Real Property Law

In affirming, the Appellate Division noted that the lender bears the initial burden of demonstrating fair market value, but noted that a court need not hold an evidentiary hearing unless a triable issue of fact is presented. In this case, the court concluded that mortgagor had submitted nothing other than submissions the Appellate Division had previously held insufficient. As a result, the court concluded that there were no questions of fact requiring a hearing, and Supreme Court properly granted the motion for leave to enter a deficiency judgment in the amount of $128,266.61.

Comment

A mortgagee may not obtain a deficiency judgement for the difference between an unpaid loan and a property's fair market value, unless mortgagee moves for the deficiency judgement within 90 days of the consummation of the sale, and provides an adequate appraisal establishing the property's fair market value. Courts have rejected unchallenged valuations when the underlying appraisals contained only the appraiser's qualifications and conclusory statements as to the property's value, but not the methods, reasoning, and data the appraiser used to arrive at its valuation. In FSB v. Bitar, 25 N.Y.3d 307, the Court of Appeals upheld the trial court's denial of an unopposed motion for a deficiency judgement because the mortgagee's four paragraph appraisal did not go beyond stating that the figures were arrived on by considering "comparable sales" and "the neighborhood, market and general economic trends." The appraiser's failure to include evidence of the comparable sales, or a description of the subject premises, led the court to reject the valuation. Similarly, in Eastern Sav. FSB v. Brown, 112 A.D.3d 668, the court declined to award a deficiency judgment when the appraiser's affidavit included two exterior photos of the premises and information about the average sale price of properties in the zip code without providing information on how those average sale prices were relevant to the property's fair market value. In Flushing Bank, however, the Court of Appeals indicated that if a court rejects a mortgagee's valuation the mortgagee may submit additional proof to support a deficiency judgment.

Even when the mortgagee provides what would otherwise be a reasonable appraisal, a mortgagor can avoid, or diminish the amount of, a deficiency judgement by providing a conflicting, and more persuasive, appraisal. If the mortgagor establishes a higher fair market value than the mortgagee's, then they may reduce the amount owed in a deficiency judgment or eliminate it altogether. For instance, in Ramapo Realty, LLC v. 1236 Rogers Ave., LLC, 148 A.D.3d 738 (N.Y. App. Div. 2017), the Appellate Division affirmed a Supreme Court order awarding a smaller deficiency judgement based on the higher market value submitted by the mortgagor. The mortgagor's appraiser included market trends, comparable sales, and the building's permits as well as code violations. Additionally, where the mortgagee's appraiser provided no reasoning for a $200,000 adjustment to factor in the property's renovations, the mortgagor's appraiser used sworn cost estimates in the Building Department's records and factored market conditions into the value of the renovations. Similarly, in BTC Mortg. Investors Trust 19997-SI v. Alamont Farms Inc., 284 A.D.2d 849, mortgagor avoided any deficiency judgment by providing a more detailed appraisal that established that the value of the property exceeded the amount owed on the debt, and thus no deficiency judgement was owed. The court was also inclined to disbelieve the mortgagee's valuation given that their appraiser had previously given vastly different values for the farm — all of them at least twice as high as the appraisal mortgagee offered in support of its motion for a deficiency judgment.

*****

Foreclosure Action Proceeds Despite Failure to Formally Discontinue Prior Foreclosure Action

21^st Mortgage Corp. v. Ahmed NYLJ 6/21/19, p. 34, col. 1 AppDiv, Second Dept. (memorandum opinion)

In an action to foreclose a mortgage, mortgagor appealed from a Supreme Court order denying his motion to dismiss. The Appellate Division affirmed, holding that although a prior action had not been formally discontinued when the current foreclosure action was commenced, mortgagor had suffered no prejudice.

