Opinion
No. 2013–802002.
01-12-2015
RBS CITIZENS, N.A., f/k/a Citizens Bank, N.A., Successor in interest to Charter One Bank, Plaintiff, v. AUTO SERVICES, LLC, et. al., Defendants.
Buchanan Ingersoll & Rooney PC, Maureen T. Bass, Esq., Of Counsel, for Plaintiff. Lippes Mathias Wexles Friedman LLP, Brendan Little, Esq., Of Counsel, for Defendant.
Buchanan Ingersoll & Rooney PC, Maureen T. Bass, Esq., Of Counsel, for Plaintiff.
Lippes Mathias Wexles Friedman LLP, Brendan Little, Esq., Of Counsel, for Defendant.
Opinion
TIMOTHY J. WALKER, J.
Plaintiff has applied, pursuant to § 1371 of the Real Property Actions and Proceedings Law (“RPAPL”), for a deficiency judgment against Defendants, Auto Services, LLC, Auto Experts, Inc., Merlins Auto Repair, LLC, Paul Lapiana, and Kimberley Lapiana (collectively, “Defendants”) in the amount of $212,341.61. Defendants oppose the application and request that it be denied on the grounds that Plaintiff has failed to sustain its burden of proof on the motion. Alternatively, Defendants seek a hearing on the issue of the underlying real properties' value.
On February 3, 2014, the Court granted Plaintiff's motion for summary judgment in this commercial foreclosure action, and issued an Order of Reference regarding two parcels of real property located at 3781 Delaware Avenue, in the Village of Kenmore, New York (the “Kenmore Property”) and at 4971 Broadway Street, in the Village of Depew, New York (the “Depew Property”) (collectively, the “Foreclosed Premises”). Thereafter, on May 16, 2014, this Court granted a Judgment of Foreclosure and Sale (the “Judgment Order”). On July 21, 2014, Turtle Realty Corp. purchased the Foreclosed Premises at a public auction for the combined sum of $336,000.00.
The Judgment Order provides that Plaintiff may seek a deficiency judgment against Defendants. The parties do not dispute that the amount due on the underlying promissory note and mortgage is $737,341.61. Plaintiff contends that the Foreclosed Premises' value is $525,000.00, leaving a deficiency balance of $212,341.61.
Section 1371 of the RPAPL provides, in relevant part, that in considering an application for a deficiency judgment, the court shall determine the fair and reasonable market value of the mortgaged premises as of the date such premises were bid in at auction or such nearest earlier date as there shall have been any market.
In making this determination, the court enjoys broad discretion in that it can reject expert testimony and arrive at a determination of value that is either within the range of expert testimony or supported by other evidence and adequately explained by the court (BTC Mortgage Investors Trust1997–SI v. Altamont Farms, Inc., 284 A.D.2d 849, 850 [3d Dept 2001] ).
Moreover, it is well settled that Plaintiff, as the mortgagee, has the initial burden to make a prima facie showing of the Foreclosed Premises' fair market value as of the foreclosure sale date (Id. ). While such a showing does not require the submission of an actual appraisal, the mortgagee's opinion of value may not be “conclusorily state[d] ... without any substantiation or analysis” (White Knight NYC Ventures, LLC v. 15 W. 17th St., LLC, 110 AD3d 576, 577 [1st Dept 2013] ).
Plaintiff's position regarding the Foreclosed Premises' value is supported by “evaluations” of each parcel prepared by Corporate Valuation Services, Inc., located in Gloucester, Massachusetts. The evaluation of the Kenmore Property is dated March 13, 2013 (the “Kenmore Report”), and the evaluation of the Depew Property is dated April 10, 2013 (the “Depew Report”).
Corporate Valuation Services, Inc., did not actually evaluate (or appraise) the Foreclosed Premises. Rather, it retained Keller Williams Realty, located in Amherst, New York, to evaluate the Foreclosed Premises and prepare the Kenmore Report and the Depew Report. The Reports identify Christine Gorski of Keller Williams Realty as the “Assigned Evaluator.”
For the following reasons, the Kenmore Report lacks the requisite substantiation and analysis and, as such, is insufficient to enable Plaintiff to sustain its burden of proof as to the Kenmore Property's fair market value as of July 21, 2014, the date of the public sale:
1.The Kenmore Report is entitled, “LEVEL III Evaluation: Exterior Only Inspection”, meaning that the Evaluator failed to inspect the Property's interior (emphasis added).
2.The Kenmore Report includes the following disclaimer: “This Evaluation is not an appraisal. This Evaluation, while deemed reliable, has been performed by a Qualified Evaluator and is just an Opinion of Value and therefore neither CORPORATE VALUATION SERVICES, INC., nor the evaluator conducting this report shall be held liable” (emphasis in original). The disclaimer vitiates the Report's reliability.
Such disclaimers are not permitted to be made in appraisal reports prepared in connection with real property valuation hearings held pursuant to the Real Property Tax Law (“RPTL”) and Eminent Domain Procedure Law.
