Shaw Funding, L.P. v Boris
2012 NY Slip Op 31061(U)
April 12, 2012
Supreme Court, Suffolk County
Docket Number: 08-10962
Judge: John J.J. Jones Jr
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[* 1]
SHORT FORM ORDER
INDEX No.
CAt. No.
08-10962
11-00509EO
SUPREME COURT - STATE OF NEW YORK
IAS. PART 10 - SUFFOLK COUNTY
PRESENT:
Hon.
JOI-IN 1.J. JONES, JR.
Justice of the Supreme Court
---------------------------------------------------------------X
SHA W FUNDING, LP.,
Plaintiff,
-againstBARBARA MARSH BORIS, DENNIS BORIS,
STATE OF NEW YORK on behalf of
UNIVERSITY HOSPITAL SUNY at STONY
BROOK, KRISTINA NEGLIA, RALPH NEGLIA,
MIDLAND FUNDING, LLC, and "JOHN DOE
#1" through "JANE DOE #10", the last 10 names
being fictitious and unknown to thc .Plaintiff: the
persons or parties intended being the occupants,
tenants, persons or entities, if any, having or
claiming an interest in or lien upon the mortgaged
premises described in the verified complaint,
Defendants.
---------------------------------------------------------------X
MOTION DATE
8-10-11
ADJ. DATE
8-10-11
Mot. Seq. # 003 - MG
IRWIN POPKIN, ESQ.
Attorney for Plaintiff
445 Broad Hollow Road, Suite 25
Melville, New York 11747
DONOHUE, MeGAHAN, CATALANO, et a!.
Attorney for Plaintiff on Counterclaim
555 North Broadway, P.O. Box 350
Jericho, New York 11753-0350
JEFFREY LEVIT, ESQ.
Attorney for Defendants Boris
P.O. Box 306
Massapequa., New York 11758
scon LOCKWOOD,
ESQ.
Attorney for Defendants Neglia
1476 Deer Park Avenue, Suite 3
North Babylon, New York 11703
Upon the following papers numbered I to -!.L read on this motion for summarY judgment; Notice of Motion! Order
10 Show Cause and supporting papers -.L..:..!-; Notice of Cross Motion and supporting papers _; Answering Affidavits and
supporting papcr~ 9 - 10; Replying Affidavits and supporting papers II - 12 ; Other _; (1l1l(!llfielhelll illg CMIl$e1ill St1ppt'i1!
1l1idopposed to the IIlt'iti6ll) it is,
ORDERED that the motion by plaintiff Shaw Funding, L.P. for an order striking the affinnative
defenses of defendants Kristina and Ralph Neglia, and dismissing their answer and counterclaims;
dismissing the answer of defendants Barbara Marsh Boris and Dennis Boris; and granting it surrunary
Judgment on its complaint, appointing a referee to compute, and imposing an equitable mortgage on the
subject propel1y, is granted to the extent set fortb herein.
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Shaw Funding v Marsh Boris
Index No. 08- I 0962
Page NO.2
Defendants Ralph Neglia and Kristina Neglia are husband and wife (hereinafter the '-Ncglias"
when refcncd to collectively). Defendant Barbara Marsh-Boris, f/k/a Barbara Marsh (hereinafter
referred to as ·'Marsh-Boris" or "Barbara Marsh") is the mother of defendant Kristina Neglia. In July
1999, Barbara Marsh and the Neglias each provided $15,000 towards a down payment to jointly
purchase the property located at [81 West Lake Drive in Lindenhurst, New York (the "Property"). The
purchase was financed with a loan from Bank of America in the principal amount of $140,000, secured
by a mortgage on the Property. Thc note, mortgage and deed, however, were placed in the name of
Barbara Marsh as she had better credit than the Neglias. It was also ab'Teedthat the Neglias would be
added to the deed in the future. Barbara Marsh moved into the first Door and the Neglias moved into the
second Ooor of the Property, each paying one-half of the mortgage and utilities.
