Bulletin: NY000653

A recent Appellate Division, Second Department case, Myrtle 684, LLC v. Tauber 2020 NY Slip Op 07901 is bound to cause many an agent, underwriter and abstractor to sit up and take notice of the risk of the content of judgments and liens when only the docket is examined. 

A summary of the facts is as follows, not all of which are evident in the decision, but rather, were found in the court records leading up to the lower court decision:

To recover damages for personal injuries sustained at the subject property, Tauber obtained a judgment in the amount of $200,000.00 following an inquest.  In the judgment entered on May 21, 2009, Tauber was awarded interest on the judgment from June 30, 2008 in the amount of $ 16,050.00 plus costs and disbursements in the sum of $1,195.00.  Thus, on the day the judgment was entered, the total sum due and owing was $217,245.00.   The judgment was thereafter docketed with the Kings County Clerk. However, the judgment was mistakenly entered into the docket for the amount of $16,050.00 – the amount of interest awarded - rather than the principal amount of $200,000.00.  There was a rapid series of transfers of the property, culminating in the transaction by which Myrtle 684 LLC (hereinafter, “Myrtle”) took title to the property.

It appears that because of the (perceived) relatively small amount of the judgment, the parties did not obtain a payoff statement prior to closing.  Instead, at closing, the title company closing took twice what it erroneously believed to be twice the judgment amount of $16,050, to wit, $32,100 in escrow.  Curiously, the title company allowed the seller to delete the provision in the escrow agreement by which the Depositor ordinarily “agrees to pay on demand any additional amount required by the Depositary in case the Deposit or other funds held by Depositary are not sufficient. . .” The Depositor appears to have been aware of the discrepancy and was taking advantage of the buyer’s and title company’s mistake.

Shortly after the purchase by Myrtle, Tauber sent a letter notifying Myrtle that the approximate amount outstanding on the judgment was $351,043.87.  In the ensuing litigation, Myrtle’s mortgagee tried unsuccessfully to argue that Tauber should be limited to the $16,050, the amount stated in the docket entry.

You may read the decision at your leisure (the name of the case above is a hyperlink to the decision), but ultimately, the court and later the 2^nd Department, held that:

any reasonable inquiry into the details of the judgment would have revealed that the $16,050 amount set forth in the judgment docket index is an incorrect amount, and that the actual amount of the judgment is the principal amount of $200,000, together with $16,050 in interest and $1,195 in costs and disbursements, for a total of $217,245, plus accumulating interest.  There is no evidence in the record to suggest that either the plaintiff or Investors Bank undertook any such inquiry.

The Court went further: “Contrary to the contentions of the plaintiff and Investors Bank, the judgment docket index is merely notice of a lien and the lien is the judgment.”

While this might appear to be a harsh result, it appears to be correct on the law.  It is our understanding that there may be an appeal, but we believe that appeal is likely to be unsuccessful and this decision will stand as law.  Several readers of the decision have commented that it does not reflect the reality of practice, i.e., that most title companies and abstractors don’t pull the actual judgment, they just report docket results.  However, it is safe to say that our industry is now on notice that if we fail to pull the judgment and/or make inquiry as to the actual contents of the judgment (e.g., by requesting a payoff), we do so at our collective peril. In other words, the Second Department has, in no uncertain terms, dictated nunc pro tunc what is prudent practice for our industry.

Accordingly, for any file for which a judgment is potentially “on the head,” it is essential that the actual judgment be reviewed, and thereafter if appropriate, a payoff statement be obtained from the judgment creditor’s attorney.

In the event you have any questions regarding the above please contact Stewart Title Legal Department at 212-922-0050 and speak with any Underwriting Counsel.

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Attachments: Myrtle 684, LLC v. Tauber 2020 NY Slip Op 07901