Chase Manhattan Mtge. Corp. v Julian

[*1] Chase Manhattan Mtge. Corp. v Julian 2006 NY Slip Op 50873(U) [12 Misc 3d 1152(A)] Decided on March 29, 2006 Supreme Court, Monroe County Stander, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 29, 2006
Supreme Court, Monroe County

Chase Manhattan Mortgage Corp., Plaintiffs,

against

Joseph Julian, Jr., UNITED STATES OF AMERICA, PAUL A. MARASCO, ROCHESTER GAS & ELECTRIC CORP., DAVID EMILEK, STEVEN W. LAW, JENNIFER WAITE, MR. CAMPBELL, MARK R. WHITE, CHRIS JABLONSKI, CHAD TYDINGS, JOE LEVANDOSKI, MICHAEL TUCHRELLO and KARI CARPINO, Defendants.



2003/11610



Attorney for Plaintiff:Michael H. Cohn, Esq.

Cohn & Roth

100 E. Old Country Road

Mineola, New York 11501

Attorney for Third-Party

Purchaser, Charles F. Hain:John B. Fitzsimmons, Esq.

Fitzsimmons, Nunn, Fitzsimmons & Plukas

300 Reynolds Arcade Building

16 E. Main Street

Rochester, New York 14614

Thomas A. Stander, J.

This motion was commenced by Charles F. Hain ("Hain"), in his capacity as the claimed third party purchaser at a foreclosure auction, seeking an order vacating the sale of 21 Upton Park, Rochester, New York to the Plaintiff, Chase Manhattan Mortgage Corporation ("Chase"), by Referee Michael Law, Esq., and validating the sale to Charles F. Hain.

The motions of Charles F. Hain are GRANTED.

I. STANDING TO SEEK RELIEF

The Plaintiff, Chase, argues that Mr. Hain has no standing to seek both to set aside the foreclosure sale and to uphold the foreclosure sale. The Defendant, Mr. Hain, counters that in order for the foreclosure sale to him to be validated, that the subsequent conveyance of the property to the Plaintiff, Chase, must be vacated.

A. STANDING

In a proceeding to set aside a foreclosure sale "almost any individual, even a nonparty, who has a legitimate interest in the outcome can move to set it aside" (Nat'l Bank of Stamford v VanKeuren, 184 AD2d 92, 95 [3d Dept. 1992]; Wayman v Zmyewski, 218 AD2d 843 [3d Dept. 1995]; see Amsterdam Savings Bank v City View Management Corp., 45 NY2d 854 [1978]). Under the factual circumstances in this case, as the third-party bidder at the auction Mr. Hain has a significant legitimate interest in the outcome of this judicial foreclosure sale (Nat'l Bank of Stamford at 95; Wayman at 843).

Thus, under these general principles Mr. Hain has standing to seek the relief requested in this proceeding. However, Plaintiff raises other grounds as to the standing of Mr. Hain.

B. PROCEDURAL

There are arguments presented by Plaintiff which relate to Mr. Hain's filing of a Notice of Pendency without the filing of a summons and complaint, suggesting that there are procedural defects with this proceeding. "Considering Supreme Court's role in supervising judicial sales and its inherent equitable power over a sale . . ., we are of the view that the inquiry should focus on the basis for the court's exercise of its power over judicial sales, not the status of the party who requests that the court exercise its power" (Wayman at 844).

Regardless of any filing defects related to a Notice of Pendency, Mr. Hain has a legitimate interest as a bidder at the sale to seek relief concerning the foreclosure sale.

C. LACHES [*2]

Chase also argues that Mr. Hain is precluded from having standing to move to set aside the foreclosure sale due to his laches in commencing this proceeding. The foreclosure sale was held on November 8, 2004. Mr. Hain was notified in writing by the Referee on November 15, 2004 that a Referee's Deed would be executed to Chase.

A Notice of Pendency indicating a new action under a caption Hain v Chase Manhattan Mtg. Corp.; Joseph Julian; and Michael R. Law as Referee, was filed in the Monroe County Clerk's Office on November 19, 2004. Although not attached as an exhibit, Counsel for Chase avers that a Referee's Deed to Chase was recorded in the Monroe County Clerk's Office on December 13, 2004. Another Notice of Pendency was filed on December 30, 2004 under the foreclosure proceeding caption. This motion was commenced on January 6, 2005.

