JOURNALJOURNAL NEW YORK STATE BAR ASSOCIATION Vol

N.YN.Y.. REALREAL PRPROPEROPERTYTY LALAWW JOURNALJOURNAL NEW YORK STATE BAR ASSOCIATION Vol. 27, No. 1 Winter 1999 A PUBLICATION OF THE REAL PROPERTY LAW SECTION MESSAGE FROM THE SECTION CHAIR

Greetings, and I wish each of he called me into his office and you your heart’s desire for the New began to scrutinize a certain page Year! of my memorandum, then a certain paragraph, then a certain line— I hope that one of your first finally pointing out my mistake of plans for 1999 is to attend the State having used a split infinitive! That Bar Association’s Annual Meeting in left such an impression on me that New York City the last week in I thought I had banned the split January. The Real Property Law infinitive from my drafting, but it Section will have an informative pro- appeared nonetheless and I apolo- gram for you on Thursday, January gize to all (including Mr. Rennert). 28, followed by a reception and luncheon. We expect very high atten- Finding the split infinitive and dance at the program due to manda- thinking back to my days as a new tory CLE requirements, and the lun- associate led me to thoughts of cheon will provide a wonderful mentoring. I was extremely fortu- opportunity for attorneys from nate in that I worked with a skilled throughout the state to meet, renew attorney who took the time to guide old acquaintances and “talk shop.” in New York City (the firm subse- me, not only in my writing and my quently merged into Morgan, Lewis research, but in how to deal with I left you last time searching for & Bockius). I had the pleasure of and be responsive to clients. When the grammatical error in my previous working with a wonderful attorney, I moved upstate and joined message. After graduation from law then a senior partner, named McNamee, Lochner, the mentoring school, I joined the firm of Wickes, William J. Rennert. When I drafted continued with attorneys such as Riddell, Bloomer, Jacobi & McGuire my first memorandum of law for him,

INSIDE Page Page What Lender’s Counsel Should Know About Loss The STAR Tax Exemption...... 22 Under a Mortgage Title Policy ...... 3 (James M. Pedowitz) (Albert E. Yorio) Annual Meeting Program ...... 25 Non-Judicial Foreclosure of Commercial Mortgages New York State Title Insurance Industry Proposes Pursuant to Article 14 of the Real Property Continuation of Title Insurance Coverage ...... 27 Actions and Proceedings Law ...... 8 (William A. Colavito) (Richard S. Fries) Bergman on Mortgage Foreclosures: Deeds in Lieu of Foreclosure ...... 12 When a Prior Action is Pending—A Matter of Strategy..28 (William P. Gardella) (Bruce J. Bergman) Spelling Counts When Searching Title ...... 16 New York State Bar Association Real Property Section (Arthur G. Jakoby) Condominiums and Cooperatives Committee LaSalle Update . . . Crucial U.S. Supreme Court Decision Mission Statement ...... 30 Will Significantly Affect Real Estate Investments ...... 19 (Robert M. Zinman) Thomas Connolly, who taught me know an attorney just starting out in I recall that when I was first numerous practical real property practice, and you can in any way named to the Executive Committee tips, including how to read an lend a hand—whether it is in con- of the Section, the Chair was Flora abstract of title. (I also owe thanks to nection with an area of substantive Schnall. I was a bit intimidated at my my husband, Russell C. Tharp, Jr., law, practice tips, pointers on how to first meeting with all these icons of for that skill as well—there were comport oneself or how to get the real estate legal world, and it many evenings spent around our involved in the organized bar— was inspiring to me that our leader kitchen table with Russ sharing the please do so. You will feel good, the was a woman. At my first Executive finer points of reading an abstract attorney will benefit and the overall Committee meeting in New York City and plotting a description!) In addi- profession will benefit. You should as Chair, this past September, Flora tion to Tom, David Williams from my also know that the State Bar attended and brought me a flower. firm—a past president of the State Association has a formal mentoring Remember, be a mentor, be a Bar Association—was very instru- program, in which I have enrolled. To “rabbi,” be a friend. mental in getting me involved in the date, I have fielded various ques- organization. At that time, it was tions in real estate law from junior I look forward to seeing many of considered the right thing to do, both attorneys throughout the state, and I you at the Annual Meeting on from the firm’s perspective and from recommend the experience. January 28. the attorney’s perspective. If you Lorraine Power Tharp

1999 New York State Bar Association AnnualAnnual MeetingMeeting

January 26-30, 1999 New York Marriott Marquis

Real Property Section Meeting Thursday, January 28, 1999

N.Y. Real Property Law Journal 2 Vol. 27, No. 1 (Winter, 1999) NYSBA What Lender’s Counsel Should Know About Loss Under a Mortgage Title Policy

by Albert E. Yorio* New York, New York

Title insurance is not a guaran- A similar result was reached in to extend time for performance. The tee against future risk like other the Appellate Division case of closing was completed on the date types of insurance. It is a policy of Grunberger v. Iseson.5 In specified in the order. indemnification against risks that Grunberger, the policy insured that At the time of the closing, the are identifiable at the time the policy a mortgage was in a third position purchaser executed a note and is issued and the loss and costs that when it was actually fourth. granted a mortgage to the Falmouth may arise as a result of the loss However, the court did not allow National Bank to secure the note. against which you are insured.1 A recovery under the policy because The note and mortgage were well in title insurance policy is a contract of the value of the premises did not excess of the purchase price. The indemnity under which the insurer equal the amount owed on the first excess was to be advanced as a agrees to indemnify its insured for mortgage. construction loan. as much as the policy amount against loss through defects of title, When Does a Loss Become The seller subsequently liens or encumbrances on realty in Actual Under a Loan Policy? appealed the ex parte granting of which the insured has an interest.2 the purchaser’s motion to extend the A series of 1990 cases from the closing date. When the bank learned Risk alone is not the sole deter- federal First Circuit examined when, of the appeal, it notified the title minant of coverage under the policy. for purposes of a mortgagee’s title insurer, Chicago Title. Chicago Coverage is subject to exclusions, policy, a loss becomes actual, and refused to insure any further exceptions, conditions and stipula- thus recoverable. advances on the construction loan. tions that carve out particular risks To get the bank to make future from the duty to indemnify and In Falmouth supra,6 the insured advances, the purchaser arranged defend and limit the insured’s right filed a complaint alleging breach of for Ticor Title (before it was pur- to recovery. It should be noted, how- the insurance policy for Ticor’s fail- chased by Chicago Title) to provide ever, that if the insurance contract is ure to pay a loss. Under the stan- the bank with title insurance. ambiguous, limitations on the insur- dard terms of the policy as set forth er’s liability are normally narrowly in the 1987 ALTA Mortgagee’s Policy The reviewing court concluded construed against the insurer by the Conditions and Stipulations, para- that the trial judge lacked authority courts.3 graph 11(b), which was carried into to unilaterally extend the time for the 1992 ALTA Loan Policy, the performance of the closing and A claim that is otherwise within insurer’s liability had to be definitely remanded the case for recon- the terms of the policy may fail established in order to trigger Ticor’s veyance of the property to the seller. under exclusion 3(c) of the 1992 duty to pay. The bank then made a claim to Ticor ALTA policy, which specifically for payment of all losses. Ticor excludes from coverage “defects, The case involved land in responded that the claim was pre- liens, encumbrances, adverse Mashpee, Massachusetts for which mature and could not be asserted claims or other matters resulting in there was a purchase and sale until such time as the amount of no loss or damage to the insured agreement. A dispute arose actual damages was established. claimant.” For example, in Green v. between the parties to the agree- Evesham Corp., supra,4 the insured ment and the purchaser sued the When Falmouth sued Ticor, the mortgagee had no recovery under seller. They then entered into a con- federal district court dismissed the its policy because there was no sent judgment fixing the date of con- bank’s claim as premature. The First actual loss, since the value of the veyance. Difficulties arose at the Circuit Court of Appeals affirmed the mortgaged property exceeded the closing, and when it became clear district court’s dismissal without value of the insured loan even with that the sale would not be complet- prejudice. In doing so, the First the known defect. ed on the date set by the consent Circuit distinguished between the agreement, the purchaser sought interest of an owner, which is imme- and was granted an ex parte order diately diminished by the presence

Vol. 27, No. 1 (Winter, 1999) NYSBA 3 N.Y. Real Property Law Journal of a defect, and the interest of a provide for the defense of an 3. To Pay the Insured the mortgagee such as Falmouth. Under insured in litigation in which Amount of Insurance a mortgage policy, the court found any third party asserts a that actual loss can only be deter- claim adverse to the title or Paragraph 6(a)(I)—In case of mined after the buyer is sued on the interest as insured, but only a claim under this policy, the outstanding note and fails to pay the as to those stated causes of Company shall have the fol- judgment. action alleging a defect, lien lowing additional options: or encumbrance or other Subsequently, the federal dis- — to pay or tender pay- matter insured against by this trict court for Rhode Island exam- ment of the amount of policy. The company shall ined the practical difficulties in insurance under this have the right to select coun- applying Falmouth. In American Title policy together with any sel of its choice (subject to Insurance v. East West Financial costs, attorney’s fees the right of the insured to Corp.,7 the district court observed and/or expenses in- object for reasonable cause) that: “One of the practical difficulties curred by the insured to represent the insured as to in applying Falmouth is determining claimant, which were those stated causes of action how far the insured must go in pros- authorized by the and shall not be liable for and ecuting such a suit, or, to put it Company, up to the will not pay the fees of any another way, determining the point time of payment or ten- other counsel. The Company at which it can be said that the der of payment and will not pay any fees, costs or 8 which the Company is debtor failed to pay.” expenses incurred by the obligated to pay; or The district court concluded insured in the defense of that: those causes of action which 4. To Purchase from the allege matters not insured Insured the Indebtedness [T]he only reasonable read- against by this policy. Secured by Mortgage ing of Falmouth is that a Note: Attorneys fees and mortgagee must pursue Paragraph 6(a)(ii)—In case costs account for about 40 legal action against a of a claim under this policy, percent of all claims pay- defaulting borrower until a the Company shall have the ments. reasonable lender would following additional options: write the debt off as uncol- lectible, or, to put it another 2. To Establish the Title — to purchase the indebt- way, until the anticipated edness secured by the Paragraph 4(b)—The Com- cost of further proceedings insured mortgage for pany shall have the right, at against the borrower would the amount owing its own cost, to institute and be greater than any amount thereon together with prosecute any action or pro- that is likely to be recov- any costs, attorney’s ceeding or to do any other ered.9 fees and expenses act which in its opinion may incurred by the insured be necessary or desirable to The Insurer’s Option claimant which were establish the title to the authorized by the estate or interest or the lien The insurer has six basic Company up to the time of the insured mortgage, as options under the 1992 ALTA Loan of purchase and which insured, or to prevent or Policy’s Conditions and Stipulations the Company is obligat- reduce loss or damage to the for disposing of a valid claim: ed to pay. insured. The Company may 1. To Defend the Title take any appropriate action 5. To Pay or Settle with Other under the terms of this policy, Parties Paragraph 4(a)—Upon writ- whether or not it shall be ten request by the insured liable hereunder, and shall Paragraph 6(b)(I)—In case of and subject to the options not thereby concede liability a claim under this policy, the contained in Section 6 of or waive any provision of this Company shall have the fol- these Conditions and policy. If the Company shall lowing additional options: Stipulations, the Company, at exercise its rights under this its own cost and without paragraph, it shall do so dili- — to pay or otherwise set- unreasonable delay, shall gently. tle with other parties in the name of an insured

N.Y. Real Property Law Journal 4 Vol. 27, No. 1 (Winter, 1999) NYSBA claimant any claim Although the policy provides the tendering a deed to the insured insured against under insurer with flexibility in the means property was held liable for the full this policy, together with by which it may handle an adverse amount of the insured mortgage any costs, attorney’s claim, the duty of good faith and fair loan—which at the time of the ten- fees and expenses dealing implicit in every contract der was greater than the value of the incurred by the insured applies to the insurer’s exercise of property—because the insurer claimant which were its options. unreasonably delayed in curing the authorized by the defect while the real estate market Company up to the time As previously set forth, a basic was failing. Had the insurer made a of payment and which right retained by the title insurer in timely tender of the property deed, the Company is obligat- all of its policies is the right to cure the result might have been different. ed to pay; or the problem, as set forth in paragraph 4(b). Paragraph 7 also pro- What is the Measure 6. To Pay or Settle with vides that if this course of action is of Damages? Insured taken, title as insured must be established “in a reasonably diligent What is “Actual Loss”? Paragraph 6(b)(ii)—In case manner.” Courts look at the facts of a claim under this policy, and circumstances of each case to “Actual loss” and “as of the date the Company shall have the see whether the problem was han- of the policy” are the pillars on which following additional options: dled expeditiously. In Diversified all valid title insurance claims rest. Mortgage Investors v. U.S. Life Ins. Until a loss is “actual,” no claim will — to pay or otherwise set- Co. of NY,10 the court found it inap- arise. Just what it is that constitutes tle with the insured propriate to make the title company “actual” loss is subject to court inter- claimant the loss or discharge liens they were litigating. pretation. damage provided for under the policy, togeth- On the other hand, if it is deter- It is agreed that the mere exis- er with any costs, attor- mined that either the problem was tence of an undisclosed and unex- ney’s fees and expens- not handled within a reasonable pected lien on a mortgage policy is es incurred by the time, regardless of outcome, or that not enough to demonstrate loss. In insured claimant which title could not be established as many cases, an existing defect must were authorized by the insured, the court will usually award be asserted before a loss can be Company up to the time the insured all reasonably foresee- proven, and in some cases, the of payment and which able damages resulting from the assertion of the existing defect must the Company is obligat- delay. In Nebo v. Transamerica Title be of such a nature that the ed to pay. Co.,11 the court imposed delay dam- insured’s interest is manifestly ages on the title company even impaired, as when a mortgagee’s If a claim is not denied or other- though it cleared the title of the interest appears to be no longer wise settled, the policy obligates the defect because the company litigat- secure. title insurer to defend legal actions ed the issue for three-and-one-half on behalf of the insured under para- years, ultimately lost and had to pur- Courts and commentators alike graphs 4(a) and 4(b) above. The chase the interest anyway.The court acknowledge that the term “actual insurer’s duty to defend title is found that under the circumstances, loss” is a relative one,13 and that it is defined and limited by the claims the defect was not removed within a elusive.14 The measure of damages alleged in the lawsuit brought reasonable time, as required by the invariably involves such factors as: against the insured. policy. It was struck by the fact that (1) the language of the policy; (2) the While the insured may request the company chose to litigate, particular circumstances of the that the insurer commence a quiet notwithstanding the fact that it had case; (3) the proof in the case; (4) title action or other types of litigation lost on the same issue on another the law of the jurisdiction; and (5) the against a third party to remove a title property. Without saying so, the nature of the defect involved. defect, the policy gives the insurer court seemed to imply that the com- Total and Partial Failure of wide flexibility to pursue other pany did not litigate the issue in means of curing title, such as buying good faith. Title off or settling with the holder of an In Citicorp Savings of Illinois v. The appropriate rule for estab- adverse claim, which is addressed Stewart Title Guaranty Co.,12 an lishing the measure of damages in paragraph 6(b)(I). insurer under a lender’s policy who under a title policy typically depends attempted to cure a title defect by upon whether there has been a par-

