Title Insurance Issues

Demetrio v. Stewart Title Insurance Co.

Court: Appellate Division, Second Department
Citation: 124 AD3d 824, ___NYS2d___ (2nd Dept., 2015)

Facts: The plaintiff, Gaetano Demetrio, commenced this action, alleging breach of a title insurance policy by service of a summons with notice. The defendant filed a demand for the complaint. Several months later, the plaintiff served a complaint, alleging that the title insurance policy insured title to seven lots, and that after he was determined to hold title to only two of those lots in a condemnation proceeding, the defendant insurer refused his demand for payment under the subject policy for the value of the five other lots. The defendant rejected the complaint as untimely. The plaintiff thereafter moved to compel the defendant to accept the complaint. The defendant cross-moved to dismiss the complaint pursuant to CPLR 3012(b) for failure to timely serve the complaint.

The Supreme Court compelled acceptance of the complaint, granted the defendant leave to serve an answer, converted the plaintiff's motion into one for summary judgment, and allowed both parties to submit additional papers in connection with the plaintiff's motion for summary judgment. The defendant answered the complaint and cross-moved for summary judgment, dismissing the complaint. The Supreme Court granted that branch of the plaintiff's motion, which was to compel acceptance of the complaint, denied the defendant's cross-motion to dismiss the action pursuant to CPLR 3012(b), denied the branch of the plaintiff's motion which was converted into a motion for summary judgment, and denied the defendant's cross-motion for summary judgment, dismissing the complaint.

Defendant appealed.

Holding: The Second Department reversed the Supreme Court's Order and granted the defendant's motion for summary judgment. The Appellate Division found the Supreme Court erred in denying the defendant's cross- motion for summary judgment, dismissing the complaint. Generally, courts determine the rights and obligations of parties under insurance contracts based on the specific language of the policies. However, where the language is reasonably susceptible of more than one interpretation, and thus ambiguous, the parties to the policy may, as an aid in construction, submit extrinsic evidence of their intent at the time of contracting. If the tendered extrinsic evidence is itself conclusory and will not resolve the equivocality of the language of the contract, the issue remains a question of law for the court. Under the circumstances of this case, the ambiguity must be resolved against the insurer which drafted the contract. Where, however, a party's extrinsic evidence demonstrates not only that its interpretation is reasonable but that it is the only fair interpretation, summary judgment is appropriate.

In this case, the subject title insurance policy is ambiguous as to the property it covered, since schedule "A" of the policy states that it insures title to only lot 1, but refers to an annexed legal description containing the metes and bounds for seven lots. Nevertheless, the defendant established its prima facie entitlement to judgment as a matter of law by submitting documents related to the foreclosure action and sale at which the plaintiff purchased lot 1, and his contemporaneous purchase of the subject insurance policy. While certain of the documents attached a legal description encompassing all seven lots, all of the documents reference the sale of, and the plaintiff's purchase of, lot 1, which was the only lot offered for sale at the foreclosure auction. The plaintiff signed and certified documents reflecting his purchase of lot 1 only. The subject insurance policy was purchased by the plaintiff at the closing of the sale of lot 1, and he paid a premium based on the purchase price of lot 1.

Submitted by: Phil Sanchez, Esq www.spnylaw.com

Precis: Joel Grossbarth


Property Hackers, LLC v. Stewart Title Insurance Company

Court: New York Supreme Court, Appellate Division Second Department
Citation: 93 AD3d 818, 949 NYS2d 70 (2nd Dept., 2012)

Facts: The Plaintiff Property Hackers, LLP commenced an action for breach of a title insurance policy issued in connection with property it owned in the Bronx, New York. After it bought the subject property, the City of New York commenced a condemnation proceeding against the property.

The Supreme Court granted Defendant's Motion for Summary Judgment, finding that the terms of the policy provided that the protection of title against any rights of eminent domain were expressly excluded from coverage, unless notice of the exercise thereof had been recorded in the public records at the date of the policy.

