JP Morgan Chase Bank v Kilkenny

[*1] JP Morgan Chase Bank v Kilkenny 2009 NY Slip Op 52334(U) [25 Misc 3d 1228(A)] Decided on November 10, 2009 Supreme Court, Queens County Hart, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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, 2009
Supreme Court, Queens County

JP Morgan Chase Bank f/k/a The Chase Manhattan Bank et al, Plaintiff,

against

Patrick J. Kilkenny et al., Defendant.



25978/04

Duane A. Hart, J.

Plaintiff commenced this action for foreclosure on a mortgage on the property known as 58-05 82nd Street, Elmhurst, New York, and named various persons and entities as defendants, including, Frances Marino, individually and as heir to the Estate of Fannie Marino, Carole Marino, individually and as heir to the Estate of Fannie Marino, and Rosemarie Prezioso (the Marino defendants). Plaintiff alleged that the Marino defendants were holders of a subordinate mortgage (the Marino mortgage). The Marino defendants served a combined answer asserting the Marino mortgage could not be foreclosed insofar as it had priority over the subject mortgage. Defendants Marine One Acceptance and Anthony Ferrari each served notices of appearance. The remaining defendants defaulted in appearing or answering the complaint.

By order dated October 30, 2007, plaintiff's motion to extend the notice of pendency filed in the action for an additional three-year period was granted. By separate order dated October 30, 2007, plaintiff's motion for summary judgment and an order of reference was granted.

By long-form order dated July 31, 2008, the defaults by defendants Patrick J. Kilkenny, HSBC Bank USA, New York City Environmental Control Board and New York City Transit Adjudication Bureau in appearing and answering the complaint were fixed and determined, and the Referee was appointed to compute and ascertain the sums due and owing plaintiff and whether the mortgaged premises could be sold in parcels "with all convenient speed."

Thereafter, the Referee executed her oath on December 22, 2008, and issued her report dated April 30, 2009, stating she conducted a hearing on January 13, 2009. The report indicates that upon review of the "file" and the testimony[FN1] given at the hearing, the Referee calculated the principal and [*2]interest due and owing plaintiff as of January 5, 2009, late charges as of June 7, 2004, and tax and insurance advances made by plaintiff from June 7, 2004 through January 2009. According to the Referee's report, total amount due and owing plaintiff as of January 5, 2009 is $295,669.45. The Referee computed interest on the principal amount of $163,592.06 for a period of 1995 days from July 22, 2003 through January 5, 2009 at the rate of 12.1% per annum, or $54.2318883835616 per diem. The Referee notes in her report that she refused to accept into evidence documents offered by counsel for defendant Ferrari and Rosanna Ferrari, a nonparty, as proof of alleged inordinate delay in prosecuting the foreclosure action. The Referee reasoned that she, as the referee, did not have the authority to reduce the amount of interest to be charged defendant Kilkenny (see RPAPL 1321; see generally Mortgage Elec. Registration Sys., Inc. v Maki, 9 Misc 3d 983 [2005]; cf. CPLR 4311; see Preferred Group of Manhattan, Inc. v Fabius Maximus, Inc., 51 AD3d 889 [2008]), and indicated a reduction in interest was a matter of discretion for the court. The Referee also found that the mortgaged premises should be sold in one parcel.

Plaintiff moves to confirm the Referee's report and for leave to enter a judgment of foreclosure and sale. Defendant Ferrari and Rosanna Ferrari cross move to limit any award of interest and other costs and disbursements to plaintiff. The Marino defendants oppose the motion by plaintiff, and support the cross motion by defendant Ferrari and Rosanna Ferrari.

Defendant Ferrari and Rosanna Ferrari assert they are holders of a judgment lien (in the principal sum of $392,445.62) docketed against the property, which lien is third in priority (behind the subject mortgage and the Marino mortgage) and remains unsatisfied. They also assert that plaintiff unduly delayed the prosecution of the foreclosure proceedings, including this action, to the detriment of all junior lienors, thereby allowing an undue amount of default interest, at the rate of 12.1% per annum, and other charges, to accumulate. They claim that at the time of defendant Kilkenny's default, sufficient equity existed to satisfy both the subject mortgage and the Marino mortgage, and still leave a surplus. They further claim that during the period of delay, real estate values have plummeted, thereby reducing the equity available for satisfaction of their judgment lien. Defendant Kilkenny allegedly has no other assets out of which the Ferrari judgment can be satisfied in whole or part.

At the outset, the court notes that Rosanna Ferrari has failed to move for leave to intervene as a party defendant. In addition, the submissions presented fail to demonstrate that she is a holder of a judgment lien against the subject property, or otherwise has a real and substantial interest in the outcome of the foreclosure action warranting her intervention (see CPLR 1012, 1013). Under such circumstances, the court shall not entertain the motion by Rosanna Ferrari.