Plaintiff argues that this delay in taking action precludes standing for Mr. Hain to proceed with this action (see Amsterdam Savings Bank at 854). Plaintiff's position is that Mr. Hain knew of the Referee's intention to transfer the property to Plaintiff and waited two months to bring this motion, which was after the Referee's Deed conveying the property to Chase. Plaintiff also asserts prejudice because it has been prevented from disposing of the property and has incurred expenses related to the property. In Amsterdam Savings Bank the Court of Appeals held that the combination of inexcusable delay of three months in bringing a motion to vacate a foreclosure sale and detriment to the other party by a substantial change in the bank's position, who had contracted to sell the property to third parties, required the application of the doctrine of laches (Amsterdam Savings Bank at 856-57).

However, these same circumstances do not exist in the present case. Here, the bidder filed papers indicating its opposition in the form of a Notice of Pendency within days of notice that the Referee was going to execute a Referee's Deed to Plaintiff. Also, within a short time after the Referee's Deed was filed, Mr. Hain filed another Notice of Pendency. Then, this motion by the bidder at the foreclosure sale was filed less than a month from the filing of the Referee's Deed and less than two months from when Mr. Hain was notified that a Referee Deed was to be issued. Further, there is no showing that this application caused a substantial change in the position of Chase. There is no evidence that there was any contract or involvement with third parties unrelated to the foreclosure sale.

The Plaintiff's position that laches precludes standing to Mr. Hain is unfounded. There has been no laches to preclude standing of Mr. Hain.

D. CONCLUSION

Mr. Hain has standing to bring this proceeding.

II. VACATING SALE OF 21 UPTON PARK TO CHASE

Mr. Hain, as the claimed third party purchaser at the foreclosure sale, seeks an order [*3]vacating the foreclosure sale of 21 Upton Park, Rochester, New York to Chase Manhattan Mortgage Corporation.

This Court has equitable power to vacate a judicial foreclosure sale. [T]he court may exercise its inherent equitable power over a sale made pursuant to its judgment or decree to ensure that it is not made the instrument of injustice (citation omitted.) Although this power should be exercised sparingly and with great caution, a court of equity may set aside its own judicial sale upon grounds otherwise insufficient to confer an absolute legal right to a resale in order to relieve of oppressive or unfair conduct (citations omitted). . . . Where the judgment debtor can show not merely disparity in price, but in addition one of the categories integral to the invocation of equity such as fraud, mistake or exploitive overreaching, a court of equity may grant relief (citations omitted).

(Guardian Loan Co., Inc. v Early, 47 NY2d 515, 520-21 [1979]).

The more recent appellate court decisions state the rule as follows: "[a] Court may exercise its equitable powers to set aside a judicial sale [of foreclosure] only where fraud, collusion, mistake, or exploitive overreaching casts suspicion on the fairness of the sale (Crossland Mtg. Corp v Frankel, 192 AD2d 571, 572 [2d Dept. 1993]; NYCTL 1996-1 Trust v LFJ Realty Corp., 307 AD2d 957, 959 [2d Dept. 2003][app dismissed 1 NY3d 22 [2004];rearg denied 2 NY3d 794 [2004]] ; Bank of New York v Sheik, 279 AD2d 440 [2d Dept. 2001]; Harbor Financial Mtg. Corp. v Hurry, 277 AD2d 693, 604 [3d Dept. 2000]). "Absent such conduct, the mere inadequacy of price is an insufficient reason to set aside a sale unless the price is so inadequate as to shock the court's conscience" (Dime Savings Bank of New York, FSB v Zapala, 255 AD2d 547 [2d Dept. 1998]; Guardian Loan at 520-21).

Mr. Hain, a bidder at the November 8, 2004 foreclosure sale auction of 21 Upton Park, requests this Court to set aside the foreclosure sale of the Referee conveying the property to the Plaintiff, Chase, based on a mistake in the proceedings that casts suspicion on the fairness of this sale to Chase.

