The skyrocketing prices for commercial and residential real estate have led to a concomitant increase in enormous – sometimes multi-million dollar-down payments – the right to which often ends in litigation when the transaction ends and the "finger pointing" begins. Disputes following failures or refusals to close have led to several decisions in the Appellate Division since the year 2016 began, as well as many decisions in the Supreme Court.
Princes Point LLC v. Muss Dev. L.L.C. , 2016 NY Slip Op 00783 (1st Dept. February 4, 2016)
The Court summarized the issues on appeal:
The questions raised by this appeal are whether a prospective purchaser of real property anticipatorily breaches a contract of sale by commencing an action against the seller for rescission of the contract before the closing date, and whether, in the event of the buyer's repudiation, the seller is required to show that it was ready, willing, and able to complete the sale (by obtaining certain government approvals as a condition precedent to closing) in order to retain the deposit and certain other payments as liquidated damages.
Concluding that:
We hold that, because a rescission action unequivocally evinces the plaintiff's intent to disavow its contractual obligations, the commencement of such an action before the date of performance constitutes an anticipatory breach. As to the second question, we hold that the seller was not required to show that it was ready, willing, and able to complete the sale because the buyer's anticipatory breach relieved it of further contractual obligations.
The Appellate Division summarized the facts:
The Muss family acquired a 23-acre parcel of land in Staten Island known as Princes Point in the early 1970s. The family formed two limited partnerships to own the property: defendants Allied Princes Bay Co. and Allied Princes Bay Co. #2[.] Defendant Joshua Muss is the general partner of APB, and defendant Muss Development LLC is the management company that oversaw various entities and development projects in which the Muss family holds an interest, including Princes Point.
In the 1980s, the New York State Department of Environmental Conservation (DEC) declared the property an inactive hazardous waste site. To obtain a delisting of the property as a hazardous waste site, APB, Joshua Muss, and Muss Development LLC...conducted remediation work, which involved the construction of a revetment (a seawall designed to prevent erosion) along the entire shoreline of the property. The property was delisted in 2001, and defendants began to seek the government approvals necessary to develop the property[.]
In 2004, plaintiff entered into an agreement with APB to purchase the property for $35,910,000, making an initial down payment of $1,878,500. One of the conditions precedent to closing was defendants' having delivered to plaintiff the development approvals (except for any waived by the relevant city agencies). The contract provided for a closing date 30 days after the date on which defendants provided notice to plaintiff that all development approvals had been obtained, "but in no event later than the Outside Closing Date," which was defined as 18 months from the execution and delivery of the agreement by each of the parties. If, despite diligent efforts, defendants were unable to obtain all development approvals on or prior to the Outside Closing Date, either party could terminate the agreement upon 30 days' notice. In the event of termination, plaintiff would receive a refund of the deposit and "compaction payments", and the parties would be released from the majority of their obligations. As an alternative to terminating the contract, plaintiff had the option of waiving the development approvals and closing the sale with an abatement in the purchase price.
In 2005, after Hurricane Katrina, the DEC conducted a visual inspection of the revetment, discovered problems, and called for additional work to be done. Because of the resulting increase in time and cost needed to obtain the requisite development approvals, defendants advised plaintiff that they would exercise their right to terminate the contract and return the down payment unless plaintiff agreed to amend the contract according to certain terms.
In March 2006, the parties amended their contract in writing to include the following terms: (1) extend the Outside Closing Date to July 22, 2007 (the New Outside Closing Date); (2) increase the purchase price to $37,910,000; (3) increase the down payment to $3,995,500; (4) require plaintiff to reimburse defendants for 50% of the costs related to completing the revetment work and obtaining the development approvals; and (5) require plaintiff to forbear from commencing "any legal action" against defendants in the event that the development approvals were not issued or the revetment work was not completed by the New Outside Closing Date[.]
Facing additional problems with the revetment, the parties extended the New Outside Closing Date on a month-to-month basis, because defendants, as stated in a May 2008 email, believed they were "on track" to receive the few remaining government approvals. The final date to which the New Outside Closing Date was extended was July 22, 2008 (the Final Outside Closing Date). Despite the contract's forbearance provision, plaintiff commenced the instant action on June 20, 2008 – prior to the Final Outside Closing Date – claiming that it had been defrauded into entering into the contract and the 2006 amendment by defendants' alleged misrepresentation that the revetment had been built in accordance with the DEC's specifications. In effect, plaintiff sought rescission of the 2006 amendment and specific performance of the 2004 contract (with an abatement in the purchase price to account for defendants' failure to acquire the development approvals).
The prior proceedings:
All of plaintiff's causes of action have since been dismissed...All that remained after the dismissal of plaintiff's claims was the counterclaims of defendants, who moved for partial summary judgment (on their counterclaims to declare the contract terminated, to declare that plaintiff materially breached the contract, thereby entitling defendants to retain the down payment and compaction payments, and to award defendants attorneys' fees and costs). The motion court granted the motion in its entirety, determining that the contract had expired and was terminated by its own terms, that plaintiff anticipatorily breached the contract by commencing this action, and that defendants were entitled to retain the down payment and compaction payments as liquidated damages, and referred the matter to a special referee to determine contractual attorneys' fees and costs in favor of defendants[.]
As to anticipatory breach, the Court noted that:
An anticipatory breach, or repudiation, occurs when a party to a contract unequivocally communicates to its counterpart before performance is due, by a statement or voluntary affirmative act, that it will avoid performance of its contractual duties...Whether a party has anticipatorily breached a contract is ordinarily a question of fact reserved for a jury, but a court may decide the issue as a matter of law when the purported repudiation is embodied in an unambiguous writing[.]
This Court has held that an action seeking a declaratory judgment does not constitute an anticipatory breach...The proposition is a rational one, because a declaratory judgment action merely seeks to define the rights and obligations of the parties. If a plaintiff succeeds in obtaining a declaratory judgment, he or she may then proceed to the performance of duties under the contract (as defined by the judgment).
An action seeking rescission of a contract is markedly different. In contrast to a declaratory judgment, a plaintiff who succeeds in obtaining rescission can no longer perform: his or her contractual duties will have evaporated. Indeed, by bringing this action for rescission, plaintiff sought to have a court "declare the contract void from its inception and to put or restore the parties to status quo"[.]
