Real Property Law

In affirming, the Appellate Division started by noting that a notice of pendency binds all parties whose interests were recorded after the notice of pendency was filed. Even if the interest accrued before the notice was filed, the holder of that prior interest is bound by the notice of pendency unless the holder the prior interest wins the race to the recording office. Thus, because Julius did not record until after the notice of pendency was filed, the holder of the equitable lien was entitled to priority over the mortgage.

Comment

Equitable liens and constructive trusts are two distinct but related equitable remedies available to claimants who assert that their money or labor has been wrongfully appropriated by the holder of legal title to land. Ordinarily, courts will not impose an equitable lien unless the legal title holder has made an express or implied promise to grant the claimant an interest in the subject property. In Scivoletti v. Marsala, 61 N.Y.2d 806, the Court of Appeals held that the claimant, who contributed to the maintenance of a house, was not entitled to an equitable lien because the legal title holder did not make any implied promise to convey an interest in the property to the claimant. Similarly, in Liselli v. Liselli 263 A.D.2d 468, the Second Department denied an equitable lien to the claimant whose money was used to purchase the property, because the parties did not agree that the property was to be held as security for the loan. By contrast, in Rock v. Rock, 100 A.D.3d 614, the court imposed an equitable lien in favor of a son who had made substantial expenditures on his father's property in reliance on the father's oral promise to convey the property to him. The son's equitable lien was for the amount of the expenditures he made on the property; the court did not award title to the son.

A claimant may be entitled to imposition of a constructive trust on real property even if no one has promised the claimant an interest in the property. For instance, in Galasso, Langione & Botter, LLP v. Galasso, 176 A.D.3d 1176, the Second Department awarded the claimant a constructive trust against a property purchased by a law firm employee using funds wrongfully withdrawn from an escrow account maintained for claimant. Even though the claimant had no expectation of acquiring an interest in the subject real property, the misuse of funds to acquire that property resulted in imposition of a constructive trust.

*****

Purchaser from Church Not Entitled to Specific Performance

GG Acquisitions, LLC v. Mount Olive Baptist Church of Manhasset NYLJ 12/27/19, p. 31, col. 6 AppDiv, Second Dept. (memorandum opinion)

In purchaser's action for specific performance of a contract to sell real property, purchaser appealed from Supreme Court's denial of its motion for a preliminary injunction. The Appellate Division affirmed, holding that purchaser had not demonstrated a likelihood of success on the merits of its claim.

In 2012, the Mount Olive Baptist Church contracted to sell property to purchaser. The contract provided for finance of the purchase with a purchase money mortgage loan by the church. In 2016, Supreme Court denied the church's petition for approval of the sale, expressing concern over the use of a substantial purchase money mortgage. In accordance with the terms of the original contract, purchaser then presented the church with revised terms, including a higher purchase price, a shorter term on the purchase money mortgage, and a higher interest rate. The church concluded that the new terms did not address the court's concern, so the church moved for a declaration that the contract and its amendments were void. Purchaser then brought this action for specific performance of contract provisions compelling the church to execute an amendment to the contract containing the revised terms, and to use best efforts to obtain court approval of the amended contract. Supreme Court declared the contract and its amendments void, and dismissed purchaser's motion for a preliminary injunction as academic. Purchaser appealed.

In affirming denial of the preliminary injunction, the Appellate Division first concluded that Supreme Court should not have concluded that the contract was null and void because the church did not demand that relief in its pleadings. The court then concluded, however, that purchaser's motion for a preliminary injunction should have been denied on the merits. The court noted that Supreme Court's concern with the original contract was that "[t]he Church is not a bank" and should not be making loans that put at risk its ability to obtain fair market value for the property. Although the sale contract obligated the church to make its best efforts to secure court approval of amended terms of the contract, all of the proposed amendments included a substantial purchase money mortgage. Because purchaser was not willing to agree to terms that would address Supreme Court's concern with a purchase money mortgage provision, the church was released from its obligation to use best efforts. The court then concluded that the relief sought by purchaser — specific performance — was futile because Supreme Court would not have approved the revised terms.

Comment

Not-For-Profit Corp. Law §511(d) mandates that before a court may approve a religious corporation's transfer of an interest in real property, the court must find first, that "the consideration and terms of the transaction are fair and reasonable to the corporation," and second that "the purposes of the corporation or the interests of the members will be promoted."

