Ridgewood Sav. Bank v New Line Realty VI Corp.

[*1] Ridgewood Sav. Bank v New Line Realty VI Corp. 2009 NY Slip Op 51646(U) [24 Misc 3d 1227(A)] Decided on June 8, 2009 Supreme Court, Bronx County Roman, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 June 8, 2009
Supreme Court, Bronx County

Ridgewood Savings Bank, Plaintiff(s),

against

New Line Realty VI Corp.; 2315 MOON LCC; STATE OF NEW YORK DEPARTMENT OF TAXATION AND FINANCE; CITY OF NEW YORK DEPARTMENT OF FINANCE; CITY OF NEW YORK ENVIRONMENTAL CONTROL BOARD; IRINA ROVINSKY; YOLANDA RIVERA; "JOHN DOE NO. 1" TO "JOHN DOE NO. XXX." inclusive, the last thirty names being fictitious and unknown to plaintiff, the persons or parties intended being the tenants occupants, persons or corporations, if any, having or claiming an interest in or lien upon the premises described in the complaint, Defendant(s).



380538/09

Nelson Roman, J.

Plaintiff, Ridgewood Savings Bank (Ridgewood), moves, by Order to Show Cause (OSC), an Order directing the appointment of a receiver during the instant mortgage foreclosure of the premises known as 2315 Walton Avenue, Bronx, New York. Plaintiff contends that pursuant to the terms of the mortgage instrument the appointment of a receiver is warranted. In particular, Ridgewood avers that the Mortgage Consolidation, Modification and Security Agreement (Consolidation Agreement) provides for a receiver appointment in the event of a default upon the terms of the mortgage. Such default includes failure to make monthly timely installment payments. Defendant, 2315 Moon LLC (Moon), opposes plaintiff's application and argues that the mortgage agreement between the parties does not mandate the appointment of a receiver. In addition, defendant contends that the clause in the Consolidation Agreement, upon which plaintiff relies, is inconsistent with New York Real Property Law § 254(10) and therefore warrants the denial of the instant motion. In the alternative, defendant appeals to the court on equitable grounds.

For the following reasons, plaintiff, Ridgewood's, Motion for the appointment of a receiver is granted.

The moving papers reveal the following information. The instant action involves a mortgage foreclosure action. Plaintiff seeks the appointment of a receiver during the pendency of the litigation. Defendant, Moon, is the title holder to the premises known as 2315 Walton Avenue, Bronx, New York (property). Defendant, Moon, acquired the deed to the property from co-defendant, New Line Realty VI Corp. (New Line), pursuant to a conveyance, on or about January 1, 2007. On January 5, 2007, co-defendant, New Line, executed the mortgage Consolidation [*2]Agreement, subjecting the property to a secured lien. The Consolidation Agreement combined two previous mortgages into one single loan for a principal amount of $2,300,000.00. On or about November 20, 2007, NY Affordable Housing Walton Associates, LLC purchased defendant, Moon.

Plaintiff commenced the underlying mortgage foreclosure action on or about March 25, 2009 against all named defendants. Thereafter, plaintiff filed the instant application seeking the appointment of receiver. In its Affidavit of Exigent Circumstances, plaintiff asserts, inter alia, that defendants defaulted on a contractual obligation to make timely payments, inclusive of principal, interest and other sums associated with the mortgage, since December of 2008. Defendant, Moon, in its Affirmation, opposing plaintiff's motion, affirms this fact, stating that "2315 Moon LLC was not able to make the mortgage payments to Ridgewood Savings Bank during the months of January through May, 2009."

The Law and the Appointment of a Receiver

In motions to the court requesting the appointment of a receiver, it must be determined whether New York Real Property Law § 254(10) or Civil Practice Law and Rules § 6401 applies. CPLR § 6401(a) provides for the appointment of a receiver when "there is danger that the property will be removed...lost, materially injured or destroyed." In mortgage foreclosure actions when the mortgage "contains no provision authorizing the appointment of a receiver...the application [is] entirely governed by CPLR § 6401". First Nat. Bank of Glen Falls v. Caputo, 124 AD2d 417 (A.D. 3 Dept., 1986). However, when a receiver agreement exists between the parties RPL Law § 254(10) applies. Febbraro v. Febbraro, 70 A.D. 584, 585 (A.D. 2 Dept., 1979); See Citibank, N.A. v. Nyland (CF8) Ltd., 839 F.2d 93, 97 (C.A. 2 (NY) 1988); F.D.I.C. v. Vermont Real Estate Investments, Ltd., 798 F. Supp. 1009, 1012 (S.D.NY, 1992).

