Fekishazy v. Thomson

Citation612 N.Y.S.2d 276,204 A.D.2d 959
PartiesDavid FEKISHAZY et al., Respondents, v. John E. THOMSON, Respondent, and TRW Title Insurance of New York, Inc., as Successor in Interest to National Attorneys' Title Insurance Company, Appellant.
Decision Date26 May 1994
CourtNew York Supreme Court Appellate Division

Kleinman, Saltzman & Goodfriend (Stanley Zwillinger, of counsel), West Nyack, for appellant.

Bloom & Bloom P.C. (Daniel J. Bloom, of counsel), New Windsor, for David Fekishazy and another, respondents.

Silver, Forrester, Schisano & Lesser (Richard Schisano, of counsel), Newburgh, for John E. Thomson, respondent.

Before CARDONA, P.J., and WHITE, CASEY, WEISS and PETERS, JJ.

CARDONA, Presiding Justice.

Appeal (transferred to this court by order of the Appellate Division, Second Department) from an order of the Supreme Court (Miller, J.), entered February 12, 1992 in Orange County, which, upon reconsideration, adhered to its prior decision, inter alia, denying a motion by defendant TRW Title Insurance of New York Inc. to dismiss the complaint against it.

On April 24, 1984 Ruth Thomson, the owner of property located in Ulster County and improved by a multiple-unit residence, conveyed the property to herself and her son, Nicholas Amoroso, as tenants in common. On January 12, 1985 Ruth Thomson, as landlord, entered into a lease with defendant John E. Thomson, her husband, as tenant, for a portion of the premises from February 1, 1985 through January 30, 1999 at an annual rent payable in equal monthly installments. Amoroso did not sign the lease. By deed dated and recorded on May 6, 1986, Ruth Thomson and Amoroso conveyed sole title to Amoroso. On May 10, 1990 Ruth Thomson recorded the lease.

Thereafter, on or about August 12, 1990, Amoroso entered into a purchase and sale contract with plaintiffs and conveyed the property, a two-family house, by deed dated September 18, 1990. At closing, plaintiffs purchased a title insurance policy (hereinafter the policy) from National Attorneys' Title Insurance Company, the predecessor in interest of defendant TRW Title Insurance Company of New York Inc. (hereinafter TRW). The policy excepted coverage for, inter alia, "[l]eases of record as noted herein" and "[r]ights of present tenants and occupants on a month to month basis as per contract of sale". No lease of record was noted in the policy.

Plaintiffs commenced this action seeking declarations that the lease was not valid and that TRW was liable to indemnify them for counsel fees and costs associated with the action. John Thomson counterclaimed for a declaration that the lease was valid. TRW moved to dismiss the complaint pursuant to CPLR 3211. Plaintiffs and John Thomson each cross-moved for summary judgment. Supreme Court denied TRW's motion as well as plaintiffs' cross motion but, after determining that the lease was valid and ruling that he was entitled to joint occupancy, use and possession with plaintiffs, granted John Thomson's cross motion. TRW thereafter moved for reargument, which Supreme Court granted but adhered to its prior decision. TRW appeals.

TRW's primary contention is that the lease instrument, recorded more than five years after the lessor's conveyance of the property, was not within the direct chain of title of the subject premises and therefore does not constitute a defect or encumbrance affecting plaintiffs' title to the premises. Plaintiffs, while not directly disputing this contention, argue that TRW was put on "inquiry notice" of the existence of the lease based upon Ruth Thomson's tenancy, even though that tenancy was incorrectly shown on the sales contract as "month-to-month" "no written lease", because the lease was a matter of public record in the chain of title of the subject premises and, therefore, plaintiffs had an absolute right to rely on the expertise of TRW to locate it and raise it as an objection.