In 2001, Barbara Marsh refinanced the Bank of America mortgage note to lower the interest rate
and obtain $30,000 in cash, increasing the principal balance to $170,000. Barbara Marsh gave $ 15,000
of the cash to the Neglias, and each continued to pay one-half of the mortgage. Thereafter, allegedly
unbeknownst to thc Neghas, Barbara Marsh took a separate loan from Bank of America for $15,000,
secured by a second mortgage on the Property.
At some point the Neglias approached Barbara Marsh to have their names addcd to the deed;
allegedly Barbara Marsh refused to do so. On September 28, 2005, the Neglias commenced an action
against Barbara Marsh seeking the imposition of a constructive trust on the Property (the <~eglias
Lawsuit"). The notice of pendency for the Neglias Lawsuit, dated September 27, 2005, was recorded in
the Suffolk County Clerk's office on November 2, 2005. By Order dated March 15,2007 (Baisely, J.) a
constructive trust was imposed to the extent of granting the Neglia" a one-half equitable interest in the
Property. On May 21, 2007, ajudgment \-vasentered in the Neglias Lawsuit directing Barbara Marsh to
convey a onc-half interest in the Property to the Neglias and to execute and deliver a deed reflecting
same. In the event Barbara Marsh failed to do so, the Sheriff was directed to prepare and deliver the
deed to the Neglias. During her EBT, Marsh-Boris testified the Sheriff executed the deed.
Barbara Marsh and defendant Dennis Boris were married on October 28,2007. By quitclaim
deed dated December 13, 2007, Barbara Marsh conveyed the Property to Dennis Boris and to herself as
Marsh-Boris, as husband and wifc. On the same date, Marsh-Boris and Dennis Boris (hereinafter the
·'Boris Delcndants·' when relcrrcd to collectively) borrowed the principal sum of $230,000 from plaintiff
Shaw Funding. L.P. ("Shaw Funding") executing a note secured by a mortgage on the Property (the
"Shaw Funding Mortgage"). At the closing, a portion of the proceeds fTom the loan was used to payoff
the first and second Bank of America mortgages in the amount of $186,207.08, the real property tax lien
of $5.495.00, and a personal judgment against Barbara Marsh for $200.00. The quitclaim deed and
Shaw Funding Mortgage documents were recorded in the Suffolk County Clerk's office on January 14,
2008.
The Boris Defendants defaulted in making the first payment on the Shaw founding Mortgage in
the amount of $2,635.17 which was due on January 1.2008, and all payments due thereafter. On
March 17,2008, Shaw Funding commenced the instant action to foreclose on the mortgage and for
equitable subrogation with respect to the Bank of America mortgages it satisfied, and the real property
taxcs and judgment it paid. The Neglias interposed an answer with general denials, asserted affirmative
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Shaw funding v Marsh Boris
Index No. 08-10962
Page No.3
defenses of lack ofJ urisdictioll due (0 improper service and lack of service of process. alleged cross
claims against the Boris Defendants to set aside as nuH and void the deed dated December 13, 2007, and
to partition or sell the Property which they hold as tenants in common with Marsh-Boris. The Neglias
also asserted counterclaims against Shaw Funding sounding in negligence, and for a declaratory
judgment against Shaw Funding and the Boris Defendants declaring that their one-half interest in the
Property is unencumbered by the Shaw Funding Mortgage. [n their answer, the Boris Defendants also
deny the material allegations in the complaint and as a first affirmative defense and counterclaim against
Shaw Fundmg allege that the note and mortgage are void as usurious. pJaintiffhas submitted a reply to
the counterclaims. The instant motion ensued. The Neglias have submitted opposition to the equitable
subrogation branch of the motion; the Boris Defendants have not submitted any opposition papers.
The branch of Shaw Funding's motion which seeks to strike the Neglias' first and second
affimlative defenses alleging lack of personal jurisdiction on the basis of improper service and lack of
service is granted. The Neglias have not submitted any opposition to this branch of the motion, and did
not move to dismiss the complaint on these grounds within 60 days of service of their answer, thus, these
defenses are waived (see lP Morgan Chase Bank v Munoz, 85 AD3d 1124, 927 NYS2d 364 [2d Dert
2011]; CPLR 3211 [eJ).
