Capital One, N.A. v Margiotta

[*1] Capital One, N.A. v Margiotta 2012 NY Slip Op 51526(U) Decided on August 9, 2012 Supreme Court, Kings County Hinds-Radix, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 August 9, 2012
Supreme Court, Kings County

Capital One, N.A., Successor by Merger to North Fork Bank, Plaintiff,

against

Michelina Margiotta, Daniel Margiotta, Jennifer Margiotta, "John Doe No. I" to "John Doe No. XXX," Inclusive, the Last Thirty Names Being Fictitious and Unknown To Plaintiff, the Persons or Parties Intended Being the Tenant, Occupants, Persons or Corporations, If Any, Having Or Claiming an Interest in or Lien upon The Premises Described in the Complaint, Defendants.



13748/11



Herman R. Lipkis Esq.

Jaspan Schlesinger LLP

Attorneys for Plaintiff Capital One

300 Garden City Plaza

Garden City, NY 11530

David H. Harrison, Esq. and Jay Meyers, Esq.

Attorneys for Defendants Michelina Margiotta, Daniel Margiotta, and

Jennifer Margiotta

48 Willoughby Street

Brooklyn, NY 11201

Sylvia O. Hinds-Radix, J.

Upon the foregoing papers, in this action to foreclose a mortgage on real property, plaintiff Capital One, N.A., successor by merger to North Fork Bank (plaintiff) moves for summary judgment in its favor pursuant to CPLR 3212, the appointment of a referee to compute and report the amount due to it pursuant to RPAPL 1321, and the amendment of the caption.

BACKGROUND

On June 30, 2005, Seasons Industrial Capital Corp. (Seasons) (who is not a party herein), a New Jersey corporation, as borrower, by its president, Daniel Margiotta, executed a promissory note (the Note) in the principal amount of $1,000,000 in favor of North Fork Bank, whereby Seasons promised to repay all advances made to it by North Fork Bank plus interest. The Note was executed in connection with a Loan Agreement, also made on June 30, 2005 between Seasons and North Fork Bank, whereby Seasons was permitted to borrow up to $1,000,000 from North Fork Bank. The Note set forth that Seasons was to make monthly payments of interest only on the unpaid principal balance of the loan at the rate of 1.25% over the North Fork Bank's floating per annum prime rate of interest, and that the maturity date, at which the entire outstanding amount would be due and payable in full, was June 30, 2006.

The Note provided that the total indebtedness would become due and payable after a default in paying any amount required by it within 15 days of the date when due. The Note further provided that the unpaid principal sum due under it would bear interest at a default interest rate of five per cent above the rate otherwise provided by it, following the occurrence of an event of default and until the entire principal sum was fully paid. The Note also required the payment of late charges of four percent of the amount of any payment which was not made within 10 days of when due. In addition, the Note required Seasons to pay the North Fork Bank's reasonable attorney's fees in the event that it retained counsel with respect to the enforcement of the Note or any other document or instrument given to the bank.

The Note and all of the obligations imposed under it were secured by a mortgage (the Mortgage) in the amount of $666,000 (which represented a portion of the loan to Seasons in the amount of $1,000,000) dated June 30, 2005, executed by Daniel Margiotta and Michelina Margiotta, as mortgagors, which imposed a first mortgage lien upon [*2]property located at 1326 79th Street a/k/a Lot 17, Block 6268, in Brooklyn, New York (the premises). The mortgage tax was duly paid, and the Mortgage was recorded in the Office of the City Register of the City of New York on October 17, 2005.

