Real Property Law

In modifying to reinstate the complaint, the Appellate Division recounted the relevant transactions conferring power on the town and the trustees, including a 1686 decree creating the trustees and granting them the power to own waters and beaches within the town's boundaries, and an 1818 statute transferring to the town title to the undivided lands previously owned by the trustees. Power over waters, however, was expressly reserved to the trustees. The court then held that questions of fact remained about whether the disputed lands were transferred to the town by the 1818 statute. In any event, the court noted that the current occupants had not met the requirements to establish title to the disputed land by adverse possession. Those disputed questions of fact precluded summary judgment dismissing the claim as time-barred, because the town and the trustees would have had no obligation to act in the absence of adverse actions by current occupants. Similarly, current occupants were not entitled to summary judgment based on laches because they had not established that the town and the trustees should reasonably have been aware of the claims of the current occupants.

Brokerage Commission Provision Expired

NRT New York, LLC v. Brown NYLJ 12/14/18, p. 32, col. 1 AppDiv, Second Dept. (memorandum opinion)

In an action for a brokerage commission, seller appealed from Supreme Court's grant of broker's summary judgment motion. The Appellate Division reversed and granted summary judgment to seller, holding that the commission provision in a 2010agreement did not apply to a 2015 sale.

Seller leased the subject premises to ultimate buyer in 2010 for a one-month period during the summer. Broker negotiated the lease. Broker and seller also executed a brokerage agreement entitling broker to a commission on any extensions or renewals of the lease, and on any sale of the premises to the lessee. The brokerage agreement was silent about its duration. In 2011, 2012, and 2013, broker negotiated leases to the ultimate buyer for periods of one or two months. Seller and broker did not negotiate new brokerage agreements. In 2014, seller leased the premises to buyer once again, but this time, broker did not participate, and did not seek a commission (although seller did notify broker of the lease). In 2015, seller sold to buyer without the broker's participation. Broker then brought this action for a commission, and Supreme Court awarded summary judgment to broker in the amount of $913,999.40. Seller appealed.

In reversing, the Appellate Division concluded that the leases executed after 2010 were not lease extensions or renewals, noting that seller had entered into other short-term leases with other tenants during the period after the initial 2010 lease, and noting also that the subsequent leases never included language indicating that they were renewals or extensions of the initial lease. The court concluded that the 2010 brokerage agreement, including the sales commission provision, expired at the end of the 2010 lease term. As a result, broker was note entitled to a commission on the 2015 sale.

Adverse Possession/Tennis Court

Megalli v. Yeager NYLJ 12/26/18, p. 30, col. 5 AppDiv, Second Dept. (memorandum opinion)

In an action to determine title to real property, defendant true owners appealed from Supreme Court's judgment declaring that plaintiff possessors had established title by adverse possession. The Appellate Division affirmed, holding that true owners had failed to rebut the presumption of hostility.

Adverse possessors and true owners own adjoining lots (each larger than one acre) in Rye, NY. Since before adverse possessors acquired their parcel in 1977, a tennis court has been located in their backyard. When true owners' predecessors conducted a survey in conjunction with their efforts to market their parcel, they discovered that 1,948 square feet of the tennis court — almost 22% — was located on their parcel. In 2002, they sought to enter into an agreement with adverse possessors regarding use and ownership of the court, but adverse possessors declined. Current true owners then bought the parcel and used the tennis court with adverse possessors' permission until 2012, when they refused to permit adverse possessors to resurface the encroaching portion of the tennis court. Adverse possessors then brought this action, and Supreme Court, after a nonjury trial, held that possessors had acquired title by adverse possession.

In affirming, the Appellate Division started by noting that because the adverse possession claim allegedly ripened before 2002, the 2008 amendments to the adverse possession statute were inapplicable. Under the pre-2008 law, once the adverse possessor established that the possession was exclusive, continuous, open and notorious, and “protected by a substantial inclosure” or “usually cultivated or improved”, a presumption of hostility arose. In this case, adverse possessors established each of those elements, and true owners failed to rebut the presumption by showing that the tennis court had been used with the permission of their predecessors during the adverse possession period.

