Opinion
13072/04.
Decided December 18, 2009.
Plaintiff is represented by Michael A. Cardozo, Esq., Corporation Counsel of the City of New York, Arthur H. Shaw, of Counsel; Defendant Berkshire Credit LLC is represented by Borchert, Genovesi, LaSpina Landicino, P.C.; Defendants Millennium Abstract Corp. and Brooklyn LLC are represented by Herrick, Feinstein LLP.
This action was brought by the plaintiff City of New York ("City") to quiet title to the real property located at 331-369 Hinsdale Street, Brooklyn New York. It is also known as tax block 3784, lot 127 ("Premises"). The City has alleged that it is the owner of the Premises by virtue of a condemnation order issued in 1996. Defendant Berkshire Credit LLC is the holder of a mortgage dated July 25, 1988 and recorded on August 9, 1988, which defendant Berkshire took by assignment from Vivian Fisher on February 26, 2004, the same time that defendant Brooklyn, LLC purchased the Premises. This assignment of mortgage was recorded in Kings County on April 7, 2004. Defendant Berkshire Credit LLC, whose members are the same as Brooklyn LLC, took the mortgage in Berkshire's name so as to prevent any claims of merger.
On August 9, 2005, plaintiff City moved for summary judgment on its complaint and to quiet title. Defendants Brooklyn LLC and Millennium Abstract Corp. cross-moved for an Order granting summary judgment and dismissing the complaint. The Court granted defendants' motion and plaintiff appealed. The Appellate Division: Second Department reversed this Court's decision on the granting of summary judgment finding that although defendants had established their entitlement as a matter of law, plaintiff raised a triable issue of fact as to whether a diligent title searcher should have discovered the plaintiff's interest in the subject property. City of New York v. Brooklyn LLC , 41 AD3d 523 , 838 N.Y.S. 3d 523 (2d Dept. 2007).
Defendants Brooklyn LLC and Millennium Abstract Corp. now move the Court for summary judgement, as the Appellate Division found that defendants established a prima facie entitlement as a matter of law, if defendants' title searches were "diligent" . Plaintiff has cross-moved for summary judgment alleging through experts that the searches conducted by defendants, had they been diligent, would have revealed the plaintiff's interest in the property. Thus, the sole issue before the Court herein is whether the title searches performed by defendants were diligent searches that should have discovered the plaintiff's interest.
Discussion
What acts constitute a diligent search?
The general purpose of recording acts and recording is to give notice to the world that the title to property has been transferred and by such notice to prevent the fraudulent sale of the same property more than once to different purchasers. Accordingly, and in line with the general principles concerning constructive notice, it is a well-settled rule that the recording of an instrument affecting property is constructive notice to all subsequent purchasers, lienors, and other interested parties of its existence and contents. NYJUR Records § 108.
In New York counties using the "block and lot" indexing system, "a purchaser is charged with record notice of all matters indexed under the block and lot numbers corresponding to the purchaser's property, regardless of whether such information also appears in his or her direct chain of title." Farrell v. Sitaras , 22 AD3d 518 , 803 NYS2d 659 (2nd Dept. 2005) citing to Andy Assoc. V. Bankers Trust Co., 49 NY2d 13 (NY 1979). Kings County, New York employs a "block and lot" indexing system, thus a purchaser in Kings County is charged with record notice of all matters indexed under such block and lot numbers. New York City's block and lot recording system utilizes an index of documents recorded in the Office of the Register. Under the "block and lot" method of indexing recorded conveyances, the title searcher is required to search and review the documents in the index of the subject block and lot.
