Real Property Law

In reversing, the court noted that mortgagee had failed to submit an affidavit by someone with personal knowledge of the relevant facts surrounding the alleged erroneous or fraudulent satisfaction of mortgage. As a result, mortgage had failed to demonstrate, prima facie, that the satisfaction was erroneously or fraudulently issued.

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Questions About Meeting of Minds

1912 Newbridge Road, LLC v. Liantonio NYLJ 5/17/19, p. 23, col. 6 AppDiv, Second Dept. (memorandum opinion)

In contract vendee's action for specific performance, contract vendee appealed from Supreme Court's grant of summary judgment to seller. The Appellate Division reversed, holding that questions of fact remained about whether the parties had reached a meeting of the minds.

Contract vendee sought to purchase property that included a vehicle towing business, a repair shop, and a gas station. Contract vendee made an initial deposit of $35,000 toward the purchase, and then deposited another $35,000 together with a contract of sale. Seller returned the signed contract with additional modifications. Both the main body of the sale contract and a rider recited a purchase price of $335,000. Contract vendee then made several requests for return of the deposit and cancellation of the contract, citing unresolved issues about renovations to the property and transfer of the business. Seller refused. Contract vendee then demanded a closing on a date certain. Now the seller indicated that it could not close, and returned $35,000 to contract vendee. Contract vendee did not accept the $35,000 and brought this action for specific performance. Seller then informed contract vendee that closing on the specified date was possible, but at a price of $635,000. Both parties then moved for summary judgment on contract vendee's claim for specific performance. Supreme Court granted summary judgment to seller, concluding that there had been no meeting of the minds. Contract vendee appealed.

In reversing, the court emphasized that when differing inferences can be drawn from the written instruments prepared by the parties, questions of fact arise about the intent of the parties. In this case, the court concluded that seller had not established, as a matter of law, that there had been no meeting of minds.

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Statute of Limitations Bars Foreclosure Action

Bank of New York Mellon v. Bissessar NYLJ 5/17/19, p. 25. col. 5 AppDiv, Second Dept. (memorandum opinion)

In a mortgage foreclosure action, mortgagee appealed from Supreme Court's dismissal of the complaint. The Appellate Division affirmed, holding that the statute of limitations had run on the foreclosure claim.

On Aug. 26, 2008, mortgagee's predecessor had commenced a foreclosure action and accelerated the mortgage debt. Mortgagee commenced the instant foreclosure action on June 2, 2016. Based on these facts, Supreme Court dismissed the complaint, holding that the six-year statute of limitations had expired six years after commencement of the original action. Mortgagee appealed.

In affirming, the Appellate Division first upheld Supreme Court's determination that a screenshot offered by mortgagee was not admissible under the business records exception to the hearsay rule. The screenshot purportedly showed that mortgagor had made a payment on June 21, 2010, but the court held that even if the screenshot were deemed admissible, it did not show that mortgagor had made the supposed payment. The court then held that mortgagor's Oct. 29, 2010 letter to the loan servicer requesting a loan modification did not constitute an unqualified acknowledgment of the debt, but instead constituted a settlement offer that the mortgagee did not accept. As a result, mortgagee had not raised a question of fact to rebut mortgagor's statute of limitations defense.

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Merger Doctrine

Rosner v. Bankers Standard Insurance Co. NYLJ 5/24/19, p. 27, col. 4 AppDiv, Second Dept. (memorandum opinion)

In an action by home purchasers for breach of contract, negligence, and negligent misrepresentation, purchasers appealed from Supreme Court's grant of summary judgment to sellers. The Appellate Division affirmed, holding that purchasers' breach of contract claims were extinguished by the merger doctrine.