Courts evaluate the fairness of the transaction as of the time the contract was made, and generally enforce the transaction if the proposed sale was at fair market value. For instance, in Scher v. Yeshivath Makowa Corp., 54 A.D.3d 839 (N.Y. App. Div. 2008), the Second Department awarded specific performance to a buyer when a religious corporation, for undisclosed reasons, reneged on a contract to sell the subject property at a price equal to the property's fair market value.

If, however, the transaction subjects the religious corporation to risk that the Attorney General considers excessive, a court may decline to enforce the contract even if the church wants to enforce. Thus, in Matter of La Hermosa Church, 2019 N.Y. Misc. LEXIS 1196, the court denied a religious corporation's application for a mortgage on its real property to be used to finance a speculative rezoning application that had no guarantee of success. Citing the Attorney General's objections, the court denied the church's petition because of the unfair and unreasonable economic burden that would be amassed.

Courts determine whether the transaction would promote the purposes of the religious corporation as of the time of the judicial proceeding, and if information that arises after the initial transaction reveals that the sale will likely thwart the purposes of the corporation, judicial approval will be withheld. In Agudist Council of Greater New York v. Imperial Sales Co., 158 A.D.2d 683 (N.Y. App. Div. 1990), the Second Department denied specific performance to a buyer when a religious corporation reneged on a contract to sell property housing its senior citizen center since there was no suitable alternative site to promote its corporate purpose of "providing religious services and services to senior citizens." The religious corporation had defaulted on its promise to sell the senior citizen center because the initial assurances of a third-party regarding a fitting relocation were incorrect. See also, Church of God v. Fourth Church of Christ, Scientist, 76 A.D.2d 712 (N.Y. App. Div. 1980), (denying specific performance to a buyer of a church building that became essential to the church when, after the initial contract was executed, the church accepted an offer from a sister church to merge their congregations.)

*****

Questions of Fact Preclude Summary Judgment on Prescriptive Easement Claims

Barrett v. A & P Pacific Owner, LLC NYLJ 1/24/20, p. 34, col. 1 AppDiv, Second Dept. (memorandum opinion)

In an action for a judgment declaring that landowner acquired an easement by prescription, alleged easement holder appealed from Supreme Court's grant of summary judgment to neighboring owner of the alleged servient parcel. The Appellate Division reversed and denied the summary judgment motion, holding that questions of fact remained about whether plaintiff had acquired a prescriptive easement.

Plaintiff easement claimant owns a five-story mixed use building built on Atlantic Avenue in or around 1902. A fire escape attached to the rear of the building encroaches over the rear yard of defendant's neighboring parcel by three feet, five inches, and has done so since 1902. The fire escape includes a drop ladder that leads onto the neighboring parcel from which one could travel across the neighboring parcel to take refuge on Pacific Street. The neighboring parcel has long been used as a parking lot, but when defendant acquired the parcel in 2014, defendant planned to develop the parcel with townhouses. Plaintiff brought this action to establish that she had acquired an easement by prescription. Supreme Court granted summary judgment to defendant and ordered removal of the fire escape. Plaintiff appealed.

In reversing, the Appellate Division noted that defendant had submitted evidence that the fire escape did not interfere with the operation of the parking lot from 1991 through 2014, and therefore claimed that the easement was permissive rather than hostile. The court emphasized, however, that in light of the long-time use of the fire escape, plaintiff had raised issues of fact about whether a prescriptive easement had been established before the allegedly permissive use. As a result, defendant was not entitled to summary judgment.

Aboulissan v. Kinsland 79, LLC NYLJ 1/24/20, p. 32, col. 6 AppDiv, Second Dept. (memorandum opinion)

In an action for a judgment declaring that plaintiff has a prescriptive easement over defendant's driveway, defendant appealed from Supreme Court's denial of its summary judgment motion. The Appellate Division affirmed, holding that plaintiff had raised questions of fact precluding summary judgment.

Plaintiff acquired title to his parcel in 1986. The owner of the adjacent parcel stopped using the house on the parcel in 1987, and the City of New York demolished the house in 2012. Meanwhile, in 1991, plaintiff began using a driveway on the adjacent parcel to reach the rear of his own parcel. Pin 2016, current owner of the adjacent parcel purchased the parcel from the prior owner, erected a fence around the parcel, and began construction of a home. Plaintiff then brought this action, contending that the prior owner had granted him an express easement and that, in any event, he had acquired an easement by prescription. Supreme Court dismissed the express easement claim, but held that questions of fact precluded summary judgment on the prescriptive easement claim.

