Opinion
No. 101474/07.
2010-08-18
U.S. BANK, N.A., as Trustee, Plaintiff, v. Deborah BERNHARDT, et al., Defendants.
Cara Buonincontri, Esq., appointed as temporary guardian for defendant, for Movant/defendant Bernhardt. Richard M. Gabor, Esq., Gabor & Marotta, LLC, for Cross movant/intervenor GFRE, Inc.
Cara Buonincontri, Esq., appointed as temporary guardian for defendant, for Movant/defendant Bernhardt. Richard M. Gabor, Esq., Gabor & Marotta, LLC, for Cross movant/intervenor GFRE, Inc.
Jeffrey J. Manfro, Esq., Knuckles, Komosinski & Elliot, LLP, for Plaintiff.
ANTHONY GIACOBBE, J.
Upon the proceedings held April 8, 2010, and upon the credible testimonial and documentary evidence adduced thereat, and upon all the papers filed with respect thereto, the Court finds that service of process in the underlying foreclosure action was not validly made upon defendant Deborah Bernhardt. Thus, the application by Order To Show Cause (Motion No. 003) of Cara Buonincontri, Esq., the court-appointed temporary guardian of defendant Deborah Bernhardt, to vacate the default Judgment of Foreclosure and Sale dated October 4, 2007 for lack of personal jurisdiction over Deborah Bernhardt, and to cancel the related Notice of Pendency pertaining to the premises at issue located at 252 Carlyle Green, Staten Island, New York, is granted, and the foreclosure action is dismissed without prejudice.
Plaintiff commenced this foreclosure action by filing a summons and complaint on April 6, 2007, and proof of substituted service (CPLR 308[2] ) upon defendant Deborah Bernhardt was filed on April 13, 2007. A notice of pendency was also filed. To the extent relevant, it had been alleged that Ms. Bernhardt executed a note in the amount of $225,000.00 on or about August 1, 2005, as well as a mortgage for the premises located at 252 Carlyle Green, Staten Island, and that she was in default in making required payments since January 8, 2007. An answer was not interposed by Deborah Bernhardt, and by Order of Reference dated July 12, 2007 (Minardo, J .), inter alia, a referee was appointed to compute. The referee filed a report dated August 8, 2007 setting forth the amount due as $232,515.27, which was confirmed by the Judgment of Foreclosure and Sale dated October 4, 2007 (Minardo, J.), and which directed the referee to sell the premises at auction. The referee subsequently filed a report of sale dated December 27, 2007, setting forth the successful bid of $246,000.00 at the foreclosure auction held November 21, 2007, and that there was no surplus remaining after the referee's disbursement of the sale proceeds.
Upon an administrative transfer of the instant action on January 25, 2010 (Minardo, J.) to this Court, to join a Mental Hygiene Law Article 81 guardianship matter involving Ms. Bernhardt over which this Court currently presides
, the application (Mot. No. 003) to, inter alia, vacate the Judgment of Foreclosure and Sale, was granted by Decision and Order dated March 16, 20[10] to the extent of directing a traverse hearing on the issue of personal service, and the cross motion (Motion No. 004) by nonparty GFRE, Inc., was granted to the extent of permitting the nonparty leave to intervene; the balance of defendant's motion and the nonparty's cross motion for damages, costs and use and occupancy, was held in abeyance.
The record of the proceedings in Matter of Bernhardt, Richmond County Index No. 80133/08, was sealed by Order dated July 6, 2009 in accordance with MHL § 81.14(b).
The Court ordered that a traverse hearing be conducted on the issue of personal service upon defendant Deborah Bernhardt, at which plaintiff U.S. Bank, N.A. was required to establish that jurisdiction was acquired over Ms. Bernhardt by a preponderance of the evidence. See, e.g., Bankers Trust Co. of California, N.A. v. Tsoukas, 303 A.D.2d 343 (2nd Dept.2003). In summary, upon such hearing, the Court finds the testimony of plaintiff's process server to be incredible, and the testimony of Ms. Bernhardt to be credible. See, e.g., Freud v. St. Agnes Cathedral School, 64 AD3d 678 (2nd Dept.2009); McCray v. Petrini, 212 A.D.2d 676 (2nd Dept.1995); Citibank, N.A. v. McGarvey, 196 Misc.2d 292 (New York City Civ.Ct. Richmond Co.2003). Thus, plaintiff has failed to sustain its burden of proof, and defendant Deborah Bernhardt's application (Mot. No. 003) is granted to the extent indicated herein.
It should be noted that subsequent to the filing of the instant motion and cross motion, several settlement conferences were conducted over a period of months during the year 2009, but settlement was unsuccessful. Parenthetically, also during this time, a substitution of plaintiff's counsel was made.
