Hyperlawhypertext legal databasebeta Rosenbaum v. City of New York 96 N.Y.2d 468

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Rosenbaum v. City of New York

96 N.Y.2d 468 Court N.Y. Decision date 2001-07-05 English

Delivered by Rosenblatt, J.

Contents

Majority

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[756 NE2d 62, 730 NYS2d 774]
Harold Rosenbaum, Appellant, v City of New York et al., Respondents.
Argued May 30, 2001;
decided July 5, 2001
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POINTS OF COUNSEL
Derfner & Mahler, L. L. P., New York City (Peter A. Mahler of counsel), for appellant.
I. Plaintiff is not a “subsequent purchaser” under the plain terms of Housing Maintenance Code § 27-2144 (b). (Matter of 440 E. 102nd St. Corp. v Murdock, 285 NY 298 ; Matter of Monument Garage Corp. v Levy, 266 NY 339 ; Witter v Taggart, 78 NY2d 234 ; Eltman v Harvey, 93 Misc 2d 634 ; Doreo v Doreo, 198 Misc 445 .) II. The in rem installment agreement precludes enforcement of the liens. III. The City did not raise any genuine issues of fact concerning plaintiffs good faith. (Zuckerman v City of New York, 49 NY2d 557 ; Corporation of Presiding Bishop of Church of Jesus Christ of Latter-Day Sts. v Solow Bldg. Corp., 52 AD2d 533 ; 5303 Realty Corp. v O & Y Equity Corp., 64 NY2d 313 ; Hercules Chem. Co. v VCI, Inc., 118 Misc 2d 814 ; Da Silva v Musso, 76 NY2d 436 ; First Natl. City Bank v Tara Realty Corp., 64 AD2d 460 , 48 NY2d 793 ; Constant v University of Rochester, 111 NY 604 ; Denton v Ontario County Natl. Bank, 150 NY 126 ; Mathews v Damainville, 100 App Div 311 ; Manning v Brown, 91 NY2d 116 .) IV. Fundamental fairness and due process bar extension of an “automatic” lien under RPAPL 778 to a future owner. (Central Sav. Bank v City of New York, 279 NY 266 ; Matter of Department of Bldgs. [Philco Realty Corp.], 14 NY2d 291 ; Matter of City of New York v Chmielewski, 29 AD2d 862 ; Matter of Coates v Walters, 9 NY2d 242 , 368 US 34 ; People v Finkelstein, 9 NY2d 342 ; Garden Homes Woodlands Co. v Town of Dover, 95 NY2d 516 ; Mullane v Central Hanover Bank & Trust Co., 339 US 306 ; Mathews v Eldridge, 424 US 319 ; Mennonite Bd. of Missions v Adams, 462 US 791 ; Stuart v Palmer, 74 NY 183 .)
Michael D. Hess, Corporation Counsel of New York City (Tahirih M. Sadrieh and Edward F.X. Hart of counsel), for respondents.
I. The court below properly found a question of fact as to whether plaintiff was a subsequent purchaser in good faith entitled to the protection of Administrative Code § 27-2144 (b). Accordingly, the order of the court below should
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be affirmed. (Meth v Kolker, 39 AD2d 651 , 33 NY2d 780 ; Long Is. R. R. Co. v Northville Indus. Corp., 41 NY2d 455 ; Teichman v Community Hosp., 87 NY2d 514 ; Albert Pipe Supply Co. v Callanan, 159 Misc 547 ; Engelhardt v Alvino Realty Co., 248 NY 374 ; Roby v Baker, 78 AD2d 918 ; Matter of Oxford Distrib. Co. v Famous Robert’s, 5 AD2d 507 ; Sheldon v Wickham, 161 NY 500 ; United Matura Realty v Reade Indus., 155 AD2d 660 ; Yen-Te Hsueh Chen v Geranium Dev. Corp., 243 AD2d 708 .) II. The in rem installment agreement has no effect on the enforceability of the liens at issue. (Department of Hous. Preservation & Dev. v 849 St. Nicholas Equities, 141 Misc 2d 258 .) III. The enforcement of the liens at issue against plaintiff does not violate due process.
Carb, Luria, Cook & Kufeld, L. L. P., New York City (James E. Schwartz and Carol W. Duffy of counsel), for New York State Land Title Association, amicus curiae.
I. At the time of plaintiff’s purchase, there was no article 7-A lien on the property, meaning that he was a prior purchaser. (Matter of Bloomingdale Bros. v Chu, 70 NY2d 218 ; Kiamesha Dev. Corp. v Guild Props., 4 NY2d 378 .) II. Even if plaintiff were a subsequent purchaser, he is a purchaser in good faith within the meaning of the statute. (Department of Hous. Preservation & Dev. v 849 St. Nicholas Equities, 141 Misc 2d 258 .) III. The notice of pendency was insufficient to place a purchaser on notice that a 7-A administrator had borrowed funds from the financial assistance program. (Lake Louise Marie Community Assn. v Lake Louise Marie Corp., 25 AD2d 475 ; First Natl. City Bank v Tara Realty Corp., 64 AD2d 460 , 48 NY2d 793 ; Da Silva v Musso, 76 NY2d 436 .) IV. The in rem agreement precludes enforcement of this lien against the premises. (Department of Hous. Preservation & Dev. v 849 St. Nicholas Equities, 141 Misc 2d 258 .)

