Real Property Law Section Blog

Plaintiff 2386 Creston Avenue Realty, LLC ("Creston") entered into a contract with Defendant M-P-M Management Corp. ("MPM") to purchase from MPM property in Bronx County. The closing was adjourned to enable MPM (as provided in the contract) to clear outstanding municipal violations, However, in January 2005, MPM contracted to sell the same property to Defendant Pioneer Parking LLC ("Pioneer"). On February 14, 2005, MPM cancelled its contract with Creston, and on February 14, 2005 MPM deeded the property to Pioneer. Also, on February 14, 2005, Creston filed a notice of pendency against the property and commenced an action for specific performance. The deed was recorded on March 1, 2005.

Defendant Pioneer's motion for summary judgment dismissing the complaint against it and vacating the notice of pendency was granted by the Supreme Court, Bronx County. Absent admissible evidence suggesting Pioneer was aware of the other contract, Pioneer was a bona fide purchaser for value without notice protected under New York's Recording Act (Real Property Law Section 291 ("Recording of Conveyances").

On appeal, Plaintiff alleged that the filing of a lis pendens protected its rights as a contract vendee. The Appellate Division, First Department, disagreed and affirmed the ruling of the lower court, holding that "a contract vendee such as plaintiff does not, by virtue of the filing of a notice of pendency, create an interest in real property superior to a subsequent good faith purchaser from the same vendor who records a contract or conveyance". According to the Appellate Division, citing Real Property Law Section 294(3) ("Recording executory contracts and powers of attorney"), "[e]very executory contract for the sale...of real property, not recorded, shall be void as against any person who subsequently purchases or…contracts to purchase…the same real property", and the filing of the lis pendens "does not create rights that did not already exist". 2386 Creston Avenue Realty, LLC v. M-P-M Management Corp., decided November 18, 2008, is reported at 2008 WL 4911799.

2008 Amendment to Regulation X of the Real Estate Settlement Procedures Act

A final rule made extensive amendments in 2008 to the disclosure requirements of Regulation X. 73 Fed. Reg. 68204 (Nov. 17, 2008). The amendments were designed to protect consumers from unnecessarily high settlement costs by taking steps to: (1) improve and standardize the Good Faith Estimate (GFE) form (completely revised, with a new third page of instructions, tradeoff tale and shopping chart) to make it easier to use for shopping among settlement service providers; (2) ensure that page 1 of the GFE provides a clear summary of the loan terms and total settlement charges; (2) improve disclosure of yield spread premiums (YSPs) to help borrowers understand how YSPs can affect settlement charges; (3) facilitate comparison of the GFE and the HUD-1/HUD-1A Settlement Statements on page 2 of the HUD-/HUD-1A forms; (4) ensure that at settlement borrowers are aware of final costs; (5) clarify HUD-1 instructions; (6) expressly state that RESPA permits the listing of an average charge on the HUD-1/HUD-1A; and (7) strengthen the prohibition against requiring the use of affiliated businesses. Among other things, the HUD-1HUD-1A must state the agent’s and underwriter’s portion of the total title insurance premium. The new third page of the HUD-1/HUD-1A form includes a comparison of the GFE and HUD-1 charges and a summary of the loan terms. The HUD-1/HUD-1A specifies charges that cannot increase, charges that in total cannot increase more than 10%, and charges that can change. Lenders and settlement service provides may correct potential violations of the new disclosure and tolerance requirement and will have 30 days form the closing to correct errors or violations and repay consumers any overcharges. The proposal for a script to be read by the closer at the closing was abandoned. Compliance with the new requirements for the GFE and settlement statements is not required until January 1, 2010, but certain other provisions are effective on January 16, 2009.

Posted on behalf of Karl B. Holtzschue

2008 Amendment to Regulation Z of the Truth in Lending Act

TILA was amended by the Mortgage Disclosure Improvement Act of 2008 (P.L. 110-289) to require additional disclosures for loans secured by the dwelling of a consumer where the annual rate of interest is variable. Regulation Z was amended by final rule on July 30, 2008. 73 Fed. Reg. 44522 (July 30, 2008). The final rule adds four key protections for a newly defined category of “higher-priced mortgage loans” secured by a consumer’s principal dwelling: (1) prohibiting a lender from making a loan without regard to the borrower’s ability to repay the loan from income and assets other than the home’s value: (2) requiring creditors to verify the borrower’s income and assets; (3) banning any prepayment penalty if the payment can change in the initial four years; and (4) requiring creditors to establish escrow accounts for property taxes and insurance of all first-lien mortgage loans. In addition, as to all loans secured by a consumer’s principal dwelling, the rule bans misleading advertisements and abusive servicing practices and requires a transaction-specific good faith estimate (GFE) disclosure within three business days after application. The new rules take effect on October 1, 2009, except for the escrow requirement, which will be phased in during 2010.

Posted on behalf of Karl B. Holtzschue