First American Title Insurance Company of New York

CURRENT DEVELOPMENTS

Bankruptcy – Under Code Section 1146(c) the making or delivery of an instrument of transfer under a confirmed plan of reorganization is not subject to a stamp or similar tax. The United States Bankruptcy Court for the District of Delaware held that transfers by the Debtor were exempt from Maryland state and county transfer and recording taxes so long as a Chapter 11 plan was eventually confirmed, and funds were escrowed to pay the taxes if a plan was not confirmed. This holding was affirmed by the United States District Court for the District of Delaware but it was reversed by the United States Court of Appeals for the Third Circuit. The Circuit Court held that a transfer is exempt under Section 1146(c) only if it occurs after confirmation of a plan. Baltimore County, Maryland v. Hechinger Liquidation Trust, filed July 18, 2003, is reported at 335 F. 3d 243 and at 2003 U.S. App. LEXIS 14449. This decision, impacting cases administered in Delaware, New Jersey, Pennsylvania, and the Virgin Islands, is consistent with the holding of the United States District Court for the Southern District of New York in New York City Department of Finance v. 310 Associates, L.P., decided in 2002 and reported at 2002 U.S. Dist. LEXIS 15701. In that case, the Court held that a deed pursuant to a Bankruptcy Court Order was not exempt from the City’s transfer tax as the transfer took place prior to drafting a plan of reorganization.

Bankruptcy/Automatic Stay/Right of Redemption – The United States Court of Appeals for the Second Circuit, affirming the determinations of the Bankruptcy Court and United States District Court for the Western District, held that the delivery and recording of a tax sale deed is not subject to the automatic stay when a petition for relief under Chapter 13 of the Bankruptcy Code was filed by the former owner of the property after the tax sale auction but before delivery of the tax sale deed. Under New York law applicable to foreclosures, the right to redeem property in a foreclosure is extinguished when the property is "struck down" at auction, not when the foreclosure deed is delivered. Further, the Monroe County In Rem Tax Foreclosure Act, applicable to this case, provides that the right of redemption ceases on noon of the day preceding the date of commencement of the public auction. Accordingly, the foreclosed property was not part of the Debtor’s Estate when the petition was filed. Rogers v. County of Monroe, decided June 16, 2003, is reported at 333 F. 3d 64 and 2003 U.S. App. LEXIS 11814.

City of Yonkers Mortgage Recording Tax – Chapter 237 of the Laws of 2003 authorizes the City of Yonkers to extend its mortgage recording tax of $.50 for each $100 of principal debt secured by a mortgage to apply to mortgages recorded through August 31, 2005. The total mortgage tax rate in Yonkers will continue to be $1.50 for each $100 of principal indebtedness.

Contracts of Sale – Purchasers defaulted in purchasing four condominium units. Under the contract of sale, the sponsor retained down payments aggregating 25% of the purchase price. The defendants sued to recover those amounts, claiming the contract provided for an unenforceable penalty. The Supreme Court, New York County, held that the contract provision by which the sponsor retained the down payments was for liquidated damages, and it granted the sponsor’s motion for partial summary judgment on the initial, 10% down payment. It withheld decision, however, on the balance to determine at trial if retaining the additional down payments was reasonably related to the sponsor’s actual or probable loss. To enforce the liquidated damages provision for the additional 15%, it would be determined at trial if retaining that amount was "plainly or grossly disproportionate to the probable loss" and thus an unenforceable penalty. Uzan v. 845 UN LP was reported in the New York Law Journal on July 23, 2003.

Election of Remedies – A borrower’s filing of a voluntary petition in bankruptcy stayed foreclosure proceedings in Maine and New Mexico. The plaintiff then commenced an action in New York to enforce the defendants’ guarantee of payment. Defendants moved to dismiss on the ground that the plaintiff failed to obtain leave from the Maine and New Mexico courts prior to commencing the action as required by RPAPL Section 1301(3). Under that Section, " no other action shall be commenced or maintained to recover any part of the mortgage debt, without leave of the court in which the former action [to recover any part of the debt] was brought". The Supreme Court, New York County, dismissed the motion, holding that the election of remedies does not apply where the debt is secured by a mortgage on real property outside of New York. Wells Fargo Bank Minnesota, N.A. v. Cohn was reported in the New York Law Journal on July 23, 2003.

