When Do Two Feet Matter? When $16,728,000 Rides on It!

Posted on April 7, 2012 by Richard Klass

In 2006, a developer entered into a contract to purchase a large industrial warehouse in Greenpoint, Brooklyn, in order to convert the property into residential housing. The Contract of Sale provided for a purchase price of $16,728,000.

The contract was amended and extended eight times in order to provide for several issues to be resolved. Among those issues, there were tenant buy-out agreements concerning the several remaining commercial tenants. During the entire process, the developer was required to make several types of payments to the seller (separate from the large down payment) towards the operating costs of the property. The developer made substantial payments to the seller, including Surrender Agreements, Tenant Buy-Outs, Operating Expenses, and Security Costs. The property finally became completely vacant, and a closing was to be scheduled in 2007.

Title Defects Raised – Especially Chimney Protrusion

As is common in real estate contracts, there was a clause that all title “defects” were to be cured before closing. A title defect is generally defined as an issue relating to ownership or possession of the property, the legal description of the property to be sold or liens affecting the property – or, more to the point, a title defect is one that a reputable title company believes would render title unmarketable. In this case, the survey revealed that a chimney from an adjoining property was protruding two feet into the property to be sold.

The title defect was raised to the seller’s attorney by the developer. In response, the seller’s attorney claimed that the title defect was insignificant and was being raised as a delay tactic and was without merit. To that end, the seller declared a certain date as the “time of the essence” date for the closing. If the developer did not close on that date, then the down payment and all of the operating costs would be deemed forfeited to the seller. Needless to say, that date came and passed, and the seller declared the developer in breach of the contract, entitling the seller to retain the moneys.

Your Court Street Lawyer, Richard A. Klass, was then retained by the developer to ensure that the down payment moneys would not be lost and title would transfer to the buyer under the Contract of Sale.

Quick Action Was Needed

The first step was to file, along with the Summons and Complaint, a Notice of Pendency (also known as a Lis Pendens) against the Block and Lot of the property. This is a statutory creation under New York’s Civil Practice Law and Rules Article 65. This document gives notice to the entire world that there is a dispute which affects the title, use or possession of real property. The filing of this Notice preserves the rights of the buyer from a seller transferring title to the property in contract, as whoever buys the property is deemed to have knowledge of the dispute.

Simultaneously, the Complaint against the seller was filed with the County Clerk’s Office, which contained several allegations against the seller, including that:

the developer fully complied with the Contract of Sale and was entitled to “specific performance” because real estate is considered a “unique” asset that cannot be replicated (the law recognizes that each piece of real estate is distinct);
the electronic communication from the seller’s attorney to the buyer’s attorney concerning the “time of the essence” closing date did not comply with the “notice” provision of the Contract of Sale (it is always important to check the notice provision of any contract to see how notices to the other side are to be sent, e.g. certified mail, overnight delivery, etc.);
the seller failed to actually “tender” the Deed to the property by coming to the place of closing, as required by the contract (the non-breaching party to a real estate contract must show that it showed up at the place and time indicated in the contract to deliver the Deed, even if the other side does not come; thus, recognizing that the breaching party could potentially show up at the last minute to actually close the transaction); and
the title defects rendered title to the property unmarketable and uninsurable; thus, the developer was entitled to the return of all of its down payment and operating costs.

In New York, it is well settled that in order to place a contract vendor (seller) in default for a claimed failure to provide clear title, the purchaser must first tender performance and demand good title. See, Capozzola v. Oxman, 216 AD2d 509. Following that line, a tender of performance by the purchaser is excused only if the title defect is not curable. See, Cohen v. Kranz, 12 NY2d 242. The law also recognizes that a purchaser may opt to waive a title defect concerning the property in order to close title.

The end result of this case was that, despite the claim of the seller that the developer breached the contract and it was entitled to retain all of the moneys paid, the seller agreed to extend the date of closing for an additional month to facilitate the closing of title to the developer.

by Richard A. Klass, Esq.

copyr. 2011 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.

