Matter of Sakow

[*1] Matter of Sakow 2012 NY Slip Op 51585(U) Decided on August 23, 2012 Sur Ct, Bronx County Holzman, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 August 23, 2012
Sur Ct, Bronx County

In the Matter of the Estate of Max Sakow, Deceased.



207-P/1956



The appearances are as follows:

Novick, Edelstein, Lubell, Reisman, Wasserman & Leventhal, P.C., (Edward A. Friedman, Esq., and Konstantine Traganas, Esq., of counsel) for James K. Coleman, temporary receiver

Scott J. Steiner, P.C., (Scott J. Steiner, Esq., of counsel) for Evelyn Breslaw and Diana Sakow, daughters

Gordon, Gordon & Schnapp, P.C., (Elliot Schnapp, Esq., of counsel) for Walter Sakow, son.

Lee L. Holzman, J.

In this estate that has been in litigation for decades, now that there has been distribution among the decedent's three children of the last seven parcels of realty in the estate, the temporary receiver (receiver), who was appointed pursuant to an order dated February 1, 2000, moves for an order judicially settling his account, awarding $15,000 to his counsel and $5,000 to his accounting firm in additional fees, allowing payment of a $1,484 bill for boiler repairs, and upon payment of the foregoing charges, terminating the receivership and discharging the surety on the receiver's bond. In 2006 while he was still managing seven parcels of realty the receiver filed an account for the period from March 1, 2000 to August 30, 2006. Since that time, he sent the court and the parties monthly statements and, in support of his instant motion, he submits as an update to his account a "Statement of Receipts and Expenditures Mar. 1, 2000-May 31, 2010," which consists of unsegregated statements of income and expenses.

In response to the receiver's motion, the decedent's daughters (the daughters) first filed a cross motion which, shortly thereafter, was replaced with an amended cross motion and a separate motion for relief against their brother Walter and his wife Marion Schainberg (Schainberg). As a result of conveyances by Walter or entities he controlled,Schainberg was the record owner of most of the Bronx properties and was a party in the proceeding to settle Walter's account. Although Schainberg was also served with process in the receiver's accounting proceeding in 2006, she did not appear in that proceeding and she was not served with notice of the daughters'motion for relief against her and Walter.

In their amended cross motion, the daughters seek an order/judgment: (1) declaring that the three properties transferred to them by the receiver were transferred free and clear of all liens and encumbrances nunc pro tunc to the date of the transfer; (2) specifically discharging a mortgage on the Tiemann Avenue parcel; (3) surcharging the receiver for rental security deposits that he failed to turn over to them for two of the properties transferred to them; and, (4) such other and further relief as the court "deems just and proper." Additionally, the affirmation in support of the cross motion opposes the legal and [*2]accounting fees sought by the receiver based on a May 18, 2008 stipulation between the daughters and the receiver.

In their separate motion against Walter and Schainberg, the daughters seek an order: (1) reimbursing the estate for rents they allegedly collected after the appointment of the receiver but before the receiver took control of the premises; (2) directing reimbursement from Walter for real estate taxes paid by the receiver pursuant to court order, which relate to tax years prior to the receiver's appointment; and (3) "transferring Bronx Properties in satisfaction of, imposing a lien on the Bronx Properties that remain in the name of Marion Schainberg for the amounts due the estate, and issuance of a judgment against Walter Sakow and Marion Schainberg for said amounts" (sic). The receiver and Walter both oppose the daughters' cross motion, but only Walter opposes the motion seeking relief against him and Schainberg.

HISTORY

The earlier history of this litigation has been set forth in

numerous decisions (see Matter of Sakow, 97 NY2d 436 [2002]; Matter of Sakow, NYLJ, Feb. 23, 2006 at 27, col 5; Matter of Sakow, NYLJ, Sept. 17,1997, at 27, col 3; Matter of Sakow, 160 Misc 2d 703 [1994], modified 219 AD2d 479 [1995] ). To briefly review, the decedent died testate on January 30, 1956 survived by a spouse, the two daughters and the son Walter. The will left one-third of his estate to his wife Rose who was the nominated executor, and two-thirds in equal shares to the children, with the daughters' shares to be held in trust until they reached the age of 23; however, the trusts were never formed. The daughters did not receive any distribution from the estate prior to 1984 when they filed a compulsory accounting proceeding against Rose, as the executor of the estate, and against Walter who was ultimately determined to be the de facto fiduciary of the estate after a bifurcated trial on the issue of liability (see Matter of Sakow, 160 Misc 2d at 703, modified 219 AD2d at 479). Rose died after that trial but the litigation with respect to Walter's accounting continued unabated.

