Champion Mtge. v Knight

[*1] Champion Mtge. v Knight 2007 NY Slip Op 51470(U) [16 Misc 3d 1118(A)] Decided on July 27, 2007 Supreme Court, Suffolk County Spinner, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 July 27, 2007
Supreme Court, Suffolk County

Champion Mortgage, a Division of Key Bank National Association Successor to the Interests of Champion Mortgage Co. Inc., Plaintiff,

against

Sylvia Knight, Julia B. Fee LLC and "John Does" and "Jane Does," said names being fictitious, parties intended being possible tenants or occupants of premises and corporations, other entities or persons who claim or may claim a lien the premises, Defendants.



2006-01317



ATTORNEY FOR PLAINTIFF

Owen M. Robinson Esq.

Rosicki, Rosicki & Associates P.C.

51 East Bethpage Road

Plainview, New York 11803

ATTORNEY FOR 3rd PARTY PURCHASER

Paula A. Miller Esq.

Paula A. Miller P.C.

308 West Main Street

Smithtown, New York 11787

REFEREE

Kevin J. Gilvary Esq.

17 Old Country Road

East Quogue, New York 11942

Jeffrey Arlen Spinner, J.

Before this Court is an application by the Third Party Bidder CHICHESTER REALTY INC. ("CHICHESTER") (under Motion Sequence 004) to vacate a foreclosure sale which was held on January 11, 2007. In addition to vacatur of the sale, it also seeks relief from its bid and the Terms of Sale as well as the return of its $ 50,000.00 earnest money payment from the Referee together with an award of

counsel fees and sanctions to be assessed against the Plaintiff and/or its attorneys. The Plaintiff has cross-moved (under Motion Sequence 005) for an order declaring CHICHESTER to be in default, decreeing forfeiture of the deposit and directing the Referee to pay over the same to the Plaintiff. The Referee has correctly taken no position on the applications.

Procedurally, the Plaintiff brought this action to foreclose a defaulted second mortgage given by the Defendant SYLVIA KNIGHT to the Plaintiff's predecessor in interest. Said mortgage encumbered real property commonly known as 99 Whipporwill Lane, East Quogue, Town of Southampton, New York. A Judgment of Foreclosure & Sale was granted on July 5, 2006 (Spinner, J.) which fixed the mortgage indebtedness due to Plaintiff at $ 298,751.69 as of March 31, 2006, exclusive of counsel fees and costs. That Judgment also contained a decretal paragraph which appointed Kevin J. Gilvary Esq. as Referee to sell the premises. Subsequent to the entry of judgment and prior to the sale, the Defendant SYLVIA KNIGHT brought an Order To Show Cause to vacate the judgment, which was vigorously (and successfully) opposed by Owen M. Robinson Esq., Plaintiff's counsel. Indeed, in his opposition papers to the Order To Show Cause, Mr. Robinson asserted that the mortgage sought to be foreclosed in this proceeding was a second lien, subject and subordinate to a first mortgage lien of some $ 600,000.00 in favor of Astoria Federal Savings & Loan Association. Mr. Robinson demonstrated that the Defendant SYLVIA KNIGHT had, on June 27, 2006 forged and recorded a Satisfaction of Mortgage respecting Astoria Federal's lien (resulting in the first mortgage appearing as "discharged" or "satisfied" in the land records) which later resulted in her arrest and prosecution. Thereafter, in action under Suffolk County index no. 2006-22075 the Court (Whelan, J.) directed that the forged satisfaction piece respecting Astoria Federal's mortgage be cancelled and annulled, thereby restoring Astoria Federal to its position as first lienor of record. The Court Order granting this relief was recorded in the land records on January 17, 2007 in Liber 21452 of Mortgages at Page 741. CHICHESTER was not a party to any of the foregoing proceedings.

A public auction sale of the premises was thereafter scheduled for January 11, 2007 at the Southampton Town Hall. The Referee publicly announced the Terms of Sale (as prepared by Plaintiff's counsel) which stated, inter alia that the sale was subject to "...any prior liens, encumbrances and/or prior mortgages..." No disclosure was made by the Plaintiff either as to its status as second lienor or the existence of the first mortgage lien in favor of Astoria Federal and [*2]there is no evidence before the Court that the Referee had any knowledge thereof. The sale was commenced and competitive bidding took place, culminating in the high bid of $ 492,000.00 by CHICHESTER who immediately tendered the sum of $ 50,000.00 to the Referee with the anticipation of a closing to be held within thirty days thereafter.

Shortly thereafter, CHICHESTER caused to be ordered a full title search of the premises which disclosed the Order annulling the forged satisfaction piece (recorded some six days after the foreclosure sale) and the fact that Astoria Federal had been restored to the status of first lienor of record. Counsel for CHICHESTER made several timely written requests of Plaintiff's counsel requesting cancellation of the sale and return of the earnest money but these entreaties were met with persistent and stubborn refusal. Following the filing of CHICHESTER'S application, the Plaintiff cross-moved for an order directing forfeiture of CHICHESTER'S down payment.