3.The “assigned evaluator”, Ms. Gorski, did not sign the Kenmore Report. Rather, it is signed by Suzanne Blake, “Servicing Coordinator.” The record does not, inter alia, identify Ms. Blake's employer (Corporate Valuation Services, Inc. or Keller Williams Realty or someone else) or whether Ms. Blake also evaluated the Kenmore Property. Similarly, the record does not reflect either Ms. Gorski's or Ms. Blake's level of expertise in appraising real property. In this regard, and to the extent Ms. Blake is employed by Corporate Valuation Services, Inc. of Gloucester, Massachusetts, the record does not reflect whether Ms. Blake, as the only person who signed the Report, is familiar with Western New York's real estate market.
4.The Kenmore Report values the Foreclosed Premises according to the sales comparison approach to value. Pursuant to this approach, an appraiser selects one or more properties that he or she deems similar to the subject property and makes adjustments to them to address the differences between them and the subject property (Latham Holding Co. v. State, 16 N.Y.2d 41 [1965) ] ; Matter of Peck v. Obenhoff, 84 A.D.2d 633 [3d Dept.1981] [petitioner in a tax certiorari proceeding was incapable, as a matter of law, of establishing that the subject property was overvalued where his appraiser failed to make necessary adjustments to comparable sales] ).
Latham Holding Co. v. State was decided in the context of a claim following an appropriation of a portion of claimant's real property. While not an RPAPL proceeding for a deficiency judgment, its holding that comparable sales must be appropriately adjusted is a fundamental rule of valuation that applies to such matters.
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In comparing and adjusting comparable sales to the subject property, appraisers typically evaluate the following elements of comparison: property rights conveyed; financing terms; conditions of sale; expenditures made after purchase; market conditions; location; the use(s) to which the subject and comparable properties are being made; non-realty components of value; economic characteristics; and physical characteristics (The Appraisal of Real Estate, 12th Edition, Appraisal Institute, p. 426). Physical characteristics, which may require adjustment, typically include “differences in building size, quality of construction, architectural style, building materials, age, condition, functional utility, site size, attractiveness, and amenities” (Id., at 426).
The Kenmore Report identifies a minimal number of elements of comparison, but fails to make the requisite adjustments to them to address the differences between them and the Foreclosed Premises.
5. RPAPL § 1371 requires that the Kenmore Property be valued as of July 21, 2014, the date of the public sale. However, the Kenmore Report values the Foreclosed Premises as of March 13, 2013, approximately sixteen (16) months earlier. Plaintiff failed to submit a supplemental report reflecting that the valuation had not changed during this intervening period of time (Cf., Matter of Markham v. Comstock, 38 AD3d 1262, 1263 (4th Dept.2007) (in the context of a valuation hearing conducted pursuant to the RPTL, “the court properly excluded the appraisal evidence with respect to the 2005 tax year based on the appraiser's use of the incorrect taxable status date....”] ).
6.The Kenmore Report identifies the sales prices of the three comparable sales as $175,000.00, $138,000.00, and $150,000.00, and based on these sales, estimates the value of the Kenmore Property to be $275,000.00. However, the evaluator fails to state the weight she placed on the various sales or otherwise provide any detail or analysis as to how she arrived at an estimate of fair market value that is $100,000.00 in excess of the highest comparable sale.
7.The Kenmore Report, excluding several photographs of the Kenmore Property, is limited to a single page of facts and analysis.
The Depew Report suffers from the same deficiencies, and therefore lacks the requisite substantiation and analysis and fails to enable Plaintiff to sustain its burden of proof as to the Depew Property's fair market value as of July 21, 2014.
Having failed to sustain its burden of proof, the burden did not shift to Defendants (BTC Mortgage Investors Trust1997–SI, 284 A.D.2d at 850 ). However, the Court is required to determine the Foreclosed Premises' fair market value as of July 21, 2014 (RPAPL § 1371 ).
In contrast to Plaintiff's evaluations, Defendants submitted a detailed and comprehensive self-contained appraisal report of each parcel, prepared by a licensed real estate appraiser and Member of the Appraisal Institute. While Defendants' appraisals also rely on the sales comparison approach to value, Defendants' appraiser made the requisite mathematical adjustments, which he also explained.
Defendants' appraisals value the Foreclosed Premises as of December 11, 2014, which is several months after the July 21, 2014 public auction sale, because that is the date the appraiser inspected them. However, Defendants and their appraiser sufficiently account for the time differential by noting that no improvements were made to the Premises and they were not otherwise physically altered between the public sale date in July 2014 and the appraisal date in December 2014.
The Court has carefully reviewed Defendants' appraisal reports and adopts the values contained therein, as follows: the fair market value of the Kenmore Property as of July 21, 2014 is $415,000.00, and the fair market value of the Depew Property as of $July 21, 2014 is $441,00.00.
In light of the foregoing, Plaintiff's application for a deficiency judgment is denied.
This constitutes the Decision and Order of this Court. Submission of an order by the Parties is not necessary. The delivery of a copy of this Decision and Order by this Court shall not constitute notice of entry.