In addition, Daniel Margiotta, Michelina Margiotta, and Jennifer Margiotta (collectively, defendants) executed separate written Guaranty Agreements, under which each of them individually unconditionally guaranteed the prompt payment of the loan to Seasons. The Guaranty Agreements provided that defendants would pay the amount due to North Fork Bank if Seasons defaulted under its obligations to it. Paragraph 13 of the Guaranty Agreements specifically provided:

"Guaranty Not Modified by Bankruptcy. Neither the Guarantor's obligation in accordance with the terms of this Guaranty, nor any remedy for the enforcement, nor the amount of the Obligations of the Borrower will be impaired, modified, or limited in any manner whatsoever by any impairment, modification, discharge or limitation of the Obligations of the Borrower or its estate in bankruptcy or any remedy for the enforcement, resulting from the operation of any present or future provision of the Bankruptcy Code of the United States or other statute, or from the decision of any court interpreting any of the same. The amount of the Obligations will, for the purposes of this Guaranty, be determined as if no such impairment, stay, modification, discharge or limitation had occurred."

It is undisputed that plaintiff became the successor by merger to North Fork Bank. A Note Modification Agreement, dated January 1, 2010, was executed by plaintiff, as successor by merger to North Fork Bank, and Seasons, by Daniel Margiotta, as its president, whereby Seasons acknowledged that the promissory Note dated June 30, 2005 had been subsequently amended by eight prior Modification of Note Agreements dated June 28, 2006, October 1, 2006, October 31, 2006, November 30, 2006, June 2, 2007, June 30, 2008, June 22, 2009, and September 30, 2009, respectively, which each extended the maturity date of the Note. The January 1, 2010 Note Modification Agreement stated that Seasons thereby confirmed that as of the date of that Agreement, Seasons was indebted to plaintiff under the Note in the principal sum of $309,283.26, with interest thereon, and that plaintiff had granted Seasons' request to extend the maturity date of the Note to the earlier to occur of either May 1, 2011 or of any event of default on the part of Seasons. Seasons agreed to pay plaintiff interest on the unpaid principal balance of the loan at the rate of 1.25% over plaintiff's floating per annum prime rate of interest, and further agreed that all other terms, covenants, and conditions, as set forth in the Note, remained unchanged and in full force and effect.Defendants executed a Reaffirmation of Guaranty Agreement, also dated January 1, 2010, whereby they reaffirmed their respective guarantees to plaintiff, as the lender, of the repayment of principal, interest, and other sums due from Seasons in connection with the $1,000,000 loan made by North Fork Bank to Seasons on June 30, 2005. Defendants, in the [*3]Reaffirmation of Guaranty Agreement, acknowledged the Loan Modification Agreement and expressly "acknowledge[d] and agree[d] that [they] d[id] not have any offset, defense, or counterclaim with respect to [their] obligations under the Guaranty," and stated that "any such offset, defense, or counterclaim as may [then] exist [was thereby] being . . . irrevocably waived by each Guarantor." Defendants further "represent[ed] that counsel had been consulted specifically as to this waiver.

On February 14, 2011, Seasons filed a voluntary bankruptcy petition pursuant to Chapter 7 (11 USC), in the United States Bankruptcy Court for the Southern District of New York. Plaintiff was listed as a creditor on "Schedule D," entitled "Creditors Holding Secured Claims," of Seasons' bankruptcy petition.

On March 1, 2011, defendants defaulted by failing to timely pay the installment of principal and interest which became due and payable and these amounts remain unpaid. Plaintiff elected to declare the entire principal sum and all amounts due to be immediately due and payable.

On June 16, 2011, plaintiff filed this action seeking to foreclose the mortgage on the premises. Plaintiff named Michelina Margiotta and Daniel Margiotta as defendants herein since they are the mortgagors. Plaintiff further named Michelina Margiotta and Daniel Margiotta, along with Jennifer Margiotta, as defendants herein based upon their Guarantees under the Guaranty Agreements, which were affirmed by the Reaffirmation of Guaranty Agreement dated January 1, 2010, so that they would be bound by the proceedings herein and to permit the assessment of any deficiency in the amount not recovered by plaintiff by the sale of the premises without the need for a separate action. Plaintiff additionally named "John Doe No. I" to "John Doe No. XXX" as defendants herein, being fictitious names meant to represent the tenants or occupants of the premises, or other persons claiming an interest in or lien upon the premises.

