Opinion
8003/2005.
Decided February 28, 2006.
Plaintiff QMB Holdings, LLC commenced this action seeking foreclosure on a mortgage affecting two properties, one located in Bronx County, the other located in New York County. The properties are encumbered by two mortgages. The mortgage held by plaintiff QMB Holdings, LLC is the senior mortgage. Defendants Jack Benun and Benun Family Holdings, L.P. (hereinafter referred to as "Benun Parties") own the junior mortgage. Plaintiff QMB Holdings, LLC now moves for a default judgment against the defaulting defendants and summary jugdment against the answering defendants. Besides opposing plaintiff's motion for summary judgment, defendants Benun Parties cross move for summary judgment dismissing the entire action. Co-defendant Export 2000 cross moves for its removal from the case as a necessary but not indispensable party.
Chronology of Relevant Events
The two properties subject to this foreclosure action, located at 29-18 and 29-20 Third Avenue, Bronx, New York, and 100/102 Delancey Street, New York, New York, are owned by a partnership of Hyman and Seymour Escava. The partnership is known as Escava Brothers. The mortgage that plaintiff QMB Holdings, LLC seeks to foreclose was formerly held by Independence Community Bank (ICB). In 2001, ICB assigned the mortgage to Independence Community Realty Corp. (ICRC). In 2004, Gent Management LLC purchased the mortgage from ICRC. On October 11, 2004, Gent assigned the mortgage to plaintiff QMB Holdings, LLC., which is a corporation formed on September 11, 2004. The monetary consideration recited in the assignment for the $3 million senior mortgage is ten dollars ($10), although David Cohen a principal from QMB Holdings, LLC, claims that he paid cash in the amount of $3 million dollars.
The junior mortgage held by Benun Parties secures a promissory note in the amount of $1 million dollars, and was recorded on November 13, 2003. After payment on the note was demanded, defendants Escava Brothers failed to pay the Benun Parties the amount owed on the noted, and, as a result, on March 15, 2004, the Benun Parties commenced a foreclosure action in Supreme Court, New York County. On May 11, 2004, Justice Figueroa appointed Michael Gould, Esq., to act as receiver of the two properties, which were almost entirely vacant. Subsequently, the receiver signed a lease as receiver for the empty space on the Bronx Property with defendant Expo 2000, at an annual rent of $400,000. On January 10, 2005, Justice Figueroa granted Benun Parties a judgment of foreclosure on the junior mortgage.
This mortgage foreclosure action was commenced after counsel for plaintiff sent defendant Escava Brothers a predicate notice of default on December 2004, with regard to the default in payment beginning in July 2004. Plaintiff sues, inter alia, the owner of the mortgaged properties, Escava Brothers, the owners of the junior mortgage, the Benun Parties, and the lessor of part of the Bronx Property, Export 2000, among others. Escava Brothers has defaulted in the action. Both Benun Parties and Export 2000 have answered, and Benun Parties have also asserted several cross claims against plaintiff QMB Holdings, LLC. Plaintiff now moves for a default judgment on its mortgage foreclosure claim against defendant Escava Brothers and the other defaulting defendants, and for summary judgment against the answering defendants Benun Parties and Export 2000. Besides opposing the motion for summary judgment, defendants Benun Parties cross move for summary judgment dismissing the mortgage foreclosure action. Co-defendant Export 2000 cross moves for its removal from the action as a necessary but not indispensable party.
The other defaulting defendants are New York City Environmental Control Board, DJ Royce Construction Corp., and Jou Jou Jewelers.
Discussion
CPLR § 3212 (b) requires that for a court to grant summary judgment the court must determine if the movant's papers justify holding as a matter of law, "that the cause of action or defense has no merit." The evidence submitted in support of the movant must be viewed in the light most favorable to the non-movant. Bush v. St. Clare's Hospital, 82 NY2d 738, 739 (1993); Winegrad v. New York University Medical Center, 64 NY2d 851, 853 (1985). Summary judgment shall be granted only when there are no issues of material fact and the evidence requires the court to direct judgment in favor of the movant as a matter of law. Zuckerman v. New York, 49 NY2d 557, 562 (1980); Friends of Animals, Inc., v. Associated Fur Mfrs., 46 NY2d 1065 (1979).