According to the Affidavit of JOSEF MANGIARACINA, the president and sole owner of CHICHESTER, he retained the services of one Daniel Cooley, a title examiner of almost twenty five years' experience. Mr. Cooley performed a last owner and lien search upon mortgaged premises approximately two days before the scheduled sale. Mr. Cooley's Affidavit states that his examination disclosed that there were no mortgages of record that were superior to the mortgage Plaintiff seeks to

foreclose herein and that all prior mortgages had been released of record. An additional Affidavit from Richard Reda, another title examiner, states that he performed a similar search on January 11, 2007 on 8:00 a.m. (immediately prior to the sale) and that his findings were identical to those of Mr. Cooley.

The gravamen of CHICHESTER'S argument is that it acted in good faith and with due diligence and that equity demands that it be relieved of its obligation to consummate the sale in view of the Plaintiff's wilful failure to put it on notice of the existence and status of Astoria Federal's mortgage lien. It is claimed that the fair market value of the mortgaged premises is between $ 650,000.00 and $ 700,000.00. Plaintiff's counsel counters with the facially logical but factually flawed argument that had CHICHESTER acted with due diligence, it would have caused an extensive search and examination of the court files respecting both foreclosure actions and that it is not entitled to any refund on account of its negligence.

The Court's research begins with a close examination of the law applicable to applications to vacate foreclosure sales. In New York, foreclosure sales are public auctions conducted under the auspices of either the County Sheriff or, as in this and most cases, a Referee appointed by the Court, Real Property Actions & Proceedings Law § 1351(1). Where, as here, the sale is conducted by a Referee, the Referee is acting as an extension of the Court and hence is an impartial third party. The Court of Appeals has held that a purchaser at a judicial sale is actually contracting with the Court and not with the foreclosing mortgagee, Lane v. Chantilly Corporation 251 NY 435 (1929) and hence the sale must be conducted in a fair and equitable [*3]manner. Indeed, the Court of Appeals, in the matter of Fisher v. Hersey 78 NY 387 (1879) in an opinion by Judge Rapallo, succinctly stated that "Courts of equity exercise a supervision of sales made under their decrees, which is not in all cases controlled by legal rules, but may be guided by considerations resting in discretion. They may set aside their own judicial sales...may relieve against mere accidents or hardships or oppressive or unfair conduct of others, though such conduct may not amount to a violation of law." 78 NY at 388. This maxim has often been repeated in New York's jurisprudence, see for example Mullins v. Franz 162 AD 316 (2nd Dept. 1914), Guardian Loan Company Inc. v. Early, 47 NY2d 515 (1979) and it remains as a guiding principle to this day.

In the majority of such applications, it is incumbent upon the proponent to demonstrate that the sale was tainted by overreaching, fraud, collusion or mistake, Guardian Loan Co. v. Early 47 NY2d 515 (1979), Bank Of New York v. Sheik 279 AD2d 440 (2nd Dept. 2001) or that an unconscionably low sale price was obtained at the auction, Fisher v. Hersey 78 NY 387 (1879), Crossland Mortgage Corp. v. Frankel 192 AD2d 571 (2nd Dept. 1993), Bankers Federal Savings & Loan Ass'n v. House 182 AD2d 602 (2nd Dept. 1992). In the present matter, there are no allegations of overreaching, fraud, collusion or mistake. The bid of $ 492,000.00 constitutes some 75.70% of the fair market value of the property and is certainly not unconscionable in today's real estate market by any stretch of the imagination.

However, there have been cases where a party seeks to vacate a sale for other legitimate reasons, even where there exists no fraud, mistake or collusion and even where the sale price is not so low as to shock the conscience. In such cases, equity may properly intervene, Fisher v. Hersey, infra in order to do that which ought to be done.

It is beyond any dispute that counsel for the Plaintiff had actual and complete knowledge of the state of affairs relative to Astoria Federal's first mortgage lien and the fact that the Plaintiff's mortgage was subordinate thereto. Nonetheless, counsel failed to disclose the existence of the same other than by way of a disgracefully vague boilerplate "subject to" clause in the Terms of Sale, which did not effectively serve to put bidders on notice of the prior lien or anything else of substance. This state of affairs is even more distressing when one considers that the forged satisfaction piece had been annulled, that the Order effectuating same had not been recorded in the land records as of the time of the sale and Plaintiff's counsel was actually (not constructively) aware of the same.