R. A. Klass
Your Court Street Lawyer

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Force ‘Em to Sell! The Right to Specific Performance

Posted on February 7, 2012 by Richard Klass

In the typical real estate transaction, the seller is interested in selling the property, the buyer is interested in buying it, and the Contract of Sale is merely used to memorialize the deal and as the basis for the buyer to obtain a mortgage commitment from a mortgage lender. The closing takes place; everyone leaves happy!

Sometimes, however, the seller fails or refuses to comply with the Contract of Sale and sell the property to the buyer. In that circumstance, the legal ramifications of the Contract of Sale come into play. This was the situation in a recent case litigated by Richard A. Klass, “Your Court Street Lawyer,” and decided in the Supreme Court of the State of New York, County of Nassau last month.

In Korzeniewski v. Estate of Poswolsky, the plaintiff wanted to buy a house in Long Beach, New York. Through a local real estate broker, he found a nice house owned by an 86-year old man looking to sell his house so he could downsize to an apartment. The Contract of Sale was signed, with a sale price of $465,000, in October 2003. Each side had been represented by counsel.

In November 2003, the owner/seller entered into the Nassau University Medical Center complaining of pains, and a pacemaker was installed. The medical records of the hospital had notations that the seller was sometimes disoriented and suffering from dementia. In December 2003, after voluntarily checking himself out of the hospital three weeks earlier, the owner died.

After the owner’s death, his son was appointed the executor of his estate by the Surrogate’s Court. The son/executor informed the buyer that he believed that the real estate broker took advantage of his father, and that the house was really worth more than $200,000 above the original $465,000 sale price. Accordingly, the son disavowed the Contract of Sale, indicating that he would only sell the property to this buyer if he paid the additional moneys.

Real estate is “unique property”:

One of the tenets of contract law is that real estate is considered a “unique” property – one which cannot be substituted with another. That is, just like a snowflake, one piece of property is not the same as any other. Since the house is unique, and no monetary award for breaching of the contract would satisfy the buyer, the buyer brought an action for specific performance against the son/executor. The substance of the action was the request for the judge to direct the executor to “specifically” perform the contract and transfer the Deed to the property for the original sale price.

Lack of evidentiary proof of dementia:

At the conclusion of discovery in the case, including the taking of depositions of the parties and the attorney for the owner/decedent (who happened to be a distant cousin of the owner), a motion was brought for summary judgment in favor of the buyer, awarding him specific performance of the contract. Attached as part of the proof in support of the motion was the petition filed by the executor with the Surrogate’s Court, in which he indicated that the value of the house was $500,000 at the time of death (less than 10% more than the sale price negotiated four months earlier).

In response, the executor put forth two proofs that his father was suffering from dementia and, therefore, lacked the mental capacity to sign the Contract of Sale, namely: (a) the medical records from Nassau University Medical Center (where the notations of dementia appeared in the records); and (b) the affidavit of a neurologist who neither examined the decedent nor consulted with any of his personal physicians, but relied solely upon the medical records which post-dated the signing of the Contract of Sale.

No need for a trial – just make the seller perform the real estate contract:

In granting summary judgment to buyer (which meant that the judge did not believe that there existed any factual issues to be decided by trial), the judge enforced the terms of the Contract of Sale to make the executor “specifically” perform the contract and sell the property for the original sale price. Relying upon case law, the judge found that the buyer proved that he “substantially performed [his] contractual obligations and was willing and able to perform the remaining obligations, that defendant was able to convey the property, and there was no adequate remedy at law.”

In disregarding the executor’s proofs, the judge found that he did not meet his burden of proving that the decedent was incompetent (in order to refute the presumption that people are considered mental competent and capable of making a contract). According to well settled law from the NYS Court of Appeals (Ortelere v. Teachers’ Retirement Board), the focus of the inquiry is whether the person’s mind was so affected as to render him wholly incompetent to comprehend and understand the nature of the transaction at issue. In this case, the executor did not offer any proof that his father was so affected by dementia that he was unable to enter into the Contract of Sale. Further, there was no proof that he was forced or coerced into signing the contract.

by Richard A. Klass, Esq.

