Seller has no duty to disclose: New York

Posted on September 25, 2013 by Richard Klass

Seller has no duty to disclose: New York law does not impose a duty on a seller of real property to disclose information concerning the property. See, Renkas v. Sweers, 10 Misc.3d 1076(A), 814 N.Y.S.2d 892 (Sup. Ct. Monroe Co), “Active concealment is some conduct, more than mere silence, by the seller that may create a duty to disclose information concerning the property (Gizzi at 881; Bethka v. Jensen, 250 A.D.2d 887,888 [3d Dept.1998] ). To recover damages for active concealment, “the plaintiff must show, in effect, that the seller or the seller’s agents thwarted the plaintiff’s efforts to fulfill his responsibilities fixed by the doctrine of caveat emptor” (Jablonski at 485).

Any potential fraud claim to be brought against a seller for failing to disclose a lawsuit involving the property and its circumstances would fail. Facts which are accessible as a matter of public record bar a claim of justifiable reliance necessary to sustain a cause of action for fraud. Grumman Allied Industries, Inc. v. Rohr Industries, Inc., 748 F.2d 729, 737 (2d Cir.1984); Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 184 N.Y.S.2d 599, 603, 157 N.E.2d 597, 601 (1959); Most v. Monti, 91 A.D.2d 606, 456 N.Y.S.2d 427, 428 (2d Dept.1982).

To the extent that there may be “latent” defects in the building, a duty to disclose a latent defect concerning the premises may be based (post-closing and upon later discovery) on the theory that where a buyer is not able to discover the defect in question through ordinary inspection and would not be willing to purchase the property if he or she knew of it, then a contract that is procured without disclosing such a defect is procured by fraud and misrepresentation. See, Young v. Keith, 112 A.D.2d 625, 492 N.Y.S.2d 489 (3d Dep’t 1985); McMillen v. Marzacano, 277 A.D. 977, 100 N.Y.S.2d 240 (1st Dep’t 1950). These allegations would require a high burden of proof.

by Richard A. Klass, Esq.

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 in 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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Doctrine of caveat emptor: New York law…

Posted on September 18, 2013 by Richard Klass

Doctrine of caveat emptor: New York law follows the long-standing tradition in the purchase of real property that a buyer has the duty to satisfy himself of the quality of the bargained-for purchase of the property without trying the seller. See Stambovsky v. Ackley, 169 A.D.2d 254, 572 N.Y.S.2d 672, 675–76 (1st Dept.1991); London v. Courduff, 141 A.D.2d 803, 529 N.Y.S.2d 874, 875 (1st Dept.). Further, the term to purchase the property “AS IS” is a specific contract disclaimer as to the condition of the property to be purchased and thwarts this breach of contract claim (see Mosca v. Kiner, 277 A.D.2d 937,939 [4th Dept.2000]; McManus v. Moise, 262 A.D.2d 370,371 [4th Dept.1999]).

Under the generally accepted doctrine in real estate transaction of caveat emptor or buyer beware, there is no duty upon the seller to disclose any information concerning the property (Caceci v. DiCanio Construction Corp., 72 N.Y.2d 52,57 [1988]).

by Richard A. Klass, Esq.

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.

R. A. Klass
Your Court Street Lawyer

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The Producer: overselling available interests

Posted on July 30, 2013 by Richard Klass

The Rehearsal Onstage (detail), c. 1874, by Edgar Degas (1834–1917) illustrating article by Richard Klass about overselling available interests. — The Rehearsal Onstage (detail), c. 1874, by Edgar Degas (1834–1917).

Mel Brooks’ movie and musical The Producers may have been a fictional story of fraudsters selling more shares in the production of their Broadway show “Springtime for Hitler” than actually existed, but such fraudsters exist in real life, overselling available interests not only in Broadway productions, but in every type of investment, including real estate.

In this modern day The Producers story, a particular real estate broker (we’ll give him the name “Bob”) had a plan. The idea behind this particular investment was simple: purchase a house in Passaic, New Jersey; fix it up; and then resell it for a profit—the classic real estate “ flip. ” This broker solicited a number of investors. Each investor would purchase a membership interest in a limited liability company [LLC]. With the funds provided by the members, the LLC would buy the house. A contractor-partner would be hired to renovate the house. Each investor was promised a certain percentage of the net proceeds from the ultimate sale of the house. Unfortunately, the real estate market tanked, construction costs soared and the investment became a huge loss before construction was ever completed.

New Jersey state court action

One of the investors (we’ll call him “John”) brought a lawsuit in the Superior Court in New Jersey for breach of contract, misappropriation of funds, and fraud. In that case, the judge appointed a special fiscal agent (similar to a court-appointed receiver) to manage the operations of the house, list the house for sale, and take all steps necessary to sell the house and distribute the net proceeds to the LLC’s investors.

Real estate broker files for bankruptcy

Bob filed for personal bankruptcy in the New Jersey Bankruptcy Court to avoid his liability to the investors. John filed a lawsuit (known as an adversary proceeding) against Bob in the New Jersey bankruptcy case to have Bob’s liability in this house-investment-gone-wrong declared “nondischargeable.” (The adversary proceeding here was a mini-lawsuit inside of the bankruptcy case, intended to have the effect that Bob would remain liable to John for the collapse of the real estate deal.) In the adversary proceeding, John alleged that Bob brought too many investors into the deal without telling the other investors. A settlement was reached between John and Bob in the “adversary proceeding” and John negotiated with the bankruptcy trustee to purchase the house directly from the trustee to recoup some of his (John’s) losses.

