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THE TIME-OF-THE-ESSENCE DATE WAS PROPERLY SET; THE BUYER WAS NOT ABLE TO CLOSE ON THAT DATE: DEFENDANTS-SELLERS ENTITLED TO KEEP THE DOWNPAYMENT (SECOND DEPT).

The Second Department determined defendants-sellers were entitled to retain the downpayment after the buyer was not ready, willing and able to close on the time-of-the-essence date:

… [T]he defendants established, prima facie, that they effectively made September 3, 2014, a time of the essence closing date, and that, although they were ready, willing, and able to close on September 3, 2014, the plaintiff was not ready, willing, and able to close on that date  … . The defendants also established, prima facie, that the plaintiff was in default by demonstrating that the plaintiff did not appear at the closing and admitted that he did not have the funds to close … . In opposition, the plaintiff failed to raise a triable issue of fact. Accordingly, we agree with the Supreme Court’s determination to grant those branches of the defendants’ motion which were for summary judgment dismissing the complaint and to cancel the notice of pendency.

A buyer “who defaults on a real estate contract without lawful excuse, cannot recover the down payment,” at least where, as here, that down payment represents 10% or less of the contract price … . Ashkenazi v Miller, 2021 NY Slip Op 00140, Second Dept 1-13-21

 

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ONCE THE PLAINTIFFS-TENANTS PROPERLY SOUGHT TO EXERCISE THEIR OPTION TO PURCHASE, THE LANDLORD, WHO IMPROPERLY REFUSED TO HONOR THE OPTION, NO LONGER HAD A RIGHT TO USE AND OCCUPANCY PAYMENTS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiffs’ cause of action for return of the rent paid to defendant after the plaintiffs exercised their option to purchase the property should have been granted. Plaintiffs were defendant landlord’s tenants. Plaintiffs sought to exercise an option to purchase the property which was in the lease. Once the plaintiffs properly exercised the option to purchase, the landlord, who refused to honor the option, could no longer seek payment for plaintiffs’ use and occupancy:

… “[I]t is well settled that the legal owner of real property is not entitled to an award for use and occupancy from a contract vendee in possession unless there also exists a landlord-tenant relationship between the parties” … . Under the merger doctrine, “execution of a contract of sale [for real property] between landlord and tenant serves to merge the landlord-tenant relationship into the vendor-vendee relationship and thus effectively terminates the former, unless the parties clearly intend the contrary result” … . “An intention to deviate from the general rule and to avoid a merger may be directly expressed in the agreement or may be inferred from a medley of factors such as the terms of the agreement, the circumstances of its making, and the subsequent behavior of the parties” … .

Here … the parties did not express an intention to deviate from the general rule or to avoid a merger upon the exercise of the purchase option. To the contrary, the terms of the rider provided, in relevant part, that “[i]n the event that Tenant decides not to exercise its option to purchase, all provisions herein remain in full force and effect and Tenant remains liable for all payments hereunder, including but not limited to rent” … . Since the plaintiffs validly exercised their option to purchase on July 21, 2015, and became a contract vendee in possession, it follows that the landlord-tenant relationship terminated on that date by application of the merger doctrine … . Blackburn Food Corp. v Ardi, Inc., 2020 NY Slip Op 07850, Second Dept 12-23-20

 

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PLAINTIFF, WHO WAS BORN TWO YEARS BEFORE HIS MOTHER AND FATHER WERE MARRIED, WAS A DISTRIBUTEE OF HIS FATHER’S ESTATE; IT HAS YET TO BE DETERMINED WHETHER DEFENDANT YOUSEF FRAUDULENTLY REPRESENTED HE WAS THE SOLE HEIR WHEN HE TRANSFERRED REAL PROPERTY TO DEFENDANT BASMANOV (FIRST DEPT).

