Rosenbaum v. City of New York , 707 N.Y.S.2d 410 ( 2000 )

—Order, Supreme Court, Bronx County (Lucindo Suarez, J.), entered December 14,1998, granting plaintiffs motion for partial summary judgment discharging the liens of the City of New York and severing the second cause of action for damages and denying the City defendants’ cross-motion for summary judgment dismissing the complaint, modified, on the law, to deny plaintiffs motion for partial summary judgment and, except as thus modified, affirmed, without costs.

By this action plaintiff, the owner of premises known as 31-33 Mount Hope Place, Bronx County, seeks a discharge of alleged “improperly placed liens” and damages for slander of title. Plaintiff claims to be a bona fide purchaser for value with respect to work performed by the City of New York at the subject premises prior to his taking title and for which the liens at issue were subsequently filed. On August 31, 1993, plaintiff purchased the premises for $5,000. He argues that, at the time of purchase, he did not have any knowledge of the repairs performed by the City. As the record shows, an amount totalling $160,000 had been expended for repairs by the City’s Department of Housing Preservation and Development (HPD) under its RPAPL article 7-A Financial Assistance Program (FAP). After notice to plaintiff, as record owner, that liens in the amount of $160,000 would be filed against the premises and the passage of more than 30 days for satisfaction of the lien amount, HPD filed a lien against the property, which was registered as due and payable on the City’s Department of Finance records as of May 28, 1994.

Plaintiff had been represented by an attorney, Doyle, in the negotiations for the purchase of the property and closing thereon in August 1993. When plaintiff thereafter, alleging waste, moved, pro se, to remove the 7-A administrator, the latter was represented by the same Mr. Doyle. Over HPD’s objection and with Doyle’s consent on the administrator’s behalf, the administrator was removed. Defendants successfully moved to disqualify Doyle on the ground that he was an essential witness on the question of plaintiff’s standing as a bona fide purchaser. While Doyle, at his deposition, admitted that he had discussed the presence of a 7-A administrator at the premises before plaintiff made his offer to purchase, he denied ever discussing the subject of FAP expenditures with respect to the building.

When plaintiff moved for partial summary judgment seeking discharge of the liens, the City defendants cross-moved for summary judgment dismissing the complaint on the ground of untimeliness. They also argued, given the inconsistencies in Doyle’s testimony at his pre-trial deposition, that there were questions of fact as to whether “Doyle knew of the expenditure of 7A Financial Aid funds at the premises prior to plaintiff’s purchase.” The City defendants also argued that the knowledge of Doyle, plaintiff’s agent in the purchase of the subject premises, should be imputed to plaintiff. The IAS Court granted the motion and denied the cross-motion. Both motions should have been denied, and we modify accordingly.

Although it is undisputed that the City defendants failed to follow the procedures contained in Administrative Code of the City of New York § 27-2144 (b) procedures governing article 7-A lien filing and enforcement, which require the filing of “an entry of the account stated” in the office of the City Collector, not having filed the same until after plaintiff’s purchase of the property, this record, contrary to the IAS Court’s finding, does not conclusively establish that plaintiff was a good faith purchaser. As plaintiff’s pre-purchase title search showed, a lis pendens had been filed against the premises in the proceeding leading to the appointment of a 7-A administrator. Plaintiff’s deposition testimony that he did not make any inquiries as to the physical or financial condition of the building itself raises a question as to his actual or constructive knowledge of the true state of affairs. Since Doyle was acting simultaneously as an attorney for plaintiff and the 7-A administrator, his knowledge of the operative events is imputed to plaintiff, his principal. This is so even if Doyle never communicated those facts to plaintiff, since, as this record shows, he was acting within the scope of his agency. (Center v Hampton Affiliates, 66 NY2d 782, 784.) The knowledge that the 7-A administrator was using HPD funds on repairs at the premises had been brought to Doyle’s attention during the proceeding for the removal of the 7-A administrator. In addition, Doyle is charged with the knowledge that under RPAPL 778, moneys expended for repairs by HPD constitute a lien upon the premises. These circumstances raise questions as to plaintiff’s knowledge of HPD’s involvement in the building repairs sufficient to warrant a trial.

