New York Legal Update

Bianca Jagger Can't Get No Rent Control Satisfaction

Beware you jet setting, international, super celebrities.  Your days in your New York rent controlled or stabilized apartments may be numbered.  This is the implication of the Court of Appeals' decision yesterday in Katz Park Ave. Corp. v Jagger, 2008 NY Slip Op 07987.

The case involved not Mic, but Bianca Jagger.  Ms. Jagger is in the U.S. legally on a B2 tourist visa.  She also has a rent stabilized apartment in Manhattan.  The problem? 

Under the Rent Stabilization Code (RSC), a landlord may recover possession of a rent stabilized apartment from a tenant whose lease has expired if the apartment "is not occupied by the tenant . . . as his or her primary residence" (RSC [9 NYCRR] § 2524.4 [c]). But the holder of a B2 tourist visa is required to have a "principal, actual dwelling place" outside the United States. Federal regulations make B2 visas available to aliens who are "visitors for pleasure" of the kind described in section 1101 (a) (15) (B) of the Immigration and Nationality Act (see8 CFR § 214.1 [a] [1] [i], [2]). That subsection of the statute applies only to "an alien . . . having a residence in a foreign country which he has no intention of abandoning" (8 USC § 1101 [a] [15] [B]), and "residence" is defined as "principal, actual dwelling place in fact, without regard to intent" (8 USC § 1101 [a] [33]).

Based on this, Ms. Jagger's landlord claimed that her rent stabilized apartment was not her "primary residence" and sought to remove her from the stabilized apartment. 

In affirming the landlord's motion for summary judgment, the Court of Appeals concluded that, at least absent some unusual circumstance, a primary residence in New York and a B2 visa are logically incompatible. It noted that Ms. Jagger made no attempt to show how she could simultaneously have a principal, actual dwelling place outside the United States and her primary residence in a New York stabilized apartment. 

So, Ms. Jagger's apartment will now be available.  Which international celebrity will be next?

Rezoning and Regulatory Takings

Last week in Noghrey v Town of Brookhaven, 2008 NY Slip Op 01314 the Second Department ordered a new trial in case where the plaintiff claimed that the Town's rezoning constituted an unconstitutional taking of his property. A jury had found in favor of the plaintiff, the but Second Department reversed because the trial court's court charge did not covey the proper standard for partial regulatory takings.

In 1985 the plaintiff purchased two parcels of real property on Middle Country Road in the Town of Brookhaven, with the intention of building shopping plazas. At the time of the purchases, the properties were zoned J-2 Business, which permitted the construction of shopping plazas. In 1987 the Town enacted a moratorium on new commercial development in certain areas while it reviewed and updated the Town's master plan. After the review, the Town changed the zoning on numerous parcels, including those owned by the plaintiff, from J-2 Business to B-1 Residence. The rezoning was effective February 14, 1989.

After trial, the jury found that the plaintiff had not established a total regulatory taking but the jury found, however, that the plaintiff had established a partial regulatory taking. When charging the jury regarding the federal partial regulatory takings under Penn Cent. Transp. Co. v City of New York (438 US 104), the court instructed the jury:

With respect to the first factor; that is, the economic impact of the regulation, [the plaintiff] claims that the values of his properties were reduced substantially. You may consider the values of the properties immediately before and immediately after the rezoning, and whether or not this reduction in value was a substantial reduction relative to the value before the properties were rezoned. [The plaintiff] must prove by a preponderance of the evidence that the rezoning deprived him of any use permitted by the residential zoning classification and this resulted in . . . a near total or substantial decrease or significant reduction in value [emphasis added].

The Second Department found that the terms "substantial" and "significant" were insufficient to convey the extent of diminution necessary to support a partial regulatory taking. The Court held that on retrial the trial court should instruct the jury that the economic impact factor of the Penn Central analysis required a loss in value which is "one step short of complete." It should instruct the jury that the proper inquiry is whether the regulation left only a "bare residue" of value, or use similar language which would properly convey to the jury the high threshold of loss necessary to support a partial regulatory taking.

