206 Jericho Realty LLC v 7318 18th Ave., Inc.
Annotate this CaseDecided on June 11, 2012
Supreme Court, Kings County
206 Jericho Realty LLC, Plaintiff,
against
7318 18th Avenue, Inc. a/k/a 73-18 18th Avenue, Inc., et al., Defendants.
11979/11
Lawrence and Walsh, P.C.
By: John Tangel, Esq.
Attorneys for Plaintiff
215 Hilton Avenue
Hempstead, NY 11550
Lester & Associates, P.C.
By: Gabriel R. Korinman, Esq.
Attorneys for Defendants
600 Old Country Road, Suite 229
Garden City, NY 11530
Sylvia O. Hinds-Radix, J.
Upon the foregoing papers, plaintiff 206 Jericho Realty LLC moves for an order 1) granting plaintiff summary judgment, 2) striking the answer of defendants 7318 18th
Avenue, Inc. a/k/a 73-18 18th Avenue, Inc. (7318 Inc.) and Choi Ling Thom (Thom), 3) appointing a referee to compute and 4) amending the caption to substitute Magic Cut & Spa Inc. and Jiang Liang for "John Doe No. 1" and "Jane Doe No. 2" and striking "John Doe No. 3" through "Jane Doe No. 10."
Plaintiff commenced this action to foreclose a mortgage encumbering the subject premises at 7318 18th Avenue in Brooklyn. The property consists of a commercial space, [*2]which is currently leased to a beauty salon, and two residential apartments. Thom and her husband, Chiu Ding Thom, took title to the property as tenants by the entirety on August 16, 1966. Following the death of her husband, Thom conveyed the property to her sons Jet Thom and Richard Thom by deed dated November 15, 1996. In the deed, Thom expressly reserved a life estate in the property.
On or about July 21, 2009, Thom signed a commitment letter for the subject loan in the amount of $285,393.30. According to the commitment letter, there would be a "cash out" of $230,000.00, with closing costs of $16,000.00, $15,990.00 in interest reserve and an origination fee in the amount of $23,403.60. While Thom is identified in the commitment letter as an individual borrower, the commitment was "transferable and assignable to a corporate entity of the borrower's choosing."
By deed dated October 5, 2009, Jet Thom and Richard Thom, as tenants in common and subject to Thom's life estate, conveyed the property to 7318 Inc. On October 5, 2009, the same date it took title to the property, 7318 Inc. executed the subject mortgage in favor of plaintiff. The mortgage secures a balloon note from plaintiff in the amount of $285,394.00. The mortgage and note were both signed by Thom as "president" of 7138 Inc. The note required 7138 Inc. to make monthly payments of $3091.76 until the maturity date of October 4, 2010, at which time the balance of principal and interest would become payable in full. The note further provides that the undersigned (Thom) "hereby forever waives presentment, demand, protest, notice of protest and notice of dishonor of the within note; and the undersigned and [sic] guarantees the payment of said notice [sic] unconditionally and consents without notice to any and all extensions of time or terms or payment made by holder of said note."
According to the verified complaint and affidavit of Dr. Arnold Schwartz, who identifies himself therein as the sole member of plaintiff, 7318 Inc. defaulted under the mortgage and note by failing to make the final balloon payment due on the maturity date of October 4, 2010. In their verified answer, defendants set forth affirmative defenses that the complaint fails to state a cause of action, lack of personal jurisdiction over defendants, that plaintiff's claims, if any, against Thom are barred by the statute of frauds, that the loan is usurious and that plaintiff "failed to meet the mortgage requirements and the statutory requirements prior to accelerating the loan."
A plaintiff establishes its prima facie right to judgment as a matter of law in a foreclosure action by producing the mortgage, the unpaid note, and evidence of default (see Washington Mut. Bank, F.A. v O'Connor, 63 AD3d 832, 833 [2009]; Daniel Perla Assoc., LP v 101 Kent Assoc., Inc., 40 AD3d 677, 677 [2007]; LPP Mtge., Ltd. v Card Corp., 17 AD3d 103, 104 [2005]; US Bank Trust N.A. Trustee v Butti, 16 AD3d 408, 408 [2005]; Republic Natl. Bank of NY v O'Kane, 308 AD2d 482, 482 [2003]; Hypo Holdings v Chalasani, 280 AD2d 386, 387 [2001]). The submission of copies of the mortgage and note and the affidavit of Dr. Schwartz attesting to personal knowledge of the default establishes prima facie entitlement to summary judgment (see Coppa v Fabozzi, 5 AD3d 718 [2004]; EMC Mtge. Corp. v Riverdale Assoc., 291 AD2d 370 [2002]; Fed. Home [*3]Loan Mtge. Corp. v Karastathis, 237 AD2d 558, 559 [1997]). Further, there is no dispute that defendants have failed to pay all outstanding indebtedness which became due on the maturity date of October 4, 2010. The burden thus shifts to defendants to present competent evidence to raise an issue of fact as to their defenses (see Chemical Bank v Bowers, 228 AD2d 407 [1996]).
Among the affirmative defenses defendants address in their opposing papers is that the subject loan is usurious. The maximum rate of interest chargeable on a loan is 16 per cent (General Obligations Law [GOL] § 5-501; Banking Law § 14-a). GOL § 5—501(2) provides that "the amount charged, taken or received as interest shall include any and all amounts paid or payable directly or indirectly, by any person, to or for the account of the lender in consideration for making the loan . . ." On its face, the note states an interest rate of 13 percent. However, when including as a measure of interest the $23,403.60 origination fee, the rate of interest on the subject loan exceeds the statutory maximum.
In reply, plaintiff argues that usury laws are not applicable to the subject transaction as the borrower is a corporate entity. However, "[w]hile corporations generally cannot avail themselves of the protection of the usury statutes an exception exists where the corporate form is used to conceal a usurious loan to an individual to discharge his personal obligations" (Essex v Newman, 237 AD2d 486 [1997][citations and internal quotation marks omitted]; see Webar, Inc. v Capra, 212 AD2d 594 [1995]; First Nat. Bank of Amenia v Mountain Food Enters., 159 AD2d 900 [1990]). Where the loan was in fact, although not in form, made to an individual guarantor to discharge his or her personal obligations, and not in furtherance of a corporate or personal enterprise, the individual guarantor may interpose the defense of usury (see Schneider v Phelps, 41 NY2d 238, 242 [1977].
In her affidavit in opposition, Thom avers that in the summer of 2009, she sought a personal loan to pay family debts and obligations. At the time the commitment letter was issued specifying Thom as the borrower, the corporate borrower, 7318 Inc., was not in existence. Thom asserts that near the time of closing, plaintiff required that a new entity must be formed in order for plaintiff to make the loan, and that plaintiff arranged the formation of the new entity. 7318 Inc. was formed on or about August 12, 2009.
In light of Thom's affidavit, and taking into consideration the fact that the loan commitment was made to Thom prior to the formation of 7318 Inc., the court finds an issue of fact exists as to whether the loan was, in reality, a personal loan to Thom rather than a loan to 7318 Inc. to further a corporate interest and, resultantly, may be deemed usurious on account of the true interest rate being in excess of 16 percent.
As a result, plaintiff's motion for an order granting summary judgment, striking the answer of defendants and appointing a referee is denied. That part of plaintiff's motion to substitute parties and amend the caption is granted.
The foregoing constitutes the decision and order of the court.
E N T E R,
J. S. C.
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