Opinion
501265/14
10-21-2016
Confidential Lending, LLC, Plaintiff, v. Project East 19, LLC, 774 PROPERTIES, LLC; JACK SCHWARTZ; THE BOARD OF MANAGERS OF THE 776 EAST 8TH STREET CONDOMINIUM AND JOHN DOES 1-100, the latter names being fictitious but intending to designate tenants and persons in possession or, persons having an interest in a portion of the premises described in the complaint herein, Defendants.
Attorney for Plaintiff Kurzman, Eisenberg, Corbin & Lever, LLP John C. Re One North Braodway White Plains, New York 10601 Attorney for Defendants Project East 19, LLC, 774 Properties LLC and Jack Schwartz Kalmon Glovin, Esq. 1282 49th Street Suite 300Brooklyn, NY 11219-3014 Phones: (718) 871-1707
Attorney for Plaintiff Kurzman, Eisenberg, Corbin & Lever, LLP John C. Re One North Braodway White Plains, New York 10601 Attorney for Defendants Project East 19, LLC, 774 Properties LLC and Jack Schwartz Kalmon Glovin, Esq. 1282 49th Street Suite 300Brooklyn, NY 11219-3014 Phones: (718) 871-1707 Francois A. Rivera, J.
Recitation in accordance with CPLR 2219 (a) of the papers considered on the motion of the plaintiff Confidential Lending LLC (hereinafter Confidential), filed on March 9, 2015, under motion sequence number one for an order (1) pursuant to CPLR 3212 granting summary judgment against defendant Project East 19 LLC (hereinafter Project East), 774 Properties LLC(hereinafter 774 Properties), and Jack Schwartz (hereinafter Schwartz); (2) striking the affirmative defenses contained in the answer of defendants Project East, 774 Properties and Jack Schwartz; and (3) appointing a referee to compute the amount due plaintiff for principal, interest, and other charges due under the note and mortgage herein. The motion is jointly opposed by all defendants. - Notice of Motion Affirmation of Peter Weiss in Support Affirmation of Jay Kimmel, Esq. Affirmation of counsel John C. Re, Esq. - Exhibits A - Q - Memorandum of Law Affirmation in Opposition Exhibit A - J - Reply Affirmation Exhibit A - J
BACKGROUND
On February 12, 2014, plaintiff commenced the instant commercial mortgage foreclosure action by filing a summons and complaint with the Kings County Clerk's office. On April 18, 2014, plaintiff filed a notice of pendency with the Kings County Clerk's Office. The action also seeks a money judgment solely as against Schwartz based on a guarantee of the note.
The complaint alleges in pertinent part, that on October 25, 2007, defendants Project East and 774 Properties executed and delivered a note (the subject note) in favor of Kimmel "as nominee" in the amount of $1,100,000.00. On the same date, Project East and 774 Properties secured the subject note by executing and delivering a mortgage in favor of Kimmel "as nominee" on six parcels of certain real property. The six parcels included the following properties: (1) 1277 East 19th Street, Brooklyn, New York, Block 6739 Lot 16 which is owned by Project East 19; (2) 772 East 8th Street, Units 1 and 3, Brooklyn, New York Block, 6495 Lots 1001 and 1003, which were owned by 774 Properties; and (3) 774 East 8th Street, Units 1, 2, and 3, Brooklyn, New York, designated as Block 6495, Lots 1101, 1102 and 1103, which were owned by 774 Properties. On October 25, 2007, Schwartz executed a guarantee agreement in favor of Kimmel, "as nominee" in further security for the amounts due under the note.
Although there are three buildings, each unit is considered a separate parcel.
Through a series of transactions several of the properties were unencumbered by the mortgage. Currently, there are only three properties securing the note. The property known as 772 East 8th Street, Unit 1, Brooklyn, New York designated as Block 6495 Lot 1001 and the property known as 774 East 8th Street, Units 1 and 2, Brooklyn, New York designated as Block 6495, Lots 1101 and 1102. The borrowers defaulted in their obligations under the note and mortgage by failing to make the interest payment due under the loan documents on April 25, 2013 and payments thereafter. As a result of the default the entire debt due was accelerated.