Holding that:
We therefore agree with the motion court that, by "commencing this lawsuit [before the Final Closing Date] and seeking the particular relief of rescission of the Amendment and abatement of the purchase price, [plaintiff] unequivocally notified the Muss defendants of its intention to renounce its contractual duties"...Plaintiff did not simply seek to define its rights under the parties' agreement; it sought to nullify the agreement entirely. Although plaintiff argues that it only sought rescission of the 2006 amendment and specific performance of the 2004 contract, there was one amended contract which defined the parties' rights and obligations. Plaintiff anticipatorily breached that contract by commencing this action.
As to the required showing of "ready, willing and able", the Court adding that:
The question is whether, in the context of plaintiff buyer's anticipatory breach, defendants must show that they were ready, willing, and able to close on the sale of the property – specifically, by obtaining the development approvals as a condition precedent to closing – in order to retain the down payment and compaction payments as liquidated damages. We answer this question in the negative, primarily because plaintiff's anticipatory breach discharged defendants' future obligations (including to fulfill conditions precedent) under the contract.
"Besides giving the nonrepudiating party an immediate right to sue for damages for total breach, a repudiation discharges the nonrepudiating party's obligations to render performance in the future"[.]
The contract required defendants to obtain the development approvals as a condition precedent to closing, but defendants were absolved of that obligation upon plaintiff's anticipatory breach. Whether defendants were in fact "on track" to obtain the approvals by the closing date is of no moment; the record demonstrates that they had been engaged in significant efforts to obtain the approvals until plaintiff's repudiation, and it was possible, however unlikely, that they could have obtained the approvals before the Final Outside Closing Date (which the parties had been extending on a monthly basis). They were not required to continue to pursue the approvals after plaintiff repudiated the contract by commencing the instant action seeking rescission...Once plaintiff commenced the instant action, it would have been futile and wasteful for defendants to continue to seek the approvals in preparation for a closing that plaintiff was tirelessly seeking to avoid.
We acknowledge that, although it appears that the "ready, willing, and able" requirement was devised exclusively to ensure that prospective purchasers of property are legally and financially able to conclude their purchases...the concept has been expanded to apply to sellers of real property in some circumstances[.]
However, we have not previously considered whether a seller must make such a showing in the context of a buyer's anticipatory beach. [A prior decision] dealt with circumstances in which a time-of-the-essence closing date occurred and one party defaulted. Here, by contrast, plaintiff (the buyer) anticipatorily breached the contract before the closing date; as a consequence, defendants' duty of future performance, and of fulfilling conditions precedent by acquiring the development approvals, was discharged. Therefore, we need not concern ourselves with the question of whether defendants would have been ready, willing, and able to perform on the Final Outside Closing Date. As a result of plaintiff's commencement of this action, the closing never occurred.
Concluding that:
[A] buyer who seeks the return of a down payment is advancing its restitutionary interest by attempting to recover the benefit it conferred on a repudiating seller, in order to prevent the latter's unjust enrichment; in such a case, a "ready, willing, and able" showing is not required, because the buyer is not alleging damages caused by the seller's breach[.]
Conversely, where, as here, a seller seeks to retain a down payment as liquidated damages for a buyer's breach, it is not seeking restitution, because the down payment is not a benefit that the seller has conferred upon the buyer...Rather, a seller in those circumstances is...seeking damages that were caused by (or were "directly flowing from") the breach...This explains why, although [in another case the Court] did not rule that a nonrepudiating seller must make a "ready, willing, and able" showing in the face of a buyer's repudiation, we have recognized that the requirement applies to a seller seeking to retain a down payment in the absence of its counterpart's repudiation[.]
Nevertheless, as discussed above, defendants in this action are not required to demonstrate their ability to close the sale, because plaintiff's anticipatory breach discharged their duty to obtain the development approvals as a condition precedent to closing. The outcome might have been different if plaintiff had defaulted on the closing date...But we are not confronted with that situation. Plaintiff commenced this action for rescission, thereby repudiating the contract of sale before the closing date occurred and discharging defendants from their obligation to fulfill conditions precedent. Therefore, defendants were entitled to retain plaintiff's down payment and compaction payments as liquidated damages.
Vista Developers Corp. v. Board of Mgrs. of the Diocesan Missionary & Church Extensions Socy. of the Prot. Episcopal Church in the Diocese of N.Y. , 2016 NY Slip Op 00281 (1st Dept. January 19, 2016)
The Court briefly summarized the facts:
This action arises from a failed contract for the purchase of a multifamily property owned by defendant. Plaintiff buyer refused to close without prior court approval of the sale. The motion court correctly determined that defendant was not required to obtain such approval.
The issues with respect to the Religious Corporations Law and the Not-For-Profit Corporations Law:
Defendant is a not-for-profit corporation created by a special act of the Legislature in 1912...While the Special Act limits defendant's ability to purchase real property, it places no limit on its ability to sell or otherwise dispose of the property..."Under familiar principles of statutory construction, the general provisions of section 12 of the Religious Corporations Law," which require, among other things, that court approval be obtained prior to the sale of real property owned by a religious corporation..."must yield to the provisions of the special act whereby the [defendant] came into corporate existence"...Accordingly, even assuming, without deciding, that defendant is a "religious corporation" within the meaning of the Religious Corporations Law the motion court correctly determined that it is not subject to the law's mandate that it obtain leave of court before selling its real property.
Nor was prior court approval for the sale required by Not-For-Profit Corporation Law § 510, as defendant established, via the submission of financial statements and affidavits from its secretary and certified public accountant, that the premises did not compromise "all, or substantially all," of its assets[.]
Nor did the parties' contract require prior court approval for the sale. The rider to the contract made the sale "contingent upon [defendant] obtaining [court] approval, pursuant to the Religious Corporations Law and the Not-For-Profit Corporation Law . . . if required"[.] As noted, plaintiff failed to show that court approval was required by those laws. Nor did he show that court approval was required to obtain insurable and marketable title.
Concluding that:
Given the foregoing determination, plaintiff had no lawful excuse for failing to close on the scheduled time-of-the-essence closing date. Accordingly, the motion court correctly determined that plaintiff had defaulted under the terms of the contract, entitling defendant, which appeared ready, willing and able to close at the scheduled time, to retain the down payment as liquidated damages.
