Plaintiff, Janna Arzumamyants ^[FN1], commenced this action against the defendants, Thomas Fragetti and Jennifer Fragetti, alleging that he has sustained damages due to defendants' breach of contract for the sale of real property. A trial was held on January 28, February 4 and February 8, 2008. Both sides were represented by counsel. A Russian interpreter was present to assist the plaintiff. [*2]

The action was originally commenced in Supreme Court Richmond County (Index No.11655/04) as a suit for specific performance. On June 4, 2004, plaintiff filed a Notice of Pendency with the Supreme Court. Thereafter the plaintiff filed a motion for summary judgment seeking specific performance of the contract and "setting the matter down for trial of damages caused by the defendants' breach of contract." The defendants cross-moved to dismiss plaintiff's complaint. By order dated October 17, 2006, the Supreme Court determined that specific performance was not available and denied the motion for summary judgment. The Supreme Court did not address defendants' cross-motion. At that time the notice of pendency was not canceled by the Supreme Court. However, there is nothing in the file to indicate that the defendants ever requested that relief.

The case was transferred to Civil Court pursuant to CPLR §325(d) on November 2, 2006 for further proceedings. Defendants then made a motion for summary judgment dismissing plaintiff's complaint alleging it had not been resolved by the decision of the Supreme Court. By written decision dated September 28, 2007, this court denied that motion on the ground that the Supreme Court had already denied the motion for summary judgment for specific performance and set the matter down for a trial on the issue of damages in conformity with the Supreme Court decision.

In August 2007, after an unopposed order to show cause was made by plaintiff, Judge Baynes of this court renewed the Notice of Pendency which plaintiff alleged was set to expire. The original Notice of Pendency had been filed on June 4, 2004 and had already expired when plaintiff made the application to renew. This extension was not timely since CPLR §6513 requires that the request for an extension be made before to the expiration of the prior period.

This court is at a loss as to how a summons and complaint for specific performance was transformed into an action for damages without the benefit of a motion to amend the complaint. The original answer was submitted by the defendants pro se as a handwritten general denial. It does not appear that once the defendants retained counsel a new answer was ever filed on behalf of the defendants. The only conclusion is that when the plaintiff sought damages as an alternative form of relief in the summary judgment motion and the defendants failed to object to it in their opposition papers, a cross-motion for summary judgment, the court treated the plaintiff's motion as an application to amend the complaint seeking damages to which there was no opposition by the defendants. It also must be concluded that when the Supreme Court transferred the matter to Civil Court pursuant to CPLR §325(d) it had treated the denial of summary judgment for specific performance as a dismissal of that claim on the merits because Civil Court lacks the jurisdiction to determine specific performance of a contract for the sale of real estate in excess of $25,000.00 (Civil Court Act 203(d)) and a CPLR §325(d) transfer is only for causes of action in which damages may be awarded (Chung v Kim, 170 AD2d 232 (1991)). A determination that the specific performance action was dismissed is the only conclusion consistent with the procedural history in Supreme Court.

Background: [*3]

On or about September 2003, the parties entered into a written contract in which defendants Thomas Fragetti and Jennifer Fragetti, agreed to sell to plaintiff, Janna Arzumamyants, the premises, 234 Emily Lane, Staten Island, New York. The contract provided for a sale price of $202,500.00. By a check dated September 16, 2003, plaintiff submitted a down payment of $4,000.00 to sellers' attorney to be held in escrow. The balance of the purchase price, $198,500.00 was due at closing. It was contemplated that the plaintiff would obtain a mortgage in the amount of $192,500.00 within forty-five days of the contract. What, of course, this date might be is questionable since the copy of the contract submitted into evidence is undated except for "September 2003." A mortgage commitment was issued on October 23, 2003 by GFI Mortgage Bankers, Inc. in the amount of $192,375.00. If the contract was entered into on September 16, 2003, the date the down payment check was issued to defendants' counsel, as alleged in plaintiff's motion papers, then the commitment was obtained timely. Apparently neither this, nor the fact that the commitment was for a lesser amount, was an issue raised by the defendants in this litigation.

The original closing date in the contract was December 10, 2003. On or about January 12, 2004 the parties may have appeared at a closing and when the parties' counsel reviewed the judgments listed in the title report, they concluded that there were insufficient monies being generated by the sale to pay the judgments and deliver title. The court says "may have" appeared at a closing on January 12, 2004 since neither side submitted any evidence that either a closing was scheduled or was commenced on that or any other date and subsequently canceled. The parties were unable to resolve this issue although the plaintiff testified at trial that she was willing to offer an additional $25,000.00 to purchase the premises. This offer was apparently rejected by the seller. There is no written evidence of the offer or the rejection. Sometime thereafter presumably the defendants notified the plaintiff that they would not close

and were canceling the contract, although once again there is no documentation to support this allegation.

