Real Property Law

Contract vendee brought this action to recover damages and to foreclose liens on the property. Contract vendee filed a notice of pendency. Seller counterclaimed for release of the down payment and sought release of the notice of pendency. Contract vendee moved for summary judgment on so much of its complaint as sought release of the down payment. Seller cross-moved for summary judgment with respect to the down payment and release of the notice of pendency. Supreme Court granted seller's motion and contract vendee appealed.

In reversing, the Appellate Division held that seller's time of the essence notice was defective because it failed to clearly and unambiguously set a date for the closing. Contract vendee also established that seller repudiated the contracts by sending the notices of default. As a result, contract vendee was entitled to return of the down payments. Moreover, because the complaints were to foreclose liens on the property resulting from the sale contract, the court held that the notices of pendency were within the scope of CPLR 6501.

Comment

Whether a time of the essence notice can be effective if it sets a deadline for closing rather than a precise closing date remains a question the New York courts have not definitively resolved. Courts appear more willing to hold deadline time-of-the-essence notices effective in cases where the party serving the notice is seeking specific performance than in cases where the party serving the notice is simply trying to hold the counterparty in default. Thus, in Guippone v. Gaias, 13 A.D.3d 339, the Second Department affirmed an order granting seller's motion for summary judgment directing specific performance when seller informed buyer that that seller wished to reschedule the closing "on or before April 23, 2002" and would commence legal action if the buyer failed to comply with such request. When the seller did not receive a response to the letter, seller commenced an action for specific performance of the contract and filed a notice of pendency. The court found that the letter's "on or before" language, coupled with the statement that failure to perform would result in legal action, was clear, distinct and unequivocal notice that made time of the essence.

By contrast, in In Mazzaferro v. Kings Park Butcher Shop, Inc., 121 A.D.2d 434, the Second Department affirmed the order granting buyers' specific performance, holding that seller had not effectively made time of the essence by sending a letter stating that seller was anxious to close "on or before August 26, 1983," and notifying buyers that if not closed by the "aforesaid date" the contract would be deemed null and void. Unlike the buyers in Guippone, the buyers in Mazzoferro made several telephone calls in an effort to arrange for the closing. The notice in Mazzoferro was also defective because it did not provide buyer with a reasonable time to close, but the court's suggestion that the "on or before" language was equivocal find support in 3M Holding Corp. v. Wagner, 166 A.D.2d 580. In 3M Holding Corp., where the Second Department affirmed a judgment granting the return of buyers' down payment, when after the closing date in the contract had passed, the seller sent a letter to buyer which purported to set a closing date "no later than July 29, 1985." In dictum, the Second Department indicated that the letter did not make time of the essence because it was not clear, distinct or unequivocal. As in Mazzoferro, the seller was not seeking specific performance, but was rather seeking to retain the buyers' down payment. (In 3M, the decision ultimately turned on a subsequent time of the essence notice, which the court held inadequate because it did not provide the buyer with adequate notice of the closing date).

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Attorney Review Provision Permitted Cancellation of Contract

Makris v. Boylan NYLJ 9/23/19, p. 22, col. 3 AppDiv, Second Dept. (memorandum opinion)

In an action by contract vendee for specific performance of a contract to sell real property, contract vendee appealed from Supreme Court's dismissal of the complaint. The Appellate division affirmed, holding that the contract was subject to attorney review, which gave seller the option to cancel within a reasonable time.

On Jan. 16, 2018, the parties entered into a purchase agreement for a price of $1,480,000 with a down payment due upon the signing of a formal contract of sale. The purchase agreement provided that the contract was not subject to a mortgage contingency, that household items were included, and that closing was to occur on April 15, 2008 "or ASAP." The agreement also provided that it was contingent upon the parties obtaining approval of the agreement by their respective attorneys, and it was also subject to a 45-day due diligence period. Seller's lawyer subsequently sent a letter, dated January 22, indicating that after consultation with the lawyer, seller had decided not to proceed. Contract vendee's lawyer contended that the letter was sent on January 25 (nine days after the initial agreement), while seller's lawyer contended that it was sent seven days after the initial agreement. After receiving the letter, contract vendee brought this action for specific performance, but Supreme Court granted seller's motion to dismiss.

