Opinion
08-20464.
Decided February 5, 2010.
JANE M. MYERS, P.C., Attorneys for Plaintiff, Jericho, New York.
JAMES D. REDDY, ESQ., Attorney for Defendant Chandler, Lindenhurst, New York.
HENNESSEY DeNATALE, PC, Attorneys for Defendant Stevens, Shirley, New York.
ORDERED that this motion by plaintiff Ronald Zanfini for summary judgment and for an order appointing a referee to compute is denied.
This is an action to foreclose a mortgage on premises known as 109 David White's Lane in Southampton, New York. Defendant Garnette Shay Chandler signed a balloon note dated July 25, 2006 to obtain a loan from the plaintiff Ronald Zanfini, in the sum of $350,000, at a yearly interest of 12 percent and monthly payments of $3,500. She also executed a mortgage agreement dated July 25, 2006 which secured said note with a mortgage on the subject premises. It is alleged that defendant Garnette Shay Chandler failed to comply with the terms of the note and mortgage by failing to pay the principal balance of $350,000 and accrued interest on the September 1, 2007 maturity date of the note; that by reason of this default, the plaintiff elected to declare the entire balance of the principal sum secured by the note and mortgage to be due and payable; and that there is now due and owing the plaintiff under the note and mortgage the sum of $350,000 with interest from August 1, 2007 at the default rate of 16 percent per year.
In commencing the instant foreclosure action, the plaintiff also named Mable Stevens as a party defendant alleging that she may have a superior interest in the mortgaged premises as a predecessor-in-title to the property who reserved a life estate in the subject premises. As noted in the complaint, the defendants' respective rights in these premises are presently the subject of a quiet title action pending before the Court. The plaintiff herein is also a party to that action.
The action is entitled, Mable Stevens v. Garnette Shay Chandler and Ronald Zanfini, and is pending under Suffolk County Index No. 12037/2007 (Tanenbaum, J.).
By her answer, defendant Garnette Shay Chandler asserts a first affirmative defense that the plaintiff has unclean hands; a second affirmative defense that the note is usurious; and a third affirmative defense that she has already paid $42,000 in interest on the promissory note because said sum was withheld up-front from the loan; and a fourth affirmative defense that she is not liable for any subsequent costs of service because service of the initiatory papers was not properly effected through CPLR 312-a. By her answer, defendant Mabel Stevens denies knowledge or information sufficient to form a belief on the first and second cause of action, and asserts affirmative defenses on grounds of plaintiff's culpability, lack of jurisdiction, standing, legal capacity, doctrines of collateral estoppel, res judicata, statute of limitations, release, laches, waiver/estoppel, justification, failure to mitigate, failure to state a cause of action, unclean hands, failure to exhaust contract remedies, and lack of subject matter jurisdiction. Defendant Mable Stevens also asserts a cross-claim against defendant Garnette Shay Chandler and the John Does # 1 through #10 for damages based on negligence.
Plaintiff now moves for summary judgment on his complaint contending that defendant Chandler failed to comply with the terms of the loan agreement and mortgage and that the defendants' affirmative defenses lack merit. In support of the motion, plaintiff submits his personal affidavit, and the note and mortgage, both dated July 25, 2006, executed by defendant Chandler.
In an action to foreclose a mortgage, a plaintiff establishes his case as a matter of law through the production of the mortgage, the unpaid note, and evidence of default ( Aames Funding Corporation v Houston , 44 AD3d 692, 843 NYS2d 660). The proponent of a motion for summary judgment in a mortgage foreclosure case bears the initial burden of making a facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any mater issues of fact ( Norwest Bank Minnesota, N.A. v Sabloff , 297 AD2d 722, 747 NYS2d 559). While the plaintiff produced the note and mortgage executed by defendant Chandler as well as evidence of her nonpayment, the record is replete with questions of fact and law which preclude the granting of the plaintiff's request for summary judgment.
In the first instance, defendant Mabel Stevens contends that defendant Garnette Shay Chandler had no right to convey or mortgage the subject property and therefore had no authority to assign the subject property as security nor to make any of the representations she made in executing the mortgage. Defendant Stevens submits a copy of a deed dated October 28, 1963, recorded in the Suffolk County Clerk's Office on November 8, 1963, by which the subject premises were conveyed to her and her husband now deceased, Lassel Stevens, by deed of J. Lawrence Halsey. After Lassel Stevens died on September 22, 1997, Mable Stevens became sole owner of the property. Defendant Stevens also submits a copy of a deed, dated September 13, 2002, by which Stevens, then an 85-year-old widow, conveyed title to the subject premises to her daughter, defendant Garnette Shay Chandler, and her son-in-law, Michael Terrance Chandler. The conveyance expressly reserved a life estate for Mable Stevens in "Schedule A," and she also claims there was an alleged oral agreement made to re-deed the premises to her at her request. The deed, dated September 13, 2002, was duly recorded. By deed dated August 1, 2003, with "Schedule A" attached, recorded on September 8, 2003, the Chandlers purported to transfer the premises solely to Garnette Shay Chandler retaining a life estate at "Schedule A" to themselves. Parenthetically, the Court notes that the copy of the deed submitted by defendant Stevens is acknowledged in the United Kingdom, outside this state, and is defective as it lacks a certificate of conformity pursuant to CPLR 2309 and Real Property Law § 299-a (1). Thereafter, a deed dated July 17, 2006 and recorded August 22, 2006, conveyed the premises from the Chandlers as life tenants to Garnette Shay Chandler, individually. Defendant Stevens asserts that this deed appears to have been recorded with a "Schedule A Description" prepared by H Z Abstract Company of 1775 Expressway Drive N., Hauppauge, New York. H Z Abstract Company appears to have the same address as the attorney listed on the County Clerk's recording cover sheet for return of the recorded deed. On July 25, 2006, Garnette Shay Chandler conveyed the subject mortgage on the premises to plaintiff Zanfini which was recorded on August 22, 2006 separate from the deed. Defendant Stevens contends that these latter transfers, the mortgages, life estates and funds received were made without her knowledge or consent.
