Surprise!

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On a recent day, “Jack” (not his real name) went to an ATM to withdraw money from his bank account. To his surprise, he could not. Upon contacting the bank’s customer service department, he discovered that his bank account was restrained and could not be accessed. The bank’s representative informed him that there was a judgment against the joint accountholder—a friend, we’ll call him “Stan”—and this was the reason for the restraint on the account.

Jack remembered that many years ago, when he needed to travel to his home country for several months, he asked Stan if he could put Stan’s name on the bank account in case Jack needed someone to pay his bills while traveling. Ultimately, Stan never used the account—never wrote a check, never made a deposit, and never made any withdrawals. Unfortunately, years later, a creditor of Stan got a judgment against Stan and now, Jack, the primary account holder of the bank account, was paying the price.

Joint bank accounts and Banking Law Section 675

According to New York Banking Law Section 675, a joint bank account is presumed to belong to each of the accountholders—meaning that each person (and his judgment creditors) may access the full amount of the account. Specifically, this section of law provides that, except for fraud or undue influence, the making of deposits into a joint account is evidence that the depositor intended the account to be a joint tenancy. The burden of proving otherwise is upon the person who challenges title, which, in this case, would be the primary accountholder.

Once restrained, a creditor of one accountholder may be able to obtain half or all of the money in the joint account, according to differing court opinions. (One opinion, Ford Motor Credit Co. v. Astoria Federal, 189 Misc.2d 475, holds the creditor is entitled to more than half of account, and another, Mendel v. Chervanyou, 147 Misc.2d 1056, holds that it is not). In any event, in this situation, Jack had the problem where all of the money in the account belonged solely to him and Stan never used the account.

“Convenience” bank accounts

Luckily, there is another concept that applied to this situation. The law recognizes that a bank account may be established as a quasi-joint account, where a person is added merely as a “convenience” to the primary accountholder. This convenience is typically done in situations where there is an elderly parent or disabled person who cannot easily travel to the bank to handle his banking needs.

The account may actually be set up in this exact form from its inception (Banking Law Section 678 authorizes this type of account), or it may operate as one where there is sufficient proof that adding the other name to the account was just for the convenience of the accountholder. Where the account is initially set up as a convenience account, the bank will indicate the same and any deposits will not be presumed to belong to each of the accountholders but just the primary one. Also, upon death of the primary accountholder, the other person will not have a right of survivorship in the account, but the moneys will pass to whomever the primary accountholder has designated in his Will or heirs at law. Where the account is not designated as a convenience account from the onset, Banking Law Section 675 will allow a party to rebut or disprove the general presumption that it was a true joint account—evidence may include the wording written in on the account application or signature card, sources of deposits, usage of the account, and the circumstances in which the account was set up.

Jack’s attorney searched the internet for “exempt property and accounts” for more information and found an article by Richard A. Klass on the subject of the Exempt Income Protection Act (EIPA).* After getting the run-around from the creditor’s attorney for almost three weeks, Jack decided to retain Richard A. Klass, Your Court Street Lawyer.

Upon sending proof regarding the fact that the account belonged to the primary accountholder and that the debtor was on the account only for convenience purposes, along with a letter explaining the law and threatening to sue for attorney’s fees, the creditor’s attorney confirmed the next day that the account would be immediately released.

by Richard A. Klass, Esq.

* The article, entitled “Analysis of Exempt Income Protection Act,” may be found on the firm’s website.

copyr. 2013 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.comcreate new email with any questions.
Prior results do not guarantee a similar outcome.

Credits:
Photograph on page one: ATM in Santillana, 2008, by Handige Harrie. Artwork released by author into the public domain.

R. A. Klass
Your Court Street Lawyer

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What do you do if you are sued for a credit card debt?

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Without doubt, one of the most important financial tools used in this country is the credit card. While the first credit card was actually metal-plated and similar to a military dog tag, today’s credit card may take the form of a plastic card with magnetic strip or merely using the combination of numbers to make all sorts of purchases. At this point, the usage of credit cards by consumers is as ubiquitous as maintaining a bank account or driving a car; in fact, many products and services can only be purchased through the use of a credit card. As a result, most consumers in this country have two or more credit cards.

