NYCTL 1996-1 Trust v Thompson
Annotate this CaseDecided on September 2, 2005
Supreme Court, Kings County
NYCTL 1996-1 Trust and THE BANK OF NEW YORK, Plaintiffs,
against
Kenneth Thompson, ET. AL., Defendants.
30500/2001
Yvonne Lewis, J.
Galill, LLC has moved this court for an order confirming the Referee's report of sale in connection with the premises known as 219 Madison Street, Brooklyn, New York, and directing that the New York City Department of Finance distribute the surplus proceeds thereof, in the entire amount of $141,707.71, plus any accrued interest, to it as the successor in interest to defendant, Kenneth Thompson.
Mr. Thompson, by his attorney, opposes the aforementioned relief on equitable grounds. He notes that the underlying foreclosure action emanated from unpaid tax liens in the approximate amount of $19,000.00; that on February 21, 2003, he had sold two lots, inclusive of the mentioned property, to Galil for $225,000.00; that the subject lot was thereafter sold at foreclosure sale on February 25, 2003 to a third non-party entity for $171,000.00. The resulting surplus of $141,707.71 arose after deducting the referenced tax liens and miscellaneous fees. Finally, Mr. Thompson's attorney argues that "in a surplus money proceeding, the court by reference or otherwise, is charged with the responsibility of allocating excess funds generated from a foreclosure sale on such terms as it deems just RPAPL §1361 (2). In making this allocation, the court is explicitly authorized to recognize even purely equitable claims if by doing so it would do justice to the rights and interests of all parties (citing, Chase Manhattan Mortgage Corporation v. Hall, 2005 NY App. Div. LEXIS 4800 (2nd Dept., 2005); Shankman v. Horoshko, 291 AD2d 441, 737 NYS2d 554 (2nd Dept., 2002); Citibank v. Schroeder, 266 AD2d 332, 698 NYS2d 554 (2nd Dept., 1999); Corporate Investing Company v. Mount Vernon Metal Products Company, Inc., 206 AD 273, 200 NYS 372 (2nd Dept., 1923).
In reply, counsel for Galil notes, first, that Mr. Thompson transferred the property to Galil on February 21, 2003 in exchange for $225,000.00, and that no action to overturn this transaction was ever taken by Mr. Thompson until ". . .he discovered that the property which he previously owned had been foreclosed upon and there were surplus funds available." Second, that ". . .once this property was sold to Galil, LLC, . . .[it] then held a 100% interest in the equitable right of redemption if this property was foreclosed upon and a 100% interest in any surplus funds (less any outstanding liens)."
This court, by its order of March 11, 2004, denied Galil's prior motion to set aside the foreclosure sale. In the course of doing so, this court determined that Horizon Holding Corp. (the third non-party entity) was the rightful owner, and that the equity of redemption had been extinguished as to all parties, including Galil, Inc. (See NYCTL-1996-1, et. al. v. Thompson, et. [*2]al., 4/7/04 NYLJ p. 22; col. 1). Accordingly, the only remaining concern for this court is to determine to whom the surplus monies are owed.
Mr. Thompson claims entitlement to the surplus funds on the basis that he had been pressured by financial circumstances (a looming foreclosure) to enter into an unfair bargain that resulted in the sale of his properties far below market value. Galil, on the other hand, argues that the exchange was an arms length bargain, freely entered into by Mr. Thompson, which resulted in its acquiring Mr. Thompson's interest in the property, thereby propelling it into equity ownership now entitled to all the surplus.
In general, "[p]arties enjoying a lien upon real property are entitled to share in surplus money regardless of whether their lien is legal or equitable (15 Carmody Wait 2d § 92:427). However, legal liens are favored as against mere equitable interests in accordance with
the equitable maxim that equity follows the law (15 Carmody Wait 2d 92:444; Paragon Progressive Federal Credit Union v. Byndloss, 212 NYS2d 989)." "Equitable liens arise only upon proof that money was expended for the improvement of the premises by a person in a confidential relationship to the owner (Petrukevich v. Maksimovich, 1 AD2d 786, 147 NYS2d 869; Marum v. Marum, 21 Misc2d 474, 194 NYS2d 327; see Billson Housing Corp. v. Harrison,
26 Misc2d 675, 205 NYS2d 387, or upon proof of an agreement that the premises would be held as security for the obligation" (see Billson Housing Corp. v. Harrison, supra ). "Judgments docketed prior to delivery of the referee's deed are liens on the realty that pass to the surplus moneys, and are payable in the order of priority of docketing (Warwick Sav. Bank v. Long Island Chapter K of C, 253 AD 276, 1 NYS2d 877; CPLR 5203 (a); Valley National Bank of Long Island v. Levy, 45 AD2d 771, 356 NYS2d 1003; 15 Carmody Wait 2d, §92:444, 6 Weinstein-Korn-Miller, NY Civ. Prac., par 5203:09), or as otherwise provided under section 13 of the lien law (Cobleskill Savings & Loan Ass'n. v.Rickard, 15 AD2d 286, 223 NYS2d 246; Corbin Kellogg Agency v. Tasker, 248 App. Div. 58, 289 NYS 156; Betcher v. Rademacher, 35 Misc2d 693, 230 NYS2d 535). Judgments docketed after delivery of referee's deed in foreclosure proceedings, however, are not liens in existence at the time of the foreclosure sale which pass to surplus moneys since there is no lien in existence at the time of the foreclosure sale which can be transferred to the fund (Goldberg v. Feltman's of Coney Island, Inc., et. al., 144 NYS2d 250; Nutt v. Cuming, 155 NY 309, 49 N.E. 880). Claims to surplus moneys and judgments docketed after delivery of the referee's deed are entitled only to distribution in proportion to the size of the respective claims without priority"(Warwick Sav. Bank v. Long Island Chapter K of C, supra ).
As valid an assessment as it may be on his part that he was financially pressured into the sale to Galil, the fact is that Mr. Thompson appears to have, proverbially, "cut his losses" by opting for the best deal that he could find at the time [2/21/03], which he then made sure to finalize [with Galil] four days prior to the scheduled foreclosure sale [2/25/03]. Hence, it would seem that Galil, by virtue of that transaction, has indeed been substituted into the place of Mr. Thompson. That Galil is now entitled to 100% of the surplus is not as readily apparent. On the papers submitted, it is clear that Mr. Thompson executed a deed transferring his interests in two lots, 217 and 219 Madison Street, to Galil, LLC. The foreclosure referee's report of sale evinces that it involved solely 219 Madison Street, and that after the tax liens and other attendant charges were satisfied, the subject surplus amount remained. Since no information has been furnished as to whether or not any other legal or equitable claims exist, this court has no basis whereby to [*3]assess what priorities, if any, should be accorded and/or to whom.
Wherefore, on the basis of all of the foregoing, this court must deny Mr. Thompson's motion for an equitable lien in the surplus monies inasmuch as he has failed to establish his entitlement thereto. Galil's motion to confirm the Referee's report of sale in connection with the premises known as 219 Madison Street, Brooklyn, New York is granted. Galil's ancillary request for an order directing that the New York City Department of Finance distribute the surplus proceeds thereof, in the entire amount of $141,707.71, plus any accrued interest, to it as the successor in interest to defendant, Kenneth Thompson is granted to the extent that Galil shall be entitled to the subject surplus less any outstanding legal and equitable liens. This constitutes the decision and order of this Court.
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