New York Family Law Blog
In this action, plaintiff is seeking to foreclose on a consolidated mortgage dated November 15, 1988 given by it to East Coast and encumbering the property located at 1078-1080 Utica Avenue in Brooklyn. By deed dated August 15, 2007, East Coast sold the mortgaged property to 1080. During oral argument, 1080 represented that it was willing to bring the mortgage current to settle the action, which offer was accepted by plaintiff. After numerous adjournments, however, it appears that the parties were unable to agree to the amount due.
With regard to 1080, plaintiff avers that none of the six affirmative defenses interposed in its answer have any merit in truth or fact. In this regard, plaintiff asserts that 1080’s claim that plaintiff did not acquire jurisdiction over it is refuted by the receipt from the Secretary of State that establishes that the corporation was properly served. Plaintiff also contends that the second affirmative defense in which 1080 alleges that when the property was purchased on August 15, 2007, the principals were told that all of the existing mortgages were current, was untrue in that there were two mortgages on the premises that were in arrears at the time. In addition, the third affirmative defense in which 1080 alleges that plaintiff advised the corporation that the two brothers owning plaintiff were involved in a dispute, so that 1080 should not make any further payments on the mortgage, is not accurate. Alvin explains that his attorney had a conversation with 1080’s attorney during which it was stated that there was a dispute concerning the first mortgage, which is held by him and his brother, in their individual capacities, not the second mortgage that he is seeking to foreclose herein. Plaintiff further avers that the fourth, fifth and sixth affirmative defenses in which 1080 alleges that the instant action is barred by the doctrines of estoppel, waiver and/or unclean hands are legally insufficient to preclude an award of summary judgment in its favor.
In his affirmation, counsel alleges that 1080 obtained two mortgages when it purchased the subject property. The first mortgage is for more than $300,000 and has not been paid for more than one year. The second mortgage, the one at issue herein, is for more than $145,000, plus interest, and is held by plaintiff. Counsel further avers that as the president of plaintiff has the duty to protect the mortgage and to institute the instant action.
In opposition to the motion, 1080 argues, in reliance upon an affidavit and an affirmation from its attorney, that on March 9, 2007, this defendant entered into a contract to purchase the subject premises from East Coast for $1,250,000. Pursuant to that contract, 1080 made a down payment of $70,000; the purchase was subject to the existing mortgages on the property; and 1080 agreed to execute a purchase money mortgage in the amount of $280,000. The sale closed on August 15, 2007.
The plaintiff in a foreclosure action has the initial burden of establishing its entitlement to judgment as a matter of law by producing the mortgage, the unpaid note, and an affidavit evidencing the mortgagee’s default in the payment of the obligations under the mortgage.
In addressing the issue of standing, it is well settled that an action to foreclose on a mortgage may not be brought by one who has no title to it and absent transfer of the debt, the assignment of the mortgage is a nullity. Stated differently, in order to commence a foreclosure action, the plaintiff must have a legal or equitable interest in the mortgage. A foreclosure of a mortgage may not be brought by one who has no title to it. In resolving the issues now before the court, it must also be recognized that “”standing requires an inquiry into whether the litigant has an interest in the claim at issue in the lawsuit that the law will recognize as a sufficient predicate for determining the issue at the litigant’s request”.
It is also well established that “in an action to foreclose a mortgage, all parties having an interest, including persons holding title to the subject premises, must be made a party defendant to the action'”. Further, a plaintiff in a foreclosure action is at liberty to make senior mortgagees parties and to have the amount secured by their mortgages ascertained and determined, so that they may be paid out of the proceeds of the sale and their lien discharged, or the sale may be made subject to the known amount of their liens. The absence of a necessary party in a foreclosure action leaves that party’s rights unaffected by the judgment and sale, and the foreclosure sale may be considered void as to the omitted party.
In disposing of the instant motion, the court must also recognize that it has been held “that a mortgagor is bound by the terms of his contract as made and cannot be relieved from his default, if one exists, in the absence of waiver by the mortgagee, or estoppel, or bad faith, fraud, oppressive or unconscionable conduct on the latter’s part”. The court in Nassau Trust Company went on to explain that: “An estoppel “rests upon the word or deed of one party upon which another rightfully relies and so relying changes his position to his injury”‘. It is imposed by law in the interest of fairness to prevent the enforcement of rights which would work fraud or injustice upon the person against whom enforcement is sought and who, in justifiable reliance upon the opposing party’s words or conduct, has been misled into acting upon the belief that such enforcement would not be sought.”
