Mason v Pembroke NY LLC 2024 NY Slip Op 30018(U) January 2, 2024 Supreme Court, Kings County Docket Number: Index No. 534783/2022 Judge: Debra Silber Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. FILED: KINGS COUNTY CLERK 01/02/2024 10:46 AM INDEX NO. 534783/2022 NYSCEF DOC. NO. 43 RECEIVED NYSCEF: 01/02/2024
SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS : PART 9 x
OMAR MASON, Plaintiff, DECISION/ORDER - against - Index No. 534783/2022 PEMBROKE NY LLC, Motion Seq. No. 1 & 2 Defendant. x
Recitation, as required by CPLR 2219(a), of the papers considered in the review of defendant’s motion for summary judgment and plaintiff’s cross motion for summary judgment
Papers NYSCEF Doc.
Notice of Motion, Affirmation and Exhibits Annexed……………….…… 13-23 Notice of Cross Motion Affirmations, Affidavits and Exhibits………….. 25-37 Affirmations and Affidavits in Opposition and Exhibits.................……. 38 Reply Affirmations................................................................................ 39
Upon the foregoing cited papers, the Decision/Order on these motions is as
follows:
This is an action for breach of contract with regard to a two-family property located
at 31 Montauk Avenue, Brooklyn, NY (Block 3976 Lot 22). The complaint avers that a
contract of sale was executed by plaintiff (purchaser) on or about March 12, 2022, and then
wasn’t signed by the seller until on or about June 9, 2022. Plaintiff is the proposed
purchaser, and defendant the seller. A copy of the contract is annexed to the complaint.
The sale price is $900,000, and a $31,500 deposit was paid, which is presumably still held
in escrow by the seller’s attorneys, Vaysbaum & Kazakevich PC, as escrowee. The
mortgage contingency clause permits purchaser to finance up to $720,000. The closing
date is stated (Par 15) to be “60 days from receipt of executed contract by purchaser’s
attorney” [P15], which would have been around mid-August of 2022. This action was
commenced on November 28, 2022.
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The complaint alleges that the plaintiff could not obtain a mortgage commitment,
and his attorney notified defendant’s attorneys of his cancellation of the contract on or
about November 7, 2022, but defendant’s attorneys refused to return the downpayment.
The first cause of action alleges that the defendant has breached the contract by refusing
to return the down payment. The second cause of action asserts that the escrowee is in
breach of the escrowee’s obligations, however, the escrowee law firm is not a party
defendant. The third cause of action seeks to “impress a vendee’s lien against the
property.” The wherefore clause asks for a judgment cancelling the contract and ordering
the return of the down payment with interest from November 7, 2022, and “impressing a
lien against the property until plaintiff is paid.”
Defendant answered the complaint and asserted counterclaims for breach of
contract, negligence, and fraudulent inducement. The breach of contract claim asserts that
plaintiff applied for a mortgage of $883,698, which was much more than the sum permitted
in the contract, and thus he breached the contract. The negligence claim asserts that the
seller (defendant) between April 2022 and October 2022, “performed costly repairs,
improvements, construction, and renovations on the Property as a precondition of the sale
of the Property by Defendant to Plaintiff.” However, defendant claims that “Plaintiff failed
to timely notify Defendant of the fact that Plaintiff applied for a mortgage loan in the amount,
materially greater than the amount set forth in the Mortgage Contingency Clause.
Additionally, Plaintiff failed to timely notify Defendant that his mortgage loan application
was rescinded by the potential lender: Defendant was notified by Plaintiff of the subject
rescission on or about per the letter submitted to Defendant’s counsel, November 4, 2022,
however the reason for denial was known to plaintiff as of August 8, 2022, per the recession
[sic] letter” [Doc 3 ¶49]. The counterclaim continues “In the absence of the
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agreement/arrangement between the parties, Defendant would not have performed said
repairs, improvements, construction, and renovations on the Property. As a result,
Defendant incurred financial damages. By reason of the foregoing, Defendant seeks
indemnification and judgment for financial damages based upon Plaintiff’s active
negligence, carelessness, and recklessness, as set forth above, in the amount to be
determined at trial.” The fraudulent inducement counterclaim asserts that, among other
things, “Plaintiff fraudulently induced Defendant into entering the Contract based on false
representations that Plaintiff had sufficient funds when, in fact, the opposite was true. Had
Plaintiff disclosed it financial conditions/standing, Defendant would not have entered into a
contract and would not have performed costly and time-consuming construction work on
the Property.” Defendant’s wherefore clause seeks a judgment dismissing the complaint
and “granting defendant’s counterclaims.” Plaintiff replied to the counterclaims. The case
is not as yet on the trial calendar.
