First Am. Tit. Ins. Co. of NY v Boyajian

[*1] First Am. Tit. Ins. Co. of NY v Boyajian 2005 NY Slip Op 51834(U) [9 Misc 3d 1128(A)] Decided on November 7, 2005 Supreme Court, Kings County Saitta, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on November 7, 2005
Supreme Court, Kings County

First American Title Insurance Company of New York, Plaintiff,

against

Michael J. Boyajian and Olympia Mortgage Corp., Defendants.



6372/05

Wayne P Saitta, J.

The Plaintiff, FIRST AMERICAN TITLE INSURANCE OF NEW YORK, moves for summary judgment pursuant to CPLR 3212 on its claim to recover from defendant OLYMPIA MORTGAGE CORP., (hereinafter "OLYMPIA") monies it paid to cover the costs of a lien against a building which its policy holders purchased from OLYMPIA.

Upon review and consideration of Plaintiff's Notice of Motion dated June 28, 2005, the attached Affidavit of Alan Rubin, dated May 26, 2005, and exhibits annexed thereto, the Memorandum of Law in Opposition to the Motion, of Michael Johnson Esq,. dated August 5, 2005, the Reply Affirmation, of Laurence Kleinman Esq., dated August 31st , 2005 and annexed exhibits, the referee's Terms of Sale dated November 9, 1999, the referee's deed dated November 15, 1999 copies of the contract of sale dated June 1, 2000, the Deed dated August 9, 2000 , the letter of Shane Cargo, Alston & Bird LLP, attorneys for Karen Kincaid Balmer Receiver for defendant OLYMPIA, dated October 5, 2005, and the exhibits annexed thereto, the letter in response of Laurence Kleinman, Kleinman, Saltzman & Bolnick P.C. attorneys for plaintiff, dated, October 12, 2005, and upon all the proceedings heretofore had herein and after argument of counsel and due deliberation thereon, the motion is denied and summary judgment is granted to defendants against plaintiffs pursuant to CPLR 3212(b) for the reasons set forth below.

This is an action by plaintiff FIRST AMERICAN TITLE to recover monies it paid to Segundo and Martha Zambrano, purchasers of 265 57th Street Brooklyn New York, whose title plaintiff insured, to cover a City relocation lien which was placed against the property.

A New York City Fire Department Vacate Order had been filed against the property, in the Office of the County Clerk of Kings County, on April 15, 1999.

Defendant OLYMPIA acquired the subject property at a foreclosure sale resulting from a foreclosure proceeding it commenced. Defendant BOYAJIAN was the referee who conducted the sale, which took place on November 15, 1999. [*2]

OLYMPIA entered into a contract dated June 1, 2000, to sell the property to the Zambranos. OLYMPIA conveyed the property to the Zambranos by deed dated August 9, 2000. The plaintiff issued a policy insuring the Zambranos title to the property. At the time of the closing , no adjustment was made for, nor was any money set aside to cover, any liens that might result from the Vacate Order.

The New York City Department of Housing Preservation and Development filed a Notice of Lien dated March 21, 2002, against the property in the amount of $26,689.56 for the costs of relocating the tenants who were vacated pursuant to the Vacate Order. According to the notice, the relocation expenses were incurred from June 14, 1999 through May 30, 2001.

The Zambranos discovered this lien when they sought to refinance the property. They paid off the lien and then plaintiff reimbursed them the $27,000.00 they paid to discharge the lien. Plaintiff now seeks to recover from OLYMPIA the monies it reimbursed the Zambranos.

Plaintiff contends that it is entitled to summary judgment as there are no contested issues of fact. While no material facts are contested , the facts do not demonstrate that plaintiff is entitled to recover from defendants

Plaintiff contends that the lien from the Vacate Order should have been paid by the referee as part of the foreclosure sale, and that because it had to reimburse the Zambranos for paying off the lien, it may sue to recover the amount of the reimbursement as subrogee of the Zambranos.

It is true that plaintiff can proceed as a subrogee pursuant to a title insurance policy it issued to recover sums it paid on behalf of its insured. However, as a subrogee by standing in the Zambranos' shoes they have no more rights against OLYMPIA than the Zambranos have.Although the third cause of action in the underlying complaint claims that the purchaser at the foreclosure sale [OLYMPIA] was obligated to convey the Zambranos title to the property free and clear of all liens and encumbrances, the documents relating to the sale indicate otherwise.

Paragraph 10 of the contract of sale between the Zambranos and OLYMPIA provides that:

"Seller need not comply with all notes or notices of violations of law or municipal ordinances, orders, or requirements noted or issued as of the date hereof by any governmental department having authority as to lands, housing, buildings, fire, health, environmental and labor conditions affecting the premises including but not limited to Housing and Building Department Violations and ECB liens and Violations. The Premises shall be conveyed subject to the same at closing."

Further, the deed between the Zambranos and the OLYMPIA does not warrant that the property is being transferred free of encumbrances.

The Zambranos bought subject to any governmental violation or order , even though such could later result in fines or liens against the building. In this case, although the Vacate Order was filed with the county clerk before the sale to the Zambranos, the Notice of Lien was filed well after the sale.

Section 26-305(a) of the Administrative Code of the City of New York which governs liens resulting from expenses of relocation pursuant to a Vacate Order, provides that "No such lien shall be valid for any purpose until the department [HPD] shall file a notice of lien containing the same [*3]particulars as are required to be stated with reference to mechanics liens . . . together with a statement of such expenses."

The Vacate Order even though it is filed with the county clerk, is not a lien. The legislature has established a specific mechanism for filing a lien for relocation expenses resulting from a Vacate Order. That mechanism is filing a Notice of Lien pursuant to Administrative Code Section 26-305(a).This section specifies that no lien based on a Vacate Order shall be valid by any purpose until a Notice of Lien, which must include the amount of the lien, is filed. Significantly, the Vacate Order herein, does not include the amount to be charged against the building.