1581 Franklin Steel, LLC v. Mineola Garden City Co., Ltd. , 2016 NY Slip Op 00163 (2nd Dept. January 13, 2016)
The Second Department summarized the facts:
The [purchaser] and the [seller] entered into a contract for the sale of a commercial building. In connection with the contract, the purchaser made a down payment in the amount of $125,000, which was held in escrow by the seller's attorney. One day prior to the closing, the purchaser's attorney wrote a letter to the seller's attorney, purporting to cancel the contract and demanding return of the down payment, due to the existence of a lease to a nonparty tenant for a portion of the building, which expired 30 days after the closing date. Although the lease contained a renewal option, it is undisputed that the renewal option had not been exercised and that the building had already been vacated by the tenant at the time the contract was signed.
The prior proceedings:
The seller asserted a counterclaim to retain the down payment. The seller subsequently moved for summary judgment dismissing the complaint and on its counterclaim. The Supreme Court granted the seller's motion, and, upon reargument, adhered to that determination.
Concluding that:
In opposition to the seller's prima facie showing of entitlement to judgment as a matter of law dismissing the first and fifth causes of action, which sought relief based upon an alleged breach of contract, and on its counterclaim, the purchaser failed to raise a triable issue of fact. Contrary to the purchaser's contention, section 3.04 of the parties' contract did not provide it with the "option" of terminating the contract in the event that the lease remained extant at the time of closing. Rather, that contract provision provided the purchaser with nothing more than an option to extend the closing date in the event that the tenant under the lease had not vacated the premises at the time of closing. To interpret the option of extending the law date to include an option to terminate the contract would constitute adding terms to the contract and "thereby making a new contract for the parties under the guise of interpreting the writing[.]"
Contrary to the purchaser's further contention, the continued viability of the lease for an additional month after the closing date did not excuse the purchaser's performance under the contract. Rather, this alleged defect was curable within a reasonable time and, thus, the purchaser was obligated to tender performance and permit the seller the opportunity to cure. The purchaser's failure to do so bars it from recovering its deposit under the contract[.]
Pirzada v. 159 Express St., LLC , 2016 NY Slip Op 00954 (2nd Dept. February 10, 2016)
In an action to recover a down payment made pursuant to a contract for the sale of real property, the plaintiffs appealed from an order which granted the defendant's motion for summary judgment dismissing the complaint and on its counterclaims.
The Court summarily concluded that:
The Supreme Court properly granted the defendant's motion for summary judgment dismissing the complaint and on its counterclaims. The defendant established, prima facie, that it did not breach the parties' contract and that the plaintiffs were not entitled to the return of their down payment. It established that it was ready, willing, and able to perform on the time-of-the-essence closing date, and that the plaintiffs did not have a lawful excuse for their failure to close. In opposition, the plaintiffs failed to raise a triable issue of fact[.]
Shi v. Alexandratos , 2016 NY Slip Op 01560 (1st Dept. March 3, 2016)
Supreme Court, among other things, granted defendants' motion for summary judgment dismissing the complaint and declared that the Alexandratosdefendants were entitled to retain the contract downpayment.
The First Department summarily affirmed:
The residential contract of sale entered into between plaintiff and defendants Panagis Alexandratos and Carol Alexandratos provided that, if plaintiff did not receive a commitment for a first mortgage loan from an institutional lender on or before the "Commitment Date", he "may cancel this contract by giving Notice to Seller within 5 business days after the Commitment Date". It is undisputed that plaintiff failed to give the Alexandratoses notice of cancellation within five business days after the date on which the extension period he had requested and been granted expired. Plaintiff's argument that the mortgage contingency clauses of the contract constituted a condition precedent to his purchase of the Alexandratoses' house is belied by the contract language and by plaintiff's own conduct in requesting an extension of the mortgage contingency date before the initial 60-day "Commitment Date" term expired[.]
Feldsteyn v. Brighton Beach 2012, LLC , 2016 NY Slip Op 50264(U) (Sup. Ct. K. Co. March 7, 2016) [Schack, J.]
Supreme Court summarized the action:
[I]n this real estate action, [plaintiffs] seek the return of their $55,000.00 down payment for the purchase of a condominium unit and parking space at a development known as Brighton by the Sea Condominiums, located at 3041 Brighton 2nd Street, Brooklyn, New York. Plaintiffs the FELDSHTEYNS and defendant BRIGHTON BEACH 2012, LLC (BB 2012) did not close on the deal and BB 2012, pursuant to the purchase agreement, [defendant] retained plaintiffs the FELDSHTEYNS $55,000.00 down payment as liquidated damages. Plaintiffs the FELDSHTEYNS commenced the instant action for the return of their $55,000.00 down payment and related relief. Defendant BB 2012 moves, pursuant to CPLR Rule 3211 (a) (1), to dismiss plaintiffs' action upon documentary evidence[.]
The background:
Plaintiffs the FELDSHTEYNS and defendant BB 2012 entered into a purchase agreement...on December 4, 2012, for plaintiffs' purchase at 3041 Brighton 2nd Street of Unit No. 4C and garage Parking Space # PSA, for $550,000.00. Plaintiffs, pursuant to Part A (n) of the purchase agreement, gave defendant a down payment of $55,000.00. Part B, § 1.2 of the purchase agreement states, "[p]urchaser has been given an opportunity to examine the architectural plans for the above unit and for the building in which it is located." Part B, § 5.1 of the purchase agreement deals with the closing of title. It states, "[t]he contract authorizes one adjournment of the closing date of up to 10 days. The contract makes the adjourned closing date time of the essence.' This means the Purchaser must close by the adjourned date. In the event that Purchaser does not close on the adjourned date, Purchaser may risk the loss of his or her Down Payment." Part B, § 15 of the contract states, in ¶ 3, "[i]f Seller elects to cancel this Agreement on account of Purchaser's default...Seller may retain all sums deposited by Purchaser hereunder...as liquidated damages...and upon retaining such sum, this Agreement shall be terminated and neither party shall have any further rights, obligations or liabilities or against the other and the parties shall be released and discharged from all obligations and liability under this Agreement and the [Offering] Plan."
The purchase agreement set February 5, 2013 as the closing date. Defendant's attorney, on March 20, 2013, sent a "Time of the Essence Notice" to plaintiffs' real estate attorney...scheduling the closing for April 22, 2013, with the defendant seller "willing and able to deliver the Deed, transfer documents and all documentation in accordance with Contract of Sale." Further, the Notice states, "[i]f Purchaser does not tender the full balance of proceeds as required by the Contract of Sale, then the Purchaser shall be deemed to have materially defaulted and the down payment will be retained by Seller as liquidated damages. In such event the contract of sale shall be deemed cancelled."
