Emigrant Funding Corp. v 7021 LLC

[*1] Emigrant Funding Corp. v 7021 LLC 2009 NY Slip Op 52199(U) [25 Misc 3d 1220(A)] Decided on October 26, 2009 Supreme Court, Queens County McDonald, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 October 26, 2009
Supreme Court, Queens County

Emigrant Funding Corporation, Plaintiff,

against

7021 LLC; New York City Environmental Control Board ASA Waterproofing Corp., John Doe No.1 "through "John Doe #10" inclusive, the names of the ten last name, Defendants being fictitious, real names unknown to the Plaintiff, the parties intended being persons or corporations having an interest in, or tenants or persons in possession of, portions of the mortgaged premises described in the Complaint, Defendants.



20509/08

Robert J. McDonald, J.

Plaintiff commenced this action seeking to foreclose the consolidated mortgage given by defendant 7021 LLC on the premises known as 33-54 71st Street, Jackson Heights, New York. Plaintiff alleges that defendant 7021 LLC entered into an agreement, modifying and consolidating a mortgage dated August 6, 1998, which secured an underlying note in the original principal amount of $160,000.00, plus interest, and another mortgage dated July 27, 2004, on the same property which secured an underlying note in the principal amount of $229,530.02, plus interest. The indebtedness under the two mortgages was allegedly consolidated into a single mortgage lien in the principal sum of $350,000.00, plus interest at the rate of 7.25% per annum, by virtue of the consolidation and modification agreement, and was evidenced by an amended and restated note. In its complaint, plaintiff alleges that defendant 7021 LLC defaulted under the terms of the amended and restated note and consolidation and modification agreement by failing to pay the monthly installment payment due on May 1, 2008 and monthly thereafter, and that it elects to accelerate the mortgage debt.

Defendant 7021 LLC served an amended answer dated October 16, 2008, asserting three affirmative defenses based upon lack of personal jurisdiction due to improper service, tender, lack of default and improper assessment of default rate interest charges, and interposing two counterclaims alleging breach of contract and seeking a judgment awarding damages and attorneys' [*2]fees and declaring, in essence, that defendant 7021 LLC was not in default under the mortgage and note, and plaintiff was not entitled to charge defendant 7021 LLC a default rate of interest in the amount of 24% per annum.

Plaintiff served a reply admitting certain allegations of the counterclaims, but denying others.

Plaintiff moves for summary judgment in its favor against defendant 7021 LLC, to strike the answer and counterclaims of defendant 7021 LLC, for leave to substitute Joseph Marbella, Zhong Shi, Liangwei Yan, Meikun Yang, Manyi Wu, Hermelina Marbella, Jinqun Zhong, Tiffany Weng, Zhu Zhong and Jian Liang in place and instead of "John Doe #1" through "John Doe #10," inclusive, for leave to amend the caption to reflect such substitution, and for leave to appoint a referee to compute the amount due and owing plaintiff and examine and report whether the mortgaged premises can be sold in one parcel. Defendant 7021 LLC cross moves pursuant to CPLR 3025(b) for leave to amend its amended answer to add affirmative defenses as proposed, and to vacate the default declared by plaintiff and acceleration of the mortgage debt.

That branch of the motion by plaintiff for leave to substitute Joseph Marbella, Zhong Shi, Liangwei Yan, Meikun Yang, Manyi Wu, Hermelina Marbella, Jinqun Zhong, Tiffany Weng, Zhu Zhong and Jian Liang in place and instead of "John Doe #1" through "John Doe #10," inclusive and for leave to amend the caption to reflect such substitution is granted.

With respect to that branch of the motion by plaintiff for summary judgment as against defendant 7021 LLC, it is well established that the proponent of a summary judgment motion "must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact" (Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]). On a motion for summary judgment in an action to foreclose a mortgage, a plaintiff establishes its case as a matter of law through the production of the mortgage, the unpaid note, and evidence of default (see Wells Fargo Bank, N.A. v Webster, 61 AD3d 856 [2009]; Republic Natl. Bank of NY v O'Kane, 308 AD2d 482, 482 [2003]; see Aames Funding Corp. v Houston, 44 AD3d 692, 693 [2007]).