Defendant Anthony Ferrari, on the other hand, has the right to raise the issue of delay notwithstanding he served a notice of appearance instead of an answer to the complaint (see Gasco Corp. & Gordian Group of Hong Kong, Inc. v Tosco Properties Ltd., 236 AD2d 510 [1997]). This conclusion is true since it appears defendant Ferrari would not have had any well-founded basis to dispute the allegations of the complaint. In addition, defendant Ferrari's service of a notice of appearance signaled his desire to minimize the accrual of debt ahead of his position (see generally 1 Bergman on New York Mortgage Foreclosures § 2.16).

"In an action of an equitable nature, the recovery of interest is within the court's discretion (see CPLR 5001[a]; Danielowich v PBL Dev., 292 AD2d 414, 415 [2002]). The exercise of that discretion will be governed by the particular facts in each case, including any wrongful conduct by [*3]either party (see Danielowich v PBL Dev., 292 AD2d at 415; Sloane v Gape, 216 AD2d 285, 286 [1995]; South Shore Fed. Sav. & Loan Assn. v Shore Club Holding Corp., 54 AD2d 978 [1976])" (Dayan v York, 51 AD3d 964 [2008]). Thus, inordinate and unexcused delay in prosecuting a foreclosure action, can result in the disallowance of interest (see Dollar Fed. Says. & Loan Association v Kallen, 91 AD2d 601 [1982]; see also Danielowich v PBL Development, 292 AD2d 414 [2002], supra; Yagamo Acquisitions, LLC v Baco Development 102 St., 278 AD2d 134 [2000]).

To the extent defendant Ferrari makes reference to the foreclosure action entitled JP Morgan Chase Bank v Kilkenny (Supreme Court, Queens County, Index No. 9104/2002), such foreclosure action was brought by plaintiff predicated upon an alleged default in payment by defendant Kilkenny as of September 1, 2001. The commencement of that action is irrelevant to the issue of the accumulated default interest and advances in this case, which is based upon default by defendant Kilkenny as of July 22, 2003.

Defendant Ferrari asserts plaintiff commenced another foreclosure action, entitled JP Morgan Chase Bank v Kilkenny (Supreme Court, Queens County, Index No. 984/2004), based upon the same default in payment by defendant Kilkenny as alleged herein and yet, discontinued it for unknown reasons in November 2004.

Plaintiff contends that it did not engage in any kind of intentional conduct for the purpose of inflating the debt. Plaintiff explains that after the commencement of the action under Index No. 984/2004, it learned of the death of Fannie Marino, one of defendants named therein, prior to commencement. Plaintiff asserts that because the heirs of Fannie Marino needed to be joined as party defendants, it decided to discontinue that action (Index No. 984/2004), and commence the instant one. Such explanation for the period of the delay from January 15, 2004 to November 17, 2004 is reasonable and thus, that delay cannot be chargeable to plaintiff (see Yagamo Acquisitions, LLC v Baco Development 102 Street Inc., 278 AD2d 134 [2000]).

Defendant Ferrari asserts that plaintiff unduly delayed in making a summary judgment motion against the Marino defendants herein.[FN2] He points to the 2 ½ year period between the service of the answer by the Marino defendants on December 22, 2004, and the making of the summary judgment motion on July 31, 2007.

Plaintiff submitted a claim on October 5, 2004 (prior to the institution of this action) to its title insurance company under a policy of title insurance obtained in relation to its mortgage interest in the subject property. Plaintiff asserts that it had been alerted, by means of the answer served by Frances Marino and Carole Marino in the action under Index No. 984/2004, of their claim that the Marino mortgage was senior to the subject mortgage. Plaintiff contends it attempted to resolve the claim with its title insurer, but that the insurer remained noncommittal with respect to plaintiff's request for indemnification or a defense. Plaintiff therefore placed the action "on hold," "[o]n or about May 20, 2005," while it attempted to resolve its claim with its mortgage insurance company [*4](Defendant Ferrari's Exhibit "12," affirmation of Nicole C. Gazzo, dated July 6, 2007, at ¶ 5 submitted in support of the motion to extend the notice of pendency).[FN3] According to plaintiff, it finally received a letter dated June 8, 2007 from the title insurer denying its claim, and then, promptly moved for summary judgment against the Marino defendants.

Plaintiff also asserts that during the period it awaited the title insurer's decision with respect to its claim, defendant Ferrari failed to take steps to avoid the accrual of default rate interest and real estate taxes.

To the extent plaintiff argues that defendant Ferrari should have moved for summary judgment or to compel disclosure, the argument is without merit. Defendant Ferrari served a notice of appearance, not an answer, and therefore, would not have been entitled to obtain summary judgment or discovery.

To the extent plaintiff asserts that defendant Ferrari could have executed upon his judgment lien, thus capturing whatever equity would have been available to him from the property, defendant Ferrari considered such option (see Plaintiff's Exhibit "H," letter dated June 15, 2005 from counsel for defendant Ferrari to counsel for plaintiff and the Marino defendants, annexed to the affirmation of Michael J. Wrona, Esq., July 1, 2009).

