Union Senior Plaza v. Mavins, Landlord-tenant Court, Nassau County District Court Index No. 001236/2013.

As every L&T practitioner knows, landlord-tenant cases come in two varieties: non-payments and holdovers.  A frequently presented issue is what to do with a tenant that is chronically delinquent with the rent.  That is, when should the landlord stop filing non-payment cases and instead seek to terminate the lease based upon chronic late payments  (or, if the lease so provides, a breach of a conditional limitation) and file a holdover proceeding?

In Union Senior Plaza, the landlord chose to file a holdover proceeding.  The court held that the tenant’s failure to make rent payments from September 2012 through January 2013, was insufficient to meet the standard for a holdover proceeding.  The court wrote that it was the landlord’s burden to establish that it was required to commence “frequent nonpayment proceedings in a short period of time.”  Accordingly, the court dismissed the holdover proceeding without prejudice.

The lesson of Union Senior Plaza is that before a landlord moves from a non-payment to a holdover it should build a record of either frequent non-payment proceedings filed in a relatively short period of time or a clear violation of the conditional limitation in the lease.

Rockross Fund v. Cumberbatch, Kings County Supreme Court, Index No. 1189/08

This case shows that foreclosing lenders must take care that they do not acquire a deed to the property before they really want it.  In Rockross Fund, the plaintiff, the owner of a loan in foreclosure, lost an unopposed motion for summary judgment when it failed to have a party defendant properly substituted.

How could such a result occur? The plaintiff settled with the property owner and took back the deed in one of its affiliates.  Thereafter, the plaintiff continued the foreclosure proceeding.  No doubt, the plaintiff was seeking to foreclose junior secured interests in the property.  (A number of lenders seeking to take possession of property securing defaulted loans have adopted this strategy, which is often used by purchasers of loans for failed development deals to avoid liability on mechanic’s liens.  Here, the Court ruled that because the named defendant, the original borrower, remained in the case’s caption and the new owner of the property had not been substituted, the plaintiff had failed to include a necessary party in the case.

The lesson of Rockross Fund is that as long as a foreclosing lender is going to the trouble to transfer the deed to an affiliated entity, it should be sure that the affiliated entity is substituted as a party defendant.  Foreclosing lenders should consider if it is a better strategy to either take the deed in escrow or take a controlling position in the defendant.

Wells Fargo Bank, N.A. v Meyers, Appellate Division Second Department 34632/2009

The courts continue to wrestle with the scope of the appropriate remedies for lenders that fail to negotiate residential mortgage modifications in good faith.  Now the Appellate Division, Second Department has weighed in.  In Wells Fargo Bank N.A. v. Meyers, the Second Department upheld the trial court’s determination that the lender failed to negotiate in good faith as required by CPLR 3408(f), but rejected the remedy the trial court formulated.

In this case, the lender offered the borrower a trial modification and the borrower made all of the required payments under the trial modification, but the lender commenced foreclosure proceedings nonetheless.  Thereafter, the lender offered a second trial modification which the borrower complied with, but Freddie Mac would not approve the modification.

After determining that the lender had acted in bad faith, the trial court order the lender to execute a final loan modification based on the terms of the original modification proposal and dismissed the complaint.   While the Appellate Division affirmed the trial court’s finding that the lender failed to negotiate in good faith, it could not affirm the trial court’s proposed remedy.

The Appellate Division held that requiring the lender to sign an agreement was not a permissible remedy.  The court wrote that imposing such a remedy would undermine the stability of contracts and violate the contracts clause of the United States Constitution (Art. I Sec. 10).  In essence, the Second Department determined that even if lenders act in bad faith, courts do not have the authority to compel lenders to agree to loan modifications.  Thus, the Second Department remanded the matter to the trial court for the selection of an alternative remedy.

The Second Department noted that CPLR 3408 does not specify any particular sanctions a court can impose for bad faith.   Thus, the court wrote that “in the absence of further guidance from the Legislature or the Chief Administrator of the Courts, the courts must prudently and carefully select among available and authorized remedies, tailoring their application to the circumstances of the case.”

The lesson of Wells Fargo v. Meyers is that the courts will demand that lenders negotiate fairly with distressed residential borrowers, but they cannot force the lenders to accept loan modifications on terms imposed by the courts.

