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Buyer Comes Up Short in Breach of Contract Action, Where Short Sale Approval by Mortgagee Was Condition Precedent to Sale of Property

Posted in Attorneys' Fees, Banking, Breach of Contract, Demarest, Carolyn E., Kings, Motion to Dismiss, Real estate

In a December 3, 2015 Commercial Division decision by Justice Demarest, the court dismissed a complaint in its entirety that alleged a breach of a contract for the sale of real property, and cancelled the corresponding notice of pendency filed against the subject property by the plaintiffs. 

The defendant (“Hunt”) was the owner of real property in Brooklyn that she purchased in 2000, financed with a $122,600 purchase money mortgage from the seller. In 2007, when Hunt sought to refinance the property in order to make renovations and to pay off the purchase money mortgage, she allegedly became the victim of a fraudulent “sale leaseback” scheme, in which a person named Desmond Grenardo (“Grenardo”), told her to sell the property to an entity of his creation, 1052 Greene Avenue Associates, Inc. (“Greene Associates”), so that she could use the proceeds of the sale to pay off her purchase money mortgage, make the desired renovations, and remain in the property as an occupant until she could buy it back from Greene Associates at a later date.

Based on this, Hunt sold the property to Greene Associates in 2008, and Grenardo, in furtherance of his fraudulent scheme, immediately obtained a mortgage against the property for $483,000 (the “mortgage”), which was subsequently assigned to Bayview Loan Servicing (“Bayview”). In 2012, Bayview filed a foreclosure action against Greene Associates, Hunt, and others, alleging that Greene Associates failed to make its mortgage payments. In her answer, Hunt claimed that the mortgage was not valid and that the deed that gave title of the property to Greene Associates was similarly void. The court ultimately granted Hunt rescission of the deed that transferred title of the property to Greene Associates, however also held that Hunt’s interest in the property remained subject to the mortgage, as the mortgagee (Bayview) had neither constructive nor actual knowledge that the transfer to Greene Associates had been fraudulently induced.

The plaintiff in this case, Weinstock, was thereafter interested in buying the property and so contacted Hunt in order to arrange for a “short sale” transaction with Bayview. In April 2014, Hunt (as seller) and Weinstock (as buyer) executed a contract that provided for a purchase price of $300,000, and in November 2014, a Rider to Contract that, among other things, contained a “Mortgage Approval” section which stated that Hunt’s obligation to sell was contingent upon Bayview’s agreement in writing to issue a mortgage satisfaction in exchange for the funds from the sale, i.e., $300,000. The contract also contained a “Closing” section, which stated that the closing would occur within 10 days of Hunt’s receipt of Bayview’s short sale approval. Bayview eventually offered a discounted payoff amount of $310,000, and Hunt indicated a willingness to proceed with the sale anyway, however later decided to cancel the contract because a personal injury judgment against her was clouding title to the property.

Weinstock then brought a breach of contract action, seeking specific performance of the contract, legal fees, and lost profits based on the investment value of the property. First, the court analyzed whether the Mortgage Approval provision in the Rider constituted a condition precedent to performance. The court relied on the general rule that “it must clearly appear from the agreement itself that the parties intended a provision to operate as a condition precedent,” and held that “the very face” of the Rider reflects the parties’ understanding that the closing would not occur absent the approval of the short sale. Since Bayview only agreed to a short sale of $310,000 and the sale price in the contract was for $300,000, Hunt did not obtain the approval required by the contract and as such was entitled to cancel it.

As an alternative, Weinstock argued that Hunt effectively waived the Mortgage Approval section of the contract. The court was not convinced by this, as the contract provides that no provision could be waived except by a signed writing, which did not exist in this case. Weinstock further argued that Hunt’s cancellation of the contract is moot because he stands ready, willing, and able to satisfy payment of the mortgage. The court found this argument similarly unavailing, as he presented no proof that he possessed the necessary funds or that he agreed to pay as much prior to Hunt’s cancellation of the contract. Last, the court denied Weinstock’s claim for attorney’s fees, as “in the absence of any statute providing for the recovery of attorneys’ fees, such fees may only be recovered if they are contractually authorized,” and in this case the contract did not provide for payment of attorney’s fees. As both the Mortgage Approval and Closing sections of the contract reflected that the short sale approval by Bayview was a condition precedent to performance under the contract, the court dismissed the complaint in its entirety.

Weinstock v Hunt, Kings County, December 3, 2015, Demarest, J., Index No. 505193/2015