The last recorded deed indicates that the defendant sold the property to someone
else on April 19, 2023 for $950.000. Further, defendant had not taken title to the property
until February 8, 2022, just weeks before the contract of sale at issue here was executed
by plaintiff.
The first of the motions now before the court, motion sequence #1, filed by
defendant, seeks summary judgment in defendant’s favor, “declaring Plaintiff to be in
default of the subject contract and declaring that Defendant is entitled to payment/retention
of the contract downpayment in the amount of $31,500.00 as liquidated damages, (ii)
dismissing Plaintiff’s Complaint, (iii) awarding Defendant attorney’s fees in the amount to
be determined at the hearing on the amount to be awarded, (iv) pursuant to CPLR 603
severing Defendant’s counterclaims for negligence and fraudulent inducement.”
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The cross motion (MS#2), filed by plaintiff, seeks an order granting plaintiff summary
judgment “(1) to release the down payment of Plaintiff in the amount of THIRTY-ONE
THOUSAND FIVE HUNDRED DOLLARS, ($31,500) (2) cancelling the contract of sale for
real property between the parties, (3) impressing a lien against the premise until Plaintiff is
paid the Down Payment together with costs.
In support of the defendant’s motion, defendant provides an affirmation of counsel,
an affidavit from the managing member of defendant, Erik Moseyev, a copy of seller’s
deed, the contract of sale, a document described as “Doc 19, time of an essences letter”
which is completely unreadable, a letter dated 11/14/22 from plaintiff’s current attorney to
defendant’s attorneys [Doc 20], which rejects the time of the essence letter, and avers that
defendant breached the contract and should return the down payment, the 11/4/22 letter
[Doc 21] to plaintiff that his mortgage application was denied, and the pleadings.
Mr. Moseyev states in his affidavit that the time is of the essence letter scheduled
the closing for 11/15/22, that it was rejected by plaintiff’s attorney, that the letter denying
plaintiff’s mortgage application indicates in the attachment that he had applied for a
mortgage of $883,698, and that the mortgage contingency clause only permitted plaintiff
to apply for up to $720,000. He claims that the plaintiff’s failure to apply for a mortgage
permitted by the contract was a willful default under the contract which entitles the seller to
keep the down payment as and for his liquidated damages. He also notes that the contract
provides for attorneys’ fees to the prevailing party should there be a dispute. Finally, he
says that “Defendant extended substantial amounts of money towards improvement of the
Property, per Plaintiff's directions. Plaintiff failed to timely notify Defendant that his
mortgage loan application was rescinded” [Doc 16 ¶13]. He continues “In the absence of
the agreement/arrangement between the parties, Defendant would not have performed
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said repairs, improvements, construction and renovations on the Property” [id. ¶15].
Defendant’s attorney provides an affirmation which cites numerous cases in support of
defendant’s claim that the plaintiff breached the contract.
Paragraph 28 of “Purchaser’s Rider” at Page 30 of Doc 1 states in its entirety that
“Seller shall, at Seller's expense, renovate and rebuild the Premises, including installation
of the systems and appliances reference in Par. 2 of the Contract, at no less a standard
than what would commonly be referred to as "high-end" appliances. Seller shall, prior to
any construction, consult with and receive instruction from, and written approval from,
Purchaser.”