On February 1, 2000, on the motion of the daughters over Walter's objection, the court appointed the receiver to manage the nine Bronx properties that were determined to be assets of the estate (see Matter of Sakow, NYLJ, Nov. 26, 1999, at 30, col 5). The order authorized the receiver to employ legal counsel, "whose reasonable compensation shall be fixed by the court."Although appointment of the receiver presumably benefitted the estate by professional property management, it did nothing to lessen the animosity among the decedent's children. By late 2000 or early 2001, the receiver reported that only two of the nine properties generated income, the apartment building Rose Gardens and the gas station on Tiemann Avenue, and that most properties were held in the name of Walter's wife. He also sought permission to use the net income of Rose Gardens to satisfy existing tax and real estate liens on other non-productive properties. In that application, the daughters requested a determination that if the receiver was directed to pay back taxes, the sums paid should be deducted from Walter's distributive share. The court granted the receiver's application and held that issues as to whether any party was responsible in whole or in part for back taxes on the properties should await the conclusion and determination of issues raised in Walter's pending accounting proceeding as the de facto fiduciary (see Matter of Sakow, NYLJ, Mar. 19, 2001, at 26, col 2).Ultimately, following the November, 2003 damages phase of the trial of Walter's accounting [*3]proceeding as de facto fiduciary, at which the daughters failed to present evidence or even participate, this court rejected Walter's account, which purported to report that Walter operated the properties at a loss, based on the inadequacy of the accounting and Walter's failure to retain records and his lack of cooperation during discovery, and determined that the daughters were entitled to their distributive share of the net proceeds from the sale of certain Bronx properties, without crediting Walter for alleged expenses or charging him for any income he received. The receiver was then directed to report to the court his recommendations for selling the properties (see Matter of Sakow, NYLJ, Apr. 16, 2004, at 26, col 4). This decision was modified in part with respect to the shares the daughters were to receive, but was otherwise affirmed (see Matter of Sakow, 21 AD3d 849 [2005]).

Late in 2004, the receiver broached the prospect of selling two of the parcels and the daughters ultimately agreed that the two parcels should be sold at auction. At the auction on April 5, 2005, two properties were sold, one for $575,000 and one for $1.75 million (see Matter of Sakow, NYLJ, Apr. 28, 2005, at 29, col 2). Upon a motion by the receiver to confirm the report of sale and distribute the proceeds, the parties agreed to the payment of the expenses of that sale and to distribute $20,000 to each of the daughters as an advance against their distributive shares (see Matter of Sakow, NYLJ, June 29, 2005, at 24, col 3). One daughter also separately obtained court authorization for an emergency distribution of $12,848 from the receiver while Walter's request for an advance distribution was denied (see Matter of Sakow, NYLJ, Mar. 16, 2005, at 30, col 4). Ultimately, because other unsold properties remained which could be used to make any required adjustment in distribution, the receiver was directed to distribute the over $2 million in proceeds of the sale from those two properties to the daughters and Walter after adjustments, with the receiver holding a reserve for taxes (see Matter of Sakow, NYLJ, Aug. 2, 2005, at 24, col 4).

At about the same time the sale of the two properties was being

arranged, upon the daughters' consent, the receiver was granted leave to bring a proceeding to void leases on the Tiemann Avenue gas station and another parcel and to retain a new attorney to do so (see Matter of Sakow, NYLJ, Mar. 25, 2005, at 28, col 4); however, that leave was effectively vacated in a subsequent decision after all parties adopted the position that the receivership should conclude (see Matter of Sakow, NYLJ, Feb. 23, 2006, at 27, col 5). Thereafter, attempts by the daughters to seek additional surcharges against Walter as de facto fiduciary of the estate were rejected as, under the doctrine of the law of the case, their damages were limited to a two-thirds interest in the nine parcels of realty without crediting Walter for any expenses he previously incurred with regard to those parcels or charging him for any funds he previously received therefrom (see Matter of Sakow,45 AD3d 314 [2007]).