The First Department determined plaintiff demonstrated he was a distributee of his father’s estate. Plaintiff was born two years before his parents married and both his father’s and mother’s names were on plaintiff’s birth certificate. The court noted that it has yet to be established whether defendant Yousef fraudulently represented himself as the sole heir of the estate when he transferred real property to  defendant Basmanov:

Pursuant to Domestic Relations Law § 24, if a mother and father enter into a civil or religious marriage after the birth of their child, the child is legitimated for all purposes of New York law, even if the marriage is void or voidable (§ 24[1]). Therefore, such child automatically becomes a distributee of both birth parents, without any need to satisfy one of the paternity tests set forth in Section 4-1.2(a)(2) of the EPTL … .

Plaintiff was born in 1973, nearly two years before his parents subsequently married. At some point, the decedent-father’s name was placed on the plaintiff’s birth certificate, which, pursuant to Public Health Law § 4135(2) in effect at the time, required “the consent in writing of both the mother and putative father, duly verified, and filed with the record of the birth.” Pursuant to Public Health Law § 4103(2), “a certification of birth is prima facie evidence of the facts therein.” …

Defendant Basmanov’s argument that plaintiff failed to establish fraud necessary to warrant voiding the deeds by which defendant Yosef purported to transfer the decedent’s real property to himself, and then to her, is unavailing. Absent proof of fraud, a deed that purports to transfer more than the party owns is valid to the extent of transferring that party’s interest … ; however, it has yet to be established whether Yosef committed a fraudulent transfer by representing himself as the sole heir of the decedent’s estate in order to effectuate the transfer. Tiwary v Tiwary, 2020 NY Slip Op 07479, First Dept 12-10-20

 

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“AT ISSUE” WAIVER OF THE ATTORNEY-CLIENT PRIVILEGE EXPLAINED; AS LONG AS THE PRIVILEGED MATERIAL IS NOT USED AS PROOF, IT IS NOT “AT ISSUE.” (FIRST DEPT).

The First Department, reversing Supreme Court, determined the attorney-client privilege was not waived by the appellants’ affirmative defense because the privileged material will not be used to prove the defense. The facts are not described but the lawsuit concerns the purchase of a building and the rent and regulatory status of plaintiffs’ apartments:

An “at issue” waiver of privilege occurs where a party affirmatively places the subject matter of its own privileged communication at issue in the litigation so that invasion of the privilege is required to determine the validity of a claim or defense of the party asserting the privilege and application of the privilege would deprive the adversary of vital information. However, the fact that a privileged communication contains information relevant to the issues the parties are litigating does not, without more, place the contents of the privileged communication “at issue” in the lawsuit … . An “at issue” waiver occurs when a party has asserted a claim or defense that it intends to prove by the use of the privileged material … .

Here, appellants represent that they will not use the due diligence report to prove their claim of lack of willfulness and/or knowledge of the rent regulatory status of plaintiffs’ apartments. In this situation, appellants’ willfulness is presumed; and plaintiffs and seller defendants have adequate other sources of evidence to demonstrate whether or not appellants’ affirmative defense and cross claims have merit. Alekna v 207-217 W. 110 Portfolio Owner LLC, 2020 NY Slip Op 06841, First Dept 11-19-20

 

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ALTHOUGH CONSEQUENTIAL DAMAGES (MORTGAGE PAYMENTS, TAXES, INSURANCE, ETC.) ARE NOT USUALLY AVAILABLE WHEN A BUYER BREACHES A REAL ESTATE PURCHASE AGREEMENT BECAUSE THE SELLER REMAINS IN THE HOUSE AND THOSE COSTS ARE NOT CAUSED BY THE BREACH, THE SAME IS NOT TRUE FOR A COMMERCIAL SELLER WHO DOES NOT RESIDE IN THE HOUSE AND MUST MAKE SIMILAR PAYMENTS (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined consequential damages were available to the commercial developer in this breach of a real estate purchase agreement case. Usually when a buyer breaches a purchase agreement consequential damages are not available because the seller remains in the house and the mortgage and other costs of living there have nothing to do with the breach. However, where, as here, the seller does not live in the house, the expenses association with the maintenance and care of the home after the breach are financial losses:

As a general rule, consequential damages are not available to a seller of residential real estate when the purchaser breaches the contract … . That is because, typically, the seller “retain[s] ownership, use and enjoyment of the premises,” and it cannot be said that the “mortgage interest expenses, repairs or utilities paid postbreach” are proximately caused by the breach … .

