NEWS & APPEARANCES
Adam Leitman Bailey. P.C. Prevails in Title Litigation Involving An Interpretation of the New York Recording Statute
Rivas v. McDonnell
My Story: The Importance of Title Insurance
I got the panicked call at about 7 PM one evening from Earl, a friend and fellow real estate attorney.
"Adam, I really, really screwed up, man,” he said, sounding out of breath. “I need help big time. I’m desperate."
Earl went on to explain that he represented a buyer named Pura Rivas who was purchasing a two-family home from a seller named Alan. The terms of the deal were fairly unorthodox, since Alan had inherited the home after his father’s death. Because he had alcohol and money problems, the terms dictated that Pura give Alan a certain amount of cash at the time of signing, in addition to paying for Alan’s beer and food expenses for an additional six months through an account they opened together at the corner grocery. After six months, Pura would make another payment to Alan, and would then become the legal owner of the home. However, the parties agreed that Alan would live rent-free in one of the building’s apartments for the rest of his life. The signed deed would not be recorded with the county clerk’s office, but was instead to remain in Earl’s safe deposit box until the six months had passed and Pura made the final payment.
“However,” Earl continued, "I just found out that Alan had already sold the building to someone else before he sold it to Pura. This previous purchaser knows about the deal with Pura and may have already had his closing. He may have even sold the home again, himself! What do I do?" I paused for a moment—and then I began delivering commands like I was avoiding rapid gun fire. "Even though she hasn’t paid for and does not have title insurance, get your title company on line at the clerk's office at 7AM tomorrow morning. It opens at 9 AM, so you should be first. Remember that it usually takes two weeks for the office to record a deed, but if you hand deliver your deed in person and have it recorded while you wait, we may be able to beat the second buyer to the recording finish line. As you know, under the law, the first to record without notice of a prior sale becomes the rightful owner."
I suggested we also visit the disputed property to learn more information about this alleged sale. I knew that if we were going to obtain any evidence about the fraud, we needed to do it now and not wait until the second buyer lawyered up.
Earl picked me up the next evening and we headed to the property. When we got out of the car, the second buyer—an imposing man named Dewey—approached us and asked what we wanted. Dewey announced that he was the rightful owner of the property, holding papers in his hand. While I don’t remember what was said next, I do remember Dewey taking a shot at my face with his fist. It certainly wasn’t the hardest punch I had ever taken, but I hit the ground anyway, hoping that the spectacle would cause him to be reasonable, or at least result in his arrest. This did not work.
But the plan of getting in line first at the recording office did. Two days later, the computer printout indicated that Pura’s deed recorded the purchase of her home 24 hours before Dewey. Knowing the law, we knew that we now had a decent chance of winning possession of the home. Within a few weeks, I was in court representing Pura. Because Dewey purchased title insurance, he was provided with a free attorney, and a very good one.
From that point on, things only got worse. The State Supreme Court judge ruled in favor of Dewey, stating that although we had recorded the deed first, Dewey conducted the first closing, and we had known about the transaction. We of course appealed immediately. My client's life savings and dream of homeownership and Earl’s bank account were on line—as a result of his failure to advise his client to record the deed in a timely manner. No title insurance company was going to act as savior and pick up the bill for Pura.
A few months later we received the decision from the Appellate Division in the mail. We had won. The Appellate Division decided that since Pura recorded her deed one day before Dewey, the fact that Dewey closed on the property before Pura was irrelevant—and Pura was the rightful property owner. Pura still owns her home and has paying tenants to provide extra income. I assisted her in evicting Alan from the property, as well as his friends that occupied the other apartment in the building. Pura and I still keep in touch and she recently reported that her daughter, Stephanie, will be attending John Jay Criminal College next year in hopes of becoming a lawyer. As for Earl, he joined his wife and has created a successful real estate practice. He has never failed to order title insurance again. In fact, Earl and Pura may be the best advocates for title insurance in the world as a result of their experience with this potential nightmare. As for me, the title company that hired an attorney for my adversary wound up asking me to represent them in a different case, and they still continue to be one of my favorite clients to this day.
While this story ends happily for Pura, the absence of title insurance could have turned it into an infamous buyer’s horror story if we had recorded the deed just one day later. Pura was extraordinarily lucky. I cannot stress enough how essential the purchase of title insurance is for all future homebuyers. Unfortunately, in the end, Dewey may have also come out a winner; if the title company did not prove his fraud, they would have been required to pay him the value of the property.
This story first appeared in the only home-buying book in the United States to discuss the importance of title insurance, Finding the Uncommon Deal.