Arbor Secured Funding, Inc. v Just Assets NY 1

[*1] Arbor Secured Funding, Inc. v Just Assets NY 1 2006 NY Slip Op 50112(U) [10 Misc 3d 1077(A)] Decided on January 26, 2006 Supreme Court, Nassau County Warshawsky, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 January 26, 2006
Supreme Court, Nassau County

Arbor Secured Funding, Inc. and ARBOR MANAGEMENT, LLC, Plaintiffs,

against

Just Assets NY 1, JUST ASSETS NY 1, LLC, WATER WORKS REALTY CORP., WATER WORKS REALTY LLC, JUST YOUR WAY, INC., WILLIAM Q BROTHERS, III, ARCHITECT, P.C., INCORPORATED VILLAGE OF FREEPORT, METROPOLITAN TRANSPORTATION AUTHORITY, THE COUNTY OF NASSAU, THE NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE, Defendants.



012550/2004

Ira B. Warshawsky, J.

Motion for partial summary judgment pursuant to CPLR 3212 by the plaintiffs Arbor Secured Funding, Inc. and Arbor Management, LLC for an order, inter alia, granting them stated declaratory relief setting aside certain quit claims deeds and cancelling certain tax deeds issued by the office of the Nassau County Treasurer.

Cross motion pursuant to CPLR 3212 by the defendants Just Assets NY 1, LLC and Just Assets, NY 1, for summary judgment dismissing: (1) the plaintiffs' amended complaint; and (2) stated cross claims interposed by codefendant Water Works Realty Corp.

By Nassau County tax sale conveyance deeds dated July 8, 2004, the defendant Just Assets NY 1 acquired two commercially zoned properties located at 1 North Brookside Avenue, Freeport, New York, more particularly described in the Nassau County Land and Tax Map as (i) Section 54, Block B, Lot 1212A; and (ii) Section 54, Block B, Lot 1212B (Natalone Aff., Exh., "A").

Shortly after the deeds were issued by the Nassau County Treasurer, Just Assets transferred them by quitclaim deed to a related entity codefendant "Just Assets, NY 1, LLC" (Just Assets Exh., "L"; Just Assets ["JA"] Rule 19-A Statement ["19A"], ¶ 1; Pltffs' Rule 19-A Statement ["19A"], ¶¶ 1-2; Kantor Aff., at 3)

The underlying tax deeds indicate that the tax liens and properties were sold by the County after certain school and general taxes were not paid by the prior fee owner, codefendant Water Works Realty Corp. ["Water Works"] (Wank Aff., at 3-6). The properties were also encumbered by tax liens issued by the Incorporated Village of Freeport, which liens had also been purchased by Just Assets (Kantor Aff., "U").

The plaintiffs Arbor Secured Funding, Inc. and Arbor Management, LLC [collectively "Arbor"] held two mortgages encumbering the property in the principal amount of $1,040,000.00, which were executed and delivered by Water Works to Arbor in 1996 and 2000 (Arbor Cmplt.,¶¶ 2-3; Arbor 19-A,¶¶ 11-12). [*2]

According to Just Assets, the two dilapidated structures on the property one of which recently collapsed are without operational plumbing, mechanical and electrical systems and are currently vacant (Arbor 19-A ,¶ 2; Just Assets Mot., Exh.,"K"; Kantor Aff., at 2 see, Pictures, Just Assets Cross Mot., Exh., "K").

Prior to its acquisition of the properties, and as required by Nassau County Administrative Code § 5-51.0 ["Code"], Just Assets served notices to redeem upon, inter alia, Arbor and Water Works in March of 2004 (Just Assets Mot., Exh., "V"; Kantor Aff., at 6).

Significantly, Nassau County Code § 5-51.0 [b] provides, in pertinent part, that a notice to redeem "shall be printed in a clear and coherent manner using words with common and everyday meanings on the form prescribed by the County Treasurer for such purpose * * *."

Code § 5.51.0[b][4] further provides that the notice must also set forth, among other things, "the first day upon which the holder of the tax lien may elect to accept a deed of conveyance of such property or to call his money and foreclose his tax lien as the case may be * * *."