Vol. 27, No. 1 (Winter, 1999) NYSBA 5 N.Y. Real Property Law Journal tial or total failure of title as a result Likewise, recovery under a sec- a) as of the date title failed;18 of the defect. Where the failure of ond mortgage policy is measured title is total, the measure of dam- against the amount by which the b) as of the date of foreclo- 19 ages is the fair market value of the value of the property exceeds the sure; or interest as insured. Where there is a amount of the first mortgage. See c) as of the date compensation complete failure of the mortgagee’s also First American Realty Investors demand was made.20 title and the value of the property v. Peninsula Title Ins. Co.,17 where equals or exceeds what is due on the court found no loss under the Generally, the inquiry as to the mortgage, recovery is measured loan policy even though several when loss is sustained and on what by the amount due on the mortgage parcels of property included in the date damages should be measured up to the face amount of the policy. policy were not owned by the mort- tends to converge into a single gagor. The remainder of the proper- inquiry. However, the date at which However, if the value on the ty had sufficient value to make the this measurement will be made mortgage is greater than the value lender whole. varies from jurisdiction to jurisdiction of the property, the mortgagee can and from decision to decision. The only recover up to the value of the A lender is not choosing to use more recent and prevalent view is a property. In CMEI, Inc. v. American its assets to invest in real estate. It is line of cases which concern them- Title Insurance Co.,15 the mortgagee merely entering into an agreement selves with preventing windfall to secured title insurance coverage with the borrower to extend credit either the insurer or the insured. In against loss up to $1,475,000 on pursuant to the terms of its contract Blackhaw Production Credit Ass’n v. secured indebtedness resulting from (i.e., the promissory note). If the Chicago Title Insurance Co.,21 the any title defects on the secured extension of credit is conditional mortgagee contended that it suf- property. Six years later, the mort- upon the lender receiving a lien on fered an actual loss recoverable gagor defaulted and the mortgagee real estate as part of the security for under the terms of its policy purchased the property at a foreclo- the repayment of the debt, then a because of an unreported superior sure sale. After obtaining fee simple mortgage or deed of trust also lien, despite the fact that it ultimate- title, the insured discovered two out- becomes part of the contract. The ly made a profit on the sale of the standing easements, publicly loan policy insures the validity, insured property. The insurer con- recorded but not excepted from cov- enforceability and relative priority of tended that because the mortgagee erage, and brought a claim for the the lien created. The lender is not an made a profit, and its profit exceed- devaluation of his property. owner subject to the risks of owner- ed the face value of the policy, the ship. It has merely entered into an Since the value of the property mortgagee sustained no actual loss agreement to lend money and be was more than $1,475,000 in a ris- and, thus, could not recover under reimbursed according to its terms. If ing market, there was no loss in the the policy. repayment is made, the status of sum owed the insured by reason of title to the property encumbered by The mortgagee settled with the the two easements or any other the insured mortgage becomes irrel- lienholder. The court found that the encumbrances covered in the policy. evant. Therefore, erroneously insur- settlement amount plus its costs in There was, therefore, no “actual” ing that a mortgage encumbers obtaining the settlement to be the loss on which to predicate a claim. property not owned by the mort- loss incurred—despite the fact that Even with some market devaluation gagor is only a potential claim under the mortgagee later sold the proper- caused by the easements, there the policy. It only becomes relevant ty for a profit. The court stated: was no reduction below the amount in the event the borrower defaults on of indebtedness secured by the Once the value of this secu- the loan and foreclosure becomes mortgage. The value of the “security rity interest has been deter- necessary. property” minus depreciation mined by foreclosure or other reasonable means, caused by defects still exceeded the Date of the Loss debt owed the insured mortgagee.16 the insurer should gain no added benefit because of Furthermore, the court also The loss under an owner’s policy may be at a different time than an insured’s business acu- explained that when an insured men regarding later resale mortgagee becomes an owner by the mortgagee’s loss. Generally, the loss under the owner’s policy is fixed for profit of improved land, foreclosure, his or her policy cover- but neither would its liability age continues, but only under its as of the date of discovery of the title defect. The courts have used three be increased if by poor busi- original terms—upon purchase, it ness dealings an insured does not convert to an owner’s poli- different theories in fixing the date of loss under the mortgagee’s policy: had lost money on subse- cy. quent sale of the property.22

N.Y. Real Property Law Journal 6 Vol. 27, No. 1 (Winter, 1999) NYSBA The court indicated that the loss from possible allegations of mal- 13. Empire Development Co. v. Title should be measured at the date of practice. Guarantee and Trust Co., 225 N.Y. 53, 121 N.E. 468 (1918). the foreclosure sale. A number of recent cases have followed Endnotes 14. Burke, LAW OF TITLE INSURANCE, at p. 34. Blackhawk—Chrysler Financial 15. 447 So.2d 427 (Fla. Dist. Ct. App. 1984). Services Corp. of America v. 1. Falmouth National Bank v. Ticor Title 16. Id. at 428. Insurance Company, 920 F.2d 1058 23 Chicago Title Insurance Co. and (1st Cir. 1990). 17. 355 So.2d 510 (Fla. 1978). Karl v. Commonwealth Land Title 2. Green v. Evesham Corp., 179 18. Hillsboro Cove, Inc. v. Archibald, 322 24 Insurance Co. —in holding that the N.J.Super. 105, 430 A. 2d 944 (1981). So.2d 585 (Fla. App. 1975). date of the foreclosure sale is the 3. Burke, D. Barlow, Jr., LAW OF TITLE 19. Narbett Bldg. & Loan Association v. time when the mortgagee’s loss is INSURANCE (Little Brown & Co. 1986) Bryn Manor Trust Co., 126 Pa. Super quantifiable. §2.2. 74, 190 A. 149 (1937). 4. 179 N.J. Super 105. 430 A.2d 944 20. Title Ins. Co. v. Industrial Bank, 156 Va. Summary (1981). 322, 157 S.E. 710 (1931). 5. 75 A.D.2d 329, 429 N.Y.S.2d 209 (2d 21. 144 Wis.2d 68, 423 N.W. 2d 521 (1988). To recover under a loan policy, Dep’t 1980). 22. Id. at 82. the insured lender must show actual 6. 920 F.2d 1058 (1st Cir. 1990). 23. 641 N.Y.S. 2d 13 (A.D. 1st Dep’t 1996). loss in terms of impairment of its 7. 817 F.Supp. 195 (D.R.I. 1993), (often 24. 20 Cal. App. 4th 972, 24 Cal. Rptr. 912 mortgage security resulting from the referred to as “East West II”), aff’d in (1993). covered defect or encumbrance. It is part and rev’d in part, 16 F.3d 449 (1st not sufficient merely to show that the Cir. 1994). *Albert E. Yorio is a Vice- defect falls within the insuring provi- 8. Id. at p. 463. President and Regional Claims sions of the policy. By avoiding mis- 9. Id. at p. 468. Counsel for Fidelity National Title conceptions regarding a loan policy, 10. 544 F.2d 571 (N.Y. 1976). Insurance Company of New York, lender’s counsel will avoid unrea- 11. 21 Cal. App. 2d 222, 98 Cal. Rep. 237 Inc., and formerly was a Vice- sonable expectations from its clients (1971). President and Eastern Division and will isolate himself or herself 12. 840 F.2d 526 (7th Cir. 1988). Litigation Counsel for Chicago Title Insurance Company.

Save the Date! Real Property Law Section 1999 Summer Meeting July 14-18, 1999 Southampton Princess Bermuda

Vol. 27, No. 1 (Winter, 1999) NYSBA 7 N.Y. Real Property Law Journal Non-Judicial Foreclosure of Commercial Mortgages Pursuant to Article 14 of the Real Property Actions and Proceedings Law

by Richard S. Fries New York, New York

An amendment to article 14 of closed by “power of sale” non-judi- borrower or subordinate lienor has the Real Property Actions and cially only if the mortgage being certain rights and remedies (see Proceedings Law (RPAPL) (Chapter foreclosed contains a provision per- section II below). 231 of the Laws of 1998), authoriz- mitting the sale of the mortgaged ing non-judicial foreclosure of com- property.1 D. Notice of Pendency mercial mortgages, became effec- A suggested form of “power of tive on July 1, 1998. New York is now Prior to the first service of the sale” provision is set forth in section the 36th state in the country to enact notice of intention to foreclose, the III of this article. some form of an expedited non-judi- mortgagee must purchase an index cial foreclosure remedy. Article 14 number—thereby opening the court B. Excluded Classes— records—and file with the county remains in full force and effect until Section 1401(1), (2) July 1, 2001, when, unless other- clerk a notice of pendency of the non-judicial sale.4 The notice of wise extended or renewed, article (i) a residential building contain- pendency binds all holders of inter- 14 will be deemed repealed. ing fewer than six dwelling ests who may appear thereafter to units; The new legislation was enact- the non-judicial foreclosure of their ed through the efforts of a special (ii) a residential condominium liens without the need to serve the task force of the Real Property unit; notice of sale upon them. Section of the New York State Bar Association, which prepared the ini- (iii) a residential building owned E. The Notice of Sale— tial draft of the legislation and by a cooperative apartment Content, Service and worked on revisions to satisfy sever- corporation; Publication al substantive issues raised by the (iv)a residential building located Thereafter, the formal “notice of state Senate and the Assembly. within New York City contain- the sale” must be served, filed and ing at least 65 percent resi- By now, real estate practitioners duly advertised. The notice of sale dential tenancies; and should be aware of the new statute must specify: the names of mort- and at least somewhat familiar with (v) where the mortgagee seeks gagor and mortgagee, the particu- its general purpose and use. This to foreclose, terminate, modi- lars of the mortgage and the mort- article will highlight the essential fy or impair a tenant’s inter- gaged property, the identity of hold- provisions of the statute, suggest ests in any leases for resi- ers of subordinate interests, the mortgage loan provisions designed dential units in the mort- outstanding principal and accrued to make more effective use of the gaged property.2 interest and the date, place and new law, and briefly explore certain time of sale.5 potential problems and pitfalls that C. Notice of Intention to may arise when the new statute is Foreclose Due, timely and proper notice of used. the sale must be served (in the The mortgagee must serve a manner required for personal ser- I. Highlights of Article 14 formal “notice of intention to fore- vice of a summons) upon all inter- close” at least ten days before the ested parties at least 30 days A. When a Mortgage May notice of sale is published.3 This before the date of sale. An addition- be Foreclosed Non- written notice must, among other al copy must be mailed.6 Judicially things, identify the mortgage, the The mortgage may provide for defaults, the acceleration, the out- A mortgage—excepting those another means of service, such as standing principal balance and mortgages identified below in the certified or regular mail, which con- accrued interest, and state that the “excluded classes”—can be fore- stitutes acceptable service under

N.Y. Real Property Law Journal 8 Vol. 27, No. 1 (Winter, 1999) NYSBA the statute.7 A suggested form is set report of the sale,16 the sale of mul- required non-judicial foreclosure forth below in section III. tiple parcels securing a single steps can occur: debt,17 costs and expenses,18 the A copy of the notice of sale must Days Step entry of a surplus money19 or defi- also be published in a newspaper of ciency20 judgment and the ex parte general circulation at least once in Up to Transfer of Title appointment of a receiver.21 each week during the five succes- 1 acceleration of the indebted- sive weeks immediately preceding II. Right to Seek Judicial ness the date of sale or at least twice in Intervention 2 purchase index number/ each week during the four succes- notice of pendency sive weeks immediately preceding The legislature made certain the 3 serve notice of intention to 8 the date of sale. statute would afford to borrowers, foreclose and notice of pen- tenants and lienholders substantive dency F. Conduct of the Sale rights and protections and a judicial 14 serve notice of sale 15-44 advertise sale twice weekly The sale must be held at the forum within which to assert these for four weeks county courthouse of the county in rights. 43 last day to object to sale which the property is situated, under A. Prior Mortgages 45 date of public auction the auspices of a licensed auction- 46-75 the date of closing, depend- eer, sheriff, marshal or court- In the first instance, section ing on terms of sale appointed official who announces 1421 provides that for any mortgage 9 the terms of the sale. executed prior to July 1, 1998, the After Transfer of Title A memorandum of the sale mortgagor may, by written notice, 89 prepare report of sale must be executed at the completion automatically require that further 104 file report of sale of the auction. The memorandum of foreclosure proceedings be con- 124 last day for notice of claim to sale and the terms of sale (to be ducted judicially. surplus attached thereto) become the bind- 165 last day for deficiency pro- B. New Mortgages ing real estate contract.10 The mort- ceedings gagee has the right to purchase the If the mortgagee commences a IV. Suggested Mortgage mortgaged property at the sale and non-judicial foreclosure proceeding can “credit” bid up to the full amount to foreclose a mortgage—or exten- Provisions of the indebtedness secured by the sion, amendment, modification or 11 The following provisions should mortgage being foreclosed. consolidation thereof—executed be considered for all mortgage loan after July 1, 1998, a mortgagor G. Conveyance of the documentation, including extension, seeking to invoke the judicial Property—Form of modification or forbearance agree- process must obtain a court order to “Power of Sale Deed” ments. do so. A sale under article 14 is equiv- The statute sets forth the criteria A. Power of Sale alent to a sale pursuant to a judg- on which such an application must ment of foreclosure under article 13, be based, including that: (1) the “Mortgagee may, either with or which enables the purchaser to obligation secured by the mortgage without entry or taking possession of obtain marketable title free and clear is invalid or not otherwise due; (2) the mortgaged property as provided of subordinate liens.12 The form of the mortgagor has a meritorious in this Mortgage or otherwise, per- the “power of sale deed” is set forth defense to the foreclosure; (3) the sonally or by its agents or attorneys, in the statute.13 mortgagee has failed to comply with and without prejudice to the right to the statute; and (4) the non-judicial bring an action for foreclosure of this H. Other Provisions foreclosure would cause an “undue Mortgage, sell the mortgaged prop- hardship” to the mortgagor. erty or any part thereof pursuant to The statute, drawn on years of any procedures provided by applica- experience with judicial foreclosure III. Timeline for Non-Judicial ble law, including, without limitation, case law, practices, procedures and Foreclosure the procedures set forth in Article 14 pitfalls, also contains comprehen- of the New York Real Property sive provisions for the right of The following timeline identifies Actions and Proceedings Law (and redemption,14 the distribution of pro- the earliest (i.e., theoretical or unop- any amendments or substitute ceeds of the sale,15 the filing of a posed) dates on which each of the statutes in regard thereto), and all

Vol. 27, No. 1 (Winter, 1999) NYSBA 9 N.Y. Real Property Law Journal estate, right, title, interest, claim and respect to any guaranties, or similar ly residential properties, there is an demand therein, and right of rights to payment or performance; alternative that would cover the redemption thereof, at one or more nor shall such limitation of liability uncontested or consensual foreclo- sales as an entity or in parcels, and apply if and to the extent that (x) sure of these properties. The statute at such time and place upon such Mortgagor . . . takes any action by would authorize the non-judicial terms and after such notice thereof which Mortgagor seeks to require foreclosure of all residential proper- as may be required or permitted by that further foreclosure proceedings ties but permit the borrower auto- applicable law.” proceed judicially under Article 13 of matically to require that further fore- the New York Real Property Actions closure proceedings be conducted B. Service of Process and Proceedings Law (“RPAPL”) judicially. This would be akin to the rather than non-judicially under right borrowers have under section “All notices hereunder or under Article 14 of the RPAPL or otherwise 1421(1) regarding mortgages exe- any applicable law pertaining hereto delays, impedes, enjoins, prevents cuted prior to the enactment of the (including, without limitation, Article or frustrates the non-judicial foreclo- statute. 14 of the New York Real Property sure of this Mortgage or the use by In this way, the uncontested and Actions and Proceedings Law) shall Mortgagee of its remedies under consensual foreclosure of residen- be in writing and shall be deemed Article 14 of the RPAPL, unless tial properties could proceed expedi- sufficiently given or served for all Mortgagor ultimately obtains a final tiously. If property owners do not purposes when delivered (i) by per- court order that Mortgagee was not contest foreclosure, they can hardly sonal service or courier service, and entitled to exercise its remedies be expected to provide services to shall be deemed given on the date under Article 14.” when signed for or, if refused, when their tenants. The tenants the legis- refused by the person designated as V. Problem Areas—Future lature intended to protect will, there- an agent for receipt of service, (ii) by Considerations fore, be protected. facsimile transmission, and shall be B. Definition of 65 Percent deemed given when printed confir- Not surprisingly, the statute Residential Tenancies mation of completion of transmis- evolved through compromises and sion is generated by the sender’s concessions, many of which were facsimile transmission instrument, The definition of the term “65 made by the legislature in the latter percent residential tenancies” for or (iii) by United States certified stages of the legislative session. mail, return receipt requested, determining the applicability of the Several provisions in the statute statute must be clarified. Sixty-five postage prepaid, and shall be may need clarification or change or deemed given two (2) days after percent of the number of units? The may be susceptible to unintended income stream? The aggregate being sent, to any party hereto at abuse. Consider the following: the following address [standard square footage? And on what date—the date of the mortgage, the notice addresses] or such other A. Multi-Family Residential service of the notice of intention to address of which a party shall have Carve-Out notified the party giving such notice foreclose, the filing of the notice of in writing as aforesaid. For purposes The exclusion of residential pendency or the service of the hereof, notices may be given by the apartment buildings in New York City notice of sale? This carve-out lacks parties hereto or by their attorneys was intended to protect tenants, but precision and is subject to the wide- identified above.” actually benefits defaulting landlords spread abuse, confusion and poten- at the tenants’ expense. Income-pro- tial litigation the statute was C. Non-Recourse ducing multi-family apartment build- designed to prevent. Further analy- Exception/Springing ings should be included within the sis of this issue is beyond the space Guaranty for Section ambit of the statute, without regard constraints of this article. 1421 Defenses to location or percentage of residen- C. The “Undue Hardship” tial tenancies. In this way, essential Defense “. . . [N]othing herein shall (a) be, services can be maintained and the or be deemed to be, a release or tenants’ interests protected in the impairment of the indebtedness evi- The “undue hardship” standard hands of a new landlord who has for conversion to judicial foreclosure denced by the Note or of this rescued the building (and the ten- Mortgage, or (b) limit or otherwise in section 1421 is an open invitation ants) through an expedited foreclo- to creative pronouncements of harm prejudice in any way the rights of sure. Mortgagee to proceed against any that the non-judicial process strives entity or person whatsoever with If the legislature is not prepared to curtail. The borrower should have to have the statute cover multi-fami- recourse to the judiciary if the bor-