Purchasers bought a home pursuant to a sale contract that provided that, unless otherwise stated, no covenant, warranty, or representation made in the contract would survive closing. In a rider, sellers represented that they were not aware of any mold or vermin in the house. Purchasers conducted a home inspection that revealed water staining and water infiltration. The inspection report indicated that a mold evaluation was beyond the scope of the inspection, and recommended that purchasers conduct a mold evaluation if they were concerned about the issue. Purchasers did not obtain a mold inspection, and closed on the house. One of the purchasers experienced headaches and dizziness in the house, and a post-closing evaluation revealed elevated levels of mold throughout the house. Purchasers then brought this action against the inspector and against the sellers. The inspector settled, and sellers moved for summary judgment. Supreme Court granted the motion, and purchasers appealed.

In affirming, the Appellate Division held that the merger doctrine barred purchasers' breach of contract claim. The court rejected purchasers' claim that sellers had actively concealed the mold, noting that the only evidence of concealment was an affidavit from a mold remediation specialist who concluded that sellers must have been aware of the mold and must have actively concealed it. The court dismissed the evidence as speculative and conclusory. The court then held that Supreme Court had properly dismissed purchasers' negligence claim because a breach of contract is not a tort unless the breaching party has violated a legal duty independent of the contract. Finally, the court held that sellers were entitled to dismissal of the negligent misrepresentation claim because liability for negligent misrepresentation requires the existence of a special relationship imposing a duty to impart correct information. The court found no such relationship in this arms-length transaction.

Comment

Active concealment is a form of fraudulent misrepresentation and courts have held fraudulent misrepresentation claims survive closing, even in the presence of a merger clause. In Calvente v. Levy, 12 Misc.3d 38, where the seller checked “no” to an entry on the Property Condition Disclosure Statement (PCDS) asking if there had been prior water leakage, but there had been and the seller knew it, the court denied seller's motion for summary judgment on buyer's fraudulent misrepresentation claim. The court rejected the seller's argument that any claims on the PCDS did not survive the “as is” provision in the contract of sale, emphasizing that adopting the seller's position would nullify the statutory remedy afforded to the buyer by Real Property Law §465 (2). Id. at 40. Similarly, the court in Ayres v. Pressman held a merger clause would not bar a claim of fraudulent misrepresentation where a seller stated there were no features shared with the neighboring property, and the septic system had no known defects, when in fact, the defective septic system was partially located on the neighbor's parcel. Ayres v. Pressman, 14 Misc. 3d 145(A) (2007).

A false statement on a PCDS serves as evidence of active concealment when an ordinary inspection by the buyer would not have revealed the defect. Thus, in Pettis v. Haag, 84 A.D.3d 1553, the court held that a false statement on the PCDS could not constitute proof of active concealment for defects revealed by a home inspection report but could for those the report did not reveal. The PCDS stated that there were no electrical problems, but an inspection found defects with the breaker box. The buyers requested that the sellers fix these before closing. After closing the buyers discovered the sellers did not make the repairs, and also discovered additional electrical issues concealed in the basement ceiling. Id. at 1555. The court dismissed the claims with respect to the breaker box, holding that because the buyers were aware of the issues, they did not justifiably rely on seller's false statements on the PCDS. Id. However, the court denied summary judgment with respect to defects in the electrical work concealed in the basement ceiling. Id. at 1556. Similarly, in Simone v. Home Check where the sellers denied any rotting or water damage, but there was evidence of long-term extensive rotting and water damage not found by the buyer's home inspection, the court found the false statement on the disclosure form was enough evidence for the claim to survive summary judgment. Simone v. Home Check Real Estate Servs., Inc., 42 A.D.3d 518. In both Simone and Pettis, the contracts contained general merger clauses; in neither case did the merger clause bar the buyer's active concealment claims.

When the seller fails to fill out the PCDS, instead giving the buyer the statutory $500 in lieu of the document, buyer will have greater difficulty making out an active concealment case. Thus, in Daly v. Kachonowicz, 67 A.D.3d 78, the court awarded summary judgment to sellers on buyers claim that sellers had actively concealed potential water intrusion on the premises. The court concluded that the buyers were on fair notice of potential water intrusion in part because the sellers refused to answer any of the questions in the PCDS.

