Intervest Natl. Bank v Roosevelt Ave. Corp.

[*1] Intervest Natl. Bank v Roosevelt Ave. Corp. 2009 NY Slip Op 52432(U) [25 Misc 3d 1236(A)] Decided on December 4, 2009 Supreme Court, Queens County Rios, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 December 4, 2009
Supreme Court, Queens County

Intervest National Bank, Plaintiff,

against

Roosevelt Avenue Corp., et al., Defendants.



22488/08

Jaime A. Rios, J.

In this action to foreclose on a commercial mortgage, the receiver in this action moves (1) for an order and judgment declaring section 5.1[d] of a loan agreement between the defendants Daniel Lee, Roosevelt Avenue Corp. and Young Sook Cho a/k/a Young Sook Yoo to be non-binding upon the plaintiff and the receiver and (2) for an order compelling payment of rent arrears, late charges and rent pendente lite from defendant Dongbu America d/b/a Dongbu Tour and Travel, Inc. to the receiver.

This is an action to foreclose a commercial mortgage on real property located at 150-24 Northern Boulevard, Flushing, New York (BLOCK 5032, LOT 16) in the amount of $14,000,000.00 that was executed by defendant Roosevelt Avenue Corp. (Roosevelt) and guaranteed by defendant Daniel Lee and recorded on October 7, 2005. By order of this Court (Rios, J.) dated December 9, 2008 and entered December 18, 2008, Sally Unger, Esq. was appointed "Receiver of rents, issues and profits of the premises". The order, inter alia, authorized the receiver to collect and receive from the tenants in possession all rents now due and unpaid or that become due, directed the tenants or owner in possession to attorn to said receiver and pay to said receiver all rents now due and unpaid or that become due, enjoined and restrained the tenants from paying rents to the defendants, their agents, servants or attorneys, or any person other than the receiver, authorized the receiver to commence any legal proceeding necessary to recover rents now due or that become due, enjoined and restrained defendants from collecting the rents and from [*2]interfering in any manner with the premises, and directed the defendants to deliver to the receiver all leases and all papers affecting the operation of the premises, all rent lists, and all monies now on deposit with it as rent security.

During the pendency of this action, defendants entered into a lease modification agreement with another tenant at the premises, Dong Bu Travel Service (Dong Bu), which extended the terms of Dong Bu's lease for an additional five years from January, 2008[FN1]. At the time of the lease modification, the principal of Dong Bu, Young Sook Cho (Cho), loaned Roosevelt and Lee $3,000,000.00 and section 5.1[d] of the loan agreement provided that the rent on the lease may be used to offset the interest on that loan[FN2]. On June 3,2008, the parties entered into a mortgage against the premises, in the amount of $3,000,000.00 that was recorded on October 21, 2008. This mortgage apparently secured the debt in the loan agreement.

Unger currently moves (1) for an order and judgment declaring section 5.1[d] of a loan agreement between the defendants Daniel Lee, Roosevelt Avenue Corp. and Young Sook Cho a/k/a Young Sook Yoo to be non-binding upon the plaintiff and the receiver and (2) for an order compelling payment of rent arrears, late charges and rent pendente lite from defendant Dongbu America d/b/a Dongbu Tour and Travel, Inc. (Dong Bu) to the receiver.

In support of the motion, Unger notes that the underlying mortgage dated September 19, 2005 prohibits the placement of a subordinate mortgage against the subject building and describes this as an event of default. Specifically, paragraph 21 of the underlying mortgage assigned to plaintiff, "all right, title and interest as landlord under all existing and future leases and the rents, issues and profits of the Mortgaged Property, as further security for the payment of Debt Service". Unger further notes that section 5.1[d] of the loan agreement sets forth the terms of repayment which permits Dong Bu to apply unpaid interest due under the loan agreement to its rent. Thus, Cho has the option of requiring Roosevelt to credit Dong Bu's rent in place of Roosevelt making interest payments to Cho. Unger states that because the loan agreement effectively assigned Dong Bu's rent to Cho, it violated the terms of the underlying mortgage and prevents her, as receiver from carrying out her duties, and [*3]therefore, must be declared non binding.