At some point, some consumers will find themselves in a downturn of events due to loss of employment, reduction of salary, illness or divorce, where they may become unable to maintain payment of the balances due on the credit card accounts. Once that happens, the accounts go into delinquency. Due to financial reporting requirements imposed upon banks, credit card delinquencies go through different stages, where the collection of past due amounts will first be attempted internally through the bank’s collection department, then through outside collection agencies, and then eventually through litigation by law firms throughout the country. Consumers who have defaulted on their credit card accounts are very familiar with the persistent telephone calls at all hours from debt collectors (who may be located in this country or calling from overseas call centers) and letter-writing campaigns which could make the post office proud (indeed, many consumers who file bankruptcy cite the annoyances of debt collectors as one of the chief reasons for the filings).

It is important for the consumer to understand that, from the perspective of the creditor, settling the debt and collecting a portion of the credit card debt is the main objective. This means that attempts to settle the credit card with the consumer will be pushed by the creditor at every stage of the process. For certain consumers, this is very beneficial, as significant savings can be accomplished through a reduced lump-sum payment.

Once the almost-terrifying debt collectors’ campaign has ended, and the debt is still owed, the bank will either pursue collection of the debt itself or by selling the debt to another company, either of which will commence a law suit against the consumer to obtain a judgment.

The first step that the collection law firm will take is to file the case in the appropriate local court where either the consumer/former account holder resides or where the account was opened. The initial document filed with the court will be a “Summons” (which is typically accompanied with the Complaint, which specifies the details of the claim against the consumer). The credit card company will be referred to as the “plaintiff” and the consumer will be referred to as the “defendant” in the Summons.  The next step after the Summons is filed with the court is for the process server to serve a copy of the Summons on the defendant, informing him that a law suit has been filed and that he needs to respond to the Summons and plead any defenses to the case.

Once served, the defendant must serve and file his “Answer.” The filing of the Answer will also place the case onto the court’s pre-trial conference calendar. Each side will have an opportunity to conduct discovery of the other’s evidence, including obtaining copies of credit card applications, agreements, and account statements.

After both parties have completed discovery proceedings, one of them (usually the plaintiff) will make a motion to the judge for “summary judgment,” meaning that there is no need for a trial of the facts and the court should award judgment in favor of one of the parties. If the court grants the motion, then the successful party can enter the judgment (either dismissing the case or awarding a monetary amount). If the motion is denied, then the case will proceed to a trial.

by Richard A. Klass, Esq.

R. A. Klass
Your Court Street Lawyer

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529 Plans in Bankruptcy

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Americans rely on easy credit in order to fund their lifestyles.  We are lured by good credit terms, the desire to buy a home, and the need to pay for things like education and home improvements.  We do our best to save for our future, putting money into Individual Retirement Accounts (IRAs) or 401Ks, money that is not to be used until retirement.  When we have children we consider their futures and the ever increasing costs of college, and we want to save for our children’s future education by opening Education IRAs or 529 Savings Plans.

In New York State, when someone obtains a money judgment against you, they have several remedies in order to obtain payment of the judgment, including garnishing your wages, putting a lien on bank accounts and other property held in your name.  This may include a 529 Savings Plan.  CPLR section 5205 provides several exemptions to protect debtors.  It lists several types of property that cannot be reached by creditors.  CPLR 5205(j) provides protection for New York 529 Savings Plans by exempting and thus protecting from creditors a New York State 529 Savings Plan in an amount not exceeding $10,000.   This is good news and bad news for debtors.  It protects smaller 529 plans from being plundered by a creditor, but if you’ve saved for many years, the 529 Savings Plan may exceed the $10,000 balance and is thus open season for a creditor looking for repayment of an outstanding debt.

Bankruptcy can offer better protection for a debtor who is trying to protect a 529 Savings Plan he has created for his children.  Bankruptcy Code 541(b)(6) provides that funds placed in an 529 Savings Plan 1 year or longer before the date the debtor files for bankruptcy is not property of the bankruptcy estate if the designated beneficiary is a child, stepchild, grandchild or step-grandchild, and the funds contributed do not exceed the total contributions permitted.  In addition, in order to ensure debtors have not transferred assets to exempt accounts in preparation of filing bankruptcy, any contributions made between year one and year two before filing are limited to a total contribution of $5,850. The exemption regarding an education IRA is similar in nature to the 529 Savings Plan, but include a requirement that the account could not be pledged to have credit extended to the debtor.  This language can be found in Bankruptcy Code 541(b)(5).