As a threshold issue, the court declines to order a traverse hearing since the affidavit of service establishes that 1080 was properly served by service upon the Secretary of State.
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Turning to the merits, the court finds that plaintiff has made a prima facie showing of the right to foreclose on its mortgage. In this regard, although plaintiff fails to offer an executed assignment of the mortgage from East Coast to 1080 upon which this action based, this defect shall be deemed cured since 1080 admits that it purchased 1080 Utica Avenue subject to the mortgage and that it made payments pursuant thereto for three months.
Implicit in this holding is the finding that plaintiff as the maker of the mortgage, has standing to maintain the instant action. The court therefore finds that Theodore’s contention that the November 4, 1993 agreement entitles him to designate the party to whom the mortgage payments should be sent is found to be lacking in merit, since there is no reason to appoint plaintiff as the nominee to receive payments on a mortgage given in its name. Accordingly, it appears that this agreement pertain to the first mortgage. Further, the brother has failed to establish that the mortgage has been assigned prior to the commencement of the action, so that plaintiff remains the proper party to commence an action to foreclose.
The court also finds that 1080’s claim that plaintiff is estopped from foreclosing on its mortgage is unpersuasive, since 1080’s allegations fail to establish that plaintiff made a clear and unambiguous promise that the it would not foreclose. Rather, assuming the truth of 1080’s allegations for the purpose of disposing of this motion, its allegations establish that it was instead informed that it should not make any further payments until the dispute between the brothers was resolved. Thus, this statement shall be construed as a waiver of the right to foreclose on the mortgage, which can be withdrawn. Accordingly, the waiver shall be deemed to have been withdrawn by the commencement of the instant action. In so holding, the court also notes that this motion was adjourned on several occasions so as to allow 1080 to bring the mortgage current, but no agreement with regard to the amount of money owed could be reached.
Defendants, however, have raised sufficient issues of fact to warrant denial of plaintiff’s motion. Most significantly, the affidavits, affirmations and documents before the court establish that the subject property is encumbered by three mortgages. Although plaintiff does not discuss the issue of the priority of these mortgages, he admits that the mortgage at issue herein is a second mortgage subordinate to the first mortgage held by him and his brother. The proof before the court also establishes that a purchase money mortgage is held by East Coast, who has already been joined as defendant.3 Inasmuch as it has been held that ” the rights, interests and equities of all of the parties claiming an interest in the mortgaged premises, and the respective priority of their liens thereon, should be settled and determined before any judgment of foreclosure and sale is entered'” defendant must be joined as a party defendant so that all of the parties having an interest in the subject property and the mortgages encumbering it are before the court so that the priority of the liens can be established and complete relief can be afforded.
In addition, an issue of fact is raised with regard to who is authorized to commence an action to foreclose the action on behalf of plaintiff and/or who is entitled to receive the payments due under the mortgage, which issues must also be resolved before the court orders the property to be sold to satisfy the debts. 1080’s failure to ascertain the dollar amount of the outstanding principal of the mortgages that it assumed and/or to execute a written assignment when it purchased the subject property raises another issue of fact, i.e., the amount of the debt owed to plaintiff which issue similarly cannot be determined on the papers now before the court. Issues of fact also exist with regard to whether 1080 is in default in the payment of the purchase money mortgage held by East Coast. In addition, 1080 may have a claim against East Coast if the facts reveal that the mortgages were not current when it purchased the property, as was allegedly represented to it at the time of the purchase. In the interest of judicial economy, all of these issues should be resolved in this action.
Accordingly, since an order directing the sale of the subject property would be improper until the above discussed issues are resolved, plaintiff’s motion for summary judgment is denied.
The court declines to address the request made by the East Coast defendants to amend their answer and plaintiff’s request to impose sanctions against 1080, since neither of these demands was properly interposed pursuant to a notice of motion or cross motion. The parties are therefore granted leave to renew their respective requests for relief upon proper papers, if so advised. Any motion made by the East Coast defendants to amend their answer shall also include a copy of the proposed amended answer.
For the above stated reasons, plaintiff’s motion for summary judgment is denied. Defendant is ordered to join as a party defendant within 30 days of service upon him of a copy of this order with notice of entry or the court will entertain a motion to dismiss the action made by any of the defendants. Plaintiff is also directed to serve an amended complaint that properly addresses the interests and priority of all mortgages and mortgagees if he wishes to proceed in this action. If Theodore wishes to participate in this action in the future, and does not join him as a party defendant as directed above, Theodore is directed to make a formal motion seeking leave to intervene or he will not be heard in any future proceedings herein. All other requests for relief are denied.
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