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New York Federal Court Dismisses Action Against Title Insurer Under Exclusion 3(a)

Month: May 2019

New York Federal Court Dismisses Action Against Title Insurer Under Exclusion 3(a)

Posted on by rd_admin

The United States District Court for the Southern District of New York recently dismissed a coverage action brought against a title insurance company and found that the insured’s claims were barred under Exclusion 3(a) because the insured had created them through its agreement with third parties.  See 3 W. 16th St., LLC v. Commonwealth Land Title Ins. Co., 2019 WL 1397135 (S.D.N.Y. Mar. 28, 2019).   In the case, plaintiff purchased a property in 2006.  The defendant title insurance company issued a title insurance policy to plaintiff in connection with the purchase.  In 2006, Plaintiff also allegedly entered into an agreement with other parties in which it agreed to donate certain floors of the property to them.  In 2008, plaintiff was sued by these other parties who claimed that plaintiff had violated the 2006 agreement and failed to donate the floors to them.  Plaintiff filed a claim with defendant, but defendant denied it based on Exclusion 3(a), which excludes “[d]efects, liens, encumbrances, adverse claims or other matters [ ] created, suffered, assumed or agreed to by the insured claimant.”  Plaintiff then brought this action seeking coverage, and defendant moved to dismiss.

The Court granted defendant’s motion to dismiss.  Although plaintiff acknowledged that Exclusion 3(a) barred any claims arising out of the 2006 agreement, it argued that some of the claims related to the other parties’ “alleged decades-old, pre-2006 equitable ownership interest” in the property, and therefore were not subject to Exclusion 3(a).  The Court rejected this argument, finding that the complaint seeks to quiet title solely based on the 2006 agreement, and that the alleged pre-2006 equitable interest “was considered by and subsumed into the 2006 Agreement upon which the Underlying Action’s claims are premised. Indeed, the entire purpose of the 2006 Agreement was to recognize [the other parties’] claimed equitable interest in the Building via a promise by Plaintiff to donate” certain floors of the property.  Thus, the Court found that there was no duty to defend and dismissed the action.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

New York Federal Court Dismisses FDCPA Action, Holds Debt Collector Used Safe Harbor Language

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The United States District Court for the Eastern District of New York recently dismissed an action against a debt collector under the Fair Debt Collection Practices Act (“FDCPA”) because the debt collector had used safe harbor language approved by the Second Circuit.  See Taubenfliegel v. United Collection Bureau, Inc., 2019 WL 1934519 (E.D.N.Y. May 1, 2019).  In the case, the debt collector sent a debt collection letter to plaintiff that set forth the balance due as of the date of the letter.  It further stated:  “Because of interest and/or other charges that may vary from day to day, the amount due on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after your payment is received. For further information, you may write to our office or call the telephone number within this communication.”  Plaintiff brought this action under the FDCPA, claiming that the letter “omits information allowing the least sophisticated consumer to determine the minimum amount he or she owes at the time of the notice, what he or she will need to pay to resolve the debt at any given moment in the future, and an explanation of any fees and interest that will cause the balance to increase.”  The debt collector moved to dismiss the action.

The Court granted the debt collector’s motion.  In Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, & Clark L.L.C., 214 F.3d 872, 876 (7th Cir. 2000), the Seventh Circuit provided safe harbor language that would satisfy the debt collector’s duty to provide the amount due in a situation in which the amount varies from day to day:

As of the date of this letter, you owe $___ [the exact amount due]. Because of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check, in which event we will inform you before depositing the check for collection. For further information, write the undersigned or call 1–800–[phone number].

