Scott E. Mollen

Landlord-Tenant—Rent Stabilization—Owners' Personal Use Action Dismissed—Housing Stability and Tenant Protection Act of 2019—Due Process Claims Under 5^th and 14^th Amendments Rejected—Owners Who Buy Properties in Heavily Regulated Industry That Have Been "Subject to the Winds of Changing Legislative Priorities" Cannot Argue They Lost Vested Rights—HSTPA Did Not Constitute Unconstitutional Impairment of Contractual Relations—Pendulum Has Now Swung in Favor of Tenants

This decision involved a six-unit building comprised of two units each on the first, second, and third floors. In June 2018, the owner served notices of non-renewal and notices of termination upon the respondent tenants, stating the owner's intention to recover the subject apartments in order to "combine them to create a four-bedroom apartment for his son." In October 2018, the owner commenced "three other owner's personal use proceedings against other tenants in the same building. The proceedings were consolidated for a joint trial…." Thereafter, the tenants moved to dismiss the proceedings "pursuant to CPLR §3211(a)(7), based on the failure to state a cause of action." The owner opposed the motion and argued that the Housing Stability and Tenant Protection Act of 2019 (HSTPA) violates his "due process rights and protections pursuant to the Fifth and Fourteenth Amendments to the United States Constitution and Article I, Section 6 of the New York State Constitution."

The HSTPA enacted on June 14, 2019, amended Rent Stabilization Law (RSL) §26-511(c)(9) to read that: "[A]n owner shall not refuse to renew a lease except…where he or she seeks to recover possession of one dwelling unit because of immediate and compelling necessity for his or her own personal use and occupancy as his or her primary residence or for the use and occupancy for a member of his or her immediate family as his or her primary residence."

The HSTPA provides that it was to "take effect immediately and shall apply to any tenant in possession at or after it takes effect, regardless of whether the landlord's application for an order, refusal to renew a lease or refusal to expand or renew a tenancy took place before this act shall have taken effect." A prior Appellate Division, First Department decision held that the "Legislature expressly made the amendments applicable to pending claims, and legislative enactments carry 'an exceedingly strong presumption of constitutionality'…. Further, it is well settled that absent deliberate or negligent delay, 'where a statute has been amended during the pendency of a proceeding, the application of that amended statute to the pending proceeding is appropriate and poses no constitutional problem'."

The subject court was "constrained to follow the First Department precedent which forecloses consideration of petitioners' due process challenge." Since the subject owner's use proceedings were pending on the effective date of HSTPA, the court held that the "statutory amendments prohibiting recovery of more than one-rent stabilized unit are applicable to the instant proceedings."

The owner argued that even if the HSTPA provision is constitutional, "it is being unconstitutionally applied to petitioner because petitioner 'bought the building in reliance on the RSL as then enacted.'"

The court rejected such argument and stated that the owner had "knowingly bought property in a heavily-regulated industry within the New York City housing market. The laws related to Rent Stabilization have been historically subject to the winds of changing legislative priorities." The court cited the Rent Regulation Reform Act of 1993 and Rent Regulation Act of 1997 as examples rent stabilization laws that made "sweeping changes" to the "rights of landlords and tenants." The court also cited Robert v. Tishman Speyer Props., L.P. (13 NY3d 270 (2009)), wherein the Court of Appeals had "overturned…DHCR's long-standing interpretation of the laws and regulations related to the deregulation of rent-stabilized units in buildings receiving J-51 tax benefits."

The court opined that the owner "could not reasonably rely on the status quo since 'rent regulation does not confer vested rights'…and basic legal due diligence prior to the purchase of the subject premises would have placed petitioner on notice that the laws governing the building were subject to change while he was the owner."

The court further noted that "[s]tatutes regulating the economic relations of landlords and tenants are not per se takings" and that a regulation "denying an owner the most profitable, preferred or intended use of his property do not violate the Takings Clause unless it truly eliminates all economically viable use."

The court stated that nothing in the record showed that the HSTPA violated the constitutional rights of the owner. The owner did not provide an affidavit setting forth the alleged "constitutional injury or the actual impact on his property interest." The six-unit building is "currently inhabited by a number of rent-paying tenants and is commercially viable." The court further stated that the inability to realize the "optimum use" of the building does not "rise to the level of an impermissible taking." The court explained that the HSTPA "reflects legislative priorities which adjusted 'the benefits and burdens of economic life to promote the common good.'"

Additionally, the court held that the HSTPA did not constitute an "unconstitutional impairment of the contractual relations between (owner) and (tenants)." The court emphasized that "[w]hen a party purchases into an enterprise already regulated, he purchases subject to further legislation." The court further reasoned that when the owner purchased the building, he did not "have a reasonable expectation that the Legislature would not change these laws and that such changes could possibly place even more restrictions on the use of his property. The history of rent regulation is a cautionary tale of varying and often vying legislative priorities. The pendulum swings have often benefitted landlords in the past. Now it appears, the pendulum has swung in the opposite direction."