After applying for and receiving an extension of time to file his account and authorization to hire an accountant to assist in its preparation, the receiver filed an account on May 19, 2006. In granting authorization to hire an accountant, this court noted that the authority was granted at the receiver's own risk, as the court was not determining at that time whether the services should be charged to the estate entirely or partially deducted from the receiver's compensation in the final decree to be settled on his account. In the same decision, a separate request by the daughters to deny any compensation to the [*4]receiver after April 16, 2006 was denied, as the receiver was still managing properties and no party had yet settled a decree directing distribution (see Matter of Sakow, NYLJ, Apr. 21, 2006, at 25, col 2).

It appears that during the discovery phase of the receiver's accounting, considerable negotiations took place particularly between the receiver and the daughters or their counsel. Although the court was not privy to any negotiations, the instant motion papers and exhibits indicate that on May 19, 2008, the daughters and the receiver entered into a "Settlement Agreement and General Release" governing, inter alia, payments to the receiver and his counsel. Although the stipulation states it was subject to court approval, no such approval was ever sought or obtained.

In 2009, the daughters moved for an order directing a distribution of the remaining seven properties in kind in lieu of a sale of those properties, as well as the distribution of other assets and the discharge of the receiver, and Walter cross-moved to have the properties sold at auction or some other manner. The daughters' application was granted to the extent that the court ordered distribution in kind. Although the parties agreed that new appraisals would be required in order to make distribution in kind, considerable time elapsed while the parties argued, first, over the appointment of an independent appraiser and, then, about the accuracy of the resulting appraisals. Ultimately, the daughters were awarded the three properties they chose; namely, Rose Gardens, Tiemann Avenue and Thwaites Place,and the remaining four properties were awarded to Walter (see Matter of Sakow, 26 Misc 3d 1203 [A], 2009 NY Slip Op 52637 [U] [2009]). The receiver was directed to update his account and settle a decree "reflecting distribution of the non-real estate assets, two-thirds to the daughters and one-third to the son, taking into account the distributions of the real property directed by the court, making appropriate adjustments for sums advanced to or for the benefit of any party pursuant to prior court orders . . ." (id.). If the parties did not wish to await a final decree in the receiver's accounting proceeding, they were granted leave to settle an interim decree directing the receiver to execute and deliver to the daughters' counsel deeds in recordable form conveying their three parcels to them, as tenants in common, or in such other manner or form as they might jointly request, together with any transfer documents.

The parties elected the latter course, and the daughters settled an order that was entered on January 6, 2010 directing the receiver to transfer the three properties to the daughters prior to the entry of a final decree in the receiver's accounting proceeding. The properties were transferred on January 25, 2010.

THE RECEIVER'S ACCOUNT

The receiver's account filed in May 2006, while denominated as a final account, clearly was not final as the receiver remained in charge of seven of the nine original parcels of realty at that time and for another three and a half years thereafter. In fact, that application sought to have the receiver discharged upon turning the receivership assets over to an unspecified "person or entity or the parties to this proceeding." Furthermore, Schedule C-2 of that account, while showing total administration expenses in excess of $3 million, fails to reflect the dates and the amounts paid for counsel and accounting fees. The "Statement of Income and Expenses" filed on May 19, 2010, consisting of unsegregated lists of income and expenses, is of no assistance in ascertaining exactly what occurred at the closing when the properties were distributed and what adjustments [*5]were made. The summary statement indicates that the receiver retained only $21,484 after all the properties were transferred, and other than the daughters' complaints with respect to security deposits, no party disputes the accuracy of this amount or argues that the receiver should be holding a greater amount. The affirmation of legal services relates only to the $15,000 in additional fees that the receiver seeks to pay from the relatively small amount retained after all properties were transferred.

During the discovery phase of the receiver's accounting, depositions were held and the receiver continued to send monthly statements of income and expenses to the parties with copies to the court. It appears that the parties obtained considerable information during the course of discovery to which the court is not privy, and rather than seeking an updated formal accounting from the receiver, the daughters, in response to the receiver's motion, made the motion and amended cross motion seeking resolution of some issues that, normally, would be raised in objections to an updated account, and others that would require the commencement of a new proceeding. In essence, the parties are treating the daughters' pending motion and cross motion as if they constitute objections to the receiver's account. Although parts of the relief requested by the parties are impossible for the court to grant on this state of the record, many of the issues raised in the motions and cross motion can be determined at this time, thereby limiting the issues remaining between the parties.