Whitman Mortgage brought a foreclosure action against Ahmed in November 2007. In 2013, while that action was still pending, current mortgagor purchased the property from Ahmed. The following year, Whitman's mortgage was transferred to the current mortgagee. Current mortgagor was granted leave to intervene in the 2007 foreclosure action. In a stipulation dated Nov. 5, 2014, Whitman and current mortgagor stipulated to discontinue the 2007 action and to vacate the notice of pendency. Then, in January 2015, current mortgagee brought this foreclosure action. Current mortgagor moved to dismiss pursuant to RPAPL 1301(3), contending that the 2007 action was still pending because the stipulation to discontinue was not filed until October 2015. Supreme Court denied the motion to dismiss and mortgagor appealed.

In affirming, the Appellate Division conceded that, pursuant to RPAPL 1301(3), current mortgagee should have sought leave of court to bring the 2015 foreclosure proceeding. But the court held that in the circumstances of this case, where the stipulation was signed before commencement of the proceeding and where mortgagor could show no prejudice, Supreme Court had properly denied the motion to dismiss.

*****

Letter of Intent Did Not Create Binding Contract

Foxstone Group, LLC v. Calvary Pentecostal Church, Inc. NYLJ 6/21/19, p. 26, col. 6 AppDiv, Second Dept. (memorandum opinion)

In real estate development company's action against a church for breach of contract, the development company appealed from Supreme Court's dismissal of the complaint. The Appellate Division affirmed, concluding that the parties' letter of intent did not create a binding contract.

The development company entered into a letter of intent with the church, which owns two parcels in Brooklyn. The letter of intent set forth a "Joint Venture Proposal" for redevelopment of the church's property. Three months later, the church sent a letter to the development company indicating that it would not proceed further with the redevelopment plan. The development company then brought this action alleging breach of contract, breach of fiduciary duty, and unjust enrichment. Supreme Court dismissed the complaint.

In affirming, the Appellate Division emphasized that handwritten provisions in the letter of intent expressly stated that it was not a binding agreement. The court held that the handwritten provision controlled over a printed provision stating that the letter of intent would become binding after a period of five days. As a result, Supreme Court properly dismissed the breach of contract claim. The breach of fiduciary duty claim failed because in the absence of a binding joint venture, the church owed no fiduciary duty to the development company. The unjust enrichment claim was properly dismissed because the development company did not identify the benefit the church allegedly obtained or explain why it was against equity to allow the church to retain the benefit.

*****

Forbearance Agreement Tolled Statute of Limitations

U.S. Bank Trust, N.A. v. Rudick NYLJ 5/31/19, p. 34, col. 2 AppDiv, Second Dept. (memorandum opinion)

In mortgagee bank's foreclosure action, mortgagee appealed from Supreme Court's dismissal of the complaint. The Appellate Division reversed, holding that the statute of limitations was tolled by a forbearance agreement that followed an earlier foreclosure action.

In 2006, mortgagor executed a $2,470,033 mortgage note in favor of mortgagee's predecessor. The predecessor commenced a foreclosure action in 2008. In 2009, while that action was pending, the predecessor and mortgagor entered into a forbearance agreement under the terms of which mortgagor agreed to repay all past due amounts pursuant to a new monthly payment schedule. Subsequently, mortgagor stopped making those payments. Then, in 2015 current mortgagee brought this foreclosure action. Mortgagor moved to dismiss, contending that the statute of limitations started to run when the predecessor mortgagee brought the 2008 foreclosure action. Supreme Court agreed and dismissed the action.

In reversing, the Appellate Division concluded that the forbearance agreement established a clear intent to revoke its prior election to accelerate the debt and to reinstate mortgagor's right to make monthly payments. As a result, the statute of limitations would not start to run until mortgagor defaulted on its obligations under the forbearance agreement, a date which could not have been more than six years before commencement of the instant foreclosure proceeding.

*****

Foreclosure Proceeding Dismissed for Lack of Standing Did Not Accelerate Mortgage

J & JT Holding Corp. v. Deutsche Bank National Trust Co. NYLJ 6/7/19, p. 23, col. 4 AppDiv, Second Dept. (3-1 decision; memorandum opinion; dissenting memorandum by Barros, J.)