N.Y. Real Property Law Journal 10 Vol. 27, No. 1 (Winter, 1999) NYSBA rower has a meritorious defense or if Endnotes 13. RPAPL 1412. the lender fails to comply with the 14. RPAPL 1410. statute. But, the present subjective 1. Real Property Actions & Proceedings 15. RPAPL 1413. Law, art. 14, § 1401(1) (hereinafter standard of undue hardship, unless 16. RPAPL 1414, 1415. clarified or deleted entirely, will only “RPAPL”). 17. RPAPL 1416. lead to abuse, delay, unnecessary 2. RPAPL 1401(2). 18. RPAPL 1417. litigation and unpredictability. 3. RPAPL 1402(1). 19. RPAPL 1418. 4. RPAPL 1403(1). The new legislation is historic. 20. RPAPL 1419. Those who have participated in the 5. RPAPL 1404. 21. RPAPL 1420. enactment of it are optimistic that, 6. RPAPL 1406(1). once the few problems outlined 7. RPAPL 1406(2). *Richard S. Fries is is a mem- above have been remedied, the 8. RPAPL 1405(2). ber of Bachner, Tally, Polevoy & statute will meet its intended goal— 9. RPAPL 1408(1), (3). Misher LLP and chair of the Bar predictable foreclosure remedies 10. RPAPL 1408(4). Association's Real Property that lead to an increased willingness 11. RPAPL 1409. Section's special task force. He is by lenders to make mortgage loans 12. RPAPL 1411. a graduate of the New York in New York. University School of Law.

FOR MEMBERS ONLY! New York State Bar Association ■ Yes, I would like to know more about NYSBA’s practice specialty Sections. Please send me a brochure Section Membership and sample publication of the Section(s) indicated below. SECTIONS ■ Antitrust Law ■ International Law & Practice Name ______■ Business Law ■ Judicial (Courts of Record) ■ Commercial & Federal Litigation ■ Labor & Employment Law Address ______■ Corporate Counsel ■ Municipal Law (Limited to inside full-time counsel) ■ Real Property Law ______■ Criminal Justice ■ Tax Law City ______State _____ Zip ______■ Elder Law ■ Torts, Insurance & Compensation Law ■ Entertainment Arts & Sports Law ■ Trial Lawyers Home phone ( ) ______■ ■ Environmental Law Trusts & Estates Law Office phone ( ) ______■ Family Law ■ Young Lawyers ■ Food, Drug & Comestic Law (Under 37 years of age or admitted less Fax number ( ) ______■ than 5 years; newly admitted attorneys General Practice of Law may join the Young Lawyers Section E-mail ______■ Health Law free of charge during their first year of ■ admittance) Please return to: Membership Department Intellectual Property Law New York State Bar Association One Elk Street, Albany, NY 12207 **Brochures on each of the 23 specialty Sections are readily available. With this offer Phone 518-487-5577 or FAX 518-487-5579 Section publications are available only while supplies last. E-mail: [email protected]

Vol. 27, No. 1 (Winter, 1999) NYSBA 11 N.Y. Real Property Law Journal Deeds in Lieu of Foreclosure

by William P. Gardella New York, New York

The real estate market is boom- be particularly cautious of proceed- success will probably be dependent ing, so what should a lender’s attor- ing with a deed in lieu arrangement on the facts and circumstances ney be contemplating? Deeds in lieu if the borrower threatens bankrupt- involved. As a starting point, a of foreclosure may not come quickly cy. Bankruptcy presents particular lender has no obligation to accept a to mind, but in every wave of growth risks in a deed in lieu transaction deed in lieu of foreclosure.1 Also, there seems to be an exception or which will be discussed below. the borrower’s tendering of a deed two. Also, you may view this discus- in lieu of foreclosure is not a sion as an exercise to be performed defense to the lender’s foreclosure now and again, just to be prepared if “. . . if the lender action.2 Many lenders will oppose the need to react actually arises in giving the borrower any compensa- the distant future. believes that it will like- tion in a foreclosure situation. The Now, assume that a lender is ly recover a deficiency lender may not have any incentive contacted by a borrower and is to complete the foreclosure process requested to accept a deed in lieu of claim, it has little incen- more rapidly than normal, particu- foreclosure. This request may be tive to proceed with a larly in situations where the lender made at the same time the lender deed in lieu.” is able to have a receiver appointed first learns that its loan will become without difficulty or acquire title pur- delinquent. The borrower may out- suant to a statutory power of sale line what appear to be good reasons process. If there is a subordinate Having outlined the potential for the lender to accept the deed, as mortgage encumbering the proper- disadvantages that a lender may opposed to proceeding with the ty, the lender will most likely decline face in the foreclosure process, the expensive and time-consuming fore- to proceed with a deed in lieu, since borrower may then try to obtain a closure process. How should the a deed in lieu transaction will not concession from its lender if the bor- lender react when faced with the terminate subordinate liens. rower cooperates with the lender by question of whether it should accept Additionally, if the lender believes completing a deed in lieu of foreclo- a deed in lieu of foreclosure? This that it will likely recover a deficiency sure transaction. The release of an article will briefly discuss the factors claim, it has little incentive to pro- element of personal liability for the motivating the borrower, and then ceed with a deed in lieu. review the potential risks and bene- loan, or the lender’s payment of fits to the lender in a deed in lieu some or all of the closing costs, may If timing is not critical to the transaction. be that benefit. A borrower may also lender, a foreclosure is almost ask for property management rights always the preferable approach. Factors Motivating the following the conveyance of title to This is particularly so if the foreclo- Borrower the lender. Another factor that some- sure will proceed as a “friendly,” or times motivates a borrower to struc- uncontested, foreclosure. In situa- If a borrower informs its lender ture the transaction as a deed in lieu tions where a lender is willing to that the borrower will cooperate in is the borrower’s attempt to avoid entertain a deed in lieu of foreclo- the process of conveying title to the the publicity associated with a fore- sure arrangement, timing is often property to the lender, the borrower closure proceeding. It is more palat- the primary factor. There are risks may hope to receive a benefit from able for a borrower to be able to say to be considered, though, prior to its lender. A borrower may outline it “sold” property to its lender, rather agreeing to accept a deed in lieu of the possible disadvantages that a than explain that the lender acquired foreclosure. lender will face in completing a fore- the property in foreclosure. closure. Cost and time are usually Risks to the Lender the prime factors. The borrower may The Lender’s Perspective The lender will be concerned also remind its lender that the sever- The borrower’s strategies dis- that the deed in lieu transaction ity of both of those factors can be cussed above may or may not work could be challenged and set aside. compounded if a bankruptcy should with a particular lender, and their Potential grounds on which that arise. The lender, however, should

N.Y. Real Property Law Journal 12 Vol. 27, No. 1 (Winter, 1999) NYSBA could happen include uncon- claims, which are discussed below. certain of those conditions when the scionable advantage, inadequate The lender will usually obtain an insured is attempting to assert a consideration, or that the transaction independent appraisal of the proper- claim as the owner of the property. constitutes a fraudulent transfer or a ty to support the fact that the debt Also, in some states the cancellation preference. Transactions where a equals or exceeds the fair market of a debt may not be considered to borrower conveys its property to a value of the property. The borrower be valuable consideration for pur- lender will be reviewed carefully by a should acknowledge in the settle- poses of the grantee qualifying as a court if the transaction is challenged ment agreement that the fair market bona fide purchaser for value under in order to confirm that there is no value of the property is equal to or the recording statutes.4 For these fraud or duress involved.3 Because less than the amount of the debt. reasons it is advisable for the lender of the potential risks involved in to obtain an owner’s policy of title deed in lieu arrangements, if a Title Insurance Issues insurance, which should include, to lender is willing to proceed in that the extent it is available, an direction, it should proceed cau- The lender’s attorney should endorsement that insures against tiously. contact a title insurance company to fraudulent transfer claims. determine whether the company will Undue Influence impose a minimum threshold by Fraudulent Transfer Issues which the mortgage debt must It would be advantageous to the exceed the value of the property as A deed in lieu transaction lender if the offer to enter into the a condition to issuing an owner’s involves bankruptcy risks that are deed in lieu arrangement came from policy of title insurance. As an exam- not present in a foreclosure pro- the borrower. That fact will help to ple, a title company may not be will- ceeding, where third parties have defend any potential claim that the ing to insure the lender’s title to the the opportunity to bid and acquire lender exerted undue influence or property acquired by a deed in lieu the property if they believe the value pressure on the borrower to com- of foreclosure unless the appraised of the property exceeds the debt. plete the transaction. A settlement value of the property is at least a The Supreme Court took that factor agreement is normally entered into certain amount below the secured into consideration when it held that as one of the fundamental docu- debt. the price received at a regularly con- ments in a deed in lieu of foreclo- ducted foreclosure sale establishes, sure transaction and should memo- We are assuming that the as a matter of law, reasonably equiv- rialize the voluntary nature of the lender will obtain an owner’s title alent value for purposes of fraudu- arrangement. The borrower should insurance policy, which is suggested lent transfer claims.5 The Court acknowledge the existence of the for several reasons. One reason is noted that “[f]oreclosure laws typi- debt in the settlement agreement that a lender’s title insurance policy cally require notice to the defaulting and confirm that it initiated the deed is not converted into an owner’s pol- borrower, a substantial lead time in lieu arrangement voluntarily, with icy as a result of a foreclosure or the before the commencement of fore- the advice of counsel. A lender may acceptance of a deed in lieu of foreclosure proceedings, publication of have concerns if the proposal to closure. Instead, the loan policy con- notice of sale, and strict adherence enter into the deed in lieu transac- tinues to provide the same coverage to prescribed bidding rules and auc- as before. Since the effective date of tion arose after a period of lengthy tion procedures.”6 There is no public the loan policy is not changed, the disputes with the borrower, or if the sale, publication, or bidding process policy does not insure against mat- lender proposed the arrangement. involved in a deed in lieu transac- ters that arose after that date. This Refuting claims of duress or undue tion. As a result, evidence of value is also means that the policy will not influence may be more difficult in particularly significant. those situations. insure the conveyance of title to the property to the lender. U.S. Bankruptcy Code provides that fraudulent transfers may be set Inadequate Consideration Another benefit to obtaining an aside if made within one year prior owner’s policy of title insurance is The lender should confirm that to the filing of a bankruptcy petition.7 that although a loan policy remains the amount of the mortgage debt State fraudulent transfer statutes in effect following a foreclosure or equals or exceeds the fair market typically have longer statutes of lim- the acceptance of a deed in lieu of value of the property to protect itself itation.8 In essence, to constitute a foreclosure, the loan policy is sub- against a claim of inadequate con- fraudulent transfer, the conveyance ject to all of its original conditions. sideration. The value of the mort- must be made with actual intent to Those conditions are written in the gaged property is also significant in hinder, delay or defraud a creditor.9 context of an insured mortgage. As evaluating potential creditors’ rights Even if there is no intent to defraud a result, it may be difficult to invoke

Vol. 27, No. 1 (Winter, 1999) NYSBA 13 N.Y. Real Property Law Journal creditors, the transfer may be con- amount of its debt. Therefore, if the culty in recovering from its title insur- structively fraudulent if the borrower debt equals or exceeds the value of ance company, even if it obtained an receives less than reasonably equiv- the collateral, the transfer should not owner’s policy. The title insurance alent value, and if the borrower was constitute a preference. company may take the position that insolvent at the time of the transfer it has no obligation to defend such a or becomes insolvent as a result of claim since the lender’s act of grant- the transfer.10 “Preferential transfers ing the borrower an interest in the property constitutes a “defect . . . It is, therefore, important to may be set aside if made created by the insured” within the secure a recent, third-party within 90 days prior to meaning of the title policy exclu- appraisal showing that the value of sion.15 The settlement agreement the property is less than or equal to the filing in bankruptcy should state that an outright transfer the debt in order to protect against a or within one year of of property is intended, and all of the fraudulent transfer claim. In addition, other documents should clearly in an attempt to protect against both the filing if the transfer reflect that an outright transfer was of the essential elements of a fraud- is made to an insider.” intended by the parties. ulent transfer claim—i.e., the absence of reasonably equivalent Leases and Liens value and insolvency—a lender may Potential fraudulent transfer and require financial statements that preference claims are perhaps the The lender will need to carefully confirm that the borrower is not most significant risks to a lender in a review all leases. A deed in lieu insolvent. A creditworthy principal of deed in lieu transaction. Attempts transaction, unlike a foreclosure, will the borrower may be requested to can be made to reduce those risks not result in the lender having the provide an indemnity against losses through appraisals, indemnity ability to terminate subordinate leas- and liabilities incurred in the event agreements, and title insurance. es. The same holds true for subordi- that creditors’ rights claims are Some lenders may simply refuse to nate liens and other matters affect- asserted. proceed with deed in lieu transac- ing title to the property. If a lender tions because of the potential fraud- elects to accept a deed in lieu of Preferential Transfer Issues ulent transfer and preference risks. foreclosure, it will acquire title to the property subject to liens, encum- Valuation of the collateral is also Continuing Interest in the brances, and other exceptions to a key element in analyzing potential Property title that arose subsequent to the preference claims. Preferential date of the recording of its mort- transfers may be set aside if made The lender should be cautious gage. That disadvantage, though, within 90 days prior to the filing in in allowing the borrower to retain an may be mitigated if the lender keeps bankruptcy or within one year of the interest in the property—such as a the lien of the mortgage alive after filing if the transfer is made to an purchase option, a right of first the conveyance and then completes insider. To be classified as a prefer- refusal, or a below-market lease— a foreclosure proceeding to termi- ential transfer, and to enable a cred- after the conveyance. In these situa- nate those subordinate exceptions. itor to obtain more than it would have tions, it is possible that a court could If a foreclosure proceeding is neces- received in a Chapter 7 liquidation, conclude that an outright transfer of sary to extinguish subordinate mat- the transfer must be made for the the property was not intended. A ters, the lender should question the benefit of a lender on account of an court could be persuaded that the utility of accepting a deed in lieu of antecedent debt while the debtor deed was given as security for the foreclosure in the first instance. was insolvent.11 The debtor is pre- underlying loan obligation. Courts sumed to be insolvent during the 90- that have examined this issue have Status of the Mortgage day period prior to the filing in bank- concluded that the intent of the par- ruptcy.12 The presumption requires ties is the key. A deed, even if it is There are benefits in keeping the party against whom it exists to absolute on its face, will be consid- the lien of the mortgage alive, as a put forth evidence to the contrary. ered to be a mortgage if the instru- fail-safe mechanism, after the con- However, the ultimate burden of ment was given as security for an veyance of title to the property to the proof rests with the party in whose obligation.14 That conclusion would lender. The first is that the lien may favor the presumption exists.13 In a mean that the lender would have to be needed if the deed in lieu trans- Chapter 7 liquidation, the lender foreclose its mortgage to obtain title action is set aside. Also, the lien may should receive the full value of the to the property. In such a situation, be used to preserve priority over mortgaged property, up to the the lender may also experience diffi- subordinate liens and encum-

