Court Upholds County’s Reverter With Respect to Home Sold at Public Auction—Purpose of Reverter Was to Keep Welfare Recipients Out of Middle Class Neighborhoods—Defendant Unsuccessfully Argued That Reverter Purpose Was Not Violated Since House Was Being Rented to Manhattan Professionals

In 2009, the plaintiff county commenced an action pursuant to RPAPL Article 15 for “a declaration of its clear title to a parcel of real property [home]….” The claim arose from the county’s 2004 public auction of residential properties. The home had been conveyed pursuant to such auction to “A,” for $700,00 on March 21, 2005. The terms of the sale included “a deed restriction imposing a reverter in favor of the County which was mandated by…Local Law #13-1990 [Local Law][reverter]….”

The local law was adopted pursuant to a resolution which described the law as a “Local Law to Mitigate Welfare Placement by Restricting Auction of County-Owned Real Property to Owner/Occupants.” Pursuant to the local law, “the purchasers or the natural children or the natural parents of the purchasers of all publicly auctioned parcels of residential property having structures capable of physical occupancy were required to occupy same for a period of five years from the transfer of title. Any breach of this condition resulted in an automatic reverter of the premises to the County, by operation of law….” The county administrative code expanded “the terms ‘natural’ parents and ‘natural’ children” to include “step and adoptive children and parents, while the term ‘occupancy’ was defined as ‘to take, hold possession of and reside in as an owner, for activities pursued at home on a family or personal basis’….”

The county’s deed to “A” specified that the parcel “shall be occupied by the ['A'] or ['A''s] natural children or ['A''s] natural parents for a period of five years from the date of conveyance herein. In the event that it is not so occupied, this parcel shall revert to grantor by operation of law.”

The county alleged that title reverted when “A” “breached the occupancy condition” embodied in the deed “by failing to occupy the premises or when he arranged with his mortgagee a short sale of the premises for…$450,000 on January 8, 2009.” The purchaser of the home from “A” was a corporation (“C Inc.”). “C Inc.” was solely owned by defendant “B.” “B’s” lawyer in the transaction had subsequently pled guilty to grand larceny charges in connection with his participation in a mortgage fraud scheme.

One day after “C Inc.” had taken title from “A,” “C Inc.” conveyed the home to “D” for $500,000 pursuant to a deed dated Jan. 9, 2009. “D” thereafter sold the home to “B” for $890,000 pursuant to a deed dated Jan. 16, 2009. The deed from “D” to “B,” did not include the reverter clause. The conveyances by “A” to “C Inc.” and by “C Inc.” to “D,” rather than a direct conveyance to “B” directly from “A,” “were purportedly recommended by ['B's"] attorney for ‘estate tax planning purposes and other reasons.’”

“B” claimed to have had “no knowledge of the…reverter…until the commencement of this action,” even though “he was the sole principal of ['C Inc.'],” the purchaser from “A.” “B” claimed that he lacked knowledge because “neither the occupancy condition nor the reverter…was included in the deed from ['D'] nor ‘the title report ordered by his attorney’….” Following “B’s” purchase, “B” improved the property so that it could be rented out as a beach house.

“B” argued that the policy behind the local law and covenant “was to keep welfare recipients out of middle class neighborhoods” and since the house is being used as a summer rental to “Manhattan professionals,” “the deed, covenants and reverter should not be enforced.”

After reviewing the subject statute, its legislative history and certain exceptions, the court found that the “condition subsequent” in the county’s deed to “A,” was “clear and unambiguous” and that “a public purpose was served” by the imposition of the subject occupancy limitation. The court explained that “a right of reverter upon a limitation or condition subsequent was created in favor of the County in its…conveyance to ['A'] by the deed’s inclusion of the…language restricting the use of the premises for a public purpose, namely, ‘to protect and promote the health, safety and general welfare of the residents of Suffolk County’ by ‘restricting the auction of County-owned property to owner/occupants’….”

