Nyctl 1998-1 Trust v. Mayfield
| Decision Date | 20 July 2007 |
| Docket Number | No. 20220/02,20220/02 |
| Parties | NYCTL 1998-1 TRUST et al, Plaintiffs, v. MARY MAYFIELD et al., Defendants. |
| Court | New York Supreme Court |
In this foreclosure action, The Brooklyn Organization LLC (Brooklyn or movant) moves for an order: (1) staying any closing in this matter pending resolution of the exceptions in its title report; (2) directing plaintiff to cure said exceptions as a precondition to any sale or closing; or, in the alternative, (3) directing that the sale be vacated in its entirety and that plaintiff return the deposit paid at said sale to movant.
This action was commenced to foreclose the tax lien certificate on property located at 1105 Dumont Avenue in Brooklyn and owned by defendant Mary Mayfield. A judgment of foreclosure and sale was entered on December 4, 2004 and a foreclosure sale was held on November 9, 2006. At the sale, ZZ Management LLC was the successful bidder, bidding $310,000, or more than $200,000 over plaintiff's upset price. Pursuant to the terms of sale, ZZ Management was required to pay a deposit of $37,000 to the referee and to pay the balance of the purchase price on December 11, 2006. Thereafter, ZZ Management assigned its bid to Brooklyn.1 After requesting that First American Title Insurance Company do a title search in order to obtain title insurance, Brooklyn discovered that the deed that conveyed the property from the City of New York to Mayfield (the Mayfield deed), dated June 19, 1986, gave the City of New York a right of reverter pursuant to Executive Order No. 50 (Koch) of the City of New York (66 RCNY 10-14). First American refuses to insure title without excepting the right of reverter. Similarly, plaintiff's title company, Ticor Title Insurance Company, will not insure title over the reverter interest.
At movant's request, plaintiff contacted the City to ascertain if it would waive its right of reverter; the City declined. Thereafter, the closing was scheduled, with time being of the essence. The closing has since been cancelled and the instant order to show cause followed.
As is relevant to the instant dispute, the terms of sale provide that if the successful bidder fails to complete the purchase, plaintiff can elect to reschedule the sale and retain the down payment, to be applied to the proceeds of the second sale, and if the premises are sold at a second sale, the purchaser will be held liable for any difference between the first and second bid.2 The terms of sale further provide that the premises shall be sold in "as is" condition and subject to "covenants, restrictions and easements, if any, of record."3 Finally, as is also relevant to the instant dispute, the terms of sale provide that if the purchaser raises written objection to title, plaintiff shall have the option of providing fee title insurance from a title insurance company of his choice, at purchaser's expense.4
As is relevant herein, the Mayfield deed provides that in the event that Mayfield defaulted in her obligations to rehabilitate the premises; attempted to transfer the property before a permanent certificate of occupancy was issued without the consent of the Commissioner of the Department of Housing Preservation and Development (HPD); defaulted on a loan issued to her by HPD; or failed to pay taxes, assessments, water charges, sewer rents or other municipal charges:
(Mayfield deed art 4.)
In support of its motion, Brooklyn alleges that plaintiff, which is a trust that holds City tax liens, is trying to force it to close, while still subjecting it to the City's right of reverter. Movant further argues that First American has raised the issue of whether the City has already become the owner of the subject property pursuant to its right of reverter because of the failure of Mayfield to comply with the terms of her deed. Movant thus concludes that since it would be unfair to allow the City to foreclose on its tax lien, while still holding its right of reverter, the court should exercise its equitable power and set aside the sale.
In opposition to the motion, plaintiff argues that both the judgment of foreclosure and the terms of sale contain explicit language providing that the premises are being sold subject to any covenants, restrictions and declarations. Hence, movant is not entitled to an order setting aside the sale on the ground of the existence of the City's right of reverter. Moreover, ZZ Management could have discovered the right of reverter prior to bidding on the property and Brooklyn could have performed a diligent title search prior to agreeing to an assignment. Plaintiff further argues that movant is similarly not entitled to the return of its down payment, since the terms of sale provide that if purchaser fails to pay the balance of the purchase price, the referee will retain the deposit (terms of sale, paras 2 [2]; 4).
As a threshold issue, it must be recognized that "[a]s a general rule, a purchaser at a foreclosure sale is entitled to a good, marketable title" (Jorgensen v Endicott Trust Co., 100 AD2d 647, 648 [1984]; Heller v Cohen, 154 NY 299, 306 [1897]). In this regard, the court notes that:
(Regan v Lanze, 40 NY2d 475, 481-482 [1976].)
As is relevant to the instant dispute, the possibility of reverter has been held to render title unmarketable (see e.g. Van Vliet & Place, Inc. v Gaines, 249 NY 106, 109 [1928]; accord Bloom v Kernan, 146 AD2d 916, 917 [1989] []; McAndrew v Lanphear, 280 App Div 6, 9 [1952] []).
The issue of how the right to reverter is to be exercised is, in some cases, controlled by the language of the deed that created such right. Hence, in a case decided on facts similar to those at issue herein, where the City of Peekskill conveyed a parcel of real property pursuant to a deed that provided that the property would "revert automatically to the City" if defendant failed to bring the buildings on the premises into compliance with all local and state codes within nine months after the date of conveyance, the Court held that the City made a prima facie showing of entitlement to summary judgment declaring that title to the property automatically reverted to it by proving that defendant failed to comply with the requirements of the deed (City of Peekskill v Schurr, 14 AD3d 643, 643-644 [2005]; see also Nichols v Haehn, 8 AD2d 405, 410 [1959] []). The Court in City of Peekskill further held, however, that defendant raised triable issues of fact, including whether the City waived enforcement of the automatic title reverter provision (City of Peekskill v Schurr). Finally, a right of reverter may also be extinguished by merger when the grantor becomes the owner of both the right of reverter and the fee title to that parcel (see e.g. Matter of La Barbera v Town of Woodstock, 29 AD3d 1054, 1056 [2006], lv dismissed 7 NY3d 844 [2006], citing Jemzura v Jemzura, 36 NY2d 496, 502 [1975]; Schmaeling v Schmaeling, 127 Misc 2d 763, 767 [1985]).
In resolving the instant dispute, it must also be recognized that in discussing the effect of acquiring title in a foreclosure sale, the Court has stated:
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