According to affidavits submitted by defendants to this action, "block and lot" searches of all matters indexed under the block and lot numbers corresponding to the property at issue herein (Block 3784, Lot 127) were conducted on behalf of defendant Brooklyn LLC beginning in August 2003. At that time, defendant Brooklyn LLC learned that the City had issued a tax foreclosure notice against Pergol Realty Corp., recognized by the City as the then owner of the Property. Defendant Brooklyn LLC contacted Pergol and negotiated a purchase price for the property. Defendant contacted defendant Millennium Abstract Corp., to conduct a title search, which included a thorough review of all documents recorded in the index of the Property on file with the City Register for Kings County and the Office of the Kings County Clerk, and found the Property to be free and clear of any outside interests, including any interest of any kind now claimed by the City. Defendant Brooklyn LLC then purchased the Property and promptly recorded the deed.
In November 2003, defendant Brooklyn LLC learned that certain mortgages might be encumbering the Property, and retained STG Associates to conduct a second title search of the Property and to provide a second abstract of the title. The second search also found the Property to be free and clear of any outside interests, including any interest now claimed by the City.
Subsequently, Brooklyn LLC was informed by the Kings County District Attorney's Office that it may have been defrauded when it purchased the property, as the individual who had executed the deed to the Property on behalf of the seller, was not an authorized agent of Pergol and had no power to convey title. Defendant Brooklyn LLC then identified the true owners of Pergol and purchased the property. The defendant purchased title insurance on the Property through Millennium and a third title search was performed. Again, it certified that Pergol could convey clear title to Brooklyn. A second closing was held and a valid deed was delivered to Brooklyn from Pergol and thereafter, recorded. Two weeks after closing, Millennium updated its title search and concluded again that the property was free and clear of any outside interests.
In April 2004, the City made its first public claim to be the record owner of the Property, pursuant to a condemnation order issued in 1996. After reviewing the City's claim, the title insurer (Fidelity) arranged for a fourth independent title search of the Property to determine whether the City's claim that it had properly recorded evidence of its alleged condemnation, had any merit. The fourth search, this time undertaken with the knowledge of the City's claimed interest, yielded the same result as that reached by both Millennium and SGT. Fidelity found the Property to be free and clear of any claimed interest by the City. Although Fidelity located a notice of pendency of the 1996 condemnation proceeding — which had expired after three years in 1999 — it was recorded and indexed against different properties with different block and lot numbers, no notice of pendency was found to have been recorded against Lot 127.
In addition to the four searches, in January 2005, the City's Department of Health and Mental Hygiene served defendant Brooklyn LLC with an Order finding defendant in violation of various health code provisions. The Order stated that "City records show that [Brooklyn is] the owner or agent of: the Property", and imposed a fine against defendant Brooklyn LLC. The City's Department of Finance, after the condemnation in 1996, continued treating Lot 127 as though it were privately owned by issuing tax liens against the property, and then selling said tax lien. The fact that the City never recorded its interest in the Property is undisputed.
In its opposition to defendants claim that all four of its searches were diligent searches, plaintiff opposes defendants' motion for summary judgment on two grounds: first, that Brooklyn LLC had actual knowledge of the City's ownership interest in Lot 127, at the time Lot 127 was conveyed to it in 2004 by Pergol. Plaintiff alleges that the title abstract prepared by Millennium in connection with Brooklyn LLC's title search "unequivocally states that the City is the owner of Lot 127." Plaintiff, however, makes no reference to where this unequivocal statement is found in the abstract, nor does it provide a photocopy of said statement and attach same to its papers. Neither of plaintiff's experts made note of finding such an "unequivocal" statement of the plaintiff's ownership of said property in the abstract prepared by Millennium. This Court undertook a search of the abstract for such a statement and was unable to find any reference at all to plaintiff's ownership. Since the plaintiff has failed to provide any proof of said statement being in the abstract prepared by Millennium, the Court will not consider this allegation in its determination.
Second, plaintiff City alleges that the defendants' expert affidavits are insufficient to controvert the expert affidavits submitted on behalf of the City on the present motions and thus, fail to raise an issue of fact on the question of what constituted a diligent title search. Unfortunately, plaintiff's experts had the benefit of knowing what they were looking for when their searches were conducted. This fact certainly influenced the outcome of their searches and what steps they took in attempting to track down the unrecorded Property interest claimed by the City.
