Real Property Law Section Blog

At a meeting today with a committee of the New York State Land Title Association, the City Register announced a new policy for the return of original recorded documents. This policy will be in effect for all documents submitted for recording after June 1, 2008, including all documents rejected prior to that date which are re-submitted for recording after June 1.

It has been the practice of the City Register's offices to return all recorded documents by mail that are not picked-up by the company which submitted them, or by its designee, without further charge.

A document submitted for recording (or re-recording) after June 1 that is not picked-up within ten business days of recording will be returned to the person noted on the ACRIS Recording and Endorsement Cover Page as the addressee for the return of the document only if the Register's Office is provided when the document is submitted either (i) a stamped, addressed return envelope or (ii) an overnight delivery service envelope with a label (such as a Federal Express "US Airbill") completed with the address of the recipient and a billing account number.

Otherwise, after ten business days from the date of its recording, the original recorded document will be destroyed by the Register's Office.

The City Register's office is responsible for real property recordings in all counties of the City of New York other than Richmond County (Staten Island).

The Board of Governors of the American Land Title Association (“ALTA”) has voted to withdraw its ALTA Form 21 Endorsement (the “Creditors’ Rights” Endorsement) from use effective as of March 8, 2010. The California Land Title Association has also decertified its version of the ALTA 21 Endorsement. Filed Creditors’ Rights endorsements have been withdrawn in Pennsylvania and New Jersey and withdrawal of the endorsements is being considered in a number of other states. A creditors’ rights endorsement has not been available in New York, New Mexico and Texas. First American and a number of other title insurers have announced that they will no longer afford creditors’ rights coverage outside of the coverage expressly afforded within the Covered Risks of the 2006 ALTA Policies.

The 2006 ALTA Policies insure, in the Owner’s Policy, against loss or damage sustained or incurred by the Insured by reason of “title being vested other than as stated in Schedule A or being defective” and, in the Loan Policy, against “(t)he invalidity, unenforceability, lack of priority, or avoidance of the lien of the Insured Mortgage upon the title,

(a) as a result of [resulting from] the avoidance in whole or in part, or from a court order providing an alternative remedy, of any transfer of all or any part of the title to or any interest in the Land occurring prior to the transaction vesting Title as shown in Schedule A [creating the lien of the insured mortgage] because that prior transfer constituted a fraudulent or preferential transfer under federal bankruptcy, state insolvency, or other similar creditors’ rights laws; or

(b) because the instrument of transfer vesting Title as shown in Schedule A [the Insured Mortgage] constitutes a preferential transfer under federal bankruptcy, state solvency, or similar creditors’ rights laws by reason of the failure of its recording in the Public Records (i) to be timely, or (ii) to impart notice of its existence to a purchaser for value or to a judgment or lien creditor”.

Articles of Organization (“Articles”) for a newly formed limited liability company (the “LLC”), formed by a son and the daughter of the grantor of the deed in question, were executed on October 4, 2001 but not filed with New York’s Department of State (“Department”) until November 16, 2001. On November 2, 2001, before the Articles were filed, the mother of the two persons above-referenced executed a deed transferring the ownership of certain property to the LLC. The deed was recorded on December 3, 2001.

After the grantor died, representatives of the children of two predeceased children of the grantor asserted that the property was not properly conveyed to the LLC and should be distributed as an asset of the Estate. The Surrogate’s Court, Kings County, held that the conveyance was valid, holding that the LLC was operated as a valid “de facto” company prior to the filing of the Articles. The “de facto” company doctrine, traditionally applicable to corporations, applies “where there exists (1) a law under which the corporation might be organized, (2) an attempt to organize the corporation, and (3) an exercise of corporate powers thereafter”.

The Appellate Division, Second Department, reversed the Order of the Surrogate, holding the conveyance to be void because there was no attempt to file the Articles before the deed was executed. The Court of Appeals affirmed. According to the Court, while the de facto corporation doctrine applies to limited liability companies, “the formation of a de facto company requires a ‘colorable attempt to comply with the statutes governing incorporation’ prior to the exercise of corporate powers, including the filing requirement”. In this case, there was no bona fide attempt to file the Articles before the deed was executed. “Because an entity that is neither de facto nor de jure cannot take title to real property [citation omitted], there was no entity in existence capable of receiving title to the real property and the purported conveyance is therefore void”. Estate of Hausman, decided December 1, 2009, is reported at 13 N.Y. 3d 408.

Sales and Compensating Use Tax – New York State’s Department of Taxation and Finance has issued a Memorandum dated July 19, 2010 captioned “Sales and Compensating Use Tax Treatment of Certain Information Services”. According to the Memorandum, “[a]s a general rule, furnishing information created or generated from a common database, or information that is widely accessible, is a taxable information service”. The following are among the services listed in the Memorandum as being taxable information services for which sales tax must be collected, commencing September 1, 2010:

•“public records furnished (electronically or in paper format) by a private entity, such as a document retrieval service (examples include real property deeds…however, public records sold by a governmental entity, such as a county clerk, are not subject to tax…) as an “information service”

•“real property information databases…”

The Memorandum specifically deals with abstracts of title:

“..beginning on September 1, 2010, the sale of an abstract of title to real property is the sale of taxable information services. This includes the sale of an abstract of title to either a prospective purchaser of real property or to an attorney representing a prospective purchaser. However, opinions of title offered by an attorney are considered legal services and are not subject to tax. Therefore, the sale of an abstract of title to an attorney for use in conjunction with rendering an opinion of title or providing other legal services is a retail sale subject to sales tax as described herein.”

TSB-M-10(7)S is posted on the Department’s web site at
http://www.tax.state.ny.us/pdf/memos/sales/m10_7s.pdf