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
Charles J. Markey, J.
The following papers numbered 1 to 9 read on this Order to Show Cause by Ram Khadka and Apsara Khadka to, inter alia, compel American Home Mortgage Servicing, Inc. (AHMSI), to specifically perform pursuant to a contract of sale between the parties as defendant has defaulted thereon, for a reduction of the purchase price to compensate for plaintiffs' costs and expenses, including legal fees, for having to compel defendant to perform and for plaintiffs' having to extend their mortgage commitment, and to compel the return of their down payment; and cross motion by AHMSI to dismiss the complaint pursuant to CPLR 3211.
Papers Numbered
Notice of Motion - Affidavits - Exhibits...............................................................1 - 3
Notice of Cross Motion - Affidavit - Exhibits ......................................................4 - 6
Answering Affidavits - Exhibits..........................................................................7 - 9
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. The seller cross moves to dismiss the complaint. The motion and cross motion are opposed by the respective parties.
The Facts [*2]
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."
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 [*3]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.
Discussion
The branch of the cross motion which 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 [2008]; see, La Marche v Rosenblum, 50 AD2d 636 [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 [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 [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 [1976]). It does not create rights that did not already exist (Varon v Annino, 170 AD2d 445 [1991]). CPLR 6501 is not in conflict with the recording statutes. Accordingly, the branch of the order to show cause which is for specific performance, is denied.
Upon the foregoing papers, the branch of the order to show cause which is to compel the return of the down payment is granted. The seller here was not entitled to cancel the contract for sale when the purchasers failed to obtain mortgage commitment by specified date, as the mortgage contingency clause was solely for benefit of purchasers (Coneys v Game, 141 AD2d 795 [1988]). [*4]
Furthermore, the testimony as to the acts of the defendant, its agents and representatives and the circumstances surrounding the presentation of the application for the mortgage loan and its rejection by their bank, present a fair question of fact as to whether the defendant prevented or substantially hindered the plaintiffs from qualifying for the mortgage loan. It is a fundamental principle of equity that a party to a contract may not insist upon performance of a condition precedent when its nonperformance has been caused by the party himself (Wagner v Derecktor, 306 NY 386, 391 [1954]; Stern v Gepo Realty Corp., 289 NY 274, 276 [1942]; Amies v Wesnofske, 255 NY 156, 162—163 [1931]; Collins Tuttle & Co., Inc. v Ausnit, 95 AD2d 668, 669 [1983], app. dismissed 60 NY2d 644 [1983]; Fifty States Management Corp. v Niagara Permanent Sav. & Loan Assoc., 58 AD2d 177, 181 [1977]; 5 Williston on Contracts §§ 677 and 677A). This concept is firmly established in this State. Over 160 years ago, in Young v Hunter, 6 NY 203, 207 (1852), the Court of Appeals referred to the " * * * well-settled and salutary rule, that a party cannot insist upon a condition precedent, when its non-performance has been caused by himself." The principle is aptly stated in 3A Corbin on Contracts § 767, p. 540: "One who unjustly prevents the performance or the happening of a condition of his own promissory duty thereby eliminates it as such a condition. He will not be permitted to take advantage of his own wrong, and to escape from liability for not rendering his promised performance by preventing the happening of the condition on which it was promised."
The defendant is charged with a breach of an implied covenant of fair dealing and good faith, an obligation implicit in all contracts (see, Wieder v Skala, 80 NY2d 628, 634 [1992]; Brassil v Maryland Cas. Co., 210 NY 235 [1914]; Underhill v Schenck, 238 NY 7 [1924]; Kirke La Shelle Co. v Armstrong Co., 263 NY 79 [1933]; Goodstein Const. Corp. v City of NY, 111 AD2d 49 [1985]). It is implicit in this obligation that no party will do anything to destroy or injure the right of another party under the contract (Kirke La Shelle Co. v Armstrong Co., supra; Lowy & Donnath v City of NY, 98 AD2d 42, 45 [1983], aff'd, 62 NY2d 746 [1984]). In Kooleraire Service & Installation Corp. v Board of Educ., 28 NY2d 101, 106 [1971], the Court cited the general rule that "a party to a contract cannot rely on the failure of another to perform a condition precedent where he has frustrated or prevented the occurrence of the condition."
Applying these precepts here, if defendant acted in bad faith by delaying plaintiffs' mortgage application, defendant cannot rely upon plaintiff's failure to satisfy the condition precedent. Accordingly, the branch of the order to show cause which is for the return of the down payment is granted, with interest to run from the date it was paid at the statutory rate of interest (see, CPLR 5004).
Conclusion
The branch of the order to show cause which is for specific performance is denied. The branch of the order to show cause which is for the return of their down payment, with interest, is granted. [*5]
The cross motion to dismiss the complaint, to the extent that it seeks specific performance of the real estate sales contract is granted.
The foregoing constitutes the decision, opinion, and order of the Court.
_______________________________
J.S.C.
Dated: October 24, 2012
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