Plaintiff's complaint alleges that there is due and owing to it a principal balance of $141,365.31, with interest at 5.75% from February 1, 2011, plus default interest at the rate of 10.75% from March 1, 2011, and late charges as of May 4, 2011 in the amount of $6,457.34, plus its reasonable attorneys' fees. On June 21, 2011, plaintiff filed a notice of pendency against the premises.

Defendants interposed an answer to plaintiff's complaint, dated July 25, 2011, and no other party has appeared in this action. Defendants' answer contains general denials and alleges 12 affirmative defenses.

DISCUSSION

" [I]n moving 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'" (Wells Fargo Bank, N.A. v Webster, 61 AD3d 856, 856 [2d Dept 2009], quoting Republic Natl. Bank of NY v O'Kane, 308 AD2d 482, 482 [2d Dept 2003]; see also Washington Mut. Bank v Valencia, 92 AD3d 774, 774 [2d Dept [*4]2012]; Rossrock Fund II, L.P. v Osborne, 82 AD3d 737, 737 [2d Dept 2011]; Aames Funding Corp. v Houston, 44 AD3d 692, 693 [2d Dept 2007], cert denied 555 US 1048 [2008]; Village Bank v Wild Oaks Holding, 196 AD2d 812, 812 [2d Dept 1993]).

Here, plaintiff has submitted the affidavit of Julie Billelo, plaintiff's bank officer, who attests, based upon her review of the records maintained by plaintiff in the ordinary course of business, that defendants have defaulted. Plaintiff has also submitted copies of the Note and the Mortgage. Thus, plaintiff, by presenting the Mortgage and unpaid Note, along with evidence of defendants' default, has satisfied its burden of establishing its prima facie entitlement to judgment as a matter of law in its favor as against defendants (see Washington Mut. Bank, F.A. v O'Connor, 63 AD3d 832, 833 [2d Dept 2009]; Daniel Perla Assoc., LP v 101 Kent Assoc., Inc., 40 AD3d 677, 677 [2d Dept 2007]; U.S. Bank Trust N.A. Trustee v Butti, 16 AD3d 408, 408 [2d Dept 2005]; Republic Natl. Bank of NY, 308 AD2d at 482; Hypo Holdings v Chalasani, 280 AD2d 386, 387 [1st Dept 2001], lv denied 96 NY2d 717 [2001]; Marine Midland Bank v Micheli Contr. Corp., 95 AD2d 946, 947 [3d Dept 1983]). Consequently, the burden shifted to defendants to produce evidentiary proof, in admissible form, sufficient to raise a triable issue of fact as to a defense to this foreclosure action (see Washington Mut. Bank, 92 AD3d at 774; Grogg v South Rd. Assoc., L.P., 74 AD3d 1021, 1022 [2d Dept 2010]; Washington Mut. Bank, F.A., 63 AD3d at 833; U.S. Bank Trust N.A. Trustee,16 AD3d at 408).

The general denials of the allegations in plaintiff's complaint, set forth in defendants' answer, are insufficient to raise a triable issue of fact to defeat plaintiff's motion for summary judgment (see Marine Midland Bank, 95 AD2d at 947; Bankers Trust of Rockland County v Keesler, 49 AD2d 918, 918 [2d Dept 1975]; Banco Popular N. Am. v 333-345 Green LLC, 34 Misc 3d 1216[A], 2012 NY Slip Op 50118[U], *4 [Sup Ct, Kings County 2012]).

As to the affirmative defenses raised by defendants, defendants' first affirmative defense alleges that plaintiff is barred from bringing this foreclosure action by reason of the prior bankruptcy filing of Seasons. Defendants point to the fact that Seasons filed for bankruptcy relief and that this filing was in effect at the time this foreclosure action was brought. Defendants argue that since the automatic stay imposed by the United States Bankruptcy Code, pursuant to 11 USC § 362 (a), stays all creditor actions on the debt involving Seasons, such stay should extend to this foreclosure action because Seasons was the borrower on the Note which the Mortgage secures. Defendants contend that plaintiff, therefore, cannot be permitted to bring this action at this time since Seasons is in bankruptcy, and, as such, the resultant automatic stay granted by reason of the bankruptcy filing, is applicable to this action.

