Upon the following papers numbered 1 to 6 read on this order to show cause to vacate judgment___; Notice of Motion/Order to Show Cause and supporting papers 1 – 4; Notice of Cross Motion and supporting papers:___; Opposing papers: 5-6; Reply papers___; Other___; (and after hearing counsel in support and opposed to the motion) it is, ORDERED that this order to show cause (#003) by the defendant, Juan Ocasio, seeking vacatur of the Order of Reference and Default Judgment dated October 31, 2018 and dismissal of the complaint is granted to the extent that the Order of Reference and Default Judgment dated October 31, 2018 is hereby vacated; and it is further ORDERED that the defendant, Juan Ocasio, shall file an answer within 20 days of entry of the within order. This is an action to foreclose a mortgage on residential real property situated in Bay Shore. In essence, on November 19, 2007, defendants Juan Ocasio and Alicia Ocasio borrowed $222,000.00 from plaintiff’s predecessor in interest and executed a note and mortgage. The defendants breached the promise to repay by ceasing to make the monthly payment due January 1, 2016 and each payment thereafter. A fire destroyed the home in April, 2016, and insurance proceeds in the amount of $192,428.00 was issued in connection therewith on June 26, 2016. Plaintiff acknowledged receipt of said funds on June 28, 2016, and advised the borrower that the funds were applied to a restricted escrow account. This action was commenced by filing on July 11, 2016, seeking to foreclose the mortgage with an unpaid principal balance of $190,223.04. None of the defendants filed an answer or otherwise appeared in the action, and this Court granted plaintiff’s unopposed motion (#001) for default judgments and for the appointment of a referee to compute on October 31, 2018. On September 3, 2019, defendant Juan Ocasio presented to the Court a proposed order to show cause seeking vacatur of the Court’s October 31, 2018 order and dismissal of the action. The Court declined to sign the order, however, the Court scheduled a status conference to take place on September 23, 2019. The parties appeared on that date and, during the conference, the defendant alleged that plaintiff retained the insurance funds and has failed to release the insurance funds for repair or to apply the funds to the outstanding amount due. As a result, the defendant opined, the plaintiff was being unjustly enriched. Defendant alleged to have informed the plaintiff previously that defendant no longer wanted the property, but contended that plaintiff had not responded to his requests. Plaintiff’s attorney was not prepared to discuss the merits of the case and, in an effort to come to an amicable resolution in the interests of justice, the Court directed that, by October 7, 2019, the plaintiff was to provide the defendant a letter with settlement options as alternatives to foreclosure. The defendant was directed to respond to such letter by October 15, 2019 and the parties would appear before the Court for a status conference on October 31, 2019. The plaintiff issued what appears to be a “stock” letter to defendant on October 4, 2019 which outlined available options such as a repayment plan, loan modification and reinstatement. Notably, these options were contrary to what defendant had represented his intentions with the property to be, as he was not looking to retain the property. At the conference on October 31, 2019, defendant raised this contention and, upon further review and consideration of the matter, the Court signed the order to show cause, providing a return date of December 20, 2019. Pursuant to CPLR 5015(a), a court may relieve a party from an order or judgment based on the movant’s demonstration of the existence of any of the following grounds: excusable default, newly discovered evidence, fraud, misrepresentation, or other misconduct, lack of personal or subject matter jurisdiction and reversal, modification, or vacatur of a prior judgment or order (see CPLR 5015[a][1] through [5]). Additionally, a Court may vacate its own judgment “for sufficient