NYCTL 1998-2 Trust v Kahan

[*1] NYCTL 1998-2 Trust v Kahan 2005 NY Slip Op 50410(U) Decided on March 31, 2005 Supreme Court, Kings County Demarest, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on March 31, 2005
Supreme Court, Kings County

NYCTL 1998-2 Trust and the Bank of New York, as Collateral Agent and Custodian, Plaintiff,

against

Mordechai Kahan et.al., Defendants.



36815/01

Carolyn E. Demarest, J.

Plaintiff Tax Lien Trust brought this action to foreclose a tax lien against property, purportedly a vacant lot, located at 1740 Bergen Street in Kings County, known as Block 1357, Lot 15, by filing on October 4, 2001. The Complaint demanded the satisfaction of a tax lien duly purchased from the City of New York by certificate dated June 1, 2000, which showed a total lien outstanding on July 24, 2000, of $2286.23, together with statutory interest at 18% and attorneys' fees. Defendant Mordechai Kahan, who obtained title to the property at public auction from the City of New York by deed executed March 6, 1992, did not interpose a timely Answer to the Summons and Complaint.

Upon plaintiff's application following defendant's default, on March 26, 2002, this Court signed an Order Appointing a Referee to Compute the sum presently due to plaintiff. Pursuant to that Order, defendant was served with a copy of the Order on June 26,2002. On July 29, 2002, the Referee took evidence of plaintiff's claim and reported that, as of June 28, 2002, plaintiff was due $3,322.23 plus per diem interest at 18 percent per annum which continued to accrue. On September 3, 2002, this Court entered a Final Judgment of Foreclosure and Sale, confirming the Referee's finding that $3322.23 was due to plaintiff through June 28, 2002, and directing the sale of the property at public auction. The Order again directed service of a copy upon defendant, as well as the statutorily-mandated publication. See RPAPL § 231. The Order also provided that plaintiff would recover "the expenses of the sale" and the costs of this action including attorney's fees of $2000.

Pursuant to the Order of September 3, 2002, the sale was scheduled for November 19, 2002 and noticed, as ordered, in the Brooklyn Daily Eagle, incurring costs to plaintiff of $1,006.80 for such publication. That sale was cancelled when defendant filed a petition in bankruptcy. When the bankruptcy stay was lifted, the sale was rescheduled for April 28, 2003 and was again noticed at a cost of $1216.89. That sale was also cancelled [*2]when defendant filed a second petition in bankruptcy. Upon the lifting of this second bankruptcy stay, a third sale was noticed for February 4, 2004, at a cost of $1506.76 in publication charges. Plaintiff's counsel affirms that defendant was served with a copy of the Notice of Sale for February 4, 2004.

On February 2, 2004, defendant obtained an "emergency" Order to Show Cause containing a stay of the transfer of deed following the sale, until a hearing could be held upon defendant's contentions that he had never been served and that the Court had therefore acted without jurisdiction. The Order directed service by noon on February 3, 2004 and a hearing at 9:30 a.m. on February 4, prior to the scheduled sale. At 12:05 p.m. on February 4, although he had effected service of the Order and plaintiff's counsel Susan Cohen was present in court, defendant had failed to appear and his application to stay the sale was denied. However, independent of Court intervention, plaintiff nevertheless agreed to cancel the sale and accepted a $6000 down payment from defendant with the balance to be paid within 30 days.

When defendant failed to make further payment, the sale was rescheduled for June 24, 2004, and notice was again published at a cost of $1506.76. Defendant was again sent notice of the sale. Again plaintiff agreed to cancel the sale upon the remission of a $3400 down payment and a promise to pay the balance due within 30 days. When defendant defaulted again, the sale was rescheduled for a fifth time for October 27, 2004. Notice was again published at a cost to plaintiff of $1521.04 and defendant was again notified. In response, on October 20, 2004, defendant obtained another Order to Show Cause contending that he had paid the sum owed. The hearing was scheduled for October 26, 2004; no stay of the sale or transfer of deed was granted.