The court concluded that it could not say that the new law "is without significant and legitimate public purpose." "The amendment limiting owners to the recovery of only one apartment and only after establishing immediate and compelling necessity for their personal use is one of the tools employed by the Legislature to stem this flow (of residential units out of the rent stabilization system) and preserve affordable housing for New Yorkers." Accordingly, the court dismissed the proceedings with prejudice.

Karpen v. Castro, Civil Court, Kings Co., Case No. 87287/17, decided Nov. 20, 2019, McClanahan, J.

Landlord-Tenant—Bank Which Acquired the Property Pursuant to Referee's Deed Failed To Comply With "Williams Consent Decree Requirements"—Holdover Suit Dismissed

A petitioner commenced a holdover proceeding to recover possession of the subject premises. The petitioner asserted that there is no lease in effect. The petitioner had acquired the premises pursuant to a referee's deed, after it had foreclosed on the property. The petitioner had served the respondent with a 90-day notice of termination which stated that the petitioner was the new owner of the premises, requested "information in regard to any tenancy rights of respondents, and demanded possession of the premises on or before February 12, 2019."

The petitioner had moved for summary judgment. The respondent opposed such motion and moved to dismiss the proceeding and to amend her answer.

The petitioner argued that it had served the 90-day Notice To Quit, together with a certified copy of the referee's deed, pursuant to RPAPL §735 and §713(5) and that the respondents are not tenants as defined by RPAPL §1305(l)(c) and did not have a valid license in effect. The petitioner also asserted, inter alia, that it was not required to serve the New York Housing Authority (NYCHA) with a copy of the notice of petition and petition in compliance with the "Williams Consent Decree" since the "petitioner is not a party to any contract authorized by the Section 8 program" and, is not obligated "to meet any standards to maintain respondent's Section 8 status."

The court denied the petitioner's motion of summary judgment on the ground that there are issues of fact which require a trial. The respondent had alleged that there was a valid lease in effect and had submitted such lease. However, that lease was signed only by the owner and not by the tenant. The court found that there was an issue of fact as to "the validity of the lease and whether it is still in effect." There was also an issue of whether a respondent was properly served with the 90-day notice to quit and or with a certified copy of the Referee's Deed.

With respect to the respondent's cross motion to dismiss, based on the petitioner's failure to serve NYCHA in compliance with the Williams Consent Decree, the court explained that "where the proceeding involves a Section 8 voucher administered by NYCHA, strict compliance with the Williams Consent Decree is required. The Williams Consent Decree provides in cases such as the one before the court, where the grounds for a termination did not arise out of the termination of the Housing Assistance Payment (HAP) contract, the landlord must mail or deliver to the Authority any statutory notices that are required to be served upon the tenant 'as a prerequisite to the commencement of an eviction proceeding', and a landlord must, 'upon commencement of the proceeding, serve a copy of the Notice of Petition on the Authority or send a copy of said documents to the Authority by overnight mail.'"

NYCHA had "determined that the owner has failed to maintain the premises in accordance with the federal Quality Housing Standards (HQS) for the Section 8 program." The court found that the respondent had established that she was a recipient of NYCHA Section 8 and that the petitioner "should have notified the Authority in accordance with the service requirements provided by the Williams Consent Decree."

The court noted that even if the respondent's lease had expired and the petitioner had the right to maintain the proceeding, the petitioner had failed to comply with the service requirements of the Williams Consent Decree.

The petitioner had argued that "as a bank it is not bound by the procedures outlined in the Williams Consent Decree, as it is not a party to any contract authorized by the Section 8 program and does not have a duty to meet any standards to maintain the respondent's Section 8 status."

The court rejected such argument and held that when the petitioner bought the subject premises in foreclosure, it assumed the premises "subject to the lease between the prior owner and the tenant and to the housing assistance maintenance contract between the prior owner and the public housing agency for the occupied unit." Thus, if there is no lease in effect, landlord still must still comply with the Williams Consent Decree to notify NYCHA of the commencement of the proceedings. The petitioner had failed to provide such notification.

Additionally, the court observed that the petitioner had "failed to use due diligence to ascertain respondent's Section 8 status prior to the commencement of this proceeding." The petitioner had not commenced subject proceeding to almost a year after acquiring the property and the petitioner had "sufficient time" prior to the commencement of this case "to find out respondent's name and that she was a NYCHA Section 8 recipient." The petitioner had not shown that any efforts were made to ascertain the respondent's Section 8 status before commencing the subject proceeding. Thus, the court granted respondent's motion to dismiss the proceeding without prejudice.

Wells Fargo Bank NA v. Ogando, Civil Court, Bronx Co., Case No. 13051/19, decided Nov. 18, 2019, Jennings, J.

Foreclosures—Discontinuance of Foreclosure Action Did Not Constitute Valid Deceleration of Debt—"Case Law is Somewhat in Conflict"

A plaintiff mortgage holder moved for summary judgment striking the answer of the defendant property owner and sought appointment of a referee to compute the amounts due and owing. The defendant opposed the motion arguing, inter alia, that the statute of limitations (SOL) had expired.