Holding: The Appellate Division affirmed the judgment. Title insurance insures the owner of, and other persons lawfully interested in "real property and chattel real," against loss by reason of defective titles and encumbrances and insures the correctness of searches for all instruments, liens or charges affecting the title to such property. (Insurance Law § 1113 [a] [18]). Liability of the title insurer to its insured is based on contract law and, as such, is governed and limited by agreements, terms, conditions and provisions contained in the title insurance policy.

The Second Department further held that the Supreme Court properly granted Stewart Title Insurance Company's Motion for Summary Judgment, dismissing the complaint. Stewart met its prima facie burden of establishing its entitlement to judgment as a matter of law by demonstrating that the Plaintiff's claim of coverage fell within the exclusions of the policy. In opposition, the Plaintiff failed to raise a triable issue of fact.

Editor's Note: This was a legal "no-brainer." One can only wonder what Plaintiff was thinking in bringing the suit, and then, appealing the decision.

Prevailing Attorney: Daniel G. Walsh, Esq.  www.belowichwalsh.com*

Precis: Joel Grossbarth

* At the time of the Decision, Mr. Walsh was an attorney at DelBello Donnellan Weingarten Wise & Wiederkehr, LLP.


SJSJ Southold Realty, LLC v. Fraser

Court: Supreme Court, Suffolk County, NY
Citation: ___Misc.3d ___, 2015 NY Slip Op. 31427(U) (Sup. Ct., Suffolk Co., 2015)

Facts: This is an action seeking specific performance and/or damages based upon the alleged breach of a contract of sale for vacant real property located in Peconic, New York. The parties stipulated to the following facts: the property was unimproved and is comprised of approximately 52 acres; and the property was purchased on August 14, 1986, by Michael Adamowicz and Mary Adamowicz, his wife, and Michael Adamowicz II as tenants in common.

Michael Adamowicz died on October 29, 1990 and devised his interest in the property to his wife Mary Adamowicz. In October 2001, the property was appraised for $2,660,000.00. In March 2002, Mary Adamowicz passed away leaving a Last Will and Testament dated September 1, 1999. A probate petition was filed with the Surrogate's Court Suffolk County on or about March 22, 2002. The Probate Petition filed by the Estate indicated that Mary Adamowicz owned 50% of the subject property. In April 9, 2002, letters testamentary were issued to Elizabeth Fraser and Michael Adamowicz as co-executors of the Estate. The Executors retained Frederick Sembler, Esq. to prepare the Estate tax return form 706.

Pursuant to 26 USC § 6324, upon the death of Mary Adamowicz, an automatic federal tax lien in favor of the IRS arose by operation of law over the property of the Estate and including the subject property. Pursuant to § 982 of the New York State Tax Law, upon the death of Mary Adamowicz, a New York State Estate tax lien in favor of the New York State Department of Taxation and Finance arose by operation of law over the property of the Estate, again including the subject property. In April 2002, the Estate and Jan Burman entered into the contracts of sale for the purchase and sale of other three other parcels of land, owned in whole or in part by the Estate. On or about October 28 and 29, 2002, the Estate obtained a certificate discharging the federal and state estate tax liens for each of the properties.

Thereafter, on or about May 29, 2003, the Estate filed the estate tax return for the Estate of Mary Adamowicz, which reported that approximately $6 million in estate taxes due. The Estate reported on its federal estate tax return that the decedent owned 50% of the subject property. The Estate has previously paid approximately $2.9 million in federal estate taxes and elected on Form 706 to defer payment of the remaining tax liability by electing to make annual installments as permitted under § 6166 of the IRS Code. That section allows an estate to pay interest only for four years and then to pay off the balance of the tax liability over a 10-year term, if more than the 35% of the adjusted gross estate consists of closely-held businesses.