Since “neither ['A'] nor his natural children or parents fulfilled the five year occupancy requirement set forth in the deed,” “[a] breach of the limitation or condition subsequent giving rise to the county’s reverter thus occurred upon the failure of qualified ['A' family members] to satisfy that occupancy requirement.” The county’s conveyance to “A” had created the “possibility of reverter in favor of the County that ripened upon ['A''s] breach of the limitation or condition subsequent set forth in the deed of March 21, 2005.” The court held that the reverter was applicable and immune from “judicial modification or diminution of the type contemplated by RPAPL §1953(2) and (3).” The reverter was “automatic upon a breach of the occupancy condition imposed in his deed.”

Accordingly, the court granted partial summary judgment to the county to the extent that the court declared that the county has “a valid and enforceable reverter…that became automatic upon ['A''s] breach of occupancy requirement” and “such reverter is exempt under RPAPL §1953(4) from judicial modification and/or diminution within the contemplation of the other provisions of RPAPL §1953.”

County of Suffolk v. Givens, 13978-09, NYLJ 1202622607307, at *1 (Sup., SUF, Decided Sept. 16, 2013), Whelan, J.

Foreclosure Action Dismissed—Failure to Comply With C.P.L.R. §3408(f) Requirement That Lender Negotiate in Good Faith to Reach a Mutually Agreeable Resolution—Lender’s Lack of Standing to Commence and Prosecute the Action—Equity Required Cancellation of Any Interest, Late Fees and Attorney Fees From the Date of Default—Action Dismissed With Prejudice

The defendants in a mortgage foreclosure action had moved for an order finding that the plaintiff (lender) “had violated C.P.L.R. §3408(f) in failing to negotiate in good faith to reach a mutually agreeable resolution, including a loan modification” and “for a further order dismissing the foreclosure action with prejudice pursuant to C.P.L.R. §3211(a)(3) for [lender's] lack of standing to commence and prosecute the…foreclosure action.” The defendants’ motion was submitted to the court without opposition.

A “good faith hearing” had been scheduled. The defendants had moved the court for a finding that the lender had acted in bad faith and that the foreclosure action should be dismissed, with prejudice, based upon the lender’s lack of standing. The court scheduled an oral argument and all parties appeared on the return date. Upon the lender’s failure to submit opposition to the motion, the court granted the defendants’ motion in its entirety.

The court noted that the lender had been “given ample opportunity to obtain the original loan documents needed to prove its standing and satisfy defense counsel’s inquiry into [lender's] standing with the intention of promoting a modification of the mortgage, but [lender] failed to obtain the original loan file within the time period set down by the Court and accordingly was not ready to offer oral argument in opposition to the defendants’ motion.”

The lender “attempted to request an adjournment…on the return date after having had more than one month to procure the documents needed to oppose the defendants’ motion.” The defendants opposed the request for an adjournment, citing the lender’s “prior dilatory conduct during the foreclosure settlement conferences,” as had been reported by a special referee.

The special referee had issued a report, finding that “[the lender] had failed to comply with C.P.L.R §3408(f) by not acting in good faith during the Foreclosure Settlement Conferences held before her.” The special referee also reported that “[the lender] had failed to produce title documents pursuant to C.P.L.R. §3408(e).”

C.P.LR. §3408(e) provides in pertinent part that, “[F]or plaintiff, such documents should include, but are not limited to, payment history, an itemization of the amounts needed to cure and pay off the loan, and the mortgage and note. If the plaintiff is not the owner of the mortgage and note, plaintiff shall provide the name, address and telephone number of the legal owner of the mortgage and note.”

C.P.L.R. §3408 (f) provides that, “[B]oth the plaintiff and defendant shall negotiate in good faith to reach a mutually agreeable resolution, including a loan modification, if possible.”

The court explained that “[w]here a mortgagee has been found to breach the duty of negotiating in good faith, Courts have ordered that no interest be collected on the underlying loan, either from a date during the proceeding that would appear to correspond to the mortgagee’s breach or from the date of the mortgagor’s default on the loan. This remedy includes a bar on attorney fees and costs.” Moreover, foreclosure actions are “equitable in nature” and therefore, “the recovery of interest is within the Court’s discretion.” Courts will consider “the particular facts in each case, including any wrongful conduct by either party….” Thus, “the recovery of interest may be limited by the Court. In an appropriate case, equity requires the cancellation of any interest awarded to the mortgagee on the unpaid principal balance of the mortgage.” The court found that the subject case “is an appropriate case for such a remedy.”