N.Y. Real Property Law Journal 14 Vol. 27, No. 1 (Winter, 1999) NYSBA brances. A necessary element of property. In addition, the lender will 11. 11 U.S.C. § 547(b). keeping the mortgage alive is the want to review evidence of the bor- 12. 11 U.S.C. § 547(f). existence of the debt. If the debt is rower’s authority to execute the con- 13. Federal Rules of Evidence, Rule 301. discharged or satisfied, so is the veyance and other closing docu- 14. Gioia v. Gioia, 652 N.Y.S.2d 63 (1996); lien.16 Therefore, the settlement ments. The lender will also need to Basile v. Erhal Holding Corp., 538 agreement usually will not provide analyze its income tax conse- N.Y.S.2d 831 (1989). However, the bur- that the debt is satisfied, but instead quences resulting from accepting a den rests on the claimant to prove that a deed absolute, on its face, is a mort- often contains a covenant on the deed in lieu of foreclosure. gage. 515-2nd St. Corp. v. Bisnoff, 295 lender’s part not to sue on the debt. N.Y.S. 94 (1937). This may be a conditional covenant; Summary 15. See ALTA Owner’s Policy of Title in other words, the lender agrees not Insurance, Exclusion from Coverage to sue on the debt provided that the There are potential risks for a 3(a), and Transamerica Title Insurance deed in lieu transaction is not chal- lender in proceeding with a deed in Co. v. Alaska Federal Savings & Loan, 833 F.2d 775 (9th Cir. 1987). lenged and that there is no borrower lieu arrangement. The lender may bankruptcy. be able to minimize certain of those 16. See Glenn on Mortgages, section 48, risks, although that process may (“[D]ischarge of the debt terminates the lien, whether the debt be paid or forgiv- Merger involve additional time and expense. en”). In the end, and particularly in situa- 17. Abra Holding Corp. v. Jackson, 30 As an element of preserving the tions where a lender is able to pro- Misc. 2d 464 (1961). lien of the mortgage, the lender will ceed with a power of sale foreclo- 18. Riley v. South Somers Development need to consider the issue of merg- sure,19 the lender will need to deter- Corp., 644 N.Y.S.2d 784 (1996); First er. If title to the property and a mort- mine whether the time saved by the National Bank & Trust Co. of Ellenville v. gage encumbering that property are deed in lieu arrangement outweighs Hyman Novick Realty Corp., 416 N.Y.S.2d 844 (1979). It has been held held by the same entity at the same those risks. that if the mortgagee elects to keep the time, the mortgage will be merged lien of the mortgage alive, the con- into the fee title to the property, Endnotes veyance of the fee interest to the lender unless the conveyance documents will constitute a satisfaction of the debt in an amount equal to the value of the 17 reflect an intent to avoid a merger. 1. Albany Savings Bank FSB v. Novak, property. See Central Hanover Bank & In general, evidence of an intention 151 Misc. 2d 956 (1991). Trust Co. v. Roslyn Estates, Inc., 42 to prevent a merger will be effec- 2. Riley v. South Somers Development N.Y.S.2d 130 (1943), and American tive.18 The lender should have its Corp., 644 N.Y.S.2d 784 (1996). Savings and Loan Association v. Eidelberg, 54 Misc. 2d 668 (1976). The loan policy down-dated, and it 3. See Martin v. New Rochelle Water Co., better reading of the law, however, should obtain an endorsement 42 N.Y.S. 893 (1896). seems to be that the principle that the against a merger in the policy. 4. Section 272 of the New York Debtor and mortgagee’s acquisition of the fee con- Creditor Law provides that the satisfac- stitutes a satisfaction of the debt to the tion of an antecedent debt does consti- extent of the value of the property is Other Issues tute fair consideration. See also only applicable where a mortgagee is McNellis v. Raymond, 329 F.Supp. 1038 attempting to both foreclose and recov- The settlement agreement (1971). The issue, as it relates to the er a personal money judgment from the should include releases of all claims recording statute, is not so clear. See mortgagor. See Alden Hotel Co. v. that the borrower may have against Groves v. George, 123 N.Y.S.2d 192 Kanin, 387 N.Y.S.2d 948 (1976). (1953). the lender. All other due diligence 19. On July 7, 1998, New York Senate Bill issues and procedures involved in 5. BFP v. Resolution Trust Corp., 511 U.S. 588 was signed into law, establishing 531 (1994). (until July 1, 2001, unless further leg- typical real estate acquisition trans- islative action is taken) a revised non- 6. Id. at 540. actions should be followed in deed judicial power of sale procedure that in lieu arrangements. Those ele- 7. 11 U.S.C. § 548(a)(1). may be used in certain situations, but ments include reviewing title, the 8. The New York Fraudulent Conveyance generally for non-residential properties, in New York. survey of the property, leases, ser- Law has a six-year statute of limitations. N.Y. Civil Practice Law & Rules 213(8) vice contracts, the environmental (hereinafter “CPLR”). *William P. Gardella is Asso- condition of the property, transfer tax 9. 11 U.S.C. § 548(a)(1). ciate General Counsel at Metro- issues, and perhaps re-examining 10. 11 U.S.C. § 548(a)(2). politan Life Insurance Company. the code compliance aspects of the

Vol. 27, No. 1 (Winter, 1999) NYSBA 15 N.Y. Real Property Law Journal Spelling Counts When Searching Title

by Arthur G. Jakoby* New York, New York

In connection with almost every same as that of the deed holders, as ments against “Driz!” they would real estate sale, when searching for recorded. have easily found the Drizin judg- judgments against the grantor or ment and would have realized that prior grantors, the title searcher the judgment debtor (Drizin) and the finds docketed judgments against “. . . a slight mis- owner of the property on the date individuals with names spelled simi- the judgment was docketed (Drizen) larly to that of the grantor. The title spelling of a name on a must be the same people, since searcher is then confronted with the recorded judgment can both sets of husband and wife had question of whether such judgments still be a valid lien identical first names (“Israel and constitute valid liens against the Fayge a/k/a Fay”) and both shared property.Title closers usually require against real property the same address. The judgment the grantor to submit an affidavit in held by the judgment creditors thus asserted that which the grantor disavows any Commonwealth should be deemed knowledge of specific judgments debtor if the two names to have had constructive knowledge against individuals with similarly sound alike.” that there was a misspelling on spelled names and may even ask either the prior deed or the judg- the grantor to indemnify the title ment, and its knowledge should be company if a claim is ever made The judgment creditors ten- imputed to its insured, Big Fun. based upon any such judgment. dered their judgment to the New However, such indemnifications are York County Sheriff, which com- There were no New York cases often worthless, especially when a menced execution procedures directly on point addressing the pre- title claim is made, and thus the title against the property. Big Fun, the cise issues raised by the judgment company ends up paying off the owner of the property, commenced creditors, so on a motion for sum- judgment creditor. an action against the judgment cred- mary judgment, the judgment credi- itors in state Supreme Court, New tors and Big Fun referred the court Recently, a claim was made York County, seeking a declaration to eight states that previously had against Commonwealth Land Title that the judgment was not a valid ruled on the issue of whether the Insurance Company’s insured, Big lien on the property, as well as a per- doctrine of idem sonans applies to Fun LLC, alleging that prior to the manent injunction restraining the public filings. The judgment creditors closing when Big Fun obtained title, judgment creditors from executing relied principally upon on point deci- Commonwealth knew, or should their judgment against the property.1 sions from the states of Washington, have known, that a judgment in Colorado and Missouri. Big Fun excess of $1 million against “Israel The judgment creditors argued relied principally upon on point deci- Drizin and Fayge a/k/a Fay Drizin” that under the common law doctrine sions from the states of New Jersey, constituted a lien against the trans- of idem sonans, “a variance in the New Hampshire, Ohio, Pennsyl- ferred property. On the date the spelling of two names which sound vania and California. 2 judgment was docketed, the proper- alike is immaterial under the law,” The judgment creditors cited to ty was owned by “Israel Drizen and and thus, the minor misspelling cases such as Wilson Sporting Fayge a/k/a Fay Drizen.” Drizen was between the filed judgment and 3 not even Big Fun’s grantor, but was recorded deed is immaterial, and Goods v. Pedersen, a Washington its grantor’s predecessor-in-interest. the judgment constituted a valid lien Court of Appeals decision which Moreover, not only were the first against the property. The judgment held that a slight misspelling of a names of the two sets of husband creditors further argued that name on a recorded judgment can and wife identical and the last Commonwealth—which had insured still be a valid lien against real prop- names almost identical—Drizen on not only Big Fun’s title but also the erty held by the judgment debtor if the deed and Drizin on the judg- title of Big Fun’s grantor—should be the two names sound alike. In ment—but the address of the judg- deemed to have had constructive Wilson, the debtor’s name, ment debtors, as docketed, was the knowledge because had they con- “Pedersen,” was misspelled ducted a computer search for judg- “Pederson” on a recorded judgment.

N.Y. Real Property Law Journal 16 Vol. 27, No. 1 (Winter, 1999) NYSBA The Washington Court of Appeals lien upon the real property of the of recording land titles, liens and held that, pursuant to the doctrine of judgment debtor only when the judg- encumbrances, would lack certainty idem sonans, the slight misspelling ment is properly docketed with the and titles to real estate [would be] did not invalidate the lien against the county clerk in the county in which rendered hazardous and judgment debtor’s real property— the property is located.6 Therefore, a uncertain.”8 held in the name “Pedersen”—since money judgment in New York is not Similarly, a New Hampshire the two names sound the same and a lien against property of the judg- appellate court has ruled that idem each name, as pronounced, sug- ment debtor since the lien is created sonans does not apply “to attach- gests common alternate spellings. only by the proper docketing of the ment liens recorded in the registry of Similarly, a Colorado appellate judgment.7 And, since Civil Practice 9 The court explained that court, also applying idem sonans, Law & Rules (CPLR) 5018(c), which deeds.” “the key to proper notice, in this held that a mortgage recorded in the governs the docketing of judgments, index context, is the proper spelling name of “Thomas F.Bermingham” is requires an entry in the proper dock- of the attachment defendant’s name effective against property held in the et book “under the surname of the and the resulting proper alphabeti- name “Thomas F. Birmingham.”4 judgment debtor . . . ,” and not under cal placement.” And, the Missouri Court of Appeals an idem sonans of the judgment has held that a judgment entered in debtor’s surname, if the name of the Likewise, a California appellate the judgment record as “E.G. Sibert” judgment debtor is spelled different- court refused to apply idem sonans properly attached to property held ly than the name of the property and allow a judgment creditor with a by “Elinor G. Seibert.”5 Applying the owner, the judgment lien cannot judgment against “Elliot a/k/a Eliot” doctrine of idem sonans, the court attach to the property. to levy against property owned by reasoned that “. . . if the record of a “Elliott.”10 The court acknowledged name spelled in one way should that idem sonans is a recognized directly suggest to the ordinary mind “. . . in New York, a equitable doctrine in California, but that it is also commonly spelled judgment becomes a explained that the doctrine is not another way, the [title] searcher applicable to names misspelled in should be charged with whatever lien upon the real prop- judgment lien indexes because to the record showed in some other erty of the judgment require a title searcher to search the spelling under the same capital let- records for other spellings of the ” debtor only when the ter. same name would place an undue Big Fun, although conceding judgment is properly burden on the transfer of property. that idem sonans has been recog- docketed with the coun- Judge Ira Gammerman, nized in New York as a valid doc- ty clerk in the county in Supreme Court, New York County, trine—primarily to avoid invalidating granted Big Fun’s summary judg- agreements merely because a which the property is ment motion and rejected the judg- name was misspelled—argued that located.” ment creditors’ argument that the the doctrine cannot, and should not, doctrine of idem sonans applies to be applied to name indexes main- filings affecting real property in New tained for judgment liens because to Big Fun thus urged the court to Yo r k . 11 Judge Gammerman ruled do so would tax all land abstractors reject the doctrine of idem sonans in that: and title companies beyond reason- the context of judgment name index- able limits and require them to be es as had the states of New Jersey, The issue in this case is poets, phonetic linguists and multi- New Hampshire, Ohio, Pennsyl- whether the common law lingual specialists. Big Fun argued vania and California. For example, doctrine of idem sonans that to require every title searcher to the application of idem sonans to applies to filings affecting comb through judgment records for judgment name indexes has been real estate in New York, every imaginable misspelling of a rejected by the New Jersey specifically, a deed and a name would place an undue burden Appellate Division, which held that judgment. I hold that it does on the transfer of property in New unless the name of the judgment not. . . . [I]n New York, the York. It would simply wreak havoc in debtor is spelled exactly as that of question of whether or not the New York real estate market, the the record title owner, New Jersey’s the docketing of a judgment busiest such market in the entire lien statute does not come into oper- results in a lien upon real world. ation and no lien exists. The New property does not depend Jersey appellate court explained upon whether anyone was Big Fun argued further that in that “otherwise, the statutory system misled by the failure to find New York, a judgment becomes a Vol. 27, No. 1 (Winter, 1999) NYSBA 17 N.Y. Real Property Law Journal a misspelled entry [citations plied exponentially in the by the misspelling—the fact that the omitted], or whether the multi-cultural, multi-lingual title company had actual knowledge entry was accurate “in sub- reality that is New York. that the intended judgment debtor stance” . . . In New York, the Realistically, it is not at all was the owner of the property is judgment only becomes a clear that there is only one irrelevant. Accordingly, although lien against the property of “ordinary mind,” or only one after this decision New York title a person where the name of “common spelling” of a searchers have much less to worry the judgment debtor is [cor- name, or even that a partic- about when they find judgments rectly] entered in the docket ular pronunciation of a docketed under names spelled simi- book of the County Clerk. name would suggest a larly to those of a grantor or prior “common” alternate spelling owners of the property, because the Judge Gammerman, in rejecting or spellings in this city. court did not affirmatively rule that those states that have applied idem this knowledge is irrelevant, title sonans to judgment name indexes, The judge likewise rejected the companies will still require the tradi- explained: judgment creditors’ argument that if tional affidavit and indemnity. the title searcher had performed a The case law cited by computer search under “Driz!” the Defendants comes, for the search would have turned out both Endnotes most part, from times and the Drizin deed and the Drizen judg- places which have enjoyed ment. Judge Gammerman 1. Big Fun L.L.C. v. Elliot S. Gross et al, a far more bucolic reality Index No. 121343/97, Supreme Court of explained: than New York City and the the State of New York, New York County. end of this century. No one Although, Defendants urge 2. 79 NY Jur 2d, Names §§ 16 and 17. would question that New me to conclude differently 3. 886 P.2d 203 (Wash. 1994). York is a “world capital” in because computer software 4. Downer v. Bermingham, 71 Colo. 245, the areas of business, that can search for and find 205 P. 948 (Colo. 1922). finance, and culture. It is variations of names is avail- 5. Green v. Meyers, 72 S.W. 128 also well-established that able, I decline to do so, in (Missouri). this Court is the busiest civil part because the “garbage 6. Civil Practice Law & Rules 5203(a). court in the nation. In addi- in/garbage out” limitation of 7. Neimi Bros., Inc. v. Rosenbluh, 147 tion, the promise of freedom any computer program is so Misc. 159, 263 N.Y.S. 445 (Mun. Ct. in these United States, so self-evident . . . In addition, 1933). well symbolized by the Lady although Defendants press 8. Jones v. Parker, 258 A.2d 26, 107 N.J. in our harbor, has attracted, for me to direct that all title Super. 235 (App. Div. N.J. 1969). and continues to attract, searchers must use this 9. Brady v. Mullen, 139 N.H.67, 649 A.2d 47 (N.H. 1994). people from all over the software from now on, I world to this city, resulting in decline to usurp the legisla- 10. Orr v. Byers, 198 Cal. App. 3d 666 (4th App. Dist. 1988). a booming polyglot popula- tive function. tion not readily found any- 11. Big Fun LLC v. Gross, New York Law Journal, Aug. 12, 1998, p. 22, col. 5, where else in the world. Thus, the court affirmatively held that even if the misspelled Sup. Ct., N.Y. Co., Gammerman, J. Within this context, the name sounds exactly like the cor- *Arthur G. Jakoby, a partner application of principles rectly spelled name, and the spelling with Herrick, Feinstein LLP in such as those enunciated error involves only one letter, if the New York, represents title compa- by courts at other times and spelling of the judgment debtor’s nies and their insureds in litiga- in other places could well name does not exactly match the tion. Herrick, Feinstein was result in practical, if not name of the owner of property, the appointed by Commonwealth legal, absurdity . . . The judgment does not constitute a valid Land Title Insurance Company of practical difficulty with appli- lien against the owner’s property. New York to represent and defend cation of the idem sonans The Court’s ruling implied, but did Big Fun’s title in the case dis- doctrine is that it rests on not expressly state, that even where cussed in this article. Judge pronunciation of a name as the misspelling is obvious and Gammerman’s decision is being to which persons may differ known to the title searcher—and appealed by the judgment credi- widely, and this “practical thus the title searcher is not misled tors. difficulty” can only be multi-

