Real Property Law

In affirming, the Appellate Division rejected record owner's argument that imposition of a constructive trust requires a transfer of title to property in reliance on a promise. The court held instead that payment of funds for improvement and maintenance is sufficient to satisfy the "transfer in reliance" requirement for imposition of a constructive trust. The court also rejected record owner's argument that the statute of frauds barred promisee's unjust enrichment claim because the claim sought merely to recover the value of promisee's financial contributions.

Comment

Although New York courts purport to require "a transfer made in reliance on the promise" before they will impose a constructive trust, an actual title of transfer of title if a party has expended money towards the property in reliance on a promise to convey the property at some point following the purchase. For example, in Marini v. Lombardo, 39 A.D.3d 824 (2007), the court rejected the title holders' motion for summary judgment on a cause of action to eject their former son-in-law, finding that the son-in-law sufficiently stated a counterclaim for the imposition of a constructive trust by alleging that he made expenditures in reliance on the title holders' promise to convey the home in which he and his ex-wife lived. The son-in-law alleged that title holders offered to buy a home if he and his wife agreed to live close by and pay real estate taxes and basic operating expenses, stating that once they died the house would "belong" to the couple. The couple accepted this offer and lived in the home for eight years while making the required payments. The title holders brought the ejectment action when the son-in-law filed for divorce, but the Second Department found he "sufficiently stated a counterclaim for the imposition of a constructive trust." See also, Hairman v. Jhawarer, 122 A.D.3D 570 (2014) (preliminary injunction should be granted where party shows payment for a home to the technical record title owner in reliance on a promise that the ownership would be transferred following the meeting of conditions).

Courts only require actual transfer of title in reliance on a promise to reconvey the property where the facts do not otherwise demonstrate that the party seeking to impose a constructive trust made any expenses towards the property in reliance of a promise to convey the land. Thus, in Scivoletti v. Marsala, 97 A.D.2d 401 (1983), where the Second Department found that the trial court erred in imposing a constructive trust because the plaintiff never "parted with" title to the property, there was also no evidence that any funds expended were in exchange of a promise to convey the property to the plaintiff. Similarly, in Satler v. Merlis, 252 A.D.2d 551 (1998), where the Second Department invoked the absence of a transfer in reliance as a basis for dismissing a girlfriend's counterclaim for a constructive trust in a condominium owned by her boyfriend, there was no evidence that the girlfriend made payments toward the home. Absent a transfer as a basis for dismissing a constructive trust claim, are the cases reconcilable?

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Failure to Obtain Subdivision Approval Does Not Make Title Unmarketable

Tomhannock, LLC v. Roustabout Resources, LLC NYLJ 6/26/19 Court of Appeals (memorandum opinion)

In an action for specific performance of an option agreement, record owner appealed from the Appellate Division's affirmance of Supreme Court's grant of specific performance to the holder of the option. The Court of Appeals affirmed, holding that the option agreement was binding even though the parties had not obtained approval to subdivide the property.

Option holder transferred property to record owner's predecessor. As part of the transaction, record owner's predecessor granted option holder an option to demand reconveyance of a portion of the land, upon written demand, any time before the 10^th anniversary of the recording of the original deed. Option holder mad a timely written demand, but record owner refused to convey, arguing that the option was contingent on obtaining subdivision approval from local authorities. When option holder sought specific performance, Supreme Court held that the option was not contingent on subdivision approval and the Appellate Division affirmed. Record owner appealed.

In affirming, the Court of Appeals held that the terms of the contract were unambiguous and did not condition the record owner's obligation to reconvey on obtaining subdivision approval. The court also held that failure to obtain subdivision approval required under local law did not render title to the property unmarketable, undermining record owner's argument. As a result, option holder was entitled to delivery of the signed deed.