R. A. Klass
Your Court Street Lawyer

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Court Upholds 25-Year Lease at Fixed $800 Rent

Posted on January 7, 2012 by Richard Klass

In Borough Park, there lived an elderly couple in a house (the Kimmels). Their neighbor (Twersky) was interested in renting the first floor apartment for her son and his family. At the time that she rented the apartment, it was in poor shape and in very poor condition; indeed, the entire house needed extensive renovations. In 1995, Twersky and the Kimmels entered into a lease agreement to rent the first floor apartment.The lease agreement provided that the monthly rental amount was to be $800, and the lease term was for 25 years. As indicated in the lease agreement, throughout this time, the rental amount would not increase. Unstated in the lease agreement, however, but alleged by Twersky as a material aspect of the 25-year term at a low fixed rent was the fact that she needed to invest over $100,000 into the extensive renovation of the house, including a complete gut renovation of the first floor apartment. Separate from the lease agreement, Twersky entered into an Option to Purchase Agreement with the Kimmels, which would allow Twersky to purchase the entire house for $325,000 less rent paid until exercise of the option but in no event less than $300,000 (which option agreement was held unenforceable by the court).

Unconscionability Argument Fails:

The matter wound up in litigation after the elderly couple passed away and the executor of the surviving spouse’s estate (Kazaks) brought a “holdover” proceeding in Housing Court to evict Twersky from the apartment. Twersky then filed an action in the Supreme Court seeking an injunction to prevent Kazaks from evicting her family. Twersky relied upon both the option and lease agreements in her Complaint. Kazaks, for her part, claimed that (a) the 25-year lease was unenforceable as a matter of law; and (b) the purchase option agreement was unenforceable because not all of the heirs at law of original owners of the house signed it but just the Kimmels (who owned a portion of the house). She put forth two arguments concerning the lease: that, by law, a lease of 25 years with no rent increases throughout the term was unconscionable; and that the elderly couple suffered from various ailments and diseases during and after the time of lease execution.In making his decision, the trial judge (Justice Knipel) properly found that the lease agreement between Twersky and the Kimmels was valid and enforceable. The arguments by the executor that the lease agreement was unconscionable and should not be enforced pursuant to Real Property Law §235-c was determined to be without merit, and not supported by the evidence presented at trial. As Justice Knipel observed, the executor was “doubtless correct that a residential lease for a 25-year term is unusual, especially where, as here, no increases were provided for the entire term.”Real Property Law §235-c provides as follows:

If the court as a matter of law finds a lease or any clause of the lease to have been unconscionable at the time it was made the court may refuse to enforce the lease, or it may enforce the remainder of the lease without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
When it is claimed or appears to the court that a lease or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its setting, purpose and effect to aid the court in making the determination.

In Gillman v. Chase Manhattan Bank, N.A., 73 NY2d 1, 10 [1988], the NYS Court of Appeals (New York’s highest court) held, “An unconscionable contract has been defined as one which ‘is so grossly unreasonable or unconscionable in the light of the mores and business practices of the time and place as to be unenforceable according to its literal terms (See 1 Corbin on Contracts, § 128, p. 400.).’” As further enunciated by the Court, a determination of unconscionability generally requires a showing that the subject contract was both (a) procedurally and (b) substantively unconscionable when made, i.e., “some showing of an ‘absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.’” Gillman, supra at p. 10.At trial, Kazaks had not proven that the lease agreement was either procedurally or substantively unconscionable, by the standards set forth by the NYS Court of Appeals. There was no proof adduced at trial that there was an absence of meaningful choice or that the terms of the agreement were unreasonably unfavorable. On the contrary, all of the witnesses testified that the Kimmels were competent to act in their own affairs, and that the lease agreement was negotiated (including the 25-year term contained therein). Accordingly, Justice Knipel held “the court concludes that the lease is valid on its face and is enforceable.”