A. FORECLOSURE SALE FACTS

The unique facts in this case must be reviewed in depth to fully ascertain whether a mistake exists that warrants the exercise of this Court's equitable powers to set aside the sale to Chase. The Referee conducted the foreclosure sale of 21 Upton Park on November 8, 2004 at 9:00 am. The Referee opened the bidding at $70,000; Mr. Hain bid $70,001; there were no other bids and the Referee closed the bidding. The Referee approved Mr. Hain obtaining the deposit from his bank and delivering the bank check to the Referee's office. Mr. Hain dropped off a check at the office of the Referee. The Referee's secretary sent the memorandum of sale by fax to Mr. Hain; Mr. Hain signed and returned this document to the Referee the same day. The Referee, after returning to his office from conducting the sale, received a call from the Plaintiff's attorney indicating there was a mistake about the written bid amount to be submitted at the sale. [*4]The Referee chose not to sign the memorandum of sale or accept the deposit of Mr. Hain.

The mistake raised by counsel for Chase is an error in the letter to the Referee from Chase counsel submitting a written bid for 21 Upton Park. Counsel for Chase sent a letter by fax to the Referee on Friday, November 5, 2004, the last business day prior to the sale at 9:00 a.m. on Monday morning, which states, among other things: Thank you for agreeing to put in a bid for us on behalf of the plaintiff, Chase Manhattan. Accompanying are copies of the Terms of Sale and the bidding instructions. . . . . Please put in an opening bid of $500.00 on behalf of the Plaintiff and continue bidding up to $ 70,000.00. . . . .

Enclosed with the letter was a "Terms of Sale" document for signature by the Referee and an "Instruction Sheet." The Instruction Sheet states START BIDDING AT: $500.00 STOP BIDDING AT: $ 170,000.00

At the November 8, 2004 foreclosure sale, in accordance with the letter of counsel for Chase, the Referee submitted the bid of the bank at $70,000. Mr. Hain bid higher for the property; there was no other bid; and the Referee closed the bidding and accepted Mr. Hain's bid.

There is discussion by the parties in this action about whether there is a unilateral or mutual mistake. Regardless of how denominated, the only possible mistake involves Chase, and possibly the Referee, as to the amount of the submitted written bid. From the perspective of Mr. Hain there was no mistake at the foreclosure sale and bid process. The Referee opened the bid, bids were submitted, the Referee closed the bids and accepted the highest bid which was submitted by Mr. Hain. Chase argues that its Instruction Sheet stating to "stop bidding at: $170,000.00" was the highest bid and that this bid of $170,000.00 was already submitted to the Referee and was in the Referee's possession at the time of the foreclosure sale.

B. REFEREE DUTIES

The Referee "is an agent of the court, a mere ministerial officer" appointed to conduct a judicial sale in the foreclosure action of the property (Matter of O'Brien v Spitzer, 24 AD3d 9 [2d Dept. 2005]). Any effort on the part of the referee to alter the terms of sale fixed by the judgment of foreclosure is void and the court, in its broad supervision and control over all judicial sales, may reform such a sale to correct "the substantial errors or unauthorized acts of the referee" (citations omitted). . . . At a foreclosure proceeding, the actual sale is made by the referee, as an officer of the court, and the contract is basically between the purchaser and the court (citations omitted).

(Id. at 12). "A Referee must retain limited flexibility, while still acting within the authority of the court as conferred in the judgment of foreclosure, to meet those unforeseen circumstances [*5]that might otherwise jeopardize the success of a foreclosure sale (citations omitted)" Glenville and 110 Corp. v Tortora, 137 AD2d 654, 655 [2d Dept.1988]). Although a Referee has discretion regarding a sale, "the authority and discretion to set aside a judicial sale . . . is entrusted to the courts (citations omitted)" (Greenwood Packing Profit Sharing Plan Trust v Fournier, 181 AD2d 861, 862 [2d Dept. 1992]); Crossland Mtg. Corp. v Frankel, 192 AD2d 571 [2d Dept. 1993]; Dime Savings Bank of New York FSB v Palazini, 198 AD2d 746 [3d Dept. 1993]). The duties of the Referee are well-defined.

