Matter of City of New York (Crown Hgts. 5th Amended Urban Renewal Plan)
Annotate this CaseDecided on July 6, 2007
Supreme Court, Kings County
In the Matter of the Application of The City Of New York, relative to acquiring title in fee simple and other interests in certain real property not heretofore acquired for
(Crown Heights 5th Amended Urban Renewal Plan).
28174/05
Abraham G. Gerges, J.
In this eminent domain proceeding, Ali Hauter (claimant) moves for an order, pursuant to Eminent Domain Procedure Law (EDPL) § 505, determining compensation due. The City of New York (the City) cross-moves for an order: (1) in the event that claimant's motion is granted, directing a change of the payees on the warrants already prepared and directing the Comptroller to cancel those warrants now existing and redraw the appropriate warrants; (2) providing that no additional interest shall accrue against the City as the result of the redrawing of said warrants; (3) providing that any sums still due and unpaid as of the date of vesting of title for real estate taxes, sewer rents and water charges (prior existing liens)[FN1] should have priority; and (4) directing any lienor who is paid by the Comptroller to furnish a satisfaction or certificate of reduction of said lien. HSBC Mortgage Services, Inc. (HSBC), cross-moves for an order, pursuant to EDPL 505 (C), directing that the condemnation damages be shared by it and Litton Loan Servicing, LP (Litton), the holder of the other outstanding mortgage on the subject property at issue herein, on a pro-rata basis.
Facts and Procedural Background
This proceeding involves the condemnation of certain property owned by Hauter, 154 Buffalo Avenue (Block 1356, Lot 48), located in Brooklyn. Title to the subject property vested in the City on October 26, 2005. By Notice of Condemnation and Advance Payment or Award dated January 16, 2007, the City notified claimant that an advance payment of $400,000, plus interest in the amount of $12,361.64 was available, representing interest [*2]through May 1, 2006,[FN2] provided that all title objections listed on the Advance Payment Certification had been cleared. Subsequently, all objections were omitted and/or waived, except for two mortgages made by Hauter to Global Home Loans and Finance Inc. (Global) on August 31, 2005, one in the amount of $364,400 (this loan is currently serviced by Litton and shall be referred to as the Litton Loan) and the other in the amount of $91,100 (this loan is currently serviced by HSBC and shall be referred to as the HSBC Loan). The Litton Loan was recorded at 13:31 on September 23, 2005 and the HSBC Loan was recorded at 14:09 on the same day.
By letter dated May 31, 2006, Litton advised claimant that the payoff amount for its loan was $384,017.64; by letter dated November 14, 2006, a revised payoff amount of $402,091.63 was provided. By letter dated May 1, 2006, HSBC advised claimant that the payoff amount for its loan was $94,936.34. Recognizing that the payoff amounts totaled $478,953.98, while the advance payment, plus interest, totaled only $412,361.64, the City refused to release the advance payment in the absence of an agreement from both mortgagees or an order from the court.[FN3] The instant motion and cross motions followed.
The Parties' Contentions
In support of his motion, Hauter argues that the mortgagees are entitled to recover interest pursuant to the mortgage agreements to the date of vesting and to recover statutory interest at the rate of 6% thereafter. Hauter further avers that the interest to be recovered in this action should be limited to that which is payable by the condemnor, since the mortgagees chose to have the mortgages satisfied out of the condemnation proceeds. Hauter further argues that having made this choice, neither mortgagee is entitled to obtain a deficiency judgment herein.
In addition, Hauter contends that the Litton Loan is entitled to priority, since it was the largest and the first to be recorded. He also claims that he should not be responsible for the payment of any interest accruing after June 27, 2006 because the mortgagees are at fault for refusing to agree to the distribution of the advance payment as proposed by him by letter of that date. In the alternative, Hauter argues that if interest is determined to be due and owing, the City should be responsible for the payment, since it was aware of the conflicting claims of Litton and HSBC, but failed to interplead the mortgagees pursuant to EDPL 505 or to deposit the advance funds into an interest bearing account pursuant to EDPL 304. Hauter further argues that he should not be responsible for any attorneys fees, since both mortgagees were aware that a condemnation proceeding had been commenced against the [*3]property, but neither made an application to have the court determine its respective interest.The City does not object to the relief sought by claimant, but requests that any order issued grant the relief sought by its cross motion.