In affirming, the Appellate Division started by noting that the contract satisfied the statute of frauds even though the agreement contemplated execution of a more formal contract. But the court then held that in any event, the contract was not enforceable because the agreement was subject to review by seller's attorney, and the agreement included no deadline for that review to occur. The court concluded that even if seller's lawyer did not send the letter for nine days, that period was reasonable as a matter of law in the absence of prejudice to contract vendee. As a result, contract vendee was not entitled to specific performance.

Comment

Neither statute nor case law sets a fixed time during which a party may invoke an attorney-review provision in a real estate contract that is silent on review time, but courts have held that a party cannot invoke the attorney-review provision months after signing the contract. In Calcagno v. Roberts, 134 A.D.3d 1292 (2015), the Third Department held that where the contract did not specify an attorney-review period, the seller could not rely on the attorney-review provision to escape from the contract because seller's attorney delayed in disapproving the contract until almost two months after the contract execution. Similarly, in Austin v. Trybus, 136 A.D.2d 940, the Fourth Department held that where the contract did not specify an attorney-review period, the buyer was bound by the contract (see also, Rieter v. Tavella, 157 A.D.2d 894 (1990), noting in dicta that 12 days was "more than ample time" for reviewing a sale contract). Courts are also likely to bar a party from invoking attorney review as an excuse to escape from an imminent closing. In Calcagno, the court noted that seller's attorney did not disapprove the contract until less than two weeks before the contracted closing day. 134 A.D.3d, at 1294. In Austin, the court emphasized that buyer's attorney delayed in disapproving the contract until the closing day. 136 A.D.2d, at 941.

Unless the attorney review provision imposes specific criteria on the attorney, an attorney may disapprove the contract for any reason or for no stated reason. In Moran v. Erk, 11 N.Y.3d 452, the Court of Appeals held that buyer's attorney had effectively disapproved the contract when the buyer's attorney disapproved the contract without stating any reason after the buyer felt qualms after signing the real estate contract. Id. at 455-56. In Schreck v. Spinard, 13 A.D.3d 1027, the court held that seller's attorney had effectively disapproved the contract based solely on receipt of a higher-price offer since the parties did not limit matters that attorney could consider in reviewing the contract.

By contrast, when a party's attorney fails to satisfy the attorney review provision's specific criteria, the party may not invoke the provision to escape the contract. In Christ v. Brontman, 175 Misc.2d 474, the court held that the seller remained bound by the contract since seller's attorney failed to comply with the provision's requirement that the attorney state an objection and give the buyer an opportunity to cure. Similarly, in Avery v. Zahm, 178 Misc.2d 827, where the attorney-review provision was identical to the one in Christ, the court held that the buyer remained bound by the contract since buyer's attorney only made a general statement of dissatisfaction with the contract and failed to offer seller an opportunity to cure any alleged defect.

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Mortgagee Entitled to Cancellation of Erroneously Recorded Satisfaction

OneWest Bank v. Schiffman NYLJ 9/27/19, p. 28, col. 3 AppDiv, Second Dept. (memorandum opinion)

In mortgagee's action to quiet title, mortgagor appealed from Supreme Court's declaration that an erroneously recorded satisfaction of mortgage was void. The Appellate Division affirmed, holding that mortgagor had offered no excuse for its default in appearing but holding that, in any event, mortgagor's statute of limitations defense failed on the merits because the satisfaction was void at its inception.