The relevant form prescribed by the County for the class of properties at issue here is entitled "CLASS TWO PROPERTIES (excluding residential condominium units), AND CLASS THREE AND CLASS FOUR PROPERTIES," and contains the following, pertinent language: "As the purchaser of a tax lien on the above-described property, I am required to notify all interested parties of public record prior to the expiration of the tax lien redemption period. This is your opportunity to take whatever steps you deem necessary to protect your individual interest in this property. The actual owner of this property should pay particular attention to this notification because the failure to act can result in either the commencement of a foreclosure action in court, or the Treasurer's issuance of a tax deed to the property described below. Anyone interested in protecting his property interest can do by paying this tax lien before June 17, 2004, which is the first day the tax lien buyer has the right to begin a foreclosure action in court" [italics supplied](Just Assets Exh., "CC").

The notices served by Just Assets, however, omitted the italicized excerpt which refers to the Treasurer's issuance of a deed or the potential commencement of a foreclosure action and substituted instead, a less informative phrase which reads in context as follows: "The actual owner of the property should pay particular attention to this notification because the failure to act has serious consequences"(Just Assets Mot., Exh., "BB")[emphasis added]. The notices also omitted reference to "the first day upon which the holder of the tax lien may elect to accept a deed of conveyance," as required by § 5.51.0[b][4] of the Code.

The substituted language is contained in a different, although still official Nassau County form applicable to another category of properties, i.e., "CLASS ONE AND [*3]CLASS TWO RESIDENTIAL CONDOMINIUM UNITS" (Just Assets Mot., Exh., "BB"). The Code further provides that, as a prerequisite to the County Treasurer's issuance of a tax deed, an applicant must establish that he or she has complied with all conditions "which must be "perform[ed] pursuant to this article"(Code § 5-53.0[1]).

According to counsel for Just Assets, the omission was an inadvertent error or oversight, which allegedly occurred when the attorneys who previously represented Just Assets in proceedings to obtain the tax deeds (Davidoff Mailto & Hutcher, LLP), mistakenly scanned the wrong Nassau County form into the firm's computer, which form was then utilized when the notices were later served (Kanter Aff., at 5; Sernick Aff., ¶¶ 5-8).

It is undisputed that in connection with commercial property at issue here, the Code permits a tax lien holder to acquire title either by applying directly to the County Treasurer for a deed, or alternatively, through the commencement of a plenary foreclosure action (e.g., Code §§ 5-53-54, 5-58.0). In contrast, the sole remedy available to tax lien purchasers attempting to acquire class one and two condominiums, is the commencement of a foreclosure action (Nassau County Code, § 5-75 see also, Micari Aff.,¶¶ 6-7).

The issuance of a deed by the County Treasurer is only "presumptive evidence" that, inter alia, the tax lien sale was regular and that "[a]ll notices required by section 5-51.0 * * * were given" (Code § 5-54.0[b]). Moreover, the conveyance is conclusive only after the passage of "six years from the date of record of any such conveyance in the County Clerk's office, * * *" (Code § 5-54.0[b][3] cf., Real Property Tax Law, § 1020[3]).

In contrast, the Code provides that upon a "conveyance made pursuant to a judgment" of foreclosure, all parties to the action are "barred and forever foreclosed by the judgment * * * all right, title, interest, estate, claim, lien and equity of redemption in and to the premises sold or any part thereof" (Code § 5-565.0[a], [b]).

After expiration of the redemption period and in accord with Code § 5-53.0, Just Assets made application to the Nassau County Treasurer's Office for the subject Treasurer's deeds, which were issued on July 8, 2004 (Kanter Aff., at 7; Exh., "Y").

Notably, it appears that the Village liens were timely redeemed in accordance with separate redemption notices which unlike those at issue here contained language advising that title could be acquired either by application to the Treasurer or through the commencement of a foreclosure action.