By verified joint answer dated February 12, 2014, the defendants Project East, 774 Properties and Schwartz answered the complaint. By amended answer dated April 10, 2014, the defendants amended their joint answer. The amended answer contains eleven affirmative defenses incorrectly denominated as eight.
The first affirmative defense is lack of personal jurisdiction. The second affirmative defense is lack of standing. The third affirmative defense is failure to give the defendants statutory notices required by law. The fourth affirmative defense is entitled wrongful declaration of default. There are three affirmative defenses labeled as the fifth affirmative defense. The first-fifth affirmative defense is entitled improper assessment of interest. The second-fifth affirmative defense is entitled improper assessment of late charges. The third-fifth affirmative defense is that the defendant is entitled to a de-acceleration of the mortgage. The sixth affirmative defense is entitled "failure to exercise option for acceleration." The seventh affirmative defense is the failure to comply with RPAPL 1305/1306. The eighth affirmative defense is that the assignment was not authorized or effective. A note of issue has not been filed.
LAW AND APPLICATION
It is well established that summary judgment may be granted only when it is clear that no triable issue of fact exists (Alvarez v Prospect Hospital, 68 NY2d 320 [1986]). The burden is upon the moving party to make a prima facie showing that he or she is entitled to summary judgment as a matter of law by presenting evidence in admissible form demonstrating the absence of material facts (Guiffirda v Citibank, 100 NY2d 72 [2003]).
A failure to make that showing requires the denial of the summary judgment motion, regardless of the adequacy of the opposing papers (Ayotte v Gervasio, 81 NY2d 1062 [1993]). If a prima facie showing has been made, the burden shifts to the opposing party to produce evidentiary proof sufficient to establish the existence of material issues of fact (Alvarez v Prospect Hospital, supra, 68 NY2d at 324).
"Pursuant to CPLR 3212 (b) a court will grant a motion for summary judgment upon a determination that the movant's papers justify holding, as a matter of law, "that there is no defense to the cause of action or that the cause of action or defense has no merit." Further, all of the evidence must be viewed in the light most favorable to the opponent of the motion (Marine Midland Bank v Dino & Artie's Automatic Transmission Co., 168 AD2d 610 [1990])" (People ex rel. Spitzer v Grasso, 50 AD3d 535, 544 [1st Dept 2008]). Summary Judgment as Against Project East and 774 Properties
Confidential seeks an order granting summary judgment in their favor and against Project East and 774 Properties and appointing a referee to compute pursuant to CPLR 3212 and RPAPL 1321.
RPAPL 1321 provides in pertinent part as follows: If the defendant fails to answer within the time allowed or the right of the plaintiff is admitted by the answer, upon motion of the plaintiff, the court shall ascertain and determine the amount due, or direct a referee to compute the amount due to the plaintiff and to such of the defendants as are prior incumbrancers of the mortgaged premises, and to examine and report whether the mortgaged premises can be sold in parcels and, if the whole amount secured by the mortgage has not become due, to report the amount thereafter to become due.
When seeking an order of reference to determine the amount that is due on an encumbered property, a plaintiff must show its entitlement to a judgment. That entitlement may be shown by demonstrating defendant's default in answering the complaint, or by the plaintiff showing entitlement to summary judgment or by showing that the defendant's answer admits plaintiff's right to a judgment (see RPAPL 1321; 1—2 Bruce J. Bergman, Bergman on New York Mortgage Foreclosures, § 2.01[4][k] [note: online edition]). In order to establish prima facie entitlement to judgment as a matter of law in a foreclosure action, a plaintiff must submit the mortgage and unpaid note, along with evidence of the default (see Bank of N . Y. Mellon v Aquino, 131 AD3d 1186 [2nd Dept 2016]; Washington Mut. Bank v Schenk, 112 AD3d 615 [2nd Dept 2013]).
