Opinion
No. 505007/14.
01-07-2016
EMIGRANT BANK, Plaintiff, v. Michelle MATERRE; John Doe; Jane Doe, Defendants.
Michael Lee, Esq. Knuckles, Komosinski, & Elliott, LLP, Elmsford, for Plaintiff. Michelle Materre, Pro Se.
Michael Lee, Esq. Knuckles, Komosinski, & Elliott, LLP, Elmsford, for Plaintiff.
Michelle Materre, Pro Se.
DEBRA SILBER, J.
Plaintiff moves for leave to renew and re-argue the court's order which denied its motion for a declaratory and possessory judgment directing defendant to vacate the cooperative apartment unit which is the collateral for their loan, and for related relief, for failing to make out a prima facie case. In addition, plaintiff moves to vacate the court's sua sponte dismissal of the action and the part of the order which set aside the non-judicial auction sale to plaintiff. The branch of the motion for leave to renew and re-argue is granted. Upon re-argument, the court grants the motion in part and denies it in part.
In the prior motion, plaintiff moved for an order pursuant to CPLR § 3215 granting it the following relief: 1) a declaratory judgment in favor of the plaintiff that the defendant borrower must vacate the subject cooperative apartment, 2) a judgment and order awarding plaintiff possession of the subject apartment, 3) a judgment and order authorizing the Kings County Sheriff to evict and eject the defendant from the subject apartment, 4) a money judgment for use and occupancy for the period of defendant's alleged unlawful holding over in possession of the apartment, 5) damages and costs, including attorney fees, "attributable to defendant's unlawful holder" of the subject apartment, and related relief.
The aforesaid prior motion was not opposed and was submitted on default on January 29, 2015. The court found that plaintiff failed to make out a prima facie case for the relief requested in the motion, and it was denied by decision and order dated March 24, 2015.
The underlying action is embodied in a poorly drafted complaint, which, viewed the light most favorable to plaintiff, seeks, inter alia, a judgment of ejectment and a writ of assistance in recovering possession of a cooperative apartment, which was the security/collateral for their loan to defendant. Courtview Owners Corp. v. Courtview Holding B.V. et al, 30 Misc.3d 1211(A), aff'd 113 AD3d 722 (2d Dept 2014). The complaint includes causes of action for breach of contract, ejectment, replevin, a declaratory judgment and a money judgment. The complaint alleges that defendant borrower "executed, acknowledged and delivered to plaintiff's predecessor in interest, Emigrant Mortgage Company, Inc., a Collateral Note ("Note") and Security Agreement ("Agreement") in the sum of $200,000 (collectively the "Loan") granting Emigrant a security interest in the shares and lease for the apartment at premises known as 185 Hall Street, # 1712, Brooklyn, New York 11205 (hereafter the "apartment"). A UCC–1 was recorded to reflect plaintiff's security interest, a copy of which was annexed as an exhibit to the prior motion.
Defendant apparently defaulted on the subject note and security agreement and plaintiff, pursuant to the terms of the parties' security agreement, conducted a non-judicial foreclosure. Plaintiff sent a notice of default to defendant dated November 16, 2012. The default was not cured, and plaintiff thereafter scheduled a non-judicial foreclosure auction sale for March 22, 2013. Plaintiff was the high bidder at the sale and now avers that it is the rightful owner of the proprietary lease and the 216.10 shares of stock allocated to the unit.
Plaintiff avers in its complaint that the cooperative apartment corporation, Willoughby Walk Cooperative Apartments, Inc., has refused to transfer the stock and lease, which is the collateral for the loan, into the plaintiff's name. Plaintiff also alleges that a Notice to Vacate was duly served informing the occupants of the subject apartment of the sale and directing that they vacate the subject apartment on or before June 1, 2014. Plaintiff also avers in the complaint that it has not received any payments for use and occupancy from defendant or the occupants, although they do not allege that plaintiff has been paying the coop maintenance, nor do they allege that a demand for payment of use and occupancy was served on anyone.
