Real Property Sales: Huntington National Bank v. Cornelius

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Appellate Division, Third Department

Real Property Sales

First Refusal Options — Foreclosure

Huntington National Bank v. Cornelius
508795
Appealed from Supreme Court, Columbia County

Background: In September 1991, A. Michael Krieger purchased from defendant Victor Cornelius a one-half interest in Teviotdale, a historic home located in the Town of Livingston, Columbia County. As part of the transaction, the parties entered into and recorded a joint tenancy agreement which provided, in relevant part, that “[s]hould either party purchase the entire property and within twenty years thereafter offer it for sale, the other party has the option to purchase the property for $800,000 plus a sum reflecting the benefit of any capital improvements made subsequent to the buyout.”
The defendant ultimately purchased Krieger’s share of the property, and title was transferred to the defendant alone in December 1995. After the defendant listed the property for sale in August 1997, Krieger commenced an action seeking a declaration of his rights under the joint tenancy agreement. Supreme court determined in April 1998 that Krieger’s interest was a right of first refusal, as opposed to an option, and that decision was later affirmed by this court on appeal. In January 1998, the then mortgagee of the property commenced a foreclosure action. In the context of that action, supreme court found in a March 1999 decision that Krieger’s right of first refusal was superior to the mortgage and it could be exercised by Krieger at the foreclosure sale.
That decision was not appealed, and the foreclosure sale was never consummated. In August 2005, the defendant procured a mortgage with the plaintiff’s predecessor in interest, Tribeca Lending Corp. After the defendant failed to make the required payments under the note and mortgage, Tribeca commenced this foreclosure action. A referee determined that the amount due on the note was $727,875 and a judgment of foreclosure and sale was granted. Prior to the sale, Krieger moved to vacate that judgment and to be joined as a necessary party, alleging that Tribeca’s interest is subordinate to his right of first refusal and therefore any judicial sale must be subject to such right. Supreme court granted Krieger’s motion, finding that, based on the March 1999 decision in the prior foreclosure action, Tribeca was barred from contesting whether Krieger’s right of first refusal could be exercised at a foreclosure sale. This appeal followed.

Ruling: The court observes that the issue is one of first impression and examines the language creating the right of first refusal. It notes that the defendant is not offering the property for sale. Rather, the referee, on behalf of the court, is the seller for the purpose of the foreclosure action. Moreover, the court finds that the word “offer,” as here used, was intended to cover a conscious and voluntary choice by the owner to make the property available for sale. No such choice exists here, however, as foreclosure is an involuntary process resulting in a forced sale.
The judgment of foreclosure and sale decrees and directs that the mortgaged property be sold. Thus, it is not the volitional act of the owner. Accordingly, the court finds that the right of first refusal at issue in the present case cannot be exercised within the context of the foreclosure sale. The judgment is reversed.

Jeffrey S. Greene for the appellant; Thomas J. Minotti for respondent Cornelius; and Gary A. Lefkowitz of Schiller & Knapp LLP for respondent Krieger