Partition Actions – Exceptions to the Exceptions
Our firm handles many partition actions. A partition action is brought when two or more people jointly own real property (or shares in a cooperative), and one or more of the owners no longer wishes to co-own the property. In New York State, there is generally an absolute right to a partition in such situations. This means that when a case is brought, the Court will, assuming the basic legal requirements are met, order that the property be sold and the proceeds equitably divided between the co-owners.
However, as is often the case in the law, there are always exceptions to the general rule. This post will discuss some of the exceptions, and how they may affect a partition action. The most common exception is when there is a prior written agreement between the co-owners regarding the ownership of the property. Under New York law, the agreement must be in writing, and cannot be an oral agreement.
What type of agreement is contemplated by this exception? The first type of agreement would be a contract between the parties to sell their interest to a third party, or for one co-owner to sell his interest to the other. If such a contract exists, and is still legally valid, it would prevent the Court from allowing the property to be sold through the Court-ordered partition process, as the terms of the contract would control the disposition of the property.
New Developments Concerning Evictions in New York
As readers of this blog may be aware, the events of 2020 and 2021 relating to the COVID-19 pandemic have had a significant effect on the status of landlord-tenant actions in New York State. By a series of executive orders, then-Governor Cuomo stayed evictions from taking place in New York State, with the last extension of the eviction moratorium to end as of August 31, 2021.
Mr. Cuomo, however, is no longer governor of the State of New York. Due to a series of scandals involving alleged sexual harassment, as well as his handling of nursing home patients infected with COVID-19, he resigned from his position as of August 24, 2021, and was replaced by Lieutenant Governor Kathy Hochul.
Governor Hochul, shortly after taking office, decided to take definitive action regarding the soon-to-be-expiring eviction moratorium. She called a special session of the New York State Legislature, with the express purpose of extending the eviction moratorium. As a result, the eviction moratorium in New York was extended through January 15, 2022. However, due to a recent United States Supreme Court decision, landlords are permitted to have their day in Court to challenge a tenant’s claim that their ability to pay their rent was adversely affected by the COVID-19 pandemic.
Shelter From the Storm- Ida’s Legal Issues
Several of our law firm’s clients have been adversely affected by flooding caused by Hurricane Ida. We wish to offer our sympathy for all of those affected. This post will address the legal issues raised from this storm event and offer potential solutions.
Let’s consider the issues from a purchaser’s perspective. Prior to entry into a contract, due diligence should be conducted by the purchaser concerning potential property issues. Most notably, it should be determined before the contract is signed whether the property is in a flood zone, so that the purchaser can consider whether he wishes to take on this potential additional risk. In addition, if the property is in a flood zone, the lender will most likely require the purchaser to obtain flood insurance, which is quite costly and will be added to the monthly mortgage payment after closing. The mortgage lender will need to be involved because the value of the collateral, the house, may have been severely damaged and the lender will want to ensure that the property is rebuilt to its former state. Also, lenders may be willing to grant a payment forbearance to the purchaser, so that mortgage payments will not be due for a set period of time from borrowers affected by a disaster.
The following issues are of concern to a property seller when a significant flood event occurs. Properties are appraised during the purchaser’s loan application process to confirm that the property value supports the amount of the loan. Lenders will want to conduct an additional inspection after the flood to confirm that the property has not been damaged or otherwise lost value after the date of the appraisal. Concerned purchasers and their home inspectors may also be expected to make another evaluation of property condition.
The Current State of Evictions in New York
The events of 2020 and 2021 relating to the COVID-19 pandemic have had a great effect on the status of landlord-tenant actions in New York State. By a series of executive orders, Governor Cuomo stayed evictions from taking place in New York State for the last sixteen months. The current stay is due to expire on August 31, 2021.
Those who follow the news are aware that Governor Cuomo will shortly no longer be governor of New York, as he has resigned his position after a series of scandals involving alleged sexual harassment, as well as his handling of the COVID-19 situation. In a few weeks, he will be replaced by Lieutenant Governor Kathy Hochul.
Whether Cuomo will extend the eviction moratorium before he leaves office is unknown at this time. Also unknown is whether soon-to-be Governor Hochel intends to extend the eviction moratorium. Under the current moratorium, tenants can avoid being evicted if they complete a form affirming that their ability to pay their rent, or their ability to locate a new residence, has been affected by COVID-19. If the moratorium is not extended, it is possible that evictions in New York State will resume on September 1, 2021, and the Landlord-Tenant Courts will resume “business as usual” at that point.
