Real Property Law

Finder Not Acting As Broker

Futersak v. Perl

NYLJ 4/8/10, p. 28, col. 1

Supreme Ct., Nassau Cty.

(Warshawsky, J.)

In an action for breach of a contract to pay a finder's fee, both parties sought summary judgment. The court granted the finder's summary judgment motion, rejecting the argument that the finder was acting as a broker without a license.

Finder wanted to buy the subject parcel of land, but did not have the capital to make the purchase. Finder knew that purchaser had the capital, and finder alleges that he introduced purchaser to seller, and agreed with purchaser that he would retain a 15% interest in any subsequent purchase by purchaser. Finder alleged that he and purchaser subsequently agreed that instead of finder paying 15% of any down payment and maintaining and ownership interest in the property, he would instead maintain a 15% interest in any profits derived from purchaser's subsequent sale of the property. The parties entered into a written finder's agreement calling for payment of that finder's fee upon sale of the property.

Purchaser bought the property for $3,600,000, and sold it 10 days later for $4,700,000, a profit of $1,100,000. The purchase contract states that no broker was involved in the transaction. When finder sought payment of $165,000 pursuant to the terms of the finder's agreement, purchaser refused, contending that finder was acting as a broker, and that because finder did not have a broker's license, Real Property Law section 442-d precluded recovery of a broker's commission. Both parties sought summary judgment.

In awarding summary judgment to finder, the court emphasized purchaser's own unambiguous recitations in its purchase contract that purchaser and seller had negotiated directly and that no broker had been used in procuring the sale. The court concluded that this language, together with the finder's agreement itself, flatly contradicted purchaser's argument that finder was acting as a broker rather than a finder. Consequently, the court held that finder was entitled to summary judgment.

Failure to Comply with Home Equity Theft Protection Act

First National Bank of Chicago v. Silver

NYLJ 3/29/10, p. 33, col. 1

AppDiv, Second Dept.

(Opinion by Florio, J.)

In mortgagee's foreclosure action, mortgagors appealed from Supreme Court's denial of their summary judgment motion and grant of mortgagee's summary judgment motion. The Appellate Division reversed, concluding that mortgagee's failure to deliver a notice pursuant to the Home Equity Theft Protection Act (Real Property Law sec. 265-a) entitled mortgagor to judgment dismissing the complaint.

In 1999, mortgagors borrowed $324,000 to finance the purchase of their home. They executed a mortgage to M.L. Moskowitz & Co. to secure the loan. The mortgage was properly recorded, and was assigned several times. In 2007, current mortgagee filed a summons, complaint, and notice of pendency to commence the instant foreclosure action, alleging failure to make the required payments. The mortgagee has never alleged that the required HETPA notice was delivered with the complaint. Mortgagors answered, and did not raise the HETPA notice in their answer. Subsequently, mortgagee moved for summary judgment, and at that point, mortgagors raised the failure to provide a HETPA notice in its cross-motion for summary judgment. Supreme Court awarded summary judgment to mortgagee.

In reversing, the Appellate Division noted that HETPA became effective on Feb. 1, 2007, and required statutory notice to be filed with the summons and complaint in a foreclosure action (RPAPL ' 1303(2)). The court held that the service of the notice required by HETPA is a mandatory condition or condition precedent to filing a foreclosure action. Because this mortgagee did not serve the notice, mortgagors were entitled to summary judgment. Failure to raise the issue in the answer did not preclude mortgagors from relying on the absence of the notice in support of their summary judgment motion.

Bona Fide Mortgagee

Phillips-Thomas v. Ellison

NYLJ 4/14/10, p. 29, col. 3

Supreme Ct., Nassau Cty.

(Lally, J.)

In an action by former owner of the subject parcel seeking damages and a return of title to the parcel, foreclosure sale purchaser sought summary judgment dismissing former owner's title claims and cancelling the notice of pendency. The court vacated former owner's notice of pendency, holding that her claims, even if proven, would not permit her to prevail against an incumbrancer for valuable consideration.

Former owner had fallen behind in her mortgage payments after her father's death. Crawford and Ellison, operating a business known as “Foreclosure Options,” arranged for former owner to sign a deed to the property to Ellison for purported purchase price of $257,000. Former owner contends that at the 2003 closing, she was told and she believed that she was signing an application for a new mortgage with Ellison, not transferring title to Ellison. She alleged that Crawford had offered her a plan by the terms of which Ellison would borrow money to pay off her existing mortgage, thus avoiding foreclosure.

In October 2004, Ellison transferred the premises to Gajraj for $335,000. Gajraj financed the purchase with a $301,000 mortgage from New Century Mortgage. Two months later, in December 2004, former owner brought this action. Two significant events took place in February 2005: Gajraj defaulted on its mortgage, and former owner filed a notice of pendency. In April, New Century assigned its mortgage to Deutsche Bank, and Deutsche Bank brought a foreclosure action in June 2005. Deutsche Bank took title at the foreclosure sale. Deutsche Bank now seeks summary judgment in former owner's action.

In cancelling the notice of pendency and holding that Deutsche Bank owns the property free of former owner's claim, the court held that any claims former owner had against Crawford and Ellison were not available against New Century, because at the time New Century provided financing for Gajraj's purchase, the notice of pendency had not yet been filed, and New Century was not on record notice of any claim by former owner. As a result, New Century was protected as a good-faith incumbrancer for value. The court conceded that the notice of pendency had been filed by the time Deutsche Bank took its assignment from New Century, but held that Deutsche Bank was entitled to rely on New Century's good title even if Deutsche Bank itself had record notice of former owner's claims.