Thereafter, defendant's attorney reminded plaintiffs' real estate attorney of the April 22, 2013 closing date in a letter, dated April 12, 2013[.] Defendants' attorney reiterated that should the FELDSHTEYNS not be present at the April 22, 2013 closing defendant BB 2012 will deem the FELDSHTEYNS in default and retain the down payment, pursuant to the contract, as liquidated damages.
Plaintiffs the FELDSHTEYNS did not appear on April 22, 2013 for the closing. Defendant's attorney in a letter, dated April 23, 2013...to plaintiffs' real estate attorney advised him that plaintiffs the FELDSHTEYNS were in default under the contract and "[a]ccordingly the Contract is hereby deemed terminated and the down payment shall be retained by Seller as liquidated damages."
Plaintiffs' claims:
The FELDSHTEYNS alleged in their verified complaint...that: the closing date was set for April 28, 2013; and, it was represented to them by BB 2012 that parking space # PSA could accommodate two cars, when it actually could accommodate only one car.
Further, plaintiffs the FELDSHTEYNS claim that they had Vlad Lyubarsky, an engineer, inspect the premises prior to their alleged April 28, 2013 closing date, on April 23, 2013, and Mr. Lyubarsky, in a report to them on April 24, 2013, concluded that the unit had various building code violations.
Analyzed plaintiffs' claims:
However, plaintiffs, in their opposition papers to the instant motion, fail to provide any documentation demonstrating that the closing date was April 28, 2013, as opposed to the documented April 22, 2013 closing date and they fail to provide a copy of their alleged April 24, 2013-engineer's report. Therefore, at a minimum, the April 28, 2013 alleged closing date and the alleged April 24, 2013-engineer's report is nothing more than conclusory hearsay.
Also, plaintiffs allege that after they received their engineer's report, they requested a copy of the building's architectural plans and defendant then refused to provide them with a copy of the architectural plans for the building. Plaintiffs allege...that defendant's refusal "to provide the plans and specifications for the unit to the Feldshteyns and by failing to return their deposit, the Sponsor breached the P & S Agreement and caused the Feldshteyns damages." As noted above, Part B, § 1.2 of the purchase agreement provides that "[p]urchaser has been given an opportunity to examine the architectural plans for the above unit and for the building in which it is located."
Further, there is nothing in writing presented by plaintiffs to show that Parking Space # PSA could accommodate two cars. The plain language of the purchase agreement refers only to a parking space. It does not state that the FELDSHTEYNS were purchasing two parking spaces.
Again, with respect to plaintiffs' allegation...that the closing date was set for April 28, 2013, they present no evidence to substantiate this claim. Moreover, plaintiff BORIS FELDSHTEYN...admits that he had notice of the April 22, 2013 closing date. Therefore, even if an engineer actually inspected the premises on April 23, 2013 and then sent a report to plaintiffs, it was subsequent to plaintiffs' documented April 22, 2013 default.
And dismissed the suit because:
In the instant action, plaintiffs the FELDSHTEYNS' verified complaint makes allegations that are clearly contradicted by the documentary evidence presented by defendant BB 2012. Plaintiffs the FELDSHTEYNS allege that the closing which gave rise to this action was scheduled for April 28, 2013. However, based upon the documents presented by defendant BB 2013: the closing was scheduled for and held on April 22, 2013; plaintiffs the FELDSHTEYNS defaulted; defendant BB 2012 deemed the contract cancelled; and, defendant BB 2012 retained plaintiff the FELDSHTEYNS $55,000.00 down payment as liquidated damages. Plaintiffs the FELDSHTEYNS allege that they sought the services of an engineer to inspect the premises on April 23, 2013. This inspection is of no moment and irrelevant since the contract was cancelled the prior day when plaintiffs the FELDSHTEYNS did not appear for the scheduled April 22, 2013 closing. Further, plaintiffs the FELDSHTEYNS allegation that defendant BB 2012 refused to provide the FELDSHTEYNS with a copy of the building's architectural plans for review is belied by the terms of the contract, wherein plaintiffs the FELDSHTEYNS, as purchasers, acknowledged that they had been given an opportunity to review the architectural plans prior to signing the purchase agreement in December 2012.
The instant action is dismissed because every allegation made by plaintiffs the FELDSHTEYNS against defendant BB 2012 is refuted by documentary evidence.
Herzog v. Belizario , 2016 NY Slip Op 26073 (Sup. Ct. K. Co., March 11, 2016) [Demarest, J.]
Supreme Court summarized the facts:
By a Residential Contract of Sale...dated as of June 2014 and executed by both plaintiffs and defendants, defendants, who are brothers, agreed to sell real property located at 1167 Greene Avenue, in Brooklyn, New York...a three-family residence owned by both of them, to plaintiffs, who are business partners, for the purchase price of $680,000. Samuel resides in one of the apartments at the property as his primary residence, and David lives elsewhere. At the time that defendants executed the contract, they had not paid the mortgage on the property in more than two years. Despite this lack of payment, no action for foreclosure was filed against defendants.
According to defendants, they had signed the contract after David contacted a broker, Desmond Smith...because they were seeking to take advantage of rising property values in the neighborhood and because they were always concerned that they had not been paying their mortgage, which could potentially lead to a foreclosure action being brought against them. Defendants claim that Smith then began putting pressure on David to sell the property, warning them that they could lose the property if it were sold in a foreclosure sale. In June 2014, Smith contacted David and informed him that he had found buyers for the property and that they should sign the contract. Soon thereafter, David went to the office of Anthony J. Cassese, Esq....an attorney to whom he claims he was referred by Smith, with the intention of signing the contract.
Pursuant to the contract, plaintiffs paid a $34,000 down payment with the balance of $646,000 to be paid at the closing. Mr. Cassese was listed as the attorney for defendants on the contract, and he accepted receipt of the down payment. Mr. Cassese also executed the contract, as the escrow agent, acknowledging this receipt.
The contract of sale:
Paragraph 15 of the contract provided that the closing was to take place within 60 days from the date of contract or upon reasonable notice by plaintiffs. Paragraph 23 of the contract provided that if defendants defaulted thereunder, plaintiffs would "have such remedies as they were entitled to in law or in equity, including, but not limited to specific performance."