It is well established, however, that "[t]he automatic stay provisions of Section 362 (a) of the Bankruptcy Code apply only to the debtor, and cannot be construed to apply to its co-defendants as well" (In re Anje Jewelry Co., Inc., 47 BR 485, 486 [Bankr ED NY 1983]). "Although the language of [11 USC §] 362 (a) indicates that the stay is [*5]applicable "to all entities," this has been interpreted by the courts to mean the debtor, the debtor's property or the debtor's estate" (id.). Thus, since "[t]he automatic stay provisions of the Federal bankruptcy laws do not extend to non-bankrupt codefendants," an action may proceed as against such codefendants (Rosenbaum v Dane & Murphy, 189 AD2d 760, 761 [2d Dept 1993]; see also United States of Am. v Lyons, 292 AD2d 683, 684 n * [3d Dept 2002], lv denied 98 NY2d 606 [2002]; Torre v Fay's, Inc., 259 AD2d 896, 897 [3d Dept 1999]; MCC Funding LLC v Diamond Point Enters., LLC, 36 Misc 3d 1206[A], 2012 NY Slip Op 51212[U], *9 [Sup Ct, Kings County 2012]). Here (as noted above), Seasons is not named as a defendant in this action.

Defendants argue, though, that since Seasons is a debtor on the Note as well as the subsequent Note Modification Agreement, the court should construe Seasons as having granted plaintiff a security interest relating to the premises upon which plaintiff seeks foreclosure, despite the fact that Seasons did not execute the Mortgage. Defendants rely upon article 2, paragraph 2.3.1, of the Loan Agreement executed by Seasons, which granted North Fork Bank a security interest in "all personal property, fixtures, equipment, furnishings, inventory, supplies and articles of tangible personal property of every kind and nature whatsoever, now or hereafter located in or upon the Premises described in the Mortgage, or any part thereof, and used or usable in connection with any present or future use of the Premises now owned or hereafter acquired." Defendants contend that this provision shows that Seasons possesses an interest in the premises since it granted plaintiff a security interest therein, and that, consequently, a foreclosure of the premises impacts the interests of Seasons.

This contention is without merit since this provision did not grant plaintiff a security interest in the real property that is the subject of this foreclosure action, but, rather, only granted plaintiff a security interest in the personal property, if any, owned by Seasons to the extent that it is located in the premises. Plaintiff does not seek to foreclose on such personal property in this action, but, instead, only seeks to foreclose on the real property. Moreover, defendants do not claim that Seasons owns any personal property in the premises, and, in fact, Schedule B of Seasons' bankruptcy petition discloses that it does not claim to own any personal property located at the premises.

In any event, by an order dated May 16, 2012, United States Bankruptcy Judge James M. Peck denied a motion made by defendants in the United States Bankruptcy Court for the Southern District of New York for a comfort order confirming that the automatic stay pursuant to section 362 (a) of the United States Bankruptcy Code imposed by the filing of Seasons' petition for Chapter 7 bankruptcy relief extends to this pending foreclosure action. The Bankruptcy Court determined that this foreclosure action "does not involve an action against the Debtor or property of the Debtor's estate and that the automatic stay does not apply to the Foreclosure Action." Thus, since the Bankruptcy Court, in its order, has held that the automatic stay pursuant to section 362 (a) of the Bankruptcy Code does not extend to this foreclosure action, this order is dispositive of [*6]defendants' first affirmative defense.[FN1]Defendants' second, third, fifth, and sixth affirmative defenses allege that North Fork Bank (to which, as noted above, plaintiff is the successor by merger) violated the applicable disclosure requirements set forth in the Truth In Lending Act (15 USC § 1601 et seq.) (TILA), including those procedure dictated by 15 USC § 1640, as well as Federal Reserve Board Regulation Z § 226.17 and § 226.19 (b). Defendants' fourth and seventh affirmative defenses, respectively, allege that at no time prior to the consummation of the loan transaction and at no time prior to the consummation of the Note Modification Agreement did North Fork Bank properly exchange required preliminary disclosures concerning the material terms of the subject loan upon them.