Comment

In Voorheesville Rod and Gun Club, Inc. v. E.W. Tompkins Comp., Inc., 82 N.Y. 2d 564 (1993), the Court of Appeals dismissed purchaser's claim for specific performance of a sale contract, holding that seller's failure to obtain subdivision approval did not breach the contract because seller's failure to obtain subdivision approval did not render title unmarketable. The contract stated that the property would be conveyed subject to all zoning laws, provided that the zoning law does not render the title to the premises unmarketable. Plaintiff claimed that due to defendant's failure to apply for subdivision approval, the property was now violating the zoning law and title was therefore unmarketable. The Court noted that zoning restrictions existing at the time of the contract do not make title unmarketable, and concluded that even though failure to obtain subdivision approval was a violation of local regulations, that violation did not make title unmarketable. Because the court dismissed purchaser's claim, it did not have to discuss what would happen if the seller conveyed without obtaining subdivision approval and local authorities rejected a subsequent subdivision application.

By contrast, because the court in Tomhannock found the option agreement enforceable, the inevitable question is what effect a deed to part of the property will have in the absence of subdivision approval. On that question, the Court of Appeals was strangely silent. As the Appellate Division dissent pointed out, if local authorities do not grant subdivision approval, the holder of the part not conveyed is in a difficult position: it will not be able to convey its remaining property to anyone other than the party who has already acquired the deed pursuant to the option agreement. Tomhannock, LLC v. Roustabout Resources, LLC, 149 A.D.3d 1219, 1222 (Devine, J., dissenting).

Although the court in Voorheesville analogized subdivision approval to zoning, the problem raised by the court's decision in Tomhannock illustrates the important difference between the two: a property that is in violation with zoning regulations can still be sold as it is and the deed can be recorded, but recording a deed conveyed without subdivision approval is prohibited.

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Accounting Necessary When Property Is Purchased With Wrongfully Appropriated Funds

Buns v. Burns NYLJ 7/12/18, p. 25, col. 2 AppDiv, Second Dept. (memorandum opinion)

In an action to establish a constructive trust on real property, plaintiff appealed from Supreme Court's dismissal of its claim for an accounting and denial of its constructive trust claim with respect to property purchased with funds wrongfully appropriated. The Appellate Division modified to reinstate the claim for an accounting.

In 2002, plaintiff conveyed two parcels — the Clarkson parcel and the Decatur parcel — to defendant pursuant to an agreement by defendant that she would not lease, sell, rent, or mortgage the properties without plaintiff's express written consent. Plaintiff also retained a life estate in both properties. Five years later, plaintiff brought this action alleging that defendant had mortgaged both properties, had used the proceeds for her own purposes, including the purchase of another property — the Putnam parcels. Plaintiff sought imposition of a constructive trust with respect to all three properties, and an accounting for the income from the Clarkson and Decatur parcels. After a nonjury trial, Supreme Court imposed a constructive trust with respect to the Clarkson and Decatur parcels, but denied plaintiff other relief. Plaintiff appealed.

In modifying, the Appellate Division held that an accounting of income derived from the properties was essential to grant plaintiff complete relief. But the court held that plaintiff was not entitled to imposition of a constructive trust on the Putnam parcel because plaintiff never had any interest in that parcel.

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Church Documents Establish That Synod Did Not Wrongfully Take Local Church's Property

Eltingville Lutheran Church v. RimboNYLJ 8/2/19, p. 26, col. 2 AppDiv, Second Dept.

(memorandum opinion)

In a local church's action against its synod for improperly taking control of the church's real property, the local church appealed from Supreme Court's dismissal of the complaint. The Appellate Division affirmed, holding that the governing church documents and statutory law establish that the local church was not entitled to the relief it sought.

The local church owns real property and operates a church and a school. The church is a member of the Evangelical Lutheran Church of America (ELCA) and the Metropolitan New York Synod of ELCA. In 2016, the Synod imposed synodical administration on the church and appointed trustees to take control of the local church's property. The local church then brought this action to enjoin the church from seizing or taking control of the property or interfering with operations of the church or school. Supreme Court initially issued a preliminary injunction, but subsequently dismissed the complaint on the merits. The local church appealed.