The exhibits plaintiff submitted in support of the prior motion included the note and security agreement and a UCC–1 Financing Statement. Plaintiff failed to provide a copy of the Recognition Agreement signed by the borrower, the lender and the apartment corporation. They also failed to provide a copy of the 90 day notice of default required by the UCC or any of the documents regarding the auction, including the notice of sale, proof of advertising the sale, the memorandum of sale, or anything else to support their claim that they properly conducted a non-judicial foreclosure.
As noted in Bergman's on New York Mortgage Foreclosures, lenders have the option of proceeding with either a judicial or a non-judicial foreclosure as regards cooperative apartment loans. UCC Article 9 governs non-judicial foreclosure sales in New York State. LI Equity Network, LLC v. Village in the Woods Owners Corp ., 79 AD3d 26 [2nd Dept 2010]. As the sale herein was a non-judicial foreclosure, the procedures employed by plaintiff were analyzed by the court through the lens of Article 9 of the Uniform Commercial Code to determine whether plaintiff made a prima facie case for the relief requested in the original motion.
The court found that the notice of default sent by plaintiff's attorneys which was in the first motion papers, a notice dated November 16, 2012, titled "Notice Required by the Fair Debt Collection Practices Act, 15 U.S.C. Section 1692 et seq" did not conform to the ninety-day notice requirement set forth in UCC 9–611(f)(1), which provides that:
In addition to such other notification as may be required pursuant to subsection (b) of this section and section 9–613 of this article, a secured party whose collateral consists of a residential cooperative interest used by the debtor and whose security interest in such collateral secures an obligation incurred in connection with financing or refinancing of the acquisition of such cooperative interest and who proposes to dispose of such collateral after a default with respect to such obligation, shall send to the debtor, not less than ninety days prior to the date of the disposition of the cooperative interest, an additional pre-disposition notice as provided herein.
As the court noted in the prior decision and order, the purpose of the ninety-day notice is to afford owners of cooperative apartments protections in foreclosures similar to those provided to the owners of real property under RPAPL 1303, Stern–Obstfeld v. Bank of Am., 30 Misc.3d 901, 905 [Sup Ct N.Y. County 2011]. The statute clearly states that the required notice is in addition to any other notices required in the UCC or in the agreement between the parties. UCC 9–611(f)(1). The 90 day notice is designed to warn owners that they could be in danger of losing their homes and must contain very specific information about counseling services and other resources available to assist cooperative apartment homeowners in obtaining help. In particular UCC 9–611(f)(2) requires that the notice:
"shall be in bold, fourteen-point type and shall be printed on colored paper that is other than the color of the notice required by subsection (b) of this section, and the title of the notice shall be in bold, twenty-point type. The notice shall be on its own page."
UCC 9–611(f)(3) provides:
The notice required by this subsection shall appear as follows:
Help for Homeowners at Risk of Foreclosure
New York State Law requires that we send you this information about the foreclosure process. Please read it carefully.
Notice
You are in danger of losing your home. You are in default of your obligations under the loan secured by your rights to your cooperative apartment. It is important that you take action, if you wish to avoid losing your home.
Sources of Information and Assistance
The State encourages you to become informed about your options, by seeking assistance from an attorney, a legal aid office, or a government agency or non-profit organization that provides counseling with respect to home foreclosures. To locate a housing counselor near you, ..."
This language parallels the language in RPAPL § 1303. However, the 1303 notice is required to be delivered to the homeowner along with the summons and complaint, while the UCC 9–611(f) notice is required to be sent in a non-judicial foreclosure to the homeowner of a cooperative apartment 90 days prior to the auction of the apartment.
RPAPL § 1304 provides for a 90 day notice in mortgage foreclosure actions, in addition to the RPAPL 1303 notice, and requires slightly different language than RPAPL 1303, the gist of which is that if the homeowner does not "resolve the matter" within 90 days, the lender "may commence legal action." The court decisions that discuss RPAPL 1304 interpret it as equivalent to the 90 day notice required by UCC 9–611(f). Thus, the notice required by UCC 9–611(f) must include the language mandated in both RPAPL 1303 and 1304. It must be noted that the UCC has no provision for the manner of service of the notice required by UCC 9–611(f).
