Belkin Burden Wenig & Goldman, LLP
E D I T O R S
Magda L. Cruz
Aaron Shmulewitz Kara I. Rakowski
S E P T E M BE R 2013 | VOL U M E 2 6
L IT IGAT ION UP DAT E
Inside This Issue LITIGATION UPDATE Remedies for “Bad Faith” During Mandatory Settlement Conferences in Foreclosure Actions ...........................1, 2 Sixty Day Rider is Valid to Terminate a Rent Stabilized Lease ..................................2 Commercial Lease Guaranty Must Specify Guarantor’s Post-Lease Expiration Obligations .........................3 TRANSACTIONAL UPDATE Trust-Owned Apartments Could be Eligible Again for Co-Op/Condo Tax Abatement .........................4 ADMINISTRATIVE LAW UPDATE Contracts Required for MCI Applications ........................4 TRANSACTIONS AND CASES OF NOTE ................5 NOTABLE ACHIEVEMENTS ................5 CO-OP / CONDO CORNER..........................6,7
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REMEDIES FOR “BAD FAITH” DURING MANDATORY SETTLEMENT CONFERENCES IN FORECLOSURE ACTIONS By William Rifkin, Esq. In the wake of the deluge of residential mortgage foreclosures, CPLR § 3408(f) was enacted to force lenders to negotiate “in good faith” with defaulting mortgagors in order to settle the foreclosure action, including modifying the mortgage loan, if possible. Exactly what constitutes “good faith”, or how to enforce such conduct, is not specified in the statute, leaving it to the courts to decide. Cases to date indicate that courts tended to construe the statute strictly against the lender, including the imposition of penalties if the court found evidence that the lender was not negotiating in good faith. Penalties ranged from barring the collection of interest, legal fees and expenses, to sanctions and dismissal of the foreclosure action. In contrast, although the statute also requires the mortgagor to act in good faith, the only “penalty” that the mortgagor generally faced if the court found that the mortgagor was not complying with the statute was to allow the foreclosure action to proceed. However, because of the extensive delays in the court system in bringing foreclosure actions to a conclusion, this “penalty” was nothing more than a paper tiger. The potential for abuse by a mortgagor is evident. Two recent cases have addressed the penalty issues, setting certain parameters.
In Onewest Bank, FSB v. Davies, (16638-11, NYLJ 1202592455005, at *1) (Sup, NY, decided February 22, 2013), the mortgagor, Davies, argued that Onewest Bank was not entitled to a foreclosure judgment on the grounds of alleged lender “bad faith” during the statutory conferences. Onewest Bank had declined to modify the terms of Davies mortgage loan following the expiration of a trial modification. The Court (Whelan, J.) held that: “…, a foreclosing plaintiff has no obligation to modify the terms of its loan before or after a default in payment … or after the borrower’s participation in trial modification programs not governed by recently amended federal guidelines… Consequently, a failure to modify or forbear does not constitute bad faith or unclean hands or other conduct upon which a mortgagor defendant may predicate a cognizable defense to a claim for judgment of foreclosure and sale.” Following Onewest Bank, the Appellate Division, Second Department shed additional light on the penalty issue in Wells Fargo Bank v. Meyers, 2013 NY Slip Op 03085 (decided May 1, 2013). In Wells Fargo Bank, the lower court had admonished the lender for: (a) commencing the foreclosure action one day after the Meyers accepted the proposed trial loan modification, and during the time period that the lender had informed them that no action would be taken, (b) declining to give the Meyers a permanent loan modification even though it did not have a factual basis for refusing to do so, and (c) after advising the Meyers that they did not qualify for a permanent loan modification, sending them letters concerning mortgage options and directing them to apply for a federal loan modification. The lower
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L ITIGATION UPDATE
REMEDIES FOR “BAD FAITH” DURING MANDATORY SETTLEMENT CONFERENCES IN FORECLOSURE ACTIONS continued from page 1
court held that these actions by Wells Fargo constituted bad faith. As a result, the lower court compelled Wells Fargo to enter into the original loan modification agreement. The Appellate Division did not dispute the “bad faith” findings of the lower court against Wells Fargo. However, the Appellate Division noted that CPLR § 3408(f) “does not set forth any specific remedy for a party’s failure to negotiate in good faith.” The Appellate Division held that “it is obvious that the parties cannot be forced to reach an agreement, CPLR 3408 does not purport to require them to,
and the court may not endeavor to force an agreement upon the parties.” The Appellate Division stated that imposing an agreement between the parties is “unauthorized and inappropriate.” Citing the Contract Clause in the U.S. Constitution, the Appellate Division held that: “The courts may not rewrite the contact that the parties freely entered into – the loan and mortgage agreements – upon a finding that one of those parties failed to satisfy its obligation to negotiate in good faith pursuant to CPLR 3408.”