In support of its cross motion, HSBC argues that since both mortgages at issue herein were made by Global and recorded on the same day, the advance payment should be shared by Litton and HSBC on a pro-rata basis. HSBC also contends that it is entitled to continue to recover interest until the mortgage is satisfied and to obtain a deficiency judgment against Hauter. In the alternative, HSBC requests an order providing that after satisfaction of the Litton Loan, its loan should be granted a priority.
Litton does not oppose the relief sought by Hauter, but claims that its mortgage has priority over the HSBC Loan, and hence should be fully satisfied. Litton further avers that interest should continue to accrue until the date of distribution of the advance payment and that it should be entitled to assert a claim for attorneys fees and costs. Litton also submits its affidavit "without getting into the merits of the interest rates asserted."
In their reply affirmation, claimant's attorneys assert that they are entitled to a first priority lien on any amount paid over the initial advance payment made by the City, since the additional funds for payment were created by their efforts.
Oral Argument
The parties appeared before the court for oral argument on January 19, 2007. During the argument, the City stated that a supplemental advance payment in the amount of $95,000 would be made.
After hearing argument, this court ruled that with regard to the liens now at issue, the prior existing liens were superior, followed by the Litton Loan, as the first recorded, with the HBSC being the last to be satisfied. The parties were accordingly directed to prepare an order applying the advance payments to satisfy the liens, in that order. The court further held that the amount of attorneys fees, if any, to be paid was not an issue to be decided at this time and that the issue of the interest, if any, due from May 1, 2006 until the date of distribution was reserved for decision.
Hauter, the City and HSBC each submit a proposed order incorporating the court's oral decision.
The Law
In discussing the effect that a condemnation proceeding has on a mortgage, it has been held that:
"It is well established that, upon the vesting of title in a condemnation proceeding, all lien interests in the subject property by virtue of mortgages, unpaid taxes, or unsatisfied judgments, are extinguished (see, In re County of Nassau [Gelb - Siegel], 24 NY2d 621, 626; Copp v Sands Point Marina, 17 NY2d 291, 293; Muldoon v Mid-Bronx Holding Corp., 287 NY 227; Matter of Barber [State Comptroller], 274 App Div 712; Irving Trust Co. v Hughes, 239 App Div 74, 76). However, substituted in their place are equitable liens against the condemnation award to the extent of each lien and interest thereon as of the date title [*4]vested (see, In re County of Nassau [Gelb - Siegel], supra; Copp v Sands Point Marina, supra)."
(County of Rockland v Kohl Industrial Park Co., 172 AD2d 607, 609 [1991]).
From this it follows that "[a]fter title to property has been taken by the sovereign in a condemnation proceeding, the law substitutes the condemnation award for the security previously provided by the mortgage'" (Fischer v MMRR Constr., 204 AD2d 681, 682 [1994], appeal denied 91 NY2d 804 [1997], quoting Copp, 17 NY2d at 293, citing Muldoon, 287 NY 27). Hence, since the obligation of the sovereign is substituted for the contractual obligation in the bond, the mortgagee is entitled only to such interest as the sovereign may be required by statute to pay to the owner after vesting of title, or 6% pursuant to General Municipal Law § 3-a (2) (Matter of City of New York, 9 Misc 3d 896, 902 [2005], affd Matter of Mill Cr. Phase 1 Staten Is. Bluebelt Sys., 38 AD3d 665 [2007], citing Fliegel v Manhattan Sav. Bank, 296 NY 214, 219 [1947]; accord In re Stephen Wise Housing Project, 38 Misc 2d 455, 457 [1962] [a mortgagee who moves for direct payment of his lien out of an advance payment cannot obtain a higher rate of interest than the former fee owner would have been entitled to, that is, the statutory rate from the date of vesting of title to the date interest is payable by the condemnor]).
Numerous provisions of the EDPL are also relevant to resolution of the instant dispute. More specifically, EDPL 304 (D) provides, in relevant part, that:
"In the event an owner accepts the offer as payment in full or as an advance payment for property in an acquisition under supreme court jurisdiction pursuant to subdivision (B) of section five hundred one of this chapter and the condemnor determines that there is a conflict of title or a conflict arises over the percentage of the condemnation award which should be paid to each of several owners of interests in the condemned property, the condemnor shall, unless it is otherwise agreed, deposit the full or advance payment, as the case may be, with the clerk of the supreme court having jurisdiction of the claim."
