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Avoiding Usury: Determining the Maximum Interest That Can Be Legally Charged
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Adam Leitman Bailey, Dov Treiman, and Danny Ramrattan discuss the limited applicability of usury defenses. They write: “In all, this area of the law is deceptively simple and the resolution of any case will require a close examination of the intricacies of the particular matter.”
New York imposes two separate rates for determining usury, a 16% rate for civil usury, and a 25% rate for criminal usury. On its face, it seems straightforward. However, when you investigate usury as a defense to charges of interest, you will uncover that it does not have the universal applicability so generally assumed and there are many exceptions to the civil usury limit.
One would think a simple question like “How much interest may I charge?” would have a simple answer. It does not. This article provides guidance to some of the larger questions one may face when deciding whether to raise usury as a defense.
Statutory Authority
Usury, as defined in New York, is principally located in two articles of law: Article 5, Title 5 of the General Obligations Law (GOL) and Penal Law §§190.40, 190.42, and 190.45. We note that the numbering of the sections in both of these sources of authority anticipates that the Legislature may wish at some time to insert additional articles on the subject of usury. Thus, the Legislature has manifested that it intends that this area of the law be complicated.
The General Obligations Law provisions deal with the civil side of usury and deal with specific percentage rates and the circumstances under which they could void a transaction or impair enforcement of contracts exceeding these percentages. Banking Law §14-a provides that the maximum rate of interest provided for in section §5-501 of the GOL shall be 16% per annum.
The Penal Law provisions set criminal usury at 25%. However, these provisions only criminalize the imposition of the higher rate, “when not being authorized or permitted by law to do so.” Thus, if there is a specific statute that does authorize these high rates, that statute immunizes the lender from criminal prosecution.
The Core of the Doctrine
General Obligations Law §5-501 essentially defines the transactions to which the civil usury maximum rate of 16% apply to as “the loan or forbearance of any money, goods, or things in action.” However, there are many exceptions.
Black’s Law Dictionary defines “forbearance” as “the act of refraining from enforcing a right, obligation, or debt.” Thus, if one agrees to forbear to enforce a debt, provided some interest be paid, that interest rate would be regulated in the same manner as if it were a promissory note memorializing the debt in the first instance.
Key to the understanding of the entire field is that there are a number of ways one can owe someone money, but not all of these are “loans” or even “forbearances.” For example, leases are not subject to the usury laws, Orix Credit Alliance v Northeastern Tech Excavating Corp., 222 A.D.2d 796, 634 N.Y.S.2d 841 (3rd Dept. 1995) but are subject to other kinds of laws regulating the charges and fees they can impose. (See, for example, Real Property Law §238-a restricting, inter alia, late fees in residential leases.)
Of particular interest to the readers of this article, attorneys’ retainer agreements do not count as loans. Thus, they are not subject to the usury laws. Bryan L. Salamone, P.C. v. Russo, 129 A.D.3d 879 , 15 N.Y.S.3d 344 (2nd Dept. 2015).
However, recalling our previously stated definition of “forbearance,” where the original debt was not in the form of a loan and thus was not subject to the usury laws, the subsequent forbearance agreement with regard to collecting on that debt will be subject to the usury laws. But note that loan agreements arise before the debt is incurred and forbearances arise after the debt had already existed.
Managing the Ladder — An Overview of Modern Equitable Subrogation
Almost 15 years ago, we authored “Split Between Departments Muddies Subrogation Doctrine” on this very page and this same publication, noting that Appellate Decisions in the Second and Third Departments had conflicting views on equitable subrogation rule while the First and Second Department Appellate Divisions remained silent. Today, all four Appellate Divisions are now synchronized on the law of equitable subrogation. This article goes into the law and many of the possible consequences from this doctrine in foreclosure practice.
Priority of Debts Introduced
There are a variety of possible theories as to how a debtor’s debts should be paid off. Among the contenders are priority based on seniority, strict proportionality, and first come first served. Even as to these, there could be subgroupings. New York selects from these options and others, choosing that debts, if made into liens, be paid off in order of their seniority.
However, defining that seniority is a rather complicated task. It is not as simple as looking on the calendar to see which debt arose when. The first question that comes to mind is whether the debt is to be treated as a lien on the debtor’s property or whether it is merely a general indebtedness. In New York, the most certain general mechanism to transform a general indebtedness into a lien is to sue on the debt and reduce it to a judgment. As for other mechanisms, liens are possible both on real property and on personal property and can arise from a number of possible scenarios: mortgages, chattel mortgages, and statutory liens, to name a few.
New York’s Normal Rule
In New York, the normal priority of liens is adherence to the calendar: Older recorded obligations have priority over later recorded obligations.
However, there are exceptions to that, the exception known as “equitable subrogation” being the focus of this article. Simply put, equitable subrogation is a process by which a junior lien can have its priority adjusted to a more senior position, although not necessarily the most senior position.
In order to clarify the issue, let us start with a look at some arithmetic. Let us assume a piece of property has a distressed sale value of one million dollars and there are liens against it totaling three quarters of a million dollars.
Then, regardless of the priority of the liens, any of the lienors can force a foreclosure and theoretically see both its lien and everyone else paid off 100 cents on the dollar. In this scenario, seniority simply does not matter because all the creditors can theoretically get paid in full and the property owner is left with a quarter million dollars in cash (less expenses, of course).
Now reverse the scenario: The property is worth $750,000 and the liens come to an even million. Now, in a foreclosure action brought by the most senior lienholder, there is going to be a quarter million dollar shortfall in this scenario where we have a bidder who bids the $750,000 market value. Upon whom is that shortfall inflicted? Dollar for dollar, the shortfall is inflicted on the most junior lienors until they add up to a quarter million dollars. One of the lienors in that group may wind up receiving some payment, but all the lienors more senior than that lienor will be paid in full.
Under the first scenario, since the lienors can all get paid in full, there is less incentive for a priority battle between lienholders. However, under the second scenario, the lienholders are more likely to battle over seniority as there is a limited supply of funds.By far, the second scenario is the more common one.