"[I]t is the court, not the parties, who is in absolute control of the workings of a judicial foreclosure. . . The appointed Referee is an officer of the court and must perform his duties impartially without regard to the interests of any particular person in the proceeding" (Nat'l Bank of Stamford v VanKeuren, 184 AD2d 92, 95 [3d Dept. 1992]; Harbor Financial Mtg. Corp. v Hurry, 277 AD2d 693, 694 [3d Dept. 2000]). The Referee was authorized by the Judgment of Foreclosure to accept a written bid. Ordered, Adjudged and Decreed, that the Referee at the time of sale may accept a written bid from the Plaintiff or the Plaintiff's attorneys, just as though the Plaintiff were physically present to submit the sale bid.

(Judgment of Foreclosure, p.3, 1st ordered ¶). Pursuant to the authority under the judgment of foreclosure, the Referee accepted one written bid, in the amount of $70,000 submitted by a letter from counsel for Chase, as though the Plaintiff were "physically present to submit the sale bid."

The Referee only had authority to accept one written bid from Chase. However, Chase requests that the Referee put in an opening bid of $500 and continue bidding up to $ 70,000. This request by counsel from the bank, for the Referee to start bidding at a certain price and continue bidding up to a final bid, is improper. The Referee may not act as the bidder for a Plaintiff and must exercise his duties impartially (Nat'l. Bank of Stamford at 95; cf Citicorp Mtg., Inc. v Strong, 227 AD2d 818 [3d Dept. 1996]). The Referee had no authority to accept numerous bid amounts or to submit various bids on behalf of the Plaintiff.

The Plaintiff had the right and opportunity to appear at the foreclosure sale to bid on the property, but instead submitted a written bid. The fact that counsel for Plaintiff also submitted another "Instruction Sheet" that stated a higher bid amount only indicates that Plaintiff made a unilateral mistake. The Referee is an agent of the Court and has no duty or obligation to search the documents submitted by the Plaintiff for differing bids. The Referee is not bound by an inconsistent instruction sheet from the Plaintiff where the Referee must perform his duties impartially without regard to the Bank's interests (Harbor Financial Mtg. at 694). The Bank does not control the workings of the foreclosure sale as to bids, bidding process, or acceptance of bids; such sale is controlled by the authority of the Court.

As the agent of the Court, the Referee, was not aware of any discrepancy in the Plaintiff's written bid amount of $70,000 when the noticed foreclosure sale was held. The Referee properly conducted a sale and accepted the highest bid. At this point the foreclosure sale was complete, having been "consummated in complete accord with lawful procedure" (Crossland at 572 [citing [*6]Guardian Loan Co. v Early at 521]).



C. FORECLOSURE SALE TO CHASE

Shortly after the Referee returned to his office after the foreclosure sale, counsel for Chase advised that there was a mistake with the Plaintiff's bid price and pointed out that there was an "Instruction Sheet" sent to the Referee that contained a high bid of $170,000. The Referee chose not to enter into the Memorandum of Sale with, or to accept the deposit of, the highest bidder at the sale, Mr. Hain. Instead the Referee accepted the higher bid of $170,000 from the Plaintiff contained on the "Instruction Sheet" and proceeded as if the Plaintiff were the highest bidder at the foreclosure sale. In effect, the Referee, at a different time and location than was noticed for the foreclosure sale, reopened the bidding to accept the higher bid from the Plaintiff, Chase.

When the referee has closed the bidding, the Referee does not have authority to reopen the bidding (Greenwood at 862; see Nat'l. Bank of Stamford at 95). In Greenwood the Referee, after the award of the property to the highest bidder, reopened the bidding while still at the sale when the representative of Plaintiff protested the award of the property to the highest bidder because he mistakenly stopped bidding under the belief he was the highest bidder (Greenwood at 862). The Court held "the Referee acted without jurisdiction when he reopened the bidding, and the sale to the plaintiff cannot stand" (Id.). When a bidder ceased bidding and the high bidder was declared the successful bidder, discovery at the sale while the high bidder was obtaining his deposit that the Crossland representative was given erroneous bidding instructions and had authority to bid higher, was insufficient to warrant invalidating the sale to the highest bidder (Crossland at 572). The Court found this was a unilateral mistake by Crossland (Id.) Where the location of the sale deprives a prospective bidder of the opportunity to bid, the sale should be vacated (Wayman v Zmyewski, 218 AD2d at 843-44). Chase made a unilateral mistake in submitting its written bid; such mistake was not discovered until after the sale was complete. The re-opening of the bidding at the Referee's office was in error.