A rider to the contract contained additional contractual terms. Paragraph 31 of the rider to the contract provided that defendants would not be obligated to remove any defect in title if the cost to them exceeded $2,000. Paragraph 32 of the rider to the contract provided that plaintiffs warranted and represented that, subject to their obtaining the proceeds of any mortgage contemplated thereunder, they had the assets sufficient to complete the transaction. Paragraph 33 of the rider to the contract, entitled "Attorneys' Fees," provided as follows:
"If either party brings any action or legal proceeding for damages or specific performance arising out of an alleged breach of this Contract, then the prevailing party in any such action or proceeding shall also be entitled to recover as part of such action or proceeding, or any separate action brought for that purpose, reasonable attorneys' fees and costs."
Paragraph 51 of the rider to the contract provided that plaintiffs agreed to pay, at the closing, all City fines currently outstanding on the property under the amount of $1,000, all City taxes currently in arrears on the property, all New York State and New York City transfer taxes associated with this transaction and all monies owed to satisfy the current water bill. Paragraph 52 of the rider to the contract provided that plaintiffs agreed to pay, at the closing, a $10,000 relocation fee to Samuel if defendants' net proceeds were less than $10,000 in exchange for the third floor being delivered vacant, and to pay the first and second floor tenants $5,000 each in exchange for these floors being delivered vacant. Paragraph 53 of the rider to the contract provided that defendants would, at no cost to them, cause their mortgage to be assigned to an entity designated by plaintiffs if permitted by their lender. Paragraph 54 of the rider to the contract stated: "HETPA disclosures annexed hereto and made a part hereof." Annexed to the contract was a "Notice of Cancellation Rights Required by HETPA." This Notice contained the language set forth in Real Property Law § 265a (4) (i), the Home Equity Theft Prevention Act (HETPA), as follows:
"YOU MAY CANCEL THIS CONTRACT AT ANY TIME BEFORE MIDNIGHT OF __________(DATE). JOEL HERZOG (Name Of Equity Purchaser) CANNOT ASK YOU TO SIGN OR HAVE YOU SIGN ANY DEED OR ANY OTHER DOCUMENT UNTIL YOUR RIGHT TO CANCEL THIS CONTRACT HAS ENDED. SEE ATTACHED NOTICE OF CANCELLATION FORM FOR AN EXPLANATION OF THIS RIGHT. YOU SHOULD ALWAYS CONSULT AN ATTORNEY OR COMMUNITY ORGANIZATION BEFORE SIGNING ANY LEGAL DOCUMENTS CONCERNING YOUR HOME. IT IS ADVISABLE THAT YOU FIND YOUR OWN ATTORNEY, AND NOT CONSULT WITH AN ATTORNEY WHO HAS BEEN PROVIDED TO YOU BY THE PURCHASER. THE LAW REQUIRES THAT THIS CONTRACT CONTAIN THE ENTIRE AGREEMENT. YOU SHOULD NOT RELY UPON ANY OTHER WRITTEN OR ORAL AGREEMENT OR PROMISE."
This Notice was signed by both plaintiffs and defendants. However, the date up to which defendants could cancel the contract was not filled in by plaintiffs and was left blank.
Also annexed to the contract was a "Notice of Cancellation," which contained the language set forth in Real Property Law § 265a (6) (a), as follows:
"THIS CONTRACT WAS ENTERED INTO ON _________. YOU MAY CANCEL THIS CONTRACT FOR THE SALE OF YOUR HOUSE, WITHOUT ANY PENALTY OR OBLIGATION, AT ANY TIME BEFORE MIDNIGHT OF ___________. TO CANCEL THIS TRANSACTION, PERSONALLY DELIVER A SIGNED AND DATED COPY OF THIS CANCELLATION NOTICE, OR SEND IT BY FACSIMILE, UNITED STATES MAIL, OR AN ESTABLISHED COMMERCIAL LETTER SERVICE, INDICATING CANCELLATION TO JOEL HERZOG (NAME OF PURCHASER) AT ___________ (STREET ADDRESS OF PURCHASER'S PLACE OF BUSINESS AND FACSIMILE NUMBER [NO.] IF ANY) NOT LATER THAN MIDNIGHT OF _________ (DATE).
IF YOU WISH TO CANCEL THIS CONTRACT, SIGN AND DATE BOTH COPIES AND RETURN ONE COPY IMMEDIATELY TO THE PURCHASER.
I HEREBY CANCEL THIS TRANSACTION. ________________________ (SELLER'S SIGNATURE) (DATE)."
As shown above, the date on which the right to cancel the contract ended was not filled in by plaintiffs and was left blank.
Subsequent developments:
According to Nechemia, after entering into the contract, she and Joel had numerous communications with defendants in an effort to close on the property. She attaches, as an exhibit, text messages which she exchanged with Samuel in October 2014, whereby he agreed to provide her with access to the property so that the bank that she and Joel were using to finance the transaction, i.e., Community Federal Savings Bank, could appraise it. She also annexes a "Cost to Complete Report" for the property from KOW Building Consultants, prepared for Community Federal Savings Bank, which specifically notes...that on October 8, 2014, Samuel provided him with access to the property.
Thereafter, defendants, using Alexander Levkovich, Esq....defendants' present attorney in this action, as their transactional attorney, rather than using Mr. Cassese, entered into a contract dated March 13, 2015, for the sale of the same property, with a different buyer, namely, Alexander Rubin[.] That contract provided for the sale of the property to Rubin for the purchase price of $740,000 with a $37,000 down payment. It also contained an April 17, 2015 time is of the essence closing date with a 60-day closing adjournment if defendants could not deliver the property vacant. Notably, no HETPA disclosures were included in that contract.
On May 4, 2015 plaintiffs' then attorney, Joseph Badalov, Esq....of the law firm Stanley P. Kupfer, Esq., who represented them in the real estate transaction, emailed Mr. Cassese asking him to advise him of the status of the closing date. Mr. Badalov stated that plaintiffs were prepared to make an offer for the tenants to vacate prior to closing and asked to be advised as to defendants' plans with respect to the closing date. Although there was no time of the essence clause in the contract, nor was any time of the essence notice otherwise given to defendants, Mr. Cassese replied, in an email on the same date, that defendants were not proceeding with this transaction because this was an all cash transaction that should have closed nine months ago. He
stated that, as a result of the delay, defendants' mortgage payoff was significantly more than was anticipated, and that defendants had advised him to terminate the contract and return the down payment. He further advised Mr. Badalov that, in the event of any litigation in connection with this matter, his law firm would not be representing defendants.