Given the lender’s “prior dilatory conduct” and “its failure to obtain original loan documents needed to oppose the defendants’ motion,” the court found that the lender had “acted in bad faith” and granted the defendants’ motion. Accordingly, the court ordered that “all interest, late fees and attorney’s fees be cancelled from the date of default to date of” the subject order; and that “the foreclosure action be dismissed with prejudice.” The court also directed the cancellation of a lis pendens that had been placed on the property.

Deutsche Bank National Trust v. Hinds, 500398/12, NYLJ 1202622170047, at *1 (Sup., KI, Decided Sept. 19, 2013), Demarest, J.

Foreign Mission to the United Nations and Foreign Country Are Not Protected by Diplomatic Immunity From Liability Arising From Failure to Repair Hole in Sidewalk

A defendant mission to the United Nations and defendant foreign country had moved for summary judgment dismissing a personal injury action. The plaintiff alleged that she had tripped on a hole in the sidewalk in front of the mission. The plaintiff asserted that as owners of the abutting building, the defendants were liable because NYC Admin. Code §7-210 creates “nondelegable duty to maintain the sidewalk adjoining the Mission in a reasonably safe condition” and the defendants had “negligently failed to do so.” The defendants asserted diplomatic immunity under the federal Foreign Sovereign Immunities Act, 28 U.S.C. §§1602-1611 and denied any obligation to repair the hole.

The court noted that the code, “on its face, does not make any exception or otherwise address these provisions’ effect on real property owners entitled to diplomatic immunity from their enforcement, despite the United Nations headquarters’ longstanding presence in New York City that has led and is likely to lead to foreign governments’ ownership of real estate in the City.” The court stated that such ownership “has led and is likely to lead to issues regarding the viability of claims” against such owners for injuries.

The plaintiff had originally sued the city. A prior court ruled that regardless of whether the city had notice of the defect, here, the code applies and the city had “not made special use of the sidewalk nor caused or created the condition complained of.” Thus, if the defendants are not liable, the plaintiff may not recover at all.

Prior to the accident, New York City had served a notice of violation on the mission. The mission was advised by its government that, “based on its diplomatic immunity…the mission was exempt from any obligation to repair” the sidewalk. The mission had not, however, advised the Department of Buildings or the city, of its country’s position, “leaving the need and the responsibility for repair…unaddressed.”

Citing USSA Cas. Ins. v. Permanent Mission of the Republic of Namibia, 681 F.3d 103 (2d Cir. 2012), the court explained that:

A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case…(5)…in which money damages are sought for personal injury or death, or damage to or loss of property, occurring in the United States and caused by damage to or loss of property, occurring in the United States and caused by the tortious act or omission of that foreign state or of any official or employee of that foreign state while acting within the scope of his office or employment; except this paragraph shall not apply to…(A) any claim based upon the exercise or performance or the failure to exercise or perform a discretionary function regardless of whether the discretionary function be abused….28 U.S.C. §1605(a) (emphasis in original).

The court found that the mission had decided to not assume responsibility for the repair after consultation with its government. Therefore, the officials had reached their decision “while acting in the scope of their employment.” Moreover, the defendants’ decision not to undertake the subject repair, despite the Buildings Department’s notice to do so, breached the “defendants’ non-discretionary duty required by [the Code]” and tortiously caused the alleged injury. Accordingly, the court held that the defendant “ foreign state shall not be immune” from the suit and denied the defendants’ motion for summary judgment.

Weason v. Permanent Mission of Romania, 113830/2010, NYLJ 1202619905174, at *1 (Sup., NY, Decided Sept. 9, 2013), Billings, J.

Scott E. Mollen is a partner at Herrick, Feinstein and an adjunct professor at St. John’s University School of Law.