Opinion
103137/07.
Decided September 5, 2008.
Defendants, John and Dorothy Miele, ("the Mieles") move this court by order to show cause for an order vacating the judgment of foreclosure obtained by the plaintiff on default on March 12, 2008.
Plaintiff's attorney Steven J. Baum, Esq.
Facts
There is no question between the parties that the Mieles defaulted on their mortgage when they failed to pay the March 1, 2007 installment. On July 19, 2007 the Mieles, through an attorney, contacted Wall Street Funding, ("the broker"), First Franklin, (the "lender"), and New World an unidentified entity, by letter indicating that the firms purportedly violated New York State law. Thereafter, the plaintiff commenced this action on by filing a lis pendens, summons and complaint with the Richmond County Clerk on August 14, 2007.
Upon the receipt of the summons and complaint the Mieles, in their individual capacity and without the help of counsel attempted to resolve the matter through negotiations. There is no disagreement of this fact between the parties. During the course of these negotiations, without the knowledge of the Mieles, and after the defendant's time to answer expired the plaintiff's counsel submitted an ex parte Order of Reference to this court for consideration. This court granted the plaintiff's ex parte order on December 6, 2007 and it was entered in the Richmond County Clerk's Office on December 11, 2007.
After obtaining an ex parte default judgment against the Mieles the plaintiff continued to negotiate a possible resolution with them until February 1, 2008. On that date First Franklin Loan Services advised the Mieles by letter that their request for a modification of their loan was denied.
Thereafter, on March 12, 2008 this court executed a judgment of foreclosure and sale. Subsequently, a the plaintiff scheduled a foreclosure sale to take place on May 12, 2008.
The Mieles promptly retained counsel and filed this order to show cause on May 1, 2008 to vacate the ex parte order of reference that granted the plaintiff a default judgment against them.
Discussion
The CPLR permits a court to vacate a default judgment where the moving party demonstrates both a reasonable excuse for the default and a meritorious defense. The determination of what constitutes a reasonable excuse is ". . . left to the sound discretion of the court. . ."
Savino v. "ABC Corp." , 44 AD3d 1026 , [2d Dep't, 2007].
Reasonable Excuse
The issue before this court is whether the Mieles excuse that they failed to answer the plaintiff's complaint because they were involved in settlement negotiations is reasonable. This court concludes in the affirmative.
The Appellate Division, Second Department has long recognized that a default judgment may be overturned where the interest of justice requires such action. In addition, the Appellate Division, Second Department recently reasoned that there is a ". . . strong public policy that actions be resolved on their merits . . ." rather than on default especially where there is evidence that the default by the defendant was not wilful, nor where there is prejudice to the plaintiff.
See, Gunther v. American Label Co., Inc., 243 AD 528, [2d Dep't 1934].
New York Univ. Hosp. Rusk Inst. v. Illinois Natl. Ins. Co. ,31 AD3d 511, [2d Dep't 2006].
The facts before this court demonstrate that the upon receipt of the summons and complaint the Mieles immediately contacted the bank to conduct negotiations to resolve this matter without resorting to judicial intervention. However, the plaintiff through its attorneys chose to concurrently pursue its legal remedies, rather than conduct negotiations with the Mieles in good faith.
The plaintiff's memorandum of law submitted in response to this court's inquiry on this matter discusses a single Appellate Division, Second Department case in detail. The plaintiff turns to American Shoring, Inc. v. D.C.A. Construction, Ltd. in an attempt to persuade this court that ongoing negotiations do not constitute a reasonable excuse to vacate a default. However, this case is easily distinguished from the matter currently under consideration. In finding that the defendant's excuse was unreasonable the Appellate Division, Second Department found: . . . any reliance by the defendant on the parties' settlement negotiations between October 2003 and January 2004 did not constitute a reasonable excuse for the default, since the defendant was aware during those negotiations that the plaintiff had already obtained a default judgment. (Emphasis added)
American Shoring, Inc. v. D.C.A. Constr., Ltd. , 15 AD3d 431 , [2d Dep't 2005].
Id.
In this case it is not contested that the Mieles time to answer the plaintiff's complaint expired. Instead, the issue is whether their excuse is reasonable. In American Shoring the defendant's attorney, and by extension the defendant, was aware that the plaintiff had already taken a default judgment against them while negotiations progressed between the parties.
The plaintiff in this action took their default against the Mieles without notice. The Mieles continued negotiating with the plaintiff without any idea that a default was taken against them. This court finds the plaintiff's reliance on the American Shoring decision disingenuous. The plaintiff's attorneys conduct during the purported good faith negotiations with the Mieles is dishonorable at the very least. This court refuses to reward and encourage such conduct and therefore finds the Mieles proffered excuse reasonable.
Meritorious Defense
The second prong that must be demonstrated by a moving party seeking to vacate a default judgment is the demonstration of a meritorious defense.
In this case, the Mieles offer several meritorious defenses to be raised in their answer. The Mieles assert that there were numerous instances of fraud and misrepresentations; violations of disclosure requirements; that the contract was unconscionable on its face, violations of statutory authority including GBL § 349 and RPL § 265-a; as well as allegations of predatory lending. Based on the documentary evidence presented to this court for consideration including, inter alia, the loan application and communications with the mortgage broker, Wall Street Funding, this court finds that for the purposes of vacating a default judgment to interpose an answer said defenses are meritorious.
In opposition to the Mieles proffered meritorious defenses the plaintiff argues that the Mieles have not articulated any meritorious defenses as a matter of law. Based on such a scant record this court cannot conclude as a matter of law as to the success of these proffered defenses. This court only finds that based on the record before it that said defenses are meritorious and worthy of being interposed.
Conclusion
After careful consideration of the documentary evidence presented by both the plaintiff and defendant, this court finds that the defendant successfully met its burden to vacate the default judgment taken against them. The purported actions taken by the mortgage broker, Wall Street Funding, require a closer investigation and the discovery process in order to ascertain the truth.
This court echoes the belief of the Appellate Division, Second Department that controversies are best decided on their merits, rather than by procedural technicalities. Counsel for the plaintiff should be well advised that this court finds the use of ex parte motions for defaults while the defendants are relying on the negotiations to extend the time to answer without a warning to be unconscionable, dishonorable and unprofessional.
While this court encourages negotiations, it is far too frequent an occurrence that the bank attorney does not know or uses the negotiations to lure the mortgagors into a false sense of security that everything will work out when on the other hand the bank lawyers are getting default judgments where the mortgagors have meritorious defenses.
Accordingly, it is hereby:
ORDERED, that the defendants' motion to vacate the order of reference entered on December 11, 2007 is granted; it is further
ORDERED, that the defendants' shall serve and file their answer within thirty days of the entry of this decision and order; it is further
ORDERED, that all parties return to DCM Part 3 for a Preliminary Conference on Tuesday, November 18, 2008 at 9:30 A.M.