Bank One, N.A. v Maser

[*1] Bank One, N.A. v Maser 2005 NY Slip Op 52276(U) [11 Misc 3d 1059(A)] Decided on November 10, 2005 Supreme Court, Greene County Lalor, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 November 10, 2005
Supreme Court, Greene County

Bank One, N.A., Plaintiff,

against

Charles H. Maser, Jr. And Kathleen L. Maser, Defendants.



04-0899



Steven J. Baum, P.C., P.O. Box 1291, Buffalo, New York 14240-1291, Annemarie E. Steward, Esq. for plaintiff; Louis Spagnola, 37 Cider Mill Court, Pleasant Valley, New York 12569, movant pro se; Scott D. Shallo, Esq., 21 North Seventh Street, Hudson, New York 12534 for Leonard DiStefano; Robert J. White, Esq., P.O. Box 11, Cornwallville, New York 12418, referee.

Daniel K. Lalor, J.

In this foreclosure proceeding, movant Louis Spagnola by order to show cause signed by this Court seeks an order vacating the foreclosure sale held on September 8, 2005, declaring that his was the highest valid bid at the sale, and directing that the subject property be conveyed to him.

Pursuant to a judgment of foreclosure signed by this Court on July 15, 2005 a foreclosure sale of the mortgaged premises located at 5522 Route 23 in Windham, New York, was held on September 8, 2005 under the direction of Robert J. White as court-appointed referee. Present at the sale were plaintiff's representative Mark McClosky, and prospective bidders Leonard DiStefano and movant Louis Spagnola. One or more additional unnamed bidders may also have been present. The first paragraph of the published Terms of Sale provided that "[t]en percent of the amount of the bid accepted will be required to be paid in cash or certified funds to the Referee at the time and place of sale for which the referee's receipt will be given."

In his application for an order to show cause, Spagnola alleged that he brought with him to the auction $14,000 in certified funds in the form of certified checks in assorted denominations, that bidding started at $103,000 and proceeded in $1,000 increments, Spagnola's last bid being $131,000, that DiStefano next bid $140,000 (ignoring the $1,000 increment requirement established by the referee), that Spagnola was unable to bid higher than $140,000 in accord with the Terms of Sale due to the limited certified funds in his possession, and that the referee thereupon accepted DiStefano's final bid of $140,000 and closed the bidding process. [*2]

Spagnola alleges that DiStefano then tendered to the referee an uncertified personal check for 10% of the purchase price and that he, Spagnola, objected, stating to the referee that had he known that personal checks were to be accepted, he would have bid higher for the property, but that the referee disregarded Spagnola's objection and accepted DiStefano's personal check as the required deposit. Spagnola alleges that this action of the referee was in violation of the Terms of Sale and that it deprived Spagnola of the opportunity to purchase the property.

Upon the return date of the order to show cause the Court, in receipt of correspondence from counsel for DiStefano, observed that DiStefano appeared to be a necessary party to the proceeding having a clear right to intervene if not joined (CPLR 1012(a)(2),(3)), and it adjourned return of the motion to permit counsel for DiStefano to submit papers in opposition.

Counsel for plaintiff argues that the referee acted within the scope of his discretion, that the law favors stability of foreclosure sales, that movant was not prejudiced by the referee's action because he had insufficient certified funds in his possession to have allowed him to bid higher than $140,000, that DiStefano produced to the referee sufficient assurances that his checking account contained in excess of the full purchase price and that his deposit check was immediately negotiable, that the referee had discretion to accept payment in whatever form he found acceptable, that plaintiff's representative was present at the sale and did not object to the form of funds tendered by DiStefano, and that plaintiff would be "irreparably harmed" were the Court to set aside the sale.

The referee Robert White has submitted an affidavit dated October 11, 2005 attesting to the circumstances of the sale. The referee states that Spagnola's last bid was $138,000, not $131,000, that DiStefano responded with a bid of $140,000, and that no further bids were offered. After conclusion of the bidding, DiStefano showed to White certain "bank indicia" indicating that "he was in immediate possession of funds far in excess of the entire purchase price and successful bid of $140,000." White does not in his affidavit state what this "bank indicia" consisted of, nor is there any copy of this documentation before the Court on this application. White states that he asked the plaintiff's representative whether he would require that DiStefano obtain certification of his check, which DiStefano offered to do, but that based on the proffered "bank indicia" and the consent of plaintiff's representative, White accepted and deposited into his escrow account DiStefano's personal check, which "cleared immediately." White states that upon information and belief "certification" is itself merely an alternative form of "bank indicia" signifying the immediate availability of funds and that the "certified" instrument is immediately negotiable, but that "certification does not render a negotiable instrument any more negotiable or make its negotiation any faster." White asserts that the Terms of Sale "expressly grant the referee discretion" in the manner of conducting the sale, and that the Terms of Sale here were "substantially complied with."

The affirmation of Scott Shallo on behalf of Leonard DiStefano sets forth that it is DiStefano who has a vested property right and equitable title to the property, and who will be "irreparably harmed" if the sale is set aside. Counsel argues that this judicial sale may be set [*3]aside only for "fraud, collusion, mistake or exploitive overreaching" that "casts suspicion on the fairness of the sale", citing Crossland Mortgage Corp. v Frankel, 192 AD2d 571 [neither sale price alone nor plaintiff's initial mistake in the amount to be bid by it sufficient reason to vacate sale], and Charles F. Curry Co. v Yodah Group, 162 Misc 2d 426.