The dissent concludes that there is no question as to whether plaintiff was a subsequent purchaser in good faith since plaintiff, having acquired title to the property before the liens were filed, is not even a subsequent purchaser. While plaintiff may have acquired title to the property before the liens were filed, the lien was created before the formal filing (see, RPAPL 778 [1]) and before plaintiff took title to the property. Thus, it is indeed appropriate to question whether, prior to purchasing the property, plaintiff was aware that HPD funds had been expended on repairs and that a lien, although not yet enforceable, had been created with respect to the funds so expended.

The dissent asserts — making an argument not even suggested by plaintiff — that it is illogical to take the position that the City’s liens “are effective retroactive to the time of purchase for the purpose of encumbering plaintiffs title,” yet ineffective for the purchase of discharge under the terms of an in rem installment agreement between plaintiff and the City. First of all, the dissent distorts the import of the in rem installment agreement between the City and plaintiff by asserting that it settles all outstanding liens between the parties. That agreement did not purport to act as a general release of all liens against the property. It provided for an initial payment and quarterly installments thereafter, commencing on January 1, 1994, stating that “when all payments required under [the] agreement have been made, the property shall be withdrawn from the In Rem Tax Foreclosure Action.” There is nothing in the record which shows that the required payments were made or that the liens were discharged. The latter would not occur until, at the earliest, January 1, 1995, “when all payments required under [the] agreement have been made.” Since the liens which are the subject of this action were placed against the property on or about May 28, 1994, prior to January 1, 1995, they were not discharged by the in rem installment agreement.

In any event, our conclusion is not that the liens “are effective retroactive to the time of purchase for the purpose of encumbering plaintiffs title,” but rather, as noted, that, in view of the fact that the lien was created before the formal filing, it is appropriate, in deciding whether plaintiff was a subsequent purchaser in good faith, to consider whether, prior to his purchase of the property, plaintiff was aware of the expenditure of HPD funds.

The dissent argues that RPAPL 778 (l)’s reference to the “owner” with respect to the debt that gives rise to the automatic lien is limited in application to the owner at the time of the repairs. The statutory “owner,” however, includes, upon a timely and proper filing of the lien, a subsequent owner, as Administrative Code § 27-2144 (b) expressly recognizes: “[N]o lien created pursuant to this chapter shall be enforced against a subsequent purchaser in good faith or mortgagee in good faith.” Thus, section 27-2144 gives tacit recognition of the lien’s enforceability against a subsequent purchaser who does not qualify as a good faith buyer.

Nor is there any merit to the dissent’s further argument that RPAPL 778’s automatic lien violates plaintiffs State constitutional due process rights. The short answer is that, if plaintiff is not a subsequent purchaser in good faith, he acquires no greater rights in the property than his assignor, who had notice of the proceedings and an opportunity to be heard in opposition to the expenditures. The dissent’s citations in support of this argument (Matter of Department of Bldgs. [Philco Realty Co.], 14-NY2d 291, 299-300; Matter of City of New York v Chmielewski, 29 AD2d 862) are inapposite. Each of these cases dealt with the effect of the appointment of a receiver of rents for the purpose of remedying conditions of disrepair at the subject premises with respect to a mortgagee whose perfected lien, to a limited extent, would be subordinated to the lien for repairs. Needless to say, the interest of the mortgagee, in such circumstances, would squarely implicate due process concerns. For the reasons already expressed, such concerns are not at issue here.

We reject the City defendants’ argument that this action should be dismissed as barred by the four-month Statute of Limitations applicable to CPLR article 78 proceedings. Plaintiff was not constrained to bring this matter in the nature of an article 78 proceeding. The applicable time limitation for a slander of title action is one year (CPLR 215 [3]; see, Hanbidge v Hunt, 183 AD2d 700). This action was commenced well within the one-year period. Concur — Sullivan, P. J., Tom and Buckley, JJ.