Opinion
Index No. 56469
03-21-2022
TRUSTCO REALTY CORPORATION, Plaintiff, v. Mark W. PETRIE, S R K 50 Wilton Reverse Course Associates, LLC, Linda Ventola and RE/MAX Properties, Ltd., RE/MAX of New York, Inc., "John Doe" (said name being fictitious, it being the intention of the plaintiff to designate any and all persons in possession of the mortgaged premises), Bank of the West, Barbara Spellman and Chad Perkins, Defendants.
Overton, Russell, Duerr & Donovan, LLP, Clifton Park (Linda L. Donovan of counsel), for plaintiff. Fairbanks Fletcher Law PLLC, Saratoga Springs (Elizabeth Fairbanks-Fletcher of counsel), for defendant Mark W. Petrie.
Overton, Russell, Duerr & Donovan, LLP, Clifton Park (Linda L. Donovan of counsel), for plaintiff.
Fairbanks Fletcher Law PLLC, Saratoga Springs (Elizabeth Fairbanks-Fletcher of counsel), for defendant Mark W. Petrie.
Robert J. Muller, J.
On November 5, 2004, defendant Mark W. Petrie (hereinafter defendant) executed a promissory note in favor of Trustco Bank in the amount of $300,000.00. The note was secured by a mortgage on certain real property located at 13 Honey Hollow Road in the Town of Queensbury, Warren County, which mortgage was recorded on November 10, 2004. The mortgage was subsequently assigned to plaintiff by assignment recorded on August 16, 2011.
Plaintiff commenced this foreclosure action on October 20, 2011 based upon defendant's failure "to comply with the conditions of the note ... and mortgage by failing to pay items of principal and interest, taxes, assessments, water rates, insurance premiums, escrow and/or other charges." Issue was joined by defendant, with plaintiff thereafter moving for summary judgment for the relief requested in the complaint and the appointment of a referee. This motion was granted by Order entered on October 17, 2012. A Judgment of Foreclosure and Sale was then entered on July 9, 2013 — finding that defendant owed plaintiff $344,478.23 under the terms of the note and mortgage — and the sale of the property was scheduled for August 27, 2013.
On August 15, 2013, defendant filed for Chapter 13 bankruptcy, thereby giving rise to an automatic stay preventing the sale of the property from going forward (see 11 USC 362 ). Defendant's Chapter 13 plan — submitted simultaneous with the bankruptcy filing — included, inter alia , repayment of the arrears due under the mortgage. To that end, plaintiff filed a proof of claim with the bankruptcy court on October 3, 2013, which proof of claim sought $116,138.80 in arrears from May 5, 2011 to August 15, 2013. The bankruptcy court thereafter issued an Order confirming the plan. The Order provided, inter alia , that each creditor was to be paid the amount set forth in its proof of claim.
On October 9, 2018, a notice of final cure payment was filed by the Chapter 13 trustee indicating that the full $116,138.80 in arrears had been paid to plaintiff. The notice — which was served upon plaintiff — further stated as follows:
"Within 21 days of the service of this [n]otice of [f]inal [c]ure [p]ayment, the creditor MUST file and serve a [s]tatement as a supplement to the holder's proof of claim on the [d]ebtor, [d]ebtor's [c]ounsel and the [c]hapter 13 [t]rustee, pursuant to [ Fed Rules Bankr Pro rule 3002.1 (g) ], indicating 1) whether it agrees that the [d]ebtor has paid in full the amount required to cure the default on the claim; and 2) whether the [d]ebtor is otherwise current on all payments consistent with [ 11 USC 1322 (b) (5) ]."
This notwithstanding, plaintiff failed to file a statement as required under the Federal Rules of Bankruptcy Procedure rule 3002.1 (g). The Chapter 13 trustee subsequently filed a final report and accounting on July 9, 2019 and, on September 20, 2019, the bankruptcy court entered an Order discharging all debts covered under the Chapter 13 plan. The bankruptcy court then closed the case on October 7, 2019. Presently before the Court is plaintiff's motion to amend the Judgment of Foreclosure and Sale.