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Unjust Enrichment

Mannino v. Passalacqua NYLJ 5/24/19, p. 30, col. 4 AppDiv, Second Dept. (memorandum opinion)

In an action by equitable property owners against holders of paper title for conversion and unjust enrichment, equitable owners appealed from Supreme Court's dismissal of both claims. The Appellate Division modified to reinstate the unjust enrichment claim, holding that repayment of a mortgage loan executed by holders of paper title could serve as the basis for an unjust enrichment claim.

Equitable owners contracted to purchase a multifamily building in Brooklyn, but had Salvatore Passalacqua purchase the property in order to avoid a brokerage commission. Equitable owners paid $75,000 towards the purchase price, and Passalacqua financed the rest of the price with a $225,000 mortgage from Greenpoint. Passalacqua contracted to convey the property to equitable owners, who would assume the Greenpoint mortgage. Before closing on the contract, Passalacqua disappeared and was later declared dead. Meanwhile, equitable owners lived on the premises, leased apartment to tenant, collected rents, and paid expenses towards the mortgage. Once Passalacqua was declared dead, equitable owners commenced a proceeding in Surrogate's Court to compel his sons to execute a deed to them, and they filed a notice of pendency. Surrogate's Court granted the equitable owners' petition in 2005, but in the meantime, the Passalacqua sons, as administrators, transferred title to themselves and obtained a Wells Fargo mortgage. Part of the proceeds of that mortgage was used to satisfy the remaining $42,000 balance on the Greenpoint mortgage. The sons finally conveyed property to the equitable owners, but they then stopped paying the Wells Fargo mortgage. Equitable owners then brought this action to cancel the Wells Fargo mortgage, and moved for summary judgment. Supreme Court denied their motion and granted summary judgment to defendants. Equitable owners appealed, but during the pendency of the appeal, Wells Fargo accelerated the debt, and equitable owners then sold the premises and paid Wells Fargo $216, 038.35 to satisfy the mortgage. Equitable owners then amended the complaint to seek restitution of the amounts paid to Wells Fargo, and to assert unjust enrichment and conversion claims against both Wells Fargo and the Passalacquas. Supreme Court granted summary judgment to the Passalacquas, dismissing the conversion and unjust enrichment claims against them, and equitable owners appealed.

In modifying, the Appellate Division first upheld dismissal of the conversion claim because conversion does not lie when the property involved is real property, and because the claim was untimely. But the court reversed dismissal of the unjust enrichment claim, holding that the complaint adequately alleged that the Passalacquas were enriched by satisfaction of the mortgage, and that it would be against equity and good conscience to allow them to retain the money the purchasers sought to recover. Whether the Passalacquas used the proceeds of the mortgage to benefit the premises raised questions of fact not subject to resolution on a motion to dismiss.

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Mortgage Acceleration Revoked

Silver Street Inc. v. U.S. Bank, NA NYLJ 5/14/19 U.S. Dist Ct., EDNY (Block, J.)

In mortgagor's action to quiet title, mortgagee bank moved for summary judgment. The court granted the motion, holding that mortgagee's withdrawal of an earlier foreclosure action revoked acceleration of the mortgage, so that the statute of limitations on the mortgage did not run from the date of the earlier foreclosure action.

In September 2006, prior owner took out a mortgage loan for $760,000.In 2009, prior owner defaulted, and mortgagee brought a foreclosure action. The following year, the parties executed are recorded a loan modification agreement, causing mortgagee to discontinue the foreclosure action. In 2015, mortgagee brought a new foreclosure action. While that action was pending, prior owner sold the property to current mortgagor. Mortgagor contends that mortgagee's interest is time barred because six years expired between the initial foreclosure action and the 2015 action.

The court awarded summary judgment to mortgagee, holding that mortgagee had effectively revoked the loan acceleration by discontinuing the earlier foreclosure action. The court also emphasized that the borrower made payments after the bank withdrew the foreclosure action, presumably in reliance on the loan modification. The court held that the combination of the payments and the loan modification established that there was no genuine dispute about whether the statute of limitations had run.