Chase submitted two documents setting forth different written bid amounts. The Referee, with no knowledge of two different bid amounts, conducted a valid foreclosure sale. After the sale was complete, the Referee acted without jurisdiction to reopen the bidding at his office to accept a higher written bid from Chase. The unilateral mistake of the Plaintiff in submitting a letter incorrectly stating its written bid amount, is an insufficient basis for the Referee to reopen the bidding. The Referee has no authority or discretion to set aside a judicial sale; only a court has such authority (see Greenwood Packing Profit Sharing Plan Trust at 862; Crossland Mtg. Corp. at 571). The foreclosure sale to Chase cannot stand.

Based upon the sequence of events involved in this foreclosure proceeding and the Referee's conduct in reopening the bid to allow Chase to submit a different bid, this Court finds that the Referee exceeded his authority and made a mistake in accepting the higher bid of Chase after the foreclosure sale had been completed. Due to this irregularity in the foreclosure [*7]proceedings, this Court may set aside a foreclosure sale (see Harbor Financial Mtg. at 694; Dime Savings Bank of New York FSB, at 746). The Court, in the exercise of its equitable powers, concludes that the judicial foreclosure sale of 21 Upton Park to Chase is set aside.

Any argument by Plaintiff that the foreclosure sale is valid and that the Referee already executed a Referee's Deed to Chase is unpersuasive. The transfer of the property by Deed does not retroactively validate an improper foreclosure sale.

The motion of Charles F. Hain to set aside the foreclosure sale of 21 Upton Park to Chase Manhattan Mortgage Corp. and vacate the Referee's Deed is GRANTED. The Referee's Deed conveying the property to Chase Manhattan Mortgage Corp. is VACATED.

III. FORECLOSURE SALE TO MR. HAIN

Mr. Hain requests this Court to grant an order validating the sale of 21 Upton Park to him based on the noticed foreclosure sale held on November 8, 2004. The Plaintiff, Chase, asserts that if the sale to Chase is vacated, then the Courts only remedy is to require a new foreclosure sale.

This Court is not limited to the remedy of a resale. "Each case involving a judicial sale should be governed by its own peculiar facts (citations omitted) since public policy requires that the power to nullify judicial sales be exercised with caution" (Polish Nat'l Alliance v White Eagle Hall Co., 98 AD2d 400, 408 [2d Dept. 1983]). Under the factual situation existing in this case, the Court must exercise its equitable powers sparingly and with great caution, to ensure that the foreclosure sale proceedings are fair and just (Guardian Loan Co., Inc. v Early, 47 NY2d 515, 520-21 [1979]). The general principle that "[a] court may exercise its equitable powers to set aside a judicial sale only where fraud, collusion, mistake, or overreaching casts suspicion on the fairness of the sale" must be applied (Crossland Mtg v Frankel, 193 AD2d 571; Bank of New York v Sheik, 279 AD2d 440 [2d Dept. 2001]).

The Plaintiff asserts that there was a mistake because it submitted the highest bid at the sale through its written "Instruction Sheet" bid to the Referee; however, the evidence is to the contrary (see Green Point Savings Bank v Kandel, 224 AD2d 488 [2d Dept. 1996]; State of New York Mtg. Agency v Hinze, 295 AD2d 338 [2d Dept. 2002]). The evidence shows that the Referee properly conducted the foreclosure sale at the legally noticed place and time. The Referee submitted the $70,000 written bid of Chase and then accepted a higher bid by Mr. Hain. Further the Referee exercised his discretion to allow Mr. Hain to submit the 10% deposit at the Referee's office.