Where, however, the seller is a commercial developer, the seller does not live in the home and never intends to do so. Upon the purchaser’s breach, the developer begins to incur costs that reduce the profit margin. Such carrying costs may include, among other things, maintenance and utility costs as well as real property taxes. Whereas the ordinary residential seller, by living in the home after the purchaser’s breach, receives value for the carrying costs until the subsequent sale, the commercial developer does not receive such value. Instead, the carrying costs are nothing but a financial loss. Chrisanntha, Inc. v deBaptiste, 2020 NY Slip Op 06607, Fourth Dept 11-13-20

 

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THE SELLER WAS NOT OBLIGATED TO EXERCISE AN OPTION IN THE RESTRICTED REMEDIES CLAUSE OF THE REAL ESTATE PURCHASE CONTRACT BECAUSE THE BUYER NEVER DEMANDED SPECIFIC PERFORMANCE OF THE CONTRACT (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Oing, affirming Supreme Court and noting that a motion to dismiss for failure to state a cause of action may be brought at any time, determined the motion to dismiss this action for specific performance of a real estate purchase agreement was properly granted. The buyer argued it was entitled to specific performance because the seller was required to exercise one of the remedies described in the restricted remedies clause of the purchase agreement. The court disagreed and held the buyer never in fact demanded specific performance. Rather, the buyer indicated it would not close unless the seller remedied a tax misclassification and lowered the purchase price:

Supreme Court properly considered the seller’s post note of issue CPLR 3211(a)(7) motion to dismiss for failure to state a cause of action because it can be made at any time (CPLR 3211[e]). Thus, CPLR 3212(a)’s requirement of demonstrating good cause for the delay does not apply … . * * *

… .[T]he buyer maintains that Supreme Court erred in dismissing that claim by misreading Mehlman v 592-600 Union Ave. Corp. (46 AD3d 338 [1st Dept 2007]) in applying the contract’s restricted remedy clause against it. That clause expressly and strictly limited the buyer to two remedies in the event the seller was unable to convey title to the premises pursuant to the terms of the contract: (i) terminate the contract and receive its down payment or (ii) consummate the transaction with a $25,000 credit to remedy any title issue. The buyer argues that our holdings in Mehlman and 101123 LLC v Solis Realty LLC (23 AD3d 107 [1st Dept 2005]) obligate the seller to concede the title defect and demand that the buyer exercise one of the options set forth in the restricted remedies clause at the closing, and that the seller’s failure to satisfy this obligation enables the buyer to maintain its specific performance claim. * * *

…  [A] seller unable to convey clear title for reasons contemplated in the parties’ contract is entitled to invoke the restricted remedies clause in response to a buyer’s demand for specific performance of the parties’ contractual terms. Here, the buyer’s allegations unmistakably demonstrate that it did not demand specific performance from the seller to convey title as alleged in the complaint, namely, by conveying title in accordance with the seller’s contractual representation that there were no negative tax issues associated with the premises. Instead, the buyer alleged in its complaint that it was ready, willing and able to close provided that the seller, inter alia, corrected the tax misclassification and reduced the purchase price to address the tax liabilities arising from the misclassification. In fact, the allegations underlying the claim demonstrate the complete absence of a demand for specific performance of the parties’ contract. Rather, according to those allegations, the buyer’s demand would result only if the seller did not comply with the buyer’s condition to close. These allegations, as a matter of law, demonstrate that the seller was not obligated to invoke the restricted remedies clause. Thus, under these circumstances, the buyer is precluded from seeking from the seller specific performance of their contract. M&E 73-75, LLC v 57 Fusion LLC, 2020 NY Slip Op 04372, First Dept 7-30-20

 

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ALTHOUGH THE REAL ESTATE PURCHASE AGREEMENT ALLOWED THE SELLER TO CANCEL THE CONTRACT IF SELLER COULD NOT CONVEY TITLE, THAT PROVISION REQUIRES THE SELLER TO ACT IN GOOD FAITH; THE COMPLAINT ALLEGED THE SELLER FALSELY CLAIMED TO BE THE SOLE OWNER OF THE PROPERTY WHEN IN FACT SHE OWNED 50%; THE SELLER’S MOTION TO DISMISS THE COMPLAINT SEEKING SPECIFIC PERFORMANCE SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT). ​