Comment

The statute of limitations for mortgage foreclosure actions starts anew when, after the lender has accelerated a mortgage, the borrower makes one or more partial payments under circumstances that establish that the borrower intends to pay the remaining debt. For example, in Fed. Natl. Mtge. Assn. v. Helen Brigandi; Michael Brigandi, 2016 N.Y. Misc. LEXIS 5612, at 1, the court held that the statute of limitations did not bar a foreclosure action when the debtors made six additional partial payments following the original acceleration of the mortgage. The series of six payments served as adequate, voluntary acknowledgement of the mortgage debt and implied a renewed promise to pay the remainder.

Partial payment does not restart the statute of limitations period on mortgage foreclosure actions when the partial payments do not establish the buyer's renewed intention to repay the entire loan. A single partial payment without an unequivocal promise to pay the larger debt does not restart the statute of limitations. For instance, in Bernstein v. Kaplan, 67 AD2d 897, the court held that the debtor's partial payment of $500 dollars, accompanied by a note that read “sorry for all the trouble,” did not provide sufficient acknowledgement of the larger debt or a definitive promise to pay the remainder. Similarly, in United States v. Glens Falls Ins. Co., 546 F Supp 643, the court held that the debtor's partial payment, accompanied by a letter stating the intent that the payment expunge the remaining debt, does not indicate the debtor's willingness to repay the entire loan., and does not restart the statute of limitations. Glens Falls presents an even clearer case than Bernstein because the debtor's letter established that the debtor was not promising to pay the remainder of the mortgage debt. And, in White v. Citibank, N.A., 2018 NY Slip Op 31813, the court dismissed the lender's claim because the lender failed to provide extrinsic evidence, such as monthly statements of the loan balance, payment slips, or checks that the mortgagor voluntarily acknowledged the debt and intended to make a new promise to pay.

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Deed Valid When Not Intended As Security for Mortgage Debt

Simmons v. Reich NYLJ 4/26/19, p. 23, col. 5 AppDiv, Second Dept. (memorandum opinion)

In an action to vacate and expunge a deed, transferor appealed from Supreme Court's denial of his summary judgment motion. The Appellate Division affirmed, holding that transferor had not established that the deed was intended as security for a mortgage debt.

In 2006 and 2007, transferor executed three mortgages in favor of mortgagee in the combined principal amount of $1,000,000. The mortgages encumbered property in Bridgehampton. In 2009, transferor executed a deed conveying the mortgaged premises to mortgagee's principal. The deed was held in escrow until the principal recorded it in 2015. The deed includes a handwritten notation indicating “continuing lien on six mortgages totaling $2,300,000.” In this action, transferor sought to vacate and expunge the deed pursuant to Real Property Law section 320, which provides that a deed which appears to be intended only as a security must be considered a mortgage. Supreme Court denied transferor's summary judgment motion.

In affirming, the Appellate Division emphasized that transferor had not supported his summary judgment motion with an affidavit or any evidence specifically attesting to the nature and purpose of the transaction. As a result, transferor had not met his prima facie burden, and was not entitled to summary judgment.

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Specific Performance Denied for Failure to Show Ability to Close

GLND 1945, LLC v. Ballard NYLJ 5/31/19, p. 33, col. 4 AppDiv, Second Dept. (memorandum opinion)

In purchaser's action for specific performance of a sale contract, seller appealed from Supreme Court's grant of summary judgment to purchaser. The Appellate Division reversed, holding that purchaser had not established that it was ready, willing, and able to close.

Purchaser alleged that seller breached the contract of sale. In response, seller alleged that her prior attorney colluded with purchaser to deliver the sale contract against her instructions, and that the prior attorney conspired with purchaser to induce seller to sell the property at a price below market value. Supreme Court awarded summary judgment to purchaser, and seller appealed.

In reversing, the Appellate Division focused on purchaser's failure to produce any evidence of its financial ability to close. In the absence of such evidence, purchaser was not entitled to summary judgment, regardless of the sufficiency of seller's papers.