Articles Posted in Real Estate Litigation

Over the years I have received various telephone calls from prospective purchasers, and handled many cases involving condominium insurance claims.   Condo owners are often laboring under the misconception that the Condominium Owners Association insurance policy covers them in the case of disaster.   This article from the Washington Post helps explain some of the differences between home owners coverage for the interior of the Condominium and the Home Owner’s Association coverage that covers damage to existing for already constructed portions of the unit.

Let’s take the example of a water valve break in an upstairs condominium unit.    The water line breaks, flooding the upstairs apartment, and running down into, and ruining, interior walls, existing floors, and plaster ceilings of the unit below.    In the case Klose & Associates handled, the water valve was originally installed by the condominium association when the unit was built, and there was a faulty water pressure regulator on the main water line coming into the stand alone building containing the five (5) units.  The failure to regulate the pressure of the water caused the water filter to rupture many years later.

The condominium association had insurance coverage (but refused to pay) for the lines coming into the building (faulty regulator), and that insurance policy should have responded to the damage to the existing walls, floors and ceilings in the downstairs unit.   The owner of the upstairs unit received payment from her insurance company of items damaged inside her apartment, and the owner of the downstairs unit received some coverage for items that she had installed in her unit, but the “master” insurance policy owned by Condominium Association should have paid for the damage caused by the failure of the pressure regulator to originally existing items in both Units.   The condominium association refused to permit its insurance carrier to pay for any of the damage.  [Whether that was appropriate or not should be the topic of another blog entry].

In New York, grieving your property taxes means more than just complaining when your bill and assessment arrives. Each year the tax assessor for hundreds of municipalities sets a base line “assessment” for how much your they believe your real estate property is worth. Then, based upon formulas adopted by the State, they determineshow much you pay in taxes. You have the right to “grieve” your taxes by filing the correct form with your local “assessor,” in a formal review of the assessment, called a “tax grievance.”

As the property values escalated during the last decade, municipalities gleefully re-assessed the properties at higher and higher values so they could increase the amounts of revenue they collected from the real estate taxes. Homeowners are traditionally skitish about filing a tax grievance for various reasons– maybe they benefitted from such increased assessments because they took out home equity loans, or mortgages. That said, others refrained from filing a grievance fearing that the Town would reassess their property, find the various improvements made to the property, and then tax you more? While you may not file objections every year, the municipality is not permitted to raise your assessment because you grieved your taxes.

What does it mean for New York homeowners to “grieve” your property taxes. To begin with, you must file an RP-524 Form. This process is supposed to be simple, and is well explained here.

Yesterday’s Blog dealt with what happens if you don’t diligently apply for your mortgage while attempting to buy a house. But, what happens if you got your commitment and the bank thereafter revokes it?

According to the case law, a purchaser should be entitled to return of the down payment. Kapur v. Stiefel (1999) 695 N.Y.S.2d 330, 264 A.D.2d 602 (1999). In that case, the purchaser obtained a refund where the mortgage commitment was revoked, makeing the mortgage contingency clause (generally relied upon to cancel the contract)unavailable. This is not automatic, and the question becomes whether the purchaser acted in “bad faith,” or intentionally caused the bank to withdraw the commitment. Although litigation might errupt over whether the purchaser acted in bad faith, if a court finds that they did not (based upon documentary evidence), then the purcahser should be able to get the money back from the seller.

Specifically, the Court held:

One of the must mis-understood concepts is the “Mortgage Contingency Clause,” and how you, as a home buyer, must diligently protect your right to cancel a real estate contract if you are unable to secure a mortgage. This blog is not about the situation where your Bank issues you a mortgage commitment, and then pulls out of the deal for some reason. By then, you have likely waived your mortgage contingency.

In New York State, signing a contract to purchase real estate is usually accompanied by a “downpayment,” which is held in escrow by the seller’s attorney. The downpayment is sometimes called an “earnest money” deposit. (I always thought that such term appropriately described the deposit because you are “excited” to be purchacing a house, but you must earnestly apply for a mortgage. Many times, it is traditional to put as much as ten percent of the cost of the house up as a “downpayment,” and that is the amount at risk if you do not properly apply for your mortgage.

In New York, the downpayment also represents a seller’s damages if the buyer breaches the contract and refuses to purchase the house without justification. A downpayment can represent up to ten percent, or more, of the purchase price depending on negotiations between buyer and seller.

