Khadka v American Home Mtge. Servicing, Inc.
Annotate this CaseDecided on October 24, 2012
Supreme Court, Queens County
Ram Khadka and ASPARA KHADKA
against
American Home Mortgage Servicing, Inc.
3488/2012
For the Plaintiffs: Sunil K. Agarwal, Esq., 40-04 73rd Street, Woodside, New York 11377
For the Defendant: Hinshaw & Culbertson LLP, by Jason J. Oliveri & Schuyler B. Kraus, Esqs., 780 Third Ave., New York, NY 10017
For the Proposed Intervenor-Defendant NY Residential Properties, Inc.: Solomon & Siris, P.C., by Bill Tsevis, Esq., Garden City Center, Suite 504, 100 Quentin Roosevelt Boulevard, Garden City, New York 11530
Charles J. Markey, J.
The following papers numbered 1 to10 read on this order to show cause by New York Residential Properties ("NYRP"), to intervene in the instant action; to dismiss the specific performance cause of action in the complaint, and, relatedly, to dismiss the complaint in its entirety, pursuant to CPLR 3211, as pertains to NYRP; and to cancel the Notice of Pendency filed by plaintiffs in connection with this action, pursuant to 6514(a).
Papers Numbered
Order to Show Cause - Affidavits - Exhibits.............................................................1 - 5
Answering Affidavits - Exhibits.......................................................................6 - 7
Reply Affidavits...............................................................................................8 - 10
Plaintiffs/purchasers commenced this action against the vendor for specific performance and to recover their down payment in connection with a failed real estate transaction. New York Residential Properties ("NYRP") is the current owner of the real property that is the subject of the action, having acquired the property from the former owner, non-party Deutsche Bank [*2]National Trust Company, as Trustee in Trust for the Benefit of the Certificateholders for Ameriquest Mortgage Securities Trust 2006-M3, Asset-Backed Pass-Through Certificates, Series ARSI2006-M3 ("Deutsche Bank"), on February 28, 2012. On February 17, 2012, plaintiffs commenced the present action seeking, inter alia, specific performance of alleged contract with the defendant, American Home Mortgage Servicing, Inc. (AHMSI), to purchase the subject real property. Plaintiffs commenced this action without naming the then-owner of the subject property, Deutsche Bank. Plaintiffs also filed a Notice of Pendency in connection with this action.
NYRP seeks to intervene in the instant action; to dismiss the specific performance cause of action in the complaint, and relatedly, to dismiss the complaint in its entirety pursuant to CPLR 3211 as pertains to NYRP; and to cancel the Notice of Pendency filed by plaintiffs in connection with this action, pursuant to 6514(a). Plaintiffs oppose the motion.
The Facts
On or about November 2, 2011, the parties entered into a residential contract of sale for property located at 30-34 93rd Street, Jackson Heights, in Queens County, New York. The closing date of December 23, 2011, was contingent upon the plaintiffs obtaining a commitment for a conventional purchase money first mortgage in the amount of $296,000.00, before December 16, 2011, time being of the essence. Plaintiffs paid the sum of eleven thousand one hundred dollars to the attorney for the defendant, Fein, Such, Kahn & Shepard, P.C., as and for a down payment. The closing dated was designated in the contract for December 23, 2011, and the deadline for receipt of a mortgage commitment was December 16, 2011.
While the written contract permitted plaintiffs to use any Lender to obtain financing, plaintiffs submit that agents of defendant advised plaintiffs that they must apply for a mortgage with Prospect Mortgage, LLC (Prospect Mortgage). Further, plaintiffs submit that agents of defendant advised plaintiffs that defendant would not sell the premises to them unless they applied for a mortgage and closed their purchase with Prospect Mortgage. The contract contained a document entitled "Affiliated Business Arrangement Disclosure" Notice which states that defendant and Prospect Mortgage have a business relationship and that defendant owns a 50% interest in Prospect Mortgage.