Counsel for defendant does not provide any additional evidence. It is not known
why the seller was going to renovate and rebuild the premises, or how long that took, or
who asked for more time to close, seller or buyer. There is no explanation offered for
seller’s delay in signing the contract for three months after plaintiff signed it. The only thing
that is provided is the contract, signed by plaintiff in March of 2022, and the letter from
purchaser’s attorney dated in November of 2022, notifying defendant’s attorney that the
plaintiff’s mortgage application had been denied and he elected to cancel the contract. The
“Statement of Credit Denial, Termination, or Change” is dated 11/3/22 and states that
plaintiff applied for a loan of $883,698, and that his application was denied because he had
“insufficient funds to close.”
In support of plaintiff’s cross-motion, plaintiff provides an affirmation of counsel, an
affidavit from plaintiff, Exhibits A to J, which plaintiff’s counsel couldn’t bother to properly
label, and a reply affirmation. Defendant only submitted an affirmation in opposition, with
no further exhibits. Exhibit A is yet another copy of the contract of sale. Exhibit B is a
readable copy of the Time is of the Essence Letter dated October 13, 2022. It was sent to
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plaintiff’s transaction attorney, not his attorney in this litigation, and states that the contract
of sale is dated June 9, 2022, and the closing was supposed to be on or about August 9,
2022. The court again notes that plaintiff signed the contract on March 12, 2022, but it is
not clear why defendant delayed in counter-signing it. Exhibit C is the email dated 11/7/22
from plaintiff’s prior attorney to defendant’s attorney which transmitted the letter dated
11/4/22 denying plaintiff’s mortgage application. Exhibit D is an email from plaintiff’s prior
attorney to defendant’s attorney rejecting the time is of the essence letter. Exhibit E is
another copy of the mortgage denial. Exhibit F is the letter from plaintiff’s current attorney
to defendant’s attorney dated November 14, notifying her that he has been retained and
also rejecting the time is of the essence letter. Exhibit G is the summons and complaint.
Exhibit H is plaintiff’s reply to defendant’s counterclaims, as is Exhibit I. Exhibit J is a
printout from a website, from something called an “FHA Handbook.” It explains that a
borrower under the FHA program is permitted to apply for a mortgage of up to 96.5% of
the purchase price.
Plaintiff’s affidavit [Doc 27] states that the rider to the contract permitted him to apply
for “an FHA or other government insured mortgage” and that he had applied for an FHA
loan of 96.5% of the purchase price, which is one of the FHA products, and that by
permitting him to apply for an FHA loan, defendant permitted him to apply for a mortgage
of $883,698, which was “perfect fully permissible under the contract.” Plaintiff’s counsel
provides the same opinion in his affirmation in support. He avers that plaintiff’s cancellation
of the contract was in full compliance with the terms of the contract. He does not provide
any case law in support of his claim that the Rider which permitted plaintiff to apply for an
FHA mortgage meant that plaintiff was not limited to the cap on the financed amount in the
mortgage contingency clause. He states, “practitioners of real estate law all know that FHA
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loan are never for 80% of the purchase price.” He also argues that since the contract had
an attorneys’ fees clause, that plaintiff is entitled to the return of his down payment and
attorneys’ fees.
Discussion
In a real estate transaction such as this, the sending of the signed contract by the
buyer, along with the down payment check, is considered under NY law to be an offer. The
offer must be accepted by the signing of the contract by the seller. Here, the seller signed
and returned the contract on or about June 9, 2022, accepting the plaintiff’s offer and
forming a binding contract.
The mortgage contingency clause, at paragraph 8 of the form contract, states, in
pertinent part, as follows:
“The obligations of Purchaser hereunder are conditioned upon issuance, on or before 30 days from date purchaser’s attorney receives a fully executed contracts of sale (the “Commitment Date”), of a written commitment from any Institutional Lender pursuant to which such Institutional Lender agrees to make a first mortgage loan, other than a VA, FHA or other governmentally insured loan, to purchaser, at Purchaser’s sole cost and expense, of $720,000.00 or such lesser sum as Purchaser shall be willing to accept, at the prevailing rate of interest . . . . for a term of at least 15/30 years and on other customary commitment terms, whether or not conditional upon any factors other than an appraisal satisfactory to the Institutional Lender. . . . If such commitment is not issued on or before the Commitment Date, then, unless Purchaser has accepted a commitment that does not comply with the requirements set forth above, Purchaser or Seller may cancel this contract by giving Notice to Seller within 5 business days after the Commitment Date, in which case this contract shall be deemed canceled and thereafter neither party shall have any further rights against, or obligations or liabilities to, the other by reason of this contract, except that Downpayment promptly refunded to Purchaser and except as set forth in Paragraph 27 [regarding the broker]. If Purchaser fails to give notice of cancellation or if the Purchaser shall accept a commitment that does not comply with the terms set forth above, then Purchaser shall be deemed to have waived Purchaser’s right to cancel this contract and to receive a refund of the Downpayment by reason of the contingency contained in this paragraph.” [emphasis added].
