U.S. Bank N.A. v Culver

[*1] U.S. Bank N.A. v Culver 2010 NY Slip Op 51017(U) [27 Misc 3d 1233(A)] Decided on June 8, 2010 Supreme Court, Orange County Bartlett, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. As corrected in part through June 11, 2010; it will not be published in the printed Official Reports.

Decided on June 8, 2010
Supreme Court, Orange County

U.S. Bank National Association, as Trustee for CMLTI 2007-WFHE2, Plaintiff,

against

Michael A. Culver, Twana K. Barron, Board of Managers of Mountainside Hills Condominium II Association, et al., Defendants.



5813/2009

Catherine M. Bartlett, J.

This action seeks to foreclose a mortgage on an unoccupied residential condominium unit, 125 of the Mountainside Hills Condominium II located at 17 Lexington Way, Middletown, New York. As interlocutory relief, The defendant Board of Managers of the Mountainside Hills Condominium II, ("Board,") a junior lienor, seeks the appointment of a receiver of the unit in question, with direction to the receiver to rent unit and to apply the proceeds first to the payment of current common charges, then to the reduction of the mortgage.

The plaintiff opposes this application. This opposition raises the danger of the wasting away of the asset and the accrual of needless common charges. A denial of this application would be to the detriment of the interests of the Board because it is unlikely that these common charges [*2]will be paid out of the proceeds of the foreclosure sale.

CPLR § 6401 permits the appointment of a receiverto an applicant therefor when the applicant has an apparent interest in the property at issue and the property is in danger of being lost, destroyed or materially injured. A junior lienor has the necessary standing to apply in a foreclosure action for a receiver. See, Global Realty Corp. v Charles Kannel Corp., 9 Misc 2d 241 (Sup. NY 1958). The Board has an interest in the property and as such the requisite standing to make the instant motion.

In this case, the question is raised whether the cost of the condominium common charges accruing while a foreclosure action is pending be paid without first applying the rents to the reduction of the first mortgage.

It is well established that any surplus money realized upon foreclosure sale is not a general asset of the owner of equity of redemption, but stands in place of the property for all purposes for distribution among persons having vested interests or liens upon the property. See, Roosevelt Sav. Bank v. Goldberg, 118 Misc 2d 220 (Sup. Nassau 1983). Hence, the Board does have an opportunity to move for any monies left after the plaintiff's first mortgage has been satisfied. It is true that the Board has received a judgment for the common charges owed. However, it would appear unlikely that the foreclosure sale will produce any excess monies or even generate enough to cover the outstanding first mortgage held by the plaintiff. In the event there are no monies left after the first mortgage is satisfied, the Board would find its lien extinguished. In order to mitigate it own damages and those of the fellow owners, and to prevent the accumulation of additional unpaid common charges, a receiver is sought by the Board with direction to rent the unit and to pay common charges.

In determining whether to provide for the payment of condominium common charges by a receiver from contemporary rents while a mortgage foreclosure action is proceeding as part of the expenses of maintaining the premises the court must consider:

(a) the prejudice, if any to be suffered by the holder of the first mortgage, and

(b) how to balance that against the harm being suffered by the Board which is being compelled to carry cost of maintaining the unit during the pendency of this action.

A mortgage foreclosure is equitable in nature, and there is vested in equity the right to prevent injustice. See, Bieber v Goldberg, 133 A D 207 (2nd Dept. 1909); Noyes v Anderson, 124 NY 175 (1891). In doing so, the court must balance the equities of the parties in determining what, if any, relief shall be given. See, Smith v City of Buffalo, 191 Misc 439 (Sup Erie 1948).[*3]It is in the interests of all parties that in the event of a default that an interested party move quickly to obtain the appointment of a receiver in order to preserve the asset. This does not affect the priority granted to first mortgages pursuant to statute.

The payment of common charges is consistent with the receiver's obligation to preserve the premises under RPAPL §1325(2). This is so because of the unique inter-relationship a condominium unit has with the common areas of the building and the building structure as a whole. The common charges sustain the unit. They pay for insurance, water and sewage, security, maintenance of the common area, etc. If these benefits were discontinued, the market value of the unit would decline.

By opposing the appointment of a receiver and payment of common charges by the proceeds of a rental, the plaintiff is seeking to be unjustly enriched. By seeking the appointment of a receiver the Board is preserving the asset by maintaining the building in which the unit is located. The consequences of the bank's position would work an injustice and sanction economic waste.

It is the right of a junior lienor to apply for a receiver in order to preserve the asset during the pendency of the foreclosure action while the holder of the first mortgage stands by, doing nothing. This is not a case in which the plaintiff is moving expeditiously toward a foreclosure sale. It is not known when, if ever, the parties would be able to settle the underlying mortgage dispute. There has been no evidence submitted that demonstrates that the current owners of the condominium are going to be able to make payments. They have not, to date, appeared for the conference held before the court attorney referee. Because the plaintiff has not sought to appoint a receiver, the denial of the instant motion would serve no one's purpose. There is a compelling reason to grant the relief requested. It is in the interests of all parties that unnecessary unpaid common charges not accrue.

The only possible prejudice to the plaintiff would be a loss of market value in the event the foreclosure sale occurs at a time when the unit is still occupied by the rental tenant obtained by the receiver. This can be moderated by limiting the period for which the unit may be rented or by incorporating such other safeguards as the plaintiff may suggest be included in the order to be settled herein. The plaintiff contends that the Board elected its remedy and pursued a judgment against the owners of the unit. However, based upon the evidence submitted, that was not an election of remedies. It was one of several the Board was permitted to pursue in conjunction with preserving its rights to pursue this form of remedy.

Accordingly, the motion made by the Board is granted and the Board is to settle an order on notice specifying the limitations on the receiver's authority to collecting rent and monies

[INTENTIONALLY LEFT BLANK]

necessary to satisfy the commons charges in this matter to the extent of the judgment previously obtained by the Board.

The foregoing constitutes the decision and order of the court.

Dated: June 8, 2010E N T E R

Goshen, New York

__________________________

HON. CATHERINE M. BARTLETT,

A.J.S.C.