In New York the transfer of real property is generally evidenced by a deed which gets recorded in the office of the County Clerk) in the county where the real property is located, or in the case of property located in New York City, the City Register. The importance of recording an ownership interest and the risks of failing to do so was demonstrated in a recent decision of the New York Appellate Division, Second Department. The plaintiff in the case lost his rights to property because he never recorded his interest and the subsequent purchaser had no notice of that interest.
In Bello v. Ouellette, the defendant Ouellette acquired property in Brooklyn, New York in April 2001. The plaintiff claimed that in 2008, he, Ouellette and two other individuals entered into an agreement confirming that each of the parties owned a one-quarter interest in the property. However, Ouellette refused to convey their interests to them. As such, the deed remained solely in the name of Ouellette. In 2011, the plaintiff commenced an action seeking a judgment declaring that he had purchased a one-quarter interest in the property. At the time he commenced the action, the plaintiff apparently neglected to file a Notice of Pendency which is a document that can be recorded against the property and puts prospective purchasers on notice that there is a dispute regarding the property. In 2017, Ouellette sold the property to a good faith purchaser (the “Purchaser”) for value without ever disclosing the plaintiff’s purported ownership in the property.
After the closing, the Purchaser visited the property at which time she met with the plaintiff who resided at the property and provided the plaintiff with a copy of her deed to the property. The plaintiff thereafter filed a Notice of Pendency against the property before the Purchaser’s deed was recorded.
In order to decide if the purchase was valid, the Court first reviewed the New York Recording Act which is intended to protect a purchaser of real property from other parties who claim an interest in the property but never recorded that interest. Generally, New York is a “Race Notice” state meaning that the first party to record a document which confirms its ownership interest in the property prevails in a dispute.
In Bello, the plaintiff did record a Notice of Pendency before the Purchaser recorded the deed; however, the sale had already closed. As such, the key question was whether the Purchaser was a “good faith purchaser,” meaning did she have either notice or knowledge of a prior interest or equity in the property or knowledge of facts which would lead a reasonably prudent purchaser to make inquiries concerning the property before the sale closed. The Court held that the Purchaser did establish herself as a good faith purchaser. The mere fact that the Purchaser knew that the plaintiff, rather than Ouellette, resided at the premises did not mean that she was required to make further inquiries about the plaintiff’s interest in the property since many property owners do not reside at their property and instead, rent it out to others.
The Court further noted that had the plaintiff filed the Notice of Pendency at any time before the sale in 2017, the Purchaser would have been placed on notice of the plaintiff’s claim at the time she had a title report prepared in connection with the purchase and would not have been a good faith purchaser under the Recording Act. The plaintiff also could have either recorded the agreement with Ouellette or obtained a deed from Ouellette confirming his one-quarter interest and recorded that prior to 2017.
The lesson to be taken from this case is that if you believe you have an interest in real property which is not in your name, you must obtain either an agreement in recordable form or a deed confirming your ownership and record that. Otherwise, the property may be sold without you receiving notice or any of the proceeds from such sale.
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