Having determined the issue of service, the Court must now decide whether the purchaser at the foreclosure auction, intervenor GFRE, Inc., should retain title to the premises located at 252 Carlyle Green, Staten Island, New York, or whether title should revert to Deborah Bernhardt, the mortgagor herein.
Here, in this foreclosure action—which has been declared void ab initio due to plaintiff's failure to acquire jurisdiction over the person of Deborah Bernhardt—the resolution of the title issue involves complicating factors which the Court must take into account, including the fact that Deborah Bernhardt is an alleged incapacitated person for whom a temporary guardian has been appointed ( Matter of Bernhardt, Richmond County Index No. 80133/08), and the fact that the property at issue was sold at a foreclosure auction to intervenor GFRE, Inc.
The Court has carefully deliberated upon the complicated and unusual facts, circumstances and issues presented in this foreclosure action, and, relying upon its equitable powers, has reached a further conclusion in accordance with relevant case law authority as well as the litigants' request for other and further relief as the Court deems just and proper, and has determined that the purchaser of the property at auction should retain title for the reasons hereinafter discussed.
To be precise, the referee's report of sale reflects that the successful bidder at the auction assigned the bid to GFRE, Inc.
Of significance is the fact that the only tenable basis upon which defendant Deborah Bernhardt moved to vacate her default, set aside the foreclosure sale and dismiss this foreclosure action is lack of personal jurisdiction due to plaintiff's failure to accomplish valid personal service.
Although the situation faced by the Court and the litigants is challenging and complex, the Court's solution, while not without potential resultant difficulty, is straightforward, and is in accord with principles of justice and fairness. In short, while the Court has vacated the Judgment obtained against Deborah Bernhardt by default, the foreclosure sale which occurred on November 21, 2007 and Referee's Deed dated December 27, 2007, as indicated above, will not be set aside.
Both plaintiff U.S. Bank, N.A. and intervenor GFRE, Inc. opposed defendant Deborah Bernhardt's application (Mot. No. 003) to, inter alia, set aside the foreclosure sale.
Importantly—and putting aside any potential claims that intervenor GFRE, Inc. may have—it has not been disputed that intervenor GFRE, Inc. is a good faith bona fide purchaser for value. Furthermore, whether or not Deborah Bernhardt is, or ever was, an incapacitated person or otherwise incompetent, there is no evidence or claim that at the time this foreclosure action was commenced, or when the property was sold at auction, either plaintiff U.S. Bank, N .A. as Trustee or intervenor GFRE, Inc. knew, or should have known, about the alleged incapacity or incompetency of Deborah Bernhardt. Pertinently, in Matter of Bernhardt, Richmond County Index No. 80133/08, an Order To Show Cause was signed on May 1, 2008 following the commencement of this foreclosure action and sale at auction, and an Order and Judgment appointing a temporary guardian of the limited person and property for Deborah Bernhardt, an alleged incapacitated person, was signed July 10, 2008. The temporary guardian was appointed based upon proceedings held in that case, and this Court determined that Deborah Bernhardt was a person in need of a temporary guardian to provide for some of her personal needs and property management, particularly with issues pertaining to a pending Civil Court proceeding
and foreclosure action and her need to find new living accommodations, leaving any final determination of incapacity and the need for a permanent guardian for future resolution.
Intervenor GFRE, Inc. has a related matter pending in the Richmond County Civil Court, GFRE, Inc. v. Bernhardt, L & T Index No. 50244/08, presumably seeking her eviction, which the temporary guardian has been authorized to defend on behalf of Ms. Bernhardt.
It should be noted that, as posited by the temporary guardian in support of the motion, Ms. Bernhardt does not move to vacate her default upon the grounds of reasonable excuse and meritorious defense. Indeed, she does not even dispute that she was in default of her mortgage obligations. Deborah Bernhardt merely contests the time, place and manner of personal service, to wit, substituted service could not have been made as claimed by plaintiff because Ms. Bernhardt was then in the hospital, she was unmarried and living alone, apparently unemployed, and no person of suitable age and discretion could have been present in her residence to accept service of a summons and complaint, and certainly not the individual described in the process server's affidavit-depicted therein as her husband “Gordie Berhardt”—or as was testified to by the process server at the traverse hearing conducted on April 8, 2010.
The issue of Ms. Bernhardt's competency, or alleged incapacity, injected into this action by the temporary guardian in only a vague and conclusory sense, is separate and distinct from the issue of whether or not proper service of process in the manner alleged and challenged had been effectuated. Contrary to the temporary guardian's assertion that her ward was “considered incapacitated” during April 2007 when service of process was purportedly accomplished, no evidence has ever been proffered on this issue to substantiate such an assertion. The claim alleged in favor of vacatur is that of a complete failure of service in conjunction with Ms. Bernhardt's lack of knowledge of the foreclosure action (at least until she returned home from the hospital some time during the spring of 2007), not an inability to protect her interests or a lack of understanding of which the parties to the foreclosure sale should have been aware.