In support of its motion, plaintiff offers, among other things, a copy of the pleadings, affidavits of service, the mortgages, the amended and restated note, the modification and consolidation agreement, an affirmation and affidavit of its counsel, a copy of a payment history chart prepared by plaintiff for defendant 7021 LLC's account, and the affidavits of James A. Raborn, its vice-president, and Peter Hollnsteiner, its senior vice-president, attesting to the default in payment of the installment due and owing plaintiff on May 1, 2008 and thereafter. These submissions establish plaintiff's prima facie case to summary judgment as against defendant 7021 LLC (see EMC Mtge. Corp. v Riverdale Assoc., 291 AD2d 370 [2002]; Republic Natl. Bank of NY v Zito, 280 AD2d 657, 658 [2001]; see also IMC Mtge. Co. v Griggs, 289 AD2d 294 [2001]; Paterson v Rodney, 285 AD2d 453 [2001]). The burden shifts to defendant 7021 LLC to raise a triable issue of fact regarding their affirmative defenses (see Barcov Holding Corp. v Bexin Realty Corp., 16 AD3d 282 [2005]; EMC Mtge. Corp. v Riverdale Assoc., 291 AD2d 370 [2002], supra; First Nationwide Bank, FSB v Goodman, 272 AD2d 433 [2000]).

Defendant 7021 LLC asserted lack of personal jurisdiction as a first affirmative defense. Defendant 7021 LLC, however, failed to move to dismiss the complaint upon such ground within 60 days of service of a copy of the answer, and as a consequence, the defense is deemed waived (CPLR 3211[e]; DeSena v HIP Hosp., Inc., 258 AD2d 555 [1999]; Wade v Byung Yang Kim, [*3]250 AD2d 323 [1998]; Fleet Bank, N.A. v Riese, 247 AD2d 276 [1998]).

With respect to the second affirmative defense, defendant 7021 LLC argues that a dispute arose between 7021 LLC and plaintiff over plaintiff's imposition of a default rate interest charge against defendant 7021 LLC for the period February 1, 2008 through February 28, 2008. According to defendant 7021 LLC, plaintiff's imposition of such charge against it caused a series of continuing defaults, the improper imposition of additional default rate interest charges, and the acceleration of the mortgage debt.

Defendant 7021 LLC offers an affidavit of Zhu Zhong, its manager, copies of various correspondence and checks. These submissions, however, fail to raise a triable issue of fact regarding its defense of tender. Therefore, defendant 7021 LLC has failed to show it was not in default in payment of the monthly mortgage installment due May 1, 2008 and thereafter.

" As a general rule, a tender must include everything to which the creditor is entitled, including interest to the time the tender is made, or else it is not legally effective'" (National Sav. Bank of Albany v Hartmann, 179 AD2d 76, 77 [1992], quoting 83 NY Jur 2d, Payment and Tender § 151, at 38). Even assuming defendant 7021 LLC is correct for the purpose of this motion, that plaintiff was not entitled to charge default rate interest for the periods February 1, 2008 through February 28, 2008, April 1, 2008 through April 13, 2008, or May 1, 2008 through May 30, 2008, defendant 7021 LLC has failed to present evidence that it tendered payment to plaintiff in an amount sufficient to pay all that which plaintiff otherwise was entitled to receive under the amended and restated note and mortgage contract, as of June 1, 2008. Nor has defendant 7021 LLC presented any evidence to show that it otherwise cured its default prior to the acceleration of the mortgage debt.

James A. Raborn, in his affidavit, states that a check presented by defendant 7021 LLC on June 12, 2008 was returned for insufficient funds, and notwithstanding the check was redeposited on June 19, 2008, it was again returned for insufficient funds. James A. Raborn also states that no other funds were received from, or on behalf of, defendant 7021 LLC. Plaintiff sent defendant 7021 LLC a notice of default dated June 20, 2008, indicating defendant 7021 LLC was in default in failing to make payments of the full amounts due under the amended and restated note and consolidation and modification agreement on May 1, 2008 and June 1, 2008.

To the extent Zhu Zhong states in his affidavit, that defendant 7021 LLC's tender of payments "for June 2008, to replace a bounced check and July 2008," was refused by plaintiff, he has failed to state the tender's amount, and when and to whom he made such tender. Furthermore, Zhu Zhong admits in his affidavit that defendant 7021 LLC thereafter withheld payment of the monthly mortgage installment due on August 1, 2008.

A dispute as to the exact amount owed by the mortgagor to the mortgagee does not preclude the granting of summary judgment as to liability (see Layden v Boccio, 253 AD2d 540 [1998]). Any dispute as to the exact amount owed plaintiff pursuant to the mortgage and note, may be resolved after a reference pursuant to RPAPL 1321 (see Crest/Good Mfg. Co. v Baumann, 160 AD2d 831 [1990]).