In relevant part, RPL Law § 254(10) provides that:

"(i)n mortgages of real property. . .the following or similar clauses and covenants must be construed as follows:...A covenant that the holder of this mortgage, in any action to foreclose it, shall be entitled to the appointment of a receiver,' must be construed as meaning that the mortgagee...in any action to foreclose the mortgage, shall be entitled, without notice and without regard to adequacy of any security of the debt, to the appointment of a receiver...in the event of any default or defaults in paying the principal, interest, taxes..."

It is a well-established principle of law that even where "covenants in mortgages by their terms purport to give an absolute right to the appointment of a receiver, the propriety of such [an] appointment rests in the sound discretion of the Court." Blair v. Donlon, 51 NYS2d 921, 922 (1944). See F.D.I.C., 798 F. Supp. at 1012; Ardeb Realty Corp. v. East Estates, Inc., 12 Misc 2d 167, 167-68 (1957). The appointment of a receiver, even when "the mortgage contains a clause in so many words...does not require the court to appoint a receiver in an action to foreclose the mortgage". Chatham-Phenix Nat. Bank & Trust Co. v. Hotel Park-Central, 146 Misc. 208, 210 (1931); See New York Bldg. Loan Co. v. Begly, 75 A.D. 308 (A.D. 2 Dept., 1902); Fletcher v. Krupp, 35 A.D. 586, 588 (A.D. 1 Dept., 1898); Browning v. Sire, 33 Misc. Rep. 503 (1900). A "receivership clause irrevocably consenting to the appointment of a receiver is not binding upon the court." [*3]Chatham-Phenix Nat. Bank & Trust Co., 146 Misc. at 209.

Consequently, it is within the purview of the court to deny the appointment of a receiver, vacate a previous receiver appointment, or limit a receiver's power. Friedman v. Gerax Realty Associates, 100 Misc 2d. 820, 821 (1979). See Chatham-Phenix Nat'l Bank & Trust Co. v. Hotel Park-Central Inc., 146 Misc. 208 (1931)(Court determined that receiver was unnecessary and denied Order even though mortgage agreement had receiver clause). The court, pursuant to its discretionary power, may "deny or vacate the appointment of a receiver under appropriate circumstances". Naar v. I.J. Litwak & Co., Inc., 260 AD2d. 613, 614 (A.D. 2 Dept. 1999); See Clinton Capital Corp. v. One Tiffany Place Developers, 112 AD2d 911 (A.D. 2 Dept., 1985). Courts even have the discretionary power to deny the appointment of a receiver when the mortgage contains a contractual receiver clause. Friedman, 100 Misc 2d. at 821-22.

Discussion

Receivers are appointed either pursuant to RPL § 254(10) or CPLR § 6401. While defendant, Moon, alleges that RPL § 254(10) is inapplicable because the receiver clause of the Consolidation Agreement, § 2.2(viii), is not identical to the standard language contained in RPL § 254(10), defendant fails to appreciate that RPL § 254(10) does not require verbatim language. Rather, RPL § 254(10) states that mortgage agreements containing "similar clauses and covenants", will be construed as designated in RPL § 254(10).

It is well settled that if parties:

"desire to contract with each other in a manner different from that stated in the statute. They can, by apt language, readily evince such a contrary intention. If they fail to do so, that is, use language upon which a statutory interpretation has been placed, then the instrument should not be construed to evince an intention contrary to the statutory construction." Seligman v. Burg, 233 A.D. 221, 224 (A.D. 2 Dept., 1931).

The Consolidation Agreement §2.2(viii) states that upon an event of default, plaintiff, Ridgewood, may apply for the appointment of a receiver, without notice and without regard for the adequacy of the security for the debt. In comparison, RPL § 254(10) reads that a mortgagee "shall be entitled to the appointment of a receiver" with instructions to construe the language as allowing the appointment to be done "without notice and without regard to adequacy of any security of the debt".

When interpreting statutes, courts follow the "plain language" application of words. See Parkattan Corp. v. Coster, 87 NYS2d 795, 797(1949)(principle that plain language may not be overridden to avoid an undesirable result in a particular application of the law); General Acc. Fire & Life Assur. Corp. v. Martino, 12 Misc 2d 935 (1958)(when language is plain and clear there is no need to resort to other means of interpretation). Therefore, a "plain language" reading of RPL § 254(10) and the Consolidation Agreement reveals the clauses and covenants of the parties' agreement to be similar to the standard language of RPL § 254(10).

Furthermore, Seligman, 233 A.D. at 224, states that if parties intend to not be controlled by [*4]the statutory construction of RPL § 254(10), the parties need to readily evince their intention through "apt language". However, no such affirmative language exists in the Consolidation Agreement. Accordingly, the parties' failure to make such an intention readily recognizable means that the court must construe the language in the agreement in a manner that is not contrary to ordinary statutory constructions. Id. at 224. Thus, it is the court's determination that § 2.2(viii) of the Consolidation Agreement is similar to the language of RPL § 254(10) and should be construed in accordance therewith.