On April 26, 2004, plaintiff's counsel sent defendants' attorney a "time of the essence" letter setting a closing at plaintiff's counsel's office on May 26, 2004. Plaintiff appeared at her attorney's office on that date allegedly "ready, willing and able" to close, and waited two hours for the defendants to appear. Defendants failed to appear. Plaintiff alleged that the mortgage proceeds of $192,375.00 were available and that the plaintiff had sufficient funds in a bank account to pay the balance of the purchase price and anticipated closing costs. The following day, May 27, 2004, the defendants' closing attorney by letter to purchaser's counsel stated that the seller was "ready, willing and able to convey the deed to your client subject to any lien which exceeds the purchase price." No other attempt to close the transaction was undertaken and on June 3, 2004, plaintiff issued a summons and complaint and filed a lis pendens.

To establish that the mortgage proceeds were available, plaintiff has submitted a check drawn on the "GFI Bankers Inc. Mortgage Trust Account" in the amount of $192,375.00 payable to the defendants. There is a problem with the check in that it appears that the date has been altered to May 26, 2004. It is impossible to read the original date which was written over, [*4]although it appears a "3" (March) was changed to a "5" (May). There is no other documentation to establish that there was funding available at the May 26, 2004 closing from the lender.

It also appears from affirmations in exhibits attached to the parties' previously made motions that a title report was prepared on October 8, 2003 which listed as the only objection to title a notice of lien for unpaid common assessments. Presumably this is for homeowners' association dues since the contract used by the parties is not for the sale of a condominium. Sometime thereafter two additional liens appeared, one a judgment against Thomas Fragetti for unpaid alimony and the second to Citibank. Neither party placed the title report in evidence.

Legal Issues Presented:

A. Did the Defendants Have a Legal Basis to Cancel the Contract?

Defendants allege that they had the right to cancel the contract because there were insufficient funds to pay-off all of the liens against the premises and therefore could not deliver "marketable title" under the contract. The court notes that there is no clause in the contract that required the defendant to deliver "marketable title." The standard form contract provision present in this agreement and utilized by the parties required that only "insurable title" be delivered (Paragraph 13). New York courts have consistently held that there is a difference between "insurable title" and "marketable title" (Voorheesville Rod and Gun Club,

Inc., v E.W. Tompkins Co. Inc., 82 NY2d 564 (1993); Laba v Carey, 29NY2d 302 (1976)). Although it is a common practice to add a clause to the standard real estate contract requiring the seller to deliver "marketable title," no such paragraph is in the contract before the court.

Marketable title is a title which is free from encumbrances and any doubt as to its validity. The title is one that a reasonably intelligent person, who is well informed of the facts and their legal implications would be willing to accept. Insurable title is a title that a reputable title insurance company is willing to insure. Once these liens were satisfied, the title would be insurable and, parenthetically marketable, and the parties would have to close. However, the contract did not require marketable title. The contract only required that insurable title be delivered. This could be done in a number of ways. The purchaser could agree to close, subject to the liens. Title would be insured, subject to the enumerated encumbrances. The chance that the lender would accept title in this manner is "slim to none" since the new mortgage would be a lien subordinate to these recorded judgments and it is extremely unlikely any lender would be willing to place itself in that condition, even if the judgment creditors would be willing to sign agreements to subordinate their judgments to the GFI mortgage.

The title could also be rendered insurable by paying the liens in full or placing in escrow sufficient monies to satisfy the judgments and allowing the seller to negotiate those debts in the hope that the creditor might accept a lesser amount in full satisfaction. In this situation, if the [*5]seller did not resolve the judgments in a timely manner, the title company would have enough monies in escrow to pay the debts, obtain satisfactions and clear title. The sellers apparently rejected this course of action.

Another way to close where a purchaser's counsel would agree to accept a transfer of title with the liens in place would be if it was a "cash only" deal and the buyer intended to "knock-down" the current house and construct one or more others for sale at a profit or develop the property in some other manner. The monies generated by the sale of the new properties would satisfy the liens. Since this is a fully-attached townhouse, this scenario is not applicable. Under the facts of this case, it is unlikely that any attorney would advise a client to accept title with these liens. Because the purchaser was unwilling to waive these defects in title and close with them in place, the defendants had the obligation under the contract to attempt to either clear these encumbrances so that an unencumbered insurable title would be deliverable or cancel the contract. Apparently defendants-sellers did neither.

