529 Plans in Bankruptcy

Americans rely on easy credit in order to fund their lifestyles.  We are lured by good credit terms, the desire to buy a home, and the need to pay for things like education and home improvements.  We do our best to save for our future, putting money into Individual Retirement Accounts (IRAs) or 401Ks, money that is not to be used until retirement.  When we have children we consider their futures and the ever increasing costs of college, and we want to save for our children’s future education by opening Education IRAs or 529 Savings Plans.

In New York State, when someone obtains a money judgment against you, they have several remedies in order to obtain payment of the judgment, including garnishing your wages, putting a lien on bank accounts and other property held in your name.  This may include a 529 Savings Plan.  CPLR section 5205 provides several exemptions to protect debtors.  It lists several types of property that cannot be reached by creditors.  CPLR 5205(j) provides protection for New York 529 Savings Plans by exempting and thus protecting from creditors a New York State 529 Savings Plan in an amount not exceeding $10,000.   This is good news and bad news for debtors.  It protects smaller 529 plans from being plundered by a creditor, but if you’ve saved for many years, the 529 Savings Plan may exceed the $10,000 balance and is thus open season for a creditor looking for repayment of an outstanding debt.

Bankruptcy can offer better protection for a debtor who is trying to protect a 529 Savings Plan he has created for his children.  Bankruptcy Code 541(b)(6) provides that funds placed in an 529 Savings Plan 1 year or longer before the date the debtor files for bankruptcy is not property of the bankruptcy estate if the designated beneficiary is a child, stepchild, grandchild or step-grandchild, and the funds contributed do not exceed the total contributions permitted.  In addition, in order to ensure debtors have not transferred assets to exempt accounts in preparation of filing bankruptcy, any contributions made between year one and year two before filing are limited to a total contribution of $5,850. The exemption regarding an education IRA is similar in nature to the 529 Savings Plan, but include a requirement that the account could not be pledged to have credit extended to the debtor.  This language can be found in Bankruptcy Code 541(b)(5).

Therefore, for individuals who are contemplating bankruptcy but are concerned about 529 Savings Plans they have established for their children can now rest easy in the knowledge these accounts may be protected and may not be reached by creditors.

— by Elisa S. Rosenthal, Esq.,

Associate

Law Office of Richard A. Klass

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copyr. 2013 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Buyer’s Remedies when Seller Will Not Convey Real Property

Welton Grange, Cowgate, Welton by David Wright
Photograph copyr. David Wright. 25 August 2007

Over the last several years the real estate market has had its share of ups and downs.  It was not so long ago that several offers above the asking price would be placed on a single parcel of property.  Today, although the real estate market is not as “hot” as it once was, sales of real estate are on the climb again, and with that there are always issues that may arise.


As a buyer, what happens when you find the perfect house, on the perfect street and enter into a contract of sale. Then when you try to perform your obligations under the contract, the seller stands in your way.  Then after you file a Lis Pendens (Notice of Pendency) and commence litigation to force the seller to sell you the property (also known as specific performance), you learn there was another buyer who preceded you and also did not close.  What are your rights and remedies?

Although one would generally assume the adage, “first in time equals first in right,” that is not necessarily the case.  First, the question to ask when there are multiple purchasers is whether, as the second purchaser, you are a bona fide purchaser.

A bona fide purchaser is a purchaser who purchases property for value innocent of any circumstance that would bear upon the seller’s right to sell the property.  Therefore, if you are the purchaser of a parcel of property without having any knowledge that another buyer already purchased the land, then you are a bona fide purchaser.  If, however, you are somehow aware of any prior contracts of sale, you are deemed to have knowledge and will no longer be entitled to hold the title of bona fide purchaser.

How does a buyer establish they are a bona fide purchaser?  When a buyer purchases property, he must record his deed to the property at the clerk’s office of the county where the property is located. If a buyer fails to record the deed and a subsequent purchaser purchases the same parcel, the second purchaser is a bona fide purchaser and will have preference over the initial purchaser because the second purchaser did not have knowledge of the earlier conveyance, so long as the second purchaser records their deed prior to the first purchaser.

The principles of a bona fide purchaser are not that different when there is one seller, multiple purchasers each holding a contract of sale.  RPL §294(1) provides, “An executory contract for the sale, purchase or exchange of real property, or an instrument canceling such a contract, or an instrument containing a power to convey real property, as the agent or attorney for the owner of the property, acknowledged or proved, and certified, in the manner to entitle a conveyance to be recorded, may be recorded in the office of the recording officer…”

If there has not yet been a closing, RPL §294(1) permits a purchaser to record their contract of sale.  By recording the contract of sale, the purchaser is placing everyone on notice of their interest in purchasing the property.  If there are multiple purchasers, the first purchaser to record their contract of sale will have rights superior to any other potential purchaser, regardless of whether a down payment has been paid to the seller.

Once a purchaser has recorded the contract of sale with the clerk’s office in the county in which the property is located, they may then pursue their rights of specific performance under the contract.  Commonly in land sale contracts, there is language that allows a party to demand specific performance of the other party.  Specific performance allows a person to demand the other party to perform under the contract rather than to seek money damages. Avila v. Arsada, 34 A.D.3d 609; citing Varon v. Annino, 170 A.D.2d 445, 446; LaMarche v. Rosenblum, 50 A.D.2d 636, 637.   When a purchaser sues a seller for specific performance, the seller cannot claim as an affirmative defense that the purchaser is not ready, willing and able to close.  Courts have determined that when a seller fails to adhere to their obligations under a contract of sale, their actions are deemed to be an anticipatory breach of the contract which waives the buyer’s obligation to perform under the contract.  Gjonaj v. Sines, 69 A.D.3d 1188.  The purchaser’s lack of performance under the contract (i.e. inability to close which arose from seller’s breach) does not prevent the purchaser from exercising their right to obtain specific performance from the seller.

