Matter of McFarland
Annotate this CaseDecided on March 31, 2005
Sur Ct, Nassau County
In the Matter of the Administration Proceeding of ROBERT MCFARLAND, Deceased.
SALOMON BROTHERS REALTY CORP., Plaintiff, -against-
against
ROBERT MCFARLAND, ROBERT MCFARLAND, HIS HEIRS OR ASSIGNS, JULIE MCFARLAND, individually and as the Administrator of the Estate of ROBERT MCFARLAND, ROBERT JULIAN MCFARLAND, JEREMY GORDON MCFARLAND, UNITED STATES OF AMERICA, STATE OF NEW YORK, ASTON MORRIS, DAQUANN REDD, Defendants.
262853
Brosnan & Hegler, LLP - Attorneys for Public Administrator, County of Nassau
1415 Kellum Place
Garden City, New York 11530
Carus & Manniello, P.C. - Attorneys for Plaintiff Salomon Brothers Realty Corp.
115 Eileen Way, Suite 103
Syosset, New York 11791-9021
Arthur Levine, Esq. - Attorney for Daquann Redd & Sylvia Croker
300 Garden City Plaza
Garden City, New York 11530
Monahan & Sklavos, P.C. - Guardian ad Litem for Daquann Redd
One Old Country Road
Carle Place, New York 11514
John B. Riordan, J.
Submitted for decision is a motion to dismiss a foreclosure action that has been transferred to this court from the Supreme Court, Nassau County. The movant is a judgment creditor of the decedent's estate, the motion being made by the judgment creditor's guardian ad litem because the judgment creditor is an infant. The guardian ad litem was appointed in a separate proceeding in this court, one that was commenced by the Public Administrator to approve the sale of the subject real property and to extinguish the lien of the judgment creditor.
The instant motion was made pursuant to CPLR 3211(a)(8) on the ground that the plaintiff in the foreclosure action did not obtain jurisdiction over the infant, a necessary party to the foreclosure. In the alternative, the infant's guardian ad litem asks the court to excuse the default in the foreclosure action and permit the infant to assert the statute of limitations as an affirmative defense. The following facts are relevant to this decision and are not in dispute.
Robert McFarland died intestate on June 14, 1989, in Nassau County. Letters of administration were issued to Julie McFarland, the decedent's surviving spouse, on January 5, 1990. The administratrix failed to perform her duties in a reasonable and diligent manner. As a result, in a decision dated January 13, 2003, her letters were revoked and letters of administration d.b.n. were issued to the Public Administrator.
Shortly before Robert McFarland died on June 14, 1989, he purchased a home in [*2]Westbury, New York. Title to the property in Westbury was conveyed to Mr. McFarland by deed dated May 18, 1989. The deed contains a provision stating, "subject to and assuming an existing first mortgage held by the U.S. Department of Housing and Urban Development on which there remains an unpaid principle (sic) balance of $18,054.97." In fact, when assumed by Mr. McFarland, the mortgage was already in arrears. It appears from the papers that the previous owners of the property failed to make payments on the mortgage from May 1, 1997 onward. No action was taken on this default until the instant foreclosure action was commenced in 2002 by the current assignee of the mortgage, Salomon Brothers Realty Corp.
Shortly after Robert McFarland died on June 14, 1989, an infant named Daquann Redd sustained personal injuries at the Westbury property. The injuries occurred on June 29, 1989, and the infant's mother and natural guardian commenced a lawsuit and obtained a judgment on default against the administratrix in the amount of $78,043.50. The judgment was entered and docketed on June 29, 1995. As of August 31, 2003, with accrued interest, the judgment totals $145,344.37. The court notes that a judgment for money damages, once docketed, generally obtains a lien on the judgment debtor's real property pursuant to CPLR 5203 (a).
Daquann Redd's judgment against the administratrix was the subject of the pending proceeding commenced in this court by the Public Administrator. In that proceeding the Public Administrator petitioned the court to approve the sale of the Westbury property and to vacate or to declare void the judgement lien on the proceeds of the sale under the authority of CPLR 5203 (a)(6). This section operates as an exception to the rule that a judgement creditor obtains a lien on the real property of the judgment debtor. Although not germane to this motion, the court notes that CPLR 5203 (a)(6) operates in such a way so as to defer to the Surrogate's Court the disposition of all claims against an estate and to render all claimants, including judgment creditors, subject to the jurisdiction and proceedings of the Surrogate's Court under SCPA 1811, 1812 (see, e.g., Matter of Bertucci, 146 Misc 2d 1054 [1990]).