Defendants, in their opposition papers, rely upon these affirmative defenses, arguing that they raise questions of fact concerning the enforceability of the Mortgage. Defendants contend that none of them received any disclosures relating to the material payment terms of the loan, prior to the consummation and closing of the subject loan transaction, as mandated by TILA, pursuant to 15 USC §1601 et seq., as well as pursuant to Federal Reserve Board Regulation Z, which implements this Act. All of the defendants have submitted an affidavit in which they state that at no time prior to closing, and, therefore, consummation of this loan transaction did they receive any disclosures concerning the material terms of the loan. Defendants further state, in their affidavits, that they never received any documents evidencing the actual payment terms imposed by the subject loan transaction prior to closing and/or consummation of the subject loan.

Defendants argue that the Mortgage should be deemed unenforceable by reason of the failure of the lender to provide them with necessary preliminary disclosures concerning the loan's material terms and/or the payment obligations imposed by the loan. Defendants further argue that the failure of the lender to provide them with such mandated material disclosures prior to the date of the consummation of the loan, in the manner set forth by TILA, entitles them to actual money damages and statutory damages, and that a claim for rescission under TILA can also serve as an affirmative defense in this action grounded in foreclosure.

In addressing defendants' argument, it is noted that TILA, as set forth in 15 USC § 1601 et seq., requires creditors to disclose the cost of credit in a consumer transaction, and permits rescission on certain transactions that involve the consumer's principal dwelling (see 15 USC § 1635 [a]; Ramadan v Chase Manhattan Corp., 156 F3d 499, 501-502 [3d Cir 1998]; Washington Mut. Bank, 92 AD3d at 774-775). "The declared purpose of [TILA] is to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him [or her] and [*7]avoid the uninformed use of credit" (15 USC § 1601 [a]). "In furtherance of this goal, TILA requires that creditors provide borrowers with clear and accurate disclosures of terms dealing with things like finance charges, annual percentage rates of interest, and the borrower's rights, . . . as well as notice of the borrower's right of rescission" (see HSBC Bank USA v Picarelli, 23 Misc 3d 1135[A], 2009 NY Slip Op 51107[U], *4-5 [Sup Ct, Queens County 2009]), [internal quotation marks and citations omitted]; see also 12 CFR 226.23 [b] [1]). A creditor's failure to comply with these disclosure requirements can result in actual and statutory damages (see 15 USC § 1640 [a]). In addition, where a creditor fails to provide a consumer with material disclosures when the loan is secured by the consumer's principal dwelling, the consumer has "the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required . . . whichever is later" (15 USC § 1635 [a]).

Here, however, defendants' argument that summary judgment should be denied due to plaintiff's alleged failure to comply with TILA's notice requirements is without merit. TILA applies only to consumer credit transactions, and it does not apply to "[c]redit transactions involving extensions of credit primarily for business, commercial, or agricultural purposes, or to government or governmental agencies or instrumentalities, or to organizations" (15 USC § 1603 [1]; see also Mauro v Countrywide Home Loans, Inc., 727 F Supp 2d 145, 153 [ED NY 2010]; Meyerson Capital X LLC v Kats, 33 Misc 3d 1017, 1020 [Sup Ct, Kings County 2011]; Patriot Natl. Bank v Amadeus B, LLC, 29 Misc 3d 1217[A], 2010 NY Slip Op 51857[U], *3 [Sup Ct, NY County 2010]). The term "organization," as defined by 15 USC § 1602 (d), includes a corporation, such as Seasons. TILA's implementing regulation, Federal Reserve Board Regulation Z, follows this statutory exemption (12 CFR 226.3 [a]), explicitly stating that this regulation does not apply to "[a]n extension of credit primarily for a business, commercial or agricultural purpose" or "[a]n extension of credit to other than a natural person, including credit to government agencies or instrumentalities" (12 CFR 226.3 [a] [1], [2]; see also Patriot Natl. Bank, 29 Misc 3d 1217[A], 2010 NY Slip Op 51857[U], *3).