The Plaintiff argues that there is no authority for the Court to vacate and set aside the sale to Chase and, at the same time, allow the foreclosure sale to Mr. Hain to stand. This Court does not agree (see Greenwood at 862). There was a legally consummated foreclosure sale held on November 8, 2004 at the noticed time and place. The Referee properly conducted the sale, [*8]closed the bidding, and awarded the property to Mr. Hain. As an officer of the Court, the Referee performed all of its duties.

The unilateral mistake by Plaintiff in submitting two inconsistent written bids to the Referee is not a basis for setting aside a properly conducted foreclosure sale (Dime Savings Bank v Zapala, at 547 [postponement agreement to obtain financing never received prior to sale]; Harbor Financial at 693 [Plaintiff's counsel left message at Referee's office 30 minutes prior to sale to cancel the sale, which was not received prior to sale]; Federal Nat'l Mtg Assoc. v New York Financial & Mtg Co., Inc., 222 AD2d 647 [2d Dept. 1995][mistake as to location of sale]; Crossland Mtg. at 571-72 [bidder discovered erroneous bidding instructions]; Chemical Bank v Kupperstock, 248 AD2d 145 [1st Dept. 1998][mistakenly instructed bidder to stop bidding too low]). At the time of the foreclosure sale, the Referee had no knowledge of a higher written bid amount by Chase. The Referee, as an officer of the Court, accepted and submitted one written bid of Chase in accordance with the Judgment of Foreclosure. The Plaintiff has failed to show a basis for setting aside the foreclosure sale to Mr. Hain.

This Court recognizes that case law limits its equitable powers for setting aside a foreclosure sale to circumstances where fraud, collusion, mistake or misconduct casts suspicion on the fairness of the sale, and such powers do not provide authority to change the outcome or the terms of a foreclosure sale (see Homeside Lending, Inc. v Rued, 306 AD2d 245[2d Dept. 2003] [request to reduce bid price based on discovered structural damage denied]; Fleet Finance, Inc. v Gillerson, 277 AD2d 279 [2d Dept. 2000][dispute over who was to pay taxes, ordered new sale]). Here, however, Mr. Hain does not seek to change the outcome or the terms of the foreclosure sale properly conducted on November 8, 2004 at 9:00 a.m. He merely requests that the properly held and consummated foreclosure sale be upheld.

The Plaintiff also raises other contentions, including that the price bid by Mr. Hain is so inadequate as to shock the conscience of the court. The price bid by Mr. Hain of $70,001 is not so inadequate as to shock the court's conscience. All other contentions have been considered and the Court finds them to be without merit.

The subsequent sale to Chase was set aside because the Referee acted outside his authority. The fair and just exercise of this Court's equitable powers is to reinstate the original, properly conducted foreclosure sale to Mr. Hain. Thus, the foreclosure sale by the Referee to Mr. Hain is reinstated, without prejudice to Plaintiff to apply for any relief authorized by statute.

The motion of Mr. Hain to validate the sale to him is GRANTED. The foreclosure sale by the Referee to Mr. Hain is REINSTATED, without prejudice to Plaintiff to apply for any relief authorized by statute.

O R D E R

Based upon all the papers submitted in support and in opposition to this motion, upon the [*9]above Decision, and after due deliberation, it is hereby ORDERED that the motion of Charles F. Hain, third-party bidder at a foreclosure sale, to set aside the foreclosure sale of 21 Upton Park, Rochester, New York to the Chase Manhattan Mortgage Corp. is GRANTED; it is furtherORDERED that the Referee's Deed conveying the property at 21 Upton Park, Rochester, New York to Chase Manhattan Mortgage Corp. is VACATED; it is furtherORDERED that the motion of Charles F. Hain, third-party bidder at a foreclosure sale, to validate the sale of 21 Upton Park, Rochester, New York to Charles F. Hain pursuant to the conducted foreclosure sale is GRANTED; and it is furtherORDERED that the foreclosure sale by the Referee to Charles F. Hain is REINSTATED, without prejudice to Plaintiff to apply for relief authorized by statute.ORDERED that all other applications are DENIED.

Dated: March 29, 2006

Rochester, New York______________________________

Thomas A. Stander

Supreme Court Justice