Adam Leitman Bailey's Blog, page 3
May 1, 2024
The Evolving Burden of Proof for Foreclosure Judgments
Judgments of foreclosure and sale granted in favor of lenders are being reversed. This article highlights the underdiscussed expanded burden now imposed by the Second Department that lenders must satisfy to successfully foreclose on a defaulted loan. Many foreclosure proceedings already at the judgment stage are being unwound for the proofs submitted by the lenders years prior when moving for summary judgment now being considered insufficient to prove that the loan is actually in default. These 11th hour reversals of foreclosure judgments, however, can and should be avoided from the start.
In order for a lender to establish its prima facie entitlement to judgment as a matter of law in an action to foreclose a mortgage, the lender “must produce the mortgage, the unpaid note, and evidence of default.” CitiMortgage v. McKenzie, 161 A.D.3d 1040, 1040 (2d Dep’t 2018). For as long as practitioners can remember, a sworn statement from the lender or the lender’s servicer based on business records confirming that the loan is in default was enough to achieve summary judgment and the appointment of a referee to report on the amount due. Not anymore. The actual business records relied upon must now be produced to prove that a borrower is in default on a loan.
With many foreclosure proceedings now actively pending in the system for years due to borrower delay tactic litigation, court backlogs, and legislative stays and delays before getting to the final stage of a judgment of foreclosure and sale, this changed standard to prove the default is unraveling the oldest of proceedings in the Second Department to the detriment of the lenders. Practitioners must learn how to prove the default from the start to ensure that any judgment granted is airtight and not later overturned to catapult the lender back to the very beginning.
PROVING THE DEFAULT IN THE SECOND DEPARTMENTAs was recently reiterated by the Second Department in Wilmington Savings Fund Society, F.S.B. v. McLaughlin, 2021 NY Slip Op 04576 (2d Dep’t 2021), a foreclosing plaintiff can establish a borrower’s default on a loan by submitting an affidavit from an affiant with authority that lays the proper foundation for the admission of business records that will prove the default, but that also includes the actual business records relied upon. As was highlighted in Deutsche Bank National Trust Co. v. Hossain, 2021 NY Slip Op 04480 (2d Dep’t 2021), the failure to attach the business records to substantiate the default will be deemed a failure to demonstrate “proof of the facts constituting the claim” in the Second Department. Assertions in a sworn affidavit without the supporting business records annexed now constitute nothing more than inadmissible hearsay in this context. Bank of Am., N.A. v. Huertas, 195 A.D.3d 891 (2d Dep’t 2021).
Determining what constitutes sufficient evidence to prove that a loan is in default varies on a case by case basis. Certainly, a borrower’s admission made in response to a notice to admit will suffice, or an affidavit from a person with actual personal knowledge of the default will meet the burden as well. Deutsche Bank National Trust Co. v. McGann, 183 A.D.3d 700 (2d Dep’t 2020).
Less clear, however, is the type of business record that an affidavit can review and provide to sufficiently prove the default. The Second Department continues to hold, as recently as Flatbush Two v. Morales, 190 AD 3d 826 (2d Dep’t 2021), that there “is no requirement that a plaintiff in a foreclosure action rely on any particular set of business records to establish a prima facie case, so long as the plaintiff satisfies the admissibility requirements of CPLR 4518(a), and the records themselves actually evince the facts for which they are relied upon.”
It was made clear, though, that an affidavit annexing only a default notice as the substantiating business record will fail to prove the default in the Second Department. In Wilmington Savings Fund, F.S.B. v. Peters, 189 A.D.3d 937, 939 (2d Dep’t 2020), the Second Department held that while the affiant established that she was familiar with the servicer’s recordkeeping practices and procedures, she was unable to demonstrate the borrower’s default in payment, since the only business records annexed and incorporated into the affidavit were two notices of default and “no payment records were proffered with the motion.” In U.S. Bank N.A. v. Rowe, 194 A.D.3d 978, 980 (2d Dep’t 2021), the Second Department reiterated that where the only business record annexed is the notice of default, the default in payment is not established.
The Second Department also makes clear that if the loan was in default prior to the foreclosing plaintiff owning the note, then an affidavit with annexed business records to prove the default must also lay the proper foundation for the admission of business records from the predecessor note owner or servicer.
