Opinion
I2017002647
04-22-2021
Django R. SCAHILL, Plaintiff, v. Darren A. STOCKTON, Defendant. Laura Malachowski, Plaintiff v. Thomas Malachowski, Defendant.
Jeffrey M. Gerace, Esq., Attorney for the Plaintiff Django Scahill, In Scahill v. Stockton, 45 Exchange Blvd., Suite 900, Rochester, NY 14614 Darren A. Stockton, Pro Se, In Scahill v. Stockton Gallo & Iacovaneglo, LLP, Caitlin T. Carrig, Esq., Attorney for Plaintiff Laura Malachowski, In Malachowski v. Malachowski, 180 Canal View Blvd., Rochester, New York 14623 Thomas A. Corletta, Esq., Attorney for the Defendant Thomas Malachowski, In Malachowski v. Malachowski16 W. Main Street, Ste 204, Rochester, New York 14614
Jeffrey M. Gerace, Esq., Attorney for the Plaintiff Django Scahill, In Scahill v. Stockton, 45 Exchange Blvd., Suite 900, Rochester, NY 14614
Darren A. Stockton, Pro Se, In Scahill v. Stockton
Gallo & Iacovaneglo, LLP, Caitlin T. Carrig, Esq., Attorney for Plaintiff Laura Malachowski, In Malachowski v. Malachowski, 180 Canal View Blvd., Rochester, New York 14623
Thomas A. Corletta, Esq., Attorney for the Defendant Thomas Malachowski, In Malachowski v. Malachowski16 W. Main Street, Ste 204, Rochester, New York 14614
Richard A. Dollinger, J.
"It's deja vu all over again."
Quote attributed to Yogi Berra in regard to Roger Maris and Mickey Mantle hitting back-to-back home runs for the New York Yankees. Capital One Bank v Stewart , 7 N.Y.S.3d 240, n. 1 (Civ. Ct. New York 2015).
Once again, this Court must umpire a post-judgment dispute over a spouse's failure to sell or refinance the marital residence well after the marriage has ended and after deadlines for sale, transfer or refinancing set forth in their separation agreement have expired.
The Court, seeking to both resolve the pending disputes and provide some guidance to future litigants, creates a court-ordered limited power of attorney that permits the aggrieved spouse to remedy the non-compliant spouse's failures. In reaching this conclusion, the Court doubles up its decision on two cases pending before it.
First up, in Schahill v. Stockton , the couple entered into a separation agreement nine months ago. The husband agreed to pay his wife $40,000 six months after execution of the agreement "in full satisfaction of the wife's marital share of the parties’ assets and liabilities." If the husband failed to pay as required, the wife reserved the right to enforce the payment "including forcing the immediate sale of the marital residence." The subsequent judgment of divorce incorporated the agreement. There was no notice requirement in the agreement or judgment as a predicate to the wife's right to force the immediate sale and no option to cure by the husband. The agreement also included a provision for award of attorney fees against the defaulting party for fees "reasonably incurred by the aggrieved party." The husband failed to make the timely payment at the six-month deadline. The wife now seeks to enforce the agreement and requests an order "directing the immediate sale of the residence." The husband failed to file any papers in response, although an attorney appeared on his behalf.
Second, on deck, is Malachowski v. Malachowski , in which the couple arrived at the same destination, albeit through a more circuitous route. The couple were divorced in 2018. In the separation agreement, the husband agreed to refinance the house by July 19, 2020. The wife was a co-obligor on the mortgage and formerly a tenant by the entirety in the real property. The agreement provided that the wife, contemporaneous with the execution of the agreement, would sign a deed, transferring her interest in the property to her husband, but the deed would be held in escrow "until such time as the husband receives confirmation from his lender that he has been approved to refinance the current outstanding mortgage on the property and the closing has been scheduled." The judgment of divorce provided that the husband would have two years to refinance the property as "set forth in the parties Separation and Property Settlement Agreement."
