Medford II, LLC v Leely's Auto Supply, Inc.

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[*1] Medford II, LLC v Leely's Auto Supply, Inc. 2005 NY Slip Op 51621(U) [9 Misc 3d 1117(A)] Decided on October 7, 2005 Suffolk District Court Spelman, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 7, 2005
Suffolk District Court

Medford II, LLC, Petitioner,

against

Leely's Auto Supply, Inc., Respondent.



BRLT 2105-05

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

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president George Rice, leased a portion of the subject premises to

the respondent for the sale and storage of auto body supplies pursuant to a written lease dated March 1, 2003, for a term of 5 years ending February 28, 2008, at a monthly rental of $700.00. The lease contained a provision making the lease 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 delivered pursuant the foreclosure sale. Thereafter, on July 28, 2005 petitioner commenced the instant summary proceeding seeking to terminate respondent's occupancy of the premises. In its answer, [*3]

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respondent alleged as an affirmative defense that it acquired

possession of the premises under a five year written lease commencing

March 1, 2003, 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). Consequently, the purchaser at the foreclosure sale is not

entitled to terminate the tenancy pursuant to RPAPL 713(5) (supra).

However, pursuant to section 290(3) of the Real Property Law, a lease in excess of three years is considered a conveyance of an interest in real property and if unrecorded, is void as against a good faith purchaser for value whose interest is first duly recorded (Real Property Law § 291; Hi-Rise Laundry Equip. Corp. V. Matrix Props. Inc., 96 AD2d 930; Jackson v. Robergeau, 1 Misc 3d 131 [App. Term, 2nd & 11th Jud. Dists.]). Although the unrecorded lease executed by respondent constitutes a conveyance of an interest in real property which was never recorded, petitioner cannot be deemed a bona fide purchaser since its principal, Joseph Winters, was admittedly aware of the respondent's occupancy on the subject premises. The fact that he did not know of the existence of a lease does not alter this result as the failure to inquire and determine the nature of respondent's interest in the property makes petitioner "guilty of a degree of negligence fatal to its claim that it is a bona fide purchaser" (Vitale v. Pinto, 118 AD2d 774, 776; see, Chen v. Geranium Dev. Corp.,243 AD2d 708). Therefore, under the above stated principles, the unrecorded lease is not rendered void.

Nevertheless, the Court determines that the lease was foreclosed by the entry of the judgment of foreclosure as it is well established that a party who acquires an interest in real property by a conveyance after the filing of the notice of pendency of the mortgage foreclosure action is not a necessary party to the foreclosure action and "is bound by all proceedings taken in the action . . . to the same extent as a party" (CPLR 6501; Green Point Savings Bank v. St. Hilaire, 267 AD2d 203; Chemical Bank v. Columbia Asphalt Corp., 70 AD2d 925; Westchester Fed. Sav. & Loan Assn. V. H.E.W. Constr. Corp., 29 AD2d 670).

Respondent, by its president, argues that the lease should prevail since he was unaware of the pending foreclosure action and entered into the lease in good faith. He further contends that requiring him to move would cause considerable hardship and destroy his business. While the Court is not unsympathetic, these allegations

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do not alter the result as it is well settled that "[a] notice of pendency is constructive notice to any person [*4]who obtains

an interest in real property by conveyance from any party named in the notice" (Green Point Savings Bank v. St. Hilaire, 267 AD2d 203, supra). Likewise, the contention of respondent's counsel challenging the propriety of petitioner's acquisition of the property in light of the "Term Sheet" executed by Transfer and Rice Oil is insufficient to defeat petitioner's motion for summary judgment. Such allegations amount to nothing more than an improper collateral attack on the judgment rendered in the foreclosure proceeding (see, 73 NY Jur 2d, Judgments § 273).

Consequently, as the successful bidder at the foreclosure sale, petitioner properly commenced the instant holdover proceeding against respondent under RPAPL 713(5). It is further undisputed that petitioner complied with the prerequisites of such a proceeding, i.e., service of a 10-day notice to quit upon respondent and exhibition of a certified copy of the referee's deed. As such, petitioner is entitled to judgment for the relief demanded in the petition.

Accordingly, plaintiff's motion for summary judgment is granted and petitioner is awarded a judgment of possession and warrant of eviction with no stay of execution of the warrant. Respondent's cross motion is denied as academic.

Submit judgment and warrant.

Dated: October 7, 2005

J.D.C.

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