Launer v. Hecht, 15 A.D.2d 843, the Third Department found that a homeowner violated the restrictive covenant against carrying on a trade or business on the premises when he operated a motion picture business selling sound equipment and repairing projectors from the basement of his home. Although the primary use of the home was as a dwelling, the effects of the use interfered with the objective of the covenant to maintain a residential feel of the area. The use of the basement for the home-owner's business brought up to 15 employees traveling regularly through the area disturbing the residential atmosphere of the neighborhood.

*****

Mortgagor's Letter Seeking Short Sale Did Not Reset Statute of Limitations on Mortgage

Yadegar v. Deutsche Bank National Trust Co. NYLJ 8/31/18, p. 26., col. 2 AppDiv, Second Dept. (memorandum opinion)

In mortgagor's action to cancel and discharge a mortgage, mortgagee appealed from Supreme Court's grant of summary judgment to mortgagor. The Appellate Division affirmed, holding that mortgagor's letter seeking a short sale did not operate to reset the statute of limitations on the mortgage.

In 2008, mortgagee brought an action to foreclose a 2004 mortgage on the subject property. In 2009, mortgagee brought a second action to foreclose the same mortgage. The 2008 action was discontinued in 2012 and the 2009 action was dismissed as abandoned later the same year. Late in 2015, mortgagor brought this action to cancel and discharge the mortgage based on the expiration of the statute of limitations. Supreme Court granted summary judgment to mortgagor, holding that the six-year statute had run between the time mortgagee brought the foreclosure actions and the time mortgagor brought this action to cancel the mortgage. Mortgagee appealed.

In affirming, the Appellate Division rejected mortgagee's reliance on a letter sent by mortgagor to mortgagee requesting that mortgagee authorize a short sale of the property. Mortgagee had argued that the letter constituted an acknowledgment of the debt, thus resetting the statute of limitations. The court, however, noted that to reset a debt, a writing must contain nothing inconsistent with an intention of the part of the debtor to pay the debt. In particular, the court noted that the letter, while acknowledging the existence of the mortgage, disclaimed any intent to pay the mortgage with mortgagor's own funds. As a result, mortgagee failed to raise a triable issue of fact about whether the limitations period had been reset.

*****

Failure to Construct Facility Triggers Reverter Provision in Deed

United States v. Overcoming Love Ministries, Inc. NYLJ 9/6/18, p. 21., col. 1 U.S. Dist. Ct., E.D.N.Y. (Johnson, J.)

In an action by the United States for a declaration that it holds exclusive title to disputed property, the United States sought summary judgment. The court granted the government's motion, holding that developer's failure to convert the property into a 200-unit supportive housing facility triggered a reverter provision in the deed.

The government conveyed the subject property to the developer pursuant to a deed which included three conditions subsequent, and which provided that in the event of breach of any of those conditions, the government would have an immediate right of entry, and the breach would cause all right, title and interest in the property to revert to the United States. The conditions included a requirement that the property be used continuously, for a 30-year period, for health purposes and for no other purpose, and a requirement that the property be put to use within 36 months of the date of the deed. After the deed was executed, developer discovered that New York City zoning regulations would not permit residential use of the property. As a result, developer could not complete the proposed housing facility. The government then sought return of the property pursuant to the deed's reverter provision, and the government sought summary judgment.

In granting the government's motion, the court rejected developer's argument that the government had breached the implied covenant of good faith by offering the property for a purpose that was legally impossible for the developer to comply with. The court concluded that the government had no legal obligation to assist the developer in its attempt to rezone the property to comply with the deed restriction.

*****

Questions of Fact About Whether Buyers Had Made Time of the Essence

Lee v. Robertson NYLJ 10/5/18, p. 31, col. 5 AppDiv, Second Dept. (memorandum opinion)

In buyers' action for specific performance of a contract for sale of real property, buyers appealed from Supreme Court's denial of their summary judgment motion. The Appellate Division affirmed, concluding that questions of fact remained about whether buyers had effectively made time of the essence.

The sale contract provided that closing would occur on or about 60 days after buyers received a fully executed sale contract, which happened at about Feb. 29, 2016. Buyers attempted to schedule a closing after they received a loan commitment and title report, but sellers allegedly did not respond to buyers' requests. Because buyers' loan commitment was due to expire at the end of May, buyers' lawyer sent a time-is-of-the essence letter to seller on May 10, 2016, setting a date of May 23, 2016 as the closing date. Buyers appeared at the time and place stated in the notice, but sellers did not appear. Buyers then brought this action for specific performance and damages and moved for summary judgment. When Supreme Court denied the motion, buyers appealed.