Defendants contend that they only learned after the contract was signed that (1) Thomas Fragetti owed $29,000.00 in support to his ex-wife pursuant to a Family Court Order (F-02851-03/03A) dated October 23, 2003; (2) a judgment had been entered against Thomas Fragetti by Citibank in the amount of $15,214.77 on September 26, 2002 in Civil Court Richmond County (Index #34032/02); and a mortgage existed with Chase in the amount of $151,748.62 in January 2008 (presumably this had a higher amount due in December 2003)^[FN2]. These total about $196,000.00.

As stated above, there is also some indication in the court file that there was a lien for unpaid common charges to an "association," however, at trial neither side raised this as an open item that was to be calculated as a reason for the sellers' inability to perform. It is unclear whether the association had reduced the monies owed to a judgment, asserted it as a lien as permitted under the real property law, or merely was unwilling to provide a clearance

letter to the title company because unit dues were outstanding. The form of contract used for this transaction is not for sale of a condominium, but for a residential property only. If this is not a condominium unit then the reference to unpaid common charges in correspondence and in pleadings in the Supreme Court action must be for homeowners' association dues. Because neither party provided the court with a copy of the title report, the exact status of this property [*6]must remain a mystery, along with what happened to Amelia Earhart.

Defendants contended that they did not know of these liens until the time of the scheduling of the closing. This occurred sometime either in December 2003 or January 2004. The court cannot determine if there ever was an actual closing scheduled since there is neither evidence nor testimony that the parties ever scheduled one or appeared at a location for a closing. Attached to defendants' Supreme Court motion papers is a letter from defendants' closing attorney to the attorney for the former spouse which indicates a closing was scheduled for January 12, 2004 and did not close. However, this letter was not placed into evidence.

If in fact the closing was scheduled then there are several ways knowledge of these judgments could have been obtained, none of which are particularly beneficial to the defendants. One way would be that defendants' counsel did not get the title report until closing. Why would you schedule a closing without having received the title report? Probably the same reason you fail to date a contract of sale and then have other events in the contract triggered from the "undated" date. Another way would be that no one looked at the title report until they got to the closing. This is a possible scenario, but does not help the defendants' case. In either of these situations it must be asked whether the purchaser's attorney ever inquired of the sellers' counsel as to how these exceptions to title would be handled at any time prior to closing pursuant to the terms of the contract and if checks had to be issued in any particular manner in order to satisfy the liens. Apparently neither side sought to deal with these potential "deal killing" problems until the reputed closing date.

The third way would be that the judgments did not appear in the title report until the continuation search was run immediately prior to closing. This does make some sense if the title report was prepared as alleged on October 8, 2003 and if there was an actual closing scheduled. The Family Court judgment was entered after that date, but the Citibank judgment was entered a year earlier, so why was it not discovered by the title company in October 2003? If discovery of the judgments when the continuation search was run for the phantom closing was the situation, then the defendants had the right to adjourn the closing pursuant to the terms of the contract (paragraph 21(b)) to deal with liens and attempt to resolve them so that title could be delivered to the plaintiff. Paragraph 21(b) provides:

(I) If at the date of Closing (emphasis added) Seller is unable to transfer title to Purchaser in accordance with this contract or Purchaser has other grounds for refusing to close, whether by reason of liens, encumbrances or other objections to title or otherwise (herein collectively called "Defects")...and if Purchaser shall be unwilling to waive the same and close title without abatement of the purchase price, then, except as hereinafter set forth, Seller shall have the right, at Seller's sole election, either to take

such action as Seller may deem advisable to remove, remedy, discharge or comply with such Defects or to cancel this contract;

(ii)if Seller elects to take action to remove, remedy or comply with such Defects, Seller shall be entitled from time to time, upon Notice to Purchaser, to adjourn the date for Closing hereunder for a period or periods not exceeding 60 days in the aggregate (but not for extending beyond the date upon which Purchaser's mortgage commitment, if any, shall expire), and the date of the closing shall be adjourned to a date specified by Seller not beyond such period. If for any reason whatsoever, Seller shall not have succeeded in removing, remedying or complying with such Defects at the expiration of such adjournment(s), and if Purchaser shall be unwilling to waive the same and to close title without abatement of the purchase price, then either party may cancel this contract by Notice to the other given within 10 days after such adjourned date;

(iii) notwithstanding the foregoing, the existing mortgage(unless this sale is subject to the same) and any matter created by Seller after the date hereof shall be released, discharged or otherwise cured by Seller at or prior to Closing.