Defendant appeared pro se on October 26. He has never filed a formal Answer but the Court has deemed his Affidavit in Support of his Order to Show Cause sufficiently responsive. Defendant's principal complaint was with respect to the outstanding balance due. Plaintiff acknowledged defendant's payments of $6000 and $3400, but claimed additional interest at the rate of .32 per day and reimbursement of all advertising costs of the five scheduled sales, totalling in excess of $6,000 above those sums previously paid by defendant. Because plaintiff was unprepared with documentary proof, the sale was further stayed to October 29. On October 29, 2004, the October 27 scheduled sale had been aborted and plaintiff indicated that $6475.44 would be the sum due, effective October 30, 2004, but offered to accept $3236 in satisfaction that day. Defendant continued to dispute the sum due but was unprepared for trial. A trial was put over to December 13, 2004 but was subsequently adjourned to December 20 on consent. [*3]

On December 20, plaintiff claimed that $5,991.70 [FN1] was owed to it by defendant as interest and principal on the lien and additional costs of litigation. Its claim consisted of the following:

Taxes:$1289.72

Advertising:$3744.73

Interest: 56.92

Referee's Fee: 900.00

Defendant acknowledged owing "around $5000", but was prepared to pay only $4000 over 30 days. The difference between the sum acknowledged by defendant and the sum claimed by plaintiff seems to represent the "referee's fee".

The tax lien sold to plaintiff by the City of New York on July 25, 2000 was $2286.23.[FN2] When defendant failed to pay, statutory interest at 18% per annum began to accrue (see Admin. Code §11-319) so that, by the time a judgment of foreclosure was obtained, defendant owed over $3300. He has since paid plaintiff $9400.00, substantially more than the sum he would have owed to the City in taxes alone. Nonetheless, his default cost plaintiff a substantial sum in litigation costs, for which it must now be compensated by defendant.

Unfortunately, the manner in which defendant's payments were credited at the time of payment does not facilitate computation of the correct amount due at the time of trial and has confused defendant. Defendant has admitted in evidence two notices it received from plaintiff: Exhibit A indicates that the "Total due" on June 22, 2004 was $7182.15, based, in part, on estimates of legal fees and costs of $4200. Although defendant had made a $6000 payment in February, a "TAX LIEN BALANCE AS OF 6-22-04" of $2982.15 remained. A second notice (Exhibit B) with a "PAYOFF DATE" of October 20, 2004, indicated a total due of $6472.26, even after defendant's payment of $3400 in June.

Applying a simplified analysis of the sums due through June 22, 2004, using figures contained in plaintiff's Affirmation in Opposition and evidence adduced at trial, the following items are chargeable against the defendant:

Original Judgment:

Tax Lien including interest to 6/28/02:$3322.23

Pre-Judgment Interest from 6/28/02 to 9/9/02: 66.23

Attorneys' Fees 2000.00

Costs 1105.00

Costs of Sale-Advertising (Verified) 6758.25

Post Judgment Interest To 6/22/04 710.29

Total to 6/22/04$13962.00 [*4]

Deducting the February 5, 2004 payment of $6000 and the June 23, 2004 payment of $3400, the balance remaining is $4562. Plaintiff would be entitled to recover continuing post-judgment interest at 9% except that it appears from the way defendant's payments were credited, that the sum remaining due consists almost exclusively of advertising costs since the payments were applied inequitably against unearned fees and costs.

In its Affirmation in Opposition and at trial, plaintiff has claimed compensation for a "Guardian Ad Litem Fee" of $200 and "Referee's Fees" of $900. A review of the entire court file establishes that, despite plaintiff's persistence, there has never been a guardian ad litem appointed in this action. Contrary to plaintiff's representations that an order of publication was obtained, the defendant was personally served at his home, 279 Rutledge Street, Brooklyn, on October 19, 2001, by delivery to a white female who refused to give her name. (See Affidavit of Service). The $200 charge for a guardian ad litem fee, which was never authorized by the Court in any case, was improperly imposed on plaintiff's records and included in the computation of the sum due from defendant.