Turning to the branch of the motion for summary judgment, to establish its prima facie
entitlement to judgment as a matter of law m a foreclosure action, the plaintiff must produce the
mortgage, the unpaid note and undisputed evidence of a default under the terms thereof (see CPLR 3212;
RPAPL § 1321; Zan[ini v Chandler, 79 AD3d 1031,912 NYS2d 911 [2d Dep! 2010); Washington
Milt. Bank, F.A. v O'Connor, 63 AD3d 832, 880 NYS2d 696 [2d Dept 2009]). Once such a showing
is made, the burden shifts to the defendants to raise a triable issue of fact regarding any affirmative
defenses and counterclaims asserted by them in opposition to a plaintiffs motion seeking foreclosure
(see Washington .Mut. Bank, F.A., supra).
Here, Shaw Funding has produced the mortgage, note and proof of the dehlUlt, however, based
on the record before the court, the mortgage it holds is not enforceable against the entire Property. The
filing of the notice of pendency in the Neglias Lawsuit provided Shaw Funding with constructive notice
that the judgment demanded may MIect the title to the Property (see NOllastar Mortgage, Inc. v
Jl1emioza, 26 AD3d 479, 811 NYS2d 41 t [2d Dept 2006]). Moreover, since the Shaw Funding
Mortgage documents were recorded alter the filing ofa notice of pendency, Shaw Funding "is bound by
all proceedings taken in the action after such filing to the same extent as a party" (Mallick v Farfall, 66
AD3d 649, 885 NYS2d 774 [2d [lept 2009]; CPLR 6501). "That a [mOl1gagee] lacks actual knowledge
of the filing is irrelevant as the principle underlying the doctrine of notice of pendency 'docs not rest
upon the presumption of notice but upon reasons of public policy, manifested by the language of rCPLR
6501] (citation omitted)''' (Goldstein v Gold, 106 AD2d 100, 102,483 NYS2d 375 [2d DcptI984J).
When Shaw Funding became a mortgagee on the Property, the Neglias had been judicially
awarded one-halfmterest in the Property, thereby becoming tenants in common with Barbara Marsh
(EPTL 6-2.2 ["a disposition of property to two or more persons creates in them a tenancy in common,
unless expressly declared to be ajoint tenancy"]). Barbara Marsh was not prevented from conveying her
one-halfillterest in the Property to herself and Dennis Boris, and the Boris Defendants were not
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Shaw funding v Marsh Boris
Index No. 08- j 0962
Page No.4
prevented il·om mortgaging their imcrest in the Property (see V.R. W, fnc. v Klein, 68 NY2d 560, 510
NYS2d 848 [1986:1). However, "[a J co~owner can only encumber its own interest in property without
the consent of the other co-owners" (Kwong Bee Lee v Adjmi 936 Realty Assocs., 34 AD3d 646, 648,
824 NYS2d 672 [2d Dept 2006 J). A mortgage given by one of several parties with an interest in the
mortgaged property gives the ··mortgagee security ...only up to the interest of the mortgagor" (Real Spec
Velltllres, LLC v E.,tate of Dellll.>,87 AD3d 1000, 1002,929 NYS2d 615 12d Dept 201 I); 1.2.3
Holding Corp. v E\-eter Holding, Ltd., 72 AD3d l040, 1042,900 NYS2d 356 [2d Dept 2010]).
Therefore, Shaw Funding obtained no greater interest in the Property than the Boris Defendants
possessed. Thus, the Shav,' Funding Mortgage is enforceable only against the Boris Defendants' interest
in the Property (see Real Spec Ventures, LLe v EHate of Deans, supra).