Shortly before that email was sent, on April 30, 2015, after discovering that defendants had entered into the contract with Rubin for the sale of same property that was the subject of the contract with them, by their present attorney, the Law Office of Jeffrey Fleischmann PC, plaintiffs filed a notice of pendency and commenced this action against defendants. Plaintiffs' complaint alleges a first cause of action for specific performance of the contract, a second cause of action for a declaratory judgment that defendants willfully and materially breached the contract and that they are required to schedule a closing date under the contract as soon as practicable, a third cause of action awarding them compensatory and consequential damages against defendants, and a fourth cause of action, as an alternative to specific performance, awarding them a vendee's lien for the deposit and any additional funds paid to them of no less than $34,000.
On May 26, 2015, Mr. Levkovich executed a stipulation on behalf of defendants, waiving their defense of lack of proper service in exchange for plaintiffs' extension of defendants' time to answer until June 25, 2015. No answer was served by June 25, 2015. Instead, on June 25, 2015, Mr. Levkovich filed a notice of appearance, giving notice that he is the attorney for defendants and that defendants appear in this action, and demanding that plaintiffs serve a copy of the complaint and all notices and other papers in this action upon him. According to Mr. Fleischmann, he spoke to Mr. Levkovich twice by telephone and requested that he interpose an answer, and Mr. Levkovich promised to do so within one day, but then failed to do so. On July 3, 2015, Mr. Levkovich efiled a "Notice of Rescission," stating that defendants, as equity sellers, wished to exercise their right pursuant to Real Property Law § 256a (8) to rescind the contract, because plaintiffs, as equity purchasers, had violated certain provisions of Real Property Law § 265a, especially subsections (4), (6), and (7). This Notice further advised that Joel would have 20 days after delivery of the Notice of Rescission to authorize defendants and their counsel to refund the deposit on the property and cancel the notice of pendency.
The HETPA "defense":
Defendants' defenses are predicated on their contention that they were permitted to rescind the contract on the ground that it is governed by HETPA, which is embodied in Real Property Law § 265a. HETPA, which became effective on February 1, 2007, was enacted by the Legislature in order to promote the public welfare upon its finding, as set forth in Real Property Law § 265a (1) (a), that "homeowners who are in default on their mortgages or in foreclosure may be vulnerable to fraud, deception, and unfair dealing by home equity purchasers"[.] Specifically, the Legislature found that "[d]uring the time period between the default on the mortgage and the scheduled foreclosure sale date, homeowners in financial distress, especially poor, elderly, and financially unsophisticated homeowners, are vulnerable to aggressive equity purchasers' who induce homeowners to sell their homes for a small fraction of their fair market values, or in some cases even sign away their homes, through the use of schemes which often involve oral and written misrepresentations, deceit, intimidation, and other unreasonable commercial practices"[.]
The relevant provisions of HETPA:
HETPA requires that every "covered contract" and notice of cancellation attached thereto shall be written in letters of a certain size, and that "[a]ny instrument of conveyance shall become effective no sooner than midnight of the fifth business day after the date on which the covered contract is executed"[.] It further requires that all "covered contracts" contain the entire agreement of the parties and must provide a complete description of the transaction, including, the name, business address, and the telephone number of the equity purchaser; the address of the residence; the total consideration to be given, the terms of payment, the time of transfer of physical possession of the residence, the terms of any lease agreement, and the terms of any reconveyance arrangement[.]
In addition, HETPA requires that the "covered contract" contain a notice, in the form prescribed, stating that the equity seller may cancel the contract and that the equity purchaser cannot ask him or her to sign any deed until his or her right to cancel the contract has ended[.] The equity purchaser is required to accurately enter the date on which the right to cancel ends...The "covered contract" must also contain a notice of cancellation, in the form prescribed, attached to the "covered contract" and containing the statement written in the same language as used in the "covered contract" that the equity seller may cancel the contract for the sale of his or her house, without any penalty or obligation, at any time before midnight of a date to be entered on the form by the equity purchaser[.]
And the Real Property Law:
Real Property Law § 265a(5) (a) provides that "the equity seller has the right to cancel any covered contract with an equity purchaser until midnight of the fifth business day following the day on which the equity seller and equity purchaser sign a covered contract that complies with this section." Real Property Law § 265a (7) sets forth certain actions that the equity purchaser is prohibited from taking prior to midnight of the fifth business day after the date on which the "covered contract" is executed. These acts include accepting from any equity seller an execution of, or inducing any equity seller to execute, any instrument of conveyance of any interest in the residence, recording with the county clerk any instrument of conveyance signed by the equity seller, transferring or encumbering any interest in the residence, paying the equity seller any consideration, and suggesting, encouraging, or providing any form which allows the equity seller to waive his or her right under the HETPA to cancel or rescind the covered contract.
Furthermore, pursuant to Real Property Law § 265a (7) (b), an equity purchaser is prohibited from making any "false or misleading statement regarding the value of the residence in foreclosure or, where applicable, default; the amount of proceeds the equity seller will receive after a foreclosure sale; the timing of the judicial foreclosure process; any contract term; the equity seller's rights or obligations incident to or arising out of the sale transaction; the nature of any document which the equity purchaser induces the equity seller to sign; or any other false or misleading statement concerning the sale of the residence in foreclosure or, where applicable, default, or concerning the reconveyance arrangement."
Real Property Law § 265a (7) (d) sets forth that "[i]t is unlawful for any equity purchaser to initiate, enter into, negotiate, or consummate any covered contract involving residential real property in foreclosure or, where applicable, default if such person, by the terms of such covered contract, takes unconscionable advantage of the equity seller."
Real Property Law § 265a (8) (a) provides that "[a]ny transaction involving residential real property in foreclosure or, where applicable, default which is in material violation of subdivision three, four, six, seven or eleven of this section is voidable and the transaction may be rescinded by the equity seller within two years of the date of the recording of the conveyance of the residential real property in foreclosure or, where applicable, default." Real Property Law § 265a
(8) (b) sets forth that such rescission is effectuated by giving written notice to the equity purchaser, and by recording this notice with the county clerk of the county where the property is located, within two years of the date of the recording of the conveyance to the equity purchaser.
Real Property Law § 265a (9) authorizes an equity seller to bring an action for the recovery of damages or equitable relief against an equity purchaser for a violation of Real Property Law § 265a (3), (4), (6), (7), or (11)[.] Under Real Property Law § 265a (9), "[a] court may award to a prevailing equity seller actual damages plus reasonable attorneys' fees and costs," and, "[i]In addition, the court may award equitable relief, or increase the award in an amount not to exceed three times the equity seller's actual damages, or both, if the court deems such award proper." Real Property Law § 265a (11) provides criminal penalties where an equity purchaser with intent to defraud violates Real Property Law § 265a (7).
