Opinion
Decided September 16th, 1938.
Complainant sues to foreclose a mortgage on defendant's property. The building is available for a single purpose, the major income being derived from a theatre. The building has run down, is poorly located for motion picture purposes, and the theatre equipment is antiquated and in want of repair or replacement. Taxes for 1937 and since remain unpaid; interest has not been paid since October, 1937; the principal of the mortgage is eighteen years overdue. In three years tax arrears of $4,623.50 have been reduced only $60, while arrears of interest have increased $750 to $2,750. Either rentals are insufficient to pay annual taxes and interest, totaling $6,900, or defendant is not applying rent on its mortgage indebtedness. Held, mortgagee's real estate security is uncertain and precarious, and its equitable rights are entitled to protection. Appointment of receiver who will give bond and serve without compensation, to collect rents and apply them on account of the mortgage debt, affirmed.
On appeal from an order of the court of chancery advised by Vice-Chancellor Fielder, who delivered the following opinion:
"Having been informed that an appeal has been taken from an order advised by me in this cause appointing a receiver to collect rent, I state my reasons for concluding that such order was a proper exercise of my discretion.
"This is a suit to foreclose a mortgage held by complainant on property owned by defendant Lusbie Realty Company. The mortgage is dated October 9th, 1916, and fell due October 9th, 1919. It was originally for $75,000 and has been reduced to $66,000 with accrued interest amounting to approximately $2,750. Taxes for 1937 and for the first quarter of 1938 are unpaid, the total amount of which without interest or penalty, is $4,562.74, so that when the bill was filed, defendant's obligation was over $73,000 for principal, interest and taxes. The defendant's affidavits do not set up any defense to complainant's cause of action. The highest value placed by complainant's affidavits on the mortgaged premises is $70,000 and the lowest $55,000. Defendant's affidavits place the high value at $150,000 and the low value at $92,000 but it is to be noted that defendant's values are based on either reconstruction cost or sound value and not upon opinion of what the property will bring at forced sale. The building on the mortgaged land was erected in or prior to 1924 and in that year, when real estate values were high, the property sold for $150,000. In June, 1937, defendant received an offer of $115,000 for the property of which $25,000 was cash, conditional on surrender of the tenant's lease of the theatre on the ground floor of the building, but the tenant demanded $12,000 for cancellation of his lease and the sale was not consummated. That offer appears to be the best received by defendant.
"The mortgaged premises consist of a plot of land in Union City on which is a three-story brick building containing a moving picture theatre and stores on the first floor, the two upper floors being designed for offices, and there is no elevator service. The second floor is partially vacant and the third floor is wholly unoccupied. The gross monthly rent of the entire building is $1,100. Under date of January 17th, 1938, defendant wrote complainant that it had done its utmost to meet carrying charges by applying the entire income from rents and that it hoped to discharge all arrears in two years. It appears that defendant then had $3,500 in cash which it might have applied toward interest and tax arrears but it did not. The interest rate on the mortgage of six per cent. had been reduced by complainant to five per cent. and defendant requested a further reduction to three per cent. and an extension of the mortgage for five years, when it would pay $5,000 on account of principal, provided complainant would agree to a further extension of five years.
"The building is available for a single purpose, its major income being derived from the theatre. The affidavits satisfy me that the building has run down and is in a poor location for moving picture theatre purposes; that the theatre equipment is antiquated and in need of repair or replacement and that it will cost upward of $20,000 to refurnish the theatre and make needed repairs to the building. No taxes have been paid since November, 1937, and no interest has been paid since October, 1937. It is not shown when the last payment was made on account of principal, which principal is more than eighteen years overdue. As of January 1st, 1935, the arrears of taxes were $4,623.50 so that in three years the tax arrears have been reduced only about $60. July 1st, 1935, the arrears of interest were $2,000 while such arrears are now approximately $2,750, showing an increase of about $750. It is apparent that either the rent from the property is insufficient to pay annual taxes, which are about $3,600, and annual interest of $3,300, or that defendant is not applying the rent on its mortgage indebtedness. It is not shown whether or not the maker of the bonds is solvent but it does appear that the mortgagee's real estate security is uncertain and precarious and that its equitable rights are entitled to protection.
"In default of appointment of a receiver of rents it may be assumed that the owner will collect rent for the next five or six months or until a foreclosure sale can be had and will retain the same to its own use. In the meantime another three-quarters taxes will have accrued, $1,500 or $1,600 interest will be added to complainant's debt, needed repairs will not be made and the costs of this foreclosure suit will have been incurred by complainant. In this situation it was my opinion that a receiver of rents required to give bond and who agreed to serve without compensation, should be appointed. The rent he would collect will be applied on account of complainant's mortgage debt and if defendant's idea of the value of its property is realized at sheriff's sale, the application of rent will increase the sum defendant will receive for its equity over complainant's decree."
Messrs. Platoff Platoff ( Mr. John N. Platoff and Mr. Clement Rosen, of counsel), for the appellant.
Messrs. Levenson, Comen Levenson ( Mr. Abe D. Levenson, of counsel), for the respondent.
The order appealed from will be affirmed, for the reasons stated in the opinion by Vice-Chancellor Fielder in the court of chancery.
For affirmance — THE CHIEF-JUSTICE, TRENCHARD, PARKER, CASE, BODINE, DONGES, HEHER, PERSKIE, PORTER, HETFIELD, DEAR, WELLS, WOLFSKEIL, RAFFERTY, WALKER, JJ. 15.
For reversal — None.