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Paragraph R3 of the “Purchaser’s Rider” states in its entirety “Paragraph 8 of the
Contract is modified to permit an FHA or other government insured mortgage.”
The “commitment date” under this contract, pursuant to its terms, was 30 days after
the seller’s attorney sent the signed contract back to the purchaser’s attorney, which was
on or about July 9, 2022, or the next business day if it fell on a weekend. There is nothing
in the record to indicate that the plaintiff cancelled the contract pursuant to its terms. The
earliest communication provided from plaintiff’s attorney to defendant’s attorney was in
November of 2022. Therefore, the purchaser waived his right to cancel the contract. The
attempt in the Purchaser’s Rider to include a savings clause is unavailing, the court notes.
It states, at paragraph R2, that “Notwithstanding anything in the Contract or Riders to the
contrary, if, through no fault of Purchasers, the Institutional Lender either denies
Purchasers’ loan application or, having issued a Commitment Letter, rescinds said
commitment to loan, Purchasers shall be entitled, on written notice to Seller along with
Lender’s written denial or recission, to cancel the Contract and receive a refund of the
Contract Deposit.” [emphasis added]. Here, the requirement that the denial or rescission
be “through no fault of purchaser” prevents the court from considering that this clause
somehow supersedes paragraph 8 of the form contract.
It is black letter law in the Second Department that a purchaser who applies for a
mortgage for a far greater amount than the amount set forth in the contract does not have
grounds to cancel the contract (NY Ctr. for Esthetic & Laser Dentistry v VSLP United LLC,
159 AD3d 567 [1st Dept 2018], citing Post v Mengoni, 198 AD2d 487 [2d Dept 1993]; Silva
v Celella, 153 AD2d 847 [2d Dept 1989]). Further, plaintiff here never made a good faith
effort to obtain the permitted financing, as he never sought a loan in the amount
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contemplated in the contract. Thus, by applying for a mortgage in an amount significantly
greater than that stated in the contract, the buyer breached the contract, as a matter of law
(Kweku v Thomas, 144 AD3d 1109, 1111 [2d Dept 2016] citing HSM Real Estate, Inc. v
Dragon, 94 AD3d 702, 941 NYS2d 512 [2d Dept 2012]; Humbert v Allen, 89 AD3d 804,
807, 932 NYS2d 155 [2d Dept 2011]).
There is nothing in the record which indicates that plaintiff was granted an extension
of time in which to obtain financing, nor is there anything which indicates that the provision
in the purchaser’s rider which removed the form contract’s bar on applying for an FHA
mortgage somehow changed the amount specified in the contract that the purchaser was
limited to financing.
Accordingly, the court finds that the plaintiff purchaser breached the contract by
failing to comply with the terms of the mortgage contingency clause, as modified by the
rider. Moreover, pursuant to the express terms of the mortgage contingency clause, plaintiff
waived his right to cancel the contract and to receive a refund of the down payment,
because he also failed to give the seller notice of cancellation of the contract within five
business days after the commitment date, on or about July 9, 2022.