Plaintiff's attorney did not allege in his original motion papers or in the complaint that either plaintiff or its predecessor in interest complied with the 90–day notice requirement contained in UCC 9–611(f), nor that the firm which represented plaintiff previously had done so. In this motion to renew, a copy of a proper 90–day notice is included at Exhibit 2. This notice was not included in the prior motion.
The Appellate Division Second Department held in Aurora Loan Servs., LLC v. Weisblum, 85 AD3d 95 [2d Dept 2011] that the notice requirement under RPAPL 1304 is a condition precedent to filing a foreclosure action. Thereafter, the courts in the Second Department, in Stern–Obstfeld, supra and Millien v. Citigroup Inc., 37 Misc.3d 1229A, [Sup Ct Kings Co 2012], have held that the notice requirement of UCC 9–611(f) is a condition precedent to a non-judicial foreclosure of a cooperative apartment since the notice required by this UCC section was "enacted for the purpose of avoiding similar evils and affording similar remedies [and therefore] should have uniformity of application and construction." Matthews v. Matthews, 240 N.Y. 28, 35 [1925] ; See also Newman v. Federal National Mortgage Association, 46 Misc.3d 1204(A).
Bergman instructs "It may be expected that the mandate to send the ninety-day notice for a coop default will be strictly constructed [sic] based upon case law interpreting the requirement for the notice in a home loan case," citing Stern–Obstfeld, supra. See also, Newman v. Federal National Mortgage Association, 46 Misc.3d 1204(A) ; Bergman, supra, at 37.03[1A].
The court in Aurora Loan Services, supra, held "Aurora's substantial failure to comply with RPAPL 1304 [90 day notice requirement in a mortgage foreclosure action] cannot be deemed a minor irregularity which can be overlooked." Subsequent to the Aurora decision, the appellate divisions have stated unequivocally that the notice required by RPAPL 1304 is a condition precedent to a judicial mortgage foreclosure. See also Deutsche Bank Natl. Trust Co. v. Spanos, 102 AD3d 909 [2d Dept 2013] ; TD Bank, N.A. v. Leroy, 121 AD3d 1256 [3d Dept 2014] ; Newman v. Federal National Mortgage Association, 46 Misc.3d 1204(A).
Based on the legislative intent, plaintiff's seeming failure herein to comply with UCC 9–611(f) —thereby failing to comply with a mandatory condition precedent—"cannot be deemed a minor irregularity which can be overlooked" See, Aurora Loan Servs., LLC v. Weisblum, 85 AD3d 95, 108. TD Bank, N.A. v. Leroy, 121 AD3d 1256.
Therefore, the undersigned concluded in the prior decision that UCC 9–611(f) required service of a 90–day notice as a condition precedent to holding the auction. As a statutory condition precedent, it is part of plaintiff's prima facie burden on a motion for a judgment of possession post-auction. As the court found plaintiff had failed to strictly comply with this condition precedent which is required by the statute, the court not only denied the plaintiff's motion, but dismissed plaintiff's complaint sua sponte, as the relief requested therein could not be granted if no notice that complied with the statute had been timely served. See TD Bank, N.A. v. Leroy, 121 AD3d 1256 ; Aurora Loan Servs., LLC v. Weisblum, 85 AD3d 95, 103.
In this motion to renew, plaintiff has submitted proof that a 90 notice was indeed sent to the borrower herein which complied with UCC 9–611(f) (Exhibit 2). It is dated August 28, 2012. Plaintiff's counsel avers that the 90 day notice and other documentation noted to be absent by the court in the prior decision was not provided because counsel considered these items to be unnecessary for the relief sought. The court disagrees, and finds that the failure to provide such evidence, in particular a statutory notice which is a condition precedent to an auction, can only mean that plaintiff failed to make out a prima facie showing for the relief sought in the prior motion. This evidence was available to counsel and counsel's explanation for the failure to provide it in the prior motion papers does not qualify as "reasonable justification for the failure to present such facts on the prior motion" pursuant to CPLR § 2221.