The application before this Court contains no reference to the wife's compliance with this requirement for preparation of the deed transfer documents. However, because the husband has never received or conveyed "confirmation from his lender" that a refinance has been approved, this Court regards the wife's failure — if it occurred — to be without significance, as the husband has never received such notification.
After the July 19, 2020 deadline passed, the wife threw several pitches to the husband requesting that he confirm his intention to refinance the house and remove her name from the deed and mortgage. The wife even gave the husband a free pass: calculating the two years from the date of the entry of the divorce judgment — rather than the execution of the agreement — to accomplish the refinancing. The wife gave the husband repeated written notices of her intention to enforce the sale provision. Eventually, on December 9, 2020, the wife informed the husband that she intended to place the house on the market for sale. The next day, she sent an email to the husband informing him that she had a realtor in mind and needed to schedule a walk-through for a potential buyer. The husband never responded and the wife brought this application for contempt pursuant to the Judiciary Law. NY JUD. LAW § 753A. Her application contains the required warnings and seeks "sanctions, counsel fees and any and all costs and disbursements associated with the action."
Any reading of the agreement would reach the conclusion that the deadline to refinance the house was two years from the date of the execution of the agreement — July 19, 2018 but the wife chose, in the papers before this Court, to permit the husband until two years after the divorce judgment was signed on November 1, 2018.
The two cases swing on facts from different sides of ultimately, the same plate. In Scahill, the wife was to be paid $40,000 as part of the separation agreement and the sale of the house was designed to enforce that obligation . In Malachowski , the wife did not receive any financial payout when the mortgage was refinanced or the property sold. The wife waived any claim to any equity after the sale, provided she was repaid any cleaning, repairs or improvements or other usual and customary costs of sale which were necessary to enforce the agreement.
The husband in Malachowski , apparently continuing a pattern of ignoring the wife's emails, again dropped the ball and ignored the order to show cause to find him in contempt and order the sale of the house. When he failed to appear, this Court called him "out," so to speak and granted an order by default which the Court has previously implemented when spouses fail to fulfill their obligations to sell or refinance the marital residence after a divorce. The conditions included:
(A) granting her a limited power of attorney to sign any and all documents necessary to list the property for sale, and/or sell the property, and/or sign any transfer documents, and/or to take any other steps necessary to sell the property consistent with the Judgment of Divorce;
(B) granting her authority to exclude the ex-husband from the marital residence for purposes of preparing the marital residence to be sold, including, but not limited to entering and going through the home, inspecting the property for purposes of determining what is necessary in order to place it on the market to be sold, having a realtor go through the home, and/or scheduling any showings of the home, and the former wife may use her key to the marital residence to effectuate same or obtain a key from the former husband to do the same; and
(C) that the ex-husband shall not be present in or around the marital residence during any of the events set forth in the above paragraphs; and the husband must keep the marital residence in showable condition and should he fail to do so, the Plaintiff shall have the authority to hire any cleaning service or anyone else to place the property in showable condition.
The order awarded the wife $1500 in legal fees, imposed a $250 per month fine against the husband, commencing November 1, 2020 until the date of closing and required that any net proceeds from the sale be held in escrow by the wife's counsel until an ordered distribution by the Court.
After laying off the first few pitches from his wife to comply with the agreement and divorce decree and being well behind in the count, the husband, after entry of the remedial order, came out swinging. He retained counsel and submitted a new order to show cause to vacate the Court's remedial order. In his application, the husband claimed the Court erred in unlawfully failing to hold a hearing before finding him in contempt and objected that the Court order which permitted the wife to hire workman and enter the house to make repairs or clean constituted an improper order granting exclusive use and possession of the former marital residence. The husband also objected to the wife having exclusive control over the repairs and closing costs. Finally, the husband claimed that he had attempted to refinance the property but been unsuccessful and he claimed he should not be penalized for having "bad credit." The husband argued that the house needed substantial repairs that may well exceed any equity in the house.