THE RECEIVER'S MOTION

The receiver asserts that he complied with the court's order of January 6, 2010 by conveying the three parcels to the daughters in the manner they directed and relinquishing the remaining parcels and, accordingly, he should be discharged. In an affirmation of legal services, the receiver's attorney notes that: (1) his law firm has not sought legal fees since this court's order of June 23, 2008, and even though several subsequent motions required review by that firm, they did not appear in court in an attempt to mitigate legal fees; (2) he has been practicing law for 35 years and an hourly rate of $400 would be reasonable; (3) during the course of the receivership, another attorney who has since died worked extensively on the file, she was admitted for over 20 years and her hourly rate was $325; (4) he advised counsel for the daughters and Walter on several occasions that in the absence of any opposition, his application for legal fees would be limited to $15,000 (based on the funds available in the receiver's account), but despite his undisputed long-standing oral agreement with the daughters' attorneys, the daughters now will not honor the agreement; and, (5) based on the amount of funds available in the account, he remains willing to accept an additional payment of $15,000 in legal fees in full payment for all legal services but, if there is no consent, his firm will recreate the time spent working on the file and seek legal fees reflecting the true amount of time spent on the matters, which will be well in excess of the $15,000 now requested.

The daughters oppose the receiver's application for additional counsel and accounting fees based on, inter alia, the May 19, 2008 stipulation between themselves and the receiver, arguing that because the properties were transferred in kind and not "sold," the provision for the receiver's counsel to receive fees in connection with the "closing" does not apply, so counsel is not entitled to fees with respect to those transfers. The receiver replies that the May 2008 agreement explicitly allows for fees in connection with the transfer of the properties which is exactly what occurred when the properties were [*6]conveyed to the daughtersas they requested. Although the daughters' claim that legal fees of over $350,000 were paid to the firm representing the receiver, there is no indication of how this figure was derived.

To fix attorneys' fees, even on consent, requires an appropriate affirmation of services which outlines allof the receiver's legal fees the court is being asked to allow for services rendered over the entire period of the receivership (see Chang v Zapson, 67 AD3d 435 [2009]; Bankers Fed. Sav. Bank FSB v Off W. Broadway Dev., 224 AD2d 376 [1996]). Similarly, there must be a statement of exactly what services the accountants rendered to determine whether their fees are reasonable and properly chargeable to the estate or against the receiver's commissions (see Key Bank of New York v Anton, 241 AD2d 482 [1997]). Likewise, a receiver's commissions cannot be fixed without detailed information as a receiver is not entitled to statutory maximum commissions set forth in CPLR 8004 as of right; rather, a court has the discretion to determine the percentage of commissions (see DeNunez v Bartels, 264 AD2d 565 [1999]; Key Bank of New York v Anton, 241 AD2d at 482). This court's order appointing the receiver is specific in requiring compliance with Part 36 of the Rules of the Chief Judge and that the receiver and his counsel shall have their reasonable fees fixed upon filing affidavits of services. The order of this court permitting the receiver to retain an accountant contains similar language. Although the arguments of the parties as to the construction of the May 19, 2008 agreement suggests that they deem it to be an important factor in fixing fees, the agreement itself provides that it was subject to court approval, and no such approval was ever sought or granted. In the absence of adequate affidavits of services, the court finds no need to construe that agreement at this juncture.