With regards to the use of the court's discretionary powers, defendant, Moon, contends that the court should deny plaintiff's Order for the appointment of a receiver on equity grounds. The appointment of a receiver is viewed as a "drastic remedy", which may add unnecessary costs to litigation proceedings. S.Z.B. Corp. v. Jacob Ruth et al., 14 AD2d. 678 (A.D. 1 Dept., 1961); See also First Nat'l Bank v. Caputo, 124 AD2d 417, 418 (A.D. 2 Dept., 1986); Groh v. Halloran, 86 AD2d 3034 (A.D. 1 Dept., 1982). Receivers should be appointed to protect the interests of the parties, including protection from irreparable loss. Id.; See also Societe Generale v. Charles & Co. Acquisition, Inc., 157 Misc 2d 643 (1993), citing Eastbank N.A. v. Malneut Realty Corp., 180 AD2d 442 (A.D. 1 Dept., 1992).

Courts appoint receivers when necessary for the security and protection of the mortgage. Chatham-Phenix Nat'l Bank & Trust Co., 146 Misc at 210. In Chatham-Phenix Nat'l Bank & Trust Co. v. Hotel Park-Central, 146 Misc at 208, defendant opposed plaintiff's motion for the appointment of a receiver as unnecessary and detrimental to the best interest of the parties. In its moving papers, plaintiff stated that a reorganization plan between the parties was almost complete. Id. The court noted that the plaintiff's "moving papers fails to disclose that a receivership will or can achieve anything which the reorganization plan cannot accomplish." Id. at 209. Accordingly, the court concluded that equity justified the denial of a receivership because the appointment appeared unnecessary, duplicative of action already taken, and, in fact, could result in "appreciable and irreparable mischief." Id. at 209. In contrast to Chatham-Phenix Nat'l Bank & Trust Co., the present action contains no agreement or plan between the parties that could serve as an alternative to a receiver.

Additionally, in W.I.M. Corp. v. Cipulo, 216 A.D. 46, 49-50 (A.D. 1 Dept., 1926), the Supreme Court of New York, Appellate Division, reversed a lower court's grant of receivership when plaintiff's moving papers alleged that only $600.00 in repairs were needed to the property-at-issue and proffered only "very meager proof" as to the poor condition of the building. Moreover, when deciding that the appointment of a receiver was unjustified the court noted that the circumstances of the underlying mortgage foreclosure "arouse[d] the suspicion [of the court] that the plaintiff had some ulterior motive" for instituting the proceeding. Id. at 51. However, in the motion at bar, plaintiff notes that the property at 2315 Walton Avenue went from a building with a 97% occupancy rate that was being renovated to a tenancy with improperly maintained plumbing that suffered from water damage, mold, lead paint, and 238 open Department of Housing Violations.

Although an "automatic entitlement to a receiver [does not] exist, [the court] shall not deny the appointment of a receiver unless the circumstances require us to as a matter of equity." F.D.I.C. v. Vernon Real Estate Investments, Ltd., 798 F. Supp. 1009, 1012 (S.D.NY 1992). In the present [*5]action, defendant has failed to assert equitable grounds upon which the court could justify denying plaintiff's application for receiver. In its moving papers, defendant, Moon, makes only a blanket statement that a receiver would be detrimental to both parties. In support of this contention, defendant merely states that relationships are already established between defendant and the tenants of the property-at-issue, which the receiver will have to cultivate anew. Additionally, defendant points to the cost of a receiver to support its opposition. However, no case law or statutory authority is offered to demonstrate that the inherent cost of a receiver is an equitable ground upon which to deny such appointment.

Thus, plaintiff's motion for an order granting the appointment of a receiver must be granted because defendant does not provide sufficient grounds to justify the court's discretionary denial of receiver.

Conclusion

Based on the foregoing, it is the court's determination that pursuant to the terms of the mortgage agreement and RPL § 254(10) plaintiff has established entitlement to the appointment of a receiver during the pendency of the instant mortgage foreclosure proceeding. Thus, it is hereby

ORDERED that plaintiff's application for the appointment of a receiver is granted; it is further

ORDERED that Andrew Kulak, Esq. of Kulak & Zaslowsky located at 401 Broadway, Ste 400, New York, NY 10013, Tel. No. 212-219-2600, be hereby appointed receiver; it is further

ORDERED that plaintiff serve a copy of this decision and order, with notice of entry, upon all parties via certified mail within 21 days hereof.

This constitutes the court's decision and order.

Date:June 8, 2009Hon. _________________________

NELSON ROMAN, J.S.C.