The Second Department, reversing Surrogate’s Court, determined the motion to dismiss the complaint seeking specific performance of a real estate purchase agreement should not have been granted. Although the contract allowed the seller to refund the down payment and cancel the contract if the seller is unable to convey title, the seller must do so only in good faith and only if the buyers reject the defective title. Here the complaint alleged the seller fraudulently claimed she was the sole owner of the property, when in fact she owned only 50%:

“Where, as here, a contract for the sale of real property provides that in the event the seller is unable to convey title in accordance with the terms of the contract, the seller may refund the buyer’s down payment and cancel the contract without incurring further liability, that limitation contemplates the existence of a situation beyond the parties’ control and implicitly requires the seller to act in good faith'” … . Contrary to the Surrogate’s Court’s determination, the … complaint set forth cognizable causes of action sounding in breach of contract, fraud, and unjust enrichment, among other things, upon allegations that the seller wilfully failed to supply good and marketable title and rescinded the contract of sale even though the buyer and the appellants did not reject the defective title … . Matter of Valderrama, 2020 NY Slip Op 03236, Second Dept 6-10-20

 

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THE HOLDER OF A DEED INTENDED AS SECURITY IN THE NATURE OF A MORTGAGE MUST PROCEED BY FORECLOSURE TO EXTINGUISH THE MORTGAGOR’S INTEREST; HERE THE SUBSEQUENT GOOD FAITH PURCHASERS OF THE PROPERTY WERE ENTITLED TO SUMMARY JUDGMENT DISMISSING THE MORTGAGEE’S CAUSES OF ACTION SEEKING RESCISSION OF THEIR DEED AND A DECLARATION THEIR DEED WAS NULL AND VOID (SECOND DEPT).

The Second Department determined a deed which facially appears to evidence an absolute conveyance was actually intended as security in the nature of a mortgage. The holder of such a deed (here American Lending) must proceed by foreclosure to extinguish the mortgagor’s interest. The subsequent purchasers of the property (the Romond defendants) were good faith purchasers. Therefore the Romond defendants were entitled to dismissal of American Lending’s complaint seeking rescission of the Romond deed and a declaration the deed was null and void:

In 2009, the defendant Dana Grigg sought to purchase certain property … . When financing for the transaction fell through, Grigg entered into an … agreement with the plaintiff, American Lending Corp. … to borrow … $385,000. The terms of the loan, which were memorialized in a note, included a provision that after 90 days, if the loan had not been repaid in full, American Lending would be authorized to file a joint deed in the property records and to “seek a Summary Judgment instead of following a regular foreclosure proceedings [sic].” In June 2009, Grigg purchased the subject property and executed … a deed from himself to himself and American Lending (… the joint deed). Grigg subsequently defaulted under the terms of the loan. * * *

Real Property Law § 320 provides, in pertinent part, that a “deed conveying real property, which, by any other written instrument, appears to be intended only as a security in the nature of a mortgage, although an absolute conveyance in terms, must be considered a mortgage” … .  … “The holder of a deed given as security must proceed in the same manner as any other mortgagee—by foreclosure and sale—to extinguish the mortgagor’s interest” … .

… [T]he Romond defendants established … that the joint deed was given as security for the loan from American Lending to Grigg. Therefore, pursuant to Real Property Law § 320, the joint deed must be considered a mortgage, and American Lending’s sole remedy for Grigg’s breach of its terms was to commence an action sounding in foreclosure. Moreover, under the circumstances at bar, the Romond defendants established that they were good faith purchasers of the subject property (see Real Property Law § 290 …). American Lending Corp. v Grigg, 2020 NY Slip Op 03211, Second Dept 6-10-20

 

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STANDARD PRACTICE OF USING THE SALE PROCEEDS TO PAY OFF THE EXISTING MORTGAGES ON THE SELLER’S PROPERTY AFTER THE CLOSING UPHELD BY THE MAJORITY; THE DISSENT ARGUED THE STANDARD PRACTICE VIOLATES THE TERMS OF THE STANDARD PURCHASE AND SALE AGREEMENT WHICH REQUIRES THE PROPERTY TO BE UNENCUMBERED AT THE CLOSING (THIRD DEPT).