Counsel for DiStefano argues the case is similar to Glenville and 110 Corp v Tortora, 137 AD2d 554, appeal denied 72 NY2d 806. There, where an uncertified deposit was accepted by the referee, with unspecified "assurances of the buyer's financial wherewithal", it was held that the referee had properly "exercised his discretion to consummate the foreclosure sale so as to best protect the rights of the mortgagees while simultaneously ensuring a successful completion of the sale."

The supplemental affidavits of Louis Spagnola dated October 14, 2005 and October 19, 2005 reassert that Spagnola's last bid was $131,000, not $138,000, and state that the "indicia" referred to by White was in fact just a checkbook register. He asserts that he indeed did have personal funds with him at the sale in excess of $14,000, and he reasserts that, had he known that personal checks could be accepted, he would have bid higher for the property.

The case of Weil v Cerrato, 129 Misc 2d 1105, cited by plaintiff, is distinguishable from this case, in that in contrast to the Terms of Sale in effect here, which called for payments of "cash or certified funds", the terms of sale there called for payments to be tendered "in form acceptable to the Referee" (Weil v Cerrato, 129 Misc 2d 1105, 1106).

Glenville, cited by counsel for DiStefano, actually stands for the proposition that "the mere inadequacy of the price alone is an insufficient reason to vacate an otherwise fair judicial sale, unless the price is so inadequate as to shock the conscience of the court " (Provident Sav. Bank, F.A. v Bordes, 244 AD2d 470; accord, Manufacturers & Traders Trust Co. v Niagara Square Assocs., 199 AD2d 975, 976; Long Island Sav. Bank v. Jean Valiquette, M.D., P. C., 183 AD2d 877, 878). To the same effect are the authorities cited by plaintiff, that inadequacy of price is alone not basis for setting aside a sale, unless the inadequacey is "so gross as to shock the conscience" (In re Superintendent of Banks, 207 NY 11, 16), and that "in the absence of fraud, collusion or other irregularity, the foreclosure sale will not be set aside unless the inadequacy of the sale price is so great that it shocks the conscience of the court" (Harbor Fin. Mortg. Corp. v Hurry, 277 AD2d 693, 694). The issue here is neither adequacy of the sales price, nor fraud, but simple fairness. In this regard, Harbor also states that "a court may set aside a foreclosure sale to relieve of oppressive or unfair conduct'" (Id., at 694 [emphasis added]). In considering whether to set aside the sale, the Court observes that there is no "irreparable harm" to plaintiff, inasmuch as money recovered is, by definition, full reparation for money lost. There is also no "irreparable harm" to DiStefano, inasmuch as he has never had more than an inchoate right to the property, contingent on this Court's approval and confirmation of the sale conducted by its referee.

The Court's determination turns upon two perceived errors by the referee. [*4]

First, upon Spagnola's objection, the referee should have required DiStefano to produce cash or certified funds for the deposit in accordance with the Terms of Sale, and it would have been within his discretion to grant a short adjournment "to permit a bidder to procure either cash or a certified check to pay the required down payment" (see, Alben Affiliates v Astoria Terminal, Inc., 34 Misc 2d 246, 248).[FN1] The form of "indicia" relied upon by the referee in lieu of certification is not known, however it is doubtful that it was the equivalent of bank certification. Contrary to the understanding of the referee as reflected in his affidavit, "certification" of a negotiable instrument is not mere "indicia" of creditworthiness, but refers to bank "acceptance" of the instrument under UCC Article 3. "Acceptance is the drawee's signed engagement to honor the draft as presented" (UCC 3 410(1)), and "certification of a check is acceptance" (UCC 3-411(1)). Thus, acceptance or "certification" by a bank in effect substitutes the bank's "financial wherewithal" for that of the drawer, and eliminates the recipient's risk that there will be insufficient funds in the drawer's account. The requirement of certified funds at a foreclosure sale thus places all bidders on an equal footing of creditworthiness, and relieves the referee from the burden of engaging in an assessment of the successful bidder's liquidity, such as occurred here.

Second, if it was the referee's intention to depart from the Terms of Sale based on his understanding of the certification requirement, that intention should have been voiced to all prospective bidders in advance of the bidding, not after the sale. To do otherwise unfairly disadvantaged one bidder to the advantage of another. That unfairness is evident upon examination of the argument, advanced by plaintiff and by the referee, that Spagnola is not prejudiced in effect "because his admission that he had only $14,000 in certified funds shows that he was not prepared to bid in excess of $140,000." In fact, Spagnola now asserts that he did possess additional personal funds, yet the procedure adopted foreclosed him from bidding with those funds. This contrasts with the treatment afforded DiStefano, who attended the auction with no certified funds whatever, yet was permitted to place a bid in any amount he chose, on the strength of his personal credit, subsequently demonstrated.

The referee's actions here, though unquestionably undertaken in good faith, "cast an aura of unfairness over the conduct of the sale" (Ulster Sav. Bank v Bash, 114 AD2d 500, 501). The Court is of the opinion that justice in this case requires that the sale be set aside, "based on the Referee's misunderstanding as to his authority to accept uncertified funds as a down payment" (United States Trust Co. v Simon, 228 AD2d 580), and that a new sale be conducted ab initio. The matter accordingly is referred back to the referee, who shall conduct a new sale and such further proceedings as may be required in accordance herewith, for no additional fee.

This is the Decision and Order of the Court. All papers are returned to movant, who is directed to enter this Decision and Order without notice, and to serve other counsel with a copy [*5]of the Decision and Order, with notice of entry.

Dated :November 10, 2005

Catskill, New York

_______________________________

Hon. Daniel K. Lalor Footnotes

Footnote 1:Notably also, in Crossland, supra, involving a sale that was ultimately upheld over a motion to vacate, the referee properly granted the successful bidder "an adjournment of 20 minutes to get the deposit money from a bank" (Crossland, supra, at 571).