The following papers, numbered 1-4, were read on this application to/for JFS Notice of Motion/ Petition/ OSC — Affidavits — Exhibits No(s) 1 Answering Affidavits — Exhibits No(s) 2 (C-M) Replying Affidavits No(s) 3, 4 DECISION + ORDER ON MOTION, JUDGMENT OF FORECLOSURE AND SALE The motion for a judgment of foreclosure and sale is granted and the cross-motion by non-party Longjun Xie to intervene is denied. For the reasons stated below, however, the Court strikes interest from plaintiff’s recovery. Background In this over decade-old foreclosure case, plaintiff finally moves to confirm the report of referee (Carol Lilienfeld), which found that plaintiff is due $828,812.34 (which includes more than a decade of interest). Non-Party Xie bought the subject apartment at a condo foreclosure sale in 2016. Apparently, while plaintiff failed to prosecute this case, the condo commenced its own foreclosure action for unpaid common charges. Xie claims that there was about $205,000 in surplus funds remaining after the sale in the condo’s foreclosure action. He contends that he reached out to plaintiff in order to get them to make a claim for these surplus funds. After his efforts were unsuccessful, Xie commenced a separate declaratory judgment action in 2017. Xie was awarded summary judgment in that case (NYSCEF Doc. No. 38 on Index No. 157463/2017). The Court found that “Judgment is issued on the first cause of action that defendant is entitled to the surplus funds from the common charge foreclosure in order to satisfy a portion of their lien on the subject condominium” (id.). In that same action, plaintiff opposed Xie’s motion and explained that Xie was simply trying to get it to take less than what it was owed. Plaintiff argued it had no obligation to accept the surplus monies because its loan was superior. Xie claims that plaintiff did not do anything to get the surplus funds and the original borrower ended up claiming the surplus. Xie claims that he should not be subject to plaintiff’s large recovery while the original borrower received over $200,000. In other words, Xie insists this Court should reduce plaintiff’s recovery for not trying to get money that a Court previously found it was entitled to collect. Effect of the Condo Foreclosure Case and the Declaratory Judgment Action The Court must first consider Xie’s efforts to get plaintiff to accept the surplus funds from the condo foreclosure. Obviously, plaintiff’s mortgage takes first priority over all other creditors (including the Condo) and is not extinguished if a junior creditor successfully forecloses on a junior interest. The Court observes that Xie was careful to highlight in the declaratory judgment action that it was not seeking to extinguish plaintiff’s mortgage, it was simply trying to get an order stating that plaintiff was entitled to the money. Ordinarily, the lender with the first mortgage would not be entitled to surplus funds in a condo foreclosure case because the first mortgage is not foreclosed. And, after all, the purpose of surplus monies is to compensate junior creditors whose interest has been extinguished. While the Court understands what Xie was trying to accomplish with its declaratory judgment action — to get plaintiff to do something with respect to this foreclosure case and/or at least reduce his eventual monetary obligation to plaintiff — this Court finds that the order in the declaratory judgment case has no effect here. First, the declaratory judgment action did not name any of the junior creditors in the condo foreclosure case (not even the borrower). Those parties had legitimate claims to the surplus monies and one of them (the borrower) eventually got the money. Second, the decision granting Xie summary judgment merely stated that plaintiff was entitled to the money. It did not require plaintiff to take any steps to get the money and Xie did not take any action (until now) when plaintiff failed to retrieve the surplus funds. The Court also observes that the condo’s foreclosure case did not name plaintiff (or its predecessor). As stated above, plaintiff (as the senior creditor) had no obligation to participate in a junior creditor’s foreclosure action nor was it entitled to surplus funds generated in such a case. Interest “Although still uncommon, a consequence of delay to a foreclosing plaintiff is the possible loss of some interest recoupment. This is actually a very basic concept founded both upon statute and case law” (1 Bruce J. Bergman, Bergman on New York Mortgage Foreclosures §2.20[3] [2015]). “CPLR 5001(a) provides that in an equitable action — and the mortgage foreclosure case fits the category: ‘…interest and the rate and date from which it shall be computed shall be in the court’s discretion.’ Caselaw concurs and adds the qualification that resolution of the interest question is dependent upon the facts of each case” (id.). While the Court has found that plaintiff was under no obligation to retrieve the surplus money from the condo foreclosure sale, the procedural history of the three cases (this foreclosure action, the condo foreclosure case and the declaratory judgment action) compels the Court to strike all interest from plaintiff’s recovery. In this case, plaintiff filed its summons and complaint in 2008. In February 2009, plaintiff and defendants entered into a stipulation in which defendants waived all defenses in exchange for a promise from plaintiff to not seek a deficiency judgment (cross-motion, exh B). The stipulation also states, unironically, that it was entered into because “plaintiff and borrower are desirous that this foreclosure action shall proceed without delay” (id.). Yet more than a decade later, we are still here. Plaintiff obtained a judgment of foreclosure and sale (without opposition as agreed) in March 2010. But, for some reason, plaintiff has ignored this case since and apparently abandoned the motion for judgment of foreclosure and sale when it failed to settle the order. Instead, it did nothing for years. It did not do anything to move this case when the condo started its own foreclosure sale; it did nothing when the property was sold and the purchaser tried to negotiate about the surplus funds and it did nothing when Xie started the declaratory judgment action. Plaintiff even offered opposition in the declaratory judgment case but still did nothing in this case for another two years. Every other party related to this action proceeded as it should have. The Condo started a foreclosure in 2015 and sold the property in 2016. Xie bought the property subject to the first mortgage and made numerous efforts to get plaintiff to move this case. He pointed out plaintiff could attempt to recover the surplus funds and even brought a separate case to get plaintiff to move. But that did nothing to disturb plaintiff’s deep slumber. And now the Court is confronted with a plaintiff who wants to recover over ten years of interest — ten years that accumulated only because of plaintiff’s failure to sell a property in a case in which the defendants conceded in February 2009. A foreclosure case is an equitable action and equity requires this Court to strike plaintiff’s interest. Plaintiff cannot be rewarded for how it prosecuted this case. Moreover, other actions taken by plaintiff compels the complete eradication of interest. The February 2009 waiver stated that the borrower was waiving defenses in exchange for plaintiff’s promise not to seek a deficiency judgment. Shockingly, plaintiff’s proposed judgment of foreclosure and sale asks the Court to grant it a deficiency judgment against the borrower. While the Court understands that may have been a simple mistake, it demonstrates yet another instance in which plaintiff failed to pay attention to this case. It reached an agreement to waive a deficiency judgment and then it tried to sneak the provision back into the judgment. Plaintiff also seeks to amend the caption to substitute the plaintiff despite the fact that it was sued as the proposed substitute party in the 2017 declaratory judgment action. That means that, at the latest, the proposed substitute plaintiff was represented by counsel in an action related to this property more than two years ago and it did not seek to change the caption in this action until now. These glaring delays are inexcusable and merit the striking of interest. The Court will not condone such conduct. However, Xie did buy the property subject to the plaintiff’s mortgage and the Court grants plaintiff a judgment of foreclosure and sale. But plaintiff cannot abuse its standing as a senior creditor to the detriment of every other party and the new owner. Therefore, the Court limits plaintiff’s judgment to $543,353.53 (principal plus escrow advances and other monies awarded by the referee in her 2019 report). Summary Underlying the Court’s decision is the principle that lenders must timely prosecute foreclosure cases. While the Court understands that properties in Manhattan almost always increase in value the longer a foreclosure case remains pending (and therefore a lender is likely to recover any interest accrued), that is not a reason to let a case meander without action for over a decade. A foreclosure action is a decision by the lender to declare all amounts due and sell the property; it is not an investment opportunity. And, here, the defendants did not contest this action — they agreed to waive all defenses. With all the reminders