Liber 5448, cp 52
Liber 12211, page 994
Liber 12270, page 751
Liber 12465, page 754
Liber 21368, page 605
A life estate interest in real property is a freehold estate subject to the protection of law. The estate may be limited to the life of the tenant or measured by the life of a third person. The character is not lost by other conditions. The life tenant is the exclusive owner of the land with the right to use, control and enjoyment ( In re Gaffers' Estate , 254 AD 448, 5 NYS2d 671). Clearly, all interests in the subject property created and conveyed after the creation of the life estate were made subject to the life estate (Real Property Law § 245; In re Gaffers' Estate, supra ; Warren's Weed New York Real Property , § 86.01 [1], p. 86.6; RPAPL § 1601). Whether defendant Chandler had a right to convey a life estate or mortgage on this property is subject to dispute. Although Chandler may hold title subject to future possession, and may sell or mortgage on consent of the life tenant, or order of the court, this did not occur.
As for defendant Chandler, she opposes plaintiff's motion for summary judgment on the basis that there remains a material issue of fact, among others, as to whether the subject promissory note is usurious. She submits several documents which demonstrate on their face discrepancies in the disbursement of approximately $12,312.50 of the proceeds of the mortgage. Usury is also raised as an issue pursuant to General Obligations Law §§ 5-501 and 5-511, and 3 NYCRR § 4.2. The loan was $350,000.00. The sum received by defendant was $280,227.43 for repayment in one year. The bank statement, and HUD-1 form show disbursements of $292,539.93, deductions of $57,460.07, in excess of 16.41% including prepaid interest of $42,000 and $155.07, mortgage brokers fees totaling $14,495 paid to Arthur Center and Mark Walter, and payment of the lender's $850.00 attorney's fees.
In reply to defendant Chandler's opposition, plaintiff by his personal affidavit avers that this private mortgage was arranged by Mark Walker who approached plaintiff to invest. Plaintiff contends he was not affiliated with Mr. Walker, and there was no compensation exchanged. Plaintiff contends he had no knowledge of any compensation arrangement between Walker and the borrower, the $7,000.00 brokerage fee or $495.00 processing fee as shown on the HUD-1 settlement statement. In addition, plaintiff disclaims any knowledge at the time of the transaction with Arthur Center, the defendant in Chandler's third party action, until after closing. Plaintiff claims their only interaction occurred 6 to 7 months after closing when Center contacted plaintiff to restructure the loan.
When determining whether a transaction constitutes a usurious loan it must be considered in its totality and judged by its real character, rather than by the name, color, or form which the parties have seen fit to give it. Whether a transaction constitutes a "cover for usury" is a question of fact. There is a strong presumption against a finding of usury, and, at trial, the borrower will be required to establish usury by clear and convincing evidence. However, in order to establish a prima facie entitlement to summary judgment, it is the lender who is required to demonstrate that, a matter of law, the transaction between the parties did not constitute a usurious loan. The lender failed to meet this burden ( Ujueta v Euro-Quest Corp. , 29 AD3d 895, 814 NYS2d 551).
Among other things, defendant Chandler alleges that the brokers, who retained broker's fees, were acting as agents for the plaintiff lender such that the fees should be deemed interest thereby increasing the interest rate above the maximum legal rate. Whether a broker's commission is cover for usury is a factual issue which must be demonstrated by clear and convincing evidence. Issues of fact exist as to whether the brokers were acting as the agent of the lender, and as to whether the lender was aware that the broker retained fees ( Rumbaut v Reinhart , 216 AD2d 551, 628 NYS2d 756). In addition, where usury does not appear on the face of the note, usury is a question of fact. Here, usury does not appear on the face of the note, and defendant's usury argument depends on evidence that is extrinsic to the note. Thus, summary judgment is not warranted ( Hort v Devine , 1 AD3d 266 , 769 NYS2d 376).
Under the circumstances, the Court concludes that plaintiff has failed to establish his prima facie entitlement to summary judgment and therefore the motion is denied.