Of note is the fact that at the traverse hearing the process server acknowledged he had no recollection independent from his affidavit of service of many of the salient facts regarding the manner in which he performed service, and had much difficulty explaining why the details of such service were significantly at variance with the notes he kept on his worksheet or with what he managed to recall independently at the hearing. These inconsistencies have led the Court to conclude that the process server's testimony at the traverse hearing was not reliable or credible. Conversely, Ms. Bernhardt testified persuasively, convincing the Court that she had not been served in the manner alleged by plaintiff.
Moreover, while she points out that the property formerly owned by her was her only substantial asset, Ms. Bernhardt fails to allege any ability whatsoever on her part to redeem the property, or to forestall plaintiff U.S. Bank's recommencement of another foreclosure proceeding, if that were to occur. Consequently, in the Court's view, any expectation on Ms. Bernhardt's part that she would be able to satisfy her arrears or sell the premises herself is highly speculative and not well-founded. The Court finds Ms. Bernhardt's claim that she will suffer “irreparable harm” if the Referee's Deed is not vacated to be wholly conclusory. In light of the competing interests of these litigants, and due to the fact that Ms. Bernhardt defaulted on her mortgage obligations and made no further payments since approximately January 8, 2007, and has been living at the premises virtually rent free since that time, while the owner, intervenor GFRE, Inc. has, since the time of the foreclosure sale on November 21, 2007, taken on all financial responsibility for the premises but without the benefit of its use and enjoyment or compensation therefor, defendant Deborah Bernhardt has not demonstrated that the equities favor her, and no evidence has been presented upon which to otherwise set aside the sale. Based upon principles of fairness and equity, the appropriate resolution is not to set aside the foreclosure sale, and for the litigants to pursue, if they be so advised, whatever remedies may be available to them.
It is for these reasons that the Court has reached its determination, and the facts as presented by defendant Deborah Bernhardt are insufficient to warrant equitable intervention to set aside the subject foreclosure sale. See, NYCTL 2005–A Trust v. 2137–2153 Nostrand Avenue Associates, L.P., 69 AD3d 697 (2nd Dept.2010) (vacatur of default judgment and sale was not warranted on equitable or statutory grounds where equities did not favor owner and owner lacked reasonable excuse for delayed appearance and lacked meritorious defense to foreclosure action); Citibank, N.A. v. Grant, 21 AD3d 924 (2nd Dept.2005) (court providently exercised discretion in denying motion to vacate foreclosure sale where defendant failed to adduce any proof that at the time action was commenced or when property was sold he was known or should have been known to be an incompetent incapable of protecting his own interests, and where purchaser at sale was bona fide purchaser for fair and valuable consideration and where defendant failed to show equities indisputably favor him); Aubrey Equities, Inc. v. Daffodil Purchasing Corp., 247 A.D.2d 253 (1st Dept.), lv denied,92 N.Y.2d 802 (1998) (intervenor, as good faith purchaser for value, is entitled to retain premises purchased from referee prior to reversal of judgment of foreclosure); see also, Alkaifi v. Celestial Church Of Christ Calvary Parish, 24 AD3d 476 (2nd Dept.2005); on subsequent appeal, 44 AD3d 695 (2nd Dept.2007) and Provident Savings Bank, F.A. v. Bordes, 244 A.D.2d 470 (2nd Dept.1997) (a court has equitable power to set aside a foreclosure sale where fraud, collusion, mistake or misconduct casts suspicion on the fairness of the sale, and, in absence of such conduct, mere inadequacy of sale amount is insufficient to vacate sale unless amount is so unconscionably low so as to warrant vacatur); cf., Bank One National Association v. Osorio, 26 AD3d 452 (2nd Dept.2006), on subsequent appeal, 62 AD3d 735 (2nd Dept.2009) and Hirsch v. Syrota's Auto Wreckers, Inc., 211 A.D.2d 621 (2nd Dept.1995) (foreclosure sale set aside and referee's deed cancelled where judgment of foreclosure and sale was vacated due to lack of personal jurisdiction).
In consequence thereof and on the record before the Court, all other outstanding requests for relief by defendant-movant and intervenor-cross movant (having neither served and filed any pleadings nor adequate proof of damages) not resolved by the Court's prior Decision and Order dated March 16, 20[10] (Motion Nos. 003, 004) are denied without prejudice.
Accordingly, it is
ORDERED that the motion by defendant Deborah Bernhardt to vacate the default Judgment of Foreclosure and Sale and to cancel the related Notice of Pendency is granted as indicated herein, but is otherwise denied, and the foreclosure action is dismissed without prejudice; and it is further
ORDERED that all temporary restraints contained in the Order To Show Cause dated January 23, 2009 as pertains to the above-captioned action are hereby vacated; and it is further
ORDERED that all other outstanding requests for relief are denied without prejudice as indicated herein.