Forums To Avoid Foreclosure

The New York State Senate Democratic Conference has joined forces with the State Banking Department, and lending and counseling institutions to help New York borrowers avoid unnecessary foreclosures. “Operation Protect Your Home” will bring lending institutions and housing counselors to New York City, Westchester and Nassau Counties in a series of forums starting this month. The first will take place tomorrow Sunday, February 10 at 11:15 at The Banking Board Room, New York State Banking Department, One State Street, 6^th floor, Manhattan.

For additional information contact:

Fernando Aquino: 646.208.3874

Jacqueline McCormack: 212.709.1698

Promise To Deliver Premises Vacant And Clean Not Enforceable

You purchase a piece of real property and low and behold, the seller leaves a bunch of his junk behind. You have to spend a lot of money to remove the junk. Do you have a cause of action for breach of contract? How about trespass? This is the situation that occurred in the Second Department's decision in Novelty Crystal Corp. v PSA Institutional Partners, L.P., 2008 NY Slip Op 00242 decided on January 15th.

The parties in that case agreed that the premises "will be delivered vacant and clean, free of all personalty, tenancies and occupancies." Despite this language in the contract, the seller failed to remove from the premises prior to closing several storage bins, containers, and other personal property. The purchaser did not raise the issue at closing, and thereafter spent approximately $17,000 to remove the items left by the seller. The purchaser later commenced an action to recover damages for breach of contract and trespass. The Second Department held that the purchaser could not recover for either breach of contract or trespass.

The Court applied the general rule that the obligations and provisions of a contract for the sale of land are merged in the deed and, as a result, are extinguished upon the closing of title. The Court stated that this rule does not apply where there is a clear intent that a particular provision of the contract of sale shall survive the delivery of the deed, or where there exists a collateral undertaking. However, the Court found that neither of these circumstances was present in the case before it.

The Court held that delivery of premises vacant and clean is one aspect of delivering possession of the premises, which can never be collateral to the transfer of title stating:

The right to exclude others, as well as their property is one of the most essential sticks in the bundle of rights that are commonly characterized as property. Because possession of the premises thus goes to the essence of the transaction, the obligation to deliver the premises vacant and clean cannot be collateral to the transfer of title.

In addition, the Court found there was no clear intent that the "vacant and clean" provision should survive the delivery of the deed. In this regard, the Court noted these other provisions of the contract:

1. The contract provided that "upon closing" the purchaser would "accept the premises as is', where is' and with all of its faults";
2. In addition, the contract provided: "Purchaser, upon closing, shall be deemed to have waived, relinquished and released Seller . . . from and against any and all claims, demands, causes of action (including causes of action in tort) . . . which Purchaser might have asserted or alleged against Seller . . . arising out of any . . . physical or environmental conditions . . . and any and all other acts, omissions, events, circumstances or matters regarding the premises";
3. Next, the contract provided that: "[t]he acceptance of the Deed shall be deemed to be full performance of, and discharge of, every agreement and obligation on Seller's part to be performed under this Contract, except for those which this Contract specifically provides shall survive the Closing";
4. Finally, the contract provided that: "[t]he parties each agree to do such other and further acts and things, and to execute and deliver such instruments and documents . . . and which may be reasonably requested from time to time, whether at or after the Closing, in furtherance of the purposes of this Contract" and that this provision "shall survive the closing."

The Court stated that the first three of these clauses were susceptible of no interpretation other than that any such claims, whether in tort or contract, were barred. And the fourth provision did not lead to a different conclusion.

With respect to the plaintiff's trespass cause of action, the Court stated that the trespass cause of action was nothing more than a contract claim pleaded as a tort, and thus, it could not survive as well.

The Court also enunciated the following policy considerations:

Our conclusion that the complaint must be dismissed follows additionally from concern about the deleterious effect on transactional real estate practice that would ensue from reaching a contrary result. The provisions of the contract of sale that are in issue today are not uncommon; they, or similar terms, are found in virtually every contract for the conveyance of real property, including the thousands of residential real estate contracts that close each year in this State. These provisions are designed to ensure that all issues related to the conveyance are resolved prior to the tender of the purchase price and the delivery of the deed at the closing so that the parties may go their separate ways thereafter without further dispute (see Powell on Real Property § 81.05[8]).