There is nothing showing that the defendants ever attempted to avail themselves of these contract terms until after their default in appearing at the "time of the essence" closing on May 26, 2004. There is no evidence that the purchaser was willing to accept title with the two judgments affecting the property. At this point, sellers had the option of either attempting to "remove, remedy, discharge or comply with such Defects" or cancel the contract. There is no documentation to establish exactly which option the defendants elected. It appears that the defendants did nothing. There is no evidence that the defendants even made some half-hearted attempt to resolve the liens. There is no evidence that the defendants took any steps to affirmatively cancel the contract as was their right.

Although not placed in evidence at the trial, there is a letter attached as an exhibit in defendants' cross-motion for summary judgment from defendants' closing counsel to counsel for Thomas Fragetti's former spouse attempting to negotiate that judgment. Because this document was not placed in evidence at trial, it is not before the court. The contract required the defendants to give notice to plaintiff-purchaser if the seller elected to take action to remove any of these encumbrances. It should be noted that a copy of the letter to the former spouse's counsel was not sent to plaintiff's counsel so it cannot even be implied that the notice of election to remedy required by the contract was ever given.

This leads the court to have to analyze what is the effect of this almost total inaction by the sellers? If it is determined that the steps taken by the sellers after adjourning the first closing amounted to an attempt to remedy the defects, the contract required the Sellers to request an adjournment of the closing for a period of up to 60 days. There is no showing that any such request was ever made. The contract permitted an aggregate adjournment of up to 60 days provided that such an adjournment did not extend beyond the time the purchaser's mortgage commitment was in effect. The mortgage commitment in evidence expired by its terms on December 21, 2003 and the plaintiff did not establish that it was ever extended to even the January closing date. The parties acted as if that commitment was extended by the lender [*8]because they allegedly appeared for a closing in January 2004, but again there is no documentary evidence of the closing or an extension of the mortgage commitment.

It is not credible that the defendants did not know of these debts until they received the title report. Clearly they knew of the mortgage. Clearly Thomas Fragetti knew he owed support to his ex-wife. The October 21, 2003 Family Court judgment refers to a Family Court order dated May 5, 2003 with which Thomas Fragetti had failed to comply. It is also not credible that he did not know he owed that amount of money to Citibank. If in fact he was unaware of the judgment, then Fragetti should have used the sixty-day adjournment period available to him in the contract to either have made application in Civil Court to vacate the judgment or negotiated with Citibank to accept a lesser amount as a lump sum settlement. There is no showing that defendant even attempted to do this. Attached to defendants' motion papers in the Supreme Court is a letter to an attorney who presumably represented Thomas Fragetti's former spouse telling her that the only way for the closing to take place was for the former spouse to accept one-third of the judgment amount. Without knowing the entire background of the matrimonial, on its face, such an offer cannot be deemed a serious attempt to resolve that obligation. There is no showing that there was any attempt to negotiate with Citibank.

Once the defendant paid these liens and the transfer taxes, the deed could be recorded and title insured and transferred to the plaintiff. Paragraph 20 of the contract anticipated this situation and provides:

Use of Purchase Price to Remove Encumbrances. If at Closing there are other liens or encumbrances that Seller is obligated to pay or discharge, Seller may use any portion of the cash balance of the purchase price to pay or discharge them, provided Seller shall simultaneously deliver to Purchaser at Closing instruments in recordable form and sufficient to satisfy such liens or encumbrances of record, together with the cost of recording or filing said instruments. As an alternative Seller may deposit sufficient monies with the title insurance company employed by the Purchaser acceptable to and required by it to assure their discharge, but only if the title insurance company will insure Purchaser's title clear of the matters or insure against their enforcement out of the Premises and will insure Purchasers's Institutional Lender clear of such matters....

There is absolutely no evidence that the defendants ever sought to avail themselves of either of these procedures to deal with the liens. Paragraph 21(b) gave the defendants the right to adjourn the closing for a period up to 60 days to cure these defects. The contract also permitted the defendants to cancel the transaction if the plaintiff-purchaser refused to close title "without abatement of the purchase price." In this case there was testimony that not only was the purchaser willing to purchase the premises but in fact offered to pay additional monies to the defendants so that the liens might be satisfied. The fact that the defendants neither canceled the contract nor sought an extension of time to cure the defects leads to the conclusion

that the defendants were legally obligated to perform the agreement. When they failed to do so, [*9]they exposed themselves to liability for their breach.