Therefore, for individuals who are contemplating bankruptcy but are concerned about 529 Savings Plans they have established for their children can now rest easy in the knowledge these accounts may be protected and may not be reached by creditors.

by Elisa S. Rosenthal, Esq.,
Associate
Law Office of Richard A. Klass

R. A. Klass
Your Court Street Lawyer

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Buyer’s Remedies when Seller Will Not Convey Real Property

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Over the last several years the real estate market has had its share of ups and downs.  It was not so long ago that several offers above the asking price would be placed on a single parcel of property.  Today, although the real estate market is not as “hot” as it once was, sales of real estate are on the climb again, and with that there are always issues that may arise.

As a buyer, what happens when you find the perfect house, on the perfect street and enter into a contract of sale. Then when you try to perform your obligations under the contract, the seller stands in your way.  Then after you file a Lis Pendens (Notice of Pendency) and commence litigation to force the seller to sell you the property (also known as specific performance), you learn there was another buyer who preceded you and also did not close.  What are your rights and remedies?

Although one would generally assume the adage, “first in time equals first in right,” that is not necessarily the case.  First, the question to ask when there are multiple purchasers is whether, as the second purchaser, you are a bona fide purchaser.

A bona fide purchaser is a purchaser who purchases property for value innocent of any circumstance that would bear upon the seller’s right to sell the property.  Therefore, if you are the purchaser of a parcel of property without having any knowledge that another buyer already purchased the land, then you are a bona fide purchaser.  If, however, you are somehow aware of any prior contracts of sale, you are deemed to have knowledge and will no longer be entitled to hold the title of bona fide purchaser.

How does a buyer establish they are a bona fide purchaser?  When a buyer purchases property, he must record his deed to the property at the clerk’s office of the county where the property is located. If a buyer fails to record the deed and a subsequent purchaser purchases the same parcel, the second purchaser is a bona fide purchaser and will have preference over the initial purchaser because the second purchaser did not have knowledge of the earlier conveyance, so long as the second purchaser records their deed prior to the first purchaser.

The principles of a bona fide purchaser are not that different when there is one seller, multiple purchasers each holding a contract of sale.  RPL §294(1) provides, “An executory contract for the sale, purchase or exchange of real property, or an instrument canceling such a contract, or an instrument containing a power to convey real property, as the agent or attorney for the owner of the property, acknowledged or proved, and certified, in the manner to entitle a conveyance to be recorded, may be recorded in the office of the recording officer…”

If there has not yet been a closing, RPL §294(1) permits a purchaser to record their contract of sale.  By recording the contract of sale, the purchaser is placing everyone on notice of their interest in purchasing the property.  If there are multiple purchasers, the first purchaser to record their contract of sale will have rights superior to any other potential purchaser, regardless of whether a down payment has been paid to the seller.

Once a purchaser has recorded the contract of sale with the clerk’s office in the county in which the property is located, they may then pursue their rights of specific performance under the contract.  Commonly in land sale contracts, there is language that allows a party to demand specific performance of the other party.  Specific performance allows a person to demand the other party to perform under the contract rather than to seek money damages. Avila v. Arsada, 34 A.D.3d 609; citing Varon v. Annino, 170 A.D.2d 445, 446; LaMarche v. Rosenblum, 50 A.D.2d 636, 637.   When a purchaser sues a seller for specific performance, the seller cannot claim as an affirmative defense that the purchaser is not ready, willing and able to close.  Courts have determined that when a seller fails to adhere to their obligations under a contract of sale, their actions are deemed to be an anticipatory breach of the contract which waives the buyer’s obligation to perform under the contract.  Gjonaj v. Sines, 69 A.D.3d 1188.  The purchaser’s lack of performance under the contract (i.e. inability to close which arose from seller’s breach) does not prevent the purchaser from exercising their right to obtain specific performance from the seller.

While this remedy, in theory, appears relatively simple and straightforward, there can be complications.  In order to record a contract of sale, the contract must be executed by both parties before a notary public. Common practice is such that people rarely if ever execute a contract of sale before a notary public.  Without a notarized contract of sale, a purchaser trying to force the seller to sell the property may end up unsuccessful.

Another remedy, which can be instead of specific performance or in addition to specific performance, is damages.  It is well settled that a purchaser, if they can establish the seller has willfully or deliberately failed to perform under the contract of sale, can obtain loss of the bargain damages, which are above and beyond the nominal damages specified in the contract of sale. Janoff v. Sheepshead Towers, Inc., 22 A.D.2d 950; Mokar Props v. Hall, 6 A.D.2d 536.