"Where, as here, a plaintiff's standing to commence a foreclosure action is placed in issue by the defendant, it is incumbent upon the plaintiff to prove its standing to be entitled to relief" (Bank of New York Mellon v Visconti, 136 AD3d 950 [2nd Dept 2016] citing Citimortgage, Inc. v Stosel, 89 AD3d 887, 888 [2nd Dept 2011]). A plaintiff establishes its standing in a mortgage foreclosure action by demonstrating that it was either the holder or assignee of the underlying note at the time the action was commenced (Bank of New York Mellon v Visconti, 136 AD3d 950 [2nd Dept 2016]; Aurora Loan Servs., LLC v Taylor, 114 AD3d 627 [2nd Dept 2014], affd 25 NY3d 355 [2015]; Bank of NY v Silverberg, 86 AD3d 274 [2nd Dept 2011]). "Either a written assignment of the underlying note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation, and the mortgage passes with the debt as an inseparable incident" (Bank of New York Mellon v Visconti, 136 AD3d 950 [2nd Dept 2016]).
Confidential has submitted the note, mortgage, and evidence of default in support of that branch of its motion for summary judgment on the complaint insofar as asserted against defendants Project East and 774 Properties. Confidential has also submitted the affidavits of Kimmel and Peter Weiss (hereinafter Weiss), a member of Confidential. Weiss' affidavit establishes the following salient facts. The note and mortgage was in favor of Kimmel as nominee for Confidential. Kimmel was at all times acting on behalf of Confidential as its nominee. Project East and 774 Properties received a demand for payment and defaulted under the terms of the note and mortgage. Schwartz also received a demand for payment under the terms of the guarantee. Confidential held the note and mortgage at the time the action was commenced.
Kimmel's affidavit establishes the following facts. Kimmel held the note, mortgage and guarantee solely as nominee for Confidential. He was authorized to act solely at Confidential's direction. At all relevant times he was subject to and followed Confidential's instructions with respect to the note, mortgage and guarantee. On April 25, 2013, the borrowers defaulted on the payments. On August 27, 2013, Kimmel sent a default and demand letter to Project East and 774 Properties.
Project East and 774 Properties have alleged the affirmative defense of lack of standing on the basis that is not named on the note and mortgage. They also contend that the assignment of same from Kimmel to Confidential is somehow defective.
Under these circumstances, Confidential must also establish that it has standing to meet its prima facie burden of entitlement. In order to evaluate these defenses, one must analyze the relationship of a nominor to a nominee. Nominees have been permitted to record notes and mortgages when the lenders are undisclosed (see Bank of New York v Silverberg, 86 AD3d 274 [2nd Dept 2011]). The Appellate Division Second Department discussed that Mortgage Electronic Registration Systems, Inc. (hereinafter MERS) acted as nominee and mortgagee for its members' successors and assignees. "MERS would remain the mortgagee of record in local county recording offices regardless of how many times the mortgage is transferred, thus freeing MERS's members from paying the recording fees that would otherwise be furnished to the relevant localities (Id.; see also Matter of MERSCORP, Inc. v Romaine, 8 NY3d 90 at 100 [2006]). This leaves borrowers and the local county or municipal recording offices unaware of the identity of the true owner of the note, and extinguishes a source of revenue to the localities." Furthermore, the Court of Appeals in Matter of MERSCORP, Inc. v Romaine, held that the Suffolk County Clerk was compelled to record and index mortgages, assignments of mortgages, and discharges of mortgages that named MERS as the lender's nominee or mortgagee of record (8 NY3d 90 [2006]).
As a nominee, Kimmel's authority was limited to only those powers which were specifically conferred to it and authorized by the lender (see Black's Law Dictionary 1076 [8th ed 2004] [defining a nominee as "(a) person designated to act in place of another, (usually) in a very limited way"]) (Bank of New York v Silverberg, 86 AD3d 274 [2ndDept 2011]).
Confidential submitted a document signed by Kimmel entitled "assignment of loan documents" dated January 30, 2016. The document purports to assign the note, mortgage, and guarantee to Confidential. As discussed above, Kimmel was acting solely as nominee for Confidential. The nominee's powers are limited to the agreement between the nominee and nominor (see Bank of New York v Silverberg, 86 AD3d 274 [2nd Dept 2011]). In the instant matter the affidavit of Weiss establishes that Kimmel was never granted the right to possess the note as a holder. Kimmel's role in regards to the loan documents was akin to MERS. The assignment of the loan documents by Kimmel does not alter this fundamental relationship of nominee and nominor. As such, Kimmel's role as nominee to an undisclosed nominor did not divest Confidential of its holder status nor render Confidential's interest otherwise impaired.