Finder Not Acting As Broker

Futersak v. Perl

NYLJ 4/8/10, p. 28, col. 1

Supreme Ct., Nassau Cty.

(Warshawsky, J.)

In an action for breach of a contract to pay a finder's fee, both parties sought summary judgment. The court granted the finder's summary judgment motion, rejecting the argument that the finder was acting as a broker without a license.

Finder wanted to buy the subject parcel of land, but did not have the capital to make the purchase. Finder knew that purchaser had the capital, and finder alleges that he introduced purchaser to seller, and agreed with purchaser that he would retain a 15% interest in any subsequent purchase by purchaser. Finder alleged that he and purchaser subsequently agreed that instead of finder paying 15% of any down payment and maintaining and ownership interest in the property, he would instead maintain a 15% interest in any profits derived from purchaser's subsequent sale of the property. The parties entered into a written finder's agreement calling for payment of that finder's fee upon sale of the property.

Purchaser bought the property for $3,600,000, and sold it 10 days later for $4,700,000, a profit of $1,100,000. The purchase contract states that no broker was involved in the transaction. When finder sought payment of $165,000 pursuant to the terms of the finder's agreement, purchaser refused, contending that finder was acting as a broker, and that because finder did not have a broker's license, Real Property Law section 442-d precluded recovery of a broker's commission. Both parties sought summary judgment.

In awarding summary judgment to finder, the court emphasized purchaser's own unambiguous recitations in its purchase contract that purchaser and seller had negotiated directly and that no broker had been used in procuring the sale. The court concluded that this language, together with the finder's agreement itself, flatly contradicted purchaser's argument that finder was acting as a broker rather than a finder. Consequently, the court held that finder was entitled to summary judgment.

Failure to Comply with Home Equity Theft Protection Act

First National Bank of Chicago v. Silver

NYLJ 3/29/10, p. 33, col. 1

AppDiv, Second Dept.

(Opinion by Florio, J.)

In mortgagee's foreclosure action, mortgagors appealed from Supreme Court's denial of their summary judgment motion and grant of mortgagee's summary judgment motion. The Appellate Division reversed, concluding that mortgagee's failure to deliver a notice pursuant to the Home Equity Theft Protection Act (Real Property Law sec. 265-a) entitled mortgagor to judgment dismissing the complaint.

In 1999, mortgagors borrowed $324,000 to finance the purchase of their home. They executed a mortgage to M.L. Moskowitz & Co. to secure the loan. The mortgage was properly recorded, and was assigned several times. In 2007, current mortgagee filed a summons, complaint, and notice of pendency to commence the instant foreclosure action, alleging failure to make the required payments. The mortgagee has never alleged that the required HETPA notice was delivered with the complaint. Mortgagors answered, and did not raise the HETPA notice in their answer. Subsequently, mortgagee moved for summary judgment, and at that point, mortgagors raised the failure to provide a HETPA notice in its cross-motion for summary judgment. Supreme Court awarded summary judgment to mortgagee.

In reversing, the Appellate Division noted that HETPA became effective on Feb. 1, 2007, and required statutory notice to be filed with the summons and complaint in a foreclosure action (RPAPL ' 1303(2)). The court held that the service of the notice required by HETPA is a mandatory condition or condition precedent to filing a foreclosure action. Because this mortgagee did not serve the notice, mortgagors were entitled to summary judgment. Failure to raise the issue in the answer did not preclude mortgagors from relying on the absence of the notice in support of their summary judgment motion.

Bona Fide Mortgagee

Phillips-Thomas v. Ellison

NYLJ 4/14/10, p. 29, col. 3

Supreme Ct., Nassau Cty.

(Lally, J.)

In an action by former owner of the subject parcel seeking damages and a return of title to the parcel, foreclosure sale purchaser sought summary judgment dismissing former owner's title claims and cancelling the notice of pendency. The court vacated former owner's notice of pendency, holding that her claims, even if proven, would not permit her to prevail against an incumbrancer for valuable consideration.

Former owner had fallen behind in her mortgage payments after her father's death. Crawford and Ellison, operating a business known as “Foreclosure Options,” arranged for former owner to sign a deed to the property to Ellison for purported purchase price of $257,000. Former owner contends that at the 2003 closing, she was told and she believed that she was signing an application for a new mortgage with Ellison, not transferring title to Ellison. She alleged that Crawford had offered her a plan by the terms of which Ellison would borrow money to pay off her existing mortgage, thus avoiding foreclosure.

In October 2004, Ellison transferred the premises to Gajraj for $335,000. Gajraj financed the purchase with a $301,000 mortgage from New Century Mortgage. Two months later, in December 2004, former owner brought this action. Two significant events took place in February 2005: Gajraj defaulted on its mortgage, and former owner filed a notice of pendency. In April, New Century assigned its mortgage to Deutsche Bank, and Deutsche Bank brought a foreclosure action in June 2005. Deutsche Bank took title at the foreclosure sale. Deutsche Bank now seeks summary judgment in former owner's action.

In cancelling the notice of pendency and holding that Deutsche Bank owns the property free of former owner's claim, the court held that any claims former owner had against Crawford and Ellison were not available against New Century, because at the time New Century provided financing for Gajraj's purchase, the notice of pendency had not yet been filed, and New Century was not on record notice of any claim by former owner. As a result, New Century was protected as a good-faith incumbrancer for value. The court conceded that the notice of pendency had been filed by the time Deutsche Bank took its assignment from New Century, but held that Deutsche Bank was entitled to rely on New Century's good title even if Deutsche Bank itself had record notice of former owner's claims.