The above being said, the fact that the defendants made a "bad bargain" does not excuse their failure to perform the contract. Added to these lien expenses were transfer taxes, real estate brokers' fees and lawyer's fees. Assuming they total more than the sale proceeds when added to the judgments, why was it unreasonable to expect that the defendants would pay these charges from their own resources? In fact, the only one of these additional costs that might affect title would be the requirement to pay the transfer taxes so that the deed could be recorded. Owing a commission to a broker and legal fees to an attorney are not liens against the property which affect title. The fact that the defendants could not pay these expenses from the proceeds does not affect their obligations to the plaintiff under this contract. They are not clouds on title. In a letter attached to their motion papers in an attempt to justify not closing, defendants' real estate counsel alleged the existence of these and other expenses such as open real estate taxes (since there was a first mortgage, why were these expenses not being paid by the lender(?)) and expenses labeled by sellers' counsel as open "condominium charges" whatever they were. There is no documentary evidence to establish the existence of either of these charges let alone proof that they would affect title. They may be legal obligations of the defendants but are not objections to title. The defendants have not shown that they were unable to deliver insurable title. The evidence presented shows that they could have paid off all of the encumbrances which would have been a cloud on title from the contract sale price. Defendants elected not to do so and breached the contract.

There was no legal basis for the defendants to cancel the contract. Defendants could convey insurable title and chose not to do so. Defendants were in breach of the contract.

The above being said, that analysis applies only if there had actually been a closing scheduled in January 2004. However, the plaintiff, who has the burden of proof, never established that there was in fact such a closing date scheduled. Therefore, the first closing of which there is any documentation of being scheduled was the "time of the essence" closing of May 26, 2004. Under paragraph 21(b) of the contract, the sellers then had up to sixty days to attempt to resolve these issues and remove the judgments as exceptions to title. Defendants were never afforded that opportunity. The defendants cannot then be deemed to be in breach of the contract. Plaintiff, in fact, breached the contract by not consenting to an adjournment

and commencing this litigation. In fact, plaintiff may be liable for damages in a "slander of title" action resulting from the improper filing of the lis pendens. The lis pendens was filed on June 4, 2004, nine days after the "time of the essence" closing and well within the time frame afforded to the defendants to attempt to remedy the defects in title or cancel the contract.

Under the facts as admitted into evidence, the plaintiff is the party actually in breach of contract and not the defendants. [*10]

B. Did the Plaintiff Properly Make "Time of the Essence?"

The basis of this litigation is that the plaintiff by letter dated April 26, 2004 made "time of the essence" by scheduling a closing on May 26, 2004. "Time of the essence" is the "Golem" lurking behind every real estate closing. Attorneys who intend to conjure up this spirit should at least be familiar with the incantations necessary to make it appear lest they find themselves being hoisted upon their own petard and devoured when Dr. Jekyll becomes Mr. Hyde.

As a general rule, time is not of the essence in a contract for the sale of real estate unless the parties agree to do so. Unless specifically established in the contract, time is not of the essence and the closing date is only an "on or about" date subject to reasonable adjournments. It is possible for a party to unilaterally convert a non-time-of-the-essence contract into one making time of the essence. This is done by giving the other party reasonable and sufficient notice which (1) must be clear, distinct and unequivocal; (2) must fix a reasonable time within which to perform; and (3) must inform the other party that failure to perform by the designated date will constitute a default (Zev v Merman, 134 Ad2d 555, aff'd, 73 NY2d 781 (1989)). The contract in question was not a "time of the essence" agreement when signed by the parties, so it must be determined if the plaintiff successfully unilaterally made "time of the essence."

The plaintiff sought to make "time of the essence" by sending the following letter dated April 26, 2004 to counsel for the defendants:

Regarding the above matter, please be advised that the purchaser has decided that she has waited long enough for your client to schedule a closing. At this time, the purchaser hereby declares a closing of title for May 26, 2004, at 12:00 PM at the office of Bildner & Ikhilov, P.C., located at 2357 Coney Island Avenue, Brooklyn, New York. Please be further advised that "time is of the essence".

Please be further advised that should you fail to close title on said date, my client has authorized [sic] to file an immediate action for specific performance.