In affirming, the Appellate Division started by noting that courts do not generally entangle themselves in religious affairs, and if a local congregation unites with a denominational body, it generally consents to be bound by ecclesiastical determinations, subject to the appeals process the church organization itself provides. The court then noted, however, that courts may resolve property disputes if they can be decided on neutral principles without reference to religious principles. In this case, the court indicated that neither the governing church constitutions nor the relevant statutory law entitled the local church to injunctive relief. In particular, the court noted that provisions involving a congregation which has disaffiliated with ELCA were not applicable because the local church had not disaffiliated prior to the imposition of synodical administration.

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Allegations of Fraud Insufficient to Extend Statute of Limitations on Foreclosure Action

Jackson Development Group, LLC. v. Yews, Inc. NYLJ 8/2/19, p. 29, col. 4 AppDiv, Second Dept. (memorandum opinion)

In an action to foreclose a mortgage, mortgagors appealed from Supreme Court's denial of their motion to dismiss the complaint as time-barred. The Appellate Division reversed and dismissed the complaint, holding that allegations of fraud by mortgagors were insufficient to invoke equitable estoppel as a basis for extending the statute of limitations.

Corporate mortgagor and its principal executed a note and mortgage agreement on May 12, 2006. The mortgage secured a loan in the principal sum of $350,000. The loan was to be repaid within 60 days of execution. Corporate mortgagor warranted that it held title to the mortgaged property. On June 21, 2017, mortgagee brought this action to foreclose, alleging that corporate mortgagor did not have title at the time the mortgage was executed, and that various documents concerning the property had been fraudulently executed by someone in the name of one of the corporate shareholders. Mortgagee argued that the fraud warranted application of the equitable estopped exception to the statute of limitations. Supreme Court denied mortgagors' motion to dismiss, and mortgagors appealed.

In reversing, the Appellate Division held that the equitable estoppel exception applies only when the party who delayed bringing the action can establish that the fraudulent activity induced the party to delay bringing suit. In this case, mortgagee did not explain how any of the alleged fraud delayed mortgagee in bringing this action for almost 11 years after the mortgage payment became due.

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Bona Fide Purchaser Prevails Over Mortgagee of Erroneously Discharged Mortgage

Beltway Capital, LLC v. Soleil NYLJ 8/9/19, p. 27, col. 3 AppDiv, Second Dept. (memorandum opinion)

In an action to foreclose an erroneously discharged mortgage, mortgagee appealed from Supreme Court's grant of summary judgment to a subsequent purchaser and subsequent mortgagee. The Appellate Division affirmed, holding that the subsequent purchasers were protected by their status as bona fide purchaser and bona fide encumbrancer.

Soleil, as mortgagor, executed a mortgage in favor of the original mortgagee, Asset. When Asset brought a foreclosure action, Soleil moved to dismiss on the ground of payment. Soleil did not serve its motion on Asset, and Asset did not respond. As a result, Supreme Court, in July 2008, discharged the mortgage, and the discharge was recorded in August 2008. Meanwhile, after Asset brought the foreclosure action but before Soleil moved to dismiss the complaint, Asset transferred the mortgage to Beltway. Beltway recorded the assignment on July 21, 2008, 18 days before Soleil recorded the judgment discharging the mortgage. Soleil then sold the property to Hughes, who obtained a mortgage to finance the purchase. In 2009, Beltway moved for, and subsequently obtained, a judgment vacating the discharge on the basis of Soleil's fraud, and then brought this foreclosure action. Hughes and Hughes' mortgagee moved for summary judgment dismissing the complaint, alleging that they were protected as bona fide purchasers. Supreme Court agreed, and mortgagee Beltway appealed.

In affirming, the Appellate Division started by noting that a mortgagee can have an erroneously discharged mortgage set aside when there has been no detrimental reliance on the erroneous recording. The court emphasized, however, that bona fide purchasers and encumbrancers for value are protected against the discharged mortgage. In this case, Hughes purchased in reliance on the court order recorded in August 2008, well before Beltway moved to vacate the discharge. Thus, Hughes was not on record notice of the erroneous discharge, and the court rejected Beltway's argument that Hughes (and Hughes' mortgagee) had a duty to inquire further into the propriety of the recorded court order.