about this case, there is no excuse for plaintiff ignoring it. Rather, it seems to have been plaintiff’s business plan, once waiving a deficiency judgment, to just make loads of money off the interest — here, almost a quarter of a million dollars! Because that delay eats away at surplus funds from those who might be entitled to them, this Court holds that plaintiff is not entitled to the interest. Plaintiff’s strategy, to delay and get interest in order to siphon off surplus funds from junior lienholders, is simply unfair and this Court disallows it. The Court denies the branch of Xie’s motion seeking intervention because this case is over — the Court is awarding a judgment in this motion. Of course, Xie may make motions as he sees fit with respect to the sale and distribution of any surplus monies. But that does not mean he has a right to intervene at this late date of the litigation. Accordingly, it is hereby ORDERED and ADJUDGED that the motion by plaintiff for a judgment of foreclosure and sale and to confirm the referee’s report is granted only to the extent that plaintiff’s recovery is limited to $543,353.53; and it is further ORDERED the cross-motion by non-party Longjun Xie is granted only to the extent that the Court strikes interest as described above and denied as to the remaining portions of the cross-motion; and it is further ORDERED that the mortgaged property described in the complaint and as described in this judgment, or such part thereof as may be sufficient to discharge the mortgage debt, the expense of sale and the costs of this action as provided in the RPAPL be sold within 90 days of this judgment, in one parcel, at a public auction at the New York County Courthouse located at 60 Centre Street, New York, New York under the direction of Carol Lilienfeld Esq., who is appointed Referee for this purpose; and it is further ORDERED that the Referee shall give public notice of the time and place of sale in accordance with RPAPL 231(2) in the New York Law Journal; and the referee need not conduct the sale unless plaintiff shall provide the referee with proof of publication of the notice of sale, and if the sale is adjourned due to plaintiff’s failure to provide such proof, then said adjournment shall not be considered at the referee’s request; and it is further ORDERED that by accepting this appointment the Referee certifies that she/he is in compliance with Part 36 of the Rules of the Chief Judge (22 NYCRR Part 36), including, but not limited to §36.2 (c) (“Disqualifications from appointment”), and §36.2 (d) (“Limitations on appointments based upon compensation”), and, if the Referee is disqualified from receiving an appointment pursuant to the provisions of that Rule, the Referee shall immediately notify the Appointing Judge; and it is further ORDERED that the Referee is prohibited from accepting or retaining any funds for herself/himself or paying funds to him/herself without compliance with Part 36 of the Rules of the Chief Administrative Judge; and it is further ORDERED that the Referee shall conduct the foreclosure sale only if Plaintiff, its successors and/or assignees or its representatives is present at the sale or the Referee has received a written bid and Terms of Sale from Plaintiff, its successors and/or assigns, or its representatives; and it is further ORDERED that if the Referee cannot conduct the sale within 90 days of the date of this judgment, plaintiff must make a motion to extend the time to sell the subject property explaining the reasons for the delay; and it is further ORDERED that at the time of sale the Referee may accept a written bid from the Plaintiff or the Plaintiff’s attorney, just as though Plaintiff were physically present to submit said bid; and it is further ORDERED that the Referee shall accept the highest bid offered by a bidder who shall be identified upon the court record, and shall require that the successful bidder immediately execute Terms of Sale for the purchase of the property, and pay to the Referee in cash, certified check or bank check, ten percent (10 percent) of the sum bid, unless the successful bidder is Plaintiff, in which case no deposit against the purchase process shall be required and it is further ORDERED that notwithstanding the previous paragraph, the Referee shall have the right to refuse cash payments and require a bank or certified check from the successful bidder and the Referee shall be entitled to qualify bidders and require bidders to show proof of funds before or during the auction; and it is further ORDERED that in the event the first successful bidder fails to execute the Terms of Sale or fails to immediately pay the ten percent (10 percent) deposit as required, the property