As was most recently decided by the Second Department in Bank of NY Mellon v. Deloney, 2021 NY Slip Op 4655 (2d Dep’t 2021), an affidavit is insufficient to prove a default where the affiant “did not attest that he was personally familiar with the record-keeping practices and procedures of the plaintiff or those of the plaintiff’s predecessor in interest, or that the records generated by the plaintiff’s predecessor in interest were incorporated into the plaintiff’s own records or routinely relied upon in its business, and failed to attach any business records of the plaintiff or its predecessor in interest to his affidavit.”
In Tri-State Loan Acquisitions III v. Litkowski, 172 A.D.3d 780, 783 (2d Dep’t 2019), for another example, the Second Department held that “the plaintiff failed to establish the defendant’s default in payment under the note” because, while the affiant attested to his affidavit being based on the books and records maintained by the plaintiff, “he failed to lay the proper foundation for admission” of the records from the prior note owner.
The court took issue with the affiant not stating that the prior note owner’s records “were provided to plaintiff and incorporated into the plaintiff’s own records,” not asserting that “the plaintiff routinely relied upon such records in its business,” and not attesting to having personal knowledge of the “business practices and procedures” of the predecessor note owner. “[T]he mere filing of papers received from other entities, even if they are retained in the regular course of business,” is just no longer enough. Id.
THE FIRST, THIRD, AND FOURTH APPELLATE DIVISIONSThe First Department seemingly does not place the same burden on lenders to annex the referenced business records to the sworn affidavits asserting that a loan is in default. In United Nations Fed. Credit Union v. Diarra, 194 A.D.3d 506 (1st Dep’t 2021), the First Department unanimously affirmed the granting of summary judgment stating that the “Plaintiff also submitted an affidavit of its loss mitigation analyst, who averred that he had first-hand knowledge of the facts surrounding the action, reviewed plaintiff’s business records, and determined … that defendant had defaulted on the loan,” with only copies of the default notices and the loan documents submitted in additional support.
A recent decision in the Third Department falls in line with the First Department’s standard. In Bayview Loan Servicing v. Freyer, 192 A.D.3d 1421, 1423 (3d Dep’t 2021), the Third Department found that the affiant “established personal knowledge of plaintiff’s business practices and procedures” and that records provided by the sub servicer of the loan “were incorporated into its own records and routinely relied upon,” however, annexed as business records were only copies of the default notices and a letter log history not showing a loan default date or any pay history, and the sworn affidavit was nonetheless found to be sufficient to establish the borrower’s default.
There are no recent Fourth Department cases on point.
ESTABLISHING THE AMOUNT DUE UNDER THE LOANAfter a lender establishes that a borrower is in default, an order of reference is entered, and the lender goes on to prove the actual amount due under the defaulted loan. In the affidavit of computation prepared for presentation to the appointed referee to consider in support of the amount due, the lender will again need to establish the proper foundation for the admissibility of business records to prove the stated amount due and, further, will need to actually produce those referenced and relied upon records. A sworn affidavit that lists and even delineates the amounts owed from a review of business records, alone, is no longer sufficient.
In Wilmington Savings Fund Society, F.S.B. v. Isom, 190 A.D.3d 786, 788 (2d Dep’t 2021), following its same standard for proving that a loan is in default, the Second Department held that the affidavit that was submitted to establish the amount due and owing under the loan “constituted inadmissible hearsay and lacked probative value because the affiant did not produce any of the business records he purportedly relied upon in making his calculations.” The referee’s finding was, therefore, not found to be substantially supported by the record, resulting in the judgment of foreclosure and sale being reversed, the referee’s report being rejected, and the plaintiff being rewound back to submitting proofs of the amount due to the referee at the oath and report stage.
Similarly, in Bank of New York Mellon v. Davis, 193 A.D.3d 803, 804 (2d Dep’t 2021), the Second Department held that “the affidavit of an employee of the plaintiff’s loan servicer, submitted for the purpose of establishing the amount due and owing under the subject mortgage loan, constituted inadmissible hearsay and lacked probative value because the affiant did not produce any of the business records she purportedly relied upon in making her calculations.”
The plaintiff in Federal National Mortgage Association v. Home & Property Works, 191 A.D.3d 847, 849 (2d Dep’t 2021) shared a similar fate, with the judgment of foreclosure and sale being reversed and the referee’s report being rejected for the plaintiff’s failure to produce the actual business records showing the amount due, thereby sending the plaintiff backwards to the computation stage with valuable time lost.