737 Park Avenue Acquisition LLC v. Jetter, New York County Landlord Tenant Court Index No. 71456/2012

Constructive eviction is an often-used defense to non-payment of rent.  As this case shows, it is a defense that is difficult to establish. In this summary non-payment proceeding, the tenant, who operated his medical office from the premises, contented that the landlord’s repairs had constructively evicted him.  The court gave short shrift to most of the tenant’s claims finding that the lease permitted the repairs.  These repairs included the installation of scaffolding, a sidewalk shed, and a construction hoist, as well as interruptions in water service.

The court however found that flooding due to broken pipes caused by construction activities supported a portion of the tenant’s claim for constructive eviction.  The court further found that as a result of the flooding, the tenant was “substantially and materially” denied use of the premises for a period of three weeks.  Accordingly, the court awarded the tenant a ¾ of a month rent abatement.

The lesson of 737 Park Avenue Acquisition is that only where a tenant is substantially and materially deprived of the beneficial use and enjoyment of the premises will a constructive eviction defense succeed.

Goldstone v. Gracie Terrace Apartment Corp., Appellate Division, First Department Index No. 604235/2007

This case confirms that irreparable harm is a critical element of any application for injunctive relief. After suffering extensive damage to her co-op apartment, the co-op proposed repairs to the apartment that would have reduced the square footage of the 1,400 square foot apartment by approximately 50 square feet. The shareholder sought to preliminarily enjoin the co-op from making the repairs claiming that they would violate her proprietary lease.

The First Department, affirming Justice Debra James, held that even though the shareholder had established a likelihood of success on the merits, she was not entitled to a preliminary injunction because she could not establish irreparable harm.  At least some of the reductions in the shareholder’s square footage were required by certain aspects of the New York City Building Code.

The lesson of Goldstone is that irreparable harm continues to be a critical element of preliminary injunctions and parties seeking such relief must always be mindful of the need to show the irreparable harm element.

 Massey Knakal Realty of Brooklyn, LLC v. Neivens Realty Corp., New York County Supreme Court Index No. 651746/2011.

Can a real estate brokerage firm collect a sales commission if the broker is unlicensed?  Justice Elieen Bransten of the New York County Commercial Part held that it could. In this case Massey Knakal, a New York City real estate broker, sued to recover an unpaid brokerage commission.  The defendants contended, in an affirmative defense, that Massey Knakal could not recover a commission because at the time one of its Managing Directors executed the listing agreement, he was not a licensed New York State real estate broker or sales person. (The Managing Director’s license had expired and he had not renewed it.)

Massey Knakal moved to dismiss the defendants’ affirmative defense.  Although the defendants argued that the Managing Director lacked authority to act as a real estate broker or salesperson without a current, valid license under New York Real Property Law § 442, the Court was not persuaded.  It held that the Managing Director was acting within the scope of the authority that Massey Knakal intended to confer upon him.  The Court further reasoned that the Managing Director had sufficient apparent authority so as to bind Massey Knakal, even if he lacked actual authority.  Thus, the Court concluded that merely because the listing agreement was signed by a person lacking a current broker’s license the seller remained obligated  to pay Massey Knakal a commission.

The lesson of Massey Knakal v. Neivens Realty Corp. is that owners that engage brokerages cannot avoid their obligations under a written listing agreement on the basis of the faulty licensing status of the brokerage’s signatory.

JP Morgan Chase Bank v. Butler, Kings County Supreme Court, Index No. 1686/2010.

Justice Arthur Schack has once again dropped the hammer on a lender and its counsel.  The case began as a typical mortgage foreclosure case.   Plaintiff, JP Morgan Chase, claimed to have acquired the note in mortgage in question from WAMU after its 2008 failure and FDIC receivership.  Chase’s counsel, first Steven J. Baum and then Cullen & Dykman, represented to the court at various statutorily required conferences that Chase owned the note and mortgage.

As the case progressed, however, the court learned that the true owner of the note and mortgage was Fannie Mae and that Chase only owned the servicing rights to the mortgage.  In the interim, the owner/borrower was able to close on a long sale of the property and $490,000 of sale proceeds was deposited into the court registry.

Justice Schack resolved the issues as follows:  the note was declared fully satisfied and the court registry was directed to pay the borrower $55,617.11 and a hearing was ordered on the disposition of the remaining $434,382.89.  The issue was whether that sum should be paid to Chase or Fannie Mae.  The court also directed a hearing on whether the plaintiff’s representation that Chase was the owner of the loan was sanctionable conduct and, if it was, whether Chase or its counsel should bear the financial costs of the sanction.