The mortgage contingency clause in the contract provided that the contract was "subject to" the plaintiff obtaining a "conventional, purchase money first mortgage loan in the principal amount of $296,000, or less from any licensed institutional lender, before December 16, 2011. The contract further stated that "if purchaser cannot obtain such loan approval after making a truthful and diligent application, seller may, at its sole option (1) extend purchaser's time to obtain such approval, or (2) cancel the contract and refund the deposit . . ." Further, the contract states that "if purchasers are rejected for their loan application, they will furnish a copy of same to seller's attorney along with the notice of cancellation and demand for return of deposit." [*3]
Plaintiffs filed a mortgage application with Prospect Lending, LLC, an affiliate of Prospect Mortgage. Plaintiffs contend that they submitted all documentation and information required by Prospect Lending, in application for a conventional mortgage. More than one month after executing the Contract, plaintiffs were advised by their loan officer from Prospect Lending that, due to the poor condition of the premises, they must apply for a 203k loan. Plaintiffs were also told that it would take 30 to 45 days to procure a mortgage commitment and that the closing could not be held until approximately January 13, 2012. Plaintiffs requested and received an extension of the mortgage continency deadline and the closing date. However, defendant then revoked its consent to the extension of both the mortgage contingency deadline and the closing date. Defendant cited as their reason for the revocation of the extension that plaintiffs had applied for a 203k loan instead of a conventional loan.
The record reveals that Prospect Mortgage was unable to issue a mortgage commitment and defendant was threatening to cancel the contract so plaintiffs submitted an application (at additional cost and expense) with Continental Home Loans (Continental). Continental approved plaintiffs' mortgage application and issued a mortgage commitment to plaintiffs dated January 13, 2012. Notwithstanding this commitment, defendants refused to close with plaintiffs, and has since sold the property to a third-party. Defendants retained the down payment as liquidated damages. The property was eventually sold to a third-party, New York Residential Properties, Inc. (NYRP), which promptly recorded the deed.
Plaintiffs commenced the instant action alleging that they were "strong armed" into using Prospect Lending, LLC, which admittedly would not provide them with a conventional loan as required by the Contract.
Legal Discussion
CPLR 1013 provides that a court has discretion to permit a person to intervene, inter alia, when the person's claim or defense and the main action have a common question of law or fact (see CPLR 1013). In exercising its discretion under CPLR 1013, "the court shall consider whether the intervention will unduly delay the determination of the action or prejudice the substantial rights of any party" (Wells Fargo Bank, N.A. v McLean, 70 AD3d 676, 677 [2nd Dept. 2010]; see, CPLR 1013).
Whether intervention is sought as a matter of right under CPLR 1012(a), or as a matter of discretion under CPLR 1013, is of little practical significance since a timely motion for leave to intervene should be granted, in either event, where the intervenor has a real and substantial interest in the outcome of the proceedings (American Home Mortgage Servicing, Inc. v Sharrocks, 92 AD3d 620 [2nd Dept. 2012]). As the present owner of the subject property, NYRP demonstrated that its interest in the property may be adversely affected by the judgment sought. NYRP'S interest in the subject property entitles it to intervene as a matter of right (see, CPLR 1012 [a] [3]; NYCTL 1999-1 Trust v Chalom, 47 AD3d 779, 780 [2nd Dept.], lv. to appeal denied, 11 NY3d 709 [2008]; George v Grand Bay Assoc. Enter. Inc., 45 AD3d 451 [1st Dept. 2007]). [*4]
The Court, upon the foregoing papers, thus grants the branch of the order to show cause that seeks permission for NYRP to intervene in the instant action.
As noted in the Court's other order, also decided on even date, the branch of the order to show cause that seeks to dismiss the complaint to the extent that it seeks specific performance, is granted.
Real Property Law section 294 (3) provides that "[e]very executory contract for the sale . . . of real property not recorded . . . shall be void as against any person who subsequently purchases or . . . contracts to purchase . . . the same real property." A good faith purchaser whose deed is recorded, as was NYRP's, thus takes precedence over a purchaser with an unrecorded contract of sale and no deed, such as plaintiffs (2386 Creston Avenue Realty, LLC v M-P-M Management Corp., 58 AD3d 158 [1st Dept. 2008]; see, La Marche v Rosenblum, 50 AD2d 636 [3rd Dept. 1975]).