Until the fees are approved and certain other issues raised by the daughters resolved, the court cannot discharge the receiver or the surety on the bond. On the other hand, the court realizes that aside from the daughters' opposition to the payment of any additional legal or accounting fees from funds held by the receiver, none of the interested parties object to the accountant or counsel fees already paid by the receiver or to his request for commissions. To the contrary, it appears that the daughters already gave the receiver a release with respect to those items. Accordingly, the receiver is directed to file and serve upon all of the interested parties an amended schedule to his accounting which is to include the following: (1) the date and the amount for each payment of either counsel fees or accounting fees, an attorney's affidavit detailing all services rendered for such fees in compliance with Uniform Rules for Surrogate's Court (22 NYCRR) § 207.45 (a), and a detailed bill for all accounting services paid or sought; and, (2) an updated schedule "I" setting forth the amount, if any, of additional commissions since April 30, 2006 which shall contain a statement setting forth why the receiver is of the opinion that the percentage upon which he calculated all of his commissions is appropriate. The updated or new schedules that the court herein directs shall be served and filed within 40 days of the date of this decision and order. In the event that any interested party takes issue with the amount reported on either of these schedules, such party shall notify the court and the receiver in writing within 15 days of the date that said schedule was mailed to or otherwise served upon their attorney. In the event that no party takes issue with the amounts listed on these schedules, the court will pass on the receiver's application on the basis that the numbers reported are deemed accurate. In the event that there is any disagreement with [*7]respect to the amount reported on any schedule, the court will schedule a conference to discuss the issues raised. After the parties have agreed upon the amount paid to date for legal fees and accounting fees or the court has determined any issue raised with regard thereto, the court will pass upon the total legal and accounting fees to be awarded, including the issues raised herein with respect to the receiver's request for authorization to pay an additional $15,000 in legal fees and $5,000 in accounting fees.

There appears to be no reason not to grant that branch of the receiver's motion seeking authorization to pay for boiler repairs from the funds on hand. The daughters' argument that the repairs were somehow necessitated because the superintendent was allowed to live off the premises is too speculative to credit. Accordingly, only that portion of the receiver's motion requesting authorization to pay the outstanding bill for boiler repairs is granted at this time.

THE DAUGHTERS' AMENDED CROSS MOTION

In their amended cross motion, the daughters first seek to void encumbrances on Rose Gardens asserting that: (1) at the April 2010 mortgage closing for Rose Gardens, the title report listed judgments filed against Schainberg during the period of the receivership, including many Environmental Control Board judgments and tax liens; (2) in order to obtain financing, they had to deposit $421,865 in escrow pending removal of the liens; (3) at the closing they agreed with the title company to undertake to obtain a court order either voiding ab initio the deed to Schainberg or, in the alternative, authorizing the receiver to transfer the property free and clear of encumbrances in order to recover the escrowed funds; (4) because Schainberg retained record title to the properties both before and during the receivership, the liens and judgments are personal to her, and the court should order the receiver to transfer the property free of such liens nunc pro tunc to the date of the closing. Secondly, the daughters seek an order discharging a mortgage on the Tiemann Avenue property given by Walter to Home State Bank of New Jersey in 1978 because, when they sold that property in September of 2010, a $35,000 escrow was required pending the discharge of the mortgage. Thirdly, they seek to charge the receiver with tenants' security deposits that were not segregated as required by law, claiming the deposits should have been turned over to them as the present owners of the premises as, ultimately, they are liable to return the deposits. The daughters claim they "recently" discovered from current management of Rose Gardens that the receiver retained the security deposits for 46 Rose Gardens apartments. Similarly, they claim a $1,475 security deposit should be turned over with respect to the Thwaites Place property.

The receiver does not address any issues relating to the removal of existing encumbrances on the properties he transferred to the daughters. With respect to the tenants' security deposits, he argues that: 1) he sent checks totaling $26,830.60 representing "some portion" of the security deposits for Rose Gardens tenants to the daughters after the closing; (2) the daughters were aware that the security deposits were being used for other purposes that benefitted the properties; (3) the daughters received tens of thousands of dollars worth of benefits at the closing because they were not charged with adjustments for pre-paid fuel, real estate taxes and water charges; (4) the daughters raised no issue with respect to the security deposits at the closing so they should not be allowed to do so after the fact; and, (5) if the daughters are allowed to recoup the security deposits, they should also be charged with the items that benefitted them. [*8]

Security deposits remain the property of the tenants who deposit them and the law is clear that failure to keep such deposits segregated is a misdemeanor and failure to turn them over to a purchaser or receiver is a malfeasance subject to enforcement by the Attorney General, the affected tenants, or a successor landlord (see General Obligations Law § 7-105 [1]; Gerel Corp v Prime Eastside Holdings, LLC, (12 AD3d 86 [2004]; Perez v Ruggiero, 35 Misc 3d 126 [A], 2012 NY Slip Op 50567 [U] [2012]; see also Cvek v Pavicic, 2011 NY Slip Op 30462 [U] [2011]). General Obligations Law § 7-105 sets forth the duties of the transferor of real property where security deposits are being held including the obligation to transfer the deposits to the grantee or receiver and giving written notice to that effect to the tenants. If the transfer of deposits is properly made under that statute, the owner is relieved of responsibility. In Gerel Corp v Prime Eastside Holdings, LLC (12 AD3d at 86), the defendants alleged that security deposits had been used to "adjust" certain prepayments at the closing and claimed that the plaintiffs had no standing to sue for their return as the deposits were the property of the tenants. The court held that:

