Real Property Law

In affirming, the Appellate Division held that the surplus monies provisions of RPAPL article 13 are applicable only to mortgage foreclosure proceedings, not to tax foreclosure proceedings. The court held that under article 11, when a property owner does not redeem the property or submit an answer in the tax foreclosure proceeding, the tax district is entitled to a deed conveying fee simple absolute and the property owners are barred from any claim to the property. Hence, the court held that when the county obtained a valid judgment of foreclosure, the former property owners were not entitled to any compensation upon resale of the property.

Comment

RPAPL §1361 explicitly allows a person to file a notice of claim on surplus moneys subsequent to a mortgage foreclosure sale. RPTL article 11, a tax foreclosure statute, has no parallel surplus moneys provision. In the absence of such provision, so long as the taxpayer was provided adequate notice of an in rem tax foreclosure proceeding, the taxpayer's exclusive remedy is the right of redemption. In Sheehan v. County of Suffolk, 67 N.Y.2d 52, the Court of Appeals affirmed the denial of taxpayers' request for surplus moneys after the taxpayers failed to redeem during a three-year redemption period with a nine-month extension. The court held that the owner has or reasonably should have knowledge of the statutory provisions affecting its title and emphasized that the redemption period gives the owner a requisite opportunity to reclaim the property. Although RPTL §1110's current redemption period is two years after lien date, the court in In re Foreclosure of Tax Liens, 72 A.D.3d 1636, dismissed a property owner's claim that the current period is so short that it deprived her of due process.

If the tax district did not comply with RPTL 1125's notice provisions, RPAPL 1136[3] gives a delinquent taxpayer 30 days from entry to reopen a default. When moving to vacate, the owner must rebut the presumption that the tax district complied with the broad notice provisions of RPTL §1125, which require that if 'adequate' steps were taken to notify the owners of the charges due and the foreclosure proceedings, then the tax district had statutory authority to foreclose. The burden to prove that the tax district did not comply with notice provisions is a heavy burden. In Matter v. City of Rochester (Duvall), 92 A.D.3d 1297, the Fourth Department affirmed the order of denial to vacate judgment of a tax foreclosure after petitioner, who was illiterate, was sent multiple notices of his nonpayment of taxes, of the upcoming foreclosure sale, and a 10-day notice to quit following the sale. The Fourth Department held that it was reasonable for the tax district to believe that someone had read petitioner's mail to him and thus the rebuttal failed. However, a delinquent taxpayer can successfully rebut the presumption if it shows that the affidavit of service is defective. In Matter of County of Seneca, 151 A.D.3d 1611, the Fourth Department reversed the denial of a property owner's motion to vacate judgment when the affidavit of service the tax district submitted did not reference the mailing of both ordinary mail and certified first class mail as required by RPTL 1125[1][b], and was mailed to "Rte 89" in Seneca Falls, an improper address since the tax district had notice of property owner's change of address to New Jersey.

The U.S. Supreme Court upheld the right of a tax district to retain surplus money in Nelson v. City of New York, 352 U.S. 103. The Court affirmed the dismissal of taxpayers' claims for surplus moneys when the City of New York, in compliance with all notice provisions, retained all proceeds and surplus from the sale of the foreclosed property. The court indicated that although the statute was severe, "relief from the hardship imposed by a state statute is the responsibility of the state legislature and not of the courts, unless some constitutional guarantee is infringed."

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Joint Tenants Need Not Own Equal Interests

Chew v. Chea NYLJ 8/30/19, p. 25, col. 6 AppDiv, Second Dept. (memorandum opinion)

In an action for partition and sale, plaintiff co-tenant appealed from Supreme Court's grant of summary judgment to defendant co-tenant on defendant's counterclaim for a declaration that each of the parties owns a 50% interest in the property. The Appellate Division reversed, holding that questions of fact precluded summary judgment.

In 2006, the parties purchased the subject property as joint tenants with right of survivorship. Six years later, plaintiff co-tenant brought this partition action, and defendant co-tenant responded with a counterclaim for a declaration that each party owned a 50% interest in the property. Plaintiff co-tenant submitted a sworn affidavit averring that defendant co-tenant did not make any contributions toward the purchase price or maintenance of the property, and that defendant co-tenant's name was on the deed as a matter of convenience. Supreme Court nevertheless granted summary judgment to defendant co-tenant, and plaintiff co-tenant appealed.

In reversing, the Appellate Division concluded that plaintiff co-tenant's affidavit raised questions of fact about the parties' respective interests, rights and shares in the property. As a result, Supreme Court improperly granted summary judgment to defendant co-tenant

Comment

A joint tenant can rebut the presumption of equal interest by showing that he or she made a disproportionate contribution to the acquisition and improvement of the property. In Novak v. Novak, 135 Misc.2d 909, where a divorced couple sought partition of joint tenancy property acquired prior to their marriage, the court rejected the wife's argument that because the property was held in joint tenancy, the parties each had an undivided one-half interest in each party. The court emphasized that as the couple made disparate contributions to the improvements of the property, their equities in the property changed. Similarly, in Furnace v. Comins, 263 A.D.2d 856, where the children sought fire insurance proceeds of real property held as joint tenants with their father, the court held that the children were not entitled to shares in the insurance proceeds because the father had purchased the policy, and also showed that the children did not contribute to the acquisition or improvement of the property.