shall be immediately reoffered at auction on the same day; and it is further ORDERED the Referee shall deposit the down payment and proceeds of sale, as necessary in an FDIC-insured bank where the Referee has an account for that purpose in accordance with CPLR 2609; and it is further ORDERED that after the balance of the purchase price is paid or credited and the property is sold, the Referee shall execute a deed to the purchaser in accordance with RPAPL 1353 and the terms of sale (which shall be deemed a binding contract); and it is further ORDERED that in the event a party other than Plaintiff becomes the purchaser at the sale, the closing of title shall be held no later than 30 days after the date of such sale; and it is further ORDERED that, pursuant to RPAPL 1353(1), if Plaintiff (or its affiliate as defined in paragraph [a] of subdivision one of section six-1 of the banking law) is the purchaser, the property shall be placed back on the market for sale or other occupancy within 180 days of the execution of the deed of sale or within 90 days of construction, renovation, or rehabilitation of the property, provided that such construction, renovation or rehabilitation proceeded diligently to completion, whichever comes first, provided that this court grants an extension upon a showing of good cause; and it is further ORDERED that the Referee, after receiving the proceeds of the sale, shall pay (from the proceeds) the taxes, assessments, sewer rents, or water rates, which are, or may become, liens on the property in accordance with their priority according to law with such interest or penalties which may have lawfully accrued thereon to the date of payment; and it is further ORDERED that the Referee shall deposit the balance of the proceeds from the sale in his or her own name as Referee in an FDIC-insured bank where the Referee has an account for that purpose and shall make the following payments in accordance with RPAPL 1354: 1. The Referee’s fees for conducting the sale, which are $1,100. Plaintiff shall also compensate the Referee in the sum of $350 for each adjournment or cancellation made on less than two business days’ notice unless the Referee caused the delay. 2. All taxes, assessments and water rates that are liens upon the property and monies necessary to redeem the property from any sales for unpaid taxes, assessments or water rates and any other amounts due in accordance with RPAPL 1354(2). The purchaser shall be responsible for interest and penalties accrued after the sale. The Referee shall not be responsible for the payment of penalties or fees pursuant to this appointment. The purchaser shall hold the Referee harmless from any such penalties or fees assessed; 3. The expenses of the sale and the advertising expenses as shown on the bills presented and certified by the Referee to be correct, copies of which shall be annexed to the report of sale. 4. The Referee shall also pay to the Plaintiff or its attorneys the following: a. Amount Due from the Referee’s Report: $543,353.53. Plaintiff is not entitled to recovery any other interest, fees or expenses. b. Costs and Disbursements: __ (to be filled in by the Clerk) to Plaintiff for costs and disbursements in this action with interest at the statutory judgment rate from the date of entry of this judgment; c. The Court declines to award additional allowance. d. Attorneys’ Fees: $4,950.00 is awarded as reasonable attorneys’ fees with interest at the statutory rate from the date of entry of this judgment. 5. Surplus monies from the sale shall be paid into Court by the Referee within five days after receipt in accordance with RPAPL 1354(4); and it is further ORDERED that if Plaintiff is the purchaser of the property, or in the event that the rights of the purchasers at the sale and the terms of sale under this judgment shall be assigned to or be acquired by Plaintiff, and a valid assignment is filed with the Referee, the Referee shall not require Plaintiff to pay in cash the entire amount bid at sale, but shall execute and deliver to Plaintiff or its assignee, a deed or deeds of the property sold upon the payment to said Referee of the amounts specified as 1, 2, and 3 above, and the Referee shall allow Plaintiff to pay the amounts specified in 2 and 3 above when it is recording the deed; that the balance of the bid, after deducting the amounts paid by Plaintiff, shall be applied to the amount due to Plaintiff as specified in 4 above; that Plaintiff shall pay any surplus after applying the balance of the bid to the Referee, who shall deposit it in accordance with 5 above; and it is further ORDERED that all expenses of recording the Referee’s deed, including real property transfer taxes, which is not a lien