Thereafter, the Arbor plaintiffs commenced the within action pursuant to RPAPL Article 15, alleging that Just Assets failed to provide a proper and conforming notice of redemption in accord with applicable Code requirements and also "failed and refused" to commence an action pursuant to RPAPL Article 15 and Nassau County Code § 5-57.1 (Cmplt.,¶¶ 27-30).

Pursuant to Code § 5-57.1[a], "[t]he owner * * * of any specific real property * * * whose ownership or interest originated in or is founded upon a deed of conveyance executed by the County Treasurer pursuant to section 5-53.0 of the code, may maintain * [*4]* * an action to compel the determination of any claim * * * in such real property".

Based on the foregoing allegations, the complaint seeks judgment "canceling and setting aside" the tax deeds and also demands declaratory relief to the effect that the Arbor mortgages are "valid and existing mortgages that encumber the Property * * *" (Cmplt., ¶ 36).

Water Works has answered and interposed several cross claims advancing essentially the same claims made by Arbor with respect to the purportedly defective form of the notices, as well as Just Assets' alleged refusal and failure to commence a foreclosure action (Water Works Ans.,¶¶ 34-36; 46-55).

Water Works additionally contends, inter alia, that Just Assets: (1) deliberately altered the language of the notices; (2) wrongfully disseized it of title in violation of RPAPL § 853; and (3) committed slander of title by filing the redemption notices and applying to the County Treasurer for the deeds (Water Works Ans.,¶¶ 50-53; 56-58; 59-61).

Arbor moves now for partial summary judgment canceling the tax and quitclaim deeds, and for judgment determinating that it and/or Water Works may still lawfully satisfy the underlying liens on which the tax deeds were based (Natalone Aff., ¶ 1).

In support of its application, Arbor contends that Just Assets altered the Code-prescribed language in a material and misleading fashion and omitted the cautionary language which refers to a lien holder's option to obtain a deed directly from the County Treasurer.

Just Assets opposes Arbor's application and cross moves for judgment dismissing Arbor's amended complaint and Water Works' cross claims, arguing in sum that any failure to include the Code-approved language was inadvertent and in any event, non-jurisdictional; that Water Works and Arbor concededly received the notices and still took no action; that Water Works is a "tax scofflaw since 1995;" and that both Water Works and Arbor are sophisticated, counseled business entities chargeable with knowledge of any statutory provisions affecting the control and disposition of their property (Kanter Aff., at 9; Wank Aff., at 5; Sernick Aff.,¶¶ 9-10, 12; Mem. of Law at 5, 7-8).

Arbor's motion should be granted. The cross motion by the Just Assets defendants is granted to the extent indicated below.

The principal issue to be resolved is whether, under the circumstances presented here, the omitted phrase particularly describing the consequences ensuing upon a failure to timely redeem, constitutes a material defect warranting cancellation of the tax and quitclaim deeds. The Court concludes that it does.

Since a tax lien sale has "'momentous consequences'" and results in divestiture of title (McCann v. Scaduto, 71 NY2d 164, 177 [1987]; Szal v. Pearson, 289 AD2d 562), courts have consistently held that "all formal requirements governing tax sale proceedings must be scrupulously satisfied"(Land v. County of Ulster, 84 NY2d 613, 616 [1994]; Weinstein v. All State Credit Corp., 31 NY2d 835, 837 [1972]; London v. Hammel, 27 [*5]NY2d 630, 631 [1970]; Kiamesha Dev. Corp. v. Guild Properties, Inc., 4 NY2d 378, 389 [1958] see also, Byrnes v. County of Saratoga, 251 AD2d 795, 797; Mastronardi v. Mitchell, 109 AD2d 825, 827 cf., Werking v. Amity Estates, Inc., 2 NY2d 43, 49 [1956]).

The Court of Appeals has explained that "[t]he purpose of the prescribed statutory process for assessment, sale and redemption is to compel payment of taxes overdue and, in default of such payment, to transfer the title of real estate from the owner thereof to another without the owner's consent. This being the nature of the process, the owner's title may not be divested unless statutory requirements are strictly observed"(Helterline v. People, 295 NY 245, 251 [1946]; Mastronardi v. Mitchell, supra, at 827).