Notice of Pendency – Plaintiff sued its adjoining landowner for damages and to require it to remove underground construction that encroached upon plaintiff’s property, causing a building on plaintiff’s property to shift and resulting in the New York City Building Department issuing an order that it be demolished. The Supreme Court, New York County, denied the defendant’s motion for an order canceling the notice of pendency filed in the action. It held that a claim for restoration of lateral support is a proper ground in New York City for the filing of a notice of pendency. First, CPLR Section 6501 authorizes the filing of a lis pendens when "the judgment demanded would affect the title to, or the possession, use or enjoyment of real property". Second, the common law rule that there is no duty of lateral support was modified by sections of the City’s Administrative Code requiring a duty of lateral support for adjacent property improved with buildings. Jenmat Realty Corp. v. 37 E. 63 St. Park and Madison, LLC was reported in the New York Law Journal on August 6, 2003.

Partition – Each of two couples held title to property as tenants by the entirety as to an undivided half-interest. Although case law in New York holds that a tenant by the entirety cannot maintain an action for partition, the Supreme Court, Westchester County, held that the plaintiff husband and wife, holding an entireties interest as tenants in common, had standing to seek partition under RPAPL Section 901. The court would not, however, order a sale of the property. The defendant-wife was in the midst of a divorce and requiring a sale prior to the divorce action would be inequitable to her. Section 901(1) of RPAPL Article 9 ("Action For Partition") provides that the court can order a sale in an action for a partition "if it appears that a partition cannot be made without great prejudice to the owners". Sciavillo v. Sciavillo was reported in the New York Law Journal on July 25, 2003.

Priority of Judgments – A confession of judgment against the Petitioner’s former husband was docketed in 1991. In 1999, Petitioner obtained a judgment for fees in a divorce proceeding, and the Suffolk County Sheriff executed to her a deed to the marital residence. In 2001, after expiration of ten years from the docketing of the confession of judgment, the holder of the confession of judgment obtained an order extending its judgment lien pursuant to CPLR Section 5203(b). Petitioner sought a determination that the lien of the confession of judgment, having expired, was not properly extended and, therefore, her judgment had priority to the proceeds of the sheriff sale to enforce the confession of judgment. The Supreme Court, Suffolk County, dismissed the petition. It held that the confession of judgment was duly extended. Further, since Petitioner knew of the confession of judgment it had priority over her judgment lien to the proceeds of the sale. Gaglione v. Mahoney, an unreported case, was decided March 7, 2002 and affirmed by the Appellate Division, Second Department, on June 2, 2003, in a Memorandum Decision reported at 2003 WL 21278032.

Restrictive Covenants – To obtain a rezoning, the prior owner of property used as a gas station executed a restrictive covenant prohibiting the sale of alcoholic beverages. Subsequently, the New York State Liquor Authority issued a liquor license for the premises to the defendant. Defendant was criminally charged with violating the Building Zone Ordinance of the Town of Hempstead by selling alcoholic beverages on the property. The Nassau County District Court found the defendant not guilty. It held that the covenant against selling alcoholic beverages was an unenforceable attempt (tantamount to an ordinance) by the Town to regulate the operation of a business in an area pre-empted by New York State law. Therefore, it cannot be used as a basis for criminal prosecution. People v. Amerada Hess Corporation was reported in the New York Law Journal on July 15, 2003.

Rockland County – Pursuant to the authority of Chapter 193 of New York State’s Laws of 2003, the Rockland County Legislature has enacted a Local Law imposing a tax on the recording of a mortgage on real property within Rockland County. The tax is to be imposed at the rate of 25 cents for each $100 and "each remaining major fraction thereof of principal debt or obligation which is or under any contingency may be secured at the date of execution thereof, or at any time thereafter, by a mortgage on real property situated within" Rockland County recorded on or after October 1, 2003. This tax is in addition to the mortgage taxes imposed under Tax Law Section 253. Therefore, the total mortgage recording tax in Rockland County as of October 1 will be 1 ¼%. Rockland County’s local mortgage recording tax is to be in effect until September 30, 2006. However, under the authority of Chapter 193, a Local Law later enacted may extend it.

Michael J. Berey
Senior Underwriting Counsel
No. 54, September 5, 2003
mberey@firstam.com