Nevertheless, equity dictates that Shaw runding is entitled to an equitable mortgage on the
Property to the extent of the funds expended by it to satisfy the Bank of America mortgages and the real
property tax lien (see Killg v Pelko/ski, 20 NY2d 326, 282 NYS2d 753 [1967J; Grellt Eastern Blink v
Chang. 227 AD2d 589, 643 NYS2d 203 [2d Dept 1996], Iv dismissed 88 NY2d 1064, 651 NYS2d 407
[1996 J). In support of its claim for equitable subrogation, Shaw Funding submits the affidavit of its
managing director, Vasilios Letkaditis ("Lefkaditis"). In the affidavit, Lefkaditis asserts that prior to
extending the loan, plaintiff obtained a commitment for title insurance ("title report") from Grant
Abstract, Inc. The title report, with an effective date of October I, 2007, listed an April 9, 2002
mortgage in the principal amount of$169,OOO and an October 20, 2006 mortgage in the principal
amount of$15,000 made by Barbara Marsh to Bank of America, and a $100 judgment against Barbara
Marsh. Proceeds hom the loan werc used to satisfy and discharge the two Bank of America mortgages
which totaled $186,207.08, and the judgment which totaled $200.00. The remainder of the proceeds was
used to pay the real property tax lien of$5,495.00, and expenses associated with the closing of title.
Lefkaditis asserts that the title report did not disclose the notice of pendency filed, the judgment entered
in connection with the Neglias Lawsuit, or a deed conveying a one-half interest in the Property to the
Neglias. Lctkaditis also asserts that Shaw Funding did not otherwise obtain knowledge of the Neglias
Lawsuit and judgment prior to the closing of title.
Unpersuasive is the argument in opposition by the Neglias' that the equitable subrogation
doctrine should not apply because Shaw Funding had constructive knowledge of a potential defect in the
title. Additionally. the cases relied upon by the Neglias arc distingUIshable from the case at bar.
Moreover. in a case strikingly similar to the facts herein, Elwood v Hof/IIIlIll (61 AD3d l073, 876
NYS2d 538 [3d Dept 2009]), the court found that "It]he presence of constructive notice does nol render
the doctrine of equitable subrogation inapplicable where, as here, the notice of pendency was
'unbeknown· to...rShaw Fundingj at the time'· (itl. at ]075). 1n Elwood, one owner of property
(hereinafter the ·'movant"), commenced an action agamst the other owner of the property (hereinalter the
"non-movanf') seeking to impose a constructive trust on the property for the purpose of selling It and
dividing the proceeds. In connection therewith, the movant filed a notice of pendency against the
property in May 2006. Notwithstanding the notice of pendency, in October 2006, the non-movant
obtained a loan for S85,000, secured by a second mortgage on the property. A portion of the loan
proceeds was used to satisfy a preexisting mortgage. The predecessor in interest of the mortgagee
holding the second mortgage, moved to intervene in the movant's action. The constructive trust was
thereafter granted. The court in Elwood found that although the notice of pendency had been filed at the
[* 5]
Shaw Funding v Marsh Boris
Index No. 08-10962
Page NO.5
tllnc the second mortgage was given, it was apparently overlooked by the second mortgagee's title agent.
Thus ..the second mortgagee had constructive notice, but not actual notice ofthc recorded notice of
pendency. The court in Elwood held, '"[b]ased upon the Court of Appeals' decision in King v. Pelkoj\'ki
citation omitted], the presence of constructive notice does nOl render the doctrine of equitable
subrogation inapplicable where. as here, the notice of pendency was "unbeknown' to ...[the second
mortgagee] at the lime"' (id. at 1075). The court in Elwood also highlighted that the movant would be
unjustly enriched if the doctrine of equitable subrogation was not applied, and specifically stated it
declined to follow the cases holding otherwise (the same cases relied upon by the Neglias).
r
The same result is warranted in the case at hand. "Where, as here, the funds ofa mortgagee arc
used to discharge a prior lien upon the property of another, the doctrine of equitable subrogation applies
to prevent unjust emichment by subrogating the mortgagee to the position ofthe senior lienholder"
(Great Eastern Bank v Chang, 227 AD2d 589, 643 NYS2d 203 [2d Dept 1996]; see King v Pelko/ski,
supra; Elwood v Hof/man, supra). Even though the Shaw Funding Mortgage is not a legal charge upon
the Neglias' interest in the Property, the Neglias knew of, and consented to at least, the first Bank of
America mortgage. The Bank of America mortgages were senior to the judicially awarded interest of the
Neglias in the Property. If the doctrine is not applied here, the Neglias would be unjustly enriched with
one-half or the Property unencumbered by any mortgage, an outcome the Appellate Court in Elwood
would not countenance. Thus, "[ e]quity will preserve for the benefit of the plaintiff [Shaw Funding] the
senior incumbrance which ...(it] caused to be discharged" (King v Pelko/ski, supra at 334).