In moving for summary judgment in this mortgage foreclosure proceeding, plaintiff QMB Holdings, LLC establishes "its prima facie entitlement to judgment against the defendants . . . by submitting the mortgage, the unpaid note, and evidence of the mortgagors' default." Fleet National Bank v. Olasov, 2005 NY Slip Op 01667 (2nd Dept 2005). The burden then shifts "to the mortgagors and [the non-defaulting defendants] to raise a triable issue of fact." Fleet National Bank v. Olasov, 16 AD3d 374 (2nd Dept. 2005). See also, Winegrad v. New York University Medical Center; EMC Mtge. Corp. v. Riverdale Assoc., 291 AD2d 370 (2nd Dept 2002); Coppa v. Fabozzi, 5 AD3d 718 (2nd Dept. 2004).
Preliminarily, it should be pointed out that, contrary to plaintiff's contentions, defendants Benun Parties have standing to contest the validity of the first mortgage upon which plaintiff relies in seeking foreclosure on the subject property. Indeed, the law is abundantly clear that every person having any lien or encumbrance upon the real property which is claimed to be subject and subordinate to the lien of the plaintiff is a necessary party defendant in a foreclosure action. RPAPL § 1311 (3); see also G.B. Seely's Son v. Fulton-Edison, Inc., 52 AD2d 575, 577-578; 9-2 Warren's Weed, New York Real Property, Mortgage Foreclosure § 5.03 (17), (18) (2004). Thus, the Court must examine the merits of the defenses asserted by defendants Benun Parties.
This Court finds that the first defense asserted by defendants Benun Parties is untenable as a matter of law. Defendants argue that the mortgage foreclosure action must be dismissed because the predicate notice to cure the default is invalid and void due to the fact that it was sent by current counsel. According to defendants, the law is that if a notice to cure is required to be sent by the mortgagor, it may not be sent by an agent (including an attorney). At this juncture, there is an open question as to whether the rule relied upon by defendant, as promulgated in Siegel v. Kentucky Fried Chicken, 67 N.Y2d 792 (1986), that when a lease requires a notice to cure to be sent by a landlord, it cannot be sent by the landlord's attorney, has any application in the mortgagor/mortgagee relationship. Indeed, the only case directly on point cited by defendants is the trial court opinion in Manufacturers Traders Trust Co. v. Korngold, 162 Misc 2d 669 (Sup. Ct Rockland County 1994), which is, of course, not binding on this court.
This Court, however, need not address the merits of such allegation, since the Court finds that the defense of inadequate predicate notice to cure is personal in nature and may only be raised by the party improperly served with the notice to cure. Cf. Home Sav. of Am. v. Gkanios, 233 AD2d 422, 423 (The defense of improper service of process in a foreclosure action is personal in nature and may only be raised by the party improperly served); 2 Bergman, New York Mortgage Foreclosures 23.45. Therefore, any defect in the predicate notice to cure cannot be used as a defense to the mortgage foreclosure by a party other than the mortgagee.
The same cannot be said with regard to the other defenses raised by defendants Benun Parties in opposition to plaintiff's motion for summary judgment. Specifically, defendants Benun Parties argue that the assignment of the first mortgage to QMB Holdings, LLC was a fraudulent attempt to eviscerate the junior mortgage. It is clear that the rights of a second mortgagor will not be extinguished upon a foreclosure sale if that party can demonstrate a collusive or fraudulent scheme between the owner and first mortgagor/assignee which was designed to eliminate the junior mortgage interest. Aubrey Equities, Inc. v. SMZH 73rd Associates, 212 AD2d 397 (1st Dept. 1995); see also, Dorff v. Bornstein, 277 NY 236 (1938); Lawrence Ave. Group v. Parnes, 134 AD2d 172 (1st Dept. 1987); Holland v. Fulbert, Inc., 49 AD2d 86 (3rd Dept. 1975). Likewise, Judiciary Law § 489 prohibits a corporation from taking assignment of a note with the intent of bringing an action thereon as long as it is established that commencement of the suit was the primary purpose of the assignment. Limpar Realty Corp. v. Uswiss Realty Holding, 112 AD2d 834, 835-836 (1st Dept. 1985); 1015; 1015 Gerard Realty Corp. v. A S Improvements Corp., 91 AD2d 927, 928(1st Dept. 1983). In this case, defendants Benun parties have met their burden of raising issues of fact regarding the parties' intent behind the assignment of the ICB mortgage to QMB Holdings, LLC. This is especially true in light of the acrimonious relationship of