Moreover, the "Expert Affidavit" of Christopher Beck states that pursuant to his search of the public record he found the following: "After block 3784 lot 6 was subdivided in tax year 1999-2000 into lots 6, 106, 107, 108, 109, 110, 111, 112, 113, 114, 115, 116, 117 and 127, title to lot 6 and lots 106-117 was conveyed to Nehemiah Housing Development Fund Company, Inc., by deed recorded in Reel 4018 Page 371. New lot 127 was not included in the conveyance. Additionally, the old owner of lot 6 (prior to its subdivision) continued to be shown as the assessed owner of new lot 127. That was consistent with the old owner's continued ownership of the newly subdivided lot". He also found that "the assessed owner of block 3784 lot 127 was never changed from private ownership to the City of New York or HPD. Indeed, taxes continued to be assessed on lot 127" indicating that the Property was still in private ownership."
Caselaw demonstrates that factors and considerations that may constitute "inquiry notice". For purposes of determining whether a purchaser is entitled to the protection of the recording act, a party will be deemed to have inquiry notice when it had knowledge of facts that would lead a reasonably prudent purchaser to make inquiry. Ward v. Ward , 52 AD3d 919 , 859 NYS2d 774 (3rd Dept. 2008). In Washington Mut. Bank, FA v. Peak Health Club, Inc. , 48 AD3d 793 , 853 NYS2d 112 (2nd Dept. 2008) the Court found that where a good-faith lender for value records its mortgage first without actual or constructive knowledge of the prior mortgage, or of facts that would have put there on "inquiry notice" of that mortgage, the good-faith lender was granted summary judgment.
Actual possession of a property by someone other than the seller imposes a duty of inquiry on the potential purchaser. Further "the appraisal report is sufficient to put plaintiff on inquiry as to the existence of some right or claim of title, and at such time the duty to inquire is imposed on plaintiff to decipher the extent, if any, of the adverse claim" which may result from the person in actual possession. Mazza v. Realty Quest Brokerage Corp., 185 Misc 2d 162, 712 NYS2d 288 (N.Y.Civ. Ct. 2000). Also see, Fleming-Jackson v. Fleming , 41 AD3d 175 , 838 NYS2d 506 (1st Dept. 2007).
Defendants Unrebutted Contentions
The City does not claim that it had recorded a notice against the Property giving notice to the world in 2004; The City does not claim that Millennium missed a notice that he City had recorded that would have indicated that the City owned the Property; The City does not claim that Millennium ignored a valid lis pendens referring to the City's condemnation proceeding; The City does not claim that its own internal divisions did not believe that Brooklyn was the record owner of the Property when it sought to hold Brooklyn responsible for certain property violations; and The City does not claim that it itself did not recognize that it was the record owner of the Property when it filed and then sold a tax lien against the Property.Reply Memorandum of Law in Further Support of Defendants Brooklyn LLC and Millennium Abstract Corp's Motion for Summary Judgment.
Plaintiff's Experts
In this Court's opinion, the search performed by the plaintiff's expert James Marcaldo was far more than diligent — it was extraordinary. The purpose of the recording acts and recording is to give notice to the world that the property has been transferred. The Block and Lot method of indexing has been found to be and is well settled that such an indexing system enables the title searcher readily to find all conveyances within a given time frame which affect a particular parcel of land. Under this system, "there is no need for the title searcher to resort to the more tedious and cumbersome method of tracing a chain of title through successive grantors and assignors and, consequently, there is little or no danger that a particular outstanding interest will be overlooked because it was recorded outside of the direct chain of title.'" Andy Assoc. V. Bankers Trust Co., supra at 13. Andy Assoc. goes on the say that there is a well-established policy in favor of applying the recording act in such a way as to effect its underlying purpose. It's underlying purpose as previously noted is "to give notice to the world that the title to Property has been transferred and by such notice to prevent the fraudulent sale of the same property more than once to different purchasers."
