Blue Angel Realty, Inc. v. United States of America

Background

Blue Angel Realty, Inc. sought to clear a HUD mortgage lien from the Blandina Properties, an apartment complex. The lien arose from a 1996 HUD-financed loan and had been recorded with the Oneida County Clerk. Blue Angel bought the properties from United Four in May 2006. A title company searched the title and reported that the properties were unencumbered.

In early 2018, Blue Angel contracted to sell the properties to the Utica Housing Authority. The buyer’s title search revealed HUD’s lien, and the planned sale failed. Blue Angel contacted HUD’s Buffalo office about canceling the lien, but HUD’s Washington, D.C., office refused to lift it.

In an earlier ruling, the court dismissed all of Blue Angel’s claims. It allowed Blue Angel to amend only its quiet-title claim to plead facts that might support equitable tolling, which is a limited legal rule that can extend a filing deadline in certain circumstances. Blue Angel filed a Second Amended Complaint, and the defendants moved to dismiss it under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not adequately state a claim.

Statute of Limitations and Equitable Tolling

The court reaffirmed that a quiet-title claim against the United States had to be filed within six years after Blue Angel knew or had reason to know of its injury and its cause. The court had previously determined that the deadline began, at the latest, when Blue Angel bought the properties in May 2006, because a reasonable title investigation would have revealed the recorded HUD mortgage. The deadline therefore expired in mid-2012, more than a decade before this action began.

The court held that Blue Angel had not shown the diligence required for equitable tolling. Hiring a title company did not by itself establish diligence, because the recorded mortgage could have been found through a reasonable title investigation. The court treated the title company’s failure as an unfortunate but ordinary mistake, not a circumstance that justified extending the deadline. Blue Angel’s later contact with HUD also did not show diligence because it occurred around six years after the deadline had expired. The court further stated that efforts to resolve a dispute do not ordinarily excuse a party from timely filing a claim.

The court also held that Blue Angel had not shown an extraordinary circumstance beyond its control that prevented timely filing. Blue Angel’s reliance on the title company was a choice within its control. Its suggestion that HUD might have lifted and later re-recorded the lien was not adequately pleaded and contradicted its allegation that the lien had been recorded in 1996. The court likewise found no plausible allegation that HUD’s failure to participate in the 2004 tax sale was intended to conceal the lien.

Disposition

The court concluded that Blue Angel had shown only that it did not discover the lien during the limitations period, not that a reasonably prudent person could not have discovered it. Because the quiet-title claim was time-barred, the court did not reach the merits of that claim. Judge Katherine Polk Failla granted the defendants’ motion to dismiss, directed the Clerk of Court to terminate pending motions and adjourn remaining dates, and closed the case.