upon the property at the time of sale, shall be paid by the plaintiff and recoverable as a cost of the litigation; if there is a surplus, these amounts shall be paid from the surplus; and it is further ORDERED that if the property is sold in one parcel in “as is” physical order and condition, subject to any condition that an inspection of the property would disclose; any facts that an accurate survey of the property would show; any covenants, restrictions, declarations, reservations, easements, right of way, and public utility agreements of record, if any; any building and zoning ordinances of the municipality in which the mortgaged property is located and possible violations of same; any rights of tenants or persons in possession of the subject property; prior liens of record, if any, except those liens addressed in RPAPL 1354, any equity of redemption of the United States of America to redeem the property within 120 days from the date of sale, any rights pursuant to CPLR 317, 2003 and 5015 or any appeal of the underlying action or additional litigation brought by any defendant or its successor or assignee contesting the validity of this foreclosure; and it is further ORDERED that the purchaser be let into possession of the property upon production in hand of the Referee’s Deed or upon personal service of the Referee’s deed in accordance with CPLR 308; and it is further ORDERED that defendants in this action and persons claiming through them and any person possessing a junior interest in the property after the Notice of Pendency was filed are barred and foreclosed of all right, claim, lien, title, and interest in the property after the sale of the mortgaged property; and it is further ORDERED that within 14 days after completing the sale and executing the proper conveyance to the purchaser, the Referee shall file with the clerk a report under oath of the disposition of the proceeds of the sale and upload the report to NYSCEF if it is an e-filed case; and it is further ORDERED that if the purchaser or purchasers at said sale default upon the bid or terms of sale, the Referee may place the property for resale without prior application to this Court unless Plaintiff’s attorney elects to make such an application; and it is further ORDERED that Plaintiff shall serve a copy of this judgment with notice of entry upon the owner of the equity of redemption, any tenants named in this action, and any other parties entitled to service, including the Referee appointed herein; and it is further ORDERED that nothing herein shall be deemed to relieve Plaintiff of any obligation imposed by RPAPL 1307 or 1308 to secure and maintain the property until ownership of the property has been transferred and the deed duly recorded; and it is further ORDERED that when the Referee files a report of sale, she or he shall also file a Foreclosure Action Surplus Monies Form and also upload this document to NYSCEF if an e-filed case; and it is further ORDERED that plaintiff shall e-mail [email protected] at least 21 days before the auction date so the auction may be placed on the auction calendar; IF THE AUCTION IS NOT ON THE CALENDAR, then the auction will not go forward; and it is further ORDERED that, without further order of the Court, the referee shall be entitled to an additional fee of $950 for conducting and attending a closing with a purchaser other than plaintiff, plus, if such a closing is scheduled for the referee’s conference room, then the referee shall be entitled to a reasonable fee for use thereof, without further order of the Court; and it is further ORDERED that FEDERAL NATIONAL MORTGAGE ASSOCATION shall be substituted for plaintiff, and the caption shall read as follows: Federal National Mortgage Assocation Plaintiff, v. Prakash Parekh, Executor of the Estate of Gopal Raju, Robert Sperduto, Successor Trustee of the Gopal Raju Revocabel Trust Under Declaration of Trust, Dated April 14, 2005, INDYMAC Bank, F.S.B., NKA INDYMAC Federal Bank, F.S.B., Cosmopolitan Condominium, Defendant(s). and it is further ORDERED that counsel for plaintiff shall serve a copy of this order with notice of entry upon the County Clerk (60 Centre Street, Room 141B) and the General Clerk’s Office (60 Centre Street, Room 119), who are directed to mark the court’s records to reflect the parties being substituted pursuant hereto. A description of the premises is annexed hereto as schedule A. The property is commonly known as 145 East 48th Street, Apartment 31A, New York, NY 10017. Dated: January 21, 2020 CHECK ONE: X NON-FINAL DISPOSITION X GRANTED DENIED GRANTED IN PART OTHER APPLICATION: SETTLE ORDER SUBMIT ORDER CHECK IF APPROPRIATE: INCLUDES TRANSFER/REASSIGN X FIDUCIARY APPOINTMENT REFERENCE
