Important Real Estate Precedent: The Consequences of Clouded Title in Property Sales

This week we wanted to bring to your attention an interesting decision from the Appellate Division, Second Department which reversed a Lower Court’s Order and granted Plaintiff-Purchaser’s motion for summary judgment directing the return of purchaser’s downpayment upon a theory of breach of contract based on the fact that Defendant-Seller was unable to timely clear of record a recorded Deed that clouded seller’s claim to exclusive fee title. 
The relevant facts of, as well as a link to, the case are set forth below.

The Plaintiff-Purchaser, Eurovision 426 Dev. LLC (hereinafter the “Buyer”), and Defendant-Seller,  26-01 Astoria Development, LLC (hereinafter the “Seller”), had entered into a Contract for the sale of a Queens County property for the sum of $11,000,000 with a downpayment deposited by the Buyer in the amount of $250,000 (the “Contract”). The Contract required the Buyer to retain a title insurance company to insure title and granted Seller a 90-day period to clear certain Title Exceptions, if any, raised in the Title Report.  The Buyer’s Title Company issued its Title Report and raised an Exception related to a recorded deed purporting to convey the property from Shia Ostreicher to Isaac Silberstein (hereinafter the “Ostreicher Deed”).  Upon investigation it was determined that Mr. Ostreicher was a former partner of the Seller who was involved in an arbitration dispute with his partner, Judith Grunbaum, over the sale of his interest in the property and had recorded the Ostreicher Deed resulting in a cloud on title. 
The contract required the parties to close title Time Being of the Essence, but on the scheduled Closing Date the Seller had failed to clear the Ostreicher Deed of record and the Buyer refused to close title with an Exception in its Owner’s Policy.  It appears that the parties contemplated an adjourned closing date to allow the Seller to provide clear title but, approximately one month after the closing date and prior to the expiration of the Seller’s 90-day cure period, the Buyer purportedly terminated the contract on the ground that the Seller failed to provide clear title and then commenced this action to recover its downpayment.   The Seller continued its efforts to clear the Ostreicher Deed of record and had commenced litigation against Ostreicher seeking to void the Ostreicher Deed but both the arbitration dispute between Ostreicher and Grunbaum as well as the Supreme Court action between the Seller and Ostreicher remained pending at the conclusion of the 90-day period without resolution of the cloud on title.
Upon the expiration of the 90-day cure period, the Buyer moved for summary judgment seeking the return of its downpayment based upon breach of contract, asserting that the Seller was unable to provide insurable and marketable title as required by the contract on either the closing date or within the 90-day period to cure any title defect. The Supreme Court denied the Buyer's motion and this appeal ensued.
In reversing the Lower Court’s Order, the Appellate reasoned that “when a seller contracts to deliver title that an insurance company retained by the buyer would insure, the seller breaches the contract when the title insurance company refuses to insure title unconditionally and without exception, unless the exception is contemplated by the contract (see Laba v Carey, 29 NY2d 302, 307 [1971]; Stenda Realty, LLC v Kornman, 67 AD3d 996, 999 [2009]; Newmark v Weingrad, 43 AD2d 983 [1974], affd 35 NY2d 832 [1974]; Kopp v Barnes, 10 AD2d 532, 534-535 [1960]).”  The Court further held that because the Title Company would not insure title without Exception while the Ostreicher Deed remained of record, the Seller was in breach of contract for failing to be able to deliver title in accordance with the terms of the Contract on the closing date or within the 90-day period to cure any title defects provided therein and therefore directed the return of Buyer’s downpayment together with statutory interest earned thereon.

To view the case, click the link below: 
https://www.nycourts.gov/reporter/3dseries/2011/2011_00349.htm

This case is an important reminder to review the City Register’s and/or County Clerk’s records prior to executing a Contract of Sale to confirm whether a conflicting deed(s) appear(s) of record which can result in a cloud on title.  Home Abstract Corp. remains available provide last owner searches at any time if parties wish to independently confirm the current owner of the property being transferred.