the Escava partners, and the relationship between one of the Escava brothers (Seymour/mortgagee) and a principal of QMB (David D Cohen) (the former is the son-in law of the latter), coupled with the fact that the transfer was for what appears to be token consideration and the note, when transferred, was already in default. Cf. Aubrey Equities, Inc. v. SMZH 73rd Associates, 212 AD2d 397 (1st Dept. 1995) (fact issues existed concerning the first mortgagee's intent in assigning the note, especially in light of the uncertain relationship between the first mortgagee and assignees through their common principal, and where only token consideration was paid). While such facts alone are equivocal and subject to innocent interpretation, regarding the parties' intent behind the assignment of the ICB mortgage to QMB Holdings, LLC they are sufficient to deny summary jugdment to the plaintiff at this stage of the action where barely any pre-trial discovery has been conducted. Summary judgment should not be granted where there are likely to be defenses that depend upon knowledge in the possession of the party moving for summary judgment which may be disclosed by discovery. Terrranova v. Emil, 20 NY2d 493, 497. Accordingly, additional discovery is necessary with regard to the aforementioned defenses that, in essence, attack the validity of the assignment of the senior mortgage to plaintiff QMB Holdings, LLC.
The Court next examines defendant Expo 2000's cross motion to be removed from this action. Defendant-tenant argues that this Court should exercise its equity jurisdiction to remove defendant-tenant from the action since defendant is a necessary but not indispensable party. This Court finds that defendant Expo 2000 has failed to meet its burden of establishing that it should be removed from this case. To be sure, the law is very clear that, had plaintiff not brought the tenant Expo 2000 into the case, the Court need not have dismissed the action because tenants are necessary but not indispensable parties to a mortgage foreclosure action. G.B. Seely's Son, Inc. v. Fulton-Edison, Inc., 52 AD2d 575 (2nd Dep't 1976).
Nevertheless, plaintiff QMB Holdings, LLC was within its rights to join the tenant, defendant Expo 2000 into the action. Indeed, the interest of a lessee under a lease subordinate to the mortgage is cut off by the foreclosure judgment where the lessee is named a party in the foreclosure action. G.B. Seely's Son, Inc. v. Fulton-Edison, Inc, supra. Conversely, the interest of a tenant who is not made a party to the foreclosure action is not affected by the judgment of foreclosure, and any purchaser will take title subject to the rights of the tenant. Home Sav. of America, F.A. v. Freidman, 205 AD2d 501 (2nd Dept. 1994). The only scenario, not present herein, where a tenant is properly not joined as a necessary party in a mortgage foreclosure action is where a subordination and nondisturbance agreement between the mortgagor and the tenant effectively renders the tenant's right to possession under the lease superior to the mortgagor's rights under the mortgage. KVR Realties, Inc. v. Treasure Star, Inc., 58 NY2d 793 (1983).
Under the circumstances of this case, this Court refuses to exercise its equity jurisdiction to remove defendant Expo 2000 from the action. At this incipient stage of the proceedings where hardly any discovery has taken place, this Court is not in a position to adequately evaluate whether the tenant's removal from this case can be carried without unfairly modifying plaintiff's rights. Therefore, defendant Expo 2000's motion must be denied as premature, albeit without prejudice and with leave to renew upon the completion of discovery.
Conclusion
For the foregoing reasons, it is hereby
ORDERED that the motion by plaintiff QMB Holdings, LLC, seeking a default judgment against the defaulting defendants, is denied; it is further
ORDERED that the motion by plaintiff QMB Holdings, LLC, seeking a summary judgment against the answering defendants, is denied; it is further
ORDERED that the cross motion by defendants Benun Parties, seeking summary judgment dismissing the action, is denied; it is further
ORDERED that the cross motion by defendant Expo 2000, seeking its removal from the action as a necessary but not indispensable party, is denied; and it is further
ORDERED that plaintiff's motion for a default judgment and summary judgment, and co-defendants' cross motions for summary judgment, are all denied without prejudice and with leave to renew upon the completion of discovery.
This constitutes the Decision and Order of the Court.