Although the door has been left open to allow a court to impose some type of penalty if it finds bad faith conduct in contravention of CPLR §3408(f), the penalty must be “tailored to the circumstances of each given case.” The penalty cannot run afoul of a lender’s contractual rights. A court may not rewrite a valid mortgage agreement under the guise of enforcing the mandatory settlement procedures. William Rifkin (firstname.lastname@example.org) is a partner in BBWG’s Litigation Department, specializing in foreclosure proceedings.
SIXTY DAY RIDER IS VALID TO TERMINATE A RENT STABILIZED LEASE By Brian Clark Haberly In a high income deregulation proceeding, the Rent Stabilization Code allows a landlord to terminate the renewal lease 60 days after DHCR orders the apartment decontrolled, so long as the landlord attached a rider to the most recent renewal lease stating that DHCR’s order of deregulation would cause the tenancy to expire 60 days after the issuance of an order by DHCR. In a recent case where BBWG represented the landlord, after DHCR granted the landlord’s application for decontrol based on high rent/ high income, the tenant’s lease was terminated 60 days after the order was issued. When the tenant refused to vacate, the tenant moved to dismiss the
holdover proceeding as untimely because the lease, pursuant to its original terms, had not yet expired. However, the court in awarding summary judgment to the landlord, determined that the rider was valid and enforceable against the tenant, so long as the landlord follows the procedure laid out by the Code. Therefore, the order of decontrol, in conjunction with the rider, permitted the landlord to terminate the rent stabilized lease during the term of the lease. The tenant also attempted to challenge the validity of DHCR’s decontrol order in housing court. However, the housing court judge determined that the tenant may not collaterally attack or re-litigate the same issues raised in the prior DHCR proceeding. Since the tenant did not appeal the order of decontrol issued by DHCR, the tenant was precluded from requesting that the housing court review (or change) the decontrol order issued by DHCR.
This case is a good illustration of why if a landlord has applied for an order of decontrol from DHCR, the landlord should attach a rider to the next renewal lease explaining the landlord’s intention to terminate the lease 60 days after DHCR issues the order. This rider is on a form created by DHCR. When such a procedure is followed, the landlord gets the advantage of not only decontrolling the stabilized apartment, but also the ability to terminate the tenant’s lease prior to its expiration date. Brian Clark Haberly (email@example.com) is a partner in BBWG’s Litigation Department. He was assisted in this article by Nicki Neidich, a third year law student attending St. John’s University School of Law, who is clerking for the Firm.