As is also relevant herein, EDPL 505 (B) provides, in pertinent part, that:
"Where a condemnor disputes a condemnee's title or a right to all or a portion of an award or a prospective award by reason of conflicting claims of title, or if there is uncertainty as to how such payment should be apportioned, the court, upon motion of any party, shall interplead anyone claiming or imputed to have such a conflicting claim or interest."
EDPL 514 (A) provides that "[s]ubject to the provisions of this chapter, a condemnee shall be entitled to lawful interest from the date of acquisition to the date of payment."
Discussion
Applying the above principles of law to the facts of this case, it is clear, as reflected in the proposed orders submitted by the parties, that the mortgagees are entitled to recover interest as provided pursuant to the terms of the mortgage until the date that title vested in [*5]the City and at the statutory rate of 6% thereafter. Herein, the court accepts the assertion of Hauter and HSBC, as incorporated in their proposed orders, that both mortgagees should be paid interest at the rate of 6.25% prior to the date of vesting of title in the City.[FN4] The ourt must then determine who is responsible for the payment of this interest and when interest ceases to accrue.
As a threshold issue, the court rejects Hauter's contention that the City was obligated to deposit the advance payment into an interest bearing account upon learning of the conflicting claims to the advance payment pursuant to EDPL 304, since that provision, on its face, applies to conflicts of title or conflicts over the percentage of the condemnation award which should be paid to each of several owners of interests. This case does not concern conflicts in title, but instead contests the priorities claimed by lien holders. For this reason, the holding in the case relied upon by Hauter, Turiano v City of New York (11 Misc 3d 1080A [2006]) is misplaced, since that case concerned the City's claim that Turiano had not established ownership of the contested portion of the property.
The court also agrees with the City's assertion that its obligation to pay interest on the mortgages terminates when the funds are made available to the payees, or in this case, May 1, 2006. In the recently decided case of Matter of City of New York (10 Misc 3d 749, 753-754 [2005]), this court decided a closely related issue, i.e., "whether the City should be obligated to continue to pay interest on a condemnation award, after it has made the money available to claimants, when claimants dispute the allocation of the award as between themselves and the property that each owns." As was held in that case, this court again finds that:
"since the delay in obtaining payment appears to be, at least in part, attributable to the conduct of claimants, the court declines to award a payment of additional interest (see generally Matter of City of New York [George Washington Houses], NYLJ, June 12, 1953, vol 129, at 1985, col 6 [the running of interest ceased on dates when the City was ready to make payment under the awards]; In re Frank [Public Park, Beach Channel Dr.], NYLJ, Apr. 8, 1943, vol 109, at 1378, col 7 [petitioner was not allowed additional interest on a condemnation award for the delay in making payment where the delay was due to a dispute between petitioner and junior lienors, with which the City was not concerned and in which it took no part]; Matter of City of New York [Hamilton Ave.; D.P. 65], NYLJ, Aug. 15, 1941, vol 106, at 354, col 4 [inasmuch as the final decree in condemnation made the award payable to the owner, subject to the first mortgage, and the mortgagee failed to move upon entry of the decree for amendment thereof so as to make the amount of the mortgage payable to it, [*6]the mortgagee was entitled to interest on the award only to date the award was ready for payment, and not to the date payment was actually made]; Matter of Dry Dock Sav. Inst. [First & Third Aves.], NYLJ, Oct. 1, 1940, vol 104, at 875, col 2 [interest on condemnation award would continue only until the date the City was ready to pay the award in full, and not until such time as the mortgagee chose to move to collect the amount of its claim]; In re Stoker Realty Corp., NYLJ, Oct. 3, 1940, vol 104, at 915, col 1 [mortgagee who refused to accept payment of his mortgage on the date that the City was ready to make payment on the ground that he was not satisfied with the amount offered and because he would have been obliged to accept a check made payable to the corporate owner and indorsed over to him was not entitled to interest beyond the date when the City was ready to make payment])."
(Matter of City of New York, id. at 754-755).
Implicit in this holding is the rejection of Hauter's claim that the obligation to pay interest terminated on June 27, 2006, when the mortgagees refused to agree to an allocation of the advance payment. While an agreement between Litton and HSBC certainly would have been beneficial to Hauter, both mortgagees had the right to insist upon full payment of the money loaned, plus interest, as provided in the loan documents (see generally Copp, 17 NY2d at 293).