The contract further specifies that, where, as here, there is a default by the buyer,
the seller is entitled to retain the down payment as liquidated damages. The rider also
provides that the prevailing party is entitled to attorneys’ fees. Defendant is therefore also
entitled to reasonable attorneys’ fees incurred in connection with this litigation. Generally,
"[a]n attorney's fee is merely an incident of litigation and is not recoverable absent a
specific contractual provision or statutory authority" (Levine v Infidelity, Inc., 2 AD3d 691,
692 [2d Dept 2003]). Here, paragraph R19 of the “purchaser’s rider” to the subject contract
of sale states, “Notwithstanding anything to the contrary contained herein this Contract, if
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at any time either Seller or Purchaser shall institute any action or proceeding against the
other relating to the provisions of this Contract or any default hereunder, then the
unsuccessful party in such action or proceeding agrees to reimburse the successful party
for the reasonable expenses for attorneys' fees, paralegal fees and disbursements incurred
therein by the successful party. Such reimbursement shall include all legal expenses
incurred prior to trial, at trial and at all levels of appeal and post-judgment proceedings.
This Paragraph shall survive the Closing or termination of this Contract.”
Inasmuch as the court has awarded defendant seller summary judgment dismissing
plaintiffs' complaint and summary judgment on its counterclaim for breach of contract and
a declaratory judgment against plaintiff, defendant may recover reasonable attorney's fees
incurred in defending against the within action pursuant to the express terms of the subject
contract.
For these reasons, the defendant’s motion (MS#1) for summary judgment
dismissing the complaint, and for summary judgment in its favor on the counterclaim for
breach of contract and a declaratory judgment and attorneys’ fees against plaintiff is
granted. However, the branch of the motion which seeks to sever the counterclaims for
negligence and fraudulent inducement is denied, and those claims are dismissed. When
both parties have moved for summary judgment, the court is permitted to search the record
and address those claims not included in the motion. The retention of the deposit is
provided for in the contract as seller’s liquidated damages. This means the amount of
damages the seller would be entitled to if plaintiff breached could not be ascertained, so it
was agreed that if plaintiff breached the contract, retention of the down payment, plus
attorneys’ fees if the matter went to court, would be its damages. Additional damages for
fixing up the property, which clearly enabled the defendant to sell it almost immediately
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after plaintiff’s breach, and for a higher price than plaintiff had agreed to pay, are not
permitted in addition to defendant’s liquidated damages.
Conclusions of Law
Accordingly,
It is hereby ORDERED, ADJUDGED AND DECLARED that defendant is entitled to
summary judgment on its first counterclaim for breach of contract. The plaintiff breached
the subject contract and defendant is entitled to payment/retention of the contract
downpayment in the amount of $31,500.00 as liquidated damages, and the contract of sale
is declared to be null and void and of no further force or effect; and it is further
ORDERED that Vaysbaum & Kazakevich PC., as escrowee shall disburse the funds
held in escrow of $31,500 to defendant promptly; and it is further
ORDERED that plaintiff’s complaint is dismissed; and it is further
ORDERED that defendant is entitled to an award of attorney’s fees and costs; and
it is further
ORDERED that unless there is filed a stipulation of settlement between the parties
as is permitted by CPLR 4317, this matter is referred to a Special Referee pursuant to a
Referee Referral Order issued simultaneously herewith, to hear and determine the
defendant’s claim for attorneys’ fees. Defendant’s attorney is to provide the Special
Referee with copies of her firm’s billing and time records, together with a summary and
breakdown of the categories of legal services provided, and the hours attributed to each
category of services; and it is further
ORDERED that counsel for the defendant shall, within 30 days from the date of this
order, serve a copy of this order with notice of entry, together with a completed Information
Sheet, upon the Special Referee Clerk in the General Clerk's Office (Room 482), who is
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directed to place this matter on the calendar of the Special Referee's Part (Part 82) for the
earliest convenient date; and it is further
ORDERED that failure to comply with the immediately preceding paragraph will
result in the dismissal of the defendant’s claim in its answer with counterclaims, for
attorneys’ fees, unless good cause is shown; and it is further
ORDERED that other than the defendant’s claim for attorneys’ fees and costs, the
defendant’s counterclaims, for negligence and fraudulent inducement, are dismissed; and
ORDERED that plaintiff’s motion (MS #2) for summary judgment declaring that the
contract is cancelled, and that he is entitled to the return of the down payment and a
common law vendee's lien against the property must be denied in light of the above
determinations.
This constitutes the decision and order of the court.
Dated: January 2, 2024 ENTER:
Hon. Debra Silber, J.S.C.
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