In July 2003, the Estate filed a "Lists of Assets-Inventory" with the Suffolk County Surrogate's Court which states that the decedent owned 50%, or one-half, of the subject property. On or about August 25, 2003, the IRS sent a letter to the Defendants, advising them that the IRS requires Estate’s election pursuant to § 6166 to "furnish a surety bond or a § 6324A lien having a value equal to the total deferred tax plus four years of interest.” The lien must be expected to exist until the entire tax is paid.

On or about December 23, 2003, a draft contract of sale was conveyed to the Defendants to the Plaintiff. An audit of the Estate was triggered, and Susan Leboff of the IRS was assigned to the case as the IRS Examiner. On January 14, 2004, Leboff sent a letter to the Estate, stating that she was assigned to the audit of the Estate tax return and to evaluate the Estate's 6166 election. She requested various documents in connection with same. On January 27, 2004, Defendants sent Plaintiff an amended proposed contract of sale.

On or around February 4, 2004, Plaintiff SJSJ returned an executed contract of sale to the Estate with a check for the down payment of $100,000. On March 9, 2004, Sembler met with Leboff in his office to review documents. Leboff advised Sembler that in order to obtain the IRC 6166 election, the Estate would have to provide security in the form of a bond or lien. On March 9, 2004, Plaintiff sent a replacement down payment check of $100,000 payable from SJSJ Southold Realty, LLC. On March 16, 2004, Defendant's attorney sent the Defendants a corrected first page of the contract, which corrected the seller from being the Estate of Mary Adamowicz to Estate of Mary Adamowicz and Michael Adamowicz as tenants in common. On or about March 18, 2004, the Defendants executed a contract of sale to sell the subject property to SJSJ Southold Realty, LLC for $2,350,000. At all times relevant to the action, the principals of SJSJ Southold Realty, LLC have liquid assets of more than $20,000.000 and were ready, willing and able to pay the purchase price to the Defendants.

On or about March 29, 2004, the Plaintiff obtained a title report for the subject property from Commonwealth Land Title Insurance Company. By letter dated April 9, 2004, Sembler, on behalf of the Defendants, requested the IRS to discharge the federal estate tax lien on the subject property. On or about April 15, 2004, Sembler wrote a letter to Leboff, enclosing a chart he had prepared calculating the percentage of deferred tax liability attributable to the subject property, which he calculated to be $310,555.06. Thereafter, by letter dated April 22, 2004, counsel for the Plaintiff requested that, prior to the closing, the defendants remove exceptions contained in the title report. The relevant exceptions that the Plaintiff demanded be removed as it relates to the Estate were the removal of all "taxes, tax liens, tax sales, water rates, sewer and assessment set forth in schedule herein." The other required "proof of payment of New York estate taxes, proof of payment of federal taxes, proof of payment of payment of "enumerated legacies.”

On or about April 27, 2004, Leboff wrote to Sembler confirming that the IRS requires estates making the 6166 election to "furnish a surety bond or a section 6324A lien having a value equal to the total deferred tax plus four years of interest." The letter also enclosed a blank form of a special lien. The April 27, 2004 letter also stated, "at this time, I am giving you the opportunity to advise us in writing whether your clients agree to furnish one of the forms of security referred to above. If we do not have written acknowledgment of your acquiescence to the placement of a 6166 lien within the next three weeks, I will immediately proceed to disallow the deferral of taxes and an interlocutory-type appeal can be taken on the issue. Pending your answer to this letter, it is not possible to release any lien on estate property being sold in the absence of the payment of the tax allocable to such property. If you agree at this time to permit the eventual furnishment of the lien or bond, the actual processing of the lien or bond will take place as the audit is concluding. A sample copy of the lien agreement that will be entered into is attached to this letter for your reference."

