LATE AUGUST – EARLY SEPTEMBER 2004 REAL ESTATE NEWSLETTER

1.   Soaring Prices for New York Condos

According to the latest report by the Real Estate Board of New York, New York condominium prices in the second quarter of this year shot up 21 percent over the same period a year ago hitting a record average price of $1,026 million.

Although the prices continue to rise, the actual amount of transactions continue to rise as well. The number of condos being bought and sold was up 18 percent to 1,374.

Manhattan’s West Side is leading the price upswing. The average sales prices have increased 48 percent since last year to $1.29 million. This dramatic increase can be attributed to the sales of condos at the Time Warner Central and the Trump buildings on the far West Side.

The median sales price rose 26 percent to $669,000 in the downtown area and Northern Manhattan condos also showed dramatic increases with the average price climbing 45 percent to $338,000.

However, the East Side condo prices have dropped within the last year. They went from an average of $952,000 in 2003 to the latest figure of $903,000.

2.   Title Insurer Liable for Title-Defect

Tammy Sabbagh purchased a home in Levittown, NY from Karen Pizzuro in 1999. Ms. Sabbagh states that in 2000 she “installed an above-ground pool in the backyard of said property and that on July 8, 2002, said pool collapsed into a previously undisclosed and hidden in-ground pool on the premises.”

Ms. Sabbagh commenced this suit alleging that the in-ground pool was negligently filled and then covered and hidden. This was in violation of the Town housing codes and regulations. She has brought suit against Karen Pizzuro, the construction company that filled the pool, the town of Hempstead and its employee, Cross County, the abstract company that inspected the Town records and issued a title report, First American Title, who insured title and the real estate brokers hired by Karen Pizzuro.

Ms. Sabbagh states that the town of Hempstead and its employee were negligent because they created a special relationship with Pizzuro and the construction company and allowed blatant violations of the town code by allowing them to fill the pool. She also states that Cross County was negligent in examining the public records and failing to uncover and mention the filled pool. Lastly, she states that First American is liable for Cross County’s actions as an agent.

The Court held that Ms. Sabbagh failed to establish a breach of duty owed to her by the town of Hempstead. In order for her to have obtained liability against a public entity she must show that the duty breached is a duty owed to the public in general. She must show a special relationship in order to pursue a claim against the town by showing that she had direct contact with the town’s agents and justifiably relied to her detriment on the town’s assurance that it would act on the party’s behalf.

Lastly, the Court held that “the liability of the title insurer is based upon contract law and not negligence. It is governed by the provisions of the title insurance policy.” Therefore, the title insurer is liable for all matters affecting title, even hidden defects as long as it is within the policy coverage and not excluded or specifically exempted from coverage. Therefore, Cross County is liable. However, First American Title is not.

All further requested relief not specifically granted was denied.

(N.Y.L.J. 9/1/2004)

3.   “Business Judgment” Rule Inapplicable

Respondent entered into a propriety lease with petitioner for a co-op apartment in 1986. Respondent decided to sublet the apartment to David Holland in 2003. Soon after bad blood started to develop between Mr. Holland and the shareholder-tenants of the building. Without securing proper permits from the NYC department of Buildings, Mr. Holland renovated the apartment and removed portions of the walls and ceilings. This was done without the board’s consent. These renovations caused a small fire in the wall of the apartment.

Respondent received two letters regarding the renovations. The letters also complained of noise from the apartment, appliances being removed without board approval and three individuals living in the apartment without board approval. Respondent dent did not respond to these letters.

The board sent a 3rd letter to respondent requesting that Holland be evicted and also to have a licensed professional come and “assess the construction and electrical work.” Again, respondent did not respond. Then the board held a meeting with respondent at which he stated that he was unaware of the problems caused by Holland’s renovations. He also agreed to talk to Holland about eviction. However, instead of responding back to the board, respondent renewed Holland’s sublease without permission from the board.

Shortly after, Holland was arrested two times for allegedly possessing felony weight of narcotics inside respondent’s apartment. After the police damaged the locks on the apartment during the arrests, petitioner had the locks changed, giving the new keys to respondent. The new keys were never given to Holland and he brought suit against petitioner. Holland was allowed repossession of the apartment by the court.

Finally, petitioner called a board of directors meeting to discuss respondent’s objectionable conduct. Respondent attended with his attorney. Board members silenced respondent’s attorney at this meeting. The board, not the shareholders, voted to terminate respondent’s lease. This conclusion was reached due to his alleged objectionable conduct and that of his subtenant, Holland. Petitioner argues the business judgment rule to back up its decision by stating that the business judgment rule shields the board’s decision to terminate respondent’s lease and that it is entitled to judgment of possession in its favor.

The Court held that the board acted outside the scope of its authority and in bad faith. “The board, improperly elected, denied due process: it gave neither valid notice nor an opportunity to be heard.” Therefore, the Court does not apply the business judgment rule.

(N.Y.L.J. 7/28/2004)

4.   Obtained Title Through Adverse Possession

In 1973 the Padillas hired a lawyer, Mr. Perelstein, to assist them in the purchase of a vacant, dilapidated building. The lawyer drew up a contract, which provided the purchase price of $16,000. The Padillas paid $3,000 cash and took a ten year mortgage of $154.32 per month. No closing took place. The lawyer told the Padillas that they would get the deed at the end of the ten year period. The Padillas then proceeded to move in and make extensive repairs.

After seven years of making regular monthly payments, the Padillas were told that their lawyer had been murdered. They retained a second lawyer, Mr. Bushlow, and he made contact with the Estate of the building. Bushlow advised the Padillas to continue sending the monthly payments to him and he would in turn send them to the Estate.