N.Y. Real Property Law Journal 18 Vol. 27, No. 1 (Winter, 1999) NYSBA LaSalle Update… Crucial U.S. Supreme Court Decision Will Significantly Affect Real Estate Investments

by Robert M. Zinman* New York, New York

On November 2, the U.S. the mortgage is reduced to the Bankruptcy Code. Mort- Supreme Court heard arguments in value of the collateral ($10 million) gage loans are securitized, Bank of America v. 203 N. LaSalle with a “market rate” interest (since rated and sold to investors Street Partnership1 a case that will there is no market for 100 percent seeking the security of have a significant effect on the loan-to-value loans, the “market” mortgage collateral. These future of real estate investments in rates approved by courts generally purchasers include individ- the nation. reflect the rate for normal mortgage ual investors and pension loans on buildings of that type with funds, as well as institu- Specifically, the case will decide perhaps some add-on); (ii) the tions investing policyhold- whether there is a “new value” unsecured claim of Ace is paid, say, ers’ funds and deposits exception to the absolute priority 10 cents on the dollar ($500,000); from individuals and corpo- rule in chapter 11 reorganizations, and (iii) LDA makes an equity con- rations, all of whom make and what prerequisites possibly tribution of, say, $300,000 and these investments based must be met before a new value retains the property free of the on the ability to realize the plan can be confirmed. The following claims of creditors, thus wiping out benefit of the bargain if hypothetical situation illustrates how $4.5 million of the mortgagee’s defi- there is a default in the a new value plan of reorganization ciency claim. income flow. may affect a real estate mortgage. Such a plan could be confirmed The decision below can Ace Insurance Company makes if the so-called new value exception, only result in the severe a $15 million loan to a real estate as applied in some recent cases, is reduction of the availability limited partnership, Law Drive applicable. The availability of such of funds for real estate Associates (LDA), whose only asset plans could have an extremely development from institu- is an office building. LDA gives Ace adverse effect on the availability tions and from the public, a mortgage on the building to secure and cost of real estate financing. and higher credit standards the payment of the note. A few years The potential consequences for the and higher interest rates later, when the property value has real estate industry were articulated for those funds that are decreased to $10 million, LDA files in the amicus curiae brief filed in available or those securi- in chapter 11 of the Bankruptcy LaSalle on behalf of the petitioner, ties that are sold. LaSalle Code. Under section 506(a) of the Bank of America, by the American not only threatens existing Bankruptcy Code, Ace is considered College of Real Estate Lawyers, mortgage debt held by a secured creditor for $10 million which reads in part: (the value of the collateral) and an lenders, but also threatens unsecured creditor for $5 million Literally billions of dollars the future of the real estate (this unsecured claim would be have been loaned to real and real estate securities available whether or not the note estate developers by institu- industry. tions, including insurance was recourse). Thus, the decision in LaSalle2 companies and pension may be crucial to all parties LDA has an exclusive right to plans that insure and pro- involved in real estate financing. submit a plan of reorganization for tect millions of ordinary citi- This discussion will first review the 120 days, which may be extended zens, on the strength of real bankruptcy issues involved in the by the court for 90 days, subject to property collateral and the case and then discuss the argu- extension if the single asset loan protection for realization on ments made before the Supreme had been no greater than $4 million. that collateral built into the LDA proposes a plan under which (i) Court.

Vol. 27, No. 1 (Winter, 1999) NYSBA 19 N.Y. Real Property Law Journal Summary of Absolute Priority Douglas indicated that where funds since Congress adverted to and New Value were essential to the enterprise, it and rejected the exception by might be possible for the plan to requiring absolute priority One of the objectives of the award an interest to old equity in only for dissenting impaired drafters of the Bankruptcy Code was return for its contribution of the classes of creditors, thus per- to protect real estate financing in a needed money or money’s worth, mitting classes to agree to single asset real estate borrower’s provided that the interest retained by allow old equity to partici- chapter 11 proceeding by requiring old equity was reasonably equiva- pate; and “absolute priority” for dissenting lent to the contribution and that the 2. The new value exception as creditor classes impaired by the creditors’ “full right of priority”4 was applied in post-Bankruptcy debtor’s proposed plan of reorgani- preserved. This became known as Code cases does not meet zation. These provisions were the the “new value exception” to the the requirements articulated result of the Pine Gate line of cases, absolute priority rule. by Justice Douglas; namely, decided under chapter 12 of the for- that the full priority rights of mer Bankruptcy Act. In these cases, creditors be maintained the bankruptcy courts allowed “After the adoption of (including the creditor’s right debtors to retain the mortgaged to control of the enterprise); property upon payment to the non- the Bankruptcy Code, that the new value be neces- recourse mortgagee of the particularly in single sary to the preservation of depressed value of the collateral. the enterprise; and that the Under chapter 12, there was no asset real estate cases, a interest retained by old equi- requirement for absolute priority. form of new value ty not be greater than the Congress was asked to restore exception has often been contribution made. absolute priority to real estate reorganizations under the new chapter applied.” In LaSalle, the Seventh Circuit 11 of the new Bankruptcy Code in rejected the above arguments and order to prevent the borrower from concluded in essence that: keeping the property without paying No reported case applied the the debts. new value exception between the 1. Since Congress does not 1939 dicta and the adoption of the write on a “clean slate,” it is Absolute priority requires that a Bankruptcy Code in 1978. This was apparent that without explicit plan be “fair and equitable” as to dis- believed to be due to the great diffi- language rejecting Justice senting impaired classes of credi- culty in meeting the requirements Douglas’ dicta, it applies tors. Painting the picture with a enunciated by Justice Douglas in under the Bankruptcy Code; rather broad brush, the protection Case—necessity, reasonable equiv- provided by Congress was accom- alence and protection of creditors’ 2. The language of section plished under the provisions of sec- priority rights.5 After the adoption of 1129(b) permits new value tion 1129(b) of the Bankruptcy the Bankruptcy Code, particularly in plans because it prohibits the Code, which essentially prohibits the single asset real estate cases, a retention of an interest by old confirmation of a debtor’s plan under form of new value exception has equity only “on account of” its which the borrower retains property often been applied. Under those former interest, not when old “on account of” its prior ownership post-Bankruptcy Code decisions equity retains an interest by interest while creditors remain that have applied the new value offering new value; and unpaid. exception, the debtor has been able 3. The post-Bankruptcy Code to retain the property in return for In a 1939 Supreme Court deci- new value plan meets pre- the new value contribution while sion, Case v. Los Angeles Lumber code requisites set forth by creditors’ claims (including the mort- Products Co.,3 prior to the enact- Justice Douglas if the contri- gagee’s deficiency claim—the ment of the Bankruptcy Code, bution is “substantial” in the amount the debt exceeding the Justice Douglas rejected a plan that judgment of the court, neces- value of the collateral) remained would have awarded an interest to sary to the confirmation of uncompensated. “old equity” (referring to the stock- the debtor’s plan, and rea- holders, partners or owners of the Opponents of this application of sonably equivalent to the debtor) of the debtor based on a new value argue: value of the enterprise promised contribution of expertise to obtained by old equity the enterprise. In dicta, Justice 1. There is no new value exception in the Bankruptcy Code,

N.Y. Real Property Law Journal 20 Vol. 27, No. 1 (Winter, 1999) NYSBA (excluding the value of con- Certainly, the greatest area of con- Endnotes trol). tention seemed to be about the meaning of the words “on account 1. In re 203 N. LaSalle Street Partnership, The Supreme Court Argument of.” The petitioner claimed that old No. 97-1418, October Term, 1998, on writ of certiorari to the United States equity had received property at least Court of Appeals for the Seventh Although both the issue of in part on account of the debtor’s Circuit, 126 F.3d 955 (7th Cir. 1997). whether there is a new value excep- junior interest. The respondent 2. The importance of the case can be tion in the Bankruptcy Code and appeared to argue that “on account measured in part by the number of ami- whether the exception requirements of” meant something like “in cus briefs submitted. In addition to the were met by the LaSalle court were exchange for,” and that a property American College of Real Estate before the Seventh Circuit, the peti- Lawyers brief, briefs were submitted in right is not obtained on account of a support of the petitioner by the tioner’s brief, and virtually all of the junior interest where part of the con- American Council of Life Insurance, the supporting amicus briefs, concen- sideration includes the payment of American Bankers Association and the trated on the first issue. Only the money. California Bankers Association, nine amicus brief of the American law professors and the United States; and for the defendant by the National College of Real Estate Lawyers The issue of compliance with Association of Credit Management and argued the second issue. Thus, it the requirements of new value was a joint brief on behalf of 18 state asso- may be unlikely that the Supreme raised by the Court on two occa- ciations of credit management and two Court will rule on what might be a sions, with concern expressed as to trade associations. second string to the petitioner’s bow, whether the new value was “neces- 3. 306 U.S. 106 (1939). although this issue came up in the sary” to the success of the enter- 4. 308 U.S. at 117 (quoting Kansas City argument. This question of compli- prise in a single asset situation. A Terminal Ry. Co. v. Central Union Trust Co., 271 U.S. 445, 4534 (1926)). ance with the Case requirements question was asked as to whether can be important because in its last the LaSalle plan was the type of new 5. Professors Ayer and Markell believe the requirements could never be met. John important case dealing with new value plan contemplated by Justice D. Ayer, “Rethinking Absolute Priority value, the Supreme Court declined Douglas in Case, especially in light After Ahlers,” 87 MICH. L.REV. 963, 1015 to rule on the first issue when it of the fact—and making reference to (1989), and Bruce A. Markell, “Owners, found that a basic requirement of the language of the American Auctions, and Absolute Priority in College of Real Estate Lawyers Bankruptcy Reorganizations,” 44 STAN. new value—the contribution of L. REV. 69, 93 (1991). Compare Robert money or money’s worth—had not brief—that the only question in M. Zinman, “New Value and the been met.6 LaSalle seemed to be who would Commission: How Bizarre!” 5 AM. own the real estate. BANKR.INST.L.REV. 477, 487-90 (1997). In the Supreme Court proceed- 6. Norwest Bank Worthington v. Ahlers (In ings on November 2, the argument While there is no way to deter- re Ahlers), 485 U.S. 197, 203 n.3 centered on the first issue—whether mine how the Court will decide, it is (1988). new value survived the adoption of this writer’s guess that many of the the Bankruptcy Code. There justices may be uncomfortable in *Bob Zinman is a Professor of seemed, to this writer, that there accepting the respondent’s defini- Law at St. John’s University was a presumption in the minds of tion of “on account of.” We will soon School of Law. He is Chairman of the justices that new value would be know what action the Supreme the American Bankruptcy Insti- barred by section 1129(b)(2)(B)(2) Court will take. Whatever course the tute and was Counsel of Record unless it could be shown that the Court takes, the next battle will be in for the amicus brief submitted by property retained was not “on Congress. the American College of Real account of” the junior interest. Estate Lawyers in LaSalle. He is a Co-editor of this Journal.

Vol. 27, No. 1 (Winter, 1999) NYSBA 21 N.Y. Real Property Law Journal The STAR Tax Exemption

by James M. Pedowitz* Garden City, New York

I. What is the New York II. Does the exemption also (a) Age. All of the owners State STAR (School Tax apply where the tax is all- must be at least 65 years of Relief) Tax Exemption? inclusive, such as in New age or older as of the York City? applicable tax status date, STAR is a partial exemption of or in the case of property the school tax portion of real estate Yes. The tax bill should show the owned by husband and taxes imposed on certain residential amount saved through the STAR wife, one of the owners property as set forth in Real exemption. must be at least 65 years of Property Tax Law (RPTL) section age as of the applicable tax- 425, effective August 7, 1997. III. Does it apply to all resi- able status date. dential property? There are two parts to the STAR (b) Income. The combined income of all of the owners, exemption: the “basic” exemption, No. It only applies to property and of any owner’s spouse which takes effect for the 1999-2000 that includes a one-, two- or three- residing on the premises, tax year and is applicable to all eligi- family residence, a farm dwelling or for the income tax year ble residential property; and the residential property held in condo- immediately preceding the “enhanced” exemption, applicable minium or cooperative form of own- date of application for the only to senior citizens at least 65 ership, and which serves as the pri- exemption may not exceed years of age with total annual mary residence of at least one $60,000. The term “income” income of $60,000 or less, which owner. The exemption may also be as used herein has the took effect for the 1998-99 tax year. granted to an eligible property even same meaning as set forth if it is partially used for other pur- Each school district will be reim- in RPTL section 467, except poses as well. bursed by the state for the revenue that any deductions or lost through the exemption. IV. Does the property have exclusions from income allowed at local option for The amount of property value to be owned by the indi- purposes of section 467 are exempted under either the basic or vidual or individuals who the enhanced option is based upon not allowed for purposes of reside in it as their prima- this section. a complex formula that converts ry residence? local assessed valuation to full valu- VI. What does § 467 include ation; the school tax is figured based At least one of the owners must as income? on a specified portion of that full be an individual who uses the prop- value. The portion of full value erty as his or her primary residence. Section 467, which applies to exempted from tax starts at $12,500 However, if legal title to the property broad real estate tax exemptions for annual income for the 1998-99 is held by a trustee or trustees, the senior citizens with limited income, school year for the senior citizen beneficial owner or owners are provides: enhanced exemption and increases deemed to own the property for the in stages to $50,000 in 2001-02. purpose of determining eligibility for Such income shall include social security and retire- For other eligible property own- the exemption. ment benefits, interest, divi- ers, the exemption starts at $10,000 dends, total gain from the in the 1999-2000 school year and V. Does an owner have to sale or exchange of a capi- increases in stages to $30,000 in be a senior citizen? tal asset which may be off- the 2001-02 school year. The exact No, but senior citizens can be set by a loss from the sale amount of the savings will depend eligible for the “enhanced” exemp- or exchange of a capital on the school tax rate of the school tion if they meet certain criteria as to asset in the same income district in which the residence is age and income, which are: tax year, net rental income, located. salary or earnings, and net

N.Y. Real Property Law Journal 22 Vol. 27, No. 1 (Winter, 1999) NYSBA income from self-employ- Residential real property assessor approves the application, ment, but shall not include a may qualify for a partial the property is thereafter exempt return of capital, gifts, inher- exemption from school dis- until discontinued. It is not automati- itances, payments made to trict taxes under the New cally discontinued on a change of individuals because of their York state school tax relief ownership. status as victims of Nazi (“STAR”) program. To persecution, as defined in receive such exemption, XI. How and when is the P.L. 103-286 or monies owners of qualifying proper- exemption discontinued? earned through employ- ty must file an application ment in the federal foster with their local assessor on Once approved, the basic grandparent program and or before the applicable tax- exemption continues until it is dis- any such income shall be able status date. For further continued. The enhanced exemption offset by all medical and information, please contact must be reapplied for annually. prescription drug expenses your local assessor. The assessor is mandated to actually paid which were not discontinue the exemption if it reimbursed or paid for by VIII. What if this notice is not appears that (i) the property may not insurance, if the governing sent or received? be the primary residence of the board of a municipality, after owner or owners who applied for the a public hearing, adopts a The owner may lose the benefit exemption, (ii) title to the property local law, ordinance or reso- of the STAR exemption unless he or has been transferred to a new owner lution providing therefor.The she learns about the STAR program or owners, or (iii) the property other- provisions of this paragraph and obtains and timely files an appli- wise may no longer be eligible for notwithstanding, such cation with the local assessor. the exemption. income shall not include veterans disability compen- IX. What is the “applicable When the exemption is discon- sation, as defined in Title 38 tax status date”? tinued, it only takes effect for the of the United States Code next tax year. It does not terminate provided the governing This is the annual date as of during a tax year as with a veteran’s board of such municipality, which the taxable status of property exemption. When the assessor after public hearing, adopts is determined. This date varies determines that the exemption is to a local law ordinance or res- between taxing units. In most be discontinued, he or she sends a olution providing therefor. In upstate areas it is March 1; in New notice to the owner. An aggrieved computing net rental York City, January 1, in Suffolk owner may institute judicial review. income and net income County, December 1; and in Nassau from self-employment, no County, January 2. Inquiry should be XII. What happens when the depreciation deduction shall made to the applicable assessor. be allowed for the exhaus- property is transferred? tion, wear and tear of real or X. How is the STAR exemp- The exemption does not termi- personal property held for tion applied for? nate automatically on the transfer the production of income; All owners of the property who under RPTL section 520, as with A senior citizen who has quali- primarily reside thereon must jointly certain other exemptions, such as fied for the broader section 467 file an application for exemption with the veteran’s exemption. exemption is also automatically the local assessor on or before the Under RPTL section 574, qualified for the enhanced STAR appropriate “taxable status date”; if assessors receive a monthly report exemption. one or more of the owners has a pri- from recording officers of all real mary residence elsewhere, that property transfers within their VII. How does one obtain the owner need not sign the application. assessing units, and at some time STAR exemption? The application may be filed by mail thereafter should mail an application before the applicable tax status for exemption to the new owner. The Every person owning residential date. It is made on a form obtained assessor should then discontinue real property should receive a notice from the assessor and should con- the exemption for the ensuing from the school district in which the tain an agreement to notify the assessment year. If it is not discon- property is located reading substan- assessor if there is a change of pri- tinued, the exemption may be tially as follows: mary residence while the property is deemed to have been continued receiving the exemption. If the improperly.