The Second Circuit has adopted this safe harbor language.  See, e.g., Kolbasyuk v. Capital Mgmt. Servs., LP, 918 F.3d 236, 242 (2d Cir. 2019).  Because the debt collector used this language in the collection letter at issue, the Court found that the letter did not violate the FDCPA and that this action should be dismissed.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

Let There Be Light (& Power): New Jersey Seeks Applications for Community Solar Energy Projects

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The New Jersey Board of Public Utilities (“NJBPU”) is currently accepting applications for “community solar” projects as part of its Community Solar Energy Pilot Program (the “Community Solar Program”).  Community solar projects include solar installations owned and operated by a community as well as installations owned and operated by a third-party that shares electricity with a community.  Participating members of the community (known as subscribers under the Community Solar Program) receive a credit on their utility bills for their participation in a community solar project.  Thus, a community solar project enables access to solar energy to electric utility customers who have previously been unable to participate in solar energy due to a variety of barriers. 

The New Jersey Community Solar Program aims to approve a sizable number of individual community solar projects, each generating up to 5 megawatts of power per year, for a total capacity of 75 megawatts annually.  The NJBPU plans to open two more application windows—one in 2020 and one in 2021—with  the goal of adding at least 75 megawatts of additional capacity each year.  According to the NJBPU, the three year Community Solar Program will generate enough energy to cover the electric usage of 45,000 residences. 

The current open application window provides ample opportunity for developers of all kinds to get involved with solar power.  For example, according to the NJBPU, an applicant may be a project developer, project owner, project operator, municipality, contractor, installer, or site owner.  The application form must be submitted and completed by the close of the application period on September 9, 2019 at 5:00 p.m. in order to be considered for the Program.  The application form contains detailed questions regarding the proposed project.  In fact, among other things, the application form requires the applicant to identify all permits needed for construction and operation of the proposed community solar facility and, in most instances, to meet with the NJDEP Office of Permit Coordination and Environmental Review.  An application that does not completely answer all questions (including the listing of all necessary permits) will be deemed incomplete and will not be considered by the NJBPU for acceptance into the Community Solar Program.

Application will be approved based on a point system to incentivize certain types of projects.  The NJBPU will consider projects in order of highest to lowest total point score until the 75 megawatt limit is reached.  Projects will be scored on the following criteria: 

  • Up to 30 points if 51% or more of the energy capacity is provided to low/moderate income residents.
  • Up to 20 points for projects located on certain property such as landfills, brownfields, areas of historic fill, rooftops, or parking lots.
  • Up to 15 points if the project guarantees savings to customers.  Savings of greater than 10% and flexible cancelation terms for customers receive high preference, while projects that guarantee greater than 5% have medium preference.
  • Up to 10 points for projects with community and environmental justice engagement.  Higher preference is given for partnerships with municipalities, local community organizations, and affordable housing providers, while medium preference is given for a letter of support from a municipality or if the project owner is a government entity.
  • Up to 10 points for projects that provide more than 51% of capacity to residential customers.
  • Up to 10 points for projects that create local jobs, or demonstrate other co-benefits, such as a micro-grid or energy efficiency measures.
  • Up to 5 points if subscribers are limited to the municipality or adjacent municipality in which the project is located.

Projects accepted into the Community Solar Program will be eligible to apply for Solar Renewable Energy Certificates (“SRECs”).  However, developers should note that projects seeking SREC eligibility must apply for SRECs prior to delivering any energy, and must begin commercial operations prior to the NJBPU’s determination that the state has attained 5.1% of kilowatt hours sold in New Jersey from qualifying solar electric power generators when the SREC program closes to new registrations.  In the event that new solar incentives are established before or after the close of the SREC program, it seems likely that these incentives would be available to projects accepted into the Community Solar Program.

For more information, please contact the author Jason M. Boyle at jboyle@riker.com or any attorney in our Environmental Practice Group.

New Jersey Appellate Court Reverses Trial Court, Holds Oral Argument Required on Opposed Motion for Final Judgment on Tax Sale Certificate