Comment

Had the 2008 amendments to the adverse possession statute been applicable in the case of Megalli v. Yeager, the plaintiff adverse possessors would have had to show “a reasonable basis for the belief” that the disputed 22 percent of the tennis court belonged to them. See, N.Y. Real. Prop. Acts. Law §501(3) (McKinney 2008). The few cases in which the court has applied the “reasonable basis” requirement suggest that the adverse possessor will not be able to show a reasonable basis for her belief when she has in some way acknowledged — perhaps overtly or through an offer to purchase — the true ownership of the disputed property. See, e.g., Kheel v. Molinari, 165 A.D.3d 1576, 86 N.Y.S.3d 287 (2018) (no reasonable basis when adverse possessor had previously acknowledged that his plaintiff neighbor was the true owner of the driveway); see also, Oppedisano v. Arnold, 143 A.D.3d 873, 875, 39 N.Y.S.3d 499 (2016) (no reasonable basis when there was evidence that adverse possessor had attempted to purchase the disputed property from the defendant true owner). This approach does not mark a significant change from prior law; acknowledgements of superior ownership have long negated the adverse possessor's claim that she possessed the property under a claim of right. See, Van Gorder v. Masterplanned, Inc., 78 N.Y.2d 1106, 585 N.E.2d 375 (1991).

The 2008 amendment may effectuate an actual change in the law when there is no acknowledgment of true ownership, and where there is evidence of objective conduct that suggests a reasonable basis for the possessor's belief of ownership, but where there is also evidence of adverse possessor's actual subjective knowledge that she is not the true owner of the property (i.e., adverse possessor's receipt of information from true owner, a third party, or through deed or survey that true owner has a superior claim). Although the legislative history of the amendments suggests that objective conduct should continue to be the sole consideration in the “reasonable basis” analysis, it is unclear whether courts, when presented with both objective conduct and subjective evidence of actual knowledge of true ownership, would turn a blind eye to adverse possessor's actual knowledge of the true owner, especially in light of one of the main objectives of the 2008 amendments: curtailing bad faith claims. In Megalli, had there been evidence that during the 2002 discussions plaintiff adverse possessors had seen the survey or had been directly informed of the defendant's true ownership, the court could potentially consider the adverse possessors' subsequent conduct in light of this subjective knowledge when determining whether adverse possessors had a reasonable basis to believe they owned the tennis court.

Under the 2008 amendments, the adverse possessors in Megalli would also have to show that the 22 percent of the tennis court that encroached on the defendant true owners' land was not a “de minim[is] non-structural encroachment” such that it would be deemed “permissive and non-adverse.” See, N.Y. Real. Prop. Acts. Law §543(1) (McKinney 2008). The statute provides examples of such “permissive” encroachments, including, but not limited to “fences, hedges, shrubbery, plantings, sheds and non-structural walls.” Id. The ambiguity of Section 543(1) has led to a lack of clarity over whether all nonstructural encroachments are, per se, de minimis. In Wright v. Sokoloff, the Appellate Division for the Second Department rejected the plaintiff true owner's argument that hedges, no matter how large, would automatically be deemed non-adverse and adopted the view that the encroachment must be both de minimis and non-structural to be found non-adverse. The court reasoned that since all the noted examples in the statute were non-structural, an additional inquiry into whether the encroachment was de minimis was necessary so as to not render the inclusion of “de minimis” in the statute superfluous. 110 A.D.3d 989, 973 N.Y.S.2d 743 (2013); see also, Zhuang Li Cai v. Uddin, 58 A.D. 3d 746, 871 N.Y.S.2d 675 (2009) (taking a similar approach for fenceposts). In contrast, other courts have found that if the encroachment is one of the examples listed in the statute, or comparable to one of the examples listed in the statute, no further inquiry into whether the encroachment is de minimis is necessary. For example, in Sawyer v. Prusky, the Appellate Division for the Third Department determined that a rock wall was a “non-structural wall” and therefore de minimis and non-adverse, despite its “substantial” size. 71 A.D.3d 1325, 896 N.Y.S.2d 536 (2010); see also, Lorenz v. Soares, 58 Misc.3d 1209(A) (Sup. Ct. 2018) (applying the same analysis to sheds and requiring no further inquiry into whether the shed was actually de minimis). A tennis court is not one of the listed examples in the statute, and no court in New York has previously determined whether a tennis court would fit within Section 543(1). Therefore, had the court in Megalli applied the 2008 amendment, under either the Wright or Sawyer approach, it would first need to establish whether the tennis court were non-structural, like the examples provided in the statute. In Sawyer, the court defined “non-structural” encroachments as those that are “not part of a structure” or do not “provide support to something else so as to be structural.” 71 A.D.3d at 1327. If the court in Megalli were to apply a similar definition, the tennis court could arguably be non-structural, and under Sawyer would then automatically be deemed permissive and non-adverse, without inquiry into whether the tennis court was de minimis. However, under Wright, even if the court determined that the tennis court were in fact non-structural, it would still need to determine whether the 1,948 square foot encroachment could be found de minimis.

