Opinion
702927/16
09-24-2020
NATIONAL LOAN INVESTORS, L.P., as a Delaware Limited Partnership, Plaintiff, v. Frank BRUNO, Jr., Parking Violations Bureau of New York City, Environmental Control Board of New York City, City of New York, et al, Defendants.
The plaintiff has moved for, inter alia, an order directing defendant Frank Bruno Jr. to turn over all leases, security deposits, and rents of the property known as 69-09 Myrtle Avenue, Glendale, New York.
I. The Facts
Defendant Frank Bruno, Jr. executed and delivered to Greystone Bank a note dated November 6, 2007 in the amount of $450,000. The bank secured the note with a mortgage executed by defendant Bruno in favor of Mortgage Electronic Recording Systems (MERS) which encumbered premises known as 89-09 Myrtle Avenue, Glendale, New York. The mortgaged premises has been improved by a 4-6 family dwelling and a store or office. Defendant Bruno also executed an Assignment of Lessor's Interest In Lease(s) in favor of Greystone.
On or about April 19, 2012, MERS and Greystone assigned the note and mortgage to Bayview Loan Servicing, LLC (Bayview), and on May 2, 2012, Bayview assigned the note and mortgage to National Loan Investors, L.P. (NLI). NLI subsequently assigned the note and mortgage to the current plaintiff, Lycan Capital, LLC, which also received the assignment of leases.
NLI began this action to foreclose on the mortgage by the filing of a summons and complaint on March 11, 2016. The complaint alleges that defendant Bruno defaulted on the note and mortgage by, inter alia, failing to make payments due on March 1, 2012, and thereafter. By a decision and order dated August 8, 2019 (one paper), this court substituted Lycan Capital as the party plaintiff.
Karen C. Horton, the Controller of NLI, swears: "Defendant Bruno defaulted and otherwise failed to comply with the provisions of the Note and Mortgage [by], among other things, failing to make payments when due commencing with payment due on March 1, 2012, and continuing thereafter ***." She further swears that the total amount due as of March 22, 2019 was $998,273.92.
Paragraph 38 of the mortgage states in relevant part: "The Mortgagee, in any action to foreclose this Mortgage, shall be entitled to the appointment of a receiver, without regard to the solvency or Insolvency of any person or entity obligated for the payment of the Debt or the adequacy of any security for the Debt and without notice, and notice of such appointment is hereby expressly waived. The Mortgagee or any receiver shall be entitled to take possession of the Mortgaged Property from the owner, tenants and/or occupants of the whole or any part thereof and to collect and. receive the Rents and the value of the use and occupation of the Mortgaged Property, or any part thereof, from the then owner, tenant and/or occupants thereof for the benefit of the Mortgagee." (Emphasis added.)
Section 6 of the assignment of leases and rents gave the assignee the right to, inter alia, collect rents in the event of the assignor's default under the terms and conditions of the note and mortgage: "Upon or at any time after default by the Assignor under this Agreement, ***, the Assignee, at its option, shall have the complete right ***to exercise and enforce any or all of the following rights and remedies: (a) to terminate the license granted to the Assignor to collect as aforesaid the Rents, and then and thereafter, without taking possession, in the Assignee's own name, to demand, collect, *** the Rents, *** and after deducting all reasonably necessary and proper costs and expenses ***to apply the net proceeds thereof, together with any funds of the Assignor deposited with the Assignee, upon any indebtedness secured hereby ***."
II. Discussion
Pursuant to an order to show cause dated August 25, 2020, the plaintiff moved for an order (1) directing defendant Bruno to turn over all leases, security deposits and rents of the property to the plaintiff pursuant to the mortgage and assignment of leases and rents and (2) allowing the plaintiff to take possession and to manage the property pursuant to the subject mortgage and assignment of leases and rents. In the alternative, the plaintiff sought an order appointing a temporary receiver during the pendency of this action.
"It is a common practice to include in a mortgage a clause by which the mortgagor agrees to assign the rents and profits of the mortgaged premises in the event of its default or a stipulation that, on default, the mortgagee has the right to take possession of the premises and receive the rents and profits thereof." ( 77 NYJur2d, "Mortgages," § 191.) "A practice developed of inserting in mortgage instruments a clause permitting the appointment of a receiver, and a provision assigning or pledging rents in the event of default, at times coupled with language affording a right of entry upon the premises. ‘The parties may insert in a mortgage any conditions mutually agreeable and, if they are neither oppressive nor unconscionable, they will be enforced.’ ( Graf v. Hope Building Corp ., 254 NY 1 ).’ " ( 1180 Anderson Ave. Realty Corp. v. Mina Equities Corp ., 95 AD2d 169, 172 [1st Dept 1983].)
In the case at bar, paragraph 38 of the mortgage expressly provides that in an action to foreclose on the mortgage, "[t]he Mortgagee or any receiver shall be entitled to *** collect and receive the Rents and the value of the use and occupation of the Mortgaged Property, or any part thereof, from the then owner, tenant and/or occupants thereof for the benefit of the Mortgagee." The plaintiff has a valid contractual basis for the relief sought in the first branch of its motion.