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The New Jersey Appellate Division recently reversed a lower court and held that the court was required to hold oral argument on an opposed motion for final judgment foreclosing a tax sale certificate.  See Clarksboro, LLC v. Kronenberg, 2019 WL 2127274 (N.J. Super. Ct. App. Div. May 16, 2019).  In the case, plaintiff brought an action to foreclose a tax sale certificate in 2016.  It named defendant because defendant held a prior tax sale certificate on the property.  Defendant filed an appearance but did not answer.  In 2017, plaintiff moved for final judgment.  Defendant opposed the motion and sought a temporary stay of the action.  Defendant argued that it had previously foreclosed on its tax sale certificate and actually owned the property, and was planning to sell it as soon as it could remediate “extensive environmental problems.”  Defendant also requested oral argument on the motion.  On January 10, 2018, the trial court entered final judgment without holding oral argument, stating that “[d]efendant has not paid the concurrent property taxes although it completed its own foreclosure and has held an unrecorded ownership interest for the past sixteen months since May 2016. Further, [p]laintiff argues that [d]efendant is a large investment fund with financial ability to redeem the tax lien, and that it could easily redeem the tax lien and preserve its interest.”  The order further stated: “Plaintiff did not request oral argument. Defendant opposed and requested oral argument. The court did not hear oral argument pursuant to Palombi v. Palombi, 414 N.J. Super. 274, 997 A.2d 1139 (App. Div. 2010).”

On appeal, the Court reversed.  It held that Rule 1:6-2(d) states that “[i]f the motion involves pretrial discovery or is directly addressed to the calendar, the request [for oral argument] shall be considered only if accompanied by a statement of reasons and shall be deemed denied unless the court otherwise advises counsel prior to the return day. As to all other motions, the request shall be granted as of right.” (emphasis added).  The Palombi decision cited by the trial court refers to a rule in the Family Part that states that oral argument on substantive motions is not required.  Thus, the Court found that the trial court’s citation to Palombi was “insufficient” because this action is governed by Rule 1:6-2, not the Family Part rule.  The Court further found that the trial court “did not provide a case-specific reason for denying oral argument when granting plaintiff’s opposed motion to enter judgment.” Based on this reason alone, the Court reversed the trial court’s order granting final judgment.  Defendant also argued that the trial court’s failure to inform the parties of the January 10 return date was reversible error because defendant had the right to redeem plaintiff’s tax sale certificate until the date of final judgment.  Thus, because defendant did not know when final judgment could have been entered, it did not know its deadline to redeem.  Although the Court agreed that the trial court should have informed defendant of the return date, “this issue was not raised until oral argument before us, [and] we do not decide the matter on that basis.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

New York Appellate Court Holds Insured Owner Not Entitled to Coverage Under Exclusion 3(a) of Title Insurance Policy

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New York’s Second Department Appellate Division recently affirmed that an insured owner was not entitled to coverage under its title insurance policy for an action in which the insured was accused of fraudulently altering the deed.  See Queens Org., LLC v. First Am. Title Ins. Co., 2019 WL 2030322 (2nd Dept. May 8, 2019).  In the case, the plaintiff insured purchased a property and was issued a title insurance policy by the defendant title insurance company.  In 2013, a third party brought a lawsuit against the insured and its principal, alleging that they “recorded a deed that had been fraudulently altered, conveying a 50% interest in the property to the [insured].”  The insurer denied coverage.  The underlying action against the insured eventually was dismissed, and the insured brought this action against the insurer to recover damages for breach of the title insurance policy.  The trial court denied the insured’s motion for summary judgment and granted the insurer’s cross-motion for summary judgment.

On appeal the Court affirmed.  In doing so, the Court reaffirmed that an insurer’s duty to defend is “triggered by the allegations contained in the underlying complaint.”  In this case, the allegations were that the insured was involved in fraudulently altering the deed.  The insurer denied coverage under Exclusion 3(a), which excludes coverage for “(d)efects, liens, encumbrances, adverse claims, or other matters . . . created, suffered, assumed, or agreed to by the Insured Claimant.”  The Court found that “the allegations of the underlying complaint fell entirely within an exclusion of the policy, the exclusion is subject to no other reasonable interpretation, and there is no possible factual or legal basis upon which [the insurer] may eventually be held obligated to indemnify the [insured] under any policy provision.”  Accordingly, the Court affirmed the order granting the insurer’s summary judgment motion.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

Seventh Circuit Holds That Tax Lien With Misspelled Name Was Enforceable Against Alleged Bona Fide Purchaser Without Notice