One court has observed, however, that such remedy is "more theoretical than practical" (Gasasso v Zacarria, NYLJ, March 24, 1994, p 35, col 5 [Surrogate's Ct, Nassau Co., Radigan, J.]). Perhaps the lack of practicality caused defendant Ferrari to decide not to take the step. Nevertheless, he did not simply sit back and wait for prosecution of the action to resume. His attorney contacted plaintiff's counsel and plaintiff's title insurer (with permission of plaintiff's counsel) at various times during the period from September 2004 through June 27, 2007, reminding them that Ferrari's rights were being prejudiced as a result of the action's dormancy.

Plaintiff ultimately made its motion for summary judgment and an order of reference, arguing, that to the extent the Marino mortgage had priority over its mortgage, such priority was not a defense and could not prevent it from seeking a judgment of foreclosure and sale (see Defendant Ferrari's Exhibit "14," the affidavit dated July 27, 2007 of Mary Jacque Thompson, an assistant vice-president of EMC Mortgage Corporation, plaintiff's servicing agent). Plaintiff has failed to show the reason that this same argument could not have been proffered by it earlier, i.e. in a motion for summary judgment and an order of reference, made within a reasonable time after the service of the answer by the Marino defendants and following the expiration of the statutory time period to appear or answer by the remaining defendants (see generally 2 Bergman on New York Mortgage Foreclosure ¶ 21.02). For instance, plaintiff makes no claim it needed to conduct an investigation or obtain discovery regarding the Marino defendants' affirmative defense of seniority, and that such investigation or discovery proceedings caused its delay in making the motion. Certainly, in the absence of any explanation for the delay other than the dispute with its title insurer, plaintiff should have made the motion no later than February 1, 2006, since it also sought to fix the defaults of the [*5]nonappearing and nonanswering defendants (see e.g. CPLR 3215[c]).[FN4] Hence, the motion was delayed by 545 days (February 1, 2006 to July 31, 2007).

In addition, following the granting of the motion for summary judgment and leave to appoint a referee, by short-form order dated October 30, 2007, plaintiff delayed for another period, of approximately 7 months, before submitting a proposed long-form order to the court by letter dated June 3, 2008. Even assuming plaintiff was not immediately aware of the issuance of the order dated October 30, 2007, defendant Ferrari provided plaintiff with a copy of the order by letter dated November 9, 2007, and advised plaintiff of the need to submit a long-form order for the appointment of a referee. Plaintiff should have submitted a proposed long-form order to the court within a reasonable period thereafter. Again, plaintiff offers no explanation for the delay. The court deems a 60-day period to have been sufficient for plaintiff to submit the proposed long-form order, and therefore, the submission was 152 days late (January 8, 2008 to June 8, 2008).

To the extent defendant Ferrari asserts the scheduling of the Referee's hearing was delayed, he has failed to demonstrate plaintiff engaged in any wrongful conduct (see Dayan v York, 51 AD3d 964 [2008], supra; Danielowich v PBL Dev., 292 AD2d at 415; Sloane v Gape, 216 AD2d 285, 286 [1995], supra; South Shore Fed. Sav. & Loan Assn. v Shore Club Holding Corp., 54 AD2d 978 [2008], supra).

Under the unusual circumstances of this case, it would be unconscionable to reward plaintiff for its unwarranted delay of 545 days in moving for summary judgment against the Marino defendants and the additional unwarranted 152-day delay in submitting a long-form order of reference, for a total unwarranted delay of 697 days. The court calculates the interest due and owing plaintiff to be at the rate of 12.1% per annum for a period of 1298 days as opposed to a period of 1995 days (1995 days - 697 days = 1298 days). That branch of the cross motion by defendant Ferrari to limit any award of interest and other costs and disbursements to plaintiff is granted to the extent of limiting an award of interest to a period of 1298 days from July 22, 2003.

That branch of the motion by plaintiff to confirm the Referee's report of computation is granted except that portion of the report which computes interest for the entire 1995-day period from July 22, 2003 up to and including January 5, 2009, and substituting a computation of interest for the 1298-day period from July 22, 2003 to February 10, 2007 at a per diem rate of $54.2318883835616 for a total of $70,392.99 (1298 days x $54.2318883835616 = $70,392.99).

That branch of the motion by plaintiff for leave to enter a judgment of foreclosure and sale is granted.

Settle order and judgment.

J.S.C. Footnotes

Footnote 1: The Referee's report does not name the witnesses who testified at the hearing, but a review of the transcript reveals that Chris Farrar, an employee of EMC Mortgage Corporation, the servicing agent for plaintiff, was the only witness.

Footnote 2:Defendant Ferrari contends plaintiff was aware of the priority claim regarding the Marino mortgage as early as 2002, when plaintiff commenced the foreclosure action under Index No. 9104/2002 and named Fannie Marino, Carole Marino and Frances E. Marino as party defendants. Defendant Ferrari, has failed to present any evidence to support such contention.

Footnote 3:Plaintiff's insurer took the position in a letter dated June 8, 2007 to plaintiff, that the appraised value of the property was sufficient to satisfy both the subject mortgage and the Marino mortgage, and leave behind a "substantial" surplus (Plaintiff's Exhibit "C").

Footnote 4:All the affidavits of service of process were on file with the County Clerk by December 29, 2004 (see CPLR 308[2], [4]).