Who knows the most about your house? Its history, its features, its quirks, its problems? The answer is you, the seller. As someone about to sell a New York home, consult your lawyer (not your realtor) about the Property Disclosure Statement. Under New York State Law, you have a decision to make– complete a 35 question exam about your house, or give a $500 credit for not disclosing to buyers.

This disclosure or admission is part of New York’s Property Condition Disclosure Act, which became law in 2002. The law applies to all land that is improved by one to four family dwellings that are used or intended to be used as residences. Condominiums, cooperatives, vacant land to be used for construction, and certain other forms of ownership are exempt from disclosure.

It sounds simple, but the law demands much more than saying, “My home is in excellent condition!” or “My home is great!” In fact, the Act requires sellers to complete a six-page form that includes questions ranging from the age of your house to whether your property ever contained a fuel storage tank to whether you have ever tested the water quality and flow.

So your landlord just got slapped with a housing violation – what does that mean for you as a tenant? Can you stop paying your rent altogether? If you live in New York, not so fast.

Although your duty as a tenant to pay rent is dependent on the landlord’s “satisfactory maintenance of the premises in habitable condition,” a housing violation on its own does not relieve you of your obligation to pay rent. Park West Management Corp. v. Mitchell, 47 N.Y.2d 316 (1979). The key factor is whether the violation threatens the health and safety of the tenant thereby breaching the landlord’s warranty of habitability. Park West, supra; New York Real Property Law, § 235-b. Therefore, a housing violation is merely the “starting point” in such a determination, and it is possible that the finding of a violation does not have an impact on habitability. Note, however, that the landlord’s warranty of habitability cannot be waived. Real Property Law, § 235-b-2.

If a breach of the landlord’s warranty of habitability is found, damages are measured by the difference between the fair market value of the premises in their habitable condition (as measured by the rent set forth in the lease), and the value of the premises during the period of the breach. Park West, supra. An award of damages to a tenant can be made through a lawsuit by the tenant to recover lease payments from the landlord, or in defense to an action by the landlord for non-payment of rent. Park West, supra.

Surrogate Courts in New York may require a probate bond – also called an “executor bond,” an “administrator bond,” or a “trustee bond” – when an individual is appointed to handle the distribution of a deceased person’s estate. The bond acts as a guarantee that the estate’s debts will be paid and the assets will be distributed properly. Before a bond will be issued, bond companies will review the credit history of the person administering the estate to assess their risk in issuing the bond.

Depending upon the facts and circumstances, the Surrogate Court sitting in Rockland, Dutchess, or Westchester County, New York, may require a bond if the gross value of the probate assets for the estate is $30,000 or more. N.Y. Surrogate’s Court Procedure, § 801-1(a) and § 1301-1. The amount of the bond required is determined by the court, but is generally equal to the value of the property in the estate, including rents on real property for 18 months and the “probable recovery” of any lawsuit being prosecuted by the fiduciary of the estate. N.Y. Surrogate’s Court Procedure, § 801-1(a). The size of the bond will depend upon the number of “creditors” and the claimed amount due.

The premiums on the bond are paid from the deceased person’s estate. Bond premiums are generally paid annually until the estate is settled, i.e. all of the property has been distributed. In your will, you may direct that the court not require a bond. By doing this, you will save your estate money on bond premiums, but there will no longer be a third-party guarantee ensuring that your estate is properly distributed.

In February 2011, the Court of Appeals for the Second Circuit (including New York) handed down a decision that should have every attorney dotting their “I’s” and crossing their “T’s.” In Fischer & Mandell LLP v. Citibank, 632 F.3d 793 (2d Cir. 2001), the court affirmed summary judgment against a law firm who deposited a client’s check into a bank, and disbursed the funds as requested by the client before the check cleared the account.

The facts were as follows: in January 2009, plaintiff-appellant, Fischer & Mandell LLP, received from a new client what appeared to be an official Wachovia Bank check. Id. at 795. The check was made payable to the firm, and the firm was advised that it represented partial payment of a debt owed by another entity to the client. The firm then deposited this check for $225,351 into its account at defendant-appellee, Citibank. In the usual case, if there is enough money in the account to cover the check, the bank will make the funds available immediately, before the check clears-that is what happened here. Id.

