The [Rhas] Have It

This was originally published on the SGR Blog.

Heung C. Rha and Suhn O. Rha agreed to purchase the property located at 16-17 Bell Blvd., Bayside, New York from Alessio Blangiardo  pursuant to a contract signed on October 23, 2014.

The Rhas obligations under the contract were conditioned upon their receipt of a written mortgage loan commitment on or before November 30, 2014. And the Rhas tendered a $110,000.00 down payment, which was deposited into nonparty Salvatore E. Strazzullo, Esq.’s escrow account.

The contract included an Internal Revenue Code Section 1031 Exchange Addendum in which the parties acknowledged that the Rhas intended to purchase the property as part of a tax deferred exchange.

The closing was set to occur on December 10, 2014. The parties contested what transpired after the contract was signed, but it was undisputed that the closing did not occur on December 10, 2014.

On or about January 14, 2015, the Rhas simultaneously filed a notice of pendency against the property and filed suit seeking specific performance of the contract, due to Blangiardo’s alleged failure to cooperate with their efforts to obtain financing.

The Rhas ultimately obtained a mortgage commitment from Emigrant Bank on February 9, 2015. They subsequently filed a supplemental summons and amended complaint and an amended notice of pendency on or about February 24, 2015.

On March 16, 2015, Blangiardo sent the Rhas a letter in which he declared time of the essence, and set a closing date of March 30, 2015. The Rhas rejected Blangiardo’s declaration of time of the essence by letter dated March 17, 2015.

Blangiardo sought to vacate the notices of pendency on the grounds that Rhas had not commenced or prosecuted the action in good faith.

A hearing was held to take testimony about what transpired, and to determine whether the Rhas commencement and prosecution of the action was in good faith, and were thus entitled them to continue their notices of pendency.

Mr. Rha testified that, after the contract was signed, he and his wife had difficulty obtaining a mortgage loan commitment because Blangiardo denied them, their agents, and their lender, Emigrant Bank, access to the property to conduct an appraisal, survey, and mold inspection. He also stated that Blangiardo changed attorneys twice, further complicating communications. While he conceded that access was ultimately provided, and that a survey and appraisal were obtained, Rha testified that a mold inspector was still denied access. He added that since the 1031 exchange deadline of February 17, 2015 was not met, he and his wife suffered significant tax consequences.

Helene Fields testified that she was the Rhas attorney. She stated that Blangiardo frustrated the Rhas efforts to obtain a mortgage commitment by delaying an appraisal of the property. The Rhas submitted copies of emails and letters from Fields to Blangiardo and his prior attorneys reminding them of the 1031 exchange deadline, and raising concerns of Blangiardo’s delays in letting the property appraised. Fields stated that in an email to Blangiardo’s prior counsel dated December 29, 2014, that the Rhas agreed, at Blangiardo’s request, to extend the closing date to January 31, 2015.

Fields conceded that an appraisal of the property was completed on or about January 14, 2015, but testified that Blangiardo continued to prevent a survey and mold inspection from being completed by denying access to the property. The survey was ultimately completed on February 2, 2015.

Walter Seifert, the listing broker for the property, also testified that Blangiardo frustrated efforts to obtain an appraisal of the property. Seifert testified that he made numerous efforts to contact Blangiardo to have the appraisal completed, including via phone, text, email, and even stopping by Blangiardo’s home, at one point on a daily basis for about a week. He stated that,  in response to an email, Blangiardo sent him an email dated December 16, 2014 that the Rhas breached the contract by not obtaining an appraisal, and therefore the deal was off, which he then forwarded to Fields.

Blangiardo testified that, on December 16, 2014, he sent an email  that the deal was dead since the Rhas failed to secure a mortgage commitment. He claimed that the Rhas visited the property numerous times before the contract was signed but never came thereafter. He did not recall any requests to access his property, but stated that he scheduled the appraisal on or about January 14, 2015. He further testified that he never granted an extension for the time to close.

A notice of pendency can only be filed when the judgment demanded would affect the title or possession of real property. In both their original and amended summons and complaint, the Rhas sought specific performance of a contract to convey land which supported a notice of pendency.

While a notice of pendency may be cancelled where plaintiffs have not commenced or prosecuted the action in good faith, the party seeking cancellation must demonstrate the requisite lack of good faith. Any cognizable claim is sufficient for good faith and there must be at least a substantial question to show lack of good faith.

In determining if the Rhas’ action was commenced in good faith, the Court was limited to reviewing the pleading to see if the action effected real property and could not investigate the underlying transaction, but limited its analysis to face of the pleading. The Rhas likelihood of success on the merits was irrelevant.

In their complaint, the Rhas alleged that they had performed all of their obligations under the contract but that Blangiardo had frustrated their efforts to obtain a mortgage loan by not cooperating with them in order to conduct an appraisal of the property. Blangiardo argued that the Rhas’ failure to get a mortgage commitment prohibited them from seeking specific performance and compelled cancellation of the notice of pendency.

Purchasers seeking specific performance must ordinarily show that they are ready, willing, and able to perform, and the Rhas’ performance included obtaining a mortgage commitment. However, when the purchasers’ inability to obtain a mortgage commitment is not due to their own fault, but rather is frustrated by the seller’s conduct, including an unwillingness to permit access to the property to conduct an inspection or appraisal, the purchasers are still entitled to seek specific performance.

Since the Rhas’ suit asserted claims that supported a notice of pendency, the Court found that Blangiardo did not established that the matter was not properly commenced. And, because the parties offered sharply conflicting factual accounts as to why the contract failed, the Court could not determine that the Rhas commenced the action in bad faith or were using the notice of pendency for an ulterior purpose.

The Court also found that Blangiardo had not demonstrated that the Rhas failed to prosecute the action in good faith by engaging in dilatory tactics following the commencement of the action, or otherwise failed to diligently prosecute the suit.

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