While this remedy, in theory, appears relatively simple and straightforward, there can be complications.  In order to record a contract of sale, the contract must be executed by both parties before a notary public. Common practice is such that people rarely if ever execute a contract of sale before a notary public.  Without a notarized contract of sale, a purchaser trying to force the seller to sell the property may end up unsuccessful.

Another remedy, which can be instead of specific performance or in addition to specific performance, is damages.  It is well settled that a purchaser, if they can establish the seller has willfully or deliberately failed to perform under the contract of sale, can obtain loss of the bargain damages, which are above and beyond the nominal damages specified in the contract of sale. Janoff v. Sheepshead Towers, Inc., 22 A.D.2d 950; Mokar Props v. Hall, 6 A.D.2d 536.

Therefore, the adage “buyer beware” may hold true in many situations, in certain circumstances, the seller, particularly as it relates to real property, may be forced to sell property under the specific performance clause in the contract of sale.

— by Elisa S. Rosenthal, Esq.,
Associate
Law Office of Richard A. Klass

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copyr. 2013 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.


Art credit:
Welton Grange, Cowgate, Welton, by David Wright.
Copyright David Wright. 25 August 2007

This image was taken from the Geograph project collection. See this photograph's page on the Geograph website for the photographer's contact details. The copyright on this image is owned by David Wright and is licensed for reuse under the Creative Commons Attribution-ShareAlike 2.0 license.

Requirement of Stating License Information in a Complaint Against a Consumer

Dunkin Donuts may want us to believe that “America runs on Dunkin,” but the truth is, America runs on its service industry.  In our everyday lives there are people who provide a service to us; whether it is waiting on us in a restaurant, a physician or health care worker taking care of us, or a contractor working on our homes.  America’s service industry is a vital part of our economy and everyday lives.

But what happens when the service provider is not paid for his services?  How can that person collect money that is due them?  Someone who has not been paid for services rendered can file a lawsuit seeking to collect unpaid monies from a consumer/client.

New York’s Civil Practice Law & Rules (the CPLR) Section 3015 provides some guidance when a service provider decides to file a lawsuit against a consumer/client to pay sums due and owing.  Depending on the location or venue of the lawsuit and the type of industry that provided the service, a plaintiff may be required to include in his complaint his license number.

CPLR 3015(e) was recently amended to state that when a plaintiff starts a lawsuit against a consumer, the plaintiff must include in the complaint the name on the license, the license number and the government agency which issued the license if the plaintiff is required to be licensed by the Department of Consumer Affairs of the City of New York, Counties of Nassau, Putnam, Rockland, Suffolk, and Westchester. CPLR 3015(e) provides:

(e) License to do business. Where  the  plaintiff's  cause  of  action against  a  consumer  arises  from the plaintiff's conduct of a business which is required by state or local law to be licensed by the department of consumer affairs  of  the  city  of  New  York,  the  Suffolk  county department  of  consumer  affairs,  the Westchester county department of consumer affairs/weight-measures, the county of Rockland, the county  of Putnam  or  the  Nassau  county  department  of  consumer  affairs,  the complaint shall allege, as part of the cause of action,  that  plaintiff is  duly licensed and shall contain the name and number, if any, of such license and the governmental agency which issued such license; provided, however, that where the  plaintiff  does  not  have  a  license  at  the commencement  of the action the plaintiff may, subject to the provisions of rule thirty hundred twenty-five of this article, amend the  complaint with  the  name  and number of an after-acquired license and the name of the governmental agency which issued such license or move for  leave  to amend  the  complaint in accordance with such provisions. The failure of the plaintiff to comply with this subdivision will permit the  defendant to  move for dismissal pursuant to paragraph seven of subdivision (a) of rule thirty-two hundred eleven of this chapter.

The initial purpose of this legislation was to place the burden on a “home improvement contractor” to establish it was licensed to perform the work at the time the work was performed.  Courts have consistently held that a failure to have a license at the time the work was performed will preclude the contractor from commencing an action.  Working without  a license or obtaining a license after the work was performed is too late, and will result in the lawsuit getting dismissed. (This pleading requirement, which initially began to address issues concerning home improvement contractors, was expanded to include all of the different types of licenses issued by the government agency).

The requirement of the plaintiff to include its license information in the complaint does not mean anyone who needs a government license to perform their work must include their license number.  The Court in NCSPlus v. WBR Management, 37 Misc.3d 227, 949 NYS2d 317 [Sup.Ct., Nassau Co. 2012], determined that the plaintiff, who was a debt collection agency, was not required to include its license information in the complaint because the dispute did not involve a “consumer credit transaction” against a consumer but rather between a debt collection agency and a merchant. (The term “consumer credit transaction” means a transaction where credit is extended to an individual and the money which was the subject of the transaction was primarily for personal, family or household purposes).

Therefore, it is important to remember that if you are a licensed service provider who decides to sue a customer or client, you may need to include your license information in your summons and complaint or you risk having your case thrown out.

— by Elisa S. Rosenthal, Esq.,
Associate
Law Office of Richard A. Klass

-----------
copyr. 2013 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.