The cases relied upon by the Neglias are factually distinguishable from the facts herein. In Rotlt
v Poru:.1t (281 AD2d 612, 722 NYS2d 566 [ld Dept 2001]), ajudgment creditor filed a notice of
pendency and commenced the action to set aside a fraudulent conveyance of real property from the
judgment debtor to his wife, who in turn sold the real property to third parties. The court found that
there were facts which should have led the third-parties and their title insurance company to conduct
further lI1(]uirybefore purchasing the property, and found that the doctrine of equitable subrogation was
inapplicable. There was no issue of the judgment debtor who was the owner of the property, being
unjustly enriched with an unencumbered property, as would be the case here for the Ncglias if the
doctrine of equitable subrogation is not applied.
R.C.P.S. As.'wciates v Kamam Developers, (238 AD2d 492, 656 NYS2d 666 [2d Oept 1997])
and Bank One v Mlli (38 AD3d 809, 835 NYS2d 585 [2d Dept 2007]) involved the foreclosure of
competing mortgages held by different mortgagees on the same propelty. The court found the doctrine
did not apply inasmuch as the mortgagee seeking to be subrogated to the rights of the senior mortgagee
had knowledge of the preexisting lien. Again, there was no issue of the mortgagor/owner of the property
being unjustly enriched by getting a property free and clear of a mortgage.
Similarly, Pawling Savings Bank v J111lltProperties (225 AD2d 678, 639 NYS2d 462 [2d Dept
1996J), involved competing mortgages on the same property held by different mortgagees. where the
mortgagee seeking to be subrogated to the senior mortgage admittedly knew of the preexisting mortgage.
The doctrine was not applied. Summary judgment was denied in Countrywide Home LOllns Inc v
Dombek, 68 AD3d 1041, 892 NYS2d 465 [2d Dept 2009]), a case also involving competing mortgages
held by different mortgagees. The court in the Countrywide case found that an issue offb.ct existed as to
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Shaw Funding v Marsh Boris
Index No. 08-10962
Page NO.6
whether the mortgagee seeking to be subrogated had knowledge of the preexisting licn. Again, neither
Pawling nor Countrywide involved an owner being unjustly enriched with a mortgage-free property.
Therefore, the branch of the motion by Shaw runding which seeks the imposition oran equitable
mortgage on the entire Property for $187,207.08 the amount extended to pay otfthe Bank of America
mortgages, and for $5,495.000 the amount extended to pay off the real estate tax lien, and to foreclose on
the equitable mortgage is granted. The branch of the motion by Shaw Funding to foreclose on the Shaw
Funding Mortgage and for the appointment of a referee to compute is granted in its favor and against the
Boris Defendants as to their one-half interest in the Property.
The Neglias have not opposed that branch of Shaw Funding's motion for summary judgment
dismissing their answer and counterclaims. Thcrefore, that branch of the motion is granted, and the
answer and counterclaims are severed and dismissed as to Shaw Funding.
The Boris Defendants have answered the complaint asserting a claim of usury, however, offer no
opposition to Shaw Funding's motion for summary judgment or evidence to .support their claim of usury.
Thus, the facts alleged in Shaw Funding's papers are deemed admitted, thereby eliminating any issue of
faet for trial as to the Boris defendants (see Argellt Mtge. Co., LLe v MelltesollQ, 79 AD3d 1079, 915
NYS2d 591 [2d Dept 2010]). Therel"ore, that branch ol"the motion for summary judgment is also
granted, and the answer of the Boris Defendants is severed and dismissed as to Shaw Funding.
Submit order.
Datcd:~z... ~
z..
(1/ ~
FINAL DISPOSITION
_X_
NON-FINAL DISPOSITION