Although the distinction between " between irregularities [in tax sale proceedings] and so-called jurisdictional defects'" is often not easily made (Land v. County of Ulster, supra, at 616 see, Kiamesha Dev. Corp. v. Guild Properties, Inc., supra; Saranac Land & Timber Co. v. Roberts, 208 NY 288, 311 [1915]), "[n]onfatal defects * * * include formal errors that do not affect the integrity, reliability or fairness of the transfer, such as affixing the incorrect seal to a warrant issued to the receiver of taxes and minor errors in description that do not lead to misidentification of a parcel"(Land v. County of Ulster, supra, at 616)[citations omitted] see, In re Foreclosure of Tax Liens, supra, 21 AD3d 555; City of Troy v. Garner, 257 AD2d 711).

On the other hand, the "[f]ailure to comply substantially with requirements that inure to the benefit of the taxpayer, such as determination of whether delinquency even exists, whether the correct property was identified and whether notice was afforded the taxpayer, are examples of jurisdictional' defects that operate to invalidate a sale or prevent passage of title"(Land v. County of Ulster, supra; Byrnes v. County of Saratoga, supra).

The Court of Appeals has generally observed that "the burden is on the party charged with giving notice, regardless of whatever fault' may be assigned to the delinquent taxpayer"(ISCA Enterprises v. City of New York, 77 NY2d 688, 699 [1991]), and has further emphasized that " knowledge of delinquency in the payment of taxes is not equivalent to notice that a tax sale is pending'" (ISCA Enterprises v. City of New York, supra, quoting from, Mennonite Bd. v Adams, 462 US 791, 800 [1983] cf., London v. Hammel, supra, at 631).

Upon factual circumstances presented here, the Court cannot conclude that the omitted statutory language is de minimis or insubstantial.

Nassau County Code § 5-51.0 [b] provides that a notice to redeem "shall be printed * * * on the form prescribed by the County Treasurer for such purpose" [emphasis added]. As the plain language of the Code indicates, "[t]he requirements of section * * * [§ 5-51.0] are not merely directory" since "[t]he word shall' is one of mandate"(Werking v. Amity Estates, Inc., supra, 2 NY2d at 49 cf., City of Troy v. Garner, supra, at 712). Nor is there any question that the foregoing Code provision was "enacted for the benefit of the taxpayer"(Werking v. Amity Estates, Inc., supra, at 49).

It bears noting that issuance of a deed by the County Treasurer is not conclusive, [*6]but rather constitutes only "presumptive evidence" that, inter alia, the tax lien sale was regular and that "[a]ll notices required by section 5-51.0 * * * were given" (Code § 5-54.0[b] see, Werking v. Amity Estates, Inc., supra, at 48; 99 NYJur2d, Taxation and Assessment, § 643).

Here, however, the notices substantially deviated from the statutory directive by omitting the language which fully describes the consequences ensuing upon the failure of a tax payer to timely redeem the property, i.e., that inaction could result in either "the Treasurer's issuance of a tax deed to the property" or the commencement of a foreclosure action.

Apart from the mandatory nature of the Code provision requiring its presence, the omitted language is material in import, since by expressly referring to the issuance of a "tax deed" and the commencement of foreclosure proceedings, it apprises the property owner that a failure to act could result in specific consequences ultimately culminating in divestiture of title (Byrnes v. County of Saratoga, supra).

In contrast, the substituted language, whether utilized inadvertently or not, states only that inaction could have "serious consequences," a phrase which does not convey the urgency or provide the same specificity supplied by the statutorily prescribed language. Moreover, the omission was compounded by the failure to comply with Code § 5-51.0[b][4], which separately requires, inter alia, that a redemption notice inform a tax payer of the "first day upon which the holder of the tax lien may elect to accept a deed of conveyance" language which further reinforces the notion that timely action would be required to stave off a potential conveyance from the treasurer after a specified date.

The Court also agrees that the notice language which describes the redemption date as, inter alia, "the first day the tax lien buyer has the right to begin a foreclosure action in court," can be read in the context presented as suggesting that a foreclosure action was the sole remedy available to a tax lien purchaser and that in fact, it would be the remedy actually pursued.