"[T]he specific language of General Obligations Law § 7-105 makes it clear, however, that grantees, assignees, successors and receivers all have the same rights with respect to the transfer of security deposits including standing to compel such transfer (see Tischler v Key One Corp., 67 AD2d 886 [1979]). As successor landlords, plaintiffs were directly injured by defendants' refusal to turn over the tenants' security deposits and have standing to enforce their rights under General Obligations Law § 7-105" (id. at 93-94).

In Gerel, the court implicitly rejected the defendants' claim that the deposits had been used in part to offset prepaid real estate taxes, water and sewer charges, and here, the receiver's similar claim must be rejected. Accordingly, even if the daughters were aware that the deposits were used for necessary expenses for the properties, this does not justify the receiver's failure to keep the deposits segregated as required by law. Accordingly, in the update of his account the receiver is directed to include a schedule which identifies each security deposit he failed to keep segregated and failed to turn over to the daughters when the realty was transferred to them. In the event that the daughters are of the opinion that any portion of the schedule is inaccurate, they shall notify the court and the receiver in writing within 15 days of the date that the schedule was mailed to or otherwise served upon their attorney. If there is any disagreement with respect to this schedule the court will schedule a conference to discuss the issues raised. In the event the daughters do not contest the accuracy of the schedule then the receiver, within 25 days of the date he mails the schedule to the daughters, shall deliver to the daughters' counsel payment for the total amount of such security deposits. Of course, the daughters will then be required to keep such payments segregated in an interest-bearing account(s) so that the funds may ultimately be disbursed as required by law.

Walter opposes so much of the cross motion as seeks to have the mortgage on the Tiemann Avenue property and a variety of liens on Rose Gardens removed nunc pro tunc on the grounds that the relief sought is a legal impossibility and removal of the mortgage and liens might be detrimental to Schainberg. He argues that the receiver only could transfer the properties subject to any encumbrances on them regardless of when they accrued, and the court cannot by judicial fiat make the encumbrances disappear. The fact [*9]that the daughters describe the liens as personal to Schainberg does not make them so; rather, he argues they are liens against the properties largely for violations that occurred during the receivership when, although she was the legal title holder, Schainberg had no control over the properties and no obligation to maintain the property. Moreover, Walter takes umbrage at the fact that the properties were valued for distribution purposes at the values set by the appraiser selected by the daughters, and notes that he complained of the haste and methods of the appraiser, but those values were used despite his offer to pay a higher price. Accordingly, he argues that, once again, the daughters accept the benefits of receiving the properties in kind but refuse to accept any liabilities associated with the properties. Specifically, he points out that the daughters were aware of a mortgage on Rose Gardens which was deducted from its value for distribution purposes, and urges that with the exercise of diligence they could have discovered the other liens. Finally, he points out that nowhere do the daughters state that the value of Rose Gardens is less than that ascribed to it by the appraiser, even after deducting the cost of removing the encumbrances.

Insofar as the daughters seek removal of encumbrances, nunc pro tunc, whether liens or a mortgage, they face insurmountable procedural and substantive obstacles as such relief affects the rights of parties over whom jurisdiction has not been obtained. Procedurally, it is impossible to remove an encumbrance by motion or cross motion. Moreover, the receiver lacked the ability to transfer property without the existing liens on the properties and this court cannot give him the ability to do so. It also appears that the environmental liens against Rose Gardens might not flow from any act by Schainberg, and the reason her name appears is because she held title until the conveyances to the daughters, even though the receiver managed those properties for a decade.