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The United States Court of Appeals for the Seventh Circuit recently found that the United States of America could foreclose on a tax lien despite the fact that it had misspelled the debtor’s name in the lien and, due to this misspelling, the purchaser of the property was unaware of the lien.  See United States v. Z Inv. Properties, LLC, 921 F.3d 696 (7th Cir. 2019).  Carroll Raines (“Raines”) purchased a home in 1975.  In 2007, he filed income tax returns for 2000, 2001, 2003 and 2004, and the IRS assessed over $100,000 in taxes, penalties and interest.  Raines passed away in 2009 and, in August 2010, the IRS recorded a notice of federal tax lien against him for $115,022.42.  The notice misspelled his first name (“Carrol”) and failed to include a legal description or permanent index number for the home, but it did include the correct address.  In November 2010, Raines’ heirs sold the home to the defendant.  In 2017, the Government brought a foreclosure action based on the tax lien.  The parties cross-moved for summary judgment, with the defendant arguing that the lien is invalid because it misspells Raines’ first name and lacks a legal description or permanent index number for the property. The District Court denied the defendant’s motion for summary judgment and granted the Government’s.

On appeal, the Seventh Circuit affirmed.  Although the Court acknowledged that “[i]n instances where a bona fide purchaser acquires an encumbered property without notice of the attached lien, the lien does not follow the title,” it nonetheless found that the defendant had constructive notice of the misspelled lien.  The District Court had found that the lien did not appear in a search of the county recorder’s database when Raines’ name was spelled correctly, “[b]ut the search did note Raines’ aliases, which include ‘C V Raines’ and ‘Carol Raines.’”  Additionally, the District Court “found that a search for the last name ‘Raines’ with first names beginning with ‘C’ and a ‘sounds like’ search for last names like ‘Raines’ both returned the Lien.”  Thus, the Seventh Circuit found that these “broader searches” would have revealed the tax lien and that “given the low cost and ease of conducting such a search, it is not unreasonable to expect an interested party to conduct a search on one or more of the aliases returned.”   Accordingly, the Court found that the defendant had constructive notice of the lien, and the lien was enforceable.  This decision continues a trend of recent decisions finding that misspellings in tax liens are not fatal, and mandates additional diligence in reviews of judgments and liens.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

New Jersey Passes Sweeping Reforms to the Residential Mortgage Foreclosure Process

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On April 29, 2019, Governor Murphy signed a package of bills into law relating to the residential foreclosure process.  These bills represent a sweeping reform to how lenders must prosecute residential foreclosures going forward.  The bills include:

