Unrecorded Equitable Interest

This week we wanted to bring your attention to a First Department case wherein the Appellate Division held that an Ex-Husband’s Judgment Creditor’s lien claim was subordinate to the Ex-Wife’s unrecorded equitable interest in a Condominium Unit that the couple had acquired during their marriage. The relevant facts of the case, as well as a link to the decision, are summarized below.

Laura Tiozzo and Pascal Dangin, as husband and wife, purchased a condominium unit in 2003. In 2004, they entered into a stipulation of divorce, which, that year, was incorporated by reference into the judgment of divorce. Under the stipulation, Tiozzo was granted the “sole ownership and exclusive use and occupancy” of the unit, and Dangin was to convey his interest to Tiozzo if doing so would not “cause a termination or modification of the terms of the existing mortgage.” In 2019, Tiozzo demanded that Dangin deed his interest to her; he refused to do so.

In 2018, Dangin executed a confession of judgment in favor of Lenz Capital Group LLC (“Lenz”) for $1,948,909.50, which judgment was entered in New York County. In July 2019, Tiozzo brought an action seeking a ruling that she held a 100% equitable interest in the unit and that the Lenz judgment was of no legal effect as to her interest. The Supreme Court, New York County, denied Tiozzo’s motion for summary judgment on her causes of action seeking a declaration that she held all equitable interests in the condominium unit and an injunction barring Dangin and Lenz from creating, perfecting or enforcing any lien against the unit. The Appellate Division, First Department, reversed and granted Tiozzo’s motion. According to the Appellate Division, the stipulation of divorce “divested Dangin of his rights in the subject property. Under CPLR article 52 a judgment creditor may only seek to enforce its money judgment against a judgment debtor’s property…[T]he determining factor as to whether a judgment debtor’s interest can constitute property vulnerable to a judgment creditor is whether it ‘could be assigned or transferred’ [citation omitted]. In the stipulation of divorce Dangin gave up any right to assign or transfer to a third party an interest in the subject property. The subject property is therefore beyond the reach of Lenz [citations omitted].

As to application of the statute of limitations, ”[a]s there was no deadline for delivery of a quitclaim deed under the stipulation of divorce, the court correctly concluded that Tiozzo’s conduct in this regard would not provide a basis for Lenz to assert a statute of limitations or equitable estoppel defense against Tiozzo’s claims.”

Defenses of laches or of unclean hands also did not apply. According to the Court, “…Tiozzo’s interest in the subject property vested when the judgment of divorce was entered. Her decision to delay her demand for a quitclaim deed from Dangin was pursuant to a right provided to her under the stipulation of divorce…Accordingly, Tiozzo is entitled to what she bargained for in settling her divorce: a 100% interest in the subject property that is beyond the reach of Dangin, and of Lenz.” Tiozzo v. Dangin, 2021 NY Slip Op 04739, decided August 19, 2021, is posted at http://www.nycourts.gov/reporter/3dseries/2021/2021_04739.htm.

This case certainly confirms the importance of a carefully drafted Stipulation of Divorce.  The specific terms of the Stipulation will not only settle ownership issues related to the Real Property owned by the divorcing parties but, may also result in dire consequences for 3^rd party creditors whose liens could be determined to be unenforceable.