Equitable Subrogation: Purpose
Enter equitable subrogation. In a manner we will discuss below, equitable subrogation enables a lienor to improve its seniority. Note that there is no scenario under which this lienor receives more than it was owed. If there are funds left from the foreclosure sale, those move down the line of seniority in the same manner as if this lienor had always had its adjusted position in the line. However, this lienor is entitled both to repayment of its original debt and the money it spent to jump the line.
The balance of this article therefore deals with the rules as to how one may come under the doctrine of equitable subrogation to improve one’s seniority as a lienor. We note that a number of years ago we wrote on this issue, but in the intervening years, the Appellate Divisions have answered some questions we had to leave open.
How to Jump the Line
Subject to certain qualifications we will discuss below, the line-jumping is simple.
The junior lienor pays the senior lienor’s whose position the junior seeks to acquire whatever it takes to remove the senior lienor’s claim, thus purchasing that senior position. This enables the junior lienor to lay claim at the foreclosure sale to the funds it just expended to buy its superior position, plus as much of the excess funds from the foreclosure sale as it takes to liquidate the lien-purchaser’s original lien King v. Pelkofski, 20 N.Y.2d 326 (1967) (subject to an exception we will discuss below). Anything above that from the foreclosure sale goes to the still more junior lienors in the same order, dollar for dollar, as they would have gotten if the lien-purchaser had always held the senior position, but with its original debt piled on top of the just-retired debt.
We note, in this, the borrower has no particular interest. It is seeing all the equity it had in the property going to other persons. The doctrine leaves the borrower neither better nor worse off than before. The borrower goes in and comes out owing the same amounts as it would have after the liquidation in any event.
Technicalities
Not every would-be line-jumper qualifies for the protection of the doctrine of equitable subrogation. However, in Bank of N.Y. v. Penalver, 125 A.D.3d 795 (2nd Dept. 2015), the Second Department gives it broad application. Under that department’s ruling, the doctrine applies broadly to (1) whenever one party pays a debt on behalf of another party and (2) it was fair of them to do so. This applies if the payment of debt was made in order to (a) protect the interests of the paying party, and (b) to cover an existing debt that was already owed.
Naturally, one would want to know what would make someone not qualified under these criteria. The answer lies with what we will call the “sweetheart line-jumper.” We authors, with our extensive landlord-tenant background, have often encountered “sweetheart leases” which a landowner enters at an artificially low rent just prior to either selling or forfeiting the building. Typically, this is either a close relative of the debtor or someone who has secretly prepaid a pile of rent in order to get the cheap rent for the longer term.
This Just In: CTA Reporting Requirement On Hold
Adam Leitman Bailey, P.C. Prevails on Motion to Amend Complaint to Assert Federal and State Civil Rights Claims on Behalf of Real Estate Broker and Agent Against Brokerage
Adam Leitman Bailey, P.C. Successfully Defeats Former Co-Op Board President’s Attempt to Enjoin Certification of Board Election Results and to Require New Election
Jeffrey R. Metz
Adam Leitman Bailey, P.C., secured a major victory for an incoming Cooperative Board defending against the former board president’s demands for a preliminary injunction to halt certification of election results in which she was ousted. After oral argument before the Queens County Supreme Court on the hotly contested dispute, the Court agreed with Adam Leitman Bailey, P.C. and denied the plaintiff’s requests for preliminary injunctive relief in their entirety.
After years of mismanagement and failure to hold annual elections for the Dayton Beach Park (“DPB”) Co-Op Board, the New York Department of Housing Preservation and Development (“HPD”), which oversees such Mitchell-Lama buildings, was forced to step in and take legal action against then-president Jennifer Grady (“Grady”) and her board (the “Grady Board”). The litigation was settled in an agreement between HPD and the DPB board – signed by Grady herself – requiring, among other things, that an election for a new board take place by a certain date, with safeguards to ensure genuine voter eligibility, and shall be conducted under the supervision of an independent election monitor proposed by the Grady Board and approved by HPD. Under the agreement, HPD was the final arbiter of all voter-eligibility determinations, and the vote computation was to be certified by the HPD-approved election monitor.
The election took place on May 15, 2024, in accordance with the HPD settlement, and the Co-Op shareholders overwhelmingly rejected the Grady Board, with Grady receiving a mere 13% of the votes.
In the face of this resounding defeat at the hands of her fellow shareholders, Grady filed suit against DPB to nullify the unfavorable election results and to force a new election pursuant to Business Corporation Law § 619, so that she could retain her years-long, improper control of the DPB board. Despite the vote already having been certified by the independent election company that she herself proposed, Grady claimed that ineligible shareholders were allowed to vote, that the election monitor had not actually certified the results, and, tellingly, did not name HPD in her lawsuit, despite its integral role in the 2024 election pursuant to the DPB-HPD settlement agreement. Grady also erroneously claimed that DPB had defaulted by failing to oppose her claims in a timely manner.
Adam Leitman Bailey, P.C. argued that Grady’s claims were the product of a disgruntled former board president with unclean hands who now sought to improperly cling to power. Numerous fatal flaws required rejection of Grady’s demands for preliminary injunctive relief, and the ultimate dismissal of her specious claims, including: (1) Grady had failed to join the HPD, which was a necessary party to the action given its central role in the election and the controlling settlement; (2) the action was improperly brought as a declaratory judgment action when the appropriate vehicle was an Article 78 proceeding; and (3) the relief sought was moot after the election results had already been certified by the monitor and approved by HPD. As to Grady’s assertion of default, Adam Leitman Bailey, P.C. argued that DPB’s motion was in no way untimely and that Grady’s argument flew in the face of well-established law concerning Grady’s methods of process service.
At oral argument, Adam Leitman Bailey, P.C. hammered home the fact that Grady’s claims were the bad-faith efforts of an ousted board member who was displeased with her rejection, and that her failure to name HPD – plainly a central and necessary party to the matter – was intentional attempt to avoid the ramifications of the controlling DPB-HPD settlement agreement and the hurdles presented by a properly-brought Article 78 proceeding. Further, Adam Leitman Bailey, P.C. exposed and underscored Grady’s attempts to obfuscate the record and mislead the Court as to the actual election status, which had been certified and confirmed, contrary to Grady’s assertions.