"When two or more prospective buyers contract for a certain property, pursuant to Real Property Law §§ 291 and 294, priority is given to the buyer whose conveyance or contract is first duly recorded" (Avila v Arsada Corp., 34 AD3d 609, 610 [2nd Dept. 2006]). "The filing of a notice of pendency does not substitute for the recording of the contract of sale or the conveyance" (11 Warren's Weed, New York Real Property § 115.04 [5th ed.]). Although New York is a "race-notice" state (Avila, 34 AD3d at 610), plaintiffs' failure to avail itself of the protection of either section 291 or section 294 deprives it of the right to substitute a notice of pendency for the recording of a conveyance or a contract (Finkelman v Wood, 203 AD2d 236, 238 [2nd Dept. 1994]).
The purpose of the notice of pendency is "to afford constructive notice from the time of the filing so that any person who records a conveyance or encumbrance after that time becomes bound by all of the proceedings taken in the action" (Corporation of Presiding Bishop of Church of Jesus Christ of Latter-Day Sts. v Solow Bldg. Corp., 52 AD2d 533, 534 [1st Dept. 1976]). It does not create rights that did not already exist (Varon v Annino, 170 AD2d 445 [2nd Dept. 1991]). CPLR 6501 is not in conflict with the recording statutes.
Moreover, the branch of the order to show cause which is to dismiss pursuant to CPLR 3211 (a)(1), is granted. "[T]o succeed on a motion to dismiss pursuant to CPLR 3211(a)(1), the documentary evidence that forms the basis of the defense must be such that it resolves all factual issues as a matter of law, and conclusively disposes of the plaintiff's claim" (Trade Source, Inc. v Westchester Wood Works, Inc., 290 AD2d 437, 438 [2nd Dept. 2002]; see, Berardino v Ochlan, 2 AD3d 556 [2nd Dept. 2003]; Prudential Wykagyl/Rittenberg Realty v Calabria—Maher, 1 AD3d 422 [2nd Dept. 2003]).
The documentary evidence submitted by NYRP is the contract under which plaintiffs seek specific performance which expressly bars that remedy. "Parties to a contract for the sale of real property may agree, as they did here, to restrict the liability resulting from a breach . . ." (Emptage & Assoc., Inc. v Cape Hampton, LLC, 19 AD3d 536, 537 [2nd Dept. 2005], lv. to [*5]appeal denied, 6 NY3d 707 [2006]). "When a contract for the sale of real property contains a clause specifically setting forth the remedies available to the buyer if the seller is unable to satisfy a stated condition, fundamental rules of contract construction and enforcement require that [the court] limit the buyer to the remedies for which it provided in the sales contract" (101123 LLC v Solis Realty LLC, 23 AD3d 107, 108 [1st Dept. 2005]).
Finally, NYRP's request for cancellation of the notice of pendency filed by the plaintiffs is granted since an action to recover money damages does not affect the title, use, possession or enjoyment of real property (see, CPLR 6501; 5303 Realty Corp. v O & Y Equity Corp., 64 NY2d 313 [1984]; Gyurek v 103 E. 10th Owners Corp., 128 Misc 2d 384 [Sup Ct New York County 1985]; cf., Coleman v Coker, 66 AD3d 812 [2nd Dept. 2009]).
Significantly, the notice of pendency filed in this matter is also invalid. CPLR 6512 provides that a notice of pendency is effective only if a summons is served on a defendant with an ownership interest in the subject real property, within thirty (30) days from the filing of the notice of pendency (see, e.g., NYCTL 199-I Trust v Chalom, 47 AD3d 799, supra; Rabinowitz v Larkfield Building Corp., 231 AD2d 703 [2nd Dept. 1996]). The filing of a notice of pendency is an extraordinary privilege that necessitates strict compliance with the statutory requirements (see, 5303 Realty Corp., v O & Y Equity Corp., 64 NY2d 313 [1984]; Israelson v Bradley, 308 NY 511 [1955]). Here, plaintiffs named and served only AHMSI, which never had an ownership interest in the subject real property. Thus the failure by plaintiffs to strictly comply with the statutory procedural requirements for the filing of a notice of pendency renders it defective and a nullity (see, e.g., Chiulli v Reiter, 173 AD2d 672 [2nd Dept. 1991]; Skoler v Rimberg, 20 AD2d 580 [2nd Dept. 1963]).
Conclusion
The order to show cause is granted in its entirety.
The foregoing constitutes the decision, opinion, and order of the Court.
_______________________________
J.S.C.
Dated: October 24, 2012
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