Unger also points out that the rent set forth in the lease between Roosevelt and Dong Bu dated January 6, 2006 is $4,880.00 per month and that $700.00 in common area maintenance charges are added to that amount per month. Unger states that Dong Bu failed to pay rent and maintenance to her from January 1, 2009 through August 31, 2009 and thus for the 8 month period, a total of $39,040.00 in rent, $5,600.00 in maintenance charges and late charges are due.

In opposition, Dong Bu and Cho argue that the receiver is not entitled to collect rent from Dong Bu since the modification of lease permits it to offset all rent and all additional rents including common charges and parking space charges and the receiver is bound by the lease agreement. Dong Bu and Cho also note that since the loan agreement is not a mortgage, it does not trigger a default under Roosevelt's mortgage.

Also in opposition, Roosevelt argues that neither Intervest nor the receiver have standing to modify the agreement that is neither the result of fraud nor collusion entered into between the defendant and the tenant. Roosevelt states that the receiver merely steps into the shoes of the owner and only has the right to collect those rents in such sum as the owner may collect.

In support of the motion and in reply to the opposition, Intervest states that the mortgage between it and Roosevelt provides in (1) paragraph 21 that the mortgagor "assigns to mortgagee all of mortgagor's right, title and interest as landlord under all existing and future leases, and the rents, issues and profits of the mortgaged property, as further security for the payment of debt service" and (2) paragraph 20 that the mortgagor "shall not with respect to any present or future leases accept prepayment of rent prior to its due date in excess of one month". This, Intervest argues, shows that the mortgage cannot be impaired by the subsequent loan and the prepayment is voidable.

Also in reply to the opposition, Unger states that she is not bound by the terms of the lease between Dong Bu and Roosevelt and she is entitled to collect the unpaid rent.

As a general rule, a receiver of rents and profits in a mortgage foreclosure action is bound by the agreement between the tenant and the mortgagor landlord (see New York City Community Preservation Corp. v Michelin Assoc., 115 AD2d 715 [2d Dept., 1985]). However, a court has "broad power" to prevent [*4]frustration of an order appointing a receiver of rents by a collusive or fraudulent lease for an inadequate rental or advance payment of rent in anticipation of a foreclosure action (Id.). Moreover, even in the absence of fraud or collusion, an agreement by the mortgagor with respect to the mortgaged premises is not conclusive upon the mortgagee, or the receiver, where such agreement contravenes an express covenant or the necessary implications of a prior recorded mortgage (Id., see also Bank of Manhattan Trust Company v 571 Park Avenue Corp., 263 NY 57 [1933]).

Here, the mortgage contains an assignment of rents as security for the mortgage indebtedness clause and it was simply beyond the power of Roosevelt to contractually assign the rents collectible from Dong Bu to a general creditor, i.e. Cho. Roosevelt had no authority to appropriate the pledged rents to a different obligation as it was expressly forbidden by the mortgage. Therefore, the agreement by Roosevelt to apply the Dong Bu rent's to the Cho indebtedness was in clear contravention of the mortgage, regardless of whether that agreement had been made with a fraudulent intent. Thus, the agreements to apply rent from Dong Bu to the unpaid interest due under the Cho loan agreement should be voided as against plaintiff and the receiver and Unger shall be authorized to collect the stated rent from Dong Bu (see Dime Savings Bank of New York, FSB v Montague Street Realty Associates, 90 NY2d 539 [1997]). Accordingly, the motion is granted.

Settle Order and Judgment.

Dated: December 4, 2009_________________________

J.S.C. Footnotes

Footnote 1: Dong Bu's original lease term was from February 1, 2006 through January 31, 2009.

Footnote 2: Paragraph 2 of the lease modification states that rent and all additional rents including common charges shall be offset from the interest due on the loan made between Roosevelt and Cho.