Grady was forced to concede at argument that she had not named the HPD because of insurmountable hurdles she would face in Article 78 proceedings, and, in light of Adam Leitman Bailey, P.C.’s compelling arguments, Grady asked the Court for leave to amend and name HPD if her claims were dismissed. Adam Leitman Bailey, P.C. rejoined that any leave to amend should be denied as futile because of the numerous other fatal deficiencies even beyond Grady’s failure to name HPD, including that the issues were now moot. The Court focused on the parties' conflicting positions as to the election’s status vis-à-vis certification and confirmation. Grady claimed that the election had not, in fact, been certified by the monitor, and counsel was forced to admit that the sole basis for that position was the informal claim made by Grady to counsel in an email. Adam Leitman Bailey, P.C. was well prepared to address Grady’s falsehoods and immediately pointed the Court to indisputable documentary evidence showing that the election monitor had absolutely verified eligible voters, certified the votes including Grady’s results, and that HPD had received and confirmed such.
The Justice presiding over the case agreed with Adam Leitman Bailey, P.C., denying Grady’s requests for injunctive relief in their entirety. The Court found that Grady had failed to demonstrate either a likelihood of success on the merits or irreparable injury. The Court held that “HPD [w]as the final arbiter in overseeing and deciding the very issues [Grady] seeks to litigate in this forum. Moreover, . . . the balancing of equities favor [DPB] given the necessity of a functional board of directors to fulfill ongoing fiduciary duties to all of the shareholders weighed against [Grady’s] perceived loss of authority over the affairs of the board of directors.”
Ben Rose of Adam Leitman Bailey, P.C. conducted the oral argument and Brandon M. Zlotnick briefed the matter. Jeffrey R. Metz did the initial motion.
Adam Leitman Bailey, P.C. Secures Dismissal of Claims Against Individual Sponsor Principals in a Construction Defects Litigation
Plaintiff, the Board of Managers of a Brooklyn County condominium, brought an action against the Sponsor of the Condominium and its principals, asserting twelve causes of action relating to the allegedly defective construction of the Condominium.
Using its expertise in construction defect litigation, Adam Leitman Bailey, P.C. was able to secure dismissal of all twelve causes of action against the Sponsor’s principals. Specifically, Adam Leitman Bailey, P.C. argued that each and every cause of action against the Individual Defendants failed because the Board did not and could not plead any basis to hold the individual principals liable for the Sponsor’s purported wrongdoing. Adam Leitman Bailey, P.C. cited to extensive case law providing that a board plaintiff who seeks to pierce the corporate veil of a sponsor entity must demonstrate, with sufficiently detailed factual allegations: (1) the owners exercised complete domination of the corporation with respect to the transactions or occurrences at issue, and (2) that domination was used to wrong the plaintiff, resulting in injury.
In this case, the Board set forth no facts whatsoever, let alone enough to meet the heavy burden of demonstrating entitlement to pierce the corporate veil: the Board no allegations whatsoever, let alone any allegations with proper substantiation or factual support, that the Sponsor’s principals dominated the Sponsor and used that domination to perpetrate harm upon Plaintiffs.
In fact, Adam Leitman Bailey, P.C. was able to cite to numerous cases where a condominium board presented far more factual support for a veil-piercing claim than the Board did in this case and the Courts still found those allegations insufficient to pierce the corporate veil of a sponsor entity.
Here, the only allegations of any kind plead specifically against the Sponsor’s principals were that they executed the certifications contained the Offering Plan. However, Adam Leitman Bailey, P.C. is quite familiar with this argument. We were therefore able to point to case law across the departments that consistently holds that liability cannot be imposed upon the individual members of a sponsor entity based simply upon the execution of the required offering plan certification.
With these ironclad arguments, the Court had no choice but to dismiss all causes of action as asserted against the Sponsor’s principals.
Courtney J. Lerias, Esq. and Rachel Sigmund McGinley, Esq. of the Real Estate Litigation Group achieved this successful result for the client.
Adam Leitman Bailey, P.C. Forces Cooperative to Approve Alteration Plans and Settles Discrimination Lawsuit
Adam Leitman Bailey
Joanna C. Peck
Discrimination based on national origin is often difficult to prove, but when it walks like a duck…..
A European woman and her young family sought to perform renovations to their cooperative apartment to expand the Building Code (“Building Code”), and submitted plans to the Board for review and approval. After multiple exchanges with the Board’s architect, the Board fully approved the renovations to the apartment, and the work went underway. Little did the family know, that the Board would eventually engage in discrimination based on national origin, using the approved renovation plan as a pretext for discrimination.
Specifically, a member of the Board, driven by personal animus and prejudice towards the woman and her family, decided to launch a campaign of harassment and discrimination against them. The woman had done nothing wrong – she fully complied with the scope of renovations that not only had been fully approved by the Board, but also mirrored the same renovations performed by multiple members of the Board to their own apartments.
After performing over ten inspections of the apartment and finding no violations, the disgruntled Board member escalated matters, filing an extensive lawsuit in New York Supreme Court on behalf of the Board against the woman, claiming that her renovations, including the modifications to the flooring, were illegal and not in accordance with the plans or the Building Code. The allegations also claimed that the renovations caused unreasonable noise in the apartment owned by the Board member with personal animus towards the woman.
The woman was distraught, and came to Adam Leitman Bailey, P.C. to defend herself and her family from the baseless allegations and bullying and harassment. Joanna C. Peck, Esq. and John M. Desiderio, Esq. were assigned to the case.
Engaging a team of architects, structural engineers, and noise experts, Ms. Peck investigated the apartment, and the renovations performed by the family. The professionals determined that the family had performed the renovations in accordance with the plans approved by the Board and the Building Code.
But there was more to do, given that the woman had been in many apartments in the building and observed virtually the same renovations in the Board members’ apartments, who were, at the same time, claiming that the family’s renovations were purported illegal. In other words, if a Board member wanted to perform the renovation, it was okay, however, if the European family wanted to perform the same renovation, that was different, and unpermitted.