Appellate Division Ruling:

Richard A. Klass, Your Court Street Lawyer, was retained by Twersky to defend the appeal brought by Kazaks. By the decision of the Appellate Division, Second Department, Twersky v. Kazaks, 868 NYS2d 912 [12/16/08], the appellate court ruled that the executor could not prove that the estate was an “aggrieved” party because the two causes of action in the original action were dismissed. Accordingly, the Appellate Division dismissed the appeal of Kazaks. Further, the Court affirmed (upheld) the decision after trial by Justice Knipel.By affirming the decision of Justice Knipel, the Appellate Division held that the 25-year lease at a fixed rent of $800 will remain in effect, and that Twersky may enforce the same in any future Housing Court proceedings between the parties.

by Richard A. Klass, Esq.

R. A. Klass
Your Court Street Lawyer

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Seminar Announcement: “Nuts and Bolts of Collection Law”

Posted on October 19, 2011 by Richard Klass

In early November, Richard Klass will help present a seminar entitled The Nuts and Bolts of Collection Law. This seminar, presented by the National Business Institute, will take place at the Hyatt Place Garden City, in Garden City, New York. Information follows.

Nuts and Bolts of Collection Law

Date: Wednesday, November 09, 2011

Time: 9:00 am-4:30 pm

Location:

Hyatt Place Garden City
5 North Avenue
Garden City, NY

Facility Phone: 516-222-6277

NBI Product ID#: 57049ER

Program Description

Ensure Your Clients Get Paid
Winning a judgment against a bad debt doesn’t necessarily mean cash in hand. Do you have a firm grasp of the procedures for legally collecting that debt? Are your recovery actions in compliance with the strict guidelines governing collection? Don’t rush in unprepared. Maximize your chances for recovery with the practical steps provided in this strategic seminar. Enroll today!

Avoid collection activities that violate the FDCPA and/or state laws.
Learn best practices for discovering debtor assets both pre- and post-judgment.
Recognize what provisional and final remedies are available to creditors to collect what is owed.
Walk through the procedural steps for executing wage garnishments, judgment liens, attachments and other methods of collection.
Know the creditor’s rights when collecting debt and when the debtor files for bankruptcy.

Who Should Attend

This basic-to-intermediate level seminar is primarily designed for attorneys and other legal professionals. Those who may also benefit from the collection techniques provided include: collection and loan officers, accounts receivable personnel, credit managers, bankers and controllers.

Course Content

The Fair Debt Collection Practices Act (FDCPA) and State Collection Laws
Ethical Issues in Collection
How to Find Debtors and Their Assets
Obtaining a Judgment: A Procedural Guide
Collecting a Judgment: A Procedural Guide
Creditors’ Rights When a Debtor Files Bankruptcy

Continuing Education Credits:

Continuing Legal Education
CLE 7.20 – NJ
CLE 7.00 – NY*

Continuing Professional Education for Accountants

CPE for Accountants: 7.00

Institute of Certified Bankers

ICB: 6.75*

* denotes specialty credits

Agenda

THE FAIR DEBT COLLECTION PRACTICES ACT (FDCPA) AND STATE COLLECTION LAWS

9:00 – 9:45, Richard A. Klass

Scope of the FDCPA
Understanding the Actions Permitted or Restricted by the Act
Demand Letters: Pitfalls to Avoid
Liability and Defenses
State Collection Laws and Their Application/Preemption

ETHICAL ISSUES IN COLLECTION

9:45 – 10:45, Richard A. Klass
Communication With Clients and Other Parties
Disclosure Issues
Aggressive Collection Practices
Unauthorized Practice of Law
Reporting Professional Misconduct

HOW TO FIND DEBTORS AND THEIR ASSETS

11:00 – 12:00, Michael Cardello III
Prejudgment Discovery Methods
Personal vs. Business Assets
Replevin/Self-Help Repossession Considerations

OBTAINING A JUDGMENT: A PROCEDURAL GUIDE

1:00 – 2:00, Michael Cardello III
Filing the Lawsuit
Service of Process
Affirmative Defenses and Counterclaims
Judgments (Default, Summary, etc.)