In 2005, mortgagors obtained a first mortgage loan from Fremont in the amount of $315,000. In October 2006, Fremont assigned the note and mortgage to IndyMac. The following month mortgagors secured a second note and mortgage with IndyMac, which was consolidated with the first note and mortgage. Meanwhile, after its assignment to IndyMac, Fremont executed and recorded a satisfaction of the original note and mortgage. In 2011, IndyMac assigned its interests in the consolidated mortgages and notes to OneWest. In 2014, OneWest brought this action to cancel the erroneously filed satisfaction. Mortgagors did not appear in the action. Later, when OneWest moved for declaratory relief, mortgagors moved to extend their time to answer, and moved to dismiss the complaint based on the statute of limitations. Supreme Court granted OneWest's motion based on mortgagors' failure to produce a reasonable excuse for their default. Mortgagors appealed.

In affirming the Appellate Division first agreed that Supreme Court had properly denied mortgagors' motion for an extension of time because mortgagors had not provided any reasonable excuse. Although the Appellate Division indicated that it "need not consider whether they offered a potentially meritorious defense," the court went on to hold that the statute of limitations did not bar the cancellation because the satisfaction was void at its inception. The court emphasized that Fremont had no interest in the mortgage when it recorded the satisfaction, making the satisfaction void. As a result, the statute of limitations was not a bar to cancellation.

Comment

A mortgagee is entitled to cancellation of an erroneously recorded satisfaction where no bona fide purchasers or lenders for value have detrimentally relied on the erroneous recording. For instance, in LNV Corp v. Sorrento, 154 A.D.3d 840, the Second Department affirmed the trial court's grant of summary judgment for the current mortgagee who sought discharge of a mortgage executed by Mortgage Electronic Registration Systems, Inc. (MERS) after MERS had transferred its interest in the mortgage. The court rejected mortgagor's argument that the statute of limitations barred the action, emphasizing that because the satisfaction was void in its inception, the statute of limitations did not bar the action.

A mortgagee is not entitled to cancellation of an erroneously recorded satisfaction when the satisfaction was executed while the mortgagee still held a mortgage interest and bona fide purchasers had relied on the satisfaction. Thus, in DLJ Mtge. Capital, Inc. v. Windsor, 78 A.D.3d 645 (2010), the Second Department refused to cancel a satisfaction when a mortgagee who held mortgages on two adjacent parcels erroneously executed and recorded the satisfaction with respect to the wrong parcel, leading subsequent mortgagees to rely on a satisfaction in extending a loan to the property's owner. However, no New York cases have decided whether subsequent purchasers or encumbrances are protected when they have relied on a satisfaction that was "void ab initio" because it was erroneously record by a party who had previously assigned the mortgage.

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Co-Tenant Not Entitled to Appointment of Receiver

Manning-Kranes v. Manning-Franzman NYLJ 9/23/19, p. 25, col. 3 AppDiv, Second Dept. (memorandum opinion)

In an action for partition and sale of real property, defendant co-tenants appealed from Supreme Court's grant of plaintiff co-tenants' motion to appoint a temporary receiver. The Appellate Division reversed and denied the motion, holding that plaintiff co-tenants had not made the evidentiary showing necessary to support appointment of a receiver.

Plaintiff co-tenants alleged that defendant co-tenants were using rental income from the property for their own personal benefit. They also challenged expenditures made for renovations of the property. Based on these allegations, Supreme Court appointed a receiver for the property. Defendant co-tenants appealed.

In reversing, the Appellate Division noted that appointment of a receiver is an extreme remedy, to be granted only when the moving party has made a clear evidentiary showing of the need for the conservation of the property and the need to protect the moving party's interest in the property. In this case, the court held that plaintiff co-tenants had made only speculative and conclusory assertions about misuse of rental income. In addition, the court emphasized that the value of the real estate provided plaintiff co-tenants with sufficient security to enable them to protect their interests. Finally, the court noted that plaintiff co-tenants did not demonstrate that any of the challenged renovation work was unnecessary or wasteful. As a result, the court concluded that Supreme Court abused its discretion in appointing a receiver.