However, if the relationship between the parties suggests that the joint tenant who made more substantial contributions was making a gift to the other joint tenant, the parties retain equal interests in the property. In Melnick v. Press, 809 F.Supp.2d 43, where a girlfriend sought partition of real property held jointly with her boyfriend, the court, applying New York law, held that the boyfriend was not entitled to greater share of sale proceeds for his allegedly disparate contributions to the acquisition and improvement of the property and to the carrying costs. The court emphasized the quasi-marital nature of the parties' relationship and the parties' lack of effort to keep track of how much money either had contributed to the property. Id. at 60. The court further found that the boyfriend failed to establish that he paid more than his share of carrying costs and held that even if he did so, it would be inequitable to require the girlfriend to reimburse her boyfriend for these costs while they cohabitated, absent evidence showing such expectation. Id. at 61-62.

By contrast, when evidence establishes that no gift was intended, the party who made greater contributions is entitled to imposition of a constructive trust on the interest of his or her joint tenant. In Hornett v. Leather, 145 A.D.2d 814, where a married man purchased real property to cohabitate with his girlfriend as joint tenants and paid for all expenses associated with the property, the court found clear evidence that the married man did not intend to make a gift to the girlfriend of his contributions to the property, and therefore imposed a constructive trust for the benefit of the married man. Based on the testimonies of the married man and the attorney who prepared the title transfer to joint tenancy, the court found that the married man's title transfer was based on the understanding that, if the parties' relationship should end, the girlfriend would reconvey her title in the property to the married man. Id. at 814-815. The court also credited the testimony that when the parties' relationship deteriorated after the girlfriend went to law school, she agreed to reconvey her interest in the property to the married man in return for his continued support of her through law school. Id. at 815.

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Fraud Action Not Premature Merely Because Truth of Representations Are the Subject of Pending Proceedings

Garendean Realty Owner LLC v. 14 Lincoln Place, LLC NYLJ 8/30/19, p. 26, col. 2 AppDiv, Second Dept. (memorandum opinion)

In purchaser's action against seller for breach of contract and fraud, purchaser appealed from Supreme Court's grant of summary judgment to seller. The Appellate Division reversed, holding that the action was not premature, even though the truth of seller's alleged misrepresentation was the subject of pending proceedings.

After the purchase of a multi-family apartment building, tenants in one of the apartments filed a complaint with DHCR contending that they were entitled to a renewal lease under the Rent Stabilization Code. Purchaser then brought this action based on seller's alleged misrepresentation that the subject apartment was exempt from rent regulation. Supreme Court granted seller's motion to dismiss on the ground that the action was premature and did not present a justiciable controversy. Purchaser appealed.

In reversing, the Appellate Division held that the viability of purchaser's claim was not contingent on DHCR's ultimate resolution of the tenants' complaint. The court emphasized that purchaser had adequately alleged that it sustained damages at the time the action was commenced by having been fraudulently induced into entering the contract of sale, and into paying an inflated price of the building, as a result of the alleged misrepresentation.

Comment

When a court faces a fraud claim that depends on resolution of a legal issue over which another decisionmaker has concurrent jurisdiction, the court has, as a practical matter, three basic choices: dismiss the action, decide the action on its own, or stay the action pending resolution by the other decisionmaker. In 165 William Street, LLC v. Baumane, 2008 N.Y. Misc. LEXIS 10083 (2008), the court stayed determination of landlord's fraud claim against tenants pending a determination by DHCR, an agency that had before it other aspects of the underlying dispute between landlord and tenants. In 165 William, tenants had filed a complaint with DHCR, contending that they were entitled to a renewal lease. Landlord resisted, contending that tenants had taken occupancy pursuant to an unlawful arrangement with the tenant of record, who was collecting more than the stabilized rent from tenants. Landlord brought an action in Supreme Court, raising a number of claims, including a fraud claim against tenants. Although the court did not dismiss the fraud claim because the details of the claim "allege[d] certain additional facts that are beyond what is before the DHCR to decide," but because the agency's determination could impact the fraud claim, the court decided to stay the claim pending the DCHR's decision.

When the Second Department in Garendean decided not to dismiss the fraud claim despite a related pending DHCR complaint, it did so because it found that whether or not the landlord-plaintiff sufficiently alleged a cause of action was not contingent on the outcome of the DHCR complaint. The Second Department did not decide the fraud claim; it simply did not dismiss it. The court effectively left the trial court with the same alternative the court took in 165 William — staying the landlord's fraud claim against the previous landlord until the DHCR makes a determination. That alternative would preserve the fraud claim while taking advantage of DHCR's expertise.

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Transferee from Incapacitated Person's Attorney-In-Fact Not A Bona Fide Purchaser

Irwin v. Regal 22 Corp. NYLJ 8/30/19, p. 29, col. 1 AppDiv, Second Dept. (memorandum opinion)

In an action to quiet title to real property brought by the guardian of a former owner, a transferee appealed from Supreme Court's grant of the guardian's summary judgment motion. The Appellate Division affirmed, holding that transferee was not a bona fide purchaser protected by the recording act.

Pollard, the former owner of the property, executed a power of attorney on July 23, 2012. Acting on that power, Pollard's attorney-in-fact conveyed the property to transferee on Sept. 17, 2014. Then, on Oct. 19, 2016, in a guardianship proceeding, Pollard was declared an incapacitated person as of June 1, 2012. Guardian then brought this action to quiet title. Transferee claimed title as a bona fide purchaser, but Supreme Court granted summary judgment to guardian, restoring ownership to former owner. Transferee appealed.

In affirming, the Appellate Division noted that transferee had failed to produce a deed delivered to it, and failed to submit evidence that it paid $10,000 to purchase the property. As a result, transferee failed to raise a triable issue of fact on its claim to be a bona fide purchaser.