Purchaser Sues For Specific Performance of $900k Hegeman Ave Property Sale

Court Determines If Seller Validly Cancelled Contract/Keeps $70k Deposit

On December 21, 2016, Euclid Burgan and Bernadette Burgan entered into a written contract with Hegeman Plaza LLC to sell the property at 513 Hegeman Avenue in Brooklyn for $900,000.00. Samuel Schwartz signed the contract as the sole member of Plaza. A down payment of $70,000.00 was made upon execution.

The contract was contingent upon Plaza obtaining a written mortgage commitment in the amount of $900,000.00 within 45 days from the date of contract. Moreover, Plaza was prohibited from assigning the contract to a third party without the Burgans’ written consent. On March 6, 2017, an addendum was signed and added to the contract which documented the Burgans’ intent to utilize the transaction as an Internal Revenue Code § 1031 tax-deferred property exchange. The addendum required Plaza to cooperate with the Burgans to complete the 1031 exchange.

On February 21, 2017, Plaza’s attorney, Aaron M. Stein, Esq., informed the Burgans’ attorney, Sean S. Emanuel, Esq., that his client had not received a mortgage commitment, and requested an extension of the deadline to March 15, 2017.  Emanuel agreed, but noted that “time is of the essence”.

The closing was originally scheduled for March 31, 2017, and was subsequently adjourned. to April 25, 2017. on consent by both parties. On April 24, 2017, Stein’s office informed the Burgans that “[his] client will be taking title as follows: Linden Development of Queens LLC.” After an unsuccessful attempt to confirm whether Schwartz was the sole member of Linden,  Emanuel replied that the Burgans refused the proposed contract assignment. In a reply email, Stein stated that if the Burgans did not consent to the contract assignment, then “you can bet the Purchaser won’t cooperate with the Seller, kind of a tit for tat. you know what i mean?” Emanuel responded by maintaining that his clients were refusing the assignment. On April 25, 2017,  Emanuel requested that the closing be adjourned for two weeks to address the issue, and Stein consented. The closing was never rescheduled. On June 20, 2017, Plaza filed suit seeking specific performance and filed a lis pendens against the property. Both parties moved for summary judgment.

The Burgans argued that there were no issues of fact as Plaza did not meet its obligations under the contract. The further averred that Plaza breached the contract by failing to obtain a written mortgage commitment. And Plaza also breached in its attempts to assign the contract to an unauthorized entity and refusing to cooperate with them in the 1031 exchange pursuant to the addendum.

Plaza asserted that it duly performed all its contractual obligations, and that it was ready, willing and able to close on the property. Plaza argued that the mortgage contingency clause was strictly for its benefit, and that it had waived that contractual provision. Plaza submitted a letter by Shaul Greenwald, Esq. of Riverside Abstract, LLC, dated November 22, 2016, which documented that Plaza had $883,748.19, in lieu of a mortgage, to be used to purchase the property. And Plaza asserted that the Burgans breached the contract by postponing the closing.

The Burgans submitted an affidavit from Euclid Burgan who contended that the Riverside letter listed five target replacement properties that Schwartz was interested to purchase in his 1031 exchange, but one of those targeted properties, 272 East 98th Street, Brooklyn, New York, had been purchased at a sale price of $735,000.00 on February 12, 2017 by  Schwartz two months before the scheduled closing date of the property on April 25, 2017. And argued that the Riverside letter was insufficient to prove that Plaza was financially ready to close.

Plaza replied that the purchase of 272 East 98th Street was funded by a mortgage and not the 1031 exchange funds as indicated in the Riverside letter. It maintained that Riverside letter was sufficient to demonstrate that it had the funds to close on the property.

To prevail on a cause of action for specific performance of a contract for the sale of real property, a plaintiff purchaser must establish that it substantially performed its contractual obligations and was ready, willing, and able to perform its remaining obligations; the vendor was able to convey the property; and t there was no adequate remedy at law.

In moving for summary judgment on a complaint seeking specific performance of a contract, a plaintiff purchaser must submit evidence demonstrating financial ability to purchase the property in order to demonstrate that it was ready, willing, and able to close.  When a purchaser submits no documentation or other proof to substantiate that it had the funds necessary to purchase the property, it cannot prove, as a matter of law, that it was ready, willing, and able to close.

The Court held that, contrary to Plaza’s contention, the mortgage contingency clause was a condition precedent inuring to the benefit of both parties and therefore could not be waived unilaterally by Plaza. And Plaza failed to show that it sought to waive the mortgage contingency clause. But even assuming that it did, in the absence of the Burgans’ consent, Plaza’s unilateral waiver of the mortgage contingency clause by offering to proceed on a non-mortgage basis was ineffective as the clause was for the benefit of both parties.

The Court also determined that Plaza’s conduct qualified as an anticipatory breach of the contract when it proposed to assign the contract to Linden  and, upon the Burgans’ repeated refusal, threatened to not cooperate with their 1031 exchange as required by the addendum.

The Court found that the Burgans demonstrated their prima facie entitlement to summary judgment by establishing that their cancellation of the contract was valid. And the Burgans’ motion for summary judgment was granted, in the absence of any material issues of fact; Plaza’s complaint was dismissed; the Burgans were awarded the down-payment of $70,000.00; and the Kings County Clerk was directed to vacate the notice of pendency filed against 513 Hegeman Avenue.

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