COLLECTING A JUDGMENT: A PROCEDURAL GUIDE

2:15 – 3:15, Kenneth H. Wurman
Post-Judgment Discovery
Judgment Liens
Wage and Bank Account Garnishment
Attachments
Writ of Execution/Seize and Sale by Sheriff
Charging Orders
Debtor Slow-Pay Motions
Turnover/Receivership
Exemptions by Debtors
Dealing With Fraudulent Transfers

CREDITORS’ RIGHTS WHEN A DEBTOR FILES BANKRUPTCY

3:15 – 4:30, Michael D. Brofman

Speakers

RICHARD A. KLASS is an attorney in the Brooklyn office of Your Court Street Lawyer. Mr. Klass is an arbitrator for the small claims part of the civil court of the City of New York, County of Kings. He practices in the areas of collections, bankruptcy, debtor and creditor, commercial litigation, legal malpractice, medical malpractice, personal injury, real estate condominium law, family law, divorce, child custody and private placement adoption law, wills, probate, trusts and estates. Mr. Klass has written numerous articles and has lectured frequently for the Brooklyn Bar Association and New York County Lawyers Association, as well as other professional groups and organizations. Mr. Klass is a member of The American Association for Justice, the New York State Bar Association, the New York County Lawyers Association (chair, The Mentoring Program, Group Mentoring Program) and the Brooklyn Volunteer Lawyers Project (Pro Bono Counsel). He earned his B.A. degree from Hofstra University and his J.D. degree from New York Law School.

MICHAEL D. BROFMAN is a member in the New Hyde Park law firm of Weiss & Zarett P.C., where he practices in the areas of bankruptcy law, debtor/creditor rights, non-judicial workouts and commercial litigation. He has lectured for the Nassau County and New York State bar associations on topics relating to his areas of practice, and is a frequent lecturer for National Business Institute on bankruptcy and secured creditor topics. He is a member of the Nassau County (member, Bankruptcy and Bank sections) and the New York State (member, Committee on Bankruptcy Law and General Practice Section) bar associations, the American Bankruptcy Institute and the Volunteer Lawyer’s Project Pro Bono Bankruptcy Panel. Mr. Brofman earned his B.A. degree from the State University of New York at Binghamton and his J.D. degree from Fordham University.

MICHAEL CARDELLO III is a partner in the Litigation Department of Moritt Hock & Hamroff LLP, concentrating in business and commercial litigation. Mr. Cardello represents large and small businesses, financial institutions and individuals in federal and state courts. He has a wide range of experience that includes trials and appellate work in the areas of corporate disputes, shareholder derivative actions, dissolutions, construction disputes, equipment and vehicle leasing disputes and other complex commercial and business disputes. Mr. Cardello earned his B.A. degree in marketing, his M.B.A. degree in finance and his J.D. degree from Hofstra University. While in law school, he was associate editor of the Hofstra Law Review. Mr. Cardello is the current vice-chairman of the Commercial Litigation Committee of the Nassau County Bar Association and also is a member of the Alternative Dispute Resolution and Securities Committee of the Nassau County Bar Association. He lectures on discovery, trial practice, equipment and vehicle leasing issues and e-discovery.

KENNETH H. WURMAN is a partner in the law firm of Naidich Wurman Birnbaum & Maday, LLP, where his practice areas, for more than 30 years, include collections and real estate. Mr. Wurman is a lecturer for National Business Institute on collection matters. He earned his B.S. degree from the State University of New York at Albany and his J.D. degree from New England School of Law. Mr. Wurman is a member of the Nassau County and New York State bar associations.

copyr. 2011 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.

R. A. Klass
Your Court Street Lawyer

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Amendment to Bankruptcy Petition Worth Millions!