Unable to resolve the issues in the title report, on November 23, 2004, Plaintiff commenced the instant action seeking specific performance and in the alternative return of the down payment together with $5,000,000 in damages and to foreclose on an equitable lien. Thereafter, Defendants' counsel took the divided down payment in half and deposited it into two separate accounts: one for the Estate of Mary Adamowicz and one for Michael Adamowicz. Defendants answered the complaint on January 18, 2004 and interposed counterclaims. An Amended Verified Complaint was served on February 4, 2005, and on February 22, 2005, Defendants interposed their Amended Verified Answer and Counterclaims. The Plaintiff's Reply to Counterclaims was served on March 3, 2005. On July 21, 2005, Sembler wrote Leboff and filed a complaint on behalf of the Estate, and on October 2, 2007, the United States Tax Court issued a decision finding that the Estate had filed a valid 6166 election. On April 20, 2009, the IRS sent the Estate a Notice of Deficiency, alleging a deficiency of more than $25 million. The Estate appealed the Notice of Deficiency to the United States Tax Court and a trial was set and adjourned to April 2, 2012.

The Plaintiff moved for summary judgment against Defendants seeking specific performance of the contract of sale between the parties dated March 18, 2004. Alternatively, Plaintiff sought an order for partial specific performance to compel Michael Adamowicz to specifically perform the contract of sale and convey his 50% percent interest in the subject property to the Plaintiff. In support of its application, the Plaintiff argued that it is entitled to summary judgment and an order compelling the Defendants to specifically perform the contract since, based upon the stipulated facts, it is clear that the Defendants were "unwilling" to close rather than "unable” to close. Plaintiff pointed to the provision of the contract which addressed the disposition of liens required that the seller discharge all liens, including liens against corporations, estates, or other persons in the chain of title, arguing that the Defendants' unwillingness to close rather than obtain a discharge of the estate tax lien creates a breach of the contract of sale. Plaintiff also asserted that Defendants failed to disclose that the Estate had sought an extension of time to file its tax returns and made a 6166 election, which required the Estate to pay its tax liability in annual installments and to provide security for those payments to the IRS.

Holding: The sole question to be answered by the Court on these motions was whether the Defendants were unable to convey title to the subject property to the Plaintiffs, and whether, as a result, the contract was lawfully terminated. Here, the Court found that the Plaintiffs are not entitled to specific performance since the Defendants could not convey clear title prior to the expiration of the contract of sale, and that, as such, they were entitled to cancel the contract when they did on August 12, 2004.

More specifically, despite their diligent efforts, on July 7, 2004, the IRS refused to discharge the estate tax lien that encumbered the title to the subject property. It is undisputed that the estate tax lien was in excess of the purchase price of the subject property. The closing date was adjourned three times with the last extension of Plaintiff's due diligence period expiring on August 7, 2004 (which extended the closing date until October 1, 2014). While it is true that the Defendants could have complied with the requests of the IRS to enter into an escrow agreement, they were under no contractual obligation to do so since, pursuant to Paragraph 14, Schedule D of pre-printed form of the contract, the Defendants were only obligated to expend a maximum of $23,500 to clear title defects. Accordingly, when no other resolution to the issue could be reached (i.e., through the Plaintiff accepting title with the estate tax lien in place and/or the payment of $23,500, or accepting title subject to the unquantified lien), Defendants returned the down payment and cancelled the contract. Additionally, since no closing took place and the contract expired by its own terms on October 1, 2004, specific performance in not available.

In order to obtain specific performance, a purchaser must establish that it was ready, willing and able to close pursuant to the terms of the contract. Since the Plaintiffs would not accept title with the estate tax lien in place or a reduction in purchase price as set forth in the contract of sale, there was no way the purchaser could establish that it was ready, willing and able to close pursuant to the terms of the agreement. It was undisputed that the lien could not be discharged by the payment of money, and it remained an objection to title. In addition, the closing time in the contract was not extended beyond the October 1, 2004 deadline. Once the contract of sale was cancelled pursuant to its terms on August 12, 2004, Plaintiff lost its right to specific performance.