Significantly, there is nothing in the notices which apprises the tax payer that a simple and potentially decisive application to the County Treasurer was an alternative available to the tax lien purchaser, as opposed to the foreclosure remedy actually referenced in the notices a remedy which affords the tax payer the right to be heard at a later date; to interpose any available defenses; and to generally oppose the purchaser's claims within the context of a plenary Court proceeding.

Indeed, the Code itself draws a distinction between the finality and conclusiveness of a conveyance made by the County Treasurer, as opposed to title acquired by virtue of a foreclosure action, which is generally absolute and final (Compare, Code § 5-54.0[b], with, § 5-64.0[a], [b]).

In short, and despite their alleged status as delinquent taxpayers and/or sophisticated commercial entities (cf., Kennedy v. Mossafa, 100 NY2d 1, 11 [2003]), Arbor and Water Works are no less entitled to strict adherence to applicable statutory requirements. As the Court of Appeals has generally observed, "[t]he Legislature has [*7]prescribed the type of notice to which the taxpayer is entitled before his property may be declared forfeit for nonpayment of taxes. It is not for the courts to announce that some other type of notice will suffice to accomplish that purpose"(Werking v. Amity Estates, Inc., supra, 2 NY2d at 50 [italics in original]). Nor will the Court speculate as to why Arbor and/or Water Works redeemed the Village Liens and not the County liens.

Accordingly, Arbor's motion for judgment, inter alia, canceling and setting aside both the Nassau County tax and quitclaim deeds, and for a declaration that its mortgages are "valid and existing mortgages that encumber the Property * * *" (Cmplt., ¶ 36), is granted.

In light of its conclusion that the redemption notices were ineffective, the Court searches the record and also grants judgment to Water Works' on its first and its second cross claims, which allege respectively, that the redemption notices were inadequate; and (2) that in light of their inadequacy, Water Works is entitled to a declaration that it is still the rightful owner of the property (Ans., ¶¶ 40-41)(see, Saviano v. City of New York, 5 AD3d 581, 582 see generally, Dunham v. Hilco Const. Co., Inc., 89 NY2d 425 [1996]).

That branch of Just Assets' cross motion which is to dismiss or strike Water Work's cross claims, including the claims sounding in slander of title and violation RPAPL § 853, should be denied.

A claim for slander of title requires malicious and "false disparagement" resulting "in impairment of vendibility" (Collision Plan Unlimited, Inc. v. Bankers Trust Co., 63 NY2d 827, 831 [1984]; Rosenbaum v. City of New York, ___AD3d___[1st Dept. 2005]; Joseph v. Siegel, 200 Misc. 214, 215, affd. sub nom., Joseph v. Lutzky, 279 App.Div. 574 [1st Dept], affd, 304 NY 553 [1952]; 44 NYJur 2d, Defamation and Privacy, Slander of Title, §§ 260-262; 12 Wareen's Weed, New York Real Property [4th ed], Slander of Title, § 3.01; 5 Carmody-Wait 2d § 29:292).

To succeed on such a claim, a party must plead and prove: "(1) a communication falsely casting doubt on the validity of complainant's title, (2) reasonably calculated to cause harm, and (3) resulting in special damages" (Fink v. Shawangunk Conservancy, Inc., 15 AD3d 754, 756; Hirschhorn v. Town of Harrison, 210 AD2d 587; Brown v. Bethlehem Terrace Associates, 136 AD2d 222, 224; Carnival Co. v. Metro-Goldwyn-Mayer, 23 AD2d 75, 77).

It has been observed that, " [t]here is no doubt that the act of wrongfully filing of record an unfounded claim to the property of another is actionable as slander of title'" (Hanbidge v. Hunt, 183 AD2d 700, 701, quoting from, 5Annotation, Recording of Instrument Purporting to Affect Title as Slander of Title, 39 ALR2d 840, 842; Rosenbaum v. City of New York, supra, ___ AD3d___[1st Dept. 2005]).