Posted on August 1, 2011 by Richard Klass

A brother tried to help his sister, and it almost cost him millions of dollars. Based upon the brother’s good credit, his sister bought a house in Queens in his name. At some point, she was unable to keep up with the mortgage payments and the house fell into foreclosure.

On the eve of the foreclosure sale, the brother filed bankruptcy to “stay” the sale. In the mad rush to save the family home (which, unfortunately, is common these days!), the brother did not understand something very important: the personal injury lawsuit he filed years earlier, relating to a construction work-site injury in which he was severely injured, was an “asset” of his to be listed in his bankruptcy petition. Unfortunately, the Chapter 13 bankruptcy case was dismissed because the brother could not make the mortgage or bankruptcy plan payments. The house was later sold at foreclosure sale.

State Court Motion to Dismiss:

Subsequently, the defendants in the state court personal injury case asked the judge to dismiss the case based upon the failure of the plaintiff/injured person to list the pending lawsuit as a “contingent asset” in his bankruptcy petition. Substantial New York case law, going all the way up to the New York State Court of Appeals, has held that the failure to list the asset in the petition is fatal to the continuance of the personal injury case – every case on point says the injured person’s lawsuit gets dismissed without any recovery, no matter how grave the injury.

Uncharted Course to Be Taken:

Faced with this apparently insurmountable challenge, Richard A. Klass, Your Court Street Lawyer, was brought in to help save the man’s personal injury case. The strategy developed was to return to the Bankruptcy Court to seek to amend or fix the petition to reflect the existence of the personal injury claim. This was trail-blazing!

In determining that the debtor/personal injury plaintiff should be permitted to amend his bankruptcy petition to list the claim as an asset, Chief Bankruptcy Judge Craig stated: “This Court has not found any statute, rule or precedent that provides that a debtor’s right to amend expires upon dismissal of the case, or that the order dismissing the case must be vacated before schedules, statements or lists may be amended.” In re Severius Raggie, New York Law Journal 7/9/2008.

Interplay between “Closed” and “Closed”:

At first glance, the court noted that the bankruptcy case was marked “closed.” The judge was skeptical that an amendment to the petition could be made because Bankruptcy Rule 1009 provides that “a voluntary petition, list, schedule, or statement may be amended by the debtor as a matter of course at any time before the case is closed.”

However, in relying upon the decision in In re Critical Care Support Services, 236 BR 137, it was pointed out that a case can only be “closed” when the assets of the bankruptcy estate have been fully administered. The term “closed,” as used in Bankruptcy Rule 1009 and Bankruptcy Code §350, does not encompass “dismissed” cases. Thus, an Order dismissing a case accomplishes a completely different result than an Order closing it would; essentially, upon dismissal of a bankruptcy case, all of the debtor’s rights in his property revert back to him.

Separately, the court also held that, as part of accepting the debtor’s amendment, it could reject the amendment when “the facts and circumstances presented indicate that the amendment was filed in bad faith, fraudulent or prejudicial.” Citing to In re Nye, 250 BR 46. In this case, Judge Craig held that there was no evidence of bad faith, fraud or prejudice; the state court defendants’ argument that granting the amendment would “reward” the debtor was not persuasive. In the absence of any evidence that the debtor deliberately omitted the personal injury claim from his schedules to defraud his creditors, permitting the debtor to amend did not reward wrongdoing.

After Judge Craig granted the debtor’s motion to amend his bankruptcy petition, the state court defendants in the personal injury lawsuit withdrew their motion to dismiss the case. The plaintiff’s case is now winding through the New York State Supreme Court towards a trial, in which his serious injuries will be considered by a jury.

Richard A. Klass, Esq.

©2008 Richard A. Klass. Art credits: Selbstporträt mit fünfzig Jahren, by Giovanni Fattori, 1884; Porträt der dritten Ehefrau, by Giovanni Fattori, 1905. Newsletter marketing by The Innovation Works, Inc.

R. A. Klass
Your Court Street Lawyer

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