If a claim related to the vacancy of the premises is collateral and, therefore, not necessarily resolved at the closing, then so are other claims related to possession, including claims concerning the condition of the premises. "As is" clauses would be meaningless, and the closing of title would be little more than a ceremonial occasion on which documents are executed but there is little, if any, impact on the parties' respective obligations to one another, since every seller would remain subject to suit until the six-year statute of limitations applicable to contract claims (see CPLR 213[2]) had run.

So, the bottom line is that if you purchase real property, speak up at closing if the seller leaves junk on the premises, or be prepared with plenty of big, black, heavy duty, garbage bags.

Will Your Neighbor's Deed Be Available Online?

More and more public records are being made available online. This is a generally a good development. After all, who wants to trudge on down to the County Clerk's Office and deal with the clerk or the microfiche reader. Various commercial enterprises are seeking to put this public data online seeking to make a buck. One such company is Data Tree, LLC.

On Tuesday the Court of Appeals had before it an interesting Freedom of Information request by Data Tree to get access to Suffolk County land records in order to put them online - Matter of Data Tree, LLC v Romaine, 2007 NY Slip Op 09906. 

Data Tree is a national company that provides online public land records such as deeds, mortgages, liens, judgments, releases and maps, and maintains a database of nearly two billion documents, providing its customers with immediate electronic access to the information. Its customers are those entities who purchase, sell, finance and insure property. Data Tree obtains the public land records by requesting them from county clerks, or other public officials who have the responsibility of recording and archiving such documents, throughout the country.

In January 2004, Data Tree, pursuant to the Freedom of Information Law (FOIL) [Public Officers Law § 84 et. seq.] wrote the Suffolk County Clerk's Office requesting copies of public land records from January 1, 1983 to the present. Data Tree requested the records in TIFF images or in images in the electronic format used by the County, on CD-Rom or other electronic storage medium regularly used by the County.

The Clerk denied the request on three grounds: (1) the FOIL request would require re-writing and reformatting of the data; (2) disclosure would constitute an unwarranted invasion of personal privacy due to the volume of the records requested and the commercial nature of Data Tree's business; and (3) the records were available for copying and/or downloading from the computer terminals at the Clerk's Office.

After the Clerk denied the request, Data Tree commenced an Article 78 proceeding directing the Clerk to provide the records. Both the Supreme Court and the Appellate Division granted summary judgment to the County denying Data Tree's request.

However, the Court of Appeals reversed and found that questions of fact existed as to whether compliance with Data Tree's request would require the Clerk to disclose private information exempt from FOIL, and whether the Clerk had the ability to comply with the request in the format sought by Data Tree.

The Court of Appeals stated that Data Tree's commercial motive for seeking the records was irrelevant; Data Tree was not seeking a list of names and addresses to solicit any business. Rather, Data Tree was seeking public land records for commercial reproduction online. The Court acknowledged that some of the documents could contain private information, such as social security numbers and dates of birth etc. However, the Court stated that there were questions whether such private information could be redacted and thus remitted the matter to Supreme Court to determine whether such information could be redacted. The Court also found that there was conflicting affidavits, and thus questions of fact, as to whether Data Tree's request could be fulfilled by merely retrieving information already maintained electronically by the Clerk's office or whether complying with Data Tree's request would require creating a new record.

The march of public data to online sources is likely unstoppable. The more appropriate question might be whether we should require all public agencies to put all data online easily accessible to all? Or should we rely on commercial enterprises like Data Tree to provide such information?   

Eminent Domain May Be Used To Preserve Farmland

An important decision on the scope of eminent domain was reached this week. On Tuesday the Second Department held that a Town's power of eminent domain may be used to preserve farmland in Matter of Aspen Cr. Estates, Ltd. v Town of Brookhaven, 2007 NY Slip Op 09583. The property at issue in the case was a 39-acre parcel of farmland  located in a portion of the Town of Brookhaven known as the "Manorville Farmland Protection Area." The Manorville Farmland Protection Area was an approximately 500-acre working farm belt which was the largest and most contiguous belt of productive agricultural land remaining in the Town.The petitioner Aspen Creek Estates, Ltd. purchased the property for residential development.