The Final Judgment of Foreclosure and Sale signed by this Court on September 3, 2002, authorized the Referee, upon sale of the property, to pay herself the "statutory fee" of $500 and directed that an application be made to the Court for any additional compensation. CPLR § 8003 (b) provides: " A referee's compensation, including commissions, upon a sale [of real property] pursuant to a judgment in any action cannot exceed five hundred dollars, unless the property sold for fifty thousand dollars or more, in which event the referee may receive such additional compensation as to the court may seem proper" (emphasis added). Since no sale has taken place and no application has ever been made to this Court for compensation, any payment made to the Referee is illegal. Even had a sale occurred, without Court approval and compliance with the filing requirements of Rule 36.4 of the Rules of the Chief Judge, any compensation paid to the Referee in excess of $500 would also be illegal. It is noted that plaintiff's witness, James Mangini, an employee of JER Revenue Services, LLC, the "receiver authorized to collect on the delinquent taxes for the Trust", testified at trial that the "brokerage price" (presumably the market value) quoted to the Trust for the property at issue was $11, 970. Such amount falls far short of $50,000 and, although the property could bring more at auction, hardly supports any claim for referee's fees in excess of $500.

Moreover, the referee's fee is not to be paid by plaintiff in advance of sale, but is meant to be taken out of the proceeds of the sale as compensation for the referee's efforts in conducting the sale, collecting the purchase price, depositing the proceeds into a bank account and making proper disbursements, transferring title by deed to the purchaser and filing a full accounting with the court. In the absence of a sale, no fee has been earned. At the very least, if, notwithstanding the failure to sell, a referee has a just claim for fees

as a result of her efforts in a particular case, application must be made to the court. A referee is a surrogate of the court and does not work for plaintiff. Plaintiff may not be compensated at defendant's expense for a gratuity it has improperly given the Referee. In light of plaintiff's representations of such payment, further inquiry will be made of the appointed Referee who did not participate in the trial. Given the error in plaintiff's records regarding the alleged fee for a guardian ad litem, it may be that plaintiff is in error as to the alleged payment to the Referee. In any event, no compensation will be awarded plaintiff for such unauthorized payments. [*5]

CPLR § 8003 (a) authorizes compensation to a referee of $50 per day spent in the business of the reference. The Referee here did calculate the amount due and submit a report to the Court. She was properly compensated $50 by plaintiff and plaintiff is entitled to recoup this cost from defendant.

Clearly, the problems associated with this matter have been caused in large part by the actions of defendant in frustrating plaintiff's rightful recovery. However, plaintiff has demonstrated a carelessness in record-keeping that has undermined confidence in its claims and thereby prolonged the litigation as well. Neither party is without fault.

Accordingly, upon the equities of the instant proceeding as revealed at trial, the Final Judgment of Foreclosure and Sale is hereby amended to reflect that the total sum due to plaintiff from defendant as of this date is $4612.00. The fees purportedly paid to the Referee to sell the property are disallowed, as is the fee to the non-existent guardian ad litem. No additional interest is allowed to plaintiff.

A copy of this Decision and Order is being mailed to both parties by the Court. The defendant may tender to plaintiff payment in full of $4612 by certified or bank check before May 16, 2005 without incurring additional charges. Upon failure to remit payment in full by that date, in consultation with the Referee, plaintiff shall reschedule the sale at the Referee's convenience. No further stay will be granted to defendant.

The foregoing constitutes the decision of the Court.

E N T E R :

J.S.C. Footnotes

Footnote 1:This is the sum announced at the beginning of trial by plaintiff's counsel, however, the numbers given actually add up to $5991.37.

Footnote 2:During the trial, plaintiff noted that defendant has not paid subsequently-accruing taxes, however, plaintiff has made no claim for the payment of such taxes.