However, in Malachowski , the husband's arguments run afoul of the agreement. First, the agreement gives the wife the specific right, upon the husband's default, to list the property for a value recommended by a realtor. Second, the agreement gives the wife, upon her former husband's failure to refinance, a right of access to coordinate any needed repair work with a realtor, professional service provider and any potential buyers. Third, the agreement provides that any cleaning, repairs or improvements will be the sole responsibility of the husband and there is no contractual cap on those expenses. In response to these contractual requirements, the husband asserts an inability to refinance in his affidavit, noting that he and his wife had previously filed bankruptcy.
The day after oral argument, the husband's counsel informed the Court that the husband had filed bankruptcy under Chapter 7 of the United States Bankruptcy Code.
This Court, after hearing the arguments in both matters on the same day, elected to treat them as the legal equivalent of a double play and devised this single opinion that implements this Court's longstanding practice when a former spouse fails to sell or refinance a property under a separation agreement. First, when a couple is granted a divorce, the tenancy under which their marital residence is held is severed. Kindler v. Kindler , 60 AD2d 753 (4th Dept 1977) (divorce decree, which was not ex parte but based on personal jurisdiction, severed the tenancy by the entirety of the New York real property, and created a tenancy in common); see also Harlan v Harlan , 46 Misc 3d 1003 (Sup. Ct. Monroe Cty 2014) (Dollinger, J.), quoting Kahn v. Kahn , 43 NY2d 203 (1977). The severing of the tenancy occurs whether one spouse furnishes a deed for their interest as required by any agreement. As a result of the divorce, the couple each own a one-half undivided interest in the property. Therefore, in each of the cases, the ex-wife, after the divorce, owns an undivided one-half interest in the property, even though any operative deed filed in the clerk's office (which gives remote parties notice of the holder of the title) may still contain language that the couple are tenants by the entirety. This concept is important because in both of these pending matters, each of the former wives has a legally recognized interest in the subject properties: they each own a one-half interest in the property, subject to any restrictions on such ownership that are set forth in the couple's separation agreement.
This Court considered the implications of no-fault divorce on the principles in Kahn v. Kahn and, in a number of contexts, has suggested the Court of Appeals should revisit that opinion and its restrictions on real property transfers during the pendency of a matrimonial matters. See Harlan v. Harlan, supra at n.5
Second, the recognition that the former spouse owns an undivided one-half interest in the property, even though dispossessed of their interest by the divorce, carries a continuing implication for the former displaced spouse. In Scahill , the remaining spouse is using the displaced spouse's equity to finance continuing to live in the property and is paying nothing for using the displaced spouse's frozen equity. For example, if the net equity in the property, after sale, is $100,000 and an agreement provides for an equal distribution of the proceeds, then for any time after one spouse is displaced, the remaining spouse is using the displaced spouse's $50,000 in equity for free, while staying in the house. The remaining spouse sits in the property without incurring the extra financing costs — the additional mortgage — necessary to buy out the former spouse. In short, the remaining spouse gets a free loan equivalent to the former spouse's interest until the spouse either sells the property or buys out the former spouse's interest.
In Malachowski , the economic realties are different but the non-compliant spouse has several strikes against him. In that case, after refinancing and removal of the wife's name from the deed and mortgage, the wife receives no payments. However, the remaining spouse is still relying on the absent spouse's credit and record to remain in the property and, the liabilities stemming from the mortgage — on a house in which the obligor no longer resides — restrict the ex-spouse's credit and her ability to finance another dwelling. The absent spouse also runs the risks associated with a mortgage default and the possibility that upon default, the financing agency may seek a default judgment for any deficiency against the now absent spouse.
The risk of a deficiency is exacerbated when a the remaining spouse either fails to pay the mortgage or fails to maintain the property and allows the fair market value to deteriorate, as is alleged in the Malachowski matter.
In both of these cases, the issues involved in the refinancing or sale of the marital residence mirror countless curve balls that have peppered this Court in the last decade. In most separation agreements, the spouses agree that the remaining spouse will have a definite time to either sell the property, buy-out the departing spouse's interest or remove the absent spouse from the mortgage debt. In essence, the period of time permitted for the remaining spouse to engage in either of these activities is a form of interest-free loan or a borrowing of the absent spouse's credit rating, to the extent of the departing spouse's interest. The negotiated separation agreement prevents the departing spouse from objecting to this interest-free loan or the borrowing of the spouse's credit worthiness: the parties agreed to give the remaining spouse a right to use the equity "for a certain term" without paying anything for it. But, once the remaining spouse defaults in either selling the property or refinancing it, the interest-free loan of the departing spouse's equity or the reliance on their credit rating ends and real financial consequences to the departing spouse accrue.