COMMERCIAL LEASE GUARANTY MUST SPECIFY GUARANTOR’S POST-LEASE EXPIRATION OBLIGATIONS By Jeffrey Levine Commercial leases are very often accompanied by guaranty agreements to provide the landlord with a means to enforce, as against a third party, all obligations of the commercial tenant arising under the lease. A guaranty agreement is a separate contractual arrangement between the landlord and the guarantor, and, as such, the guarantor’s obligations are dictated by the terms of the guaranty agreement. A guaranty agreement should carefully specify the obligations of the guarantor, since the courts will not hold a guarantor responsible for any obligations not contained in the guaranty agreement. One particular obligation that a landlord should be mindful of when negotiating and drafting a guaranty agreement is the
guarantor’s obligation to make payments for any sums coming due from the tenant subsequent to the lease expiration date. Such sums include payments for use and occupancy where a tenant remains in possession of the leased premises beyond the lease expiration date without the landlord’s permission. This period subsequent to the lease expiration date is known as a “holdover” period. Many commercial leases provide for specific monthly payments to be made by a tenant during the holdover period, with such monthly payments sometimes being two or three times the monthly rent charged during the last month of the lease term.
recover those potentially very substantial holdover payments. A commercial landlord should consult with its attorneys with respect to the proper language to include in a guaranty agreement so as to be sure that a guarantor will be held responsible for holdover payments, as well as any other obligations of the tenant pursuant to the terms of the lease. Jeffrey Levine (Jlevine@bbwg.com) is a partner in BBWG’s Litigation Department, specializing in commercial lease disputes.
However, unless the guaranty agreement provides that the guarantor is responsible for those payments coming due during the holdover period, the guarantor will not be responsible for those payments and the landlord will lose a valuable remedy to
TRA NSACTIONAL UP DAT E
TRUST-OWNED APARTMENTS COULD BE ELIGIBLE AGAIN FOR CO-OP/CONDO TAX ABATEMENT By Aaron Shmulewitz On July 3, Governor Cuomo signed into law a bill that restored the potential eligibility of many trust-owned coop and condominium apartments for the partial real estate tax abatement available under Real Property Tax Law section 467-a. The new law provides that the abatement is available for an apartment “held in trust solely for the benefit of a person or persons who would otherwise be eligible for an abatement, pursuant to
this section, were such person or persons the owner or owners” of such apartment. By so doing, the new law modifies the law that was passed earlier this year which had restricted eligibility for the abatement to apartments owned only by individuals and used by them as their primary residences. In other words, the fact that an apartment is owned by a trust will no longer disqualify the apartment from the abatement—IF the trust is solely for the benefit of one or more persons who would otherwise be eligible— apparently, who use the apartment as their primary residence. Potential issues in the new law (i.e., what does “solely” mean?
how is eligibility of the beneficiaries of the trust be determined?, etc.) will have to be refined through interpretation in court and administrative decisions, and/or by further legislative action. Significantly, the new law does NOT restore the eligibility of apartments owned by LLC’s, family limited partnerships or other entities, regardless of primary residency status. Aaron Shmulewitz (firstname.lastname@example.org) heads BBWG’s Co-op/Condo practice.
A D M INISTRATIVE LAW UP DAT E
CONTRACTS REQUIRED FOR MCI APPLICATIONS By Paul Kazanecki Owners intending to file Major Capital Improvement (“MCI”) rent increase applications are advised that all work needs to be performed pursuant to a signed contract or proposal. The DHCR has recently been denying work costs, including ancillary work costs, performed in conjunction with an MCI application because a signed contract documenting the terms of such work was not provided.
Although there is no requirement in the Code to provide signed contracts if other evidence is provided (namely, invoices and canceled checks), the DHCR is now insisting on signed contracts for all work performed and all materials and supplies provided. A simple contract between the contractor or vendor and the owner could avoid the expense of appealing a disallowance. Paul Kazanecki (email@example.com) is a legal assistant in BBWG’s Administrative Law Department.
TRANSACTIONS OF NOTE Zagat’s noted that Gotham West announced its “Full (and Epic) Group of Purveyors.” The Gotham West Market will be located in the ground floor of the new residential building that comprises a full city block; the purveyors were licensed pursuant to a series of agreements negotiated and consummated under the supervision of DANIEL T. ALTMAN, head of BBWG’s Transactional Department. Mr. Altman also represented the purchaser of a portfolio of six mixed-use apartment buildings in the heart of Greenwich Village for $32.3 million.