In opposition, defendant Bruno relied on cases such as In re S. Side House, LLC , (474 BR. 391 [Bankr. E.D.NY 2012] ) which draw a distinction between an assignment for additional security and an absolute assignment for the purpose of determining who has title to the rents. The issue of title to the rents has importance in bankruptcy matters, but not here. Similarly, the issue of title to the rents has importance in condemnation proceedings (see , Lt Propco, LLC v. Carousel Ctr. Co., L.P. , 68 AD3d 1695 [4th Dept 2009] ) but not here. While the language used in an assignment clause is not considered alone in determining title to the rents (see , In re S. Side House, LLC , supra ), in the case at bar no matter who had title to the rents the language of paragraph 38 clearly gives the mortgagee the right to collect the rents in a foreclosure action. The court notes that on this motion, defendant Bruno submitted no evidence showing that he did not default, and, in the absence of circumstances which render enforcement of paragraph 38 unconscionable, the contract between the parties must be applied according to its plain meaning. (See , Greenfield v. Philles Records, Inc ., 98 NY2d 562 [2002] ; 1180 Anderson Ave. Realty Corp. v. Mina Equities Corp ., supra .)
As for the second branch of the plaintiff's motion, "[t]he mortgagee's right to possession is dependent on a clause in the mortgage expressly giving that right or on facts extrinsic to the mortgage contract." ( 77 NYJur2d, "Mortgages," § 173 ; see , Holmes v. Gravenhorst , 263 NY 148 [1933].) "The law of New York allows a Court to grant the right of possession pending foreclosure only where the mortgage expressly grants that right or reasons extrinsic to the mortgage agreement so dictate." ( NWL Properties, Inc. v. 401 E. 89th St. Owners, Inc ., 1995 WL 221078, [S.D.NY, 1995] ; see , Third Madison Realty Assocs. v. Ramapo Racquetball Assocs ., 123 AD2d 682 [2nd Dept 1986] ; Carlin Trading Corp. v. Bennett , 24 AD2d 91 [1st Dept 1965].) In the case at bar, paragraph 38 of the mortgage provides that "[t]he Mortgagee or any receiver shall be entitled to take possession of the Mortgaged Property from the owner, tenants and/or occupants of the whole or any part thereof ***." The plaintiff also has a valid contractual basis for the relief sought in the second branch of its motion.
The third branch of the instant motion which, in the alternative, seeks the appointment of a receiver, has been mooted by the grant of the first two branches. But even if it were necessary to reach the third branch, defendant Bruno could have not escaped the loss of possession and of rents to a receiver.
RPL § 254, "Construction of clauses and covenants in mortgages and bonds or notes" provides in relevant part: "10. Mortgagee entitled to appointment of receiver. A covenant ‘that the holder of this mortgage, in any action to foreclose it, shall be entitled to the appointment of a receiver,’ must be construed as meaning that the mortgagee, his heirs, successors or assigns, in any action to foreclose the mortgage, shall be entitled, without notice and without regard to adequacy of any security of the debt, to the appointment of a receiver of the rents and profits of the premises covered by the mortgage; and the rents and profits in the event of any default or defaults in paying the principal, interest, taxes, water rents, assessments or premiums of insurance, are assigned to the holder of the mortgage as further security for the payment of the indebtedness."
Paragraph 38 of the mortgage executed by defendant Bruno allows the court to appoint a receiver of the rents and profits pursuant to RPL § 254 on the application of plaintiff Lycan in the instant action. ( See, 366 Fourth St. Corp. v. Foxfire Enterprises, Inc ., 149 AD2d 692 [2nd Dept 1989] ; Clinton Capital Corp. v. One Tiffany Place Developers, Inc. , 112 AD2d 911 [2nd Dept 1985] ; Maspeth Fed. Sav. & Loan Ass'n v. McGown, 77 AD3d 889 [2nd Dept 2010].) Paragraph 38 entitles the mortgagee "to the appointment of a temporary receiver without notice and without regard to the adequacy of the security for the loan, ‘regardless of proving the necessity for the appointment’ ***." ( GECMC 2007-C1 Ditmars Lodging, LLC v. Mohola, LLC , 84 AD3d 1311, 1312 [2nd Dept 2011], quoting Naar v. Litwak & Co. , 260 AD2d 613, 614 [2nd Dept 1999].) It is true that a court of equity in its discretion may deny the application despite the mortgage clause under appropriate circumstances. ( 366 Fourth St. Corp. v. Foxfire Enterprises, Inc., supra; Clinton Capital Corp. v. One Tiffany Place Developers, Inc. , supra .) Indeed, this court has done so. (See , Phoenix Grantor Tr. v. Exclusive Hosp., LLC, 172 AD3d 926, 926 [2nd Dept 2019] ["the Supreme Court did not improvidently exercise its discretion in denying the plaintiff's motion given the substantial issues of fact that have been raised in this case, including those regarding the validity of the underlying note and whether a default has in fact occurred"].) In the case at bar, defendant Bruno did not show that there are any circumstances which warrant a disregard of paragraph 38.
While RPL § 254 does not concern possession, paragraph 38 by its express terms also entitles the receiver to take possession. (See, Carlin Trading Corp. v. Bennett , 24 AD2d 91, 91[ 1st Dept 1965] ["A receiver, even though authorized to fix and collect rents, may not interfere with the possession of the mortgagor unless the mortgage in specific language gives him a right to do so ***."]; Third Madison Realty Assocs. v. Ramapo Racquetball Assocs ., 123 AD2d 682 [2nd Dept 1986] ; NWL Properties, Inc. v. 401 E. 89th St. Owners, Inc ., 1995 WL 221078, 2 [S.D.NY 1995] ["The law of New York allows a Court to grant the right of possession pending foreclosure only where the mortgage expressly grants that right or reasons extrinsic to the mortgage agreement so dictate."].)
Accordingly, the first two branches of the motion are granted. The third branch is denied as moot.
Settle order.