Opinion
27062/2008.
Decided September 28, 2010.
Upon reading the Notice of Motion by Chad I. Harris, Esq., Attorney for Plaintiff, dated March 19th, 2010, together with the Affirmation in Support of Motion to Confirm Referee's Computation and for Judgement of Foreclosure and Sale of Chad I Harris, Esq., and all exhibits annexed thereto; the Affirmation in Opposition of Martin S. Kera, Esq., Attorney for Defendants SHEEPSHEAD LANDING LLC, ANDREW LEVENBAUM,
PRUVI ENT., LLC, dated March 29, 2010, and the exhibit annexed thereto; and after argument of counsel and due deliberation thereon, Plaintiff's motion to Confirm the Referee's Report is denied with leave to file a new report as set forth below.
The underlying action is one to foreclose on a first mortgage on real property located 3203 Emmons Avenue, 2901 Bragg Street and 2991 Bragg Street, Brooklyn, NY. Plaintiff's motion for summary judgment was granted on September 10, 2009. On December 1, 2009, this Court issued an Order appointing a Referee to Compute the amount due to Plaintiff and to examine and report whether the adjacent, mortgaged premises should be sold in parcels or as a single property.
On February 24, 2010, the referee reported that the amount due to Plaintiff is $608,953.45.
Plaintiff BERNKOPF GOODMAN LLP now moves this Court for an Order to confirm and ratify the report of the referee, and granting a judgment of foreclosure and sale.
Defendants SHEEPSHEAD LANDING LLC, ANDREW LEVENBAUM, and PRUVI ENT., LLC, oppose the motion, arguing that the referee improperly included a default rate of 18%, that the attorneys fees are grossly excessive for a foreclosure, and that the referee failed to hold a hearing to determine the computation of the interest and whether to allow the attorneys fees.
DISCUSSION
When a note and a mortgage are executed for the purposes of a secured loan, the Note is the agreement which creates a creditor debtor relationship; the mortgage merely secures the loan specified in the Note.
The Note in this case provides that the interest on the principal of the Note, prior to "maturity, default or acceleration", shall accrue at a rate of 6% per annum. The Note does not specify any other rate for interest to accrue after default or acceleration.The mortgage provides for a default interest rate of 18%.
When a Note is secured by a mortgage, the Note may incorporate the terms of the mortgage into the Note by reference, which will provide additional terms for consideration in the event of a default. Yoi-Lee Realty Corp. v. 177th Street Realty Associates 208 AD2d 185, 626 NYS2d 61 (1st Dept1995). See also Tonkonogy v. Seidenberg, 63 AD2d 587, 404 NYS2d 853; Danielowich v. PBL Development, 292 AD2d 414, 739 NYS2d 408 (2nd Dept 2002).
In this case however, the Note is a simple one page document. The Note neither provides a default rate, nor does it contain any language incorporating the terms of the mortgage into the Note.
Where documents involve the same transaction and are simultaneously executed, they may be read and construed together. Stern v. Itkin Bros., 87 Misc 2d 538, 385 NYS2d 753, NY Cty (1975). Bronxville Knolls, Inc. v. Webster Town Center Partnership, 634 NYS2d 62, 63, 221 AD2d 248 (1st Dept 1995); Pessin v. Persaud, 459 NYS2d 85, 92 AD2d 490, (1st Dept 1983).
The simultaneously executed note and mortgage may be read together so that the mortgage is read to be security for the note, but not so that the actual terms of the mortgage are incorporated into the note where there is no explicit language doing so.
In Chipintine v. McEvoy, 238 AD2d 536, 657 NYS2d 88 (2nd Dept 1997), the Court held that where there is no specified default rate in the promissory note, "the court should have awarded only the statutory rate of 9%" after the date of default. Chipetine v. McEvoy, 238 AD2d at 536.
Since the note does not provide for a default rate, the statutory rate of nine per centum per annum set forth in CPLR 5004 applies upon default. Kaiser v. Fishman, 187 AD2d 623, 590 NYS2d 230 (2nd Dept 1992), Bergman on New York Mortgage Foreclosures 2007 § 1.11(1).
The Referee's report indicates that the unpaid balance on the loan is $202,000. The Referee's report calculates the interest prior to default at a rate of 6% per annum, but incorrectly calculates the post default interest at a rate of 18%. The referee should have calculated the post default interest at the statutory rate of 9% per annum.
Attorneys Fees
Defendant challenges as excessive, the $217,514.33 sought in attorneys fees and interest on those fees.
Plaintiff appears to have submitted invoices for legal fees relating to more than one matter. There are references in the invoices to two foreclosure proceedings, a federal action, and a mediation.
None of the documentation submitted provides an explanation as to how the fees for these other proceedings are related to either a default or a breach of the mortgage.
In addition, the invoices also appear to have been billed by three separate entities: Todtman, Nachamie, Spizz Johns; Berkman, Henoch, Peterson Peddy, P.C.; and "In-House Legal Services" for Bernkhopf Goodman.
The total amount of legal fees and expenses being sought, is $217,514.33, which exceeds the principal owed and far exceeds reasonable legal fees for a foreclosure action.
The invoices for Todtman, Nachamie, Spizz Johns reference a single client number but two separate matter numbers, the second apparently dealing with a second foreclosure.
There are references made in the Bernkopf Goodman LLP invoices, to an action in federal court dating as far back as August of 2004, even though this foreclosure was filed on or about September 26, 2008.