Federal Rules of Bankruptcy Procedure rule 3002.1 (i) provides for certain sanctions in the event a creditor fails to file a statement in accordance with 3002.1 (g). It does not appear, however, that any such sanctions were sought against plaintiff in the bankruptcy.
The Court notes that this motion was filed on August 27, 2020 and originally returnable on September 16, 2020. That being said, it could not be entertained until certain administrative and legislative requirements were satisfied. Specifically, the Court was required to conduct a conference in accordance with Administrative Order AO/157/20 and then send a hardship declaration in accordance with the COVID-19 Emergency Eviction and Foreclosure Prevention Act of 2020. The return date was thus adjourned for several months.
In support of the motion, plaintiff has submitted an affidavit of "the Executive Vice President of Trustco Bank, an agent of [plaintiff], and Assistant Treasurer of [plaintiff]." This affiant indicates that, after deducting the $116,138.80 in arrears which were paid in the context of the bankruptcy, $234,717.81 remains due and owing under the note and mortgage. Plaintiff contends that — with defendant's Chapter 13 bankruptcy concluded and the sale now able to proceed — it is entitled to an amended Judgment of Foreclosure and Sale which reflects this revised amount.
In opposition, defendant contends that plaintiff is not entitled to amend the Judgment of Foreclosure and Sale — and must instead commence a new foreclosure to recover the amount due and owing.
Indeed, in the verified complaint plaintiff alleged that defendant defaulted in his payments under the note and mortgage and "elected to call due the entire principal amount" thereby accelerating the mortgage. "In New York the rule is that an affirmative exercise by a mortgagee of an option to accelerate upon defendant's default has the effect of maturing the mortgage since the debt has been changed from one payable in the future and in installments to one payable immediately" ( Federal Natl. Mtge. Assn. v Miller , 123 Misc 2d 431, 432 [Sup Ct, Nassau County 1984] [citation omitted]; see Kilpatrick v Germania Life Ins. Co. , 183 NY 163, 168 [1905] ).
That being said, under a Chapter 13 plan a debtor may cure a default and "de-accelerate" the mortgage, thus reinstating the original payment plan ( In re Taddeo , 685 F2d 24, 28 [1982] ; see also Grubbs v Houston First Am. Sav. Assn. , 730 F2d 236, 237 [1984] ; Federal Natl. Mtge. Assn. v Miller , 123 Misc 2d at 432 ). Under those circumstances, "the event of default is remedied and the consequences are nullified" ( In re Taddeo , 685 F2d at 29 ; see Federal Natl. Mtge. Assn. v Miller , 123 Misc 2d at 433 ).
This issue was first decided by the Second Circuit in In re Taddeo (supra ). There, the Second Circuit considered certain sections of 11 USC 1322, entitled "Contents of [a Chapter 13] plan." Specifically, it analyzed 11 USC 1322 (b), which provides in pertinent part:
"[T]he plan may ...
(2) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence, ...;
(3) provide for the curing or waiving of any default; ...
(5) notwithstanding paragraph (2) of this subsection, provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due."
The mortgagee in In re Taddeo — who had a pending foreclosure against the mortgagors and was seeking to lift the automatic stay resulting from their Chapter 13 bankruptcy — "argued that the [mortgagors could not] use [ 11 USC] 1322 (b) (5) to cure their default and maintain payments on her mortgage because (b) (5) applies only to claims whose last payment is due after the last payment under the plan is due. [She] maintain[ed] her acceleration of the mortgage [made] all payments due now" ( In re Taddeo , 685 F2d at 28 ). The mortgagee further argued that 11 USC 1322 (b) (2) precludes any modification of her rights as a mortgagee.
The Second Circuit disagreed, however, "hold[ing] that the concept of ‘cure’ in [ 11 USC] 1322 (b) (5) contain[ed] the power to de-accelerate[, and t]herefore the application of that section de-accelerates the mortgage and returns it to its [original] maturity" (id. ). The Second Circuit further found "that the power to ‘cure any default’ granted in [11 UCS] 1322 (b) (3) and (b) (5) is not limited by the ban against ‘modifying’ home mortgages in [ 11 USC] 1322 (b) (2) because ... ‘curing defaults’ under (b) (3) or ‘curing defaults and maintaining payments’ under (b) (5) [does not constitute the] modification of claims" ( id. at 27 ). The Second Circuit thus concluded that the mortgagors’ default could be cured and their mortgage de-accelerated by the completion of payments under their Chapter 13 plan (see id. at 29 ).