In the opinion of this Court, such a case as the one at bar invokes the ancient principle of equitable estoppel or, as it is sometimes called, estoppel in pais. Equitable estoppel is the doctrine whereby a party may be barred from asserting a claim or right to which he might otherwise be entitled, either because of his affirmative conduct or his silence where there exists an obligation to speak. In order for equitable estoppel to lie, the party seeking to invoke the same must have substantially and materially altered his position to his detriment based upon reliance [*4]upon the conduct or silence. Chief Judge Beardsley of the Supreme Court of Judicature of New York, in Frost v. The Saratoga Mutual Insurance Company 5 Denio 154 (1848), defined estoppel in pais as that situation "...where one person is induced by the assertion of another, to do that which would be prejudicial to his own interest, if the person by whom he had been induced to act in this manner, was allowed to contradict and disprove what he had before affirmed." 5 Denio 154 at 157. In a later opinion by the Court of Appeals of New York, in the matter of Carpenter v. Stilwell 11 NY 61 (1854), Judge W.F. Allen stated that "The inquiry always is, whether the party against whom an estoppel is alleged, has by his actions or words influenced the conduct of others, so that a wrong will be done to those so influenced, if the party should be permitted to show a state of facts inconsistent with his actions and words." 11 NY 61 at 73. These principles have been repeatedly invoked and reaffirmed and are an integral part of our jurisprudence, as demonstrated by the rulings in Mattes v. Frankel 157 NY 603 (1899), Dickinson v. Blake 116 AD 545 (3rd Dept., 1906), Parmely v. Showdy 86 Misc 634 (Sup. Ct. Equity Term, Oneida County, 1914) , Kantor v. Cohn 98 Misc 383 (Sup. Ct. Kings County, 1917) and Rainbow Commercial Alliance Inc. v. Licciardi 89 Misc 2d 841 (Civil Ct. Queens County, 1976) to recite but a few decisions.

In the case at bar, it is clear to this Court that equity demands the invocation of the doctrine of estoppel in pais in order to do that which ought to be done in accord with the principles of fairness and justice. Here, it is apparent that the Plaintiff's counsel had in its possession material and relevant information regarding the lien status of the property under foreclosure. That important information (the existence of Astoria Federal's $ 600,000.00 first lien), which was not disclosed to any potential third party bidders, was of a sufficiently substantial nature that it materially altered the estate that was

expected by the bidders to be transferred by the Referee, in this case working to the substantial detriment

of the applicant. It is likewise obvious from all of the submissions herein that Plaintiff's counsel was well aware of the actual status of title and the failure to disclose an item of such magnitude was neither de minimis nor accidental. All of this is amply demonstrated by a fair reading of Mr. Robinson's Afirmation that was submitted in opposition to SYLVIA KNOGHT'S Order To Show Cause.

Indeed the Court finds, from all of the evidence presented, that equity mandates that the application of CHICHESTER REALTY INC. be granted in its entirety. The Court is constrained to find that the cross-application of the Plaintiff is wholly devoid of both legal and factual efficacy and cannot be sustained by any fair reading of the facts and the law. The foreclosure sale herein will be vacated and set aside, the earnest money shall be returned by the Referee to the applicant and the Court will set this matter down for a hearing relative to the amount of attorney's fees to be awarded in favor of the applicant.

This Court further finds that inasmuch as the Referee did actually conduct the foreclosure auction sale, he is entitled to the statutory compensation therefor. This directive shall not affect [*5]any future foreclosure sale of the property by the Referee pursuant to the Judgment of Foreclosure and Sale. The Court finds that the Referee has acted in a proper, ethical and prudent manner throughout these proceedings.

It is, therefore

ORDERED that the application of CHICHESTER REALTY INC. shall be and the same is hereby granted in its entirety; and it is further

ORDERED that the foreclosure sale of January 11, 2007 respecting real property known as 99 Whippoorwill Lane, East Quogue, Town of Southampton, New York shall be and the same is hereby vacated, dissolved, annulled and set aside; and it is further

ORDERED that the Referee is directed to return the down payment in the amount of $ 50,000.00 to CHICHESTER REALTY INC. within fifteen (15) days following the entry of this Order; and it is further

ORDERED that the cross-application of the Plaintiff shall be and the same is hereby denied in its entirety; and it is further

ORDERED that Referee KEVIN J. GILVARY ESQ. shall recover of the Plaintiff the statutory Referee's fee in the amount of $500.00, which shall be paid within fifteen (15) days following the entry of this Order; and it is further

ORDERED that this matter is set down for a hearing to determine the amount of attorney's fees to be awarded in favor of CHICHESTER REALTY INC. and against the Plaintiff and/or its counsel at 2:30 p.m. on September 12, 2007, Courtroom 1, Criminal Courts Building, 210 Center Drive, Riverhead, New York.

This shall constitute the Decision, Judgment and Order of this Court.

Dated: 27 July 2007

Riverhead, New York

E N T E R:

______________________________________

JEFFREY ARLEN SPINNER, J.S.C.