RECOMMENDATIONS AND THE FUTURE OF BUSINESS RECORDS FOR FORECLOSURESAs the Second Department distinctly demarcates in Selene Finance, L.P. v. Coleman, 187 A.D.3d 1082, 1085 (2d Dep’t 2020), “it is the business record itself, not the foundational affidavit, that serves as proof of the matter asserted.”
Once the proper foundation for the admission of business records is established, practitioners must annex the actual business records that the affiant relied upon in confirming the default and in calculating the amount due under the loan, so as to avoid a later finding that the affidavit constitutes inadmissible hearsay. Best practice is to include a pay history, which shows the last payment received on the loan, in conjunction with a payoff statement that details all amounts due and owing.
When purchasing loans that are already non-performing, investors should require full payment histories in addition to the payoff statements for each loan. Lenders, note owners, and servicers should update their payoff statement models to always include the due date for the loan. Most importantly, however, with New York’s often lengthy litigation timelines and constantly evolving proof standards for contested foreclosures in the current climate, the practitioners are the ones that must take elevated care in introducing and producing properly vetted business records to avoid setbacks on the docket that are completely within the foreclosing plaintiff’s control.
Adam Leitman Bailey is the founding partner of Adam Leitman Bailey, P.C. Jackie Halpern Weinstein is a partner at the firm and head of it’s Foreclosure Litigation Group. Danny Ramrattan, an associate at the firm, assisted in the preparation of this article.
Co-op and Condo Owners’ Right To Inspect: An Update
With orders to stay indoors, and residents working at home and boards tasked with deciding on how to run their buildings making important decisions on how to avoid spreading the deadly virus, heightened tensions and heated moments between shareholders and owners and their boards naturally reached new levels. One of the tools used to engage in cooperative and condominium war games—requesting the inspection of the corporate books and records and the minutes of the meetings—reached new levels of creativity calling for an update of our prior article on the subject.
In revisiting the topic of this article, which we last discussed in 2016, see “Court Clarifies Condo Owners’ Right to Inspect,” New York Law Journal, 12/20/2016, we give a broader overview of the development of the right of shareholders and condominium owners to inspect the corporate records of their respective governing entities. Petitions by shareholders and condominium unit owners continue to be made, and the cases in which courts are asked to determine the right to inspect arise in a variety of circumstances to which the guiding principles of the law must be adapted.
Most recently, the First Department, in Healy v. Carriage House condominium, 166 AD3d 518 59 NYS3d 24 (1st Dept. 2018), ruled that petitioner condominium unit owners were entitled to inspect certain books and records consisting of “[a]ll documents and records relating to the condominium’s settlement agreement with the condominium sponsor.” The court agreed with petitioners “that understanding how the condominium reached the settlement agreement is a valid purpose,” and that, in addition to the settlement agreement itself, petitioners were entitled to inspect all documents “reasonably relevant and necessary to the stated purpose of exploring the settlement process.” The court held that petitioners’ stated purpose was “a proper subject of the common law right of inspection.”
The Common Law RightIt has been well established, from Colonial times and even before, that stockholders/shareholders have a common law right to inspect the books and records of the corporation whose stock they own. The prevailing principles, which still guide decisions of New York courts ruling on these questions in the present day, were explained long ago in Matter of Steinway, 159 NY 250, 258-259 (1899):
The right of a corporator, who has an interest, in common with the other corporators, to inspect the books and papers of the corporation, for a proper purpose and under reasonable circumstances, was recognized by the courts of king’s bench and chancery from an early day, and enforced by motion or mandamus, but always with caution, so as to prevent abuse.…In Rex v. Fraternity of Hostmen, the reporter states that the court said: “Every member of the corporation had, as such, a right to look into the books for any matter that concerned himself, though it was in a dispute with others.” (Emphasis added)
The Steinway court further explained that “Stockholders of a corporation had, at common law, a right to examine, at any reasonable time and for any reasonable purpose, any one or all of the books and records of the corporation,” and that “[t]his rule grew out of an analogous rule applicable to public corporations and to ordinary co-partnerships, the books of which, by well-established law, are always open to the inspection to members.”(Internal citations omitted) (Emphasis added).