Stolen from the Ghost in Hamlet, Act 1, Scen 5, l. 1-2, W. Shakespeare, 1603.
In view of these economic realities, this Court must provide a box score for the damages or other penalties that flow from the breach of the agreements in both of these matters. In Scahill , the former spouse did not bring a complaint for contempt under the Judiciary Law, instead opting simply for a finding of default, an order directing immediate sale of the property and attorneys fees. It is undisputed that the husband is in default. The wife is entitled to an order directing the immediate sale of the property. The more central question is how to effectuate the wife's right to immediate sale of the property. In other contexts, the wife as a judgment creditor could utilize the provisions of CPLR 5236 and obtain a judgment, levy against the property and proceed to have the sheriff sell the property. CPLR 5236. However, the process is cumbersome, introduces the whimsy of a third-party with no motivation to move quickly or maximize return and devolves into an extended process, adding extra costs to the former spouses.
In this Court's view, the better and more efficient enforcement occurs through a court order granting the wife a limited power of attorney to execute all the necessary documents to sell the husband's interest in the property. The grant of that authority from this Court corresponds to the powers granted to an agent in a short form power of attorney pursuant to Section 5-1502A of the General Obligations Law. See Cruz v Cruz , 2020 NY Misc. LEXIS 2396 (Sup. Ct. Kings Cty 2020)(wife given limited power of attorney to substitute for husband in refinancing of former marital residence); Faistman v Faistman , 165 AD3d 1042 (2d Dept 2018) (stipulation of settlement provided wife with a limited power of attorney in order to facilitate the sale or refinancing of an apartment condominium that was marital property). Powers of attorney, authorizing a spouse to sign a deed on behalf of another spouse or an agent to sign on behalf of a principal are not uncommon in real estate transactions. See e.g., Wilder v. Tomaino , 2008 NYLJ LEXIS 1 (Surr. Ct. Suffolk Cty 2011); Goff v Parker , 2020 NY Misc. LEXIS 670 (sup. Ct. Suffolk Cty 2020); 2 NY Practice Guide: Real Estate § 6.06 (4)(B).
The Court's designation of the former spouse as the holder of the power of attorney allows her to pinch hit for the defaulting spouse and sell the property provides an expedited method to allow the wife to "force out" the non-compliant spouse from his or her base. The agent/former spouse would have the authority to sign the real estate listing agreement, any offers or counter-offers, any acceptance and make any reasonable representations as a seller of the property. Once the closing is slated, the agent/spouse would have the authority to sign all closing documents. Importantly, to effectuate the immediate sale, the Court would strip the occupying spouse of the right to thwart the sale the property. The bar on the occupying spouse prevents the non-compliant spouse from confusing the sale or further holding up the sale of the property under the terms of the agreement.
In a letter submitted after oral argument, the defaulting spouse in Malachowski, through counsel, argued that the residence needed a new roof and that cost might convert the proposed fair market sale into a short sale, in which the mortgage value would exceed the sale price. However, regardless, the holder of the power of attorney should have the authority to negotiate that resolution as well.
