Realty Law Digest

, New York Law Journal

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Scott E. Mollen
Scott E. Mollen

Court Upholds County's Reverter With Respect to Home Sold at Public Auction—Purpose of Reverter Was to Keep Welfare Recipients Out of Middle Class Neighborhoods—Defendant Unsuccessfully Argued That Reverter Purpose Was Not Violated Since House Was Being Rented to Manhattan Professionals

In 2009, the plaintiff county commenced an action pursuant to RPAPL Article 15 for "a declaration of its clear title to a parcel of real property [home]…." The claim arose from the county's 2004 public auction of residential properties. The home had been conveyed pursuant to such auction to "A," for $700,00 on March 21, 2005. The terms of the sale included "a deed restriction imposing a reverter in favor of the County which was mandated by…Local Law #13-1990 [Local Law][reverter]…."

The local law was adopted pursuant to a resolution which described the law as a "Local Law to Mitigate Welfare Placement by Restricting Auction of County-Owned Real Property to Owner/Occupants." Pursuant to the local law, "the purchasers or the natural children or the natural parents of the purchasers of all publicly auctioned parcels of residential property having structures capable of physical occupancy were required to occupy same for a period of five years from the transfer of title. Any breach of this condition resulted in an automatic reverter of the premises to the County, by operation of law…." The county administrative code expanded "the terms 'natural' parents and 'natural' children" to include "step and adoptive children and parents, while the term 'occupancy' was defined as 'to take, hold possession of and reside in as an owner, for activities pursued at home on a family or personal basis'…."

The county's deed to "A" specified that the parcel "shall be occupied by the ['A'] or ['A''s] natural children or ['A''s] natural parents for a period of five years from the date of conveyance herein. In the event that it is not so occupied, this parcel shall revert to grantor by operation of law."

The county alleged that title reverted when "A" "breached the occupancy condition" embodied in the deed "by failing to occupy the premises or when he arranged with his mortgagee a short sale of the premises for…$450,000 on January 8, 2009." The purchaser of the home from "A" was a corporation ("C Inc."). "C Inc." was solely owned by defendant "B." "B's" lawyer in the transaction had subsequently pled guilty to grand larceny charges in connection with his participation in a mortgage fraud scheme.

One day after "C Inc." had taken title from "A," "C Inc." conveyed the home to "D" for $500,000 pursuant to a deed dated Jan. 9, 2009. "D" thereafter sold the home to "B" for $890,000 pursuant to a deed dated Jan. 16, 2009. The deed from "D" to "B," did not include the reverter clause. The conveyances by "A" to "C Inc." and by "C Inc." to "D," rather than a direct conveyance to "B" directly from "A," "were purportedly recommended by ['B's"] attorney for 'estate tax planning purposes and other reasons.'"

"B" claimed to have had "no knowledge of the…reverter…until the commencement of this action," even though "he was the sole principal of ['C Inc.']," the purchaser from "A." "B" claimed that he lacked knowledge because "neither the occupancy condition nor the reverter…was included in the deed from ['D'] nor 'the title report ordered by his attorney'…." Following "B's" purchase, "B" improved the property so that it could be rented out as a beach house.

"B" argued that the policy behind the local law and covenant "was to keep welfare recipients out of middle class neighborhoods" and since the house is being used as a summer rental to "Manhattan professionals," "the deed, covenants and reverter should not be enforced."

After reviewing the subject statute, its legislative history and certain exceptions, the court found that the "condition subsequent" in the county's deed to "A," was "clear and unambiguous" and that "a public purpose was served" by the imposition of the subject occupancy limitation. The court explained that "a right of reverter upon a limitation or condition subsequent was created in favor of the County in its…conveyance to ['A'] by the deed's inclusion of the…language restricting the use of the premises for a public purpose, namely, 'to protect and promote the health, safety and general welfare of the residents of Suffolk County' by 'restricting the auction of County-owned property to owner/occupants'…."

Since "neither ['A'] nor his natural children or parents fulfilled the five year occupancy requirement set forth in the deed," "[a] breach of the limitation or condition subsequent giving rise to the county's reverter thus occurred upon the failure of qualified ['A' family members] to satisfy that occupancy requirement." The county's conveyance to "A" had created the "possibility of reverter in favor of the County that ripened upon ['A''s] breach of the limitation or condition subsequent set forth in the deed of March 21, 2005." The court held that the reverter was applicable and immune from "judicial modification or diminution of the type contemplated by RPAPL §1953(2) and (3)." The reverter was "automatic upon a breach of the occupancy condition imposed in his deed."

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