Steinway also set forth the guiding principle that shareholders “are entitled to such inspection, though their only object is to ascertain whether their affairs have been properly conducted by the directors and managers.” The court continued:
Such right is necessary to their protection. To say that they have the right, but that it can be enforced only when they have ascertained, in some way, without the books, that their affairs have been mismanaged or that their interests are in danger, is practically to deny the right in the majority of cases. Oftentimes frauds are discoverable only by examination of the books by an expert accountant. The books are not the private property of the directors and managers, but are the records of their transactions as trustees for the stockholders.
Though recognizing that statutes had been passed allowing shareholder inspection of corporate books and records, the court nevertheless stated that “[t]hese statutes, however, do not supplant the common law right.” In ruling on the applicability of the New York statute that was then applicable, the court held: “We do not think that the statute now in force is exclusive, or that it has abridged the common-law right of stockholders with reference to the examination of corporate books. By enabling a stockholder to get other information in a new way, it did not impliedly repeal the common-law rule which enabled him to get other information in another way.”
The Expanding Scope of ExaminationThe Court of Appeals reaffirmed these principles in Crane Co. v. Anaconda Company, 39 NY2d 14, 18 (1976), noting that, at common law, in addition to there being a “proper purpose” for the records inspection, the shareholder must show that it is “acting in good faith.” The court noted that the “conceptual basis for this right is derived from the shareholder’s beneficial ownership of corporate assets and the concomitant right to protect his investment.”
The court also noted that the current Business Corporation Law (BCL), Section 624(b) gives shareholders the right to examine, during usual business hours, the minutes of the proceedings of its shareholders and the record of shareholders, and to make extracts therefrom for any purpose reasonably related to such person’s interest as a shareholder, provided that the shareholder also furnishes to the corporation an affidavit that such inspection is “not desired for a purpose which is in the interest of a business or object other than the business of the corporation.” BCL Section 624(c) (Emphasis added).
More recently, the Appellate Division, First Department, in Pomerance v. McGrath, 104 AD3d 440, 961 NYS2d 83 (1st Dept. 2013) (Pomerance I), found that “the rationale that existed for a shareholder to examine a corporation’s books and records at common law applies equally to a unit owner vis-à-vis a condominium.” (Emphasis added). Unlike BCL 624(b), the Condominium Act, Article 9-B of the Real Property Law (RPL) 339-w limits the statutory right of condominium owners to examine the “receipts and expenditures arising from the operation of the property.”
Nevertheless, the court concluded that condominium unit owners “should be given rights similar to those of a shareholder under [BCL 624(b)], at least where elections for a condominium board are concerned.” Limiting Pomerance I to its facts, the court did not apply its own “rationale” to the inspection of other books and records that condominium owners might seek to examine.
However, the First Department’s reluctance to extend the rationale to other condominium records was short-lived. In Pomerance v. McGrath, 143 AD3d 443, 38 NYS3d 164 (1st Dept. 2016)(“Pomerance II”), the court held that, “so long as she seeks to do so in good faith and for a valid purpose,” the condominium owner had the right “to examine monthly financial reports, building invoices, minutes of board meetings, and appropriately redacted legal invoices.” (Emphasis added).
In addition to recognizing the right of shareholders and of condominium owners to examine, virtually without limit, the books and records of their governing organization, the court in Pomerance II also expanded the right of shareholders and owners to create electronic copies “as is now common,” and not just paper copies, of the books and records examined. The court went so far in liberalizing the scope of examination to allow copying of both paper and electronic confidential records, saying that requiring owners to sign a confidentiality agreement would entail “minimum burden.”
Proper Purpose RequiredWith the right to examine books and records under common law or under BCL 624(b) effectively guaranteed, the ability to exercise that right next depends upon whether the person seeking access to the records has offered a “proper purpose” for examining the records. Nevertheless, “[i]n an enforcement proceeding the stockholder must allege compliance with the statute,” and “[a]t this point the Bona fides of the shareholder will be assumed and it becomes incumbent on the corporation to justify its refusal by showing an improper purpose or bad faith.” Crane Co., supra, 39 NY2d at 20 (Internal citations omitted) (Emphasis added). However, “when the right is guarantied by statute the motive for its exercise is immaterial, but when it rests upon the common law it will not be allowed for speculative purposes, the gratification of curiosity, or where its exercise would produce great inconvenience.” Steinway, supra, 159 NY at 263.
Boards are solicitous of their records and very chary about giving any access to those seeking to examine them. Therefore, boards will strive to limit records examinations on grounds that the shareholder/owner’s purpose for reviewing the records is not sufficiently “proper” and/or that, even if a proper purpose has been proffered, it is a pretext and not made in good faith.