Although not artfully drafted, this letter appears to contain the language necessary to make "time of the essence." The letter does not specifically notify the defendants' that the plaintiff would treat the failure to appear at the closing as a default under the contract, however, stating that a suit would be immediately commenced certainly conveys that thought. But as pointed out above, the litigation before the court seeks damages, something sought neither in the "time of the essence" letter nor the summons and complaint. There is another problem. There is no evidence as to when the original closing was scheduled. Generally there should be some recitation of the defendants' prior failure to attend the closing and tender delivery of the deed. The closing date in the contract was "on or about December 10, 2003." It is clear that a closing did not occur on that date. What is unclear however, is whether or not any closing was ever scheduled prior to the plaintiff's April 26, 2004 letter. If the contract closing date continued to be adjourned by the mutual agreement of the parties, then there never was a closing that the [*11]defendants failed to attend until the one scheduled as the "time of the essence" closing on May 26, 2004. Plaintiff did not place into evidence or testify as to a prior closing date. There is nothing in the motion papers in the file, which were not placed into evidence, that would enable the court to conclude a closing was scheduled and the defendant either failed to appear at it or requested an adjournment in order to resolve outstanding title issues, other than a clause in a letter from defendants' closing attorney to the attorney for Thomas Fragetti's former spouse stating that a closing had been scheduled for January 12, 2004 and had to be adjourned owing to the existence of the two judgments. In fact, the language of the letter leads to the conclusion that no closing had ever been previously scheduled because it does not say "waited long enough to re-schedule a closing" it states that the seller failed to "schedule" a closing. If no closing was previously scheduled, then the defendants were never afforded the opportunity to exercise their rights under paragraph 21 of the contract.

Query, when the contract (Paragraph 15) required the closing to be either at the office of the lending institution or the seller's attorney, may the plaintiff make "time of the essence" at the purchaser's attorney's office and still be in compliance with the contract?

Plaintiff has the burden of proof. There is insufficient evidence before the court to establish that there was an original closing date which was adjourned at the request of the defendants. Therefore, the plaintiff's attempt to make "time of the essence" was not effective. Defendants' were entitled to a reasonable adjournment from the date of closing, up to sixty days under the terms of the contract, to remedy the title objections. The only evidence before the court is that on May 26, 2004 a closing was scheduled at which time the defendants failed to appear.

Further, there is no showing that all of the parties necessary to complete the closing were present on May 26, 2004. There is no list of attendees. Not only should the plaintiff have been present with counsel, but also the representatives of the lender and the title closer should have been there. Most experienced attorneys also have a stenographer present to make a record of the event and attendees. This was not done. In order to prevail the plaintiff must establish that she was "ready, willing and able" to close. This issue is discussed below.

C. Was the Plaintiff, Ready, Willing and Able to Close?

In order to hold that the defendants are in breach of the contract, plaintiff as the purchaser, must establish that she was "ready, willing and able" to close title as provided in the contract. Mere allegations that plaintiff was ready, willing and able to close are insufficient.

First, plaintiff must establish that she had the financial resources to close. Plaintiff submitted a statement of her account at Sovereign Bank showing a balance of $16,294.60 on May 10, 2004 and no withdrawals from the account prior to the statement closing date of June 8, 2004. In addition, the sellers' attorney was holding $4,000.00 in escrow. The mortgage [*12]commitment was in the amount of $192,375.00. On their face, these documents establish that plaintiff had sufficient monies to close.

There are several problems. The mortgage commitment dated October 23, 2003 is unsigned by the plaintiff and expired December 21, 2003. There is no showing that the commitment was extended by the lender. The commitment also provided that the credit documents expired on November 11, 2003 and the appraisal on February 26, 2004. There is no showing that either of these documents was ever updated. Although plaintiff's counsel produced a check in the full amount of the mortgage proceeds drawn on GFI Mortgage Bankers, Inc. Mortgage Trust Account payable to the sellers and dated May 26, 2004, there is no accompanying documentation to show that the closing was scheduled for that day with the lender and the money transferred to that account. In addition, the date of the check has been altered from a March date. It is also unusual for a lender to transfer gross mortgage proceeds to a borrower. The more common practice is for the lender to "pay itself" the mortgagor's lender closing costs from funds and require the borrower to pay third parties from the borrower's own funds. The lack of documentation from the lender of the closing costs associated with this transaction defeats the claim that the plaintiff was financially able to close.

The commitment letter is only a conditional commitment and contained seven items (A to G) that had to be satisfied prior to the closing. There is no evidence that the plaintiff provided this documentation in a timely manner to the lender so as to eliminate these conditions.

In addition, the commitment provided that "assets to be verified must equal to or be greater than $22,845.14." Based on the evidence provided by the plaintiff she was not in compliance with this requirement since her bank account only had $16, 295.00 in it. If she is given credit for the $4,000.00 being held in escrow, plaintiff still lacks the funds to comply with the terms of the commitment.

The commitment required that the plaintiff obtain a "fully-paid fire insurance policy" in the amount of $192,375.00. There is no showing that the plaintiff had such a policy in effect on May 26, 2004.