However, in 1979 the Estate instituted an action in landlord tenant court to evict the Padillas. The Padillas hired a third lawyer who obtained an Order from the Supreme Court staying the landlord tenant eviction proceeding pending “a final determination of the rights of the parties.” The Court instructed the Padillas to continue their monthly payments.

After ten years of payments the Padillas wanted title passed to them. These efforts, however, were unsuccessful. Therefore, in 1979 “the Padillas commenced an action seeking either an Order for a specific performance or declaring that they were the rightful owners of the property by reason of adverse possession.” That lawsuit, as well as the lawsuit resulting in the stay, were both abandoned.

In 2002 the Estate sold the building to a man who operates a small construction firm. He is now bringing a suit to evict the Padillas. He acknowledges that he was aware that there was a dispute between the Padillas and the Estate before he purchased the building.

The Court held that “there is no question that the Padillas exercised the same ‘dominion and control’ over the property as owners of any ‘similar’ one family house for more than twenty-five years.” Therefore, the Padillas have acquired title by adverse possession or in the alternative they would be entitled to an Order of specific performance of the original contract since it is clear that the Estate ratified the actions of the first attorney.

(N.Y.L.J. 9/1/2004)

5.   Couple Awarded $4.6 Million

Mr. & Mrs. Ahrens brought suit against their obsessed ex-tenant Mr. Stalzer after he broke into their home in Arkansas and wreaked havoc while they and their children were in. Evidently, Mr. Stalzer’s behavior was prompted by Mrs. Ahrens’ rejection of his advances.

“Mr. Stalzer plugged the Ahrens’ sink, and bathtub drains, then turned the water full blast, flooding the house. He rifled through Mrs. Ahrens’ underwear drawer, fouled the couple’s bed and spray painted messages on the walls to leave the impression that the damage had been inflicted by a lover spurned by Mr. Ahrens.”

Once apprehended by the police, Mr. Stalzer made a full confession. He had called Mrs. Ahrens twice to meet with her privately. She told her husband about the calls, but never met with him.

A Nassau County District Court Judge awarded the couple more that $4.6 million in compensatory and punitive damages.

(N.Y.L.J.)

6.   Defenses Rejected in Non-Primary Residence

Petitioner commenced this action against Respondent seeking possession of a rent-stabilized apartment located in New York. The allegations made by the Petitioner claim that Respondent is not utilizing the apartment as a primary residence. It is shown that the Respondent spent the majority of his time during the years in question living in his Florida apartment. The Respondent answered with two defenses.

The first defense used by the Respondent was the “snow-bird defense.” The Court rejected this defense holding, “the snow-bird defense does not apply as the Court finds Respondent spent most of the years in Florida and not just the winter months.”

The second defense presented by the Respondent was the “ailing relative” defense. The Respondent told the Court that he obtained the apartment in Florida in order to care for his mother who lived 20 to 25 miles away from the apartment because she is ill. Court rejects this response holding, “Respondent herein lived some twenty five miles away from his mother, and did not stay with her even though she had a two-plus bedroom home. In addition, there was no testimony regarding what care or assistance was rendered to her by him.”

The Court concluded that “the Premises were kept merely for convenience and occasional use and a pied a terre and not as a primary residence. Sporadic use and convenience is not the purpose or goal of rent-stabilization.”

Lastly, the Court cites to a holding from the Appellate Division, First Department in the case of Cox v. J.D. Realty Assoc., (217AD2d 179 [1995]), “a tenant of a rent stabilized apartment who maintains a primary residence elsewhere, and also seeks to retain the stabilized apartment for convenience or for considerations of personal gain, is not one who is a victim of the housing crisis but rather may be said to be a contributing and exacerbating factor in the continuation of the critical shortage of affordable apartments.”

(N.Y.L.J. 7/21/2004)

7.   Bid to Halt Lead Paint Law is Dismissed

On Friday, August 27, 2004, Supreme Court Justice Louis B. York, a Manhattan judge, dismissed a challenge to a lead paint law, which was passed this year. Contractors and trade organizations that develop low-income housing opposed this law alleging that it would place a financial burden on them and make it difficult for them to purchase and renovate low-income homes. Justice York said the challenging groups did not have standing to challenge the law under the Environmental Quality Review Act. The challenging groups based their allegations of environmental injury on the displacement of area residents that would occur because of the financial burdens. However, Justice York said, “the alleged environmental injury is too speculative to be deemed in fact.” The law “tightens the time frame within which landlords must correct peeling lead paint. It also requires the identification of any child under 7 in a pre-war building and presumes that lead paint exists in all buildings built before 1960.”

(N.Y.L.J. 8/30/2004)

8.   Voluntary Payment Cannot Be Recovered

The plaintiff in this action brought suit against the defendant claiming that she paid him $4,000 in improper late charges on her three cooperative apartments. The defendant argues that due to plaintiff’s history of paying certain lease charges late, the late charges were properly assessed. He further argued that the plaintiff never objected to the payments in writing and did not write “under protest” or “without prejudice” on any of the money orders used for payment. The defendant submitted these money orders as payment.

In its holding, the Court cites to the common law doctrine of “voluntary payment.” This doctrine “bars recovery of payments voluntarily made with full knowledge of the facts, and in the absence of fraud or mistake of material fact or law.” The Court further holds that “this doctrine is premised on the common sense notion that when a party intends to resort to litigation in order to resist paying an unjust demand, that party should take its position at the time of the demand, and litigate the issue before, rather than after, payment is made.”

The Court rejected plaintiff’s claim that the payments were made under duress because defendant threatened to evict her and sell her apartments at foreclosure. The threatened exercise of a legal right cannot constitute duress under the circumstances. Plaintiff also did not show that the late charges were improper. Lastly, the Court held that, “one does not act under duress where there is available adequate legal remedy to redress the threatened coercion.”

(N.Y.L.J. 7/21/2004)