The lesson of JP Morgan Chase v Butler is twofold.  First, foreclosing lenders should take particular care to mind all the technicalities especially when in Justice Schack’s court.  Second, it is essential that the Complaint properly identify the owner of the note and mortgage.  While, at least in the Second Department, it is clear that a borrower’s defense of lack of standing will be waived unless raised in the initial pleading, there is no guarantee that a court may not focus on the issue later in the proceedings.

 

Parkash v. Almonte, Bronx County Landlord Tenant Court Index No. 22722/2013

This case points out the danger to landlords that skimp on process service.  Here, the danger is associated with Affidavits of Non-Military Service.

In Parkash, the Landlord commenced twenty-five separate summary non-payment proceedings in Bronx County and thereafter obtained the issuance of a warrant of eviction on the grounds that each of the tenants had defaulted.   Each application was supported by a separate Affidavit of Non-Military Service in which the same process server swore that he spoke with each of the thirty-one respondents (some apartment units had more than one tenant) and ascertained that the respondents were not in military service.

Various provisions of Federal and New York State law provide that a person (or his  or her dependents) cannot be evicted from their home while serving in the U.S. military.  Accordingly, the law provides that before a default judgment may be taken, the Landlord must submit an Affidavit of Non-Military Service proving that the Landlord has conducted an appropriate investigation and determined that the tenant is not serving in the military.  The New York City Civil Court has published Legal/Statutory Memorandum 152, which contains helpful guidelines for the preparation of Affidavits of Non-Military Service.

In Parkash, each of the Affidavits of Service were facially adequate.  But taken together the Affidavits of Service told a story that a single process server personally visited nineteen separate apartment buildings in eight different zip codes and conducted twenty-five conversations in a three hour and seven minute period.  And a Courthouse clerk noticed.

Is it plausible that the process server’s Affidavits of Non-Military Service were accurate?  Yes, but Judge Susan Avery, once the issue was brought to her attention, was not prepared to assume so.  Judge Avery issued a sua sponte  Order summoning the process server to testify.  She directed the process server to bring a log book and a GPS device to support his claims.  Just to drive home the point that she was serious, Judge Avery’s decision states that depending on the testimony she might refer this matter to the District Attorney, the Office of the Attorney General or the Department of Consumer Affairs.

The direction to the process server to bring his GPS device is particularly noteworthy.  Recent amendments to the New York City Administrative Code and the Rules of the City of New York require process servers to “carry at all times during the commission of his or her licensed activities a device to establish electronically and record the time, date, and location of service of process. . . .” Judge Avery held that this rule applied to ascertaining the tenant’s military status.

The lessons of Parkash are clear:

(1)Landlords who attempt to skimp on process service do so at their peril;

(2) Judges retain for themselves the discretion to conduct their own investigations when the process service appears defective.

One of the most efficient ways a landlord or any plaintiff may prove that the tenant, or any defendant, is not in the military is to run a search on the U.S. Department of Defenses Manpower Database.  Two pieces of information are required to run the search: (1) the person’s name and (2) his or her social security number or date of birth.  This is yet another item on the long list of reasons that landlords really should obtain their tenants’ social security numbers at the time the tenant executes the lease.

Bank of New York v. Deane,  Kings County Supreme Court Index No. 16583/09.

This case illustrates the disaster that can occur if counsel does not submit mountains of paperwork to the court. This case resulted in the denial of an unopposed motion for summary judgment in foreclosure.  The defendant mortgagor had answered the complaint and pled a defense of the plaintiff’s lack of standing.  Thereafter, the plaintiff moved for summary judgment and submitted an affidavit of a bank officer that attempted to establish standing.  Among the deficiencies in the affidavit was that it included only excerpts of the relevant documents transferring the note and ownership of the mortgage to the plaintiff.  Because of these incomplete documents, among other reasons, the Court felt compelled to deny an unopposed motion for summary judgment.

The lesson of Bank of New York v. Deane is that foreclosing plaintiffs must take pains to submit full copies of all documentation demonstrating the chain of title necessary to establish the plaintiff’s right to foreclose on the note and mortgage.  Paper is cheap; it pays to spend the money to include the entire relevant document in your motion papers.  At the same time, counsel should be mindful of rule number one of litigation: always make things easy for the judge.  Give the court a pinpoint citation to the relevant portion of that mountainous paperwork.