Deed Obtained by False Pretenses

Matter of Bowser NYLJ 12/28/18, p. 26, col. 5 AppDiv, Second Dept. (memorandum opinion)

In a turnover proceeding by beneficiaries or a prior owner's will, mortgagee bank appealed from Surrogate's Court's award of summary judgment to the will beneficiaries. The Appellate Division affirmed, holding that because the bank's mortgage was based on a deed obtained by false pretenses, the mortgage was void ab initio.

Prior owner died in 2006, leaving a will dividing his estate equally between his son and his daughter. The son predeceased the prior owner, leaving three adult children. The daughter executed a deed conveying the property to herself as sole heir, and then obtained a mortgage loan from the bank. The daughter subsequently died, and the children of prior owner's son then brought this proceeding to invalidate the deed and the mortgage. Surrogate's Court granted summary judgment to the adult children. The bank appealed.

In affirming, the Appellate division concluded that a deed based on forgery or obtained by false pretenses is void ab initio, and a mortgage base4d on such a deed is also invalid. In this case, the adult children introduced evidence establishing that the deed was obtained by false pretenses, and the bank failed to raise triable issues of fact. As a result, the children were entitled to summary judgment.

Comment

A deed obtained by fraudulent inducement is merely voidable, and subsequent purchasers or encumbrancers who had no notice of either their immediate grantor's fraudulent intent or the fraud in the chain of title are protected under Real Property Law §266. Accordingly, in Shau Chung Hu v. Lowbet Realty Corp., 161 A.D.3d 986 [2018], the Second Department affirmed a grant of summary judgment to a bona fide purchaser from a corporation's ex-president, holding that even though the ex-president had no actual authority to sell the property, the deed she executed was merely voidable because she was cloaked with apparent authority to sell the property.

In contrast, when one executes a deed without actual or apparent authority, New York courts generally find that the deed was procured under false pretenses and is void ab initio. For instance, in Roberts v. Hughes, 82 A.D.3d 419 [2011], the First Department affirmed a grant of summary judgment voiding a deed and mortgage where an estate's executrix showed that the decedent's daughter had no legal basis to convey or mortgage the estate's property. Roberts did not involve a bona fide mortgagee, because the court indicated that investigation would have revealed the lack of authority, in other circumstances, courts have held that bona fide purchase protection is not available to those claiming pursuant to a void deed. For instance, in Solar Line, Universal Great Broth., Inc. v. Prado, 100 A.D.3d 862 [2012], the Second Department affirmed a grant of summary judgment invalidating a deed from a not-for-profit to its president, and invalidating a mortgage based on that deed, because the not-for-profit did not have authority to execute the deed without court approval. The court emphasized that a bona fide encumbrance is protected only when the deed is voidable, not when it is void.

It is unclear, however, what protection a subsequent purchaser or encumbrancer receives when a property's co-owner attempts to convey the entire property by falsely claiming sole ownership. In Cruz v. Cruz, 37 A.D.3d 754 [2007], the Second Department upheld the Supreme Court's cancellation of both a deed executed by a property's co-owner under the false pretense that he was its sole owner, and a mortgage based on that deed, because the deed and mortgage was void ab initio and the mortgage was likewise invalid. In Cruz, after six siblings succeeded to a property via intestacy, one sibling executed a deed conveying the entire property to himself as “sole heir” and mortgaged the property with that deed. The court held that the mortgagee's only recourse was to file a claim against the misrepresenting mortgagor. However, in In re Blango, 166 A.D.3d 767 [2018], the Second Department reversed the Surrogate Court's decree setting aside as void ab initio two deeds that overstated the grantors' property interests, as well as a subsequent deed to a bona fide purchaser, and held that because the first two deeds each purported to convey full title and the grantors had a partial interest in the property, all three deeds were effective insofar as they conveyed the grantors' partial property interest. Although courts — including the Second Department in Bowser — have relied on Cruz to completely void deeds and subsequent conveyances or encumbrances when one co-successor purportedly conveys an entire property on the false pretense that it is entirely hers, Blango charts a more balanced approach to protect both defrauded cotenants and innocent purchasers.