OPINION OF THE COURT

RPAPL article 7-A provides a legal means of remedying dangerous conditions in multi-dwelling apartment buildings. When a court determines that a dangerous condition exists, it is authorized to appoint an Administrator to oversee rehabilitation of the building. The 7-A Administrator can borrow money from the New York City Housing Preservation and Development Agency to finance the repairs. Under the statutory scheme, the City is able to secure these loans with liens

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against benefitted buildings. In this case, we must determine whether the City created liens enforceable against plaintiff, the building owner.

The subject property is a 26-unit residential apartment building in the Bronx. In May 1991, Civil Court found that a dangerous condition existed and appointed a 7-A Administrator. The Administrator applied to HPD’s 7-A Assistance Unit for a loan to rehabilitate the building, and after an inspection of the premises, HPD approved a $160,000 loan in August 1991. HPD made the loan in increments but did not file in its public record any purchase or work orders in connection with the loan. The work was completed by February 1993. In the interim, ownership of the property changed after a foreclosure sale.

The new owner, Symcam Ltd., held, the building until it filed for chapter 7 bankruptcy. The trustee then put the premises up for sale. In July 1993, plaintiff learned that the building was on the market. He obtained a title report, which contained nothing regarding the 7-A loan. In August 1993, plaintiff bought the building for $5,000.

In May 1994, HPD filed a statement of account with the city collector for the $160,000 7-A loan. The city collector then asserted liens against the building in that amount. Plaintiff commenced this action to discharge the liens, claiming they were void. He also sought damages. Plaintiff argued that when he bought the building, the liens had not yet been created and therefore he could not have taken title subject to them. He moved for summary judgment on the cause of action seeking discharge of the liens, which Supreme Court granted. The Appellate Division modified, holding that there was a triable issue of fact as to plaintiff’s pre-purchase knowledge of HPD’s involvement in repairs to the premises. According to the majority, had plaintiff known about the 7-A loans, he could not have been a good-faith purchaser and would have taken title subject to the then-existing liens arising out of the 7-A loans to the Administrator. Two Justices dissented, asserting that the liens did not come into existence until after plaintiff purchased the property and he therefore took title free and clear. We now reverse, although our analysis differs from that of the dissenting Justices.

Under article 7-A, one-third of the tenants in a given building or the Commissioner of HPD can bring a special proceeding against an owner of a multi-dwelling apartment building alleging the existence of a dangerous condition (RPAPL 770). Upon

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finding that a condition “dangerous to life, health or safety” exists, a Judge can appoint a 7-A Administrator who, in essence, becomes responsible for rehabilitating the building (RPAPL 776). Subject to the court’s direction, the 7-A Administrator is empowered to order “the necessary materials, labor and services to remove or remedy the [dangerous] conditions,” demand, collect and receive rents from the tenants, institute all necessary legal proceedings and rent or lease space in the building (RPAPL 778).

Section 778 further authorizes the 7-A Administrator to borrow money from HPD “for the purpose of replacing or substantially rehabilitating systems or making other repairs or capital improvements” (RPAPL 778). Under section 778, “[a] 11 moneys expended by [HPD] * * * shall constitute a debt recoverable from the owner and a lien upon the building and lot, and upon the rents and other income thereof.” Critically, the statute provides that “[s]uch lien shall be enforced in accordance with the provisions of article eight of subchapter five of the [New York City] housing maintenance code” (RPAPL 778).