CASE OF NOTE ORIE SHAPIRO, a partner in BBWG’s Administrative Law Department, successfully defended the owner of a concert/catering hall in obtaining dismissals of a number of Department of Health violations, resulting in the posting of an “A” grade, rather than a “C” grade, at the venue.
BBWG NOTABLE ACHIEVEMENTS SHERWIN BELKIN, a partner in BBWG’s Administrative Law and Appeals Departments, responded to an inquiry in the online “Q&A” feature of the Sunday New York Times Real Estate section on April 28 about notices to unregulated tenants of lease non-renewals. Mr. Belkin also authored a blog posting entitled “Summer Sublets: A Guide to Subletting Your Apartment This Summer” on StreetEasy.com on July 3, accessible at http://ownyourhome.streeteasy.com/summer-sublets-a-guide-to-sublettingyour-apartment-this-summer/. Finally, Mr. Belkin was also quoted in a July 11 article on Law360.com, discussing the pronounced increase in demand for multifamily apartment buildings, and the due diligence that BBWG is being asked to perform for clients who are potential purchasers. JOSEPH BURDEN, co-head of BBWG’s Litigation Department, authored an article that appeared in the June/July edition of The Mann Report: “What Owners Need to Know About the Legalization Process Under the New Loft Law.” AARON SHMULEWITZ, head of the firm’s co-op/condo practice, was quoted in articles in the Sunday New York Times Real Estate section on Board-imposed house rules (May 26), aging apartment owners (June 30), and real estate tax abatements for luxury condominiums (July 14). Mr. Shmulewitz also responded to inquiries in the on-line “Q&A” feature of the Times Real Estate section regarding sponsors’ abandonment of apartments (June 1) and the photographing of co-op residents violating house rules (July 14). Finally, Mr. Shmulewitz was also quoted in a May 1 on-line article on Law360.com, discussing a proposed City Council bill that would regulate co-op purchase applications. CRAIG INGBER, a partner in the firm’s Transactional Department, authored a blog posting entitled “What is a Guarantor Responsible For? A Guide to NYC Guarantees” on StreetEasy.com on May 17, accessible at http://ownyourhome.streeteasy.com/ what-is-a-guarantor-responsible-for-a-guide-to-nyc-guarantees/. ROBERT JACOBS, a partner in the firm’s Transactional and Appeals Departments, authored a blog posting entitled “How to Cope With the NYC Landmarks Preservation Commission” on StreetEasy.com on June 14, accessible at http://ownyourhome.streeteasy. com/how-to-cope-with-the-nyc-landmarks-preservation-commission/. JORDI FERNANDEZ, an associate in the firm’s Litigation Department, penned a blog posting entitled “Preserving Landlord’s Claim for Arrears Against an Estate” on the Real Estate Weekly website on May 29, accessible at http://www.rew-online.com/2013/05/29/ preserving-landlords-claim-for-arrears-against-an-estate/.
CO-OP | CONDO CORNER By Aaron Shmulewitz Aaron Shmulewitz heads the Firm’s co-op/condo practice, consisting of more than 300 co-op and condo Boards throughout the City, as well as sponsors of condominium conversions, and numerous purchasers and sellers of co-op and condo apartments, buildings, residences and other properties. If you would like to discuss any of the cases in this article or other related matter, you can reach Aaron at 212-867-4466 or (firstname.lastname@example.org).