The commitment required that the plaintiff accept it "on or before November 7, 2003 along with your check for $1,923.75." As stated above there is no showing that the plaintiff ever signed the commitment. In fact, the $1,923.75 was not paid until November 28, 2003, clearly beyond the time frame set out in the commitment letter.

The commitment required that the closing take place at one of GFI's offices. In the time of the essence letter, the closing was scheduled at the plaintiff's attorney's office.

In regard to the title insurance, plaintiff did not introduce into evidence the title report showing that all of the exceptions to it were resolved so that insurable title could be delivered to the lender. The mortgage commitment required that an ALTA policy be delivered at closing. [*13]There is no evidence of such policy being issued. There is no evidence that the title company was advised of the closing or that a title closer appeared at the time of the essence closing so as to insure that insurable title could be delivered as required. The mortgage commitment required either a new survey or certification of an existing survey to the lender or the title insurance company. There is no showing that the plaintiff had complied with this clause of the commitment either.

It must be concluded that the plaintiff has not produced all of the prerequisites in admissible form to establish that plaintiff was "ready, willing and able" to close as a matter of law.

D. What Are Plaintiff's Damages, If Any?

Plaintiff alleges that she suffered damages because of the defendants' breach of contract. She is seeking to recover the costs assessed by the mortgage lender in connection with her obtaining the loan. These costs included a "non-refundable commitment fee" of $1,923.75 (1% of the loan) and $455.00 for an application fee, appraisal fee and credit check. Although the contract contemplated a mortgage, there is nothing in the agreement to make the defendants liable for all of the costs incurred in the plaintiff obtaining the loan. By agreeing to permit the plaintiff to obtain a mortgage rather than pay all cash, the defendants were on notice that the plaintiff would be incurring certain fees common to the mortgage industry, such as the application fee, appraisal fee and credit report charges. The court cannot however permit the recovery of the commitment fee. Such a fee is speculative in that in every situation it can vary. Some borrowers might select a "no-point" mortgage with a higher interest rate while others might opt for a lower interest mortgage and pay more points to buy down the loan. Absent the seller in a particular case agreeing to be liable for the origination or commitment fee in the contract, a court cannot hold that this is a foreseeable item of damages to be recovered.

A review of the mortgage commitment issued to the plaintiff on October 23, 2003 reveals that the commitment had to be accepted by November 7, 2003 and there is no documentation that the plaintiff ever did so by returning to the lender a signed copy of the commitment. The commitment fee was not paid until November 28, 2003. Also the commitment expired on December 21, 2003 and there is no showing that the plaintiff ever requested an extension of the commitment. Plaintiff has not established that there was commitment in effect in May 26, 2004 when the plaintiff sought to default the defendants. The commitment also discloses that if the closing is adjourned, the lender's attorney would be entitled to a $250.00 closing adjournment fee. Plaintiff has not made a claim for this amount or shown that the fee was waived. This supports the conclusion that there never was an initial closing scheduled prior to the May 26, 2003 "time of the essence" closing. Also, the commitment required a new credit report if the closing took place after February 26, 2004. There is no showing that the plaintiff ever sought an updated credit report or waiver of the charge.

Plaintiff also had testify an appraiser who opined that on the date of breach, May 26, [*14]2004, the value of the property was $218,000.00. Plaintiff is seeking as additional damages the appreciation in the price of the property between the date of contract and the date of breach, a total of $15,500.00 and has submitted a written report containing comparable sales to establish the value.

Paragraph 21( c) of the contract provides in regard to damages:

If this contract is cancelled pursuant to its terms, other than as a result of Purchaser's default, this contract shall terminate and come to an end, and neither party shall have any further rights, obligations or liabilities against or to the other hereunder or otherwise, except that ( I) Seller shall promptly refund or cause the escrowee to refund the Downpayment to Purchaser and unless cancelled as a result of Purchaser's default or pursuant to paragraph 8, to reimburse Purchaser for the net cost of examination of title, including any appropriate additional charges related thereto, and the net cost, if actually paid or incurred by the Purchaser, for updating the existing survey of the Premises or of a new survey, and (ii) the obligations under paragraph 27 shall survive the termination of the contract. Paragraph 27 refers to the obligation of the seller to pay a real estate broker's commission.