In affirming, the Appellate Division noted that to establish a prescriptive easement, a claimant must establish that use of the alleged easement was hostile, and not a matter of neighborly accommodation. But the court emphasized that hostility does not require a showing of enmity or specific acts of hostility. Instead, what is required is a showing that the use constituted an actual invasion of or infringement upon the owner's rights. In this case, the court concluded that questions of fact precluded summary judgment as to whether plaintiff had acquired a prescriptive easement.

*****

Hearing Necessary to Determine Whether Mortgagee De-Accelerated Mortgage

Federal National Mortgage Association v. Rosenberg NYLJ 2/6/20, p. 22, col. 1 AppDiv, First Dept. (memorandum opinion)

In mortgagee's foreclosure action, mortgagor appealed from Supreme Court's order setting a hearing to determine whether mortgagee had revoked its election to accelerate the mortgage. The Appellate Division modified to restore the foreclosure action to the trial calendar, concluding that no framed hearing was necessary.

In April 2010, mortgagee's predecessor brought a foreclosure action. The action accelerated the mortgage debt on the subject property. In April 2015, the foreclosure action was discontinued without prejudice when the court granted the predecessor's motion to voluntarily discontinue the action. When mortgagee brought the current foreclosure action in May 2016, mortgagor moved to dismiss the action as barred by the six-year statute of limitations. Supreme Court granted the motion and cancelled the notice of pendency when mortgagee's counsel failed to appear at a scheduled conference. Mortgagee subsequently moved to reinstate the claim, asserting that it had a meritorious claim because the predecessor lacked standing to bring the April 2010 foreclosure action. Supreme Court concluded that the predecessor had standing, but ordered a framed hearing to determine whether mortgagee had a meritorious cause of action by establishing that the lender had revoked its election to accelerate the mortgage. Mortgagor appealed.

In modifying, the Appellate Division concluded that mortgagee had made a sufficient showing of a meritorious claim to warrant restoring the action to the calendar without the need for a framed hearing. The court relied on evidence that mortgagee's 90-day notice sought an amount lower than the accelerated amount, which might evidence an intent to de-accelerate the mortgage. Although the court concluded that seeking a lower amount, by itself, might not establish as a matter of law that mortgagee had de-accelerated the maturity of the mortgage debt, only a minimal showing of merit is necessary on a motion to restore a matter to the calendar.

Comment

A mortgagee's notice de-accelerating a mortgage constitutes an affirmative action sufficient to revoke an acceleration if the notice makes it clear that the mortgagee will resume acceptance of monthly payments. In Milone v. US Bank Nat'l Ass'n, 164 A.D.3d 145, the Second Department held that a mortgagee successfully revoked its prior acceleration when it sent the mortgagor a de-acceleration letter that clearly stated its intent to de-accelerate and included an unequivocal demand that the mortgagor make monthly payments on the mortgage. The demand for monthly payments proved that the notice was not pretextual and was not sent simply to avoid the running of the statute of limitations without actually seeking to de-accelerate the debt. Conversely, in U.S. Bank National Association v. Papanikolaw, 62 Misc.3d 1207(A), the court held that the mortgagee's de-acceleration letter was pretextual and did not actually revoke the acceleration where the letter did not include any such demands for payment, and the mortgagee sent the letter while simultaneously pursing its foreclosure action on appeal.

Whether a mortgagee's voluntary discontinuance of a foreclosure action revokes a mortgage acceleration turns on questions of fact, although it is not always clear what facts would lead a court to find revocation. In NMNT Realty Corp., v. Knoxville 2012 Trust, 151 A.D.3d 1068, the Second Department denied summary judgment to a mortgagor seeking discharge of a mortgage on statute of limitations grounds because the mortgagee submitted proof that it had moved to voluntary discontinue an earlier foreclosure action The court concluded that there remained a question of fact "whether [the] motion constituted an affirmative act by the lender to revoke its election to accelerate, " but did not indicate what those questions of fact were.

When a mortgagee voluntary discontinues a foreclosure action by stipulating with the mortgagor, the discontinuance is insufficient to de-accelerate, unless the stipulation itself expressly revokes the acceleration or otherwise indicates revocation. In Freedom Mortg. Corp. v. Engel, 163 A.D.3d 631, the Second Department granted summary judgment to a mortgagor and found that the stipulation of discontinuance of the foreclosure action did not raise a triable issue of fact, when the stipulation "was silent on the issue of the revocation of the election to accelerate, and did not otherwise indicate that the plaintiff would accept installment payments from the defendant."