BUSINESS JUDGMENT RULE BARS SHAREHOLDER SUIT VS. CO-OP OVER BOARD DECISION TO INSTALL STORAGE BINS MANUFACTURED BY ONE DIRECTOR’S COMPANY Gentile v. Flyer Supreme Court, Bronx County PURPORTED ELECTION OF “COMPETING” INVALID, DUE TO IMPROPER NOTICE
In re Caba v. 2089-91 Amsterdam Avenue HDFC Supreme Court, New York County COMMENT | The Court indicated that the actions of the invalidlyelected Board actually jeopardized some shareholders, who inexplicably paid their maintenance to the elected individuals (personally), prompting the co-op to commence non-payment proceedings against them. CO-OP NOT OBLIGATED TO COPY SURVEILLANCE RECORDINGS OF SHAREHOLDER IN CONTEXT OF “PULLMAN” PROCEEDING UNLESS SHE PAYS COST 32 Gramercy Park Owners Corp. v. Coniff Supreme Court, New York County COMMENT | The Court noted that the estimated cost of such copying would be between $24,000-$94,000. ELEVATOR MAINTENANCE COMPANY NOT LIABLE FOR BUILDING OWNER’S CONSEQUENTIAL DAMAGES (INCLUDING RENT ABATEMENTS TO TENANTS) ARISING FROM INOPERABILITY OF ELEVATORS Slade Elevator Industries, Inc. v. Eretz Group, Inc. Supreme Court, New York County COMMENT | Although not involving a co-op or condo, this decision is instructive--the elevator company had stopped maintenance work when the building owner stopped paying the monthly maintenance fees. CO-OP CAN REQUIRE COMMERCIAL SHAREHOLDER TO PAY SUBLET FEES AS CONDITION FOR CONSENT, BASED ON EXPRESS AUTHORITY IN BYLAWS AND PROPRIETARY LEASE FOR BOARD TO DO SO Campaniello v. Greene Street Holding Corp. Supreme Court, New York County 66
CONDO UNIT OWNER ENJOINED FROM LEASING OR ALLOWING OCCUPANCY BY ANYONE IN HER ABSENCE Board of Managers of The South Star v. Grishanova Supreme Court, New York County COMMENT | The Court cited serial transient occupancy in violation of law and the condo’s bylaws; various statements and actions by the Unit Owner, her counsel, and others on her behalf likely helped doom her case. CO-OP CAN SUE SPONSOR FOR DECLARATORY JUDGMENT OVER ALLEGEDLY WRONGFUL SURRENDER OF PARKING SPACE PROPRIETARY LEASES North Shore Towers Apartments Inc. v. Three Towers Associates Appellate Division, 2nd Department CO-OP BOARD’S REFUSAL TO ALLOW SHAREHOLDER TO UPGRADE ELECTRICAL CAPACITY PROTECTED BY BUSINESS JUDGMENT RULE; LIQUIDATED DAMAGES COMPLETION DELAY PROVISION IN ALTERATIONS AGREEMENT ENFORCEABLE Cogut v. 1220 Park Avenue Corporation Supreme Court, New York County SPONSOR AWARDED $577,000 IN LEGAL FEES FROM PURCHASER WHO LOST ILSA REFUND CLAIM OVER $510,000 DEPOSIT Bacolitsas v. 86th & 3rd Owner, LLC United States District Court, Southern District of New York CONDO NOT LIABLE TO UNIT OWNER FOR BURST PIPE DAMAGES Pedalino v. Woodhill Green Condominium Supreme Court, Dutchess County COMMENT | The Court cited the Board’s prompt repair efforts, and the business judgment rule. TENANT CAN SUE LANDLORD FOR BEDBUG BITES Bour v. 259 Bleecker LLC Appellate Division, 1st Department COMMENT | While involving a rental building, the decision is instructive for co-ops and condos.