Further, the issuance of a Vacate Order does not necessarily result in a lien being placed against a property. Often Vacate Orders are issued but not executed, or are executed , and the tenants vacated arrange for their own relocation. It is only when the City actually executes the Vacate Order and provides temporary relocation services, that it will place a lien for the costs it incurs in relocating the tenants

At the time the vacate order in this case was filed, none of the expenses on which the lien was based had in fact been incurred.

While the Vacate Order was sufficient pursuant to section 15-227(d) of the Administrative Code to put subsequent buyers on notice that there was a Vacate Order against the building, it did not by itself, constitute a valid lien.

Plaintiff cites National Granite Insurance Agency, Inc. v Cadlerock Properties Joint Venture L.P., 5 AD3d 361, 773 NYS2d 86, 2004 NY Slip Op 01365 (2nd Dept 2004) in support of its right to recover from OLYMPIA as subrogee of its insureds. However, the facts in that case were significantly different than those at present.

In National Granite, the title company paid off tax liens that were missed at the time of closing. Although it is not explicitly stated, it appears that the tax liens were properly filed against the property at the time of sale. More importantly, the court found that the contract of sale provided that "the subject real estate tax liens were the sole obligation of the seller" National Granite, supra at 362, 87. In this instant case, the contract provided that the seller was not responsible for clearing violations and the property was sold subject to violations and governmental orders.

Since OLYMPIA breached no duty to the Zambranos in not clearing the Vacate Order, even though it resulted in liens being later placed against the building, FIRST AMERICAN as subrogee of the Zambranos has no claim for breach against OLYMPIA.

That fact the FIRST AMERICAN insured the Zambranos against any liens that resulted from expenses incurred in executing the Vacate Order, does not means that OLYMPIA obligated itself to delivery the property clear of such future liens. The contract of sale specifically provided that the sale was subject to any governmental orders and violations.

Plaintiff also claims that it is entitled to recover because the referee in the foreclosure proceeding was required to satisfy all tax liens at the time of the foreclosure sale, pursuant to RPAPL 1354.

Plaintiff bases its claim of under RPAPL 1354 on the assertion that the Vacate Order filed with the County Clerk was a lien. However, as discussed above, the Vacate Order was not a valid lien, it was merely notice of the Order which might result in a lien later being placed . Only after the City executed the Vacate Order, incurred expenses in relocating the tenants, and filed the Notice of [*4]Lien in accordance with Admin. Code Section 26-305(a) was a valid lien created. At the time of the foreclosure sale, the lien had not been filed, only the Vacate Order had been filed.

Further, the 5th paragraph of the Terms of Sale required all taxes that are liens "at the time of the public auction" will be paid by the referee The 13th paragraph of the terms of sale are clear that the property was being sold subject to violations and orders of governmental authorities."

At the time of the auction, there was no liquidated amount for the referee to pay off, nor was there any way to determine the amount the City might expend in the future to relocate the tenants.

If the City had filed the Notice of Lien before the foreclosure sale then the referee would have been obligated under RPAPL 1354 to pay it off. Since the lien had not yet been filed the referee was not required to satisfy or set aside money to satisfy, any liens that might thereafter result from the Vacate Order.

Lastly, plaintiff argues that OLYMPIA has been unjustly enriched because it received $27,000 more than it should have when the referee failed to pay off the lien. This argument is speculative at best. To begin with, the sale was not an arms length transaction, as Olympia redeemed the property itself. While none of the purchase price was used to pay off any potential lien from the Vacate Order, Olympia received a building that was still encumbered by the Vacate Order and subject to whatever liens might result from the order. The value of the property it received was reduced by the failure to clear the Vacate Order.

Also, it is not clear, that had the lien been filed at the time of the sale, or an estimate of the amount of the possible lien been available, whether the purchase price would have been adjusted to reflect that amount.

Plaintiff cites the case of Laventall v Pomerantz 263 NY 110 (1933), for the proposition that the lien attached to the proceeds of the foreclosure sale. The Court in Laventall, cites the doctrine of equitable subrogation as allowing a party who paid a tax lien to recover the cost from the party who was obligated pay the lien. The case involved a junior mortgagee who paid taxes owed by the mortgagor and sought to recover the amount it paid, from the senior mortgagees. The court did not allow the junior mortgagee to recover from the senior mortgagees but allowed them to add the amount they paid, to the debt owed to them by the mortgagor. In that case it appears that the liens had been filed against the property in a specific amount, that was then paid off.

Plaintiff has a right to recover, as subrogee of the purchasers, any liens that OLYMPIA was obligated to pay. However, as discussed more fully above, the Vacate Order was not a lien, and the Notice of Lien, required to be filed for the lien to be valid, was not filed until after both the foreclosure sale and the sale by OLYMPIA to Plaintiff's insureds. Further, the contract of sale between OLYMPIA and Plaintiff's insureds did not require OLYMPIA to clear any governmental violations or orders. Since neither the referee nor OLYMPIA were required to pay off the lien which had not been filed at the time they sold, the doctrine of equitable subrogation does not allow recovery against them.

By reason of the foregoing, plaintiff has not established that it is entitled to summary judgment. Further, the facts presented, which are not contested, show that neither defendant was responsible for paying the lien and thus the defendants are entitled to summary judgment.

WHEREFORE, by reason of the foregoing, plaintiffs motion for summary judgment is denied, and the Court grants defendants summary judgment against plaintiff pursuant to CPLR 3212(b). This opinion shall constitute the decision and order of this Court. [*5]

E N T E R:

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J.S.C.