Vol. 27, No. 1 (Winter, 1999) NYSBA 23 N.Y. Real Property Law Journal XIII. What if a STAR exemp- XIV. What should the seller(s) XV. What proof is required to tion was improperly and purchaser(s) do at establish eligibility for obtained? the closing of a residen- the STAR exemption? tial property that is That can be trouble. RPTL sec- receiving a STAR exemp- This is left up to each individual tion 425(12)(a) provides: tion? assessor. Although RPTL section 425(6)(a) provides for the applica- In addition to discontinuing tion to be on a form prescribed by the exemption on the next The seller(s) of a property that is the state Office of Real Property ensuing tentative assess- receiving the STAR exemption, or for Services, Nassau County uses its ment roll, if the assessor which one has been applied, should own form. determines that the proper- notify the assessor’s office promptly ty improperly received the that the property is no longer their Proof of income of senior citi- exemption on one or more primary residence. zens seeking an enhanced exemp- of the three preceding The purchaser(s), if eligible, tion should be made with a copy of assessment rolls, he or she should apply immediately for the the latest federal or state income tax shall proceed to revoke the applicable STAR exemption for the return. Proof of age may be made by improperly granted prior next eligible school tax year. If the a social security card. Proof of resi- exemption or exemptions. closing takes place after the tax sta- dence can be made with a voter reg- istration card, but inquiry should be The procedure to resolve this tus date of a particular school tax made of the assessor’s office as to entails adding to the next assess- year, it should still be accepted by the specific requirements. ment roll an item to recapture the the assessor for the following year exemption(s) as “omitted” taxes. The because the statute does not specify how far in advance the application XVI. Where is other informa- property is then chargeable for the tion obtainable? “omitted” taxes. can be filed. However, it must be filed before the tax status date of the Inquiry should be made from the In addition, there may be a school tax year in which the exemp- local assessor. The Internet also has penalty tax imposed, and the per- tion is to be obtained. son(s) who made a material mis- STAR information at: www.orps. statement are to be disqualified from Apportionments should be state.ny.us.htm. further STAR exemptions for five made on the basis of the actual years and are subject to criminal taxes, whether there is a STAR *James M. Pedowitz, Esq., is prosecution. exemption or not. Counsel to Berkman, Henoch, Peterson & Peddy, P.C., in Garden City, New York.

N.Y. Real Property Law Journal 24 Vol. 27, No. 1 (Winter, 1999) NYSBA New York State Bar Association Annual Meeting of the Real Property Law Section Marriott Marquis Hotel Thursday, January 28, 1999

The Real Property Law Section’s Annual Meeting will be held on Thursday, January 28, 1999 at the New York Marriott Marquis in New York City. The chairs of the various committees will report on recent legal developments. Presentations will include updates on loan participation issues, the new foreclosure by advertisement statute, recent real estate tax cases, condominium tenants, cellular phone tower siting and mortgage contingency clauses, among others. The keynote speaker will be Rebecca Robertson, Vice President of Real Estate and Special Projects for The Shubert Organization, Inc. and former president of the 42nd Street Development Project, Inc., the state entity charged with the $1.8 billion revitalization of Times Square. She will speak on the redevelopment of Times Square. 9:00 a.m. LORRAINE POWER THARP, ESQ. McNamee, Lochner, Titus & Williams, P.C Albany 9:05 a.m. Program Introduction STEVEN G. HOROWITZ, ESQ. Cleary, Gottlieb, Steen & Hamilton New York City

COMMITTEE CHAIR REPORTS ON RECENT DEVELOPMENTS

9:10 a.m. Mortgage Loan Opinion Report—Update DOROTHY H. FERGUSON, ESQ. Harter, Secrest & Emery Rochester LAURENCE G. PREBLE, ESQ. O’Melveny & Myers New York City 9:25 a.m. Review of Recent Court of Appeals Cases in Real Estate Tax Matters JON N. SANTEMMA, ESQ. Santemma & Deutsch Mineola LAWRENCE A. ZIMMERMAN, ESQ. Helm, Shapiro, Anito & McCale, P.C. Albany 9:40 a.m. Co-Lending and Participation Issues LESTER M. BLIWISE, ESQ. LeBoeuf, Lamb, Greene, & MacRae New York City 9:50 a.m. Considerations of a Major Tenant Taking Space in a Commercial Condominium MATTHEW J. LEEDS, ESQ. Robinson Silverman Pearce Aronsohn & Berman LLP New York City 10:00 a.m. Developments in the Housing Court Initiative HONORABLE PETER M. WENDT Civil Court of Kings County New York City 10:10 a.m. Update on Tower Siting Under the Telecommunications Act of 1996 JOHN M. WILSON, II, ESQ. Boylan, Brown, Code, Fowler, Vigdor & Wilson, LLP Buffalo Vol. 27, No. 1 (Winter, 1999) NYSBA 25 N.Y. Real Property Law Journal 10:20 a.m. Sustainable Regulations/Unconstitutional Takings: Recent Cases SYBIL H. POLLET ESQ. Pollet & Filleman New York City JOHN J. PRIVITERA, ESQ. McNamee, Lochner, Titus & Williams Albany 10:35 a.m. Pending Legislation FLORA SCHNALL, ESQ. Parker Chapin Flattau & Klimpl, LLP New York City 10:45 a.m. Recent Developments in Low Income and Affordable Housing BRIAN E. LAWLOR, ESQ. New York State Division of Housing and Community Renewal Albany JERROLD I. HIRSCHEN, ESQ. Hirschen & Singer New York City 11:00 a.m. Results of Unauthorized Practice of Law Survey and Ethics Update PETER V. COFFEY, ESQ. Parisi, Englert, Coffey & McHugh Albany SUSAN ANNE MANCUSO, ESQ. Kreisberg, Beebe, Grossman, Bergins & Mancuso White Plains 11:15 a.m. Mortgage Contingencies: Model Contract Clause Update KARL B. HOLTZSCHUE, ESQ. New York City 11:25 a.m. Supervision of Legal Assistants CHRISTINE M. KIM, ESQ. Willkie, Farr & Gallagher New York City 11:35 a.m. New York State Revised Article 14—Foreclosure by Advertisement RICHARD S. FRIES, ESQ. Bachner, Tally, Polevoy & Misher New York City 11:45 a.m. Overview of the Silent Lease Issues: A Through Z Project JOSHUA STEIN, ESQ. Latham & Watkins New York City Silent Lease Issues: A Through C S.H. SPENCER COMPTON, ESQ. Paul, Weiss, Rifkind, Wharton & Garrison 12:45 p.m. Luncheon Speaker: The Redevelopment of Times Square REBECCA ROBERTSON Vice President Real Estate and Special Projects The Shubert Organization New York City

N.Y. Real Property Law Journal 26 Vol. 27, No. 1 (Winter, 1999) NYSBA New York State Title Insurance Industry Proposes Continuation of Title Insurance Coverage

by William A. Colavito New York, New York

At a recent meeting of executive successors. The owner’s policy also result of any transaction described officers of the Title Insurance Rate provides that the coverage under above there is no change of benefi- Service Association, participants the policy shall continue in force as cial ownership and the transaction concluded that the rate manual filed of the date of policy in favor of an is made for no consideration. The for use with the New York State insured only so long as the insured consideration mentioned for pur- Department of Insurance should be retains an estate or interest in the poses of continuation of coverage amended to include provisions per- land; or holds an indebtedness provisions excludes the value of taining to continuation of title insur- secured by a purchase money mort- any lien or encumbrance remaining ance coverage under the owner’s gage given by a purchaser from the on land or interest at the time of policy in certain defined instances. insured; or only so long as the transfer. Other instances where insured has liability by reason of continuation of coverage provisions The existing ALTA 1992 Owner’s covenants of warranty made by the will apply include a conveyance by Policy Form, under the definition of insured in any transfer or con- the named insured to a member of insured, in effect provides for limited veyance of the estate or interest. his or her immediate family as a gift continuation of policy coverage as of and a conveyance to a trust creat- the original date of the policy where The proposed amendment to ed by the named insured in which devolution of title from the insured to the rate manual will allow for contin- all of the beneficiaries, lifetime and others occurs by operation of law. uation of coverage under the remainder, are members of the The “insured” is defined in the policy owner’s policy in a number of addi- insured’s immediate family. The as the insured named in Schedule tional instances. Several examples continuation of coverage provisions A, and, subject to any rights or include a conveyance from a parent will provide that the original policy defenses the company would have company to a wholly owned sub- coverage remain effective as of its had against the named insured, sidiary company; from a corporation date of issuance. However, the con- those who succeed to the interest of to its stockholders pursuant to a sequences of any post-policy trans- the named insured by operation of plan of liquidation; from a partner- fer that occurs will not be insured. law—as distinguished from pur- ship to its partners upon dissolution chase—including, but not limited to, of partnership; and from a limited The proposal is subject to heirs, distributees, devisees, sur- liability company to its members approval by the New York State vivors, personal representatives, upon a dissolution of the limited lia- Department of Insurance. next of kin, or corporate or fiduciary bility company, provided that as a

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Vol. 27, No. 1 (Winter, 1999) NYSBA 27 N.Y. Real Property Law Journal BERGMAN ON MORTGAGE FORECLOSURES . . .

Bruce J. Bergman, Esq.** East Meadow, New York

When a Prior Action Is Pending—A Matter of Strategy*

The pace of mortgage com- ance agreement settles the case. be signed by all parties who merce in America is increasing the Because it cannot be predicted appeared in the action. Either occurrence of an obscured proce- whether the borrower will honor the approach can be time-consuming, dural glitch in the mortgage foreclo- agreement for its entire duration, depending upon a number of factors sure process (at least in New York) wise lenders and servicers will not which needn’t be explored here. which heretofore had been almost discontinue the foreclosure, but (Suffice it to say that delays are fre- unheard of—the existence of a prior rather will hold it in place as a sword quent in many judicial foreclosure foreclosure on the property as a to use if a future default occurs. states.) Another impediment can possible bar to foreclosure now. How Especially with a lengthy forbear- even be the original law firm. this happens and the available solu- ance, it may not be so difficult to for- Unfortunately, for some attorneys, tions are the focus here. get that a foreclosure had been discontinuing an old case, for no fee, begun. And lack of awareness can for a non-client when there may be The overall strategic concern (at be exacerbated by changes in ser- so much other work to do could least from a mortgagee’s perch) is vicing personnel, substitutions of induce torpor. Regardless of the the conspicuous one. Anything that new software or tracking systems underlying reason, months of delay halts a foreclosure in place is to be and, perhaps significantly, assign- encountered in disposing of that ini- avoided. So, when this problem is ment of the mortgage—especially in tial foreclosure is certainly both pos- encountered, the ability to get going a large pool. Industry professionals sible and unwelcome. is meaningful. In New York, for recognize all the cited occurrences example, the statute governing fore- as familiar. Faced with this problem, the closures—Real Property Actions & choice is to wait, or be bolder. Proceedings Law (RPAPL), art. 13— One can imagine, then, that the Contemplating the latter course, mandates that the complaint contain loan wends its way to a new servicer observe that the defect of failing to an allegation that no other action which, faced with a default, dutifully plead lack of jurisdiction is not juris- has been brought to recover any conveys the file to its counsel with dictional, and neglect of any defen- part of the mortgage debt.1 This, in the directive to foreclose. The fore- dant to attack the complaint for fail- turn, relates in part to the prevalent closure search then reveals the ear- ure to employ the required allegation action rule common in so many lier, forgotten foreclosure action. waives any objection.3 Although this jurisdictions: You can’t sue on the Because the complaint is required to compelling aphorism is not a note (the monetary obligation) and allege no prior action—which now panacea, it does suggest a possibly foreclose on the mortgage at the isn’t true—there is an apparent speedier alternative. Other parties same time. dilemma, and failure to so plead is a may never notice the defect which, defect in the complaint.2 after all, is not fatal and is cor- The problem at issue, though, is rectable. (Persuasive, too; the plain- The safest solution, obviously, is not so much a prior action on the tiff is not trying to foreclose the mort- simply to discontinue the earlier note, which would be quite uncom- gage twice.) If other parties do rec- action. Sometimes, though, that mon, but the existence of a previous ognize the infirmity, by the time the cannot, or is not, so expeditiously foreclosure. As an example, what issue surfaces, the first action may done. The mechanics require either sometimes happens—and lately, it by then have been discontinued. a motion or a stipulation, the latter to seems, more often—is that a fore- Significantly, failure to include the closure is begun and then a forbear- N.Y. Real Property Law Journal 28 Vol. 27, No. 1 (Winter, 1999) NYSBA statement in the complaint may appeal dismissed, 29 N.Y.2d 486, 326 on New York Mortgage merely obligate striking any offend- N.Y.S.2d 1025 (1971); Ginsberg v. Foreclosures, Matthew Bender & Roberts, 19 A.D.2d 739, 242 N.Y.S.2d 4 ing language with leave to replead. 861 (2d Dep’t 1963); Daint-T-Way Co., Inc. (Rev. 1998), is a partner Thus, a foreclosure complaint can Laundry v. Ng, 89 N.Y.S.2d 867 (Sup. with Certilman Balin Adler & be drafted absent the otherwise Ct. 1949). Hyman in East Meadow, New York, necessary obligation.5 3. Bradenberg v. Tirino, 37 A.D.2d 713, outside counsel to a number of 324 N.Y.S.2d 126 (2d Dep’t), leave to major lenders and servicers, and It appears, therefore, that the appeal dismissed, 29 N.Y.2d 486, 326 an Adjunct Associate Professor conundrum of the overlooked fore- N.Y.S.2d 1025 (1971), citing Szemko v. Weiner, 176 A.D. 620, 163 N.Y.S. 382. of Real Estate with New York closure has a practical solution. It is University’s Real Estate Institute, not immune to mishap, but when 4. Ginsberg v. Roberts, 19 A.D.2d 739, 242 N.Y.S.2d 861 (2d Dep’t 1963). where he teaches the mortgage interest accrues every day, it is a foreclosure course. He is also a path lenders and servicers may con- 5. Note again that all assumptions are made based upon law in the state of member of the National Foreclo- sider. New York. sure Professionals, the American Endnotes College of Real Estate Lawyers *Copyright 1999 by Bruce J. and is on the faculty of the Bergman, all rights reserved. Mortgage Bankers Association of 1. RPAPL 1301(2) America School of Mortgage 2. Again, such is the rule in New York. **Mr. Bergman, author of the Banking. Brandenberg v. Tirino, 37 A.D.2d 713, three-volume treatise, Bergman 324 N.Y.S.126 (2d Dep’t), leave to

ORK and for participating i Y annual meetings, legislative affairs. law sch W E Let’s join devoting your time and talents toward special projects N S T We can all take pride in the knowledge that all our A work strengthens the Association, T NY combined E B the legal profession and promotes AR ASS the public good. together and take pride in

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The Results Speak Volumes! combined work The New York State Bar Association is 60,000+ members strong. Thousands of our members generously devote their time and talents toward special projects strengthens the for the Association, serving the public and enhancing the legal profession in many, many ways: Association, and • Pro Bono Service • NYSBA Sections and Committees • CLE Program Speakers • CLE Publications the legal • Legislative Affairs • Law, Youth & Citizenship Projects profession, and Thank You New York State Bar Association Members!!! promotes the We couldn’t do it without you! public good.