Led by the attorneys at Adam Leitman Bailey, P.C., a detailed research investigation was commenced by the professionals to look into the renovations in the building. Such research, which included pulling records from the New York City Department of Buildings, uncovered that the Board members were acting hypocritically and discriminatory as the Board members’ renovations were found to contain the same so-called illegalities that the Board had claimed against the woman in the lawsuit.
In sum the Board was breaching its fiduciary duty against the woman by discriminating against her, and using the renovations as a decoy for discrimination based on national origin. Conversations between Board members at other meetings also revealed that the Board had made negative comments regarding the family’s children, adding further to the illegal discriminatory conduct. In sum, the business judgment rule, which generally provides broad protections of Board members’ conduct and decision making, was no longer in play to protect the individual Board members from their unfair and discriminatory treatment and conduct towards the European family – they could not be held personally accountable.
Armed with these damning allegations that individual members of the Board had acted outside the business judgment rule by engaging in discriminatory conduct towards the woman and her family, Adam Leitman Bailey, P.C. filed a lawsuit against each of the individual Board members for discrimination and acting in bad faith. In particular, Ms. Peck and Mr. Desiderio revealed in the countersuit that the Board members had performed the same renovations to their apartments and had permitted one of the members of the Board to use his jealousy and prejudice as a pretext for the lawsuit.
The attorneys also notified the New York State Division of Human Rights regarding the discriminatory conduct by the Board.
The Judge realized that the Board had bullied the woman and her family, and that this was a case that should clearly settle. He encouraged the parties to do so.
The Judge also recognized that the Board was clearly between a rock and a hard place – fight the lawsuit, and have it publicly revealed that the members had acted was personal animus and discrimination towards the family, or drop the lawsuit, and settle with the woman.
Using their negotiation skills, the attorneys at Adam Leitman Bailey, P.C. negotiated an extremely favorable settlement on behalf of the woman and her family. The settlement permitted the family to maintain the renovations in their apartment, neutralize the demands by the Board to pay legal fees, and freed the apartment to be sold without encumbrances and issue.
Adam Leitman Bailey, Joanna C. Peck, and John M. Desiderio worked on this matter.
Adam Leitman Bailey, P.C. Defeats Summary Judgment by Long-Term Squatter Claiming Adverse Possession to Part of its Client’s Commercial Buildin
Adam Leitman Bailey, P.C. Prevails for Commercial Landlords Against Illegal Cannabis Shops
Illegal cannabis shops have been popping up all over New York City. Businesses are selling marijuana and various cannabis-related products without required licenses, including from New York’s Office of Cannabis Management. Such operations expose the landlords to liability, including, nuisance and criminal behavior around the premises interfering with other tenants; threats from various agencies such as the NYPD, Sheriff’s office, and the Attorney General; fines, violations, and penalties; closure orders and injunctions by the Sheriff and NYPD; and padlocked ghost premises where tenants become unresponsive and stop paying the rent once the Sheriff seals the business with little hope of reopening.
Adam Leitman Bailey, P.C. is aggressively representing commercial landlords against such illegally operating tenants. The matter often starts when an agency sends a letter to the landlord informing the landlord of illegal activity in the premises, demanding that the landlord take action and threatening the landlord with fines or other enforcement action. In such case we investigate the facts, analyze the commercial lease, and typically start with a cease and desist letter to the tenant and a response to the agency informing it that the landlord is taking the allegations seriously and will ensure compliance.
If the problem persists, a landlord has the power to commence an illegal business holdover proceeding, which does not require a predicate notice, and allows a landlord to go straight to holdover petition. In some cases, the NYPD starts a proceeding in Supreme Court, seeking a closure order.
By this time, in many cases, the tenant is already padlocked by the Sheriff’s office.
We prosecute the cases aggressively to eviction, or engage in settlement negotiations with the tenant or their attorney for a surrender of the premises. The negotiation often involves questions of who gets the security deposit, payoff of any rent arrears, and the terms for releasing any guarantor.
The tenant must sign a surrender statement, which the landlord can then submit to the Sheriff’s office with a request for the padlock to be removed so that the landlord can re-rent the premises and start generating income from the space again.
Current wait times for an order to unlock the premises can range from six weeks to two months. However, with an issued warrant of eviction in the holdover proceeding and a scheduled marshal’s eviction against the tenant, and with proper coordination with the Sheriff and NYPD, a landlord can expedite unsealing the premises. Furthermore, few people know that requests can be made for limited access to the premises while the landlord awaits a determination on the unsealing request.
Vladimir Mironenko, co-managing partner of the Adam Leitman Bailey, P.C. Landlord-Tenant department, and his colleagues, are representing commercial landlords concerning illegal cannabis shops in New York City.
Adam Leitman Bailey, P.C. Prevails in the Appellate Division by Successfully Defending Against Claim that its Client’s Complaint Should Have Been Stricken
Jeffrey R. Metz
In a heavily litigated foreclosure action that has had multiple motions and appeals, the borrower appealed a decision of the Court that denied her motion to dismiss the Plaintiff’s complaint pursuant to CPLR § 3126(c).
The borrower argued that Plaintiff failed to comply with her discovery demands and dismissal of the complaint was warranted. The plaintiff opposed the borrower’s application and cross-moved for a protective order, contending that the demands were wholly immaterial to the issues of the case.
The Supreme Court denied the borrower’s motion, holding, among other things, that the borrower did not comply with 22 NYCRR 202.20-f.
On appeal, the borrower argued that the Supreme Court committed reversible error because the borrower acted in good faith to obtain the discovery and thus the Supreme Court should not have denied her motion.
In opposition, Adam Leitman Bailey, P.C. argued that the borrower failed to include a “good faith” affirmation in support of her motion and for that reason alone denial was warranted. Moreover, even if the borrower included a good faith affirmation, the Supreme Court properly exercised its discretion in denying the borrower’s motion because there was no willful or contumacious conduct by Plaintiff.
The Second Department fully agreed with Adam Leitman Bailey, P.C. and upheld the Supreme Court’s decision. The Second Department held that the Supreme Court properly denied the motion based on the borrower's failure to comply with the requirements of “22 NYCRR 202.7 and 202.20-f(b)” and that the borrower's motions were “wholly inadequate to warrant the extreme discovery sanction of striking the complaint.”