RPAPL § 853, which "requires a showing that the plaintiff was ousted from real property by the defendant in a forcible or unlawful manner" (Retropolis, Inc. v. 14th Street Development LLC, 17 AD3d 209; Lyke v. Anderson, 147 AD2d 18), is generally "directed at unlawful evictions of tenants or other lawful occupants of property who have been in actual physical possession'" (Golonka v. Plaza at Latham, LLC, 270 AD2d 667, [*8]670; Gold v. Schuster, 264 AD2d 547; ZCWK Associates, L.P. v. Spadaro, 233 AD2d 126 see, Sills v. Dellavalle, 9 AD3d 561, 562).

Upon the papers presented, and since discovery is to date incomplete, the Court concludes that triable issues of fact have been presented with respect to the claims predicated on Just Assets' alleged deliberate and/or intentional alteration of the redemption form notice.

With respect to the claim predicated upon RPAPL § 853, case law establishes that a literal, "forcible" removal from the property is not required so long as the removal is unlawful (Retropolis, Inc. v. 14th Street Development LLC, supra). Moreover, unresolved issues concerning the precise nature of the Water Works' presence at, and possession of, the subject premises exist at this juncture (Golonka v. Plaza at Latham, LLC, supra).

Additionally, if in fact, Just Assets intentionally altered the Code form and then submitted a misleading deed application to the County Treasurer, a viable claim grounded upon an unlawful ouster from the property may lie under RPAPL § 853 (cf., Sills v. Dellavalle, 9 AD3d 561; Rosenbaum v. City of New York, 5 AD3d 154; Code § 5-53.0[1] see also, Rosenbaum v. City of New York, supra, ___AD3d___[1st Dept. 2005]; Hanbidge v. Hunt, supra).

Further, while Just Assets contends, inter alia, that Water Works' cross claim sounding in slander of title does not adequately particularize the special damages allegedly sustained, the Court notes that in its opposing submissions, Water Works has annexed a contract of sale for the properties, which it claims to have lost by virtue of Just Assets improper filings (Rosenbaum v. City of New York, supra, ___AD3d___[1st Dept. 2005]; Rosenbaum v. City of New York, supra, 5 AD3d 154; Hanbidge v. Hunt, supra)(Melius Aff. In Opp., ¶ 28; Exh., "C").

In any event, and to the extent that the slander of title cross claim can be viewed as lacking factual specificity, the Court grants Water Works' request for leave to file the proposed amended answer attached to its papers (CPLR 3025[b]; Bolanowski v. Trustees of Columbia University in City of New York, 21 AD3d 340; Santori v. Met Life, 11 AD3d 597)(Melius Aff. in Opp., ¶ 28; Exh., "D").

The proposed amended answer, in the form annexed, shall be deemed served upon service of a copy of this decision and order on all parties to the action (e.g., Bolanowski v. Trustees of Columbia University in City of New York, 21 AD3d 340; Jordan v. Altagracia Aviles, 289 AD2d 532).

Accordingly, it is,

ORDERED that the motion pursuant to CPLR 3212 by the plaintiffs Arbor Secured Funding, Inc. and Arbor Management, LLC for stated declaratory relief and partial summary judgment, inter alia, setting aside and cancelling certain tax deeds issued by the office of the Nassau County Treasurer, is granted, and it is further,

ORDERED codefendant Water Works Realty Corp, shall have judgment on its first and second cross claims to the extent consistent with this Court's holding, and it is further, [*9]

DECLARED that the redemption notices are defective; that the tax deeds issued by the County Treasurer and the subsequently executed quitclaim deeds are cancelled and set aside; that the defendant Water Works Corp is the rightful owner of the properties; and that the plaintiff's mortgages are viable and currently existing liens encumbering the property, and it is further,

ORDERED that the cross motion pursuant to CPLR 3212 by the defendants Just Assets NY 1, LLC and Just Assets, NY 1 for summary judgment dismissing the plaintiffs' amended complaint and stated cross claims interposed by codefendant Water Works Realty Corp., is denied.

The foregoing constitutes the decision and order of the Court.

Dated: January 26, 2006

J.S.C.