Purposes Deemed Improper“Improper purposes are those which are inimical to the corporation, for example, to discover business secrets to aid a competitor of the corporation, to secure prospects for personal business, to find technical defects in corporate transactions to institute ‘strike suits’, and to locate information to pursue one’s own social or political goals.” Tatco v. Tatco Brothers Slate Co., Inc., 173 AD2d 917, 569 NYS2d 783 (3d Dept. 1991). In addition, if the scope of any inspection demand is so onerous as would be likely, without good cause, to disrupt the business affairs of the corporation, it will also be deemed improper.
Nevertheless, if inquiry is otherwise warranted, the right to examine will be limited by the court to such corporate records as the subject reasonably requires. “It is in the court’s discretion to exercise its authority to limit or expand the scope of members’ inspection of corporate records to the material necessary to protect the interest of the corporation.” Wells v. League of American Theatres & Producers, Inc., 183, Misc.2d 915, 920, 706 NYS2d 599, 604 (Sup. Ct., NY Co., 2000 (Atlas, J.).
Purposes Deemed ProperIn contrast, “proper purposes are those reasonably related to the shareholder’s interest in the corporation. They include among others, efforts to ascertain the financial condition of the corporation, to learn the propriety of dividend distribution, to calculate the value of stock, to investigate management’s conduct, and to obtain information in aid of legitimate litigation.” Tatco, supra, 173 AD2d at 918, 569 NYS2d at 784. Pomerance I, supra, and Pomerance II, supra, suggest that condominium owners should also be entitled to determine the financial condition of the condominium and calculate the value of their common interest by inspecting Board records containing the sales prices of recent and past conveyances of units in their buildings.
Examples abound of courts approving shareholder/owner inspection demands where good faith is not in question.
In Goldstein v. Acropolis Gardens Realty Corp, 116 AD3d 776, 777, 982 NYS2d 922, 922-923 (2d Dept. 2014), the court held that “the petitioner satisfied the requirements of Business Corporation Law 624(b), and [was] therefore entitled to a list of shareholders and their mailing addresses, as well as all Board meeting minutes from 2001 to the present.” Moreover, the court found that, “in light of the terms of the relevant proprietary lease, the petitioner established his contractual right to inspect all of Acropolis’s books of account from 2001 to the present.” (Emphasis added).
In GDLC, LLC v. The Toren Condominium, 53 Misc.3d 1214(A), 48 NYS3d 265 (Sup. Ct., NY Co., 2016), the petitioners were a sitting member of the condominium board, a sitting member of the Commercial Board, and the owner of the condominium’s largest commercial tenant. The petitioners sought access to the condominium’s 2015-2016 financial statements, its 2016 budget, and a settlement agreement that arose out of a litigation commenced in 2011 by the condominium against its sponsor.
The condominium had asserted that the condo building’s design and construction were defective and that there were multiple violations of the New York City Building Code. The petitioners alleged that the condo board “secretly” settled the litigation against the sponsor in 2015 without petitioners’ input or knowledge and had refused to disclose any documents. Among the documents to which petitioners were refused access was an engineer’s report assessing the physical conditions of the building (the “RAND Report”). The Board had commissioned the RAND Report in anticipation of litigation against the sponsor.
The court ruled, on multiple grounds, that the petitioners were entitled to the records demanded, including the RAND Report. Petitioner, as a corporate director, “must keep himself informed as to the policies and business affairs of the corporation” and would be potentially liable “for improper management during his term in office.” Therefore, corporate directors have “an unqualified right, having its roots in the common law, to inspect their corporate books and records.”
Similarly, petitioner, as a board member, had a “fiduciary duty to the condominium and individual unit owners,” pursuant to which he had “unfettered access to” and was “entitled to inspect and copy the books and records, including the settlement agreement and the RAND Report.” Petitioner, as commercial unit owner, was entitled to the requested documents, because “unit owners of a condominium collectively own the common elements thereof and are responsible for the common expenses.
In addition, the commercial unit owner was entitled to inspect the requested documents because “it may be bound by the settlement agreement with the condominium’s sponsor and that the alleged design defects might affect its unit.”
The court also noted that, to the extent any of the demanded records and documents (including the RAND Report) were confidential, the petitioners (through their sitting Board member) had a fiduciary duty to maintain their confidentiality – to avoid exposing the condominium to alleged “substantial damages.”.