Vol. 27, No. 1 (Winter, 1999) NYSBA 29 N.Y. Real Property Law Journal New York State Bar Association Real Property Section Condominiums and Cooperatives Committee Mission Statement May 8, 1998

General Mission 4. Coordinate with other executive session formats that are groups, mostly those com- more appropriate in certain disci- The Condominiums and prised of lawyers, for edu- plines. cation or toward other Cooperatives Committee has estab- As part of this effort, the com- common goals. lished an open membership policy mittee particularly would like to welcoming all interested members 5. Provide liaison between encourage participation from attor- of the bar. The goal of the committee the Department of Law neys involved in this area of law who generally is to represent the bar in Real Estate Financing may practice in locations or offer the areas of law affecting condo- Bureau and the Bar personal backgrounds that tradition- miniums, cooperatives and home- Association. ally have been underrepresented owners associations. The commit- on the committee. tee’s intention is to draw from 6. Communicate information lawyers who counsel clients in all on the activities and view- An general goal of the commit- areas of the industry, ranging across points of the committee to tee is to serve the public through all regions of New York state and the Real Property Section education, the promulgation of taking into account disciplines that and the Bar Association forms and the betterment of practice might affect individual owners, sell- generally and communi- and of the industry. ers, purchasers, residents, cate information on the investors, tenants, sponsors, apart- activities and viewpoints of Organization and Meetings ment corporations, condominium the Real Property Section and homeowners associations, and the Bar Association to The committee is headed by two lenders, regulators, the judiciary, the membership of the co-chairs. Traditionally, one chair lawmakers, brokers, real estate pro- committee. practices in the New York City area fessionals and any other interested and the other chair is primarily 7. Educate the public. parties. engaged in practice outside of the metropolitan area. There has also These goals are not stated in The general goals of the com- been a de facto secretary—not any particular order, nor are they mittee are to: named by the Real Property anticipated to remain exclusive. The Section, but selected by the chairs— 1. Educate Bar Association committee’s activities are intended who has handled the minutes for the members regarding cur- to be flexible and its methods fluid in meetings. rent and prospective devel- order to adjust to changes in prac- opments of interest in this tice, the level of activity required and The committee typically has area of law. the actual level of member participa- held two or three full meetings tion that is achieved. between September and June of 2. Monitor and recommend each year. There is usually one full changes in law and regula- As of May 1998, the committee committee meeting in the fall and tions. had approximately 200 members; one in the spring. The full committee however, the committee does not usually also has a meeting in con- 3. Prepare reports, forms and intend to close its ranks. The com- junction with the annual meeting of proposed legislation on mittee would like to continue to oper- the State Bar Association during the areas of interest for pre- ate as a wide clearinghouse for last week of January in New York sentation to the committee information, with a preference for City. Depending upon attendance at and to the Real Property seminar-type or open-forum type the summer meeting of the Real Section generally. meetings, as opposed to the smaller Property Law Section (typically not

N.Y. Real Property Law Journal 30 Vol. 27, No. 1 (Winter, 1999) NYSBA held in a major commercial business 5. Presentations of topical inter- Landlord-Tenant Committee was area in New York state), the commit- est made either by members disbanded when the subcommittee tee may have a shortened meeting of the committee or by out- chairs decided that the project was at that time, typically a breakfast side speakers. not coming together and was irre- meeting, sometimes in conjunction deemable. The Alteration Agree- with another committee of the Real Subcommittees ment Subcommittee was disbanded, Property Law Section. having accepted a presentation from Because of the size of the com- the Cooperatives Committee of the The committee believes in docu- mittee and its self-imposed mission Association of the Bar of the City of menting the learning and informa- to present education seminars to a New York, with an agreement to tion conveyed at its meetings. To this large group, the bulk of the commit- negotiate a legend to be used on end, the committee has developed tee’s work is performed by subcom- that document expressing the level and promotes the use of relatively mittees. This practice differs from of participation or endorsement of fastidious and complete minutes that of many other bar associations the form by the State Bar that summarize in some detail the and many other committees of the Association. presentations made at the meetings. Real Property Law Section, but the The minutes are also designed to size of the committee’s membership Subcommittees in existence as recognize by name, to the extent makes it impossible and undesirable of May 1998 include: practicable, the contributions and for it to act in an executive fashion. comments of members from the 1. Liaison Subcommittee with Accordingly, the committee depends the Department of Law. floor or in discussion at the meet- upon on and thrives on the partici- ings. The minutes typically include Historically, this subcommit- pation of its members. All members tee has met regularly with the as exhibits material that is handed are encouraged to participate on out at the meetings. attorneys in charge of the subcommittees. Department of Law’s Real The committee has adopted the The committee regularly asks its Estate Financing Bureau to informal practice of having one of its subcommittees to state their own introduce and discuss areas members serve essentially as a objectives and missions. Where a of concern to practitioners recording secretary to prepare these subcommittee is engaged in a spe- dealing with the agency and minutes, which is an arduous, but cial project, it is suggested that a to communicate concerns of much appreciated task. There is timetable be prepared and a target the bureau to the Bar probably no other aspect of the date set. Practice has shown that Association generally. The committee’s work during the past this is the best way for a subcommit- Liaison Subcommittee is few years that has received more tee to remain focused and for the full long-standing, and its prede- independent praise and apprecia- Condominiums and Cooperatives cessor groups have always tion from the Bar Association than Committee to discharge its obliga- had a special mission in try- the dissemination of minutes to the tion to the Real Property Law ing to communicate an objec- full membership. The minutes usual- Section to complete its projects as tive viewpoint of the industry ly also serve as the committee’s needed. as a whole or the different report to the Executive Committee viewpoints of the various of the Real Property Law Section. By their nature, some subcom- arms of the industry. These mittees tend to be perpetual, while notions are communicated Typically, the substantive por- others are single-purpose or other- by attorneys who have spe- tions of meetings consist of: wise temporary in nature. cial insight into the concerns 1. Discussion of developments Subcommittees also vary in size. of all groups involved in this communicated by the The co-chairs are deemed to be area of law. This subcommit- Executive Committee of the members of all subcommittees. tee is typically composed of Real Property Law Section. Recently, the committee (i) past chairs of the full com- thanked several subcommittees that mittee; (ii) the Assistant 2. Reports of standing commit- Attorney General in Charge tees. had been discharged as their work was concluded. These include the and the chiefs of the Review 3. Reports of progress of spe- Lead Disclosure Subcommittee, the and Enforcement sections of cial projects. Condominium Lending Subcommit- the Real Estate Financing tee and the Workouts Subcommit- Bureau; and (iii) at a particu- 4. Updates on pending legisla- tee. In addition, a subcommittee lar meeting, individual mem- tion and recent case law working on a joint project with the bers of the bar whose developments. involvement would be helpful Vol. 27, No. 1 (Winter, 1999) NYSBA 31 N.Y. Real Property Law Journal with respect to items being mal authorization, and that developing policies of the discussed at that meeting. any presentation of the com- DHCR to determine the mittee’s position must include apartment rents in the 2. Tax Subcommittee. The Tax a disclaimer that the opinion extremely rare situation after Subcommittee typically up- expressed is only that of the a cooperative apartment dates the bar on current committee and not of the building has been foreclosed developments and issues section or of the full Bar by an underlying mortgagee. relating to income taxes, Association. Obviously, not only is it of transfer taxes, gains taxes, concern to tenants, owners corporate taxes, association 4. Current Case Law Sub- and lenders as to what such taxes and the like. Its scope committee. Like the Pro- rents would be, but the includes handling the con- posed Legislation Subcom- amount of the rents will affect cerns of individuals, apart- mittee, this subcommittee valuations of all existing ment corporations, condo- really reflects the efforts of cooperative apartment build- minium and homeowners one or two members of the ings with respect to the associations and sponsors. full committee who bring amount of financing that will The Tax Subcommittee peri- case law of interest to the full be available to them for blan- odically has made inquiries committee for an updating ket mortgages on the build- of appropriate agencies to presentation at regular coming, the amount of available determine positions regard- mittee meetings. financing on individual apart- ing open areas of law. 5. Homeowners Associations ment loans and the health of 3. Proposed Legislation Sub- Subcommittee. This sub- the industry in general. committee. This subcommit- committee examines and 8. Liens Subcommittee. This tee performs two functions. raises issues of interest relat- subcommittee prepared a First, it helps prepare drafts ing to homeowners associa- report, revised in June 1997, of legislation that may be rec- tions that may not otherwise describing the law regarding ommended by the full com- be reflected in the activities the nature and priorities of mittee. Second, it reviews of the committee. liens affecting the proprietary pending legislation brought leases of and shares allocat- to the committee’s attention 6. Proprietary Lease Sub- ed to cooperative apart- and, if appropriate, gener- committee. This subcommit- ments. The subcommittee ates a response or memo- tee concentrates on (i) devel- has also begun compiling a randum on the committee’s oping model forms of impor- similar report regarding liens position. Because the latter tant provisions in the relative- on condominium units. function can require a quick ly standard forms of proprietary leases and (ii) produc- response (for example, when 9. Management Agreement ing a summary of items of presented with a five-day bill Subcommittee. This sub- concern for an apartment on the Governor’s desk), the committee will review forms corporation considering the full committee has authorized of management agreements extension of a proprietary its chairs—in conjunction and prepare checklists for lease coming to the end of its with the Proposed Legisla- practitioners charged with term, and for lenders consid- tion Subcommittee chair and preparing or reviewing man- ering refinancing the underly- in consultation with subcom- agement agreements for ing mortgage of an apart- mittee members whom the condominiums or coopera- ment corporation whose subcommittee chair is able to tives. contact or members whom lease expiration is relatively the chair feels should be con- imminent. 10.Website Subcommittee. This group is establishing its sulted on particular legisla- 7. Subcommittee Reviewing own Website, which presum- tion—to formulate a position DHCR Regulations Regard- ably would be found within that can serve as the position ing Rents After Foreclo- the Real Property Law of the full committee. It is sure on Cooperative Apart- Section’s site. It is anticipated understood that the Bar ment Buildings. Following that available information will Association’s policy prohibits the issues that dramatically include citations to recent use of the names of the Real affect owners, tenants, asso- cases and publications of Property Law Section or the ciations and lenders, this Bar Association without for- subcommittee tracks the N.Y. Real Property Law Journal 32 Vol. 27, No. 1 (Winter, 1999) NYSBA interest, as well as research explore the possibilities of take into account recent references and materials. expanding diversity in the developments. membership of the full com- 11.Membership Subcommit- mittee. Dated: May 8, 1998 tee. This subcommittee will examine methods of assur- 12.Cooperative Contract Sub- Respectfully submitted to the ing that the segments of the committee. This subcommit- Real Property Section by the bar that could benefit from tee is reviewing the possibili- Condominium and Cooperatives contact with the committee ty of revising the current Committee, are aware of its existence widely accepted Blumberg Matthew J. Leeds and its activities. In addition, form of contract of sale for a Joseph M. Walsh the subcommittee will cooperative apartment, to Co-Chairs Looking for a new position? • Create your own Public Profile online – FREE* • Confidential listings also available • Exclusive database of current advertised legal positions • Discounts for New York State Bar Association members

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Vol. 27, No. 1 (Winter, 1999) NYSBA 33 N.Y. Real Property Law Journal SECTION COMMITTEES & CHAIRS The Real Property Law Section encourages members to participate in its programs and to volunteer to serve on the Committees listed below. Please contact the Section Officers or Committee Chairs for further information about the Committees.

Committee on Attorney Opinion Committee on Condemnation, Committee on Environmental Law Letters Certiorari & Real Estate Taxation Joel H. Sachs (Co-Chair) Dorothy H. Ferguson (Co-Chair) Jon N. Santemma (Co-Chair) 1 North Broadway, Suite 716 700 Midtown Tower 120 Mineola Boulevard, Suite 240 White Plains, NY 10601 Rochester, NY 14604 P.O. Box 1662 (914) 946-4777 (716) 231-1422 Mineola, NY 11501 Fax: (914) 946-6868 Fax: (716) 232-2152 (516) 294-8081 E-Mail: [email protected] Fax: (516) 294-8302 John M. Wilson, II (Co-Chair) E-Mail: [email protected] 2400 Chase Square Laurence George Preble (Co-Chair) Rochester, NY 14604 Citicorp Center Lawrence A. Zimmerman (Co-Chair) (716) 232-5300 153 East 53rd Street 20 Corporate Woods Boulevard Fax: (716) 232-3528 New York, NY 10022 Albany, NY 12211 E-Mail: [email protected] (212) 326-2231 (518) 465-7563 Fax: (212) 326-2061 Fax: (518) 465-7646 Committee on Land Use & Planning E-Mail: [email protected] E-Mail: Sybil H. Pollet (Co-Chair) [email protected] 1700 Broadway, 42nd Floor Task Force on Commercial New York, NY 10019 Foreclosure Reform Committee on Condominiums & (212) 489-8888 Richard S. Fries (Chair) Cooperatives Fax: (212) 489-7975 380 Madison Avenue Matthew J. Leeds (Co-Chair) New York, NY 10017 1290 Avenue of the Americas John J. Privitera (Co-Chair) (212) 687-7000 New York, NY 10104 P.O. Box 459 Fax: (212) 682-5729 (212) 541-2290 Albany, NY 12201 E-Mail: [email protected] Fax: (212) 541-1390 (518) 447-3337 E-Mail: [email protected] Fax: (518) 447-3368 Committee on Commercial Leasing E-Mail: [email protected] Joshua Stein (Chair) Joseph M. Walsh (Co-Chair) 885 Third Avenue, Suite 1000 42 Long Alley Committee on Legislation New York, NY 10022 Saratoga Springs, NY 12866 Robert W. Hoffman (Co-Chair) (212) 906-1342 (518) 583-0171 1802 Eastern Parkway Fax: (212) 751-4864 Fax: (518) 583-1025 Schenectady, NY 12309 E-Mail: [email protected] E-Mail: [email protected] (518) 370-4743 Fax: (518) 370-4870 Committee on Computerization & Committee on Continuing Legal E-Mail: [email protected] Technology Education John E. Blyth (Co-Chair) Harold A. Lubell (Co-Chair) Flora Schnall (Co-Chair) 510 Wilder Bldg. 1290 Avenue of the Americas 1211 Avenue of the Americas One East Main Street New York, NY 10104 New York, NY 10036 Rochester, NY 14614 (212) 541-2130 (212) 704-6000 (716) 325-6700 Fax: (212) 541-4630 Fax: (212) 704-6288 Fax: (716) 325-1372 E-Mail: [email protected] E-Mail: [email protected] E-Mail: [email protected] Patricia L. Yungbluth (Co-Chair) Committee on Low Income & Terence L. Kelleher (Co-Chair) 1800 One M&T Plaza Affordable Housing 188 Montague Street Buffalo, NY 14203 Jerrold I. Hirschen (Co-Chair) Brooklyn, NY 11201 (716) 848-1345 36 West 44th Street, Room 712 (718) 875-2021 Fax: (716) 849-0349 New York, NY 10036 Fax: (718) 802-9360 E-Mail: [email protected] (212) 819-1130 Fax: (212) 302-8536 E-Mail: [email protected]