The New York courts have apparently balked over the use of a court-ordered power of attorney by a frustrated spouse to transfer property to effectuate a divorce settlement but other states have recognized its efficiency as a tool to resolve unpaid obligations of a recalcitrant spouse. In Runco v. Francis , 2015 Mich. App. LEXIS 1286 (Ct. App. Mich. 2015), the appeals court affirmed the grant of a power of attorney to a frustrated spouse when the non-compliant spouse failed to make full payment to his former wife of all amounts due her under the terms of the parties’ settlement agreement and divorce judgment. The Court added, in affirming the court-ordered power of attorney, a "court is empowered to enforce its decrees and effectuate its judgment in a divorce action." Id. at p. 20. In Tomasso-Addeo v. Addeo , 2018 N.J. Super. Unpub. LEXIS 446 (App. Div. Sup. Ct. N.J. 2018), a trial court also awarded a frustrated spouse a limited power of attorney to sell a marital residence, when the residing spouse failed to refinance it within the time set forth in their separation agreement. Similarly, in Brown v. Brown , 2016 N.J. Super. Unpub. LEXIS 2435 (Sup. Ct. App. Div. 2016), the court also granted a limited power of attorney to convey marital property to effectuate a divorce settlement. See also Halligan v. O'Connor, 2018 N.J. Super. Unpub. LEXIS 2202 (Sup. Ct. App. Div. 2018)(limited power of attorney granted in divorce to allow settlement of claims). A declaration of the rationale for the New Jersey rule is found in Courboin v. Courboin , 2013 N.J. Super. Unpub. LEXIS 401 (Sup. Ct. App. Div 2013) in which the trial court granted a spouse a limited power of attorney to sign her former husband's name to effectuate the sale of the marital home
Given defendant's refusal to sign the listing agreement, and plaintiff's concerns that defendant would not cooperate with the execution of any documents related to the sale of the home, the judge was justified in entering the [limited power of attorney] order. The order does not take the property away from defendant, as he suggests in his brief. Rather, the order merely permits plaintiff to negotiate and execute any closing documents necessary to effectuate the sale of the marital home "if the defendant fails to sign any document in a timely fashion." The order does not alter the provisions of the JOD that require the parties to split the proceeds of the sale equally and require plaintiff to reimburse defendant for fifty percent of the carrying and maintenance costs he incurs through closing.
Id. at 20. Finally, the utilization of the limited power of attorney in these instances has a major league pedigree and a corollary in Rule 70 of the Federal Rules of Civil Procedure which provides, in pertinent part:
(a) Party's Failure to Act; Ordering Another to Act. If a judgment requires a party to convey land, to deliver a deed or other document, or to perform any other specific act and the party fails to comply within the time specified, the court may order the act to be done—at the disobedient party's expense—by another person appointed by the court. When done, the act has the same effect as if done by the party.
FRCP Rule 70. The federal courts have implemented this procedural tool to grant powers of attorney to sell property when a non-compliant property owner fails to comply with a lawful order. For example, in Mantouvalos v Mantouvalos , CV 14-10067-NMG, 2019 WL 7390052, at *3 (D Mass 2019), two sisters jointly owned a property in Greece. When one sister failed to participate in the court-ordered sale, the court granted her sibling a limited power to "prepare the property for sale and to sell the property on behalf of all parties to this lawsuit." Id. In this respect, the Federal Rules recognize the expediency of permitting an aggrieved party to use this form of immediate self-help to effectuate a court order — or, in this state case, a separation agreement and judgment of divorce — to provide a prompt resolution of a undisputed obligation.
To enable the spouses in these cases to round third and head home, the Court issues a power of attorney to both of the aggrieved parties in these pending matters. In the Scahill case, the exercise of the power of the power of attorney would also be contingent on the following:
(A) the holder of the power must act in a commercially reasonable fashion as a fiduciary in the sale of the property, taking all reasonable steps to maximize the value of the property at sale;
(B) the holder of the power would have the right to inspect the property, allow third-parties to enter the property for purposes of inspection or sale, clean or repair any portions of the property to maximize the sale price of the property and any occupants of the property must not be present for such inspections or visits provided the holder of the power of attorney gives reasonable notice to the occupants in a commercially reasonable fashion;
(C) the former spouse in possession of the property would not be permitted to thwart the sale and would be stripped of any right to sign sale or closing documents unless the absent spouse agreed in writing;
(D) the net proceeds after sale expenses would be held in escrow by the wife's attorney who would handle the closing until the further order of this Court;
(E) this Court, within 30 days after sale, would require the agent/spouse to file a report with the Court that details the exercise of the power of attorney and then allocate the proceeds consistent with any terms of the separation agreement or judgment of divorce.