In Bondi v. Business Education Forum, Inc., 52 AD2d 1046, 384 NYS2d 291 (4th Dept. 1976), the shareholder sought to examine the corporate minutes, accounts, and records “to inquire into the reason for its economic difficulties.” The court held that a stockholder who is acting in good faith and for the purpose of protecting his investment and ascertaining whether the corporation is being properly managed, has the right to inspect the corporate books and records “at reasonable hours and in a manner that will not unduly disturb the corporation in the conduct of its affairs.” In this case, petitioner was “especially entitled to the examination in view of the offer by the directors of the corporation to buy his stock at a grossly reduced price.”
In A&A Properties N.Y. Ltd v. Soundings Condominium, 177 Misc.2d 200, 675 NYS2d 853 (Sup. Ct., NY Co., 1998), plaintiffs were owners of condominium units that, as a group, owned more than 5% of the units of the condominium and were either under contract and/or in negotiation to purchase additional units which would bring their beneficial interest to over ten percent. In the notice of annual meeting, the condominium board of managers proposed an amendment to the by-laws that would “restrict future ownership by any one person, entity or its affiliates to five (5%) percent of the Common Interests of the condominium.”
The plaintiffs sought an order to stay the meeting and to direct defendants to permit an inspection of the condominium records to ascertain the names and addresses of the unit owners, many of whom did not reside in the building.
The court held that, although the condominium Act (RPL 339-w, supra) does not authorize an inspection of a list of unit owners, there was “no valid reason why the Board should not furnish a unit owner this information and avoid the owner having to incur the time and expense of obtaining the list from the public records” of deeds and individual real property tax assessments.
The court noted that “plaintiffs desire to communicate their reasons for opposing the proposed bylaw amendment to their fellow unit owners is sufficient bona fide reason for obtaining the list.,” and “that “[t]he dissemination of their views is consonant with the concepts of organizational democracy.”
In Dwyer v. DiNardo & Metschi, P.C., 41 AD3d 1177. 838 NYS2d 745 (4th Dept. 2007), the court held that petitioner had “set forth a proper purpose for the inspection, i.e., that an inspection of the books and records of respondent was necessary in order to determine the value of the shares.” A hearing was not necessary because respondent did not show that petitioner was acting in bad faith and thereby failed to justify its refusal to permit the requested inspection. The court further explained that “[a]t a minimum, book value requires…that the entries be complete and correct,” and that “petitioner should be accorded an opportunity to determine the accuracy of the values of those items fixed by management and reflected in respondent’s financial statements which bear on book value.” (Internal citations omitted).
Finally, in People Ex. Rel. Spitzer v. Greenberg, 50 AD3d 195, 851 NYS2d 196 (1st Dept. 2008), the court determined that the former officers and directors of a corporation had the right to inspect legal memoranda created during their tenure relating to transactions underlying a suit brought against them by the New York Attorney General. The court held it is “well settled in New York that, although a corporate director has an absolute, unqualified right, with roots in the common law, to inspect the corporate books and records, once he is removed from office such right terminates forthwith.”
However, although the former director no longer has a voice in governing the corporation, the “former director may still have a qualified right to inspect the books and records covering the period of his directorship whenever in the discretion of the trial court he can make a proper showing by appropriate evidence that such inspection is necessary to protect his personal responsibility interest as well as the interest of the stockholders.”
In Greenberg, since the defendants had already been sued and sought the internal legal memoranda that were allegedly prepared for their use and relied upon by them in order to support their advice of counsel defense in the suit, the court held that they were entitled to the memoranda despite the attorney-client privilege belonging to the corporation that might otherwise have precluded access to the documents.
ConclusionThe principles set forth in Steinway and confirmed in Crane are clear. However, the cases in which courts must apply those principles vary widely in their facts and circumstances. The disputes that occur between the gatekeepers of corporate and condominium books and those who seek to examine the business and transactions recorded in those books will continue unabated.
There will always be need for more transparency and need too for prudential husbandry of corporate affairs. The task of attorneys engaged on either side of the dispute will be to persuasively articulate why the facts, in the particular case before them, should tip the balance between granting or refusing the requested records inspections.
Adam Leitman Bailey is the founding partner of Adam Leitman Bailey, P.C. John M. Desiderio is managing partner of the firm’s Real Estate Litigation Group.