However, the court finds that, as defendant did not oppose the prior motion or this one, it would not serve the interests of justice to require plaintiff to start a new action. In light of the documentation now provided, it is clear that dismissal of the complaint is not warranted and the court's dismissal of the action is hereby vacated.
Plaintiff, as part of its motion to renew, has also provided for the first time evidence of both a Recognition Agreement executed by the Apartment Corporation, the memorandum of sale and of the publication of the notice of sale; as such, the branch of the court's decision and order which set aside the plaintiff's auction of the subject apartment is hereby vacated.
The court must note that although plaintiff's complaint seeks an order that the apartment corporation issue the shares and lease in plaintiff's name, it does not ask for such relief in this motion. It is noted that such relief cannot be granted in any event. Plaintiff did not bring this action against the cooperative corporation as a party defendant and therefore cannot seek relief herein as against it. Further, even if it had, restrictions on the transfer of a proprietary lease and stock as contained in a cooperative corporation's by-laws, proprietary lease and recognition agreement are enforceable. "It is well settled that the imposition of a waiver of option fee upon outgoing shareholders who wish to sell their shares on the open market, rather than resell them to the cooperative corporation at book value, is a valid exercise of a cooperative board's power as granted by statute and the corporate by-laws, and as interpreted by case law." Badowski v. Roosevelt Terrace Coop., 148 A.D.2d 406 [2nd Dept 1989] ; Bank of New York v. Carr, 161 Misc.2d 332 [Sup Ct Qns Cty 1994]. At the time of the loan transaction and the creation of the security interest herein, the secured party (plaintiff) entered into a Recognition Agreement with the cooperative corporation. See generally, Leeds and Reis, New Standard Form Agreement for Cooperative Apartment Loans, NYLJ, May 17, 1994, at 1, col 1; Bank of New York v. Carr, 161 Misc.2d 332. In the recognition agreement, the plaintiff acknowledged the coop's restrictions on the transfer of the stock and proprietary lease, which reads (Exhibit 1): "Notwithstanding any apparent authority granted to us under agreement with the Lessee, WE SHALL HAVE NO RIGHT OR POWER TO TRANSFER THE APARTMENT UPON FORECLOSURE OR OTHERWISE EITHER TO U.S. OR ANYONE ELSE WITHOUT APPROVAL AS REQUIRED BY THE LEASE provided, however, that nothing contained herein shall limit any rights we may have to dispossess the Lessee pursuant to law or realize upon our security in accordance herewith" (Emphasis in the original).
To be put into title, plaintiff must seek the apartment corporation's approval, as must any purchaser that plaintiff sells the security to. See, Bergman v. Linden Hill No. 2 Coop. Corp., Sup Ct, Queens County, June 2, 1989, Graci, J., index No. 7451/89, affd 176 A.D.2d 303 [2nd Dept 1991] ; Bank of New York v. Carr, 161 Misc.2d 332. There is no indication in the motion papers that plaintiff applied for board approval, and in any event, as stated above, the cooperative apartment corporation is not a party defendant in this action. In addition, there is authority for the proposition that such a claim would need to be made in an Article 78 proceeding. Buttitta v. Greenwich House, 11 AD3d 250 (1st Dept 2004).
The branch of plaintiff's motion seeking a money judgement for use and occupancy for the period of defendant's "unlawful possession" and the branch of plaintiff's motion seeking damages and costs are both denied, with leave to renew, as this request is unsupported by any evidence in the motion papers.
The branch of plaintiff's motion seeking a judgment of ejectment in favor of the plaintiff and directing the defendant and any occupants therein to vacate the apartment, and an order authorizing the Kings County Sheriff to eject the defendant from the apartment, in the nature of a Writ of Assistance, is granted. The proposed order submitted by plaintiff with the motion is signed simultaneously herewith. The plaintiff's request to delete "John and Jane Doe" was stricken, as any occupants other than defendant would be "John and Jane Doe."