The Third Department, affirming the grant of summary judgment to plaintiff seller, over a partial dissent, determined the standard real estate purchase and sale contract incorporates the standard practice of using the sale proceeds to pay off any mortgages on the property, even though those liens are not removed until after the closing. The defendant argued the plaintiff’s failure to turn over the property free of the mortgages at the time of the closing was a breach of the explicit terms of the contract. The dissent agreed. The decision includes a detailed and comprehensive discussion of the standard purchase and sale agreement and the standard closing practice:

Defendant argues that plaintiff did not have a marketable title at closing, as she could only provide a marketable title, as required under the contract, by providing a satisfaction of each mortgage lien at closing. However, this position would necessarily have required plaintiff to pay off each mortgage in advance and secure each satisfaction, and, in our view, is inconsistent with both the contract and the conduct of the parties.

It is significant that the parties used a “Standard Form Contract for Purchase and Sale of Real Estate” produced by the Capital Region Multiple Listing Service, Inc. … . Use of this standard form reflects the parties’ intent to embrace the common practice developed over the years in the real estate closing realm … . This common practice with respect to the existing mortgage liens is as follows — the seller obtains payoff letters from respective lenders, the purchaser brings corresponding bank checks to the closing payable to each lender, and either the title insurance agent or the seller’s counsel processes those payments to secure the required mortgage satisfaction … . Within 30 days of receipt of payment, the lenders are statutorily mandated to have a mortgage satisfaction “presented for recording to the recording officer of the county where the mortgage is recorded” (RPAPL 1921 [1] [a]). This protocol is consistent with the reality that the pertinent closing documents — the deed and the mortgage satisfactions — are recorded after the closing (see Real Property Law § 291). * * *

The concluding point is that defendant had documented assurance that the marketable title was being provided. Under these circumstances, we find that plaintiff duly performed under the contract. Defendant’s refusal to complete the transaction constituted a breach of contract. As such, Supreme Court properly granted plaintiff’s motion for summary judgment. ​Prendergast v Swiencicky, 2020 NY Slip Op 02686, Third Dept 5-7-20

 

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THE APPEAL WAS RENDERED MOOT BY DEFENDANT’S TRANSFER OF THE PROPERTY AFTER SUPREME COURT RULED DEFENDANT HAD TITLE TO THE PROPERTY (THIRD DEPT).

The Third Department dismissed the appeal as moot. Property which had been validly foreclosed by defendant was transferred to a third party. Plaintiff had brought an action pursuant to Real Property Actions and Proceedings Law (RPAPL) Article 15 to determine its rights to a portion of the foreclosed property. Supreme Court granted defendant’s motion for summary judgment on its counterclaim for strict foreclosure (RPAPL 1352) and plaintiff appealed. The appeal was deemed moot and dismissed because defendant had a right to transfer the property after Supreme Court’s ruling:

[T]he jurisdiction of this Court extends only to live controversies and, as such, an appeal will be considered moot unless an adjudication of the merits will result in immediate and practical consequences to the parties” … . “Since the ability to transfer clear title is a natural incident of [property] ownership, it follows that when a complaint involving title to or the right to possess and enjoy real property has been dismissed on the merits and there is no outstanding notice of pendency or stay, the property owner has a right to transfer or otherwise dispose of the property unrestricted by the dismissed claim” … . “‘[A] purchaser’s actual knowledge of litigation and a pending appeal is not legally significant and[,] absent a validly recorded notice of pendency, an owner has the ability to transfer clear title'” … .

Here, Supreme Court canceled plaintiff’s notice of pendency and this Court denied his motion for a stay pending appeal. Therefore, defendants had the right to transfer the property when they did, and the purchaser obtained clear title despite its knowledge of the pending appeals. Govel v Trustco Bank, 2020 NY Slip Op 02306, Third Dept 4-16-20

 

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