In an action by fee owner for a declaration that it owns the subject property fee and clear of a mortgage, mortgagee appealed from Supreme Court's denial of its motion to dismiss based on documentary evidence. A divided Appellate Division reversed, holding that the complaint should have been dismissed.

In 2006, former fee owner obtained a mortgage loan in the amount of $480,000 from Impac Funding. In April 2007, after former fee owner defaulted on the mortgage, Deutsche Bank brought an action to foreclose the mortgage. By order dated Oct. 1, 2008, Supreme Court denied Deutsche Bank's motion for a judgment of foreclosure and sale because Deutsche Bank had not annexed a copy of the assignment of the mortgage. Deutsche Bank then moved for leave to renew, including a copy of the assignment dated Oct. 1, 2007. In 2009, Supreme Court granted leave, and then adhered to its original determination because the assignment was dated after the date Deutsche Bank had commenced its foreclosure action. Deutsche Bank subsequently moved to discontinue the action, and in June 2013, Supreme Court granted the motion and directed cancellation of the notice of pendency. Then, in 2014, current fee owner acquired a deed from the former fee owner. Current fee owner then brought this action for a declaration that the statute of limitations barred any further foreclosure action by Deutsche Bank, and that current fee owner therefore owned the property free and clear of any mortgage. Supreme Court denied Deutsche Bank's motion to dismiss, and Deutsche Bank appealed.

In reversing, the Appellate Division held that Deutsche Bank's 2007 commencement of the foreclosure action was ineffective to exercise mortgagee's option to accelerate the mortgage because Deutsche Bank lacked standing to bring that action. The court's majority concluded that the 2009 order determining that Deutsche Bank lacked standing was final and binding, and precluded any finding that Deutsche Bank had effectively exercised the option to accelerate. As a result, the statute of limitations has not extinguished the mortgage debt.

Justice Barros, dissenting, argued that the 2009 order was not entitled to collateral estoppel effect. He concluded that the 2013 order granting the motion to discontinue the action rendered the 2009 order a nullity. As a result, he argued that the court was in a position to re-examine Deutsche Bank's standing in the initial foreclosure action. In his view, Deutsche Bank's papers in this action did not conclusively establish a lack of standing in the prior action.

U.S. Bank National Association v. Auguste NYLJ 6/14/19, p. 31, col. 4 AppDiv, Second Dept. (memorandum opinion)

In an action to foreclose a mortgage, mortgagor appealed from Supreme Court's grant of summary judgment to mortgagee and denial of mortgagor's motion to dismiss. The Appellate Division affirmed, holding that a prior foreclosure action, brought without standing by the mortgagee, was ineffective to accelerate the mortgage, and therefore ineffective to start the statute of limitations on mortgagee's claim.

Mortgagor borrowed $640,000 in 2006, secured by a mortgage with First United. U.S. Bank brought an action to foreclose in May 2007. U.S. Bank submitted an assignment of the mortgage dated July 9, 2007, but stating that it was effective on Nov. 22, 2006. Supreme Court dismissed the foreclosure action, concluding that the retroactive assignment was insufficient to establish U.S. Bank's ownership interest on the date the foreclosure action commenced. U.S. Bank brought the instant foreclosure action on July 29, 2014, attaching the note and an endorsement of the note signed by First United's president. U.S. Bank moved for summary judgment, and mortgagor moved to dismiss, contending that the complaint was time-barred. Supreme Court granted U.S. Bank's summary judgment motion and denied mortgagor's motion to dismiss. Mortgagor appealed.

In affirming, the Appellate Division concluded that a foreclosure action dismissed for lack of standing renders any purported acceleration of the mortgage note a nullity. As a result, the 2007 mortgage action did not accelerate the mortgage, and the statute of limitations did not start to run.