COMMERCIAL CONDO UNIT OWNER LIABLE FOR 15 YEARS’ UNPAID COMMON CHARGES; CHALLENGE TO COMPOSITION OF BOARD REJECTED
QUESTIONS OF FACT OVER BOARD’S AND SUPER’S ACTIONS IN STOPPING SHAREHOLDER’S ALTERATIONS PRECLUDE DISMISSAL OF HER CLAIMS
Board of Managers of The 25 Charles Street Condominium v. Seligson Appellate Division, 1st Department
Kleinerman v. 245 East 87 Tenants Corp. Appellate Term, 1st Department
CO-OP SHAREHOLDER ENTITLED TO DAMAGES FROM APARTMENT RENOVATION CONTRACTOR WHO WALKED OFF JOB
CONDO BOARD CANNOT SUE SPONSOR’S ARCHITECT FOR BUILDING DEFECTS, SINCE NOT A THIRD-PARTY BENEFICIARY AND NO PRIVITY; FRAUD CLAIMS AGAINST SPONSOR’S PRINCIPALS ALSO DISMISSED
Gabriele v. Matias Supreme Court, New York County CO-OP SHAREHOLDER LIABLE FOR DAMAGES ARISING FROM LEAK FROM SHOWER STEM AND SEAT, EVEN THOUGH PARTIALLY WITHIN WALL, AND FOR CO-OP’S ATTORNEY FEES Trousdell Village Owners Corp. v. Gagliardo District Court, Nassau County COMMENT | The shareholder had apparently not notified the co-op timely of the leak, and the co-op was awarded $73,000 in attorney fees and withheld maintenance. QUESTIONS OF FACT PRECLUDE SUMMARY JUDGMENT ON SHAREHOLDER SUIT OVER CO-OP STOPPING APPROVED ALTERATIONS DUE TO SHAREHOLDER DRILLING INTO CEILING Wood v. 139 East 33rd Street Corp. Appellate Division, 1st Department COMMENT | Both sides’ potential entitlement to attorney fees was also held in abeyance. QUESTIONS OF FACT REGARDING CO-OP BUYER’S LOAN APPLICATION AMOUNT IN EXCESS OF CONTRACT CONTINGENCY, AND TIMING OF SUBMISSIONS, PRECLUDE SUMMARY JUDGMENT TO SELLER ON ALLEGED BREACH
Board of Managers of NV 101 N. 5th Street Condominium v. Morton Supreme Court, Kings County COMMENT | This decision continued the recent trend of rulings against Boards, discounting the certifications in the offering plan as merely administrative requirements per Attorney General regulations. DELINQUENT CO-OP SHAREHOLDER LIABLE FOR 9% INTEREST FROM COMMENCEMENT OF ARREARAGE, AND LATE FEES Roshodesh v. Plotch Supreme Court, Queens County CONDO BOARD ENTITLED TO APPOINTMENT OF RECEIVER IN CONTEXT OF MORTGAGE FORECLOSURE ACTION US Bank v. Sacher Supreme Court, New York County COMMENT | The Court emphasized the bank’s long delay in prosecuting the foreclosure, an increasingly common occurrence. UNUSED CHIMNEY EXTENSION MUST BE REMOVED ONLY IF IT CONSTITUTES A HAZARD OR NUISANCE
Bodak v. Kaplan Supreme Court, New York County
110 Central Park South Corporation v. Board of Managers of 116 Central Park South Condominium Appellate Division, 1st Department
PARTIES’ COURSE OF DEALING OVER 30 YEARS SUPPORTS PLAINTIFF’S CLAIM TO BE ACTUAL SHAREHOLDER OF HDFC CO-OP
CONDO SPONSOR ENTITLED TO 1% CREDIT UNDER CITY RESERVE FUND LAW, REGARDLESS OF WHICH CALCULATION METHOD IS USED
Terry v. 241 West 111th Street HDFC Supreme Court, New York County
Board of Managers of 184 Thompson Street Condominium v. 184 Thompson Street Owner LLC Appellate Division, 1st Department
CONDO UNIT OWNER ENTITLED TO NAMES AND CONTACT INFO FOR OTHER UNIT OWNERS Pomerance v. McGrath Appellate Division, 1st Department
SHAREHOLDER’S SUIT VS. CO-OP AND ITS MANAGING AGENT AND COUNSEL DISMISSED Bohn v. 176 W. 87th St. Owners Corp. Appellate Division, 1st Department
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