The Court takes note of Confidential Lending LLC v Nurse and that the plaintiff in that action failed to prove standing on what appears to be very similar submissions (33 Misc 3d 1210[A][Kings County] affirmed 120 AD3d 739[2nd Dept 2014]). However, in that matter the movant only submitted an affidavit of the nominee's position in the reply papers. A movant is not permitted to rely on evidence submitted for the first time in its reply papers in support of its motion (see GJF Constr. Corp. v. Cosmopolitan Decorating Co., Inc., 35 AD3d 535, 535[2d Dept 2006]). Accordingly, the instant motion is distinguishable by the fact that Confidential has submitted in support of its motion sworn allegation of fact from individuals with personal knowledge as to the nominee-nominor relationship.
In light of the affidavits of Weiss and Kimmel, as well as, production of the note and mortgage Confidential has met its burden on a summary judgment motion. If the plaintiff makes a prima facie showing, the burden shifts to the defendants to demonstrate the existence of a triable issue of fact as to a bona fide defense to the action (Baron Assoc., LLC v Garcia Group Enters., Inc., 96 AD3d 793 [2nd Dept 2012], quoting Mahopac Natl. Bank v Baisley, 244 AD2d 466, 467 [2nd Dept 1997]).
In opposition to the motion the defendants raise several issues that were plead in their answer. Project East and 774 Properties allege that Confidential lacks standing, failed to comply with mandatory pre-commencement notices and the amount allegedly owed is incorrect. As discussed above, Confidential has established that it has standing. While generally the failure to establish compliance with pre-commencement notices will result in denial of the summary judgment motion or even dismissal of the action that is not the case in the instant action.
The note executed by Project East and 774 Properties and mortgage does not fall within a "home loan" as defined in the statute and accordingly, are not subject to the statutory pre-commencement notices. Whether Confidential sent them is, therefore, irrelevant. Furthermore, an offset against the amount due on a note secured by a mortgage is not a defense to foreclosure, but is an issue properly addressed by the referee in computing the amount due (Josovich v Ceylan, 133 AD3d 570 [2nd Dept 2015]). Confidential's Motion to Strike the Mortgagors' Answer
Confidential seeks an order striking the mortgagors' answer. As previously indicated, Confidential has established its prima facie entitlement to judgment as a matter of law by producing the mortgage, the unpaid note, and proof of the mortgagor's default in payment (North American Savings Bank, FSB v Esposito-Como, 141 AD3d 706, 708 [2nd Dept 2016] citing Pennymac Holdings, LLC v Tomanelli, 139 AD3d 688 [2nd Dept 2016]). In opposition, Project East and 774 Properties have failed to raise a triable issue of fact relating to any bona fide defense to foreclosure (North American Savings Bank, FSB v Esposito-Como, 141 AD3d 706, 708 [2nd Dept 2016] citing Bayview Loan Servicing, LLC v 254 Church St., LLC, 129 AD3d 650, 651 [2nd Dept 2015]).Accordingly, Confidential's motion for an order granting summary judgment on liability as against the mortgagors, striking the mortgagor's affirmative defenses and appointing a referee to compute the amount due is granted. Motion Summary Judgment as against Jack Schwartz Confidential also moves for an order granting summary judgment on liability as against Schwartz based on his personal guarantee of the note. In order to recover under a guarantee a creditor needs to establish the absolute and unconditional guaranty, the underlying debt, and the guarantor's failure to perform under the guarantee," (Kensington House Company v Oram, 293 AD2d 304, 305 [1st Dept 2002], see also, Superior Fidelity Assurance, Ltd., v. Schwartz, 69 AD3d 924, 925 [2nd Dept 2010]). The plaintiff must establish that payment on the underlying debt was due (Tire & Rubber Co. v Azzaretto, 103 AD3d 880 [2nd Dept 2013]).