The daughters fail to provide any legal authority for the proposition that the liens of third parties or governmental bodies who are not parties to a proceeding can be removed, transferred or discharged. The only case cited by them, Matter of Freund (162 Misc 2d 965 [1994]0, is inapplicable. The Freund case involved the ability of the surrogate's court to allow the sale of property in an SCPA Article 19 proceeding and distribute the proceeds free and clear of creditors' liens against one of the decedent's sons, a one-half owner, who had declared bankruptcy. In that case, jurisdiction was obtained over the trustee in bankruptcy and the Surrogate of Schoharie County correctly held that the court had that power, provided that the bankrupt distributee's share was paid to his trustee in bankruptcy, and that there could be deducted from his share a pro rata share of administration expenses.With respect to the mortgage on the Tiemann Avenue property, that mortgage appears to have been transferred in 1980 from Home State Bank of New Jersey to Schainberg. As Schainberg was not made a party to this application, the court cannot discharge that mortgage.

Accordingly, for the reasons hereinabove stated, aside from the security deposit issue, the court cannot grant any of the specific relief requested by the daughters in their cross motion. Nonetheless, some of the undisputed facts presented in support of the daughters' cross motion require the court to consider whether relief can be granted to them under their request for such other relief as is "just and proper." Specifically, the issue presented is whether the January 6, 2010 order directing the receiver to make distributions to the children should be modified because the distributions provided therein resulted in [*10]an inequitable distribution to Walter as a result of facts about which neither the daughters nor the court had any knowledge at the time that order was entered.

The daughters have established that Walter was the party who obtained a mortgage loan on the Tiemann Avenue property and thereafter, in 1980, the mortgage was assigned by the bank to Schainberg. When the daughters sold the Tiemann Avenue property they were required to deposit $35,000 in escrow with the title company until that mortgage is satisfied. There are two possibilities with regard to those transactions, either of which would render it inequitable for the daughters to lose the $35,000 that is now held in escrow. One possibility is that the mortgage is a sham, as Walter frequently used Schainberg as a "strawman" for his transactions. The other possibility is that Walter actually received funds when he obtained the mortgage and the underlying note given by Walter which is secured by the mortgage was never satisfied. Walter argues, inter alia, that had the daughters done a title search prior to requesting the three parcels of realty they received as a distribution under the January 6, 2010 order, they would have known about the mortgage and an appropriate adjustment could have been made at that time. Regardless of whether this would be a persuasive argument if the mortgage were held by a third party, Walter would be unjustly enriched if the daughters were to receive $35,000 less than contemplated when they accepted the Tiemann Avenue property as a distribution to them pursuant to the January 6, 2010 order, and Schainberg would ultimately receive the amount still due on the loan while Walter would never accurately account for how he utilized the mortgage loan funds or whether he paid his underlying debt on that mortgage (see Matter of Sakow, NYLJ, Apr. 16, 2004, at 26, col 4 affd 21 AD3d at 849 [as to this issue but modified as to another issue]). Accordingly, in the interest of justice and equity, this decision constitutes the order of the court modifying the prior order dated January 5, 2010 to direct Walter, within 30 days of the date of this decision, to deliver to counsel for the daughters payment in the sum of $35,000 or a satisfaction issued by Schainberg of the Tiemann Avenue mortgage in recordable form.

The daughters also established that the New York State Department of Taxation and Finance lien in the amount of $114,824.11 perfected in 2007 arose from matters not involving the nine properties the receiver managed, and was docketed against any real property in the name of Schainberg. This lien is one of the reasons why the daughters were required to place such a significant sum in escrow with the title company when they obtained a mortgage on the Rose Gardens property. When Rose Gardens was distributed to the daughters, it was not intended that the daughters' share would be reduced by $114,824.11 in order to satisfy an $114,824.11 obligation of Schainberg. Accordingly, in the interest of justice and equity, this decision constitutes the order of the court modifying the prior order dated January 6, 2010 to direct Walter, within 30 days of the date of this decision and order, to deliver to counsel for the daughters a payment of $114,824.11 or proof to the satisfaction of the title company that the lien has been fully paid. Should Walter fail to fulfill the directions herein with regard to either the Tiemann Avenue mortgage or the tax lien, the daughters are granted leave to seek any relief that they deem appropriate with regard to the property that was distributed for Walter's benefit pursuant to the January 6, 2010 order.