Parties are free to agree that a contract rate of interest shall increase upon default, so long as an interest rate is not usurious or does not constitute a penalty (see Union Estates Co. v Adlon Constr. Co., 221 NY 183 [1917]; Emery v Fishmarket Inn of Granite Springs, Inc., 173 AD2d 765 [1991]; see also Libra Bank v Banco Nacional de Costa Rica, 570 F Supp 870, 888-891 [1983]). Clearly, if a mortgage contract provides for the application of a default rate of interest to apply upon [*4]acceleration, it will be that rate which prevails (see e.g. Heimbinder v Berkovitz, 263 AD2d 466 [1999], citing Marine Mgt. v Seco Mgt., 176 AD2d 252 [1991], affd 80 NY2d 886 [1992]; Ward v Walkley, 143 AD2d 415 [1988]; Citibank, N.A. v Liebowitz, 110 AD2d 615 [1985]).

In this case, plaintiff took the position in its dealings with defendant 7021 LLC that upon defendant 7021 LLC's default in making timely installment payments, it was entitled to charge both the contract rate of interest and the default rate of interest for the same periods, i.e. February 1, 2008 through February 28, 2008, April 1, 2008-April 13, 2008, and May 1, 2008 through May 30, 2008. The charging of a default rate interest in the amount of 24% per annum on the principal, in addition to contract rate interest in the amount of 7.25% per annum, results in a total charge of interest at a rate in an amount of 31.25% per annum, a criminally usurious rate (see Penal Law § 190.40).

Perhaps in recognition thereof and in accordance with the express condition of the amended and restated note and the consolidation and modification agreement, limiting defendant 7021 LLC's liability for interest in an amount no greater than the maximum rate allowed by law, plaintiff alleged in its complaint, that the default occurred on May 1, 2008, and thereafter. Likewise, James A. Raborn states in his affidavit dated March 19, 2009 that defendant 7021 LLC owes interest on the principal of the consolidated mortgage loan at the rate of 7.25% per annum for the period April 1, 2008 through May 31, 2008, and at the rate of 24% per annum for the period June 1, 2008 through March 1, 2009. Thus, plaintiff's claim against defendant 7021 LLC relative to 7021 LLC's liability for interest is limited to contract rate interest at the rate of 7.25% per annum for the period April 1, 2008 through May 31, 2008, and for default rate interest at the rate of 24% per annum for the period June 1, 2008 and thereafter.

To the extent defendant 7021 LLC asserts as a third affirmative defense that the 24% default interest rate constitutes a penalty and is void as against public policy, "it is well settled that an agreement to pay interest at a higher rate in the event of default or maturity is an agreement to pay interest and not a penalty (citations omitted)" Jamaica Sav. Bank, FSB v Ascot Owners, Inc., 245 AD2d 20 [1997]). Therefore, the provision in the amended and restated note fixing interest at the rate of 24% per annum after default or maturity is a valid and enforceable provision (see Bloom v Trepmal Const. Corp., 29 AD2d 951 [1968]).

The acceleration clause here is in statutory form (Real Property Law, § 258, schedule M, par. 4) under which no notice of default or demand for payment is required as a condition precedent to declaring the entire amount due and commencing a foreclosure action (see Albertina Realty Co. v Rosbro Realty Corp., 258 NY 472, 475 [1932]). Plaintiff properly elected to accelerate the mortgage debt by service of the summons and complaint (see Logue v Young, 94 AD2d 827 [1983], supra; see also Albertina Realty Co. v Rosbro Realty Co., 258 NY 473 [1932], supra). Defendant 7021 LLC has failed to state a cause of action in its counterclaims insofar as it has failed to show that plaintiff had any duty to reinstate the mortgage and stop any procedures to enforce its rights, or to enter into a forbearance or modification agreement.

With respect to that branch of the cross motion by defendant 7021 LLC for leave to amend the amended answer to assert additional affirmative defenses based upon unclean hands and breach of contract, defendant 7021 LLC has failed to make any showing that plaintiff's declaration of a default under the consolidated mortgage and amended and restated note, and acceleration of the mortgage debt was improper (CPLR 3025).

That branch of the motion by plaintiff for summary judgment in its favor against defendant [*5]7021 LLC and to strike the answer and counterclaims of defendant 7021 LLC is granted. The cross motion by defendant 7021 LLC pursuant to CPLR 3025(b) for leave to amend its amended answer as proposed, and to vacate the default declared by plaintiff and acceleration of the mortgage debt is denied. That branch of the motion by plaintiff for leave to appoint a referee is granted.

Settle order.

J.S.C.