Partition Actions and Outstanding Mortgages
Our firm handles many cases where two or more people co-own property, and there is a dispute between the parties over whether to sell the property. These situations can be resolved in Court by bringing a partition action, as has been discussed in prior blog posts. However, our attorneys always attempt to negotiate a resolution before bringing an action in Court. Such resolutions may involve one party buying out the interests of the other, or all owners agreeing to list the property for sale, and sell the property to a third party, with the co-owners dividing the proceeds.
One important issue that often arises in these situations is where there is an outstanding mortgage on the property. Co-owners, when they buy the property, may take out a loan to cover the purchase price. In most cases, all co-owners will be signatories on the note and mortgage, meaning that they are both individually and jointly liable for the obligations under the note (which is a contract to repay the amount borrowed).
Mortgage loans are usually made with an institutional lender, such as a bank or credit union. However, what happens when one party agrees to buy the other out in a settlement of a partition action? For example, an unmarried couple purchases a house together and takes out a mortgage in the amount of $500,000.00. Both parties sign the note and mortgage and are therefore co-obligors for the loan obligations. They then split up, and one of the individuals wishes to retain the property and continue living there. Although they may agree on a “buyout price,” where the individual remaining in the house purchases the equity interest of the departing person, the mortgage and note is still outstanding as far as the bank concerned, both parties remain legally responsible for the loan, and both parties can be sued in a foreclosure action if future payments are not made.
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Surplus Funds in Foreclosure Cases – How to Recover?
Prior blog posts have discussed the concept of surplus monies in foreclosure proceedings. Surplus funds occur when a property is sold at a public foreclosure auction, and the amount bid exceeds the amount of debt owed on the property. For example, a homeowner defaults on his mortgage, and owes $300,000.00 to his lender. After extensive legal proceedings, the house is sold at public auction, and the winning bid is $400,000.00. There is therefore an “extra” $100,000.00 now available. Does the defaulting homeowner have a right to these surplus funds?
The answer is yes. In general, subject to other liens, the owner of the property which is sold at auction has the right to collect the surplus funds if the house is sold for more than the foreclosing creditor (usually a bank) is owed. How does the former owner of the property go about collecting these funds? We would advise that any homeowner who may be in such a position to engage experienced counsel to represent his interests. The reason is that collecting surplus funds requires knowledge of the Court system and the procedures necessary to allow the funds to be disbursed.
When a property is sold at auction, a Court-appointed Referee is responsible for collecting the funds from the winning bidder, and paying off the creditor who brought the foreclosure action. Once this is done, the Referee will file a report in the appropriate Court, showing an accounting of the sums received from the auction, and the disbursement of same. The report will also show whether there were surplus funds; that is, whether the winning bid exceeded the amount owed to the foreclosing entity. If that is the case, the Referee will deposit the surplus funds with the Department of Finance in the County in which the foreclosure took place.
Post-Foreclosure Occupancy – A New York Story
A recent cover story in the New York Post relates the astonishing story of Guramrit Hanspal, who has lived in a house he doesn’t own for over twenty years. However, for those attorneys experienced in the areas of foreclosure, landlord-tenant, and bankruptcy, Mr. Hanspal’s story, while certainly an outlier, is not actually that surprising.
According to the Post, Mr. Hanspal purchased a house in East Meadow, New York in 1998, with a mortgage loan from Washington Mutual Bank. He made exactly one mortage payment before defaulting on his loan. Of course, Washington Mutual Bank then commenced foreclosure proceedings against him in Supreme Court, Nassau County. Foreclosure proceedings can take many years to be resolved in Court, and the foreclosure sale was not actually completed until the year 2000. Our firm’s experience has shown that although the foreclosure case took approximately two years to be resolved, delays of five or even eight years are not unusual, especially if the borrower retains experienced counsel who can use completely legal methods to ensure that Court proceedings take significant time to be resolved.
Even though the foreclosure proceedings had been completed, Hanspal did not vacate the premises. As prior blog posts have discussed, simply because a house is foreclosed, and sold to another owner (usually the lending institution simply takes back title to the property), does not mean that the owner is legally obligated to leave. In order to evict a former owner, additional legal proceedings must be brought in the appropriate landlord-tenant forum.