This equitable tool allows the prompt and "immediate sale" of the property — after the husband's default — as the couple envisioned in their agreement. In addition, the wife is entitled to damages, measured as the interest, at the state rate, from the date of breach to the date of sale. Brushton-Moira Cent. Sch. Dist. v. Fred H. Thomas Assocs., P.C. , 91 NY2d 256, 260 (1998) ( CPLR 5001 (a) provides that interest shall be recovered upon a sum awarded for a breach of contract, computed from the earliest ascertainable date the cause of action existed according to CPLR 5001 [b] ). Finally, because the separation agreement awards fees, the wife would be entitled to reasonable attorneys fees. The remaining closing costs — the broker's commissions, attorneys fees — would be paid from the husband's share of the proceeds. If the husband had timely refinanced the house, none of those expenses would have been necessary. The wife should not have to deplete her guaranteed $40,000 to cover expenses that were to be paid by her ex-husband consistent with the agreement. The interest and attorneys fees would be paid to the wife at the time of distribution of the house proceeds.
In the Malachowski matter, the same analysis applies in a different context. In that instance, the wife is not entitled to any portion of the proceeds but instead, just entitled to be removed from the title and mortgage, as a tool to protect her credit and eliminate any potential liability for the debt or the property. While there are no proceeds, the same analysis regarding the court order for a limited power of attorney applies. The wife should be able to enforce her right to remove her name from the deed and mortgage through an immediate sale. The same conditions, as set forth above in the Scahill matter, apply in Malachowski. The sale costs, broker's commissions and any other fees would be paid by the ex-husband who failed to timely refinance the property. The wife should suffer no financial loss as a consequence of the husband's failure to timely refinance.
The former husband in Malachowski , in moving to vacate the enforcement order, raises a series of defenses, questioning the umpire's call and arguing that the before the Court can find any contempt on the part of the husband, the wife must exhaust other means of enforcing the "sale on default" clause, the Court failed to comply with the strict findings required a prerequisite to a contempt finding and further that the husband has an inability to pay. None of these defenses defeat the wife's application. The ex-wife need not explore other options: she bargained for the right to sell the property if the husband defaulted. El-Dehan v. El-Dehan , 114 AD3d 4 (2d Dept 2013), affd 26 NY3d 19 (2015). The standards for a contempt finding are clearly met here: the spouses agreed to the right to sell the property upon default both in their separation agreement and the judgment of divorce, the judgment was clearly disobeyed, the former husband, having been given numerous notices demanding compliance with the judgment, knew that he was in default and there was a clear prejudice to the ex-wife by her exposure on the mortgage. Under these circumstances, a contempt finding, via default, was clearly appropriate.
The financial remedy in Malachowski is different because the former wife is not entitled to any proceeds from the sale. Because she brought the enforcement matter as an application for contempt, she is entitled to attorneys fees for not only the application but for closing and other costs necessary to remove her name from the deed and mortgage. Oxman v. Oxman , 184 AD3d 404 (1st Dept 2020) (fees "directly related to [plaintiff's] contemptuous conduct" are recoverable); Jamie v. Jamie , 19 AD3d 330 (1st Dept 2005). She is also entitled to a fine upon a finding of contempt. NY JUD. LAW § 753(A) ; J.R. v K.R. , 2020 NY Misc. LEXIS 10709 (Sup. Ct. New York Cty 2020). In this case, the fine should be $250 per month for each month after the two-year deadline expired. The fine should be paid from the available proceeds but, if for some reason, there are insufficient proceeds or no funds available from the sale of the property, the fine shall be paid by the ex-husband upon reasonable demand by his former spouse after sale of the martial residence.
To touch home plate — as Yogi Berra would have wanted — the former spouses in these two cases are awarded limited powers of attorneys consistent with the guidelines in this opinion to effectuate their rights under their separation agreements and judgments of divorce. With these rules sorted out by this umpire behind home plate, the Court gives the newly enfranchised spouses holding powers of attorney only one final thought: "play ball."