Returning to the mortgage foreclosure, it is now necessary to review the procedural details of that action in the Supreme Court. On October 31, 2002, an order of publication of a supplemental summons was signed. The intent of the order, inter alia, was to obtain personal jurisdiction over Daquann Redd, a person Salomon Brothers Realty Corp., as plaintiff, knew to be a judgment creditor of the estate. The ex parte order was supported by an attorney's affirmation and an affidavit of due diligence from the plaintiff's process server. Both documents detailed the efforts made to ascertain the whereabouts of Daquann Redd so that he might be served with process. The existence of Mr. Redd's judgment against the administratrix was discovered in a routine title search prior to commencing the action. The address for Mr. Redd was contained in that judgment. As a result, the process server went to that address and was told by neighbors that Daquann Redd was unknown to them. Other efforts were made by the process server to locate Mr. Redd. These included inquiries of the U.S. Postal Service, Nassau County Board of Elections, Nassau County Surrogate's Court, telephone directories, and the New York Department of Motor Vehicles. Based upon these efforts, the judge in the Supreme Court saw fit to sign the order authorizing service upon Mr. Redd by publication and, upon completion of said service, the appointment of a guardian ad litem to represent any potential defendants "who may be infants, incompetents, and/or absentees . . . ."
The guardian ad litem appointed by this court in the Public Administrator's proceeding [*3]challenges the due diligence efforts of Salomon Brothers Realty in the foreclosure proceeding. He argues in his motion to dismiss the foreclosure proceeding that the court did not possess jurisdiction over Daquann Redd because Salomon Brothers Realty's efforts to find Mr. Redd did not constitute due diligence. The guardian ad litem argues that a review of the Redd judgment would not only have revealed the address of Mr. Redd, but also the identity of the attorney who represented the infant and that this latter fact should have been used to ascertain the whereabouts of Mr. Redd.
It is true that the failure to establish due diligence is a jurisdictional defect (CPLR 315, 316, Caban v Caban, 116 AD2d 783 [1986]; 1 Weinstein -Korn-Miller, NY Civ Prac: CPLR ¶ 315.02). However, on these facts, the guardian ad litem seems to equate due diligence with success in finding Mr. Redd. The court notes that the judgment of Mr. Redd that contained his then address was docketed on June 29, 1995. The due diligence was conducted in 2002 for the foreclosure action. There was no guarantee that inquiry of the attorney who represented Mr. Redd seven years before would yield a different or more accurate address for Mr. Redd than the one already contained in the judgment. The measure of due diligence is not success but what is reasonable under the circumstances. The facts of this case, therefore, cannot be ignored. Daquann Redd, as judgment creditor to an estate, stands in a subordinate relationship to the debtor secured by the mortgage. In a sense, his presence in the foreclosure, although necessary, has an impact on his status to collect on the judgment only after a valid mortgage has been foreclosed and satisfied. Any surplus money that remains after the foreclosure is still subject to collection by the judgment creditor. Nevertheless, due diligence must be reasonable under the circumstances, and the plaintiff's actions here strike the court as reasonable.
The court notes that the analysis is not exhausted even upon a finding of due diligence. Recognizing the infirmities of any service by publication, CPLR 317 was enacted to enable a defendant who was served by publication to have his or her day in court despite the default (1 Weinstein-Korn-Miller, NY Civ Prac: CPLR ¶ 317.01). The statute recognizes the small likelihood that a defendant would receive actual notice of a lawsuit by publication. As a result, CPLR 317 allows such a defaulting defendant the chance to appear and defend an action if he or she satisfies three conditions: 1) the application to be relieved of the default is made within one year of discovery of the entry of judgment provided said discovery was made within five years of the judgment; and 2) the defendant did not personally receive notice of the summons in time to defend; and 3) the defendant has a meritorious defense. The first two conditions have been demonstrated to the court's satisfaction. As to the third requirement, the guardian ad litem has only one defense to bring against the foreclosure, that much of the debt is time-barred.
The mortgagee argues that any applicable statute of limitations is an affirmative defense that is personal to the mortgagor and may not be asserted by a judgment creditor of the mortgagor. This is incorrect. As a rule, the statute of limitations is personal to the debtor and may not be raised by a defendant who is not in privity with the debtor (see 75 NY Jur2d Limitations and Laches, §§22 and 23). Therefore, the statute of limitations may not be asserted on behalf of the debtor's liability by an ordinary creditor of that debtor. There is, however, an exception for a judgment creditor who has a lien on the defendant's property. Parenthetically, the court notes that if CPLR 5203 (a)(6) operates to divest Daquann Redd of a lien on the property and relegates his judgment to recourse under SCPA 1811, then Daquann Redd may, in fact, have [*4]no standing to assert the statute of limitations in the foreclosure action. The exception to the rule relating to personal defenses is for the judgment creditor who has a lien on the defendant's real property. Such a person, like Daquann Redd, may assert the statute of limitations as a bar to any claim that may be asserted against the property affected by the lien (Rosevele Frocks v Sommers, 191 Misc 614 [1948]; see also, 71 ALR 2d 1049, "Right of Creditor to Set-Up Statute of Limitations Against Other Creditors of His Debtor"; 75 NY Jur2d Limitations and Laches, §23). Therefore, Daquann Redd is permitted to raise the statute of limitations in a foreclosure proceeding against his judgment debtor/mortgagor.