Jeffrey R. Metz, Esq. of the Appellate Practice Group, Jackie Halpern Weinstein, Esq. and Danny Ramrattan, Esq. of the Foreclosure Litigation Group at Adam Leitman Bailey, P.C. secured this result for its client.
Adam Leitman Bailey P.C. Leads Newly Constructed Building With Complicated Case With Special Defects to Large Monetary Settlement
Adam Leitman Bailey
On a cold Spring day, we were brought in by the developer of a newly constructed condominium to meet with the recently installed board of managers. The purpose of this meeting was to discuss the possibility of hiring our firm to deal with problems with the buildings. Having represented what seems like countless newly constructed buildings, I do not ever remember a building’s developer hiring and recommending to the board a law firm that potentially may be sued by any law firm that is hired to put the building in the condition promised in the offering plan.
During the interview, we quickly pointed out the potential conflict of interest—only for it to be swiftly dismissed. Unsurprisingly, this issue reared its ugly head in court.
The problems facing this Lower Manhattan condominium included structural deformation and building movement caused by an adjacent developer’s failure to comply with the New York City Building Code (“Building Code“). These regulations require specific safeguards for the building during demolition and excavation to protect neighboring structures. Additionally, there were several minor issues. The Board of the condominium engaged Adam Leitman Bailey, P.C., to pursue all remedies against the next-door neighboring builder and the developer for the cost of the repair and restoration of the building.
Using her wealth of experience in construction litigation and party wall law, Joanna C. Peck, Esq. engaged a team of professionals, including structural engineers, geotechnical engineers and architects, to inspect the building’s movement. The goal was to understand exactly how the building had moved during excavation and construction at the adjacent site. In conjunction with these inspections of the building, Ms. Peck and the professionals meticulously reviewed and analyzed the developer’s plans for the project to determine the causality of the building movement and damage to the building. Special attention was given to protective measures the developer used to protect the shared party wall due to an adjacent owner’s obligation to safeguard the party wall and not to interfere with an adjacent owner’s use and enjoyment of a party wall during excavation and construction.
Working side-by-side with the team of professionals, Adam Leitman Bailey P.C. reviewed the detailed plans for demolition, excavation, and construction, as well as the special inspection reports and the daily log reports, which contained images of the excavation work at the adjacent site.
The special inspection reports and images revealed that the developer had clearly over-excavated the construction site, violating the Building Code, which resulted in the movement of, and damage to, the Cooperative building.
The reports and images indicated that the developer had excavated against and under the footings of the building, which caused the soil under the Condominium building to become loose. This resulted in the building movement. In addition, the engineer for the developers had repeatedly protested this negligent work, calling out the developer’s workers for over-excavating the construction site. Nevertheless, the developer and its workers ignored these objections and continued to perform the work, endangering the stability of the building.
Based on these findings, Adam Leitman Bailey, P.C. realized that the condominium had a textbook case for strict liability against the developers for negligent excavation work. Specifically, under New York Law, a developer and the party that performs the excavation work can be held strictly liable for performing such excavation work.
In addition, the analysis of the structural plans revealed that the developer had clearly failed to safeguard the party wall during demolition by failing to install tiebacks to ensure that the structural integrity of the shared party wall was maintained during demolition. Party wall tiebacks are a structural support system that stabilizes an existing party wall when one party using the party wall abandons its use of the wall by demolishing its building.
Due to the developer’s failure to install tiebacks prior to the demolition of its building, the party wall became compromised, which further contributed to the movement and damage to the Cooperative building.
Using these “smoking guns,” Adam Leitman Bailey, P.C. was able to avoid the costs of a lengthy trial and sought settlement before discovery. The stakes were high for the developers, as facing a jury under strict liability, combined with summary judgment on the failure to safeguard the party wall, would be dangerous.
Settlement negotiations began during a court conference, but they failed. However, we had a really good judge who could smell a settlement and refused to give up as he could see that both sides wanted to settle—we wanted to save our clients’ legal fees and the developer had a lot of money to lose. Nine attorneys, ranging from insurance companies to developer’s counsel, represented the defendants. Two Adam Leitman Bailey, P.C. attorneys went back and forth trading places with the defendant’s baseball-sized team. Our numbers were far apart, but after a few hours, the judge felt he could bridge the gap on another date. On the second afternoon of negotiations, State Supreme Court Justice Shlomo Hagler’s energy and hope saved the day, and one of the defendant’s insurers significantly increased their offer, which almost sealed the deal. We left the courtroom close to a settlement but without a final resolution. We made passionate phone calls with the adversary, who we had known, for many years and did the deed. The case was settled for a very good number—a number that surprised our clients.
Adam Leitman Bailey, Esq. and Joanna C. Peck, Esq. represented the Board of Managers in court and as counsel to the building.
In a Battle of Foreclosure Actions, Adam Leitman Bailey, P.C. Successfully Leads Second Position Mortgage Lender to Win the Race to the Auction, Resulting in Full Payment
Danny Ramrattan
A highly desirable residential condominium unit was the subject of two competing foreclosure actions. Adam Leitman Bailey, P.C. was retained by the second position lender to commence foreclosure proceedings and also to defend the lender’s interest in the first position lender’s foreclosure action.
The first mortgage entered into a modification agreement with the borrower whereby it increased the principal balance on the loan by 63%. Adam Leitman Bailey, P.C. argued that a senior lienholder is not permitted to modify the terms of a mortgage without the consent of a junior lienholder, if that modification prejudices the rights of the junior lienholder. The additional sums would prejudice the second position lien holder, because it would reduce its secured interest in the subject property. Therefore, Adam Leitman Bailey, P.C. argued that the new money should be subordinate to the second position lender’s mortgage.
The Court fully adopted Adam Leitman Bailey, P.C.’s argument and subordinated the first position’s lender’s new money. However, the first position would not relent from this issue and it was re-litigated multiple times, each resulting with the Court affirming that the new money was subordinate to the second position lender.
Adam Leitman Bailey, P.C. was able to beat the first position lender to get Judgment of Foreclosure and Sale, and to schedule a foreclosure auction.