THE DAUGHTERS' MOTION AGAINST WALTER AND SCHAINBERG

In their motion against Walter and Schainberg, the daughters seek an order: (1) directing the turnover of rents allegedly collected from tenants of Rose Gardens in an [*11]unspecified amount after the receiver's appointment; (2) directing reimbursement to the estate of $181,606.28 in real estate taxes incurred in years prior to the receiver's appointment but paid by the receiver pursuant to court order; and (3) apparently in the alternative, either transferring Bronx properties remaining in the name of Schainberg, imposing a lien on these properties for the amounts due under (1) and (2) above and issuing a judgment against Walter and Schainberg for said amounts.

Insofar as they seek to recover rents allegedly taken by Walter, the daughters claim that the receiver's statement of receipts indicates that Walter, in defiance of a court order, failed to turn over rents for February 2002 and most of that March "as judged by the sums collected in subsequent months." With respect to Rose Gardens, they calculate the sum to be approximately $80,500 of which they are entitled to two-thirds, and with respect to Thwaites Place where the rent was only $700 a month but was not collected by the receiver for a longer period, a relatively minor amount. The daughters distinguish between the rents collected prior to the receiver's appointment and those presumably paid after the appointment but before he obtained a bond and assumed management of the properties, claiming that because the missing rents, if paid, were collected after the decree was entered appointing the receiver, it would not have appeared on a proper accounting by Walter, had he ever filed one. Walter argues that this is just another instance where the daughters seek to re-litigate issues that should have been resolved eleven years earlier and where they seek to have the court adopt their position based on their own belief and conjecture rather than any proof adduced.

Although the accounting of Walter as the de facto fiduciary would not cover the period after the receivership was in place, the fact that some rents were not collected by the receiver for what might be called the transition period that occurred almost three years before the date set for that trial in 2003 was an issue that could and should have been raised as amended objections to Walter's account prior to that trial. The daughters were contending as early as 2000 that there were rents missing in the transition period, as evidenced by a November 8, 2000 handwritten letter from Diana Sakow to the court, which is attached to the instant motion papers. In that letter Ms. Sakow complains at length about the use of net income from Rose Gardens to pay the expenses for other properties and implores the court to use its power to "compel Mr. Sakow to turn over the rentals to the Receiver." Accordingly, this branch of the motion is denied.

Similarly, the daughters' position that Walter should reimburse them for property taxes paid by the receiver pursuant to court order but incurred prior to the receivership revives their old argument that Walter should be responsible for all charges against the properties incurred prior to the receivership. Walter correctly notes that in June, 2001, when this court directed the payment of taxes, the court indicated the ultimate responsibility for the taxes "will have to await a determination of the issues raised in the accounting proceeding" and, when the daughters declined to offer evidence at the then pending trial on his accounting, they missed the opportunity to raise this issue. In addition, in 2001 when the receiver made the application to use the income from Rose Gardens to pay real estate taxes on unproductive properties, the daughters raised the issues they raise now, arguing that any taxes on the properties that accrued prior to the appointment of the receiver should be charged to Walter's share. When the court granted the receiver's application and held that all issues as to whether any party was responsible in whole or in part for back taxes on the [*12]properties should await the conclusion and determination of issues "in the accounting proceeding" (see Matter of Sakow, NYLJ, Mar. 19, 2001, at 26, col 2), the court was referencing the then pending contested accounting proceeding against Walter as the de facto fiduciary, not a receiver's accounting proceeding sometime in the future when the subject of the proceeding would be the receiver's, and not Walter's, management of the real property. Accordingly, when the daughters failed to adduce any proof at trial, they lost their recourse against Walter with respect to this issue and it cannot be revived just because the bill was actually paid by the receiver. As this court has been compelled to reiterate regularly since the time of the trial on Walter's accounting, the daughters " had the opportunity to present evidence at the trial on their objections to the account and [Walter's] accounting proceeding was concluded when the court rendered its decision and order on April 13, 2004'" (Matter of Sakow, NYLJ, Aug. 2, 2005, at 24, col 4, affd 45 AD3d 314 [2007], rearg denied 2008 NY Slip Op 62568 [U] [2008], quoted in Matter of Sakow, 24 Misc 3d 1227 [A], 2009 NY Slip Op 51648 [U] [2009]). Accordingly, the motion against Walter and Schainberg is denied in its entirety.

This decision constitutes the order of the court. The Chief Clerk shall mail a copy of this decision and order to all counsel.

Proceed accordingly

SURROGATE