In 2007, an individual defendant had executed a note, secured by a mortgage on the property. The plaintiff holds that note and is the assignee of that mortgage. The defendant is the record owner of the property pursuant to a deed executed April 13, 2013 and recorded March 9, 2015.

The plaintiff commenced this action on or about May 7, 2019. The plaintiff's predecessor in interest (predecessor) had commenced a foreclosure action in December 2007 (prior foreclosure action) and had accelerated the debt under the mortgage. The predecessor had moved for and had been granted an order discontinuing the action, vacating an order of reference, discharging the law guardian and cancelling a notice of pendency (2013 order). In connection with the predecessor's motion, the predecessor's attorney submitted an affirmation that stated that after commencement of the action, the plaintiff "requested the action be discontinued due to administrative reasons." The predecessor's attorney affirmation and the 2013 order were "silent, as to the issue of deceleration of the debt."

The court explained that the foreclosure actions are governed by a six-year SOL and that "[a] lender may revoke its election to accelerate a mortgage, but it must do so by an 'affirmative act of revocation occurring during the six-year (SOL) period subsequent to the initiation of the 'prior foreclosure action.'" See NMNT Realty Corp. v. Knoxville 2012 Trust, 151 A.D.3d 1068, 1069-1070, 58 N.Y.S.3d 118, 119 (2d Dep't 2017).

The plaintiff argued "that the voluntary discontinuance of the action constituted an affirmative act of deceleration or, in the alternative, that the voluntary discontinuance creates a triable issue of fact such that the complaint should not be dismissed." The plaintiff also argued that following the discontinuance, the plaintiff, its predecessors and representatives "sent multiple notices to the Defendant seeking payment…of the amount of the default, but not in any way demanding a complete payment of the full debt only the reinstatement amount." Those "'multiple notices' had been sent in the year 2019."

The court explained that the "case law is somewhat in conflict."

The plaintiff cited an unreported decision in the U.S. District Court for the Eastern District of New York (EDNY) (Guastella), which held that when the mortgage holder "voluntarily dismisses a foreclosure action of its own accord—whether for administrative reasons or otherwise-this 'raises a triable issue of fact' as to whether there was an affirmative act to discontinue the acceleration." Guastella cited another unreported EDNY decision, (Cortes-Goolcharran), which held that the discontinuance "of a foreclosure action does not necessarily constitute an affirmative act. Rather, it may, as in NMNT Realty, 'raise a triable issue of fact as to the intent behind the discontinuance.'"

Cortes-Goolcharran referred to the Appellate Division Second Dep't NMNT case. In NMNT, the court held that the defendant submitted proof that, in August 2011 "Homecomings moved for, and…was granted, an order that discontinued the foreclosure action, cancelled the notice of pendency, and vacated the judgment of foreclosure and sale that had been granted. The defendant thereby raised a triable issue of fact…as to whether Homecomings' motion 'constituted an affirmative act by the lender to revoke its election to accelerate.'" NMNT held that the trial court had "properly found that the mortgagers' conclusory statements that the 'Order of Discontinuance was the result of procedural deficiencies in the proceedings,' contained in the affidavits submitted by the plaintiff in support of its cross motion, do not disprove an affirmative act of revocation."

The subject court also cited a recent Appellate Second Dept. case, which held that "[i]n opposition, the plaintiff failed to raise a question of fact as to whether it, or any of its predecessors, revoked its election to accelerate the mortgage within six years from July 28, 2009. Contrary to the Supreme Court's determination, the plaintiff's execution of the February 2014 stipulation did not, in itself, constitute an affirmative act to revoke its election to accelerate since, inter alia, the stipulation, which discontinued the prior foreclosure action, was silent on the issue of revocation of the election to accelerate, and did not otherwise indicate that the plaintiff would accept installment payments from the appellant…."

The court also cited the Appellate Division Second Dept. decisions in the matter of Freedom Mtge. Corp. v. Engel, HSBC Bank, N.A. v. Vaswani, and Milone v. US Bank National Association. Milone clearly articulated "the reasoning behind requiring clear and non-ambiguous deceleration notices." Milone held that just as acceleration notices "must be clear and unambiguous to be valid and enforceable," "de-acceleration notices must also be clear and unambiguous to be valid and enforceable."

The subject court concluded that although there has been some "inconsistency between the holdings of the (EDNY) and the Appellate Division Second Dep't, the most recent cases out of the Appellate Division Second Dep't, …clearly hold that a voluntary discontinuance of a foreclosure action, silent as to deceleration, with nothing more, does not constitute a valid deceleration of mortgage debt [and] [t]herefore, the action must be dismissed."

Wilmington Sav. Fund Soc'y v. Heampstead Prop. Ventures II LLC, Supreme Court, Nassau Co., Case No. 606272/19, decided Nov. 22, 2019, Capetola, J.

Scott E. Mollen is a partner at Herrick, Feinstein.