Litigation

Legislation enacted after a client and a domestic relations attorney entered into a contract securing the payment of the attorneys' fees by a mortgage against the client's primary residence may not invalidate the contract, even if the contract is contrary to the purpose of the legislation. Schantz v. O'Sullivan, No. 94288, Supreme Court of New York, Appellate Division, Third Department, July 29, 2004.

Two mortgages on O'Sullivan's primary residence were given to O'Sullivan's matrimonial attorney in 1988 and 1991 to secure payment for the attorneys' fees for services provided during O'Sullivan's matrimonial action, which was settled in 1994. In 1993, after the mortgages were signed, the New York legislature enacted 22 NYCRR 1400.5(b), which prohibited the foreclosure of a mortgage on a client's primary residence taken by an attorney in the course of a domestic relations matter. The New York legislature enacted further legislation in 2002 that prohibited such foreclosures, including foreclosures that were the result of agreements made prior to the legislation. Schantz moved for a declaration that the 2002 statute was unconstitutional as it applied to the specific facts of this case and O'Sullivan moved for an order to prevent the sale of her home. The trial court held that the 2002 legislation was constitutional and blocked the sale of O'Sullivan's home. The appellate court reversed only with respect to contracts entered into prior to the enactment of the legislation. It held that because the parties entered into the contract prior to any legislation, it was a substantial impairment on private contract rights to permit a prohibition on the foreclosure of O'Sullivan's home. The court noted that a contract of this nature entered into after the effective date of the legislation would be a violation of the matrimonial attorney rules and the legislation.