After hearings conducted pursuant to the Eminent Domain Procedure Law, the Town Board approved the condemnation of the property, and declared that the property was being acquired, among other things, to preserve open space and agricultural resources, protect and promote continuation of agriculture in the Town, ensure the continued sale of fresh, locally grown produce, and prevent conflicts between residential homeowners and adjacent farmers. The Board also found that preserving the property would "have a positive impact on the environment and surrounding community by ensuring the protection of scenic vistas and the rural character of the area, and helping to achieve the protection of the 500-acre Manorville Farm Protection Area, a high priority preservation target."

Aspen Creek challenged the condemnation, inter alia, on the grounds that there was no public purpose for the condemnation and that its true intent was to take the subject property to lease to private farmers.

The Second Department rejected Aspen Creek's challenge. The Court found that the preservation of farmland clearly conferred a benefit upon the public, since it enables residents of the Town to enjoy locally grown produce and scenic views. In addition, the Court stated that the preservation of farmland was in keeping with the declared public policy of this state to "promote, foster, and encourage the agricultural industry" (Agriculture and Markets Law § 3), and to acquire interests and rights in real property for the preservation of open space and enhancement of natural resources, including agricultural lands (see General Municipal Law § 247[1]).

The Court also rejected Aspen Creek assertion that the taking was unconstitutional because the true purpose of the taking was to bestow a private benefit on certain individuals. Aspen Creek argued that the Town was trying to take its private property to allow a private individual other than the present owner to use it as a farm, and/or to block further development in order to increase the value and appeal of already existing homes.

The Court stated that the mere fact that condemnation will provide incidental benefits to private individuals does not invalidate the condemnor's determination as long as the public purpose is dominant. The Court found that there was no evidence in the record as to how the Town intended to use the property after the acquisition. In any event, the Court found that the possibility that the Town may sell or lease the land to a farmer did not make the proposed condemnation a pretext for improperly conferring a private benefit. It noted that the land had been continuously farmed for more than a century before Aspen Creek purchased it for development purposes. And since allowing farming to continue on the property was fully consistent with the purpose of this condemnation, the fact that one or more individual farmers may benefit was merely incidental, and did not render the public benefit to be achieved by condemnation illusory. In addition, the record was completely devoid of evidence that the proposed condemnation was motivated by a desire to increase the property value of existing homes in Manorville, and, in any event, any increase in property values would similarly be an incidental benefit.

[Note: The Court also rejected certain procedural challenges to the the condemnation].

Notice Of Pendency May Not Be Filed In Action For Specific Performance Of Warranty Provisions Of Condominium Offering Plan

CPLR 6501 provides that a Notice of Pendency may be filed in any action "in which the judgment demanded would affect the title to, or the possession, use or enjoyment of, real property." Last Tuesday, in Board of Mgrs. of Woodpoint Plaza Condominium v Woodpoint Plaza, LLC, 2007 NY Slip Op 06818, the Second Department held that an action for specific performance of warranty provisions of a condominium offering plan is not such an action, and thus, a Notice of Pendency may not be filed in such an action. The Court simply noted that the courts have traditionally applied a narrow interpretation of CPLR 6501.

Court of Appeals To Decide Fiduciary Duty of Buyer's Agents

The Court of Appeals accepted certification today of a question asked by the U.S. Court of Appeals for the Second Circuit regarding the fiduciary duty of buyer's agents in real estate transactions - Rivkin v Century 21 Teran Realty LLC, 2007 NY Slip Op 06531. The use of real estate agents by buyers in real estate transactions has become increasing poplar in recent years, yet New York law has not yet decided important aspects of the nature of the relationship between the buyer and the agent. In the case at issue, a buyer was using a real estate agency as a buyer's agent to look for property to purchase. One of the brokers in the agency located a property for the buyer, and the buyer made a bid. However, unbeknownst to the buyer, at the same time another broker in the same agency was representing another buyer also interested in the same property. This second buyer bid a higher price, and thus, the first buyer was unable to obtain the property. The first buyer claimed that his broker and/or the agency itself, should have disclosed the fact that another broker in the same office was representing another interested buyer for the property. The first buyer claimed that if he had known that the agency was representing another buyer, he would have changed his bidding strategy, or not relied on the advice of his broker in making his bid.