Without further explanation, a substantial amount of the $217,514.33 in legal fees appear to have been billed for matters which are unrelated to the mortgagor's default.
Further, there is no explanation as to why there were bills generated for two foreclosure matters.
The mortgage in this case specifically provides for the Mortgagee to recover legal fees incurred in foreclosing on the mortgage.
Paragraph Twelve of the mortgage provides for the cost and expense, including attorneys fees, for actions the Mortgagee may take to enforce the mortgage in the event the Mortgagor defaults or breaches its obligations under the Mortgage.
The first sentence of paragraph Twelve reads:
"If Mortgagor fails to make any payment or to do any act as herein provided, Mortgagee may, but without any obligation to do so and without notice to or demand on Mortgagor and without releasing Mortgagor from any obligation hereunder, make or do the same in such manner and to such extent as Mortgagee may deem necessary to protect the security hereof, Mortgagee being authorized to enter upon the Mortgaged Property, or such parcels thereof as Mortgagee determines, for such purposes, or appear in, defend, or bring any action or proceeding to protect its interest in the Mortgaged Property, or such parcels thereof as Mortgagee determines, or to foreclose this Mortgage or collect the Debt."
While paragraph Twelve allows Mortgagee to "appear in, defend or bring any action or proceeding" to protect its interest in the mortgaged property, the Mortgagee may do so pursuant to paragraph Twelve only if the Mortgagor breaches or defaults on the mortgage.
In addition to paragraph Twelve, paragraph Seventeen of the mortgage grants the Mortgagee the right to appear in and defend in litigation "in its discretion" to protect its interest in the mortgaged property. Paragraph Seventeen reads, "Mortgagee has the right to appear in and defend any action of proceeding brought with respect to the Mortgaged Property and to bring any action or proceeding, in the name and on behalf of Mortgagor, which Mortgagee, in its discretion, feels should be brought to protect its interest in the Mortgaged Property." Paragraph Seventeen provides the Mortgagee the right to protect its interest in the mortgaged property even in the absence of a default.
However, while paragraph Twelve provides for the imposition of legal fees, paragraph Seventeen does not provide for the recovery of legal fees for actions taken under its provisions.
The rules of construction advise that where one section contains specific language to recover legal fees, and another similar section omits such language, specific language will not be read into a section into which it was not written. 11 Williston on Contracts § 31:6 (4th ed).
Furthermore it has been held that "[a]n attorney's fee is merely an incident of litigation and is not recoverable absent a specific contractual provision or statutory authority". Levine v. Infidelity, Inc. , 2 AD3d 691 , 770 NYS2d 83 (2nd Dept 2003).
Thus, the language in paragraph Twelve which provides for legal fees for actions in the event of default or breach by the Mortgagor cannot be read into paragraph Seventeen, which does not provide for attorneys fees where the Mortgagee commences or defends other litigation, to protect its interest in the mortgage generally, where there has been no default by the Mortgagor.
Mortgagee is entitled to reasonable legal fees for the prosecution of this foreclosure but not for legal fees for other actions that are not based on the Mortgagor's default.
In determining reasonable attorneys' fees for a mortgage foreclosure, the Second Department has looked to whether they were expressly provided for in the mortgage, whether they bore a reasonable relationship to the unrecovered principal, and to the time and effort expended in prosecuting the foreclosure action. Kenneth Pregno Agency, Ltd. v. Letterese, 112 AD2d 1032, 492 NYS2d 824 (2nd Dept 1985). Defendants allege that there were unnecessary delays in the prosecution of this action due to a defective original motion for summary judgment, for which the Court granted the movants leave to re-file, and then a failure by the Plaintiff's attorneys to appear in court on a subsequent date. Defendants argue that the legal fees resulting from these delays should not be borne by the Defendants.
Plaintiff does not address Defendants' assertion that there was undue delay in prosecuting this action.
The Second Department has found that legal costs incurred because of delay by Plaintiff need not be compensated. Danielowich v. PBL Development, 292 AD2d 414, 739 NYS2d 408 (2nd Dept 2002). See also, Gasco Corp. Gordian Group of Hong Kong v Tosco Props., 236 AD2d 510, 512; Dollar Fed. Sav. Loan Assn. v Herbert Kallen, Inc., 91 AD2d 601, 602; Yagamo Acquisitions v Baco Dev. 102 St., 278 AD2d 134).
"Amount of attorney fees claimed by plaintiff in mortgage foreclosure action, $16,052, was excessive and was properly reduced to $2,000, where a substantial part of the work included in the claim resulted from delays attributable to the plaintiff's counsel rather than to the defendant and where the hourly rate charged by plaintiff's counsel was manifestly excessive." Gandy Machinery, Inc. v. Pogue, 106 AD2d 684, 483 NYS2d 744 (3rd Dept 1984).
Based on the invoices submitted, the Court cannot determine which charges were reasonably related to foreclosing the mortgage and which were unrelated, unnecessary or excessive.
The application for attorneys fees should be denied without prejudice to Plaintiff making a further application for reasonable attorneys fees incurred in this proceeding. Such re-submission should also address Defendants' assertion that there was undue delay in prosecuting the foreclosure, and an explanation as to why there are bills for what appears to be two foreclosure matters on the same mortgage.
WHEREFORE, the report of the referee is rejected without prejudice to filing a new report applying the statutory interest rate, post default, and including an application for attorneys fees reasonably related to prosecuting this foreclosure action.
This shall constitute the decision and order of the court.