Even though the first successful foreclosure bidder failed to close on the property, Adam Leitman Bailey, P.C. was able to schedule a new auction and complete the sale to the second successful foreclosure bidder all before the first position lender was awarded judgment of foreclosure and sale.
The first position lender tried to hold up Adam Leitman Bailey, P.C.’s sale by giving the purchaser a payoff statement that did not omit the new money. After motion practice before the Court, the Court required the first position lender to provide an updated payoff statement which included the subordination or face sanctions. The first position lender acquiesced, and at the closing the purchaser paid off the subordinated first position mortgage, and fully paid off Adam Leitman Bailey, P.C.’s client’s second position mortgage.
Jackie Halpern Weinstein, Esq., and Danny Ramrattan, Esq. of the Foreclosure Litigation Group at Adam Leitman Bailey, P.C. secured this result for its client.
Defeating Discovery Motion in Sophisticated Non-Payment Proceeding, Adam Leitman Bailey, P.C. Clears the Way to Collect Monies Owed
In a summary nonpayment eviction proceeding commenced against a residential tenant who had failed to pay rent for over a year, the tenant’s attorney sought leave to conduct discovery of documents and correspondence related to a misplaced defense, asserting that the building’s owner was barred from collecting rent for the duration of time the building was covered by temporary certificates of occupancy. Through a careful explanation of both the necessary threshold the tenant must meet to obtain leave to conduct discovery and the statutory interplay of various provisions of the Multiple Dwelling Law, we obtained a decision that not only denied the tenant leave to conduct discovery, but also eliminated the tenant’s defense concerning the building’s temporary certificates of occupancy.
Although litigants in an action commenced in the New York State Supreme Court are entitled to conduct discovery as a right, litigants in a summary proceeding do not share the same privilege. Rather, the automatic expectation that the parties will engage in an exchange of documents and sit for depositions is viewed as antithetical to the “summary” nature of a summary proceeding. As a result, to the extent a party does seek the production of documents, that party must, by way of a written motion, obtain the court’s permission by demonstrating that they have “ample need” for the requested disclosure and that the proposed demand for desired documents is “narrowly tailored” so as to only seek documents germane to the claim and/or defense for which the movant has demonstrated “ample need.”
Here, the tenant’s attorney argued that leave to conduct discovery was necessary to determine the landlord’s right to collect rent from the tenant because, for a portion of the period for which rent was sought, the Department of Buildings had not yet issued a permanent certificate of occupancy for the building. Instead, during the period in question, the building was covered by a series of temporary certificates of occupancy. The tenant’s attorney, relying in part on case law concerning the interim multiple dwellings (a/k/a “Loft” buildings) and the legalization milestones applicable thereto, asserted that production of all documents and correspondence with the Department of Buildings relating to the issuance of the various temporary certificates of occupancy and the permanent certificate of occupancy was necessary.
We successfully opposed the motion by arguing that the tenant failed to demonstrate the requisite “ample need” because the applicable provisions of the Multiple Dwelling Law did not operate to bar the landlord from collecting rent during the period that the building was covered by temporary certificates of occupancy. In short, we argued that while the language of Multiple Dwelling Law § 302 (1) provides that a landlord is precluded from recovering rent for any period during which the building is occupied in violation of Multiple Dwelling Law § 301 (1), Multiple Dwelling Law § 301 (1) provides only that a building cannot be occupied before the Department of Buildings issues “a certificate” that the building “conforms in all respects to the requirements” of the Multiple Dwelling Law. Further, Multiple Dwelling Law § 301 (4) provides that the commissioner of the Department of Buildings may “issue a temporary certificate of compliance or occupancy” certifying that the building “complies with all the requirements” of the Multiple Dwelling Law. Reading those provisions in tandem, the Multiple Dwelling Law provides that a temporary certificate of occupancy issued pursuant to Multiple Dwelling Law § 301 (4) satisfies the requirements of Multiple Dwelling Law § 301 (1), thereby relieving the landlord from any prohibition against recovering rent contained in Multiple Dwelling Law § 302 (1).
The judge agreed with our interpretation of the Multiple Dwelling Law and issued a favorable decision denying the tenant leave to conduct discovery. However, the judge did not stop there. Rather, she further adopted our reasoning into her decision and found that the landlord was, indeed, entitled to recover rent for all periods the building was covered by a temporary certificate of occupancy. This resulted in not only the denial of the tenant’s motion for leave to conduct discovery, but further eliminated the tenant’s defense to the payment of rent, thereby circumventing any future motion practice relating to that defense and permitting the landlord to proceed unfettered by the tenant’s attempts to excuse her failure to satisfy her end of the leasehold bargain.
Andrew D. Cassady from Adam Leitman Bailey, P.C. represented the client.
Adam Leitman Bailey P.C. Develops New Lease Language Regarding Electric Bicycles
While the green revolution may be doing much ultimately to make the planet more habitable, sloppy implementation of some of its features has had some tragic consequences. An unfortunate example has been the widespread adoption of electric powered bicycles.
What Every Cooperative Must Know About Internal Revenue Code Section 216 (26 U.S.C. § 216)
Section 216 of the Internal Revenue Code concerns cooperative housing corporations and their tenant-shareholders. A cooperative housing corporation is a corporation with one class of outstanding stock and tenant shareholders that purchase ownership of stock in the corporation are entitled to occupy a house or unit in a building owned by the corporation for dwelling purposes. 26 U.S.C. § 216(b)(1).
New Bedbug Disclosure Law in New York
A new bill introduced in the New York State Assembly amends the real property law through the addition of section 235-j to establish a landlord and lessor's duty to notify tenants and lessees of bedbug infestations within 24 hours of discovery.
Closing Open Permits
Many think of due diligence as a good practice which is applicable primarily to Purchasers. However, Sellers of apartments, single-family home and commercial properties also need to be aware of the importance of early due diligence which can avoid significant issues at a later stage of the transaction.
Thomas Furst
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The Scrappy Law Firm That Finally Forced Long-Time Fraudster Adam Hochfelder to Pay Off His Lenders
By Laurie Villanueva
The attorneys at Adam Leitman Bailey, P.C. are the first to admit Adam Hochfelder has a brilliant mind.