Since the issue of a buyer's agent's duty to disclose such competing buyers has not been decided by the N.Y. Courts, the Second Circuit certified the following question to the Court of Appeals:

Did [the defendants] breach a fiduciary duty to [the plaintiff] by failing to disclose, in any form, [defendants'] representation of a competing buyer for the property [plaintiff] sought to buy?

The question will be briefed and argued before the Court of Appeals presumably during this term.

Appellate Division Limits Eminent Domain's Application Of "Public Purpose"

The U.S. Supreme Court's controversial 2005 decision in Kelo v New London (545 US 469) greatly expanded the government's power of eminent domain by holding that the government could transfer land from one private owner to another to further economic development. The Supreme Court held that a municipality's taking of non-blighted private property by eminent domain, in furtherance of a plan for economic development that would be open for use by the general public, could constitute a permissible "public use" within the meaning of the Fifth Amendment of the Federal Constitution (id. at 487-490). The majority in Kelo emphasized that nothing in its decision prevented states from placing restrictions upon the exercise of eminent domain specifically through state statutes or constitutional interpretations as to what qualifies as a "public use."

That's just what happened last Tuesday in the Second Department's decision in Matter of 49 Wb, LLC v Village of Haverstraw, 2007 NY Slip Op 05506 where the Court limited the Eminent Domain Procedure Law's (EDPL) application of "public use, benefit or purpose." The facts were as follows:

The "Graziosi Building" was a two-story building located in the Village of Haverstraw. The building consisted of a dental office on the first floor and vacant offices on the second floor. In July 1999, Ginsburg Development Company, Harbors Haverstraw, LLC, and related entities (hereinafter collectively referred to as Ginsburg), informally proposed to develop the downtown Haverstraw Hudson River waterfront through a "public/private redevelopment project." Thereafter, in April 2002, the Village of Haverstraw adopted a resolution requiring Ginsburg to develop 40 affordable housing units within the Waterfront Development District, and to rehabilitate or construct approximately 85 additional scattered-site units of affordable housing throughout the greater Village. 

Graziosi Realty, LLC, which owned the Graziosi Building, had listed the property for sale in 1999. Efforts to sell the property in 2005 to Housing Opportunity for Growth, Advancement and Revitalization, Inc. (hereinafter HOGAR) were unsuccessful. The Graziosi Building was eventually sold to 49 WB, LLC (hereinafter 49 WB) in June 2005. HOGAR was the Village's designated affordable housing and neighborhood preservation not-for-profit organization, and was also a tenant of the Graziosi Building. While HOGAR, during its tenancy at the Graziosi Building, had always intended to purchase and develop the property, HOGAR could not meet the financing requirements.

Eleven days after 49 WB's purchase of the Graziosi Building, the Village published notice of a public hearing on its proposed acquisition of the property through eminent domain. Public hearings were conducted. The hearing focused on two competing proposals for the development of the Graziosi Building. HOGAR proposed to add a third floor to the building and construct 16 residential condominiums on the second and third floors, to be sold to Village residents and volunteers for between $175,000 and $220,000. The Village entertained HOGAR's proposal on condition that HOGAR would completely finance the acquisition of the Graziosi Building for the Village. The second competing proposal was from 49 WB as the owner of the Graziosi Building. 49 WB offered to provide six to eight affordable housing units on two additional floors to be constructed. The units would be rented to municipal employees and volunteers at 50% of the market rent so that the remaining 50% could be applied toward the tenants' future home purchases in the Village. 49 WB also promised HOGAR a long-term lease for its offices at the Graziosi Building. 49 WB argued that HOGAR's proposal of selling condominiums was a "one shot deal" as compared with 49 WB's rolling rentals that would enable more persons over time to "launch into the next phase of home ownership."

The Village passed a resolution finding that condemnation was appropriate. The Village issued determinations and findings concluding that "public purpose" was satisfied in three ways (1) the Graziosi Building, upon condemnation by the Village and then acquisition by HOGAR, was well suited for a community outreach health center; (2) the property provided a suitable location for HOGAR's offices; and (3) the site supported the construction of up to 16 affordable housing units.