While Mr. Redd, through his guardian ad litem either here or in the Supreme Court, may have standing to assert a statute of limitations defense, the next question must be whether there is any merit to such a defense. Unfortunately for Daquann Redd, there is no merit to this defense. The plaintiff in the foreclosure proceeding is Salomon Brothers Realty Corp., an assignee of the mortgage. The plaintiff argues that the statute of limitations does not apply to this loan because it was originally guaranteed and later held by a federal agency, the Federal National Mortgage Association (Fannie Mae). The record does confirm that the mortgage was assigned to Salomon Brothers Realty Corp. by the Secretary of the Department of Housing and Urban Affairs on December 1, 2000. The record also confirms that the deed that originally conveyed the property to the decedent contained a provision stating, "subject to and assuming an existing first mortgage held by the U.S. Department of Housing and Urban Development."
It is well established that state statutes of limitation do not apply to Federal agencies or their assignees (United States v Summerlin, 310 U.S. 414 [1940]; RCR Services, Inc. v Herbil Holding Co., 229 AD2d 379 [1996]). Indeed, a salient advantage of federally insured mortgages like this one is their longevity, allowing them to support a secondary market in mortgage-backed securities. As the Second Department stated in RCR Services, Inc. v Herbil Holding Co., 229 AD2d 379 at 380: "Here the plaintiff, although not the Federal Government, has submitted evidence sufficient to determine as a matter of law that it is prosecuting this claim as assignee/agent of the Secretary of Housing and Urban Development . . . and that the ultimate benefits from the foreclosure will flow to HUD."
The benefit that "flow[s] to HUD" is, of course, the value inherent in these mortgage obligations that are not burdened by time limitations. This allows them to be bundled and traded as investment vehicles and permits such federally insured loans to be offered to the public at reduced interest or expense, at least vis-a-vis down payment requirements. Therefore, even when assigned to private concerns for consideration, such loans do not lose the advantages that originally were held by the federal government.
Based upon the foregoing, the motion of Daquann Redd must be denied in all respects. The mortgage obligation, as the Public Administrator recognized at the outset with her Article 19 petition is a valid obligation and takes priority over any judgment creditor. There is no basis to Daquann Redd's challenge to the jurisdiction or the timeliness of the foreclosure action. The motion of Mr. Redd is denied. The foreclosure may now proceed to decree. [*5]
This decision also may have an impact on the Public Administrator's petition to vacate the judgment lien. Although no dispositive motion on the Public Administrator's petition is before the court, some observations on the relationship of judgment creditors to an estate's administration are in order.
A judgment obtained against a decedent's estate after his or her death has no priority over other claims against an estate (see, e.g., Matter of Nalitt, N.Y.L.J., Feb. 24, 1999, at 37; Matter of Serrano, N.Y.L.J. Dec. 20, 1995, at 30). Such a judgment may, however, have the effect of making it a liquidated debt against the estate. Furthermore, an execution issued on a judgment against a fiduciary does not entitle the creditor to any priority of payment (Matter of Zipser, N.Y.L.J., Oct. 1, 1998, at 35 [explaining that creditor with judgment against an estate fiduciary could not execute against the estate without leave of the Surrogate, thus protecting creditors with priority under SCPA 1811]). Therefore, the usual enforcement mechanisms provided by the CPLR under article 52 do not necessarily apply to these facts.
Although the judgment creditor may be deprived of a lien and priority under CPLR 5203(a) when his or her judgment is entered after the death of the judgment debtor, he may attempt to secure enforcement of said judgment against the debtor's realty under SCPA 1811 , which contains a scheme of priorities, or under CPLR 5208 (1 Warren's Heaton on Surrogate's Court Practice §10.18(7), 6th ed. revised).
Under any enforcement method, any rights Daquann Redd may have in this estate must arise out of any surplus moneys received by the estate after the foreclosure. However, it seems to the court that Mr. Redd's rights are determined by SCPA 1811, 1812, and 1920 rather than CPLR 5203 (see CPLR 5203 [a][6], 5208; Matter of Steinmann, N.Y.L.J., Oct. 29, 1993 at 27). The Public Administrator's original petition must now be brought to its conclusion. Therefore, the Public Administrator is asked to make the necessary dispositive motion and allow Daquann Redd the opportunity to oppose it if necessary. Of course, any decree in favor of the Public Administrator vis-a-vis Daquann Redd does not work to the prejudice of Daquann Redd. His right to collect on his judgement out of surplus moneys after the mortgage is satisfied remains (see SCPA 1920; RPAPL § 1362; 4 Warren's Heaton on Surrogate's Court Practice § 68.08, 6th ed. revised). There may be no surplus moneys available to Daquann Redd, but that determination will be made in accordance with routine court procedures at the accounting where his judgment will receive whatever priority may be granted by SCPA 1811, subject to the priority of administration expenses. Until then, Mr. Redd's rights are preserved.
This is the decision and order of the court. Settle decrees accordingly.
Dated: March 31 , 2005
JOHN B. RIORDAN
Judge of the
Surrogate's Court
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