Opinion
2010-0171.
Decided November 5, 2010.
Robert B. Gitlin, Esq., Attorney for Plaintiff.
Heaton Venuti, LLP, Mark A. Venuti, Esq., of counsel, Attorneys for Defendants — Brooks.
Plaintiff mortgagee moves for summary judgment and an order of reference in this mortgage foreclosure action. Plaintiff also seeks to strike the defendant mortgagor's answer and counterclaims alleging fraud regarding the septic system on the premises and slander.
On January 14, 2009, plaintiff sold the premises known as the Blue Eagle Tavern, a bar, restaurant and owner-occupied living quarters to defendant for $180,000. Plaintiff took back a mortgage in the amount of $153,000. Soon after the transfer and after defendant had been operating the business, the septic system failed, and defendant discovered a "cheater pipe" leading from the septic tank to a small stream. The system was condemned and defendant must now use the 1000 gallon septic tank as a storage tank only and is required to pump the tank whenever the alarm installed on the tank shows that it is full. A new system will cost $50,000.
There is no question that the defendant is in default on the mortgage. By attorney affirmation and plaintiff's affidavit, plaintiff asserts that there is no merit to the answer and counterclaim. Defendant Martin Brooks executed, acknowledged and delivered the note and mortgage. Plaintiff's affidavit asserts that Brooks failed to make the payments due on the note, giving rise to the default and the foreclosure right.
Brooks alleges that plaintiff knew of a septic problem when plaintiff sold him the property. But, plaintiff asserts, defendant has not submitted any evidence to show plaintiff was aware of a septic problem. Plaintiff, in his affidavit in support of the motion, denies such knowledge, other than a repair of a grease trap four years before the sale. Plaintiff provides the affidavit of the septic repairer, Jim Beach who read Brooks' answer and is aware of the pipe mentioned therein. He stated that in 2004 he removed a ten foot section of pipe between the septic tank and dry well, which was plugged by grease. The pipe was cleaned and reconnected. There was no reason to believe that the pipe near a creek serviced the septic system because the pipe was 250 feet from the septic system. "It was so far from the septic system it was not required to be dug up to determine its source. As far as your deponent could see, this alleged 'cheater pipe' was presumably no more than a water drainage pipe." (Beach affidavit).
As for the slander counterclaim, plaintiff denies that he slandered the defendant, stating that it would be "inconceivable that your deponent would want the defendant's business to fail, when the mortgage payments would seemingly be made from the profits of the business." (Plaintiff's affidavit).
Plaintiff argues is his memorandum of law that to overcome the summary judgment motion, regarding defendant's fraud claim, defendant must be able to show that plaintiff took steps to actively conceal latent defects in the property. Stolan v Terrance Road, 66 AD3d 1278 (3rd Dept 2009). See also Klafehn v Morrison , 75 AD3d 808 (3rd Dept 2010) where seller had made repairs years before and there was no evidence of further problems.
Plaintiff argues that since the Town inspector passed the system prior to closing, the burden shifts to defendant to produce evidence of "active concealment" by the plaintiff, and here the defendant's proof is inadequate because it is conclusory and in inadmissible form. There is no evidence that plaintiff interfered with the Town inspector and the alleged statements of Frank Mueller and Bill Grove are hearsay.
Plaintiff also asserts that allegations of fraud are insufficient to defeat the foreclosure action. Jo Ann Homes v Dworetz, 25 NY2d 112 (1969). There, the seller did perpetrate a fraud upon the purchaser, but that did not stop the foreclosure action. Fraud is not a defense in a foreclosure action, so plaintiff's summary judgment motion should be granted.
Mark Venuti, defendant's attorney, states in his affirmation that his client cannot afford to litigate and he has retained a bankruptcy attorney to file a bankruptcy petition. At this point, however, the Court has not received confirmation that a bankruptcy has been filed, which would stay this action.
Venuti's affirmation states that he has had conversations with Jim Beach, affiant for plaintiff, which are at odds with Beach's affidavit, thus creating questions of fact. Specifically, Venuti called Beach on April 19, 2010, concerning the septic system. Beach told Venuti that the Blue Eagle needed a new system at a cost of at least $50,000. He said every spring there was a problem with the system due to ground water. Beach worked for plaintiff his first spring there, when the system got plugged up and he dug up the line and saw the "cheater pipe" going to the creek. Beach told Venuti that plaintiff was present with plaintiff's father, and Beach showed them the cheater pipe, and they thus knew the pipe went from the septic to the creek. Beach told Venuti the system was bad, but could be made to function by running a sump pump in the spring, and pumping the tank in the spring, and keeping the cheater pipe flowing.
Also around April 19, 2010, Venuti called engineer Bill Grove. He confirmed that the system was no good, had an illegal cheater pipe to the creek and the Code Enforcement Officer ("CEO") Mueller told Martin Brooks to remove it immediately. Brooks convinced the CEO to keep it open with an alarm on the tank. The engineer confirmed a new system would cost $50,000.
Venuti called Jim Beach again on June 3, 2010, and Beach started to retract what he told Venuti in April. He said Johnson and Brooks had talked to him, and he couldn't be sure if it was a cheater pipe or where it went and he didn't know what Johnson knew. He said he assumed it was a cheater pipe, and anyone looking at it would think so. He said that he got the system working without messing with the pipe, so he left it alone stating, "why look for trouble if you don't need to." He also said that he saw other trucks there after the first year he worked on it, but when Venuti said: "So there were problems after you worked on it," he backed away and said he was not sure.
