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Prestige Title eNews
Issue 15: Spring 2012

Punitive Damages Awarded in Adverse Possession Action

A landowner may believe that a survey of his or her property may be proof of ownership, and acting upon this belief attempt to protect his or her rights from adjoining landowners who they believe may be trespassing. They confront their neighbor, demanding the removal of the structure that constitutes the perceived trespass, but are refused. Believing themselves to be in the right, they resort to self-help, removing the encroaching improvement, sometimes minimal, sometimes substantial.

What the landowner may not realize is that the land shown on their survey may not accurately reflect the extent of their ownership because of an earlier adverse possession. An adjoining land owner who is able to prove that the possession of their neighbor’s property is (1) hostile and under a claim of right; (2) actual; (3) open and notorious; (4) exclusive, and (5) continuous for the required period of at least ten years, and who can demonstrate that the land has been usually cultivated or improved, or has been protected by a substantial enclosure, can establish title in themselves as to that property. As a result of the adverse possession, the record owner is divested of their ownership and now stands in the position of the trespasser as to any portion of their property adversely possessed by their neighbor.

Homeowners beware: A recent decision from the Appellate Division’s Fourth Department now allows punitive damages to be awarded when a trespass has occurred as a result of adverse possession. (West v. Hogan, 88 AD3d 1247 [4th Dept. 2011])

West v. Hogan involved an owner of a vacant lot in Lewis County (Hogan) who began asserting his rights to all of the property within his lot (Lot 7) when he discovered that a portion of his lot was being encroached upon by an adjoining lot owner. A survey commissioned by Hogan showed that improvements on adjacent Lot 8, consisting of a camp owned by West, were encroaching onto Lot 7. The court found that Hogan granted West permission to continue their use of the camp situated on Lot 7, despite the court’s belief that Hogan was aware that West claimed an ownership interest to the disputed portion of Lot 7. Thereafter, Hogan erected a fence along West’s camp, and padlocked West’s cellar doors which West could no longer gain access to because of the newly erected fence. The court also found that Hogan demolished portions of a memorial owned by West and flipped over boats stored by West in the disputed area.

After determining that West had acquired ownership of the disputed area by adverse possession, the court found that Hogan was responsible for damages caused to West’s property and awarded punitive damages in the amount of $200,000.00. On appeal, the appellate division concluded that the amount of the award was grossly excessive, and ruled that the damage was reasonably limited to $15,000.

Significantly, the appellate court upheld the lower court’s finding that punitive damages were permissible when a trespass occurred as a result of adverse possession. In determining when punitive damages are appropriate, the appellate court used principles applied in trespass case law. The court will apply punitive damages only in “exceptional” cases, which are those cases where the trespass involves intentional acts of malice. The court found Hogan’s actions to “evince a high degree of moral turpitude and demonstrate such wanton dishonesty as to imply a criminal indifference to civil obligations.” It should be noted that the dissenting appellate justices argued that punitive damages were not appropriate in this case because Hogan had reasonably believed that he owned the disputed area based upon his survey, and that there was no evidence that Hogan knew he had no ownership claim over the disputed area.

ADDITIONAL ITEMS OF INTEREST

Repeal of Expanded Medicaid Estate Recovery in New York

In our last bulletin, we reported on the effects of changes to Medicaid asset recovery laws in New York State on real property transfers. Under the amended law, the expanded definition of a Medicaid recipient’s “estate” would have allowed the State to recover its Medicaid costs from a decedent’s non-probate estate, as well as probate estates. As a result, transfers of Medicaid recipient’s fee interests in real property into life estates and joint tenancy interests for estate planning purposes were called into question.

Thankfully, these real property transfers will not have to be undone because on March 27, 2012, Governor Cuomo and the State Legislature repealed the expanded definition of a Medicaid recipient’s estate. The State’s Medicaid recovery efforts will be limited to a decedent’s assets that passed under the terms of the recipient’s will or by the laws of intestacy. Furthermore, title insurers will not need to be concerned about possible real property post death liens imposed on these types of real property interests.

FIRPTA Withholding Requirements in a 1031 Exchange

A sale of property by a non-resident alien may result in the withholding of income tax under FIRPTA. However, if the sale is part of a 1031 exchange, the seller may be able to avoid having tax withheld during the sale of the relinquished property. The first step is to examine whether the sale is exempt from the requirements of FIRPTA. If the buyer acquires the property for use as a home and the amount realized is not more than $300,000, then no withholding tax is required. If this exemption does not apply, then the taxpayer may seek to have the gain on the sale deferred. To do this, the taxpayer will need to obtain two items: (1) a U.S. taxpayer identification number (TIN); and (2) an IRS withholding certificate. If the taxpayer is an individual, the taxpayer will need to complete and send an IRS Form W-7 to the IRS. If a business, the taxpayer will use an IRS Form SS-4. Obtaining a taxpayer identification number may take several weeks to obtain from the IRS so this delay should be considered when coordinating the 1031 exchange. An IRS withholding certificate will be needed to establish that the sale is exempt from FIRPTA withholding requirements. The withholding certificate can be obtained by submitting IRS Form 8288-B, which is generally granted within 90 days after its receipt by the IRS. On or the day before the sale of the relinquished property, the buyer must be notified in writing that the withholding certificate has been applied for.

Coop UCC/Plus Policy Now Offered by Prestige Title Agency

Prestige Title Agency is pleased to announce that it is now offering the Coop UCC/Plus Policy, an exciting insurance product specifically designed for cooperatives! Unlike a leasehold policy which insures only a right to occupy a coop unit, the Coop UCC/Plus policy insures both an ownership interest in a cooperative organization and the possessory rights to a specific coop unit. Most significantly, the Coop UCC/Plus is available at a fraction of the cost of a leasehold policy. Policies are available for both owner and lender. A cooperative addendum is also available to add the cooperative organization as an insured in the event of a lost stock or destroyed stock certificate. Please contact Prestige Title Agency for additional details.

If you have any questions or would like further information regarding any of the articles in this newsletter, please contact Keith Eng, Esq. at (212) 651-1200 or keng@prestitle.com.

Also, if there are any topics that you would like us to include in future newsletters, please feel free to e-mail us with suggestions at info@prestitle.com.

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