Medford II, LLC v Scope Intl. Inc.
Annotate this CaseDecided on October 7, 2005
Suffolk District Court
Medford II, LLC, Petitioner,
against
Scope International Inc., Respondent.
BRLT 2104-05
G. Ann Spelman, J.
Petitioner, Medford II, LLC (hereinafter Medford), purchased the property known as 147 Peconic Avenue, Medford, New York at a foreclosure sale held on June 9, 2005 and acquired title to the premises pursuant to a Referee's Deed of Sale dated June 21, 2005 and duly recorded July 1, 2005. The original mortgage holder on the premises, Banc of America Commercial Finance Corp, (hereinafter Banc of America), commenced the foreclosure action against the owner and mortgagor, Rice Oil Corp. (hereinafter Rice Oil) as well as other named defendants on July 13, 2000. Contemporaneously with the filing of the foreclosure action, Banc of America also filed a notice of pendency with the County Clerk. During the course of the proceeding the mortgage was assigned several times and was eventually assigned to Medford from Winters Brothers Transfer Station Corporation (hereinafter Transfer) on [*2]January 10, 2005, which was duly filed with the County Clerk on February 3, 2005. Transfer had taken assignment of the mortgage on July 30, 2004 and filed said assignment with the County Clerk on January 13, 2005. The Court notes that Joseph Winters, the president of Transfer, is the sole member of Medford. Thereafter, on February 8, 2005, Medford filed a second Notice of Pendency against the subject premises with the County Clerk.
During the pendency of the foreclosure action, Rice Oil, by its
Medford II, LLC vs. Scope International Inc.
Index No. BRLT 2104-05
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president George Rice, leased a portion of the subject premises to
the respondent, Scope International Inc., an auto body repair shop pursuant to a written lease dated August 1, 2003 and ending July 31, 2004, at a monthly rental of $1200.00. On May 28, 2005, a new lease was executed by the parties for a two year term commencing March 1, 2005 and ending February 28, 2007 at a monthly rental of $1325.00. Both leases contained a provision making the leases subordinate to any all liens and encumbrances on the leased premises. It is undisputed that respondent was never made a party to the foreclosure action.
On July 29, 2004, George Rice, individually and as president of Rice Oil executed an agreement in favor of Transfer which is referred to as a "Term Sheet". This agreement, which was executed one day prior to Transfer's purchase of the mortgage on the property, provided, among other things, that Rice would have the option to purchase the mortgage from Transfer within one year of the date Transfer purchased the mortgage. George Rice and Rice Oil were to keep 100% of the tenant rent earned on the property, and if Transfer obtained ownership before the option was exercised, Transfer was to enter into a net lease with Rice Oil and George Rice so they could still continue to collect the rental income. It is undisputed that this agreement was never effectuated.
Subsequently, in November 2004, after an inspection of the subject premises by the Town of Brookhaven allegedly revealed numerous violations of both the Brookhaven Town Code and the New York State Fire Code by the occupants of the premises, including the respondent herein, the Town of Brookhaven commenced an action to permanently enjoin the original mortgage holder, George Rice and Rice Oil, from using and occupying the premises. On May 26, 2005, the Honorable Paul J. Baisley, Jr. granted, among other things, a default judgment against George Rice and Rice Oil which permanently enjoined them from using or occupying the premises in violation of local and state laws.
In his affirmation, Joseph Winters claims that petitioner is attempting to comply with Justice Baisley's order by terminating all the tenancies existing on the premises. He further contends that he was never aware of the existence of any written leases, was lead to believe that the tenancies were verbal monthly tenancies, and that petitioner is attempting to evict every tenant on the premises for the safety and well being of the public.
The Court notes however that petitioner's alleged beneficent motive for commencing this action under RPAPL 713(5) is not relevant to the determination of the motions herein.
On or about July 11, 2005 petitioner, pursuant to RPAPL § 713(5), allegedly served a 10-day notice to quit upon respondent and also exhibited to respondent a certified copy of the referee's deed [*3]delivered pursuant the foreclosure sale. Thereafter, on July 28, 2005
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Index No. BRLT 2104-05
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petitioner commenced the instant summary proceeding seeking to terminate respondent's occupancy of the premises. In its answer,
respondent alleged as an affirmative defense that it acquired possession of the premises under a one year written lease commencing August 1, 2003 which was subsequently extended by a two year lease commencing March 1, 2005, and since it was never made a party to the foreclosure action, the lease was unaffected by the judgment of foreclosure and petitioner is barred from instituting the instant proceeding to terminate its tenancy.
It is well established that a tenant is a necessary party to a foreclosure action and the failure to name a tenant in possession pursuant to a lease which is subordinate to the mortgage in the foreclosure action leaves the tenant's rights unaffected by the judgment and sale (6820 Ridge Realty, LLC v. Goldman, 263 AD2d 22, 26). Unlike the companion matters under Index Nos. BRLT 2105-05 and BRLT 2106-06, the lease executed by the respondent herein is not a conveyance within the meaning of section 290(3) of the Real Property Law since it is for a period not exceeding three years. Pursuant to CPLR 6501, "[a} person whose conveyance or incumbrance is recorded after the filing of [a notice of pendency] is bound by all proceedings taken in the action after such filing to the same extent as a party." Crucially, although the notice of pendency in the foreclosure action was filed prior to the commencement of respondent's tenancy, respondent's interest cannot, under CPLR 6501, be deemed foreclosed since its lease is not considered a conveyance under section 290(3) of the Real Property Law (see, Green Point Savings Bank v. Defour, 162 Misc 2d 476).
Alternatively, petitioner argues that respondent's lease was foreclosed under CPLR 6501 because a lease also constitutes an incumbrance. Although petitioner is correct in stating that any leasehold interest constitutes an incumbrance upon title (see, Segal v. Kulch, 13 AD2d 1011, affd 11 NY2d 834), the Court rejects this claim as CPLR 6501 expressly contemplates that the instrument deemed foreclosed, whether a conveyance or incumbrance, be recordable and a lease for a term of less than three years is not capable of being recorded.
In fact, pursuant to section 290(3) of the Real Property Law, which defines a conveyance as
"every written instrument, by which any estate or interest in real property is created, transferred, mortgaged or assigned, or by which the title to any real property may be affected...; except...a lease for a term not exceeding three years...",
an incumbrance would necessarily be included within the definition of a conveyance for purposes of CPLR 6501. Consequently, since a lease for a term not exceeding three years is not a conveyance, it does not
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Index No. BRLT 2104-05
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[*4]
constitute an incumbrance within the meaning of CPLR 6501. Based upon the foregoing, having never made a party to the foreclosure action, respondent's lease remains unaffected by the judgment of foreclosure (6820 Ridge Realty, LLC v. Goldman, supra).
To the extent petitioner seeks to treat this application as having been brought under section 231 of the Real Property Law which authorizes the removal of a tenant on the grounds that the lease is void as a result of the tenant's alleged illegal use and occupation of the subject premises, that application is denied without prejudice to commencing a such a proceeding pursuant to RPAPL 711(5) and Real Property Law section 231(1). In this regard, the Court notes that the petition fails to contain any factual allegations establishing that the premises are currently being used and occupied in violation of local and state laws as required by RPAPL 741(4) which would then enable the respondent to prepare a proper defense to such a
proceeding.
Accordingly, respondent's cross motion for summary judgment is granted and the petition is dismissed without prejudice. Petitioner's motion is denied as academic.
Dated: October 7, 2005
J.D.C.
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