Addressed the HETPA defense:
Defendants argue that the contract is a "covered contract" under HETPA and that plaintiffs have violated HETPA as a matter of law because they did not date the Notice of Cancellation or provide in the Notice the date and time by which the covered contract must be cancelled[.] They further assert that defendants violated Real Property Law § 265a (7) (b), which is "a catchall provision." In arguing that HETPA was violated, although the real estate broker, Smith, was engaged by David and was unrelated to plaintiffs, they contend that all of the acts of Smith should be imputed to plaintiffs...and that Smith solicited and induced them to sell their property. They also argue that the contract is unconscionable[.] They contend that, therefore, the contract is voidable and may be rescinded pursuant to Real Property Law § 265a (8) (a). They assert that, therefore, the contract is voidable and may be rescinded[.] They assert that they rescinded the contract by their Notice of Rescission given by them on July 3, 2015, following plaintiffs' commencement of this action on April 30, 2015.
Defendants' attempt to avoid the contract by utilizing the provisions of HETPA, however, must fail as HETPA is wholly inapplicable because the contract is not a "covered contract" under HETPA. A "covered contract" is unambiguously defined in Real Property Law § 265a (2) (c) as meaning: "any contract, agreement, or arrangement, or any term thereof, between an equity purchaser and equity seller which: (i) is incident to the sale of a residence in foreclosure; or (ii) is incident to the sale of a residence in foreclosure or default where such contract, agreement or arrangement includes a reconveyance arrangement" (emphasis added). A "reconveyance arrangement" is defined in Real Property Law § 265a (2) (i) as "(i) the transfer of title to residential real property by an equity seller who is in default or foreclosure, either by transfer of interest from an equity seller to an equity purchaser or by creation of a mortgage or other lien or encumbrance during the time of default or foreclosure that allows the equity purchaser to obtain legal or equitable title to all or part of the property, and (ii) the subsequent conveyance, or promise of a subsequent conveyance, of an interest back to the equity seller by the equity purchaser that allows the equity seller to regain possession of the property, which interest shall include but not be limited to a purchase agreement, option to purchase, or lease." Here, there was no reconveyance arrangement in the contract.
It is undisputed that the property was not in foreclosure, which is defined in Real Property Law § 265a (2) (g) as requiring "that there is an active lis pendens filed in court pursuant to article thirteen of the real property actions and proceedings law against the subject property, or the subject property is on an active property tax lien sale list." While it is true that the property was in "default," as defined in Real Property Law § 265a (2) (d), as meaning that "the equity seller is two months or more behind in his or her mortgage payments," in the absence of a reconveyance arrangement in the contract, the fact that the property was in default for over five years does not render the contract a "covered contract" under HETPA[.]
Defendants, despite this definition, contend that they are "equitable sellers" since they were "property owners" of a three-family residential property which is Samuel's primary residence. A "property owner" is defined by Real Property Law § 265a (2) (h) as "any or all record title owners of the residential real property in foreclosure or, where applicable, default at the time of the equity sale." Defendants assert that since they have been in default on their mortgage payments for over five years, and the contract was entered into in June 2014, which was during the time that they were in default, HETPA should be found applicable to the contract.
Defendants argue that the legislative intent of HETPA was to encompass the contract since they were in default on their mortgage at the time they signed the contract with plaintiffs. While Real Property Law § 265a (1) (a) declares the legislative intent of HETPA to be to protect homeowners who are in default on their mortgages or in foreclosure that may be vulnerable to fraud, deception, and unfair dealing by home equity purchasers, the statute expressly limits its scope and applicability to "covered contracts"[.] Furthermore, defendants have not alleged any fraud, deception, or unfair dealing engaged in by plaintiffs as equitable purchasers. Rather, relying upon the language of Real Property Law § 265a (2) (e) defining "equitable purchaser" to mean "any person who acquires title to any residence in foreclosure or, where applicable, default, or his or her representative," defendants assert that plaintiffs, as well as defendants' own broker, Smith (who is not a party herein), are equitable purchasers. Defendants contend that Smith was plaintiffs' representative, and that he engaged in fraud, deception, and unfair dealing.
An analysis of the applicable law:
Samuel and David have each submitted affidavits asserting that Smith started putting pressure on David to sign the contract by stating that they would lose the property if it were sold at a foreclosure auction, that it would be "sold very soon," and that the bank would go after them for the deficiency balance. They claim that they had no knowledge of how the legal system worked and assumed that Smith was telling the truth since they had not paid the mortgage in several years. They further claim that Smith tried to convince David that it was urgent that they sell the property before they lost it in foreclosure and that the only way to get out of this situation and avoid losing everything was to sell the property. They also claim that they never met their attorney, Mr. Cassese (who was referred to David by Smith), in person, and no one explained anything connected to the terms of the contract. Samuel claims that he was not even aware that he had signed a contract, and David claims that, although he knew that he was signing the contract, he did not know that the contract was consummated. Defendants' allegations against Smith and their own attorney would clearly set forth a violation of Real Property Law § 265a (7) (b) if Smith and Cassese were acting as agents of plaintiffs. However, while defendants seek to attribute the actions of their broker, Smith, to plaintiffs, as their "representative," Smith was not engaged by plaintiffs, but by David, who admits that he initiated contact with Smith and is responsible for paying the brokerage commission to Smith if the sale is completed.
Defendants also point to statutory language in Real Property Law § 265a as support for their contention that HETPA is applicable where the equitable sellers are either in foreclosure or merely in default without a foreclosure action having been commenced, even if there is no reconveyance agreement. Specifically, they cite to references in Real Property Law § 265a (7) to "the residence in foreclosure or, where applicable, default." They also cite to Real Property Law § 265a (8) (a), which similarly refers to "conveyance of the residential real property in foreclosure or, where applicable, default." This language, however, does not support defendants' argument since the term "where applicable" relates to the alternative "covered contract" arising out of the situation where there is no pending foreclosure action, but the contract is entered into while the sellers are in default upon their mortgage payments, but only where such contract includes a reconveyance arrangement[.]