The guarantee agreement was signed by Schwartz and unconditionally guaranteed the full and prompt payment of each and every financial obligation of Project East and 774 Properties under the note and mortgage. The guarantee agreement contained the following salient language: In the event borrow shall fail to pay all or any sums due on the mortgage in accordance with its terms, upon written demand of Lender to the Guarantor, the Guarantor shall pay the Lender the amount due and unpaid by Borrower, as if such amount constituted the direct, primary obligation of the Guarantor. Lender shall not be required, prior to any such demand on, or payment by Guarantor, to pursue or exhaust any of its rights or remedies against borrower or against any other person with respect to the payment of all or any sum or sums due on under or by virtue of the mortgage.
Confidential has met its burden on the guarantee. Accordingly, the burden shifts to the defendants to demonstrate the existence of a triable issue of fact as to a bona fide defense to the action (Baron Assoc., LLC v Garcia Group Enters., Inc., 96 AD3d 793 [2nd Dept 2012], quoting Mahopac Natl. Bank v Baisley, 244 AD2d 466, 467 [2nd Dept 1997]).
Schwartz has failed to raise a triable issue of fact as to his liability under the guarantee. In opposition, Schwartz does not dispute that he executed the guarantee. Rather he relies upon his allegation that the plaintiff lacks standing to bring the action and that the amount claimed is inaccurate. As discussed above, the plaintiff as established that it has standing to commence the action and the other defense of offset is not a defense to foreclosure (Josovich v Ceylan, 133 AD3d 570 [2nd Dept 2015]). Accordingly, Confidential's motion for summary judgment as against Schwartz is granted.
RPAPL 1301 Election of Remedies
The Court notes that the plaintiff may not be entitled to simultaneously seek to foreclose on the properties and seek a money judgment. Pursuant to RPAPL 1301 " [t]he holder of a note and mortgage may proceed at law to recover on the note or proceed in equity to foreclose on the mortgage, but must only elect one of these alternate remedies " (Hometown Bank of Hudson Valley v Belardinelli, 127 AD3d 700 [2nd Dept 2015] citing Aurora Loan Servs., LLC v Lopa, 88 AD3d 929, 930 [2nd Dept 2011], quoting Gizzi v Hall, 309 AD2d 1140, 1141 [3rd Dept 2003]). "The purpose of the statute is to avoid multiple lawsuits to recover the same mortgage debt" (Hometown Bank of Hudson Valley v Belardinelli, 127 AD3d 700 [2nd Dept 2015]; Aurora Loan Servs., LLC v Lopa, 88 AD3d at 930). Courts have recognized that "this statute is to be strictly construed since it is in derogation of a plaintiff's common-law right to pursue the alternate remedies of foreclosure and recovery of the mortgage debt at the same time" (Valley Sav. Bank v Rose, 228 AD2d 666, 667 [2nd Dept 1996], quoting Dollar Dry Dock Bank v Piping Rock Bldrs., 181 AD2d 709, 710 [2nd Dept 1992]). RPAPL 1301 (3) provides that "[w]hile [an] action is pending or after final judgment for the plaintiff therein, no other action shall be commenced or maintained to recover any part of the mortgage debt, without leave of the court in which the former action was brought" (emphasis added). However, this issue is not ripe for adjudication as the defendants have not objected on the grounds that this action violated RPAPL 1301 (3) (see New York Commercial Bank v J. Realty F. Rockaway, LTD., 108 AD3d 756 [2nd Dept 2013]).
CONCLUSION
Confidential Lending LLC's motion for an order pursuant to CPLR 3212 granting summary judgment in its favor on liability as against defendant Project East 19 LLC is granted.
Confidential Lending LLC's motion for an order pursuant to CPLR 3212 granting summary judgment in its favor on liability as against defendant 774 Properties LLC is granted.
Confidential Lending LLC's motion for an order pursuant to CPLR 3212 granting summary judgment in its favor on liability as against defendant Jack Schwartz is granted.
Confidential Lending LLC's motion for an order striking the affirmative defenses contained in the answer of defendants Project East 19 LLC, 774 Properties LLC and Jack Schwartz is granted.
Confidential Lending LLC's motion for an order pursuant to RPAPL 1321 appointing a referee to compute the amount due is granted.
Confidential Lending LLC is directed to submit an order by January 6, 2017, to appoint a referee to compute the amount due that complies with the Kings County Court Rules.
The foregoing constitutes the decision and order of this Court. Enter: J.S.C.