The recording statutes in a grantor-grantee indexing system charge a purchaser with notice of matters only in the record of the purchased land's chain of title back to the original grantor (see, Andy Assocs. v. Bankers Trust Co., 49 NY2d [13], supra, at 24 [424 N.Y.S.2d 139, 399 N.E.2d 1160]; 4A Warren's Weed, op. cit., Recording, § 1.04, at 10; Aiello v. Wood, 76 AD2d 1019 ; Doyle v. Lazarro, 33 A.D.2d [142], supra, at 144 , affd without opn 33 NY2d 981 [353 N.Y.S.2d 740, 309 N.E.2d 138], supra ). Buffalo Academy [Buffalo Academy of the Sacred Heart v. Boehm Bros. Inc., 267 N.Y. 242, 196 N.E. 42] recognized that a "purchaser is not normally required to search outside the chain of title" (Doyle v. Lazarro, supra [emphasis added]; accord Steinmann v Silverman, 14 NY2d 243, 247 [251 N.Y.S.2d 1, 200 N.E.2d 192], and is not chargeable with constructive notice of conveyances recorded outside of that purchaser's direct chain of title where, as in [Ulster] County (see, Real Property Law § 316-a), the grantor-grantee system of indexing is used (see, Andy Assocs. v Bankers Trust Co., 49 NY2d supra, at 24 [424 N.Y.S.2d 139, 399 N.E.2d 1160]; 4A Warren's Weed, op. cit., Restrictive Covenants, § 3.05, at 33-34; 5A Warren's Weed, op. cit., Title Examination, § 5.18, at 67-68) (Witter v Taggart, 78 NY2d 234, 238-239 [573 N.Y.S.2d 146, 577 N.E.2d 338].

The concept of "chain of title" has been largely moulded [sic] by judicial decisions as to the scope of a reasonable burden of searching the records. This has been, in turn, influenced by the indexing practices of recording offices. In consequence, it is commonly held that a purchaser is required to search the records only from the date on which a prior owner acquired title to the date on which he [or she] parted therewith. This rule excludes from the "chain of title" any instrument recorded before acquisition, or after a recorded relinquishment.

(Powell, Real Property p 916 [abridged].)

Although the lease was recorded some four months before the conveyance of the property from Amoroso to plaintiffs, given the current grantor-grantee recording system utilized in Ulster County, we find this recording insufficient to charge plaintiffs with constructive notice of the lease (see, Real Property Law § 291) because it was recorded after Ruth Thomson's recorded relinquishment of her title to Amoroso. Consequently, the lease instrument was outside the "chain of title". As subsequent purchasers, plaintiffs were not required to search in the grantor-grantee indexing system outside their direct chain of title (see, Buffalo Academy of Sacred Heart v. Boehm Bros., supra; Doyle v. Lazarro, supra ). 1

Plaintiffs also contend that TRW was put on inquiry notice (see, Witter v. Taggart, supra, at 241, 573 N.Y.S.2d 146, 577 N.E.2d 338) of the existence of the Thomson lease because Ruth Thomson, a prior owner of record, was listed in the sales contract as a month-to-month tenant. " 'The general rule is that actual possession of real estate is notice to all the world of the existence of any right which the person in possession is able to establish' " (Wardell v. Older, 70 A.D.2d 1008, 1009, 418 N.Y.S.2d 196, quoting Erlich v. Hollingshead, 275 App.Div. 742, 87 N.Y.S.2d 682; see, Phelan v. Brady, 119 N.Y. 587, 591-592, 23 N.E. 1109; Nethaway v. Bosch, 199 A.D.2d 654, 605 N.Y.S.2d 135). Because it is not common practice for title insurance examiners to physically inspect the premises prior to the issuance of title insurance policies, most policies except the rights of persons in possession (see, Herbil Holding Co. v. Commonwealth Land Tit. Ins. Co., 183 A.D.2d 219, 224, 226, 590 N.Y.S.2d 512) to avoid the notice problem that arises out of actual possession. In this case, however, the policy issued by TRW's predecessor in interest, as previously noted, excepted only "[r]ights of present tenants and occupants on a...

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