Claimants' assertion that the City and/or the mortgagees were obligated to make a motion pursuant to EDPL 505 (B) is also found to be without merit, since that provision states that "the court, upon motion of any party, shall interplead anyone claiming or imputed to have such a conflicting claim or interest" (emphasis added). No authority is offered to support claimant's contention that this language should be interpreted to require either the City or the mortgagees to make a motion to resolve conflicting claims to an advance payment or condemnation award. In fact, since claimant is the party who would benefit by resolving any conflicts in priority of the liens, so that the debts could be satisfied out of the payments made by the City, claimant could have sought a court order setting the priorities and compelling the payment to the lienors as soon as the conflict became evident. Moreover, it is more equitable to require claimant, who is responsible for the liens being placed on the property in the first instance, to remove the encumbrances from the property prior to the distribution of the advance payment and/or condemnation award.
In addition, since the mortgagees chose to enforce their mortgages against the condemnation awards in the instant proceeding, as noted above, their liens have been replaced by "equitable liens against the condemnation award to the extent of each lien and interest thereon as of the date title vested" (County of Rockland, 172 AD2d at 607, citing In re County of Nassau [Gelb - Siegel], 24 NY2d at 626; Copp, 17 NY2d at 293) (emphasis added). Thus, no further rights or demands may be asserted against Hauter in this proceeding (see generally Copp, 17 NY2d at 293-294, citing Muldoon, 287 NY at 231). Accordingly, the mortgagees demands for continuing interest until the date of payment and HSBC's demand for a deficiency judgment in this proceeding must be denied. [*7]
The court also declines to award HSBC a first priority over any funds made available to Hauter by means of an additional advance payment and/or a condemnation award. In this regard, if the actions of claimant's counsel are found to be responsible for creating the additional payments, counsel's lien would have a priority over HSBC's lien (see generally LMWT Realty v Davis Agency, 85 NY2d 462 [1995]; In re City of New York, 5 NY2d 300, 315 [1959], cert denied United States v Coblentz, 363 US 841 [1960]; Estate of Dresner v State, 242 AD2d 627 [1997], appeal dismissed 91 NY2d 1001 [1998]). At this point in the proceeding, counsel contends that it is responsible for procuring the additional advance payment and the City contends that the additional payment was made available in the course of its appraisal of the property. In view of this dispute, HSBC fails to establish a priority to any funds paid to Hauter above the initial advance payment and interest. Accordingly, HSBC's priority shall apply only to the initial advance payment of $400,000, plus interest of $12,361.64.
Conclusion
In disbursing the advance payment of $400,000, plus interest in the amount of $12,361.64, between the parties appearing on the instant motion and cross motions, the prior existing liens, if any shall be satisfied first; if any funds remain after the prior existing liens, if any, are satisfied, the Litton Loan, plus interest, shall be paid in full; if any funds remain after the prior existing liens and the Litton Loan, plus interest, are satisfied, the HSBC Loan, plus interest, shall be paid. Interest shall be paid to Litton and to HSBC at the rate of 6.25% prior to vesting and at 6% from the date of vesting, October 26, 2005, until May 1, 2006, the date that the City made the advance payment available; neither Litton nor HSBC shall be entitled to the payment of any additional interest from the proceeds of the advance payments and/or condemnation award, if any, to be awarded in this proceedings. The City is directed to apply the $400,000 advance payment, plus interest in the amount of $12,361.64, as directed above. Upon satisfaction of its lien, each lien holder is directed to furnish a satisfaction to claimant and to the City. The parties' demands for an award of attorneys' fees is denied, without prejudice to renewal, if so advised, later in this proceeding. The City's request for an order directing the Comptroller to redraw warrants is denied inasmuch as the proposed order submitted by the City does not contain any such language. All other relief requested is denied.
Order signed.E N T E R,
J. S. C.
Footnotes
Footnote 1: Although the City's notice of cross motion sought to establish the priority of liens for assessments, use, occupancy and/or business taxes due to the City, its demand for priority was limited in the reply affirmation of Holly R. Gerstenfeld, dated January 18, 2007.
Footnote 2: Hauter's assertion that interest was made available through this date is not disputed by the other parties.
Footnote 3: The court notes that inasmuch as the mortgagees claim a continuing right to interest, if they succeed on their claims, the payoff amounts are subject to increase until such time as the mortgages are satisfied.
Footnote 4: In so holding, the court notes that Litton and the City fail to address the issue of the appropriate rate of pre-vesting interest in their papers, Litton fails to submit a proposed order and the City's proposed order does not include any interest amounts. Further, although the proposed order submitted by HSBC refers to interest at the rate of 6.75% on the Litton Loan, the rate is that calculated at 6.25%
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