Rejection of the HETPA defense:
This argument is rejected. The mere fact that the contract referred to "HETPA disclosures" and included HETPA notices does not render the contract a "covered contract" under HETPA, nor does it demonstrate that the parties agreed to be contractually bound by HETPA. The contract does not contain any language that the parties agreed to be bound by HETPA, but merely stated, perhaps out of an abundance of caution, that HETPA disclosures were annexed and made a part thereof. This language is patently insufficient to demonstrate any intention by the parties to bind
themselves to HETPA requirements which would not otherwise apply to the contract. In the absence of any statutory requirement that the HETPA notices be included, the fact that forms were included, which were not correctly or completely filled out in accordance with the statutory requirements, cannot provide defendants with a basis for rescission. In any event, the statute provides that the right to cancel extends to "midnight of the fifth business day following the day on which [the contract is signed]"[.] Defendants' first attempt to cancel the contract was by letter of counsel dated May 4, 2015, nearly a year after the contract was executed.
The unconscionability argument:
Defendants also seek a declaratory judgment that the contract is unconscionable. "In general, an unconscionable contract has been defined as one which is so grossly unreasonable as to be unenforceable because of an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party"...Defendants argue that they were without a meaningful choice to enter into the contract because Smith used fraudulent tactics by telling them that they would lose their property if they did not sell it immediately, lied to them about the property being in foreclosure, and used high pressure sales tactics. They further argue that the contract terms were unconscionable because the sales price of $680,000, after paying the prospective closing costs, would require sellers to pay $20,000 to deliver clear title to plaintiffs. Defendants assert that the prospective closing costs total $746,057.59, which consist of approximately $622,398.81 for the payoff of the mortgage as of August 18, 2015, $12,210 for outstanding transfer taxes, $14,448.78 for an outstanding water lien from the DOF as of May 1, 2015, $26,000 for Environmental Control Board (ECB) open judgments, a 10% broker's commission in the amount of $68,000, and $5,000 for miscellaneous title and legal expenses. These expenses, totaling $746,057.59, are $66,057.59 above the $680,000 contract price.
This argument has no merit in the circumstances. Any sales pressure by Smith, who was defendants' broker, cannot be attributed to plaintiffs. Defendants do not assert that plaintiffs had any relationship with Smith other than the fact that, after defendants engaged Smith as their broker, he found plaintiffs for defendants as potential purchasers of the property. As to the prospective closing costs, the fact that defendants owed $622,398.81 on their mortgage, comprising the bulk of these listed expenses, does not render the purchase price unconscionable. It is noted that, by their own admission, defendants had not made their mortgage payments for five years, while enjoying possession of the property and collecting rent from their tenants. Such circumstances explain the substantial accrued mortgage debt, independent of the value of the property, and clearly corroborate Smith's alleged advice that foreclosure was imminent. Defendants do not set forth any appraisal or other evidence to show that $680,000 was unreasonable for the value of the property at the time the contract was entered. Moreover, as discussed above...plaintiffs agreed to pay the transfer taxes (which defendants list as totaling $12,210), and to satisfy the outstanding water bill (which defendants list as $14,448.78). As to the $26,000 ECB open judgments, plaintiffs further agreed to pay all outstanding City fines under the amount of $1,000. With respect to the brokers' commission, plaintiffs are not involved with, nor responsible for, defendants' agreement with their own broker to pay a commission. Therefore, the listed closing costs relied upon by defendants do not show that the contract terms unreasonably favor plaintiffs or in any way render the contract unconscionable.
Thus, defendants are not entitled to a declaratory judgment in their favor, dismissal of plaintiffs' complaint, or legal fees and damages under HETPA, as sought by their cross motion. Plaintiffs, in their motion, seek specific performance of the contract. Although the parties have not denominated their respective motion and cross motion as being for summary judgment, they, in essence, request such relief since they seek the ultimate relief sought in their complaint and answer (which has now been deemed served), and have deliberately charted a summary judgment course by their submissions[.]
And, as to specific performance:
With respect to plaintiffs' entitlement to specific performance, "[t]he elements of a cause of action for specific performance of a contract are that the plaintiff[s] substantially performed [their] contractual obligations and w[ere] willing and able to perform remaining obligations, that defendant[s] w[ere] able to convey the property, and that there was no adequate remedy at law"...In support of their motion, plaintiffs assert that they have satisfied all conditions of the contract and fulfilled all of their contractual obligations, and that they remain ready, willing, and able to close under the terms of the contract and to proceed with the purchase of the property.
In her affirmation, Nechemia asserts that she and Joel received a commitment letter from Community Federal Savings Bank for the amount of $540,000, and has annexed a copy of this commitment letter. She attests that while this commitment has expired as a result of defendants' refusal to close, she communicated with the bank on July 6, 2015 and was informed that it would extend the terms of the commitment letter once she and Joel received confirmation of the closing, albeit with a slightly varied interest rate. She additionally states that she and Joel have ample funds to close even without the bank commitment. As proof of this, she has annexed a recent statement from a credit line maintained by her at TD Bank, which shows an available balance of $400,000. She also annexes a recent statement from Chase relating to an entity called 554 Wilson Ave LLC, of which she is the owner, which shows an available balance of $555,464.05. She attests that all of these funds are available to use to close the transaction. Plaintiffs assert that defendants breached the contract by failing to convey the property to them and by entering into a contract with Rubin. They further assert that the property is unique, and that they, therefore, have no adequate remedy at law.
Plaintiffs have thus made a prima facie showing of their entitlement to judgment as a matter of law on their claim for specific performance of the contract by submitting proof of the validity of the contract, their performance thereunder, and that they were and are ready, willing, and able to proceed to closing...In opposition, defendants have failed to raise any triable issue of Fact...Therefore, plaintiffs are entitled to summary judgment in their favor on their first cause of action for specific performance[.]
Postscript: On May 24, 2016, in Ithilien Realty Corp. v. 176 Ludlow, LLC , 2016 NY Slip Op 04002 (1st Dept. May 24, 2016), the Appellate Division summarily held that:
[T]he court [below] improvidently exercised its discretion in awarding statutory prejudgment interest to plaintiff. The contract's terms, requiring that the down payment be placed in an interest-bearing account, so that the party entitled to the down payment would receive compensation for the deprivation of its use of the money in the form of accrued interest, were sufficiently clear to establish that interest paid at the statutory rate was not contemplated by the parties at the time the contract was formed and that the amount escrowed, including interest earned, should be the exclusive remedy to the wronged party.
Lessons learned:
During the "honeymoon" (while the contract is being negotiated, drafted and executed), consideration should be given to a possible event of "divorce" (if, as and when a party allegedly breaches) as to the circumstances that will trigger either forfeiture or return of the down payment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