  • A664:  This bill, effective November 1, imposes a new, $155 mediation-related fee to be paid by the lender upon the commencement of any residential foreclosure action.  $60 will go to the Foreclosure Mediation Program and $95 will go to “reimburse trained foreclosure prevention and default mitigation counselors for their services[.]”
  • A4997: This bill, entitled the “Mortgage Servicers Licensing Act” and effective July 29, imposes a requirement that the Commissioner of Banking and Insurance must issue a mortgage servicer license to an applicant if the Commissioner finds that the applicant demonstrates “financial responsibility,” shown by the applicant’s most recent audited financial statements and by such other information and documents as the Commissioner may require by regulation.  The bill also permits the Commissioner to order that any person who has been found to have knowingly violated the Act and caused financial harm to consumers, be barred from acting as a residential mortgage servicer, residential mortgage lender, residential mortgage broker, or mortgage loan originator. A violation of this final order shall be considered a crime of  the third degree.  A violation of the Act would include the failure to comply with the Real Estate Settlement Procedures Act of 1974, 12 U.S.C. § 2601, et seq., and the Truth-in-Lending Act, 15 U.S.C. § 1601 et seq. Additionally, a violation of any federal law or regulation shall be deemed a violation of the Act and a basis upon which the commissioner may take enforcement.
  • A4999: This bill imposes a new requirement that a creditor that files a residential foreclosure complaint shall provide the full name and contact information for any person or entity retained by the creditor or a representative of the creditor to be responsible for any care, maintenance, security or upkeep of the property. The creditor filing the summons and complaint in an action to foreclose shall be responsible for the care, maintenance, security and upkeep of the exterior of the vacant and abandoned residential property, and if located out-of-state, shall be responsible for appointing an in-state representative or agent to act for the foreclosing creditor. It will be effective July 29 and apply to residential foreclosures commenced on or after that date.
  • A5001:  This bill, effective immediately, revises the statute of limitations for residential foreclosure actions.  Under the prior statute, an action must be brought by the earliest of (i) 6 years from the maturity date; (ii) 36 years from the date of recording (or if the mortgage was not recorded, the date of execution) so long as the repayment period under the mortgage does not exceed 30 years; or (iii) 20 years from the date of default.  N.J.S.A. 2A:50-56.1.  Now, the 20-year period from the date of default has been reduced to 6 years for mortgages executed on or after this statute’s effective date.
  • A5002:  This bill amends the Condominium Act, effective immediately.  The bill clarifies that the association shall have a lien on each unit for any unpaid assessment duly made by the association for a share of common expenses, and upon proper notice to the appropriate unit owner, the lien may include late fees, fines, expenses and reasonable attorney’s fees imposed or incurred in the collection of the unpaid assessment, even if it is not explicitly authorized by the master deed or bylaws of the association. Additionally, the bill expands the duration of super-priority condominium liens (previously limited to five years), so that liens that are “cumulatively renewed on an annual basis” are exempt from this five-year expiration period.
  • S3411:  This bill, which takes effect August 1, requires that any residential foreclosure action be brought within 180 days of the sending of a notice of intention to foreclose; otherwise the lender must resend the notice.  It also requires the lender to file an order to show cause to appoint a receiver if the subject property is a 2-4 family residential property, “is not properly maintained,” and meets the necessary conditions for receivership under the “Multifamily Housing Preservation and Receivership Act.”  The lender also must include a statement in the notice of intention to foreclose stating this receivership requirement.
  • S3413:  This bill, effective May 28, increases the time period in which a sheriff, Special Master, or judicial agent is required to sell a vacant and abandoned property from 60 days to 90 days.  It also amends requirements regarding the summary action process under the Fair Foreclosure Act, including (i) allowing statements of representatives of a common interest community association to indicate a residence is vacant or abandoned and (ii) allowing a lender to bring a summary process at any time after filing a foreclosure action.
  • S3416:  This bill, effective immediately, adds the requirement for residential mortgage lenders, when providing a notice of intention to the debtor to commence a mortgage foreclosure under the Fair Foreclosure Act, to include information in the notice advising the debtor that the lender is either licensed in accordance with the “New Jersey Residential Mortgage Lending Act,” or exempt from licensure under that act in accordance with applicable law.  The amendments also clarify that the New Jersey Residential Mortgage Lending Act applies to certain out-of-state persons, including residential mortgage lenders, residential mortgage brokers, mortgage loan originators, and other persons involved in residential mortgage lending in the state.
  • S3464:  This bill, effective July 29, revises the foreclosure sale time requirement, stating that a sheriff must conduct a foreclosure sale within 150 days instead of within 120 days of the sheriff’s receipt of a writ of execution.  Amendments also provide that a sheriff or other officer conducting a foreclosure sale may make up to 5 adjournments (no more than 30 calendar days for each adjournment), two at the request of the lender, two at the request of the debtor, and one if both the lender and debtor agree to an adjournment.  The bill revises certain procedures for foreclosure sales, including the addition of language stating that the Office of Foreclosure may issue an order to appoint a Special Master to hold foreclosure sales for one or more properties within a vicinage.  Language is also added stating the plaintiff’s attorney shall prepare and submit to the sheriff’s office a deed for the sheriff’s office to use for the mortgage premises.

For a copy of the statutes, please contact Michael O’Donnell at modonnell@riker.com, Sarah Heba-Escobar at sheba@riker.com, or Dylan Goetsch at dgoetsch@riker.com.

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