Here, the Court finds that the payments made by defendant under his Chapter 13 plan cured the default alleged by plaintiff in its complaint and de-accelerated the mortgage. In this regard, the complaint alleges that defendant is "in default for failure to pay the installment of principal and interest on May 5, 2011, and all subsequent installments," as well as for "fail[ure] to pay taxes on the mortgaged premises as required by the terms of the loan documents." The proof of claim filed by plaintiff with the bankruptcy court then directly addresses this default, including (1) $47,795.16 in unpaid installments from May 5, 2011 to August 15, 2013; (2) $3,597.73 in late charges; (3) $2,435.00 in attorney's fees incurred in the instant action; (4) $1,505.00 in filing fees incurred in the instant action; and (5) $60,805.91 in taxes paid by plaintiff — for a total of $116,138.80. It is undisputed that defendant has paid this entire amount. As a result, he has cured the default alleged in the complaint and de-accelerated the mortgage.
In his opposition, defendant references a second mortgage on the property — also in favor of plaintiff and executed on November 5, 2004 — which secures a home equity line of credit with a limit of $200,000.00. $15,298.11 in arrears on this second mortgage were included in the Chapter 13 plan and defendant appears to be under the misapprehension that it too is being foreclosed in the instant action — it is not. The instant action involves only the mortgage securing the promissory note in the amount of $300,000.00.
Briefly, in its reply in further support of the motion plaintiff contends that "[e]ven if [defendant's] argument regarding deceleration has basis, his loan would never have been decelerated because [he] never cured the pre-petition default in regard to the real property taxes." This contention, however, is belied by plaintiff's proof of claim. As set forth above, it expressly includes $60,805.91 in "TAXES PAID BY TRUSTCO" from May 5, 2011 to August 15, 2013.
The Court must also note that plaintiff seeks to include in the proposed Amended Judgment of Foreclosure and Sale the $2,435.00 in attorney's fees and $1,505.00 in filing fees included in the original Judgment of Foreclosure and Sale. These amounts, however, were also included in the proof of claim and paid in the context of the bankruptcy — so their inclusion in the Amended Judgment of Foreclosure and Sale would result in a double recovery.
Finally, while defendant contends that plaintiff must commence a new action, at least one case dealing with this issue has permitted the action to continue with the filing of an amended complaint (see Federal Natl. Mtge. Assn. v Miller , 123 Misc 2d at 434 ). That being said, there is no motion before the Court in this regard. Plaintiff's motion to amend the Judgment of Foreclosure and Sale is denied in its entirety.
To the extent not specifically addressed herein, the parties’ remaining contentions have been examined and are either academic or without merit.
Therefore, having considered the Supplemental Affidavit of Amount Due of Kevin Curley with exhibits attached thereto, sworn to August 14, 2020, submitted in support of the motion; Affirmation of Elizabeth Fairbanks-Fletcher, Esq. with exhibits attached thereto, dated April 29, 2021, submitted in opposition to the motion; and the Affidavit of Linda L. Donovan, Esq. with exhibit attached thereto, sworn to May 4, 2021, submitted in further support of the motion, and oral argument having been heard on December 10, 2021 with Linda Donovan, Esq. appearing on behalf of plaintiff and Elizabeth Fairbanks-Fletcher, Esq. appearing on behalf of defendant, it is hereby
ORDERED that plaintiff's motion to amend the Judgment of Foreclosure and Sale is denied in its entirety.
The original of this Decision and Order has been filed by the Court together with the Notice of Motion dated August 21, 2020 and the submissions enumerated above. Counsel for defendant is hereby directed to serve a copy of the Decision and Order with notice of entry in accordance with CPLR 5513.