By his early 30s, Hochfelder had already established himself as a commanding real estate mogul in New York with ambitions so high that few properties were off the table. He co-founded Max Capital at age 25 and managed interests in or owned $2.7 billion in real estate at the firm's peak. As the New York Daily News put it, he “bought midtown skyscrapers like Monopoly trinkets.”
But his constant drive for bigger and better ventures meant his ambitions extended to maintaining his facade of financial success by defrauding those around him — investors, business associates, lenders and even family members.
When Hochfelder’s relationship grew strained with Max Capital co-founder Richard Kalikow, he assumed a $35 million separation debt he knew he couldn’t pay. He then forged documents to conceal the depth of his financial troubles and acquired funds under the guise of exciting real estate opportunities to continue the ruse. He used around $17 million in bank loans and misguided investments to cover his debts, legal fees and lavish lifestyle, including private jets, hot tickets around town and private school tuition for his children.
The district attorney’s office eventually caught up to Hochfelder’s schemes and the fallen real estate mogul was sentenced to 2 ⅔ - 8 years in prison.
Despite finally being brought to justice, Hochfelder’s brilliance in his prime meant he diligently protected the stolen funds from being reclaimed by those he scammed. For his victims to see economic retribution, they needed just as brilliant a law firm to fight for them. Enter Adam Leitman Bailey, P.C.
Finding the buried assets within Hochfelder’s widespread financial history that could be seized to repay his victims was no easy feat. In the initial criminal judgment, Hochfelder was ordered to pay $9.5 million in restitution to his victims, about 13% of which was designated for the commercial lender represented by Adam Leitman Bailey, P.C., Arbor Commercial Mortgage LLC. When Adam Leitman Bailey and his partner Colin Kaufman started to fight for their client’s funds, Hochfelder had only paid about $17,000 in restitution. At that rate, it would have taken Hochfelder 829 years to pay off the restitution, and the firm left in charge of collections was too short-staffed to dig into Hochfelder’s many business interests and prove he had more assets to pay up.
But the attorneys at Adam Leitman Bailey, P.C. knew better than to assess Hochfelder at face value — his brilliance in preserving his empire did not end when he went to prison like most would believe. Rather than searching for a single large asset that could result in the client’s entire debt being covered, the team knew it required a multi-faceted, unwavering investigation into Hochfelder’s corporate past and present.
The law firm exhibited unrivaled persistence in the tedious effort to uncover Hochfelder’s true finances, sending more than 60 informational subpoenas to Hochfelder’s relatives, business associates and governmental agencies.
Adam Leitman Bailey and his team dug through tens of thousands of documents turned over through subpoenas, interviews, depositions and government record requests, leaving no check or pay stub they could find unexamined. Attorneys even scoured Hochfelder’s personal Instagram and Twitter accounts to prove he was continuing his lavish lifestyle despite being employed as only an “office assistant” at the real estate firm he started with soon after leaving jail.
The information Adam Leitman Bailey, P.C. turned over in this exhaustive process proved Hochfelder had more to cough up for restitution than he was letting on. After Hochfelder refused to come in for a deposition and comply with Adam Leitman Bailey, P.C’s document demands, the firm brought its potential evidence of Hochfelder’s hidden income to the district attorney’s office, leading to the disgraced real estate mogul facing additional charges for schemes he ran after his first jail sentence.
After he coughed up $1 million towards his initial restitution order and was charged with a misdemeanor, he began complying with Adam Leitman Bailey, P.C. 's bounty on behalf of its lender client, bringing the team the documents it requested. Through this, Adam Leitman Bailey and his team gained the initial data and clues so they could further their investigation.
Hochfelder recognized the crucial role Adam Leitman Bailey, P.C.'s scrappy investigation played in the renewed inquiries into his misconduct and he came to respect the firm. He began cooperating with the attorneys in interviews, an almost unthinkable move after years of constant coverups to avoid paying his debts, and even entered settlement negotiation to resolve his debts with Arbor. His cooperation revealed multiple “loans” from past associates, his employer and his family members, including $590,000 from his father, with no clear expectation of repayment.
When those settlement talks stalled, Adam Leitman Bailey helped his client identify the most advantageous route to collect on their debts. The court determined in Hochfelder’s initial criminal case that Adam Leitman Bailey P.C’s client held a valid interest in half of a Manhattan luxury apartment occupied under a life estate interest by Hochfelder’s former father-in-law.
Based on the former father-in-law’s age and the documents Adam Leitman Bailey and his team were able to secure, the client opted to wait for the termination of the life estate, as the eventual title to the apartment guaranteed millions of dollars to Adam Leitman Bailey, P.C. 's lender client. Adam Leitman Bailey P.C. was successful in ensuring Hochfelder paid Arbor’s portion of the restitution in full.
One of The Most Important Condominium Cases of the New Millennium: Adam Leitman Bailey P.C. Makes New Law on Second Sponsor Repair Liability
By Laurie Villanueva
Background: New Sponsor Inherits a Building Plagued by Defects
In October 2011, Fortis Property Group (FPG), represented by Adam Leitman Bailey, P.C., acquired numerous units and parking spaces in a luxury condominium overlooking Brooklyn’s McCarren Park, following the original sponsor’s Chapter 11 bankruptcy. Shortly after, FPG amended the condominium offering plan, assuming the role of a new sponsor and committing to address a “Punch List” of common area repairs.
However, the condominium board alleged widespread defects, including HVAC failures, electrical issues, water damage, and facade cracks. In 2014, the board filed a lawsuit against FPG, arguing it should be held liable for these issues, despite FPG’s non-involvement in the original construction and status as the second sponsor.
Legal Hurdle: Bankruptcy Shields Original Sponsor from Liability
With the original sponsor’s bankruptcy shielding it from liability, the board sought compensation from FPG and its principals instead. FPG retained Adam Leitman Bailey, P.C., which argued that FPG bore no responsibility for pre-existing defects, given its limited role as a later-acquiring sponsor.
In July 2015, the Bankruptcy Court ruled that FPG could not be held liable for the original sponsor’s actions preceding bankruptcy. Adam Leitman Bailey, P.C. filed motions to dismiss claims against FPG and its principals, contending that only post-bankruptcy responsibilities could apply.