The Court finds the expert affidavit prepared by Malcolm Engoron (an employee of plaintiff) on behalf of the plaintiff to be conclusory and speculative, as it uses such phrases as "as a rule of thumb" when discussing the standards by which a title search is conducted. Mr. Engoron is a Principal Title Examiner in the Title Bureau of the Tax and Bankruptcy Litigation Division of the New York City Law Department. In Mr. Engoron's deposition after the Appellate Division's ruling in this matter, he admitted that the City failed to follow proper procedure and did not file any document in the record index of the Property that would give notice "to the world" of the City's alleged interest. He made other admissions as well. Mr. Engoron admitted that there is no industry standard in performing a title search and that "there's a wide variance on how people would orient their searching." He acknowledged that in 2003, a title search would have revealed only a tax lien certificate by the City, and admitted that such a revelation is unusual where the City is claiming ownership of real property. He further acknowledged that when the City acquires property through a condemnation proceeding, it typically files either a Condemnation Order or a final decree in the index of register, but that here, the City failed to do either until 2007, some three and one-half years after Brooklyn LLC purchased the Property. Finally, Mr. Engoran admitted that the only way he was able to locate the City's alleged interest was to search the County Clerk's files relating to a lis pendens that had expired in 1999 — four years before Brooklyn LLC purchased the property.
Conclusion
The Court finds as follows:
First the purpose and intent of the recording acts are: "to give notice to the world that the title to Property has been transferred and by such notice to prevent the fraudulent sale of the same Property more than once to different purchasers. Accordingly. . . . it is a well-settled rule that the recording of an instrument affecting property is constructive notice to all subsequent purchasers, lienors, and other interested parties of its existence and contents." Based upon the undisputed facts of this case and the recording act's purpose, the Court finds that plaintiff City of New York did not record its interest in tax block 3784, lot 127, and therefore failed to provide constructive notice to the world of its interest.
Second, plaintiff also failed to provide any actual notice, despite their unsubstantiated allegation regarding the alleged language in an abstract, and in fact, acted in a manner contrary to its having any interest in the property, by placing tax liens on the property which its own Finance Department had recorded as being owned by Pergol Realty Corp.
Third, the Court also finds that defendants conducted what appears to b e the standard search recognized by the Second Department in Andy Assoc. — that is, a thorough review of the block and lot index for the Property and all associated documents. Nothing in those searches would have given rise to inquiry notice particularly since the plaintiff City, itself, recognized lot 127 as being privately owned and therefore taxable. Although there was a Notice of Pendency filed against the Property in 1996, it expired by its own terms three years later, and nothing was recorded thereafter by plaintiff. An expired Notice of Pendency provides no notice at all. See, CPLR § 6513, and DaSilva v. Musso, 76 NY2d 436, 560 NYS2d 109 (NY 1990). Defendants, herein, were only chargeable with knowledge to make a diligent search "if reasonable facts excite suspicion and one fails to make some investigation". Fischer v. Sadov Realty Corporation , 34 AD3d 630 , 824 NYS2d 434 (2nd Dept. 2006). In the instant matter, the Court finds no facts which would have reasonably excited suspicion.
Fourth, the Court finds that both of plaintiff City's experts were well informed as to what interest the City hoped to find, and therefore conducted searches outside of what the Block and Lot recording act contemplated as reasonable, and where no credible facts constituting reasonable inquiry notice were to be found.
Accordingly, the defendants' motion for summary judgment pursuant to CPLR§ 3212 is hereby granted dismissing this action on the ground that Brooklyn LLC is a bona fide purchaser with respect to its interest in the Property, and that reasonable searches were conducted by defendants' title searchers, which did not and could not have uncovered plaintiff's unrecorded interest in lot 127. Plaintiff's claims against defendants are hereby dismissed in their entirety.