The Second Department rejected each of these "public purposes" bases.

It found the alleged "public purpose" of having a community health center was illusory as a dentist was already leasing a portion of the premises, 49 WB had presented plans to introduce a health center to the site, and there was nothing to indicate that HOGAR would be more likely or successful in delivering a health center to the site than 49 WB.

The finding that "purpose purpose" was satisfied because there would be office space for HOGAR was also illusory. The Court noted that again HOGAR was already a tenant in the building, and 49 WB was willing to extend HOGAR's lease. There was nothing to indicated that "public purpose" would be furthered by HOGAR being an owner rather than a tenant of the building.

Lastly, was the affordable housing basis. Here, the Second Department found that this basis was pretextual because under the specific wording of the Village's 2002 resolution it would allow the 16 affordable housing units proposed for construction by HOGAR to apply to Ginsburg's obligation to locate 85 units of scattered sites throughout the Village. Thus, since 49 WB would be constructing 6 to 8 units of affordable housing, and Ginsberg would be required to provide 85 units, if the 16 units were subtracted from Ginsburg's requirement, the condemnation would actually provide less affordable housing units than if the condemnation did not occur. The Court recognized that providing affordable housing was a legitimate use of eminent domain. But on this record the Court found that the only rational conclusion that could be drawn was that the Village's true purpose for condemnation was to assist its waterfront developer Ginsburg in meeting the developer's private scattered-site affordable housing obligation and to reduce costs to the developer. Thus, it was only benefiting private purposes and not public purposes. 

Mortgage Lender's Receipt of "Document Preparation Fee" Does Not Constitute Unauthorized Practice of Law

A typical Borrower at Closing:

I'm being charged $100 for a "document preparation fee." What the @#%^!$ is a "document preparation fee." I was never told about that!

One can easily imagine such statements being made at many real estate closings. I myself remember my first closing on a mortgage and being bewildered by the fees and costs that suddenly appeared. A case from the Second Department last week illustrates that some intrepid borrowers are not willing to sit back and take it. They did something about it, and actually raised an interesting argument. They were unsuccessful, but they should be applauded.

The case was Fuchs v Wachovia Mtge. Corp., 2007 NY Slip Op 04784. The plaintiffs obtained a mortgage loan from the defendant in July 2003. The settlement charges paid by the plaintiffs included a $100 document preparation fee. Thereafter, the plaintiffs commenced a class action on behalf of themselves, and all others similarly situated, alleging that the defendant's receipt of the "document preparation fee" essentially constituted an unauthorized practice of law in violation of Judiciary Law § 478, § 484, and § 495(3), and constituted a deceptive practice under General Business Law § 349. Those provisions provide in relevant part:

§ 484 - No natural person shall ask or receive, directly or indirectly, compensation . . . for preparing deeds, mortgages, assignments, discharges, leases or any other instruments affecting real estate . . .

§ 495(3) - No voluntary  association  or  corporation  shall ask or receive directly or indirectly,  compensation for preparing deeds, mortgages, assignments, discharges, leases, or any other instruments affecting real estate . . .

Interesting argument right? Well the Second Department quite didn't buy it essentially because of the nature of the document prepared. As was indicated by the Court, in connection with their business of making loans secured by mortgages, the defendant's employees only completed certain blank lines contained in a standard "Fannie Mae/Freddie Mac Uniform Instrument." It was acknowledged in the appeal that the factual information written into the form by the defendant's employees was limited to the name and address of the borrower, the date of the loan, and the terms of the loan, including the principal amount loaned, the interest rate, and the monthly payment. In addition, the plaintiffs, who were represented at the closing by their own attorney, did not allege that they sought or received any advice or opinion from the defendant regarding the mortgage transaction. Based on these factors, the Second Department affirmed the award of a motion to dismiss for failure to state a cause of action (CPLR 3211[a][7]).

There is only one appropriate comment to make: Being charged $100 for filling in the blanks for name, address, and terms of a loan on a standard form? Why didn't I become a banker?