Pivotal Court Rulings: A New Era in Real Estate Law
Adam Leitman Bailey, P.C. successfully argued before the Appellate Division that FPG should only be liable for the agreed-upon Punch List repairs in the amended offering plan, not for defects inherited from the original sponsor. The court ruled that pre-bankruptcy defects were not FPG’s responsibility, setting a new precedent for sponsor liability.
Moreover, the Appellate Division found that the board’s allegations lacked grounds to pierce the corporate veil, meaning the principals could not be held personally liable. Speaking to Habitat, Adam Leitman Bailey’s critical argument underscored the broader implications: “When you buy or take over a building from a previous sponsor, are you liable for defects caused by the previous owner? According to this court, the answer is no.”
Impact: A Legal Framework for Future Development
This ruling not only secured a major victory for FPG but also fundamentally reshaped New York real estate law. Adam Leitman Bailey, P.C.’s success established that an acquiring sponsor is accountable solely for repairs explicitly assumed in post-bankruptcy agreements, shielding many developers from inherited liabilities. As Adam Leitman Bailey highlighted to The Real Deal, this decision “encourages and allows others to invest in condos and co-ops” with the assurance that they won’t be responsible for prior defects.
Conclusion: New Opportunities for New York’s Real Estate Market
This groundbreaking case law from Adam Leitman Bailey, P.C. paves the way for a revitalized market, encouraging developers to invest in distressed properties with the confidence of limited liability. The ruling provides a robust framework for responsible development, sparking economic growth and innovative approaches to real estate financial recovery across New York. This precedent sets a new standard in the industry, empowering developers and fostering a more resilient real estate landscape.
The Bosses Who Don’t Care About Your Ivy League Degree
By Callum Borchers
New York real estate attorney Adam Leitman Bailey doesn’t bother with games. He simply refuses to hire recent Ivy League grads...
He notes that some top law schools, including Harvard and Yale, don’t rank students or give letter grades. Bailey, who got his law degree at Syracuse University, says he prefers to hire associates who rose to the top of less-glamorous schools because he believes competition prepares them for legal battles.
“It’s wonderful that we have these incredible institutions like Harvard and Yale, who produce presidents and leaders and big thinkers,” he says. “But that’s not what I do for a living, and it’s not the type of lawyer I need.”
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15 of Adam Leitman Bailey, P.C.’s Attorneys Named as 2024 Super Lawyers and Rising Stars
In 2024, 15 of Adam Leitman Bailey, P.C. attorneys were listed in Thomson Reuters’ Super Lawyers and Rising Stars lists. Since the firm’s first induction, over 75% of our attorneys have been selected to be featured among the top real estate attorneys in the New York Metro Area.
Super Lawyers is a rating service of outstanding lawyers who have attained a high-degree of peer recognition and professional achievement. The notability of this award derives from the patented selection process that Super Lawyers Magazine utilizes to make its selections. Through independent research across over 70 practice areas as well as peer nominations and evaluations, each chosen attorney is critically selected to be awarded the title of Super Lawyer or Rising Star. Only the top five percent of attorneys are recognized as Super Lawyers and no more than 2.5 percent are recognized as Rising Stars.
Adam Leitman Bailey, P.C. Ranked as New York’s Best and Brightest Company to Work For 2024
Best Lawyers Ranks Adam Leitman Bailey, P.C. as a Top 10 New York Real Estate Law Firm With Less Than 30 Attorneys for 2024
Adam Leitman Bailey, P.C. has been ranked in the 2024 Best Lawyers® “Best Law Firms” list nationally in 1 practice areas and regionally in 1 practice areas. Best Law Firms rankings provide comprehensive information about thousands of top law firms nationwide including data on areas of expertise, lawyers, awards, office locations and more. A ranking from Best Law Firms signifies both a high-quality practice and a breadth of legal expertise.
Firms included in the 2024 “Best Law Firms” list are recognized for professional excellence with persistently impressive ratings from clients and peers. Achieving a tiered ranking signals a unique combination of quality law practice and breadth of legal expertise.
Ranked firms, presented in tiers, are listed on a national and/ or regional scale. Receiving a tier designation reflects the high level of respect a firm has earned among other leading lawyers and clients in the same communities and the same practice areas for their abilities, their professionalism and their integrity.
CLIENT TESTIMONIAL
“That’s the great thing about the firm: it is fairly seamless, and they always bring an expert” – Laurence Bambino
“Adam is intelligent, a combination of very thoughtful and very aggressive” – Yvonne and Michael Marsh
“Adam was very forceful when he reviewed the documents and was quite adamant as to the way I was being treated. He said he would go after these people, and I knew he would” – Michael Burak
“From the beginning, the firm was always about striving for excellence and we continue to do that today” – Danny Ramrattan, Partner
CHIEF OF STAFF
“We are a big name, we have big cases, we have great people, great views, and great benefits” – Maria, Chief of Staff and Operations Executive
“There’s a sense of friendship among the staff; we all really like each other and enjoy working with each other which makes the workplace very supportive” – Nancy Fernandez
“Everyone here looks out for everyone. There’s no real hierarchy. It’s very much everyone in a community … and I have had the lovely experience of getting to work with the most impressive attorneys in all of New York” – Leah Markbreiter, Managing Paralegal
“Everybody is so willing to help out in order to complete a matter in a way that would be most beneficial to the client” – Francyne, Legal Extern
Adam Leitman Bailey, Councilwoman Inna Vernikov and Councilman Antonio Reynoso Present Cheque to Mitchel-Llama Coop
Despite the cold weather, it was a very warm and festive morning at the 1,600-unit cooperative with Councilwoman Inna Vernikov and Brooklyn Borough President Antonio Reynoso. Luna Park was presented with funding for improving its cooperative's landscaping, parks, and recreational spaces surrounding their buildings. Adam Leitman Bailey, P.C. has spent many pro-bono hours working with our government officials to make this day a reality for the cooperative.
Adam Leitman Bailey, P.C. Celebrates Our Two Externs Passing the Bar