reason and in the interests of substantial justice” (Hudson City Sav. Bank v. Cohen, 120 AD3d 1304, 1305 [2d Dept 2014] citing Woodson v. Mendon Leasing Corp., 100 NY2d 62, 68, 790 N.E.2d 1156 [2003]; Nationscredit Fin. Servs. Corp. v. Atherley, 91 AD3d 922, 922, 937 NYS2d 603 [2d Dept 2012]; Galasso, Langione & Botter, LLP v. Liotti, 81 AD3d 884, 885, 917 NYS2d 667 [2d Dept 2011]; Katz v. Marra, 74 AD3d 888, 891, 905 NYS2d 204 [2d Dept 2010]). “The decision as to the setting aside of a default in answering is generally left to the sound discretion of the Supreme Court, the exercise of which will generally not be disturbed if there is support in the record therefor” (Hudson City Sav. Bank v. Cohen, 120 AD3d at 1306 citing Manigat v. Louis, 262 AD2d 289, 289 691 NYS2d 559 [2d Dept 1999]; Tobin v. Perlmutter, 288 AD2d 210, 210, 732 NYS2d 576 [2d Dept 2001]). Here, the defendant contends that plaintiff’s failure to apply the insurance proceeds to the outstanding unpaid principal balance results in plaintiff’s unjust enrichment, although defendant’s claim that the proceeds satisfied the total amount owed is inaccurate.1 As a result, defendant seeks vacatur of the default judgment and order appointing a referee to compute, and dismissal of the action. In response, the plaintiff asserts that the terms of the mortgage do not require that the plaintiff apply the proceeds to the amount outstanding. Additionally, plaintiff states that defendant was over 120 days in arrears and that plaintiff is entitled to proceed to foreclosure. However, the Court is not so convinced. As plaintiff notes, Covenant 5 of the mortgage states that “Lender may use the Insurance Proceeds either to repair or restore the Property or to pay amounts unpaid under the Note or the Security Instrument, whether or not then due.” The provision further discusses the steps to be taken in either case, noting that if repair is not feasible, the proceeds are to be used to reduce the amount owed. In fact, it has been held that where it is not economically feasible to make repairs or restore the property, “the insurance proceeds be applied to the defendant’s mortgage debt at or around the time of default, and that the outstanding principal and interest be reduced accordingly (Fed. Natl. Mtge. Assn. v. Azoulay, 169 AD3d 647, 649, 93 NYS3d 423 [2d Dept 2019]; see generally Real Property Law §254 [4]). In this case, it has been over three years since the funds were issued to plaintiff, and plaintiff has failed to demonstrate any steps taken to determine whether or not repair or restoration are feasible. Instead, the proceeds remain in an escrow account, while interest continues to accrue on the unpaid principal balance of the loan at the rate of $33.22 per day, and the property remains vacant and in disrepair. Due to the unique circumstances of this case, the Court finds that plaintiff’s handling of this matter warrants that the Court vacate the default of the defendant “in the interests of substantial justice” (Hudson City Sav. Bank v. Cohen, 120 AD3d 1304, 1305-06, 993 NYS32d 66 [2d Dept 2014] citing Nationscredit Fin. Servs. Corp. v. Atherley, 91 AD3d 922, 922, 937 NYS2d 603 [2d Dept 2012] [internal quotation marks omitted]; see also Lovelace v. RPM Ecosystems Ithaca, LLC, 131 AD3d 760, 14 NYS3d 815 [3d Dept 2015]). “The documentary evidence submitted in support of the motion raises issues including, among others, whether the plaintiff had ‘knowledge of facts that would lead a reasonable, prudent lender to make inquiries of the circumstances of the transaction at issue’” (Hudson City Sav. Bank v. Cohen, 120 AD3d at 1305, supra, citing LaSalle Bank Natl. Assn. v. Ally, 39 AD3d 597, 600, 835 NYS2d 264 [2d Dept. 2007], Fischer v. Sadov Realty Corp., 34 AD3d 630, 631, 824 NYS2d 434 [2d Dept 2006]). The defendant’s motion is therefore granted to the extent that the Order of Reference and Default Judgment dated October 31, 2018 is vacated. Defendant Juan Ocasio shall file an answer within 20 days of entry of the within order. This constitutes the decision and order of this Court. Dated: February 11, 2020