Prevailing Attorney: Prevailing Attorneys: Rosenberg, Calica & Birney, LLP www.rbclaw.com

Precis: Joel Grossbarth



Matter of Christine Woodson, Deceased v. Fidelity National Title Insurance Company

Court: New York State Supreme Court, Appellate Division, Second Department
Citation: ___AD3d___, 2015 NY Slip Op. 00698 (2nd Dept., 2016)

Facts: The decedent Christine Woodson died intestate on August 3, 1996, and allegedly was survived by five children: Carolyn Clarke, Michelle Woodson, Lloyd Woodson, Marvin Woodson, and Norval Woodson. Under the laws of intestacy, each of those five children would be entitled to 20% of the net value of the decedent's estate. The primary asset of the estate was real property located at 2007 Strauss Street, Brooklyn. Letters of administration were issued to Carolyn Clarke (hereinafter “the administrator”) on December 11, 1998, which restrained her from selling, mortgaging, or otherwise encumbering the property, except upon order of the Surrogate's Court. On August 18, 2005, Lloyd Woodson and Michelle Woodson, as "heirs at law" of Christine Woodson, executed a bargain and sale deed purporting to transfer the property to Alfanso Gonzalez. The respondent, Fidelity National Title Insurance Company (hereinafter “Fidelity”), issued a title insurance policy in favor of Gonzalez with respect to the subject property.

Subsequently, Marvin Woodson and Norval Woodson separately executed quitclaim deeds, both dated December 14, 2005, purporting to transfer the property to Gonzalez. A Terraine Woodson, who was not otherwise disclosed as a relative of the decedent, also executed a quitclaim deed on December 14, 2005, purporting to transfer the property to Gonzalez. The administrator did not give a deed to Gonzalez, nor anyone else, either in her individual capacity or in her capacity as administrator of the estate. Thus, only four of the five disclosed children conveyed their share of the property to Gonzalez. Gonzalez later sold the property to Ian Erskine, by way of an August 24, 2006 bargain and sale deed.

On or about December 18, 2006, the administrator filed a petition to set aside the deeds that purported to transfer the subject property to Gonzalez. The petition alleged that the property was transferred without the administrator's consent or an order of the Surrogate's Court, and that Fidelity and several other entities "participated in a transaction seeking to defraud the Estate." Fidelity appeared in the proceeding, and a guardian ad litem was appointed to represent the interests of Lloyd Woodson, whose whereabouts were unknown when the petition was filed. All other parties defaulted. Fidelity moved, pursuant to CPLR 3211(a)(7), to dismiss the petition insofar as asserted against it. The administrator and Lloyd Woodson's guardian ad litem opposed the motion. The Surrogate's Court granted Fidelity's motion, and the administrator appeals.

Holding: The Appellate Division affirmed the ruling of the Surrogate’s Court.

A title company hired by one party is not, absent evidence of fraud, collusion, or other special circumstance, subject to suit for negligent performance by one other than the party who contracted for its services. Contrary to the administrator's contention, the petition fails to state a cause of action against Fidelity to recover damages for aiding and abetting fraud. To plead a cause of action to recover damages for aiding and abetting fraud, the pleading must allege the existence of an underlying fraud, knowledge of the fraud by the aider and abettor, and substantial assistance by the aider and abettor in the achievement of the fraud.

Here, the petition consisted of bare, conclusory allegations, without any supporting detail, which do not meet the specificity requirements of CPLR 3016(b) to sufficiently plead the existence of an underlying fraud, knowledge thereof on the part of Fidelity, or substantial assistance in achievement of the fraud.

The administrator's claim that Michelle Woodson's signature on the deed was a forgery was raised for the first time in opposition to Fidelity's motion and, in any event, is insufficient to defeat the motion. The signature was acknowledged before a notary, and the petitioner failed to present an affidavit by Michelle Woodson attesting that she did not execute the deed or an affidavit from any handwriting expert attesting that the signature on the deed did not match Michelle Woodson's signature. Furthermore, while the petitioner purported to submit a copy of Michelle Woodson's signature for comparison, there was nothing to verify the source of that signature and whether it was, in fact, Michelle Woodson's signature.

Prevailing Attorney: - Fidelity National Law Group, New York, NY (Jennifer F. Beltrami, Esq.)

Precis: Joel Grossbarth