Venuti talked to his client about this. Brooks called Venuti later and said he'd talked to Beach who admitted that the Johnsons knew about the pipe. Beach had pointed it out to them, and asked if they wanted him to dig it up and they gave him the "whisper motion" shaking their heads "no."
Defendant's affidavit states that Jim Beach told him on more than one occasion things conflicting with his affidavit for the plaintiff. In fact he asserts that on March 19, 2010, Beach met him at the Blue Eagle with CEO Mueller and engineer William Grove. Jim Beach removed the cheater pipe. Mueller condemned the system and allowed him to remain open by having an alarm on the septic tank, using it as a holding tank. Beach told Brooks that he worked on the system several years ago for Plaintiff and Plaintiff knew of the cheater pipe and he told Beach to leave it alone. Defendant asked his attorney, Venuti, to call Jim Beach and confirm the story, and he did.
After Venuti's June, 2010 call to Beach, defendant called Beach and Beach said he didn't want to get in the middle, but then he did say that he had discovered the cheater pipe while plaintiff and plaintiff's father were at the property and saw it, and he asked the two if they wanted him to dig it up and they gave him the "shhh whisper sign" and shook their heads 'no". He says Beach said he thought plaintiff and defendant should share the cost of a new system, and that plaintiff had troubles with the system before defendant bought it.
The defendants' answer makes general denials and affirmative defenses of laches, failure to state a cause of action, unclean hands, plaintiff caused his own damages, plaintiff failed to follow applicable government rules, the sale and mortgage were procured by fraud and estoppel due to plaintiff's fraud.
The counterclaim alleges that plaintiff had been pumping the septic tank regularly prior to the sale, and had an illegal cheater pipe to carry sewage from the leach area to a creek. This caused the CEO to pass the septic system, not knowing of the illegal pipe. Defendant alleges that he and the realtor, Bucky Lane, investigated the system and found the leach field was plugged and they discovered the pipe running to the creek. They removed the connection to the pipe and attempted to redo the leach field, but the system continued to fail. A new system that pumps the waste to the rear of the property costs $50,000. The CEO inspected the system March, 2010 and ordered removal of the leach line and cheater pipe and installation of an alarm for the septic tank, to alert defendant when the tank needs to be pumped. Defendant says plaintiff has slandered defendant in the community.
Four years had elapsed from 2004 when the plaintiff had Beach make the repairs, to the time the inspection was done by the Town in preparing for the closing in 2008. However, the defendant has not been able to show any statements or actions by the plaintiff that amount to active concealment of the septic system problems. Nor, has defendant offered any proof in response to plaintiff's affidavit stating that he did not slander the defendant.
The defendants' allegations regarding statements made by Beach and by William Grove are hearsay. "Normally if the opponent is to succeed in defeating a summary judgment motion he . . . must make his showing by producing evidentiary proof in admissible form. The rule with respect to defeating a motion for summary judgment, however, is more flexible, for the opposing party, as contrasted with the movant, may be permitted to demonstrate acceptable excuse for his failure to meet the strict requirement of tender in admissible form." Zuckerman v City of New York, 49 NY2d 557, 562 (1980).
"Where a party submits affidavits which identify the witnesses, the substance of their testimony, how it is known what that testimony would be and how the witnesses acquired their knowledge, the hearsay set forth in such affidavits may be sufficient to defeat a motion for summary judgment provided an acceptable excuse for the failure to tender evidence in admissible form is supplied." Landisi v Beacon, 180 AD2d 1000, 1003 (3rd Dept 1992), cites omitted.
The First Department in Koren v Weihs, 201 AD2d 268 (1st Dept 1994) noted that hearsay evidence may defeat a summary judgment motion so long as it is not the only evidence submitted, citing Wertheimer v New York Prop. Ins, 85 AD2d 540,541. (1st Dept 1981). See also Balsam v Delma Engineering, 203 AD2d 203 (1st Dept 1994), which held that the lower court did not err in accepting hearsay evidence in opposition to defendant's summary judgment motion, because this was not the only evidence submitted on the issue, and because plaintiff made an acceptable excuse for failure to tender the evidence in admissible form. But see Allstate v Keil, 268 AD2d 545 (2nd Dept 2000), where the Second Department held that the alleged statements of the building caretaker contained in the defendant's opposition papers constituted inadmissible hearsay (cites omitted) and the defendant offered no excuse for his failure to tender the evidence in admissible form.
So here, the question before the Court is whether or not the defendants have offered any excuse for their failure to obtain affidavits from the septic repairer, Jim Beach and engineer, William Grove? Given the record before the Court the defendants have failed to do so.
Therefore the plaintiff is entitled to summary judgment on the foreclosure; appointment of a referee as a CPLR § 3408 conference was held on September 21, 2010; and dismissal of the defendant's answer and counterclaims.
Plaintiff is granted summary judgment on the foreclosure action and the counterclaims are stricken and dismissed.
Plaintiff's counsel to submit order granting Summary Judgment and Order of Reference within twenty (20) days.
SO ORDERED.