Another investor (we’ll call her “Sally”) who lost money in the same Passaic real estate deal then sued John (now the owner of the Passaic real estate) in New York City’s Civil Court, claiming that John defrauded Sally by not including her in the buy-out of the house. This is when John sought help from Richard A. Klass, Your Court Street Lawyer. The aim was to have Sally’s lawsuit, brought in New York, dismissed.

Lack of jurisdiction in the New York Civil Court

There is a basic concept involving any court system that a particular court maintains the authority (“jurisdiction”) to make decisions and orders over a particular controversy.

According to New York’s Civil Practice Law and Rules [CPLR] Section 302, New York State courts may exercise jurisdiction over nonresidents under certain circumstances, when the defendant:

Transacts any business within the state or contracts anywhere to supply goods or services in the state; or
Commits a tortious act within the state, except as to a cause of action for defamation of character arising from the act; or
Commits a tortious act without the state causing injury to person or property within the state.

There is a separate rule as to when New York City’s Civil Court may exercise jurisdiction over cases because it is considered a court of “limited” jurisdiction (See Civil Court Act Section 202).

In asking the judge to dismiss the New York Civil Court case, Richard A. Klass argued that any action that could be brought by Sally must be brought in the State of New Jersey, and not in New York. The project-house was located in New Jersey; the LLC was a New Jersey entity; both the New Jersey Superior Court and New Jersey Bankruptcy Court had pending cases involving the house and the LLC; and all of the events transpired in New Jersey. It was urged that New York was the wrong forum for Sally to bring this dispute, citing to Epstein v. Sirivejkul, 48 NY2d 728 [1979]; Irrigation and Industrial Development Corp. v. Indag S.A., 37 NY2d 522 [1975].

The Civil Court judge agreed with the arguments of Richard A. Klass and determined that the New York Civil Court lacked jurisdiction over the case. The judge specifically found that the transaction in dispute occurred in New Jersey and the plaintiff presented no allegations that there was tortious conduct within New York State; also, the fact that there were existing proceedings in New Jersey courts confirmed the conclusion that New Jersey was the proper forum for any dispute. The court then dismissed the plaintiff’s case.

by Richard A. Klass, Esq.

R. A. Klass
Your Court Street Lawyer

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Buyer’s Remedies when Seller Will Not Convey Real Property

Posted on April 23, 2013 by Richard Klass

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

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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“Then I’ll huff and I’ll puff, and I’ll blow your house in!”

Posted on February 26, 2013 by Richard Klass

Those famous words were said by the Wolf in the fairy tale Three Little Pigs. Sometimes, municipalities have to say those same words to homeowners whose buildings become so damaged that they have become “unsafe.”

The “unsafe structures” law

There is a common recognition that an unsafe or dangerous structure constitutes a threat to the public’s health, safety and welfare, and the sealing or removal of the structure is an exercise of a municipality’s police powers to protect the public. For this reason, municipalities enact building codes to ensure that owners keep and maintain their buildings.

In New York City, Administrative Code Section 26-236 provides that, immediately upon receipt of a report by an officer or building department employee that a structure is unsafe or dangerous, the Department of Buildings is to make a formal report, which triggers quick action. The next step is to notify the building owner within 24 hours of the duty to remedy the unsafe or dangerous condition. If no action by the owner is immediately taken, then the Buildings Department must order a survey of the unsafe structure, which survey (together with a report) acts as the basis of a law suit in the Supreme Court.

So important to the public is the remediation of an unsafe structure, that Administrative Code Section 26-239 states that the “determination of the issue in an unsafe structure proceeding shall have precedence over every other business” of the court. Once the trial has taken place (“without delay”), the court then issues a “precept” directed to the Superintendent of Buildings to repair or secure the unsafe structure.

Knock-down of the client’s building

The client bought a building in Brooklyn from a bank that had recently foreclosed on the property and took back the building (what is commonly referred to as an “REO” – real estate owned property in a bank’s inventory). At about the same time that the client bought the building, the City of New York determined that the building was an unsafe structure and notified the bank. The notice informed that a court proceeding would be held in the Supreme Court, Kings County on April 22nd to determine the building to be an “unsafe structure” pursuant to the New York City Administrative Code.

When the client bought the building, he had the intention of renovating it. The client hired an architect who drew up plans to utilize the skeleton of the building and its basic plumbing and heating systems. The plans filed with the Buildings Department provided for the rehabilitation and renovation of the building. The architect’s plans were allegedly approved by the Department. The architect then met with the Buildings Department’s Borough Commissioner on April 10th; assurance was allegedly made to the architect that a work permit based upon the approved plans would be issued, allowing the “rehab” of the building to start. Allegedly, the Buildings Department noted the approval of plans with the City’s Department of Housing Preservation and Development. Unfortunately, on April 15th, prior to the upcoming court date, the City demolished the building. To add insult to injury, the City placed a lien on the building for the demolition costs.

Claim and law suit

The building owner came to Richard A. Klass, Your Court Street Lawyer, for help. Now that the entire building was demolished, there was tremendous added expense to the rehab of the building, given that all new building systems would have to be installed and the shell was no longer there.

Notices of claim were filed with the City of New York and its agencies. Once the requisite period of time for the City to act on those notices passed, a law suit was filed against the City. The action listed several causes of action including negligence, trespass to property, interference with quiet enjoyment of property and violation of due process rights since the building was demolished before the court proceeding.

The City agreed to settle the law suit by payment for the loss of the building (based upon the difference in fair market values for the property pre-demolition and post-demolition) along with cancellation of the demolition lien.

by Richard A. Klass, Esq.

R. A. Klass
Your Court Street Lawyer

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