The above paragraph only applies if the contract was "cancelled pursuant to its terms," and therefore does not apply to this situation. Defendants did not cancel the contract pursuant to its terms. Defendants allegedly willfully defaulted in complying with the terms of the agreement and breached the contract. Therefore, if the court were to determine the defendants had willfully defaulted, the plaintiff's damages would not be limited to the above enumerated costs. The plaintiff has not placed into evidence any of the above costs allowable by the contract and instead is relying on recovering the loss of the benefit of the bargain as damages. "Where the evidence demonstrates that vendors, in bad faith, breached a real estate contract and that the purchaser is entitled to benefit of the bargain damages, the measure of such damages is the difference between the market value and the contract price" ( 91 NY Jur2d Contracts 226). It must be concluded that the defendants acted in bad faith. They knew or should have known of the judgments. Assuming for the sake of argument that they did not know of them at the time of the contract, then they had to undertake in good faith to resolve those liens so as to convey insurable title. The evidence is that nothing substantive was done in that regard. But as pointed out above, it appears that the plaintiff in actuality is the party that is in default and did not afford the defendants the opportunity to clear the title defects.

The question remains as to whether or not the plaintiff can collect as damages the alleged appreciation in value of the home between the date of contract and the date of breach. Based on the evidence that the defendants never intended to close after learning of the judgments allegedly in January 2004 then why is not the date from which to determine the measure of damages January 2004 and not May 2004? That question aside, even if the plaintiff may recover the loss of the benefit of the bargain as damages, that amount must be reduced by the expenses that the purchaser would have incurred in closing the transaction. The plaintiff is to be put in the situation [*15]she would have been in had the transaction closed. Among the expenses the purchaser would have paid to the title company would be the mortgage tax ($3,432.75), the premiums for the fee and mortgage title insurance policies ($1,338.00); and endorsements to the policy, recording of the deed and mortgage, municipal and bankruptcy searches, and survey inspection fees (conservatively $1,000.00). Added to these expenses would be the homeowners' insurance policy, attorney's fees payable to purchaser's counsel and the bank's counsel, and all of the closing costs that the lender would have charged and should have been disclosed on the good faith estimate from the lender. Unfortunately, plaintiff has not presented any of these closing costs as part of her prima facie case. Without documentation of these expenses in admissible form, the court cannot deduct these amounts from the increase in the purchase price. Plaintiff cannot collect the appreciated value as damages since there is no evidence of the costs that would have been incurred in closing.

If the defendants are in default, then plaintiff is entitled to a refund of the $4,000.00 being held in escrow by defendants' closing attorney. Plaintiff has established as damages $455.00 she paid the lender in order to process her mortgage application and would also be entitled to be reimbursed for that amount as well. However, although the plaintiff has established that in all likelihood the defendants would have been in default and unable to deliver title in accordance with the terms of the contract, it is equally apparent that the plaintiff did not properly follow the contract and the law so as to place the defendants in default.

CONCLUSION:

There are three things they never teach in law school: (1) how to unjam the photocopy machine when the secretary is not around; (2) how to put the corporate seal in the embossing device so you don't look like a fool the first time you do it in front of a client; and (3) how to properly make time of the essence and prove your client is ready, willing and able to close. Someone once said that threatening to make "time of the essence" is a little bit like the dog chasing the car-now that he caught it, what does he do?

Starting with an undated contract, this transaction has become a lesson in what not to do. Defendants neither made an effort to clear title nor to cancel the contract. Defendants have never established that they were able to deliver insurable title as provided for in the contract. They willfully breached the contract which would in most cases entitle the plaintiff to damages.

The plaintiff failed to establish that she properly declared "time is of the essence." The plaintiff only sought specific performance in her complaint yet owing to a liberal interpretation of the motion papers was permitted to pursue a claim for damages. The plaintiff did not prove she was "ready, willing and able" to close. The plaintiff did not establish damages by any evidence in admissible form. In spite of the defendants' inability to convey insurable title, the plaintiff has not complied with the law and the contract so as to hold the defendant in default and has not proven her damages. [*16]

Plaintiff's cause of action is dismissed for plaintiff's failure to prove her prima facie case. Any counterclaims of the defendants which might entitle the defendants either to damages or to keep the deposit, are likewise dismissed because the defendants have failed to prove they could deliver insurable title.

If defendants' closing attorney has not as yet released the down payment, then he is directed to release the monies to plaintiff within ten days of receipt of a copy of this decision.

The Notice of Pendency is vacated. Because there is no claim for specific performance, a Notice of Pendency was not appropriate and should have previously been canceled of record.

Exhibits, if any, will be available at the office of the clerk of the court thirty days after receipt of a copy of this decision.

The foregoing constitutes the decision and order of the court.

Dated:April 17, 2008

Staten Island, NYHON. PHILIP S. STRANIERE

Judge, Civil Court