N.Y. Real Property Law Journal 34 Vol. 27, No. 1 (Winter, 1999) NYSBA Brian E. Lawlor (Co-Chair) Robert M. Zinman (Co-Chair) 38-40 State Street St. John’s University School of Law Committee on Residential Albany, NY 12207 Grand Central & Utopia Parkways Landlord & Tenant (518) 486-6337 Jamaica, NY 11439 Edward G. Baer (Co-Chair) Fax: (518) 473-8206 (718) 990-6646 377 Broadway E-Mail: [email protected] Fax: (718) 990-6649 New York, NY 10013 E-Mail: (212) 431-1300 Committee on Professionalism [email protected] Fax: (212) 941-9214 Peter V. Coffey (Co-Chair) E-Mail: [email protected] 224 State Street Committee on Public Relations P.O. Box 1092 Maureen Pilato Lamb (Co-Chair) Hon. Peter M. Wendt (Co-Chair) Schenectady, NY 12301 510 Wilder Building 141 Livingston Street, Room 404 (518) 370-4645 One East Main Street Brooklyn, NY 11201 Fax: (518) 370-4979 Rochester, NY 14614 (718) 643-8048 E-Mail: [email protected] (716) 325-6700 Fax: (718) 643-3733 Fax: (716) 325-1372 Susan Anne Mancuso (Co-Chair) E-Mail: [email protected] Committee on Title & Transfer 6 Chester Avenue Karl B. Holtzschue (Co-Chair) White Plains, NY 10601 Harold A. Lubell (Co-Chair) 122 East 82nd Street (800) 305-4513 1290 Avenue of the Americas Apt. 3C Fax: (914) 428-2647 New York, NY 10104 New York, NY 10028 E-Mail: [email protected] (212) 541-2130 (212) 472-1421 Fax: (212) 541-4630 Fax: (212) 472-6712 Committee on Publications E-Mail: [email protected] E-Mail: [email protected] William A. Colavito (Co-Chair) 1 Robin Hood Road Committee on Real Estate Samuel O. Tilton (Co-Chair) Bedford Hills, NY 10507 Financing 44 Exchange Street (914) 949-3250 Lester M. Bliwise (Co-Chair) Rochester, NY 14614 Fax: (914) 946-7698 125 West 55th Street (716) 454-5370 New York, NY 10019 Fax: (716) 454-3968 Harry G. Meyer (Co-Chair) (212) 424-8111 E-Mail: 1800 M&T Plaza, Suite 1800 Fax: (212) 424-8500 [email protected] Buffalo, NY 14203 E-Mail: [email protected] (716) 856-4000 Committee on Unlawful Practice Fax: (716) 849-0349 Sue A. Jacobson (Co-Chair) of Law E-Mail: [email protected] 2400 Chase Square Christine M. Kim (Chair) Rochester, NY 14604 787 7th Avenue (716) 232-5300 New York, NY 10019 Fax: (716) 232-3528 (212) 728-8611 E-Mail: Fax: (212) 728-8111 [email protected] E-Mail: [email protected]

Vol. 27, No. 1 (Winter, 1999) NYSBA 35 N.Y. Real Property Law Journal Real Estate Transactions— Residential Property

Author G ENERAL P RACTICE M ONOGRAPH S ERIES Claire Samuelson Meadow, Esq. Attorney at Law Larchmont, NY REAL ESTATE TRANSACTIONS— Real Estate Transactions—Residential Property is a practical, ESIDENTIAL step-by-step guide for attorneys representing residential purchasers R or sellers. This invaluable monograph covers sales of resale homes, PROPERTY newly constructed homes, condominium units and cooperative apartments. Claire Samuelson Meadow, Esq.

Claire Samuelson Meadow, an experienced real estate practitioner, wrote this easy-to-read, informative reference. Numerous prac- NEW YORK STATE BAR ASSOCIATION tice guides and a comprehensive collection of forms, including examples of commercial forms, used by Ms. Meadow in her daily practice make Real Estate Transactions—Residential Property an excellent reference for new and experienced attorneys alike.

Yearly updates will make this monograph a mainstay of your reference library for many years to come.

CONTENTS I. Introduction II. Representing the Purchaser of a Resale Home III. Representing the Purchaser of a Newly Constructed Home

IV. Representing the Purchaser/Seller of a Condominium Unit The titles included in the General Practice V. Representing the Purchaser/Seller of a Cooperative Apartment Monograph Series, which includes Real Estate Transactions—Residential Property VI. Representing the Private Home Seller are also available as segments of the New York Lawyer’s Deskbook and Formbook, a VII. New York CPLR Statutes of Limitations on Matters Relating to Real four-volume set that covers 22 areas of Estate Transaction Litigation practice. The list price for all four volumes of the Deskbook and Formbook is $350. VIII. IRS Real Estate Transaction Reporting Requirements IX. Help for Senior Homeowners—Converting Equity in Home to Cash X. Use of Power of Attorney for General, Real Estate, Financial or Health Care Decisions XI. “All Purpose” Notary Acknowledgment and Subscribing Witness Acknowledgment XII. Internet Sites Useful to the Real Estate Practitioner Bibliography Appendixes A-K

N.Y. Real Property Law Journal 36 Vol. 27, No. 1 (Winter, 1999) NYSBA REAL ESTATE FORMS AND EXHIBITS

Blank Worksheet for Estimating Closing Costs Combined New York State Real Estate General Offices, Addresses and Telephone Transfer Tax Return/Credit Line Mortgage Numbers for Assistance in Disposing of “Attorney’s Checklist—Action Prior to, at Time Certificate (Form TP-584) and Instructions Matters Raised in the Title Report of, and Subsequent to Closing” (Form TP-584-I) Sample Schedule A—Real Property Disclosure Regarding Real Estate Agency New York State Real Estate Transfer Tax Description Relationships Return Supplemental Schedules (Form TP- Reporting of Gross Proceeds from Real Residential Contract of Sale 584.1) Estate Transactions (IRS Form 1099-S) (Blumberg Form A 125) City of Mount Vernon Real Property Transfer Annual Summary and Transmittal of U.S. Standard Form Contract of Sale (NYBTU Tax Return Information Returns (IRS Form 1096) Form 8041) City of Yonkers Real Property Transfer Tax Sample of “No Other Name” and “No EPA/HUD Lead Paint Fact Sheet Return Judgments” Affidavit Submitted for Clearance Lead Paint Disclosure Form for Housing Sales Claim for Refund of Real Property Transfer of Title—Exceptions Raised Gains Tax (Form TP-165.8) Lead Paint Disclosure Form for Housing Statement of Closing Title Rentals and Leases Undertaking/Indemnity for Transfer Tax by Transferee and Its Designated Title Agency Natural Person Mortgagee—Affidavit of Protect Your Family from Lead in Your Home Exemption § 253(1-a) pamphlet Rider Clauses to Contract of Sale—New Construction Durable General Power of Attorney—New York Rider Clauses to Contract of Sale—Purchaser Statutory Short Form with Attorney’s Affidavit Condominium Contract of Sale (Blumberg of Full Force and Effect (Blumberg Forms P Holdover Agreement (Short Form) Form M 146) 644 and M51) Holdover Agreement (Long Form) Rider Clauses to Contract of Sale— Durable General Power of Attorney—New York Condominium Unit Statutory Short Form (Blumberg Form P44) Occupancy Agreement Contract of Sale—Cooperative Apartment Durable General Power of Attorney Effective Acceleration Affidavit—To Postpone Condition (Blumberg Form M 123) at a Future Time—New York Statutory Short Requiring Borrower to Sell Current Residence Form (Blumberg Form M49) Rider Clauses to Contract of Sale— Attorney’s Affidavit of Compliance Cooperative Apartment Nondurable General Power of Attorney—New Warranty Deed with Full Covenants (Blumberg York Statutory Short Form with Attorney’s Brokerage Agreement—Seller Form A 285) Affidavit of Full Force and Effect (Blumberg Guide to Addresses and Numbers where Form P43) Bargain and Sale Deed, with Covenant Deeds are Recorded Against Grantor’s Acts (Blumberg Form A 291) Blank Worksheet Form for Calculating Seller’s 1998 • 292 pp. • PN: 4214 Closing Costs Bargain and Sale Deed, Without Covenant List Price: $75 (incls. $5.56 tax) Against Grantor’s Acts (Blumberg Form Rider Clauses to Contract of Sale—Seller Mmbr. Price: $65 (incls. $4.81 tax) A 289) Seller’s Attorney’s Transmittal Letter Quitclaim Deed (Blumberg Form A 293) Phraseology of Typical Title Report Exceptions Executor’s Deed (Blumberg Form A 296) Administrator’s Deed (Blumberg Form A 298) Referee’s Deed in Foreclosure (Blumberg Form M 297) Tax Guides for Westchester County and New York City To Order by Mail, send a check or money order to: CLE Registrar’s Office, N.Y.S. Bar Association, One Elk St., Albany, NY 12207* F.I.R.P.T.A. Non-Foreign Certification by Individual Transferor *Please specify shipping address (no P.O. box) and telephone number F.I.R.P.T.A. Affidavit of Facts Relating to the Withholding of Tax upon the Disposition of To Order by Telephone, call 1-800-582-2452 (Albany & sur- United States Real Property Interests rounding areas 518-463-3724) and charge your order to American Pursuant to 26 U.S.C. 1445(B)(2) Express, Discover, MasterCard or Visa. Be certain to specify the title Real Property Transfer Report and product number. (Form RP-5217) and Instructions Source Code: CL785 NYC Real Property Transfer Tax Return 12/98 NYC Cooperative Transfer Summary Return (January-June) NYC Cooperative Transfer Summary Return New York State Bar Association (July-December)

Vol. 27, No. 1 (Winter, 1999) NYSBA 37 N.Y. Real Property Law Journal New York State Bar Association Partnership with Electronic Publisher to Make Law Library Readily Available to Lawyers

New York Law and Bar Publications Soon to rules, NYCRR (the New York Compilation of Codes, be Available Online and on CD-ROM Rules and Regulations), the New York City Administrative Code and Charter, and other New York The New York State Bar Association (NYSBA) primary law information. announced that it will bring New York state law and Links have also been activated to other LOIS state bar legal education publications online and on products, including cases from the federal circuit CD-ROM through a partnership with Law Office courts, and the U.S. Supreme Court, and to the Information Systems, Inc. (LOIS), a nationally recog- United States Code, the Code of Federal nized leader in low-price, high-quality electronic legal Regulations, and the Federal Register. New York is research. the 19th state to offer this service through LOIS. “We are pleased to bring the continuing legal LOIS subscriptions are available at different rates education (CLE) publications our members already for NYSBA members and non-members and can be know and use into one place, and we’re especially purchased by individual lawyers and law firms. excited that LOIS has been able to hypertext link the citations within these products to the official New York For more information on how to access the and federal case law and statutes,” said NYSBA NYSBA/LOIS Professional Law Library, call LOIS at President James C. Moore of Rochester. 800-364-2512, or the NYSBA at 518-463-3200. The LOIS Web site address is www.loislaw.com. With the availability of the NYSBA/LOIS Professional Law Library, New York Series, New York Headquartered in Albany, the 60,000-member legal professionals for the first time will have elec- New York State Bar Association is the official tronic access to the complete collection of NYSBA statewide organization of lawyers in New York and legal education publications plus a complete library the largest voluntary state bar association in the of New York primary law. NYSBA CLE publications nation. include form books, desk books, treatises, and practical guides to New York and federal litigation and LOIS, based in Van Buren, Arkansas, is the transactional practice, none of which are currently largest American-owned electronic legal primary available electronically. Currently, a limited number of source publisher remaining in the U.S. A major tech- CLE titles will be available with a LOIS subscription. nology innovator in legal publishing, the company All 60 titles should be in place by summer 1999. was the first to produce a comprehensive law library on CD-ROM (CaseBase Arkansas, 1989), and is the In the upcoming NYSBA/LOIS online and CD- first to produce a true 32-bit legal search engine for ROM New York library, titles will link within a single its CD-ROMs. LOIS is alone among legal publishers product to more than 1.3 million pages of easily in charging no printing fees, no download fees, no searchable official New York law, including case law telephone technical support fees, and no network from the New York Court of Appeals and the fees. Appellate Division, official state statutes and court

N.Y. Real Property Law Journal 38 Vol. 27, No. 1 (Winter, 1999) NYSBA NEW YORK STATE BAR ASSOCIATION Real Property Law Section Committees Great Opportunities for Involvement!

The NYSBA Real Property Law Section Committees offer both the experienced and novice practitioners excellent ways to enhance their knowledge and expertise. The Section sponsors continuing legal education programs and publishes a newsletter to keep you informed on the latest updates in the area of real property.

Real Property Section Committees are a valuable way for you to network with other attorneys from across the state, research issues and influence the laws that can affect your practice. Committees are also an outstanding way to achieve professional development and recognition. Your involvement is very much welcomed.

Please consider me for appointment to the committees as indicated below.

As a member of the New York State Bar Association, I would like to join the Real Property Law Section. I enclose my payment of $30 (law student rate $15) for Real Property Law Section dues.

I wish to become a member of the New York State Bar Association and the Real Property Law Section. Please send me an Association and Section application. No payment is enclosed.

Committees

__ Attorney Opinion Letters __ Low Income and Affordable Housing __ Commercial Leasing __ Professionalism __ Computerization and Technology __ Publications __ Condemnation, Certiorari and Real Estate Taxation __ Public Relations __ Condominiums and Cooperatives __ Real Estate Financing __ Continuing Legal Education __ Residential Landlord and Tenant __ Environmental Law __ Task Force on Commercial Foreclosure Reform __ Land Use and Planning __ Title and Transfer __ Legislation __ Unlawful Practice of Law

Name

Office Address

Home Address

Office Phone No. Office Fax Home Phone No.

E-mail Address

Please return this application to: Membership Department New York State Bar Association One Elk Street Albany, NY 12207 Telephone: 518-487-5577 Fax 518-487-5579

Vol. 27, No. 1 (Winter, 1999) NYSBA 39 N.Y. Real Property Law Journal PUBLICATION OF ARTICLES N.YN.Y.. REALREAL PRPROPEROPERTYTY LALAWW The Journal welcomes the submission of articles of timely interest to members of the Section in addition to JOURNAL comments and suggestions for future issues. Articles JOURNAL should be submitted to any one of the Co-editors whose names and addresses appear on this page. CO-EDITORS For ease of publication, articles should be submitted on a 3½" floppy disk, preferably in Microsoft Word or William A. Colavito Harry G. Meyer WordPerfect 5.1 and no longer than 8-10 pages. Please 1 Robin Hood Road Hodgson Russ et al. also include one laser-printed copy (dot matrix is not Bedford Hills, NY 10507 1800 M&T Plaza Buffalo, NY 14203 acceptable). The Editors request that all submissions for consideration to be published in this Journal use gender Robert M. Zinman neutral terms where appropriate or, alternatively, the mas- St. John’s University School of Law culine and feminine forms may both be used. Please con- Grand Central & Utopia Parkways Jamaica, NY 11439 tact the Co-editors regarding further requirements for the submission of articles. Unless stated to the contrary, all published articles Board of Editors represent the viewpoint of the author and should not be Steven D. Bloom Brian E. Lawlor Joel H. Sachs regarded as representing the views of the Editors, Board John K. Bouman Matthew J. Leeds Samuel O. Tilton of Editors or the Section or substantive approval of the Peter V. Coffey Harold A. Lubell Peter M. Wendt contents therein. Dorothy H. Ferguson James M. Pedowitz Mark Wright Robert W. Hoffman Bernard M. Rifkin Lawrence Zimmerman SECTION OFFICERS

Student Editorial Assistance Chair: Lorraine Power Tharp St. John’s University, School of Law 75 State Street 12th Floor Editors in Chief Albany, NY 12201 Daniel McAuliffe 1st Vice-Chair: Steven G. Horowitz Robert Robinson One Liberty Plaza New York, NY 10006 Editors Editorial Staff 2nd Vice-Chair: James S. Grossman Lori Hatem R. Joseph Coryat 510 Wilder Bldg. Thomas Landrigan Constantine Giannakakos One East Main Street Chris McDonald John Guerrero Rochester, NY 14614 Robert Perrotta Steven Madra Secretary: Melvyn Mitzner Natalie Bruzzesse Edwin Ossa 655 Third Avenue Roseann M. Hara Anthony Pasquierello New York, NY 10017 Christiana Stover Edward Stueck This Journal is published for members of the Real Property Law Section of the New York State Bar Association. We reserve the right to reject any advertisement. The New York State Bar Association is not responsible for typographical or other errors in advertisements. Copyright 1999 by the New York State Bar Association. Cite as: N.Y. Real Prop. L.J.

Real Property Law Section Non-Profit New York State Bar Association U.S. Postage One Elk Street PAID Albany, New York 12207-1096 Albany, N.Y. Permit No. 155