Therefore, the adage “buyer beware” may hold true in many situations, in certain circumstances, the seller, particularly as it relates to real property, may be forced to sell property under the specific performance clause in the contract of sale.

by Elisa S. Rosenthal, Esq.,
Associate
Law Office of Richard A. Klass

 

copyr. 2013 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.comcreate new email with any questions.
Prior results do not guarantee a similar outcome.

Art credit:
Welton Grange, Cowgate, Welton, by David Wright.
Copyright David Wright. 25 August 2007

This image was taken from the Geograph project collection. See this photograph’s page on the Geograph website for the photographer’s contact details. The copyright on this image is owned by David Wright and is licensed for reuse under the Creative Commons Attribution-ShareAlike 2.0 license.

R. A. Klass
Your Court Street Lawyer

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Requirement of Stating License Information in a Complaint Against a Consumer

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Dunkin Donuts may want us to believe that “America runs on Dunkin,” but the truth is, America runs on its service industry.  In our everyday lives there are people who provide a service to us; whether it is waiting on us in a restaurant, a physician or health care worker taking care of us, or a contractor working on our homes.  America’s service industry is a vital part of our economy and everyday lives.

But what happens when the service provider is not paid for his services?  How can that person collect money that is due them?  Someone who has not been paid for services rendered can file a lawsuit seeking to collect unpaid monies from a consumer/client.

New York’s Civil Practice Law & Rules (the CPLR) Section 3015 provides some guidance when a service provider decides to file a lawsuit against a consumer/client to pay sums due and owing.  Depending on the location or venue of the lawsuit and the type of industry that provided the service, a plaintiff may be required to include in his complaint his license number.

CPLR 3015(e) was recently amended to state that when a plaintiff starts a lawsuit against a consumer, the plaintiff must include in the complaint the name on the license, the license number and the government agency which issued the license if the plaintiff is required to be licensed by the Department of Consumer Affairs of the City of New York, Counties of Nassau, Putnam, Rockland, Suffolk, and Westchester. CPLR 3015(e) provides:

(e) License to do business. Where  the  plaintiff’s  cause  of  action against  a  consumer  arises  from the plaintiff’s conduct of a business which is required by state or local law to be licensed by the department of consumer affairs  of  the  city  of  New  York,  the  Suffolk  county department  of  consumer  affairs,  the Westchester county department of consumer affairs/weight-measures, the county of Rockland, the county  of Putnam  or  the  Nassau  county  department  of  consumer  affairs,  the complaint shall allege, as part of the cause of action,  that  plaintiff is  duly licensed and shall contain the name and number, if any, of such license and the governmental agency which issued such license; provided, however, that where the  plaintiff  does  not  have  a  license  at  the commencement  of the action the plaintiff may, subject to the provisions of rule thirty hundred twenty-five of this article, amend the  complaint with  the  name  and number of an after-acquired license and the name of the governmental agency which issued such license or move for  leave  to amend  the  complaint in accordance with such provisions. The failure of the plaintiff to comply with this subdivision will permit the  defendant to  move for dismissal pursuant to paragraph seven of subdivision (a) of rule thirty-two hundred eleven of this chapter.

The initial purpose of this legislation was to place the burden on a “home improvement contractor” to establish it was licensed to perform the work at the time the work was performed.  Courts have consistently held that a failure to have a license at the time the work was performed will preclude the contractor from commencing an action.  Working without  a license or obtaining a license after the work was performed is too late, and will result in the lawsuit getting dismissed. (This pleading requirement, which initially began to address issues concerning home improvement contractors, was expanded to include all of the different types of licenses issued by the government agency).

The requirement of the plaintiff to include its license information in the complaint does not mean anyone who needs a government license to perform their work must include their license number.  The Court in NCSPlus v. WBR Management, 37 Misc.3d 227, 949 NYS2d 317 [Sup.Ct., Nassau Co. 2012], determined that the plaintiff, who was a debt collection agency, was not required to include its license information in the complaint because the dispute did not involve a “consumer credit transaction” against a consumer but rather between a debt collection agency and a merchant. (The term “consumer credit transaction” means a transaction where credit is extended to an individual and the money which was the subject of the transaction was primarily for personal, family or household purposes).

Therefore, it is important to remember that if you are a licensed service provider who decides to sue a customer or client, you may need to include your license information in your summons and complaint or you risk having your case thrown out.

by Elisa S. Rosenthal, Esq.,
Associate
Law Office of Richard A. Klass

R. A. Klass
Your Court Street Lawyer

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