"The adjective consumer' used with reference to a credit transaction [under TILA], characterizes the transaction as one in which the party to whom credit is offered or extended is a natural person, and the money, property, or services which are the subject of the transaction are primarily for personal, family, or household purposes" (15 USC § 1602 [i]). Since TILA is "designed to protect consumers, extensions of credit for business and commercial transactions are expressly exempted from [its] protections" (Douce v Banco Popular N. Am., 2006 WL 2627966, *7 [SD NY 2006]; see also 15 USC 1603 [1]).

Here, Seasons is a corporation, and defendants do not allege that the underlying loan constituted a consumer credit transaction. Rather, the documentation submitted by plaintiff indicates that the loan was for commercial purposes. In addition, defendants' [*8]principal dwelling is not involved and defendants did not sign the Note (see Washington Mut. Bank, 92 AD3d at 775). Thus, TILA and Federal Reserve Board Regulation Z do not apply to the subject loan, and no disclosures pursuant to their provisions were required to be delivered to defendants (see Patriot Natl. Bank, 29 Misc 3d 1217[A], 2010 NY Slip Op 51857[U], *3).[FN2]

Defendants' remaining affirmative defenses are conclusory and lack any specific factual allegations to support them, and they are not pursued in defendants' opposition papers. Therefore, inasmuch as defendants have failed to demonstrate any triable issue of fact as to any defense in this foreclosure action, plaintiff is entitled to summary judgment in its favor, granting it a judgment directing the foreclosure and sale of the premises, and appointing a referee to ascertain and compute the amounts due to it (see Washington Mut. Bank, F.A., 63 AD3d at 833; Daniel Perla Assoc., LP, 40 AD3d at 677; U.S. Bank Trust N.A. Trustee, 16 AD3d at 408; Republic Natl. Bank of NY, 308 AD2d at 482).

Plaintiff's motion additionally seeks to amend the caption to add Tim Henry in the place and stead of "John Doe No. I," and to strike "John Doe No. I" to "John Doe No. XXX" from the caption of this action as defendants herein, all without prejudice to the proceedings heretofore had herein. Plaintiff asserts that only Tim Henry has been identified as an occupant of apartment 1 of the premises, and that there are no other necessary parties to this action. Tim Henry was served on June 20, 2011 and an affidavit of service was filed by plaintiff on July 5, 2011, and he has not appeared herein. Thus, the granting of plaintiff's motion, insofar as it seeks such amendment of the caption, is warranted.

CONCLUSION

Plaintiff's motion is granted insofar as it seeks summary judgment in its favor, and an order of reference, appointing a referee to compute and report the amount due to it. Plaintiff is directed to submit a proposed order of reference and this order, on notice to all parties, within 30 days of this order. Plaintiff's motion is also granted insofar as it seeks to amend the caption to substitute Tim Henry for "John Doe No. I" and to delete the names of "John Doe No. I" to "John Doe No. XXX" from such caption, without prejudice to any of the proceedings heretofore had or to be had herein.

This constitutes the decision and order of the court.

E N T E R,

J. S. C. Footnotes

Footnote 1:It is also noted, in passing, that (as discussed above), defendants, in paragraph 13 of the Guaranty Agreements, expressly agreed that their obligations under the Guaranty Agreements would not be impaired by Seasons' bankruptcy.

Footnote 2:The court further notes that (as discussed above) defendants, in the Reaffirmation of Guaranty Agreement, acknowledged that they did not have any defense with respect to their obligations under the Guaranty Agreements, and they irrevocably waived all defenses.