Changes to the New York Statutory Power of Attorney Form
As of June 13, 2021, New York State enacted a new statutory Power of Attorney (“POA”) form. Any POA created prior to this date will remain effective if it conforms to the current law at the time of its execution. The newly reformed POA form enacted four major changes that are designed to simplify the prior POA form. They include; allowing for substantially compliant language rather than exact wording, eliminating the Statutory Gifts Rider (“SGR”), allowing sanctions for those who unreasonably refuse to accept a valid POA, and provide a safe-harbor provision for good-faith acceptance of an acknowledged POA. The four major changes are outlined below.
Substantial Conformity: Under the prior law a POA was considered valid if it was written precisely with strict adherence to section 5-1513 of the General Obligations Law. Sometimes minor errors such as spelling or punctuation would render an entire POA invalid. The new law corrects this flaw by requiring a POA form to “substantially comply” with the statute, therefore minor errors will no longer invalidate the entire document.Elimination of the Statutory Gift Rider: The prior POA form was made up of two parts, the POA Statutory Short Form and the SGR. Previously, the SGR form was separate and optional if the principal desired for the agent to make gifts of the principal’s assets. This caused confusion in the past and many times the SGR was not properly completed. The new change in law allows a principal to authorize gifts in the POA form itself, eliminating the separate SGR document. Under the new law a principal may make gifts over $5,000 in a single year in the Modifications section of the POA form itself.
Penalties for Unreasonable Refusal to Accept a Valid Power of Attorney: Previously the only remedy for a failure to accept a valid POA form is GOL § 5-1510 which limits relief to injunction compelling acceptance of a POA. The new legislation creates a presumption that a POA form is valid and permits courts to award damages. This change will urge third parties to accept valid POA forms given the new reproductions for unreasonable rejection. The new law requires third parties to now accept or reject the form within 10 business days of it being presented.
Safe Harbor for Third Parties Acting in Good Faith: The new POA law provides a safe harbor for recipients of a POA. The recipient will be shielded from lability if they acted in good faith when accepting the POA even if it is later found to be invalid. For the safe harbor law to apply there are two conditions that must be met. First the POA must have a principal’s signature and verified by a notary public or an authorized person to take acknowledgements. Second the recipient must not have “actual knowledge” that the principal’s signature is forged, that the POA is invalid or that the agent is abusing their authority. The new law further provides a third party may sign for the principal at the principal’s direction if the principal has capacity but is under a physical disability and is unable to sign or initial the document.
Overall, the main take away from the changes to the New York Statuary POA form is the new signing requirement which states the POA must be signed, initialed, and dated by a principal with capacity. As mentioned above a third party may sign for a principal only if the principal has capacity but is physically unable to sign. The POA must be acknowledged and witnessed by two persons who are not named in the instrument as agents or as gift recipients. The person who takes the acknowledgement (the notary public) may also serve as one of the witnesses.
Adam Leitman Bailey, P.C. strongly encourages consultation with an attorney before executing a Power of Attorney. Adam Leitman Bailey, P.C. can prepare and arrange for the signing of POAs under the new law. We are actively using the new form for our purchase and refinance closings and our staff is ready to answer any questions or concerns regarding the change in law and new signing requirements.
Remote Notarization No Longer Allowed for Purchase and Refinance Closings
As of June 24th Governor Cuomo announced the end of NY’s State of Emergency which means the use of remote notarization is no longer effective. Adam Leitman Bailey, P.C. previously used remote notarization to conduct refinance closings for a select group of lenders during the pandemic. Adam Leitman Bailey, P.C. also used remote notarization for purchase transactions as long as the select lender allowed it. Since NY’s State of Emergency has ended all documents that require a notary must be done using the traditional method which requires verifying photo ID and signing the document in front of the notary.
The end of the use of remote notarization shows New York is moving back to traditional pre-pandemic closing methods. Adam Leitman Bailey, P.C. has spacious conference rooms which allows for social distancing and a conformable refinance closing experience. Our attorneys and staff are trained to quickly and efficiently conduct refinance closings for our clients.
You can find more information on our banking department here.
Adam Leitman Bailey attorney Jeffrey Metz argues a RPAPL 881 Licensee case in front of the Appellate Division First Department against one of the largest property owners in New York.
Adam Leitman Bailey attorney Jeffrey Metz argues a RPAPL 881 Licensee case in front of the Appellate Division First Department against one of the largest property owners in New York.