The client then requested two wire transfers of a portion of the funds-one to South Korea, and then next to Canada. After both transfers were complete, the Federal Reserve Bank returned the check as dishonored and unpaid. Id. at 796. A Citibank representative then telephoned the firm to advise them of the counterfeit check. Citibank then charged back to the trust account the amount of the check and a $10 returned check fee, resulting in an overdraft. Id. Next, Citibank debited an amount necessary to satisfy the overdraft from a money market account the firm had at Citibank.

One of the most stressful, but enjoyable moments in your life is when you purchase a house. Most would describe it as an experience like no other. Most would also agree that just going out and finding a plot or house you like and immediately buying it is ill advised. Since there are many things that could be wrong, getting a land survey before you purchase the land is the best bet.

Land surveys serve many purposes. The survey shows the boundary measurements of the land to make sure that the plot you think you are buying is actually what you are buying. The survey can tell you what lies on your property and what falls out of your property line. It also shows features of the property such as trees, buildings, fences, sidewalks, driveways, and the like.

A land surveyor can also be very helpful when purchasing a piece of real estate that you hope to eventually build on, as they are often familiar with zoning and building regulations. Further, if you plan to subdivide the land, a survey will provide the necessary measurements to determine whether that is possible for you to do. Essentially, the surveyor is able to take into consideration what your objective is with the land, and reach conclusions that will either make you want to go forward with the transaction or realize that you almost just entered into a very bad deal.

So you have finally updated your home by addition, new kitchen or other improvement. You tried doing it by the book, went through the normal channels; obtained estimates, interviewed contractors, investigated their references and made that home improvement using your hard earned dollars. The work commences, is substantially complete and your contractor suddenly disappears, starts showing up sporadically, or starts pressuring you for more money. Ultimately, you dispute the contractor’s view of the costs, his final project or some of the final punch list items and make the decision to withhold payment. What happens next? The Contractor likely files a mechanic’s lien with the county clerk.

New York

Since the home improvement was done to your “real property”, the contractor has the legal right to file a lien, without legal process or litigation. In New York, a contractor who has not been paid for services rendered or materials furnished for the improvement of real property can file a mechanic’s lien against your home. See N.Y. Lien L., Art. 3, § 40 (2010). In other words, the unpaid contractor has the power to get in the way your ability to transfer or finance your real property (i.e. sell or refinance your home) until it is paid.

In New York, mechanic’s liens are filed in the office of the county clerk where the property is situated, and can be filed without first commencing a law suit. Once properly filed, the mechanic’s lien-like an outstanding mortgage-is an impediment to clear title. New York allows a contractor to file a mechanic’s lien against your home even if the underlying “contract” was oral (not in writing). Cynically, even though the work conducted may not have been what you wanted or you do not accept the work, the contractor may seek to “enforce” their right to payment through a lien without intervention of a court. This turns the normal idea of “due process” on its head, giving the contractor (and others) significant power.

This seemingly unfettered right to encumber real property without process does not come without a a responsibility. The law has several safeguards to protect homeowners. First, although a contractor does not need a homeowner’s permission to file the lien (and in New York, does not even need to first notify the homeowner about filing) there are stringent requirements that must be met in order for such lien to be valid.

For example, the home improvement contractor must file the lien in the county clerk’s office, then notify the homeowner of the filing by sending a copy of the lien by both regular and certified mail within thirty (30) days of the filing date, and then finally must provide the clerk with an “affidavit of service” advising the clerk that the homeowner has been properly notified of the lien’s filing. More importantly, if the contractor wilfully exaggerates the amount or nature of the lien, the law permits a counter-claim for treble damages and attorneys fees. Also, the encumbrance on your title does not last indefinitely. The contractor must file an action to “foreclose” the lien within one year, or seek court intervention to extend its duration.
Generally, the liens expire on their face after one year (unless extended), and after three (3) years in the eyes of most title companies.

The Bottom Line

Be careful. When contracting with the home improvement contractor protect yourself by requiring “lien releases” at each stage of the construction. When a dispute is inevitable, be sure that you have the paperwork to show how much you have paid and how much you agreed to pay. If it’s a really big job, pay an attorney a flat rate to advise you on the contract.

We at Klose & Associates help contractors and home owners realize clear agreements as to what improvements are going to cost, and how to handle the disputes that arise.
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