In affirming, the Appellate Division held that buyers had not established as a matter of law that the May 10 letter provided sellers with a reasonable time within which to close. The court noted that what constitutes a reasonable period of time requires a case-by-case determination that includes considerations of good faith and prejudice to the parties as well as the number of days provided for performance. In this case, buyers had not eliminated questions of fact about the reasonableness of the period, or about whether sellers had objected to their effort to declare a law date.

*****

No Equitable Mortgage When Statute of Limitations Bars Written Mortgage

21^st Mortgage Corp. v. Nweke NYLJ 10/5/18, p. 25., col. 6 AppDiv, Second Dept. (memorandum opinion)

In an action to foreclose a mortgage, mortgagor appealed from Supreme Court's judgment imposing an equitable mortgage in favor of mortgagee. The Appellate Division reversed and granted mortgagor summary judgment on her counterclaim for cancellation of the mortgage and for attorneys' fees.

On April 6, 2006, mortgagee's predecessor brought an action to foreclose on the subject mortgage. The parties stipulated to discontinue that action after a court determined that mortgagor had not been properly served. Mortgagee's predecessor brought a second foreclosure action on Sept. 17, 2007, but then requested and obtained discontinuance of the action on Jan. 24, 2013. In March 2014, current mortgagee, who obtained the mortgage through a series of assignments, moved to vacate the discontinuance, but withdrew that motion a month later. Then, in September 2014, mortgagee brought this foreclosure action. Mortgagor asserted the statute of limitations as a defense and counterclaimed for cancellation of the mortgage and for attorneys' fees and expenses. Both parties moved for summary judgment. Supreme Court granted mortgagor's summary judgment motion, concluding that the foreclosure action was barred by the statute of limitations, but then, on its own motion, imposed an equitable mortgage in favor of mortgagee. Mortgagor appealed.

In reversing, the Appellate Division relied on Real Property Law section 1501(4), which entitles mortgagor to cancellation and discharge of a mortgage once the statute of limitations has expired on an action to foreclose the mortgage. The court held that mortgagor had demonstrated that more than six years had passed since the mortgage was accelerated, and that mortgagee had raised no triable issues of fact in opposition. The court then held that Supreme Court had erroneously imposed an equitable mortgage upon mortgagor, holding that equitable mortgage doctrine is inapplicable when a legal written mortgage existed. The court remanded for a determination of attorneys' fees.

Comment

Although New York Courts have not applied equitable mortgage doctrine to reinstate a mortgage extinguished by the statute of limitations, they have applied the doctrine to protect a mortgagee when the statute of limitations bars the mortgagee's claim for reformation of an instrument critical to the mortgage's validity. For instance, in Federal Deposit Insurance Corp. v. Five Start Mgmt., 258 A.D.2d 15, the court applied the doctrine to permit a mortgagee to foreclose on the property described in the mortgage even though the underlying deed described the wrong property. In Five Star Management, the owner of the property formed a corporation, executed a deed to the corporation, and arranged for the corporation to take out a loan secured by the property. The deed, however, misdescribed the property; title remained in the individual owner. When the FDIC, as receiver, sought to foreclose on the mortgage, the individual owner resisted. The First Department held that even though the statute of limitations for reformation of the deed had expired, an equitable mortgage should be imposed, as the documentary evidence, notwithstanding the defect caused by the scrivener, established that the record title holder intended that the subject property be subject to the mortgage, which, unlike the deed, correctly identified the mortgaged property.

*****

Cotenant Entitled to Partition with Accounting

Khotylev v. Spektor NYLJ 10/26/18, p. 34., col. 4 AppDiv, Second Dept. (memorandum opinion)

In plaintiff joint tenant's action to partition real property, plaintiff joint tenant appealed from Supreme Court's grant of defendant joint tenant's motion for summary judgment on her counterclaim for a partition without an accounting. The Appellate Division reversed, holding that plaintiff joint tenant was entitled to an accounting.

When plaintiff cotenant brought this action for partition and sale, plaintiff cotenant also sought an accounting, alleging that he made payments towards the mortgage and other expenses on the property. Defendant co-tenant opposed an accounting and asserted a right to 50% of the sale proceeds. Supreme Court granted defendant co-tenant's summary judgment motion, and plaintiff co-tenant appealed.

In reversing, the Appellate Division emphasized that partition is an equitable proceeding and Supreme Court has the authority to adjust the rights of parties so that each party obtains a proper share of the property and its benefits. In light of the dispute over entitlements, an accounting was a necessary incident to the partition proceeding.