Article eight, subchapter five, section 27-2144 of the Housing Maintenance Code sets forth the procedure for creating 7-A liens against premises and the extent to which those liens are enforceable. Subdivision (b) provides that

“[a] 11 expenses incurred by [HPD] for the repair or the elimination of any dangerous or unlawful conditions therein * * * shall constitute a lien upon the premises when the amount thereof shall have been definitely computed as a statement of account by [HPD] and [HPD] shall cause to be filed in the office of the city collector an entry of the account stated in the book in which such charges against the premises are to be entered” (Administrative Code of City of NY § 27-2144 [b] [emphasis added]).

Subdivision (b) further provides, however, that “no lien created pursuant to this chapter shall be enforced against a subsequent purchaser in good faith * * * unless the requirements of subdivision a * * * are satisfied.” Subdivision (á) requires that HPD file in its own records any purchase and work orders it has approved in connection with a 7-A loan within 30 days after approval. Such records must be kept on a building-by-building basis and be accessible to the public. The filings “shall constitute notice to all parties.” Finally, subdivision (b) states that “this limitation shall only apply to transac

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tions occurring after the date such record should have been entered pursuant to subdivision a and the date such entry was made.”

This appeal turns on how and when a 7-A lien is created and when a purchaser is put on notice of the forthcoming lien. The legislative history is instructive. Prior to 1974, the City filed mechanics’ liens to secure money it spent to repair dangerous conditions in multi-dwelling apartment buildings (see, Administrative Code former § D26-57.03). Under the former statute, the City had no better way to protect its interest. This device, however, proved inadequate because benefitted buildings were often encumbered by considerable debt — to which the City’s interests would have been junior (see, Tr of public hearing before City Council Housing and Buildings Committee, Dec. 17, 1974).

To afford the City greater protection, the City Council enacted section 27-2144, which changed the status of its lien from a mechanic’s lien to a super-priority lien that “shall have a priority over all other liens and encumbrances on the premises except for the lien of taxes and assessment” (see, § 27-2144 [b]; see also, Bagwell, New York City ‘Super Liens,’ NYLJ, Aug. 9, 1999, at SI). Moreover, the enactment takes into account a concern expressed by the title insurance industry over the prospect of liens that would not be revealed in a title search. Responsive to this point, the legislation requires the City to place prospective good-faith purchasers on notice of forthcoming super-priority liens by filing, purchase or work orders in the building-by-building index in HPD’s offices.[1]

The lien is created when HPD’s expenditures “shall have been definitely computed as a statement of account by [HPD] and [HPD] shall cause to be filed in the office of the city collector an entry of the account stated” (§ 27-2144 [b]). To take priority over liens and encumbrances arising after the issuance of purchase or work orders, HPD must file those purchase and work orders in its own building-by-building index in accordance with section 27-2144 (a). This furnishes notice to prospective purchasers and lenders that public monies have been spent and a lien is forthcoming. If HPD fails to furnish this no

* Even after the City enacted the present super-lien provision under section 27-2144, article 7-A liens under the RPAPL continued to hold the status of mechanics’ liens. In 1985, 11 years after section 27-2144’s enactment, the State Legislature amended the RPAPL to give 7-A liens “super-priority” status (L 1985, ch 456).

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tice, the forthcoming lien cannot be enforced retroactively against them provided they took in “good faith” (§ 27-2144 [b]).

In the case before us, the City concededly failed to file any purchase or work orders but claims nonetheless that plaintiff had actual knowledge of 7-A loans and therefore was not a “purchaser in good faith.” The City, however, has failed to raise a triable issue of fact as to plaintiffs actual notice and therefore we need not address whether he would be subject to the lien had he known of the loans. The purpose of the recording requirement of section 27-2144 (a) is to provide a uniform system by which purchasers are given constructive notice of forthcoming 7-A liens which would be given retroactive effect. To render the lien retroactively enforceable, the City need only follow the dictates of the statute. It did not do so here.

Lastly, we share the observation of amicus that the statutory scheme, to put it mildly, “is not a model of clarity.” The writings at the Appellate Division and the widely varying viewpoints of the parties — not to mention the provisions themselves — reveal as much. We respectfully suggest that the appropriate legislative bodies revisit this statutory scheme to clarify its purpose and design.

Accordingly, the order of the Appellate Division should be reversed, with costs, summary judgment on plaintiffs first cause of action granted and the certified question answered in the negative.

Chief Judge Kaye and Judges Smith, Levine, Ciparick, Wesley and Graffeo concur.

Order reversed, with costs, plaintiffs motion for summary judgment on his first cause of action discharging the liens of the City of New York granted and certified question answered in the negative.

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