Accredited Home Lenders, Inc. v Walker

[*1] Accredited Home Lenders, Inc. v Walker 2012 NY Slip Op 52216(U) Decided on November 30, 2012 Supreme Court, Suffolk County Whelan, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 30, 2012
Supreme Court, Suffolk County

Accredited Home Lenders, Inc., A CALIFORNIA CORPORATION, Plaintiff,

against

Wesley D. Walker, JUDITH WALKER, and "JOHN DOE #1" through "JOHN DOE #10", the last names being fictitious and unknown to the Plaintiff, the persons or parties intended being the persons or parties, if any, having or claiming an interest in or lien upon the premises described in the verified complaint., Defendants.



08-6441



CAHN & CAHN, LLP

Attorney for Plaintiff

22 High Street, Suite 3

Huntington, New York 11743

JOSEPH C. VOZZA, ESQ.

Attorney for Defendant Judith Walker

300 Broadhollow Road, Suite 120 West

Melville, New York 11747

WESLEY WALKER, Pro Se 10 Schoolhouse Way

Dix Hills, New York 11746

Thomas F. Whelan, J.

Upon the following papers numbered 1 to 26read on this motion for partial summary judgment ; Notice of Motion/ Order to Show Cause and supporting papers 1 - 20 ; Notice of Cross Motion and supporting papers; Answering Affidavits and supporting papers21 - 24 ; Replying Affidavits and supporting papers25 - 26; Other ____; (and after hearing counsel in support and opposed to the motion) it is,

ORDERED that those portions of this motion (#003) by the plaintiff for an order pursuant to CPLR 3212(e) granting it partial summary judgment on its third cause of action for equitable subrogation of its mortgage lien to that of two prior mortgages and a declaratory relief with respect thereto is granted; and it is further

ORDERED that the court hereby declares that $753,032.12 of the plaintiff's principal mortgage lien of $807,500.00, is hereby subrogated to the rights and priorities of two prior Countrywide mortgages in the combined principal amount of $753,032.12 in light of the plaintiff's satisfaction of said two Countrywide mortgages dated January 14, 2005 and that the rights, title and interests of the Walker defendants be and are hereby subject and subordinate to the plaintiff's mortgage lien to the extent of $753,032.12 of the total principal amount thereof, namely, $807,500.00; and it is further

ORDERED that the remaining portions of this motion wherein the plaintiffs seeks a judicial declaration reducing the amount of the judgment lien of Judith Walker, if any, is denied

This is an action to foreclose a mortgage on property known as 10 Schoolhouse Way, Dix Hills, New York and for a declaration that said mortgage is subrogated to prior mortgages on said property. Defendant Wesley D. Walker obtained a loan from plaintiff and executed a note dated May 25, 2007 in its favor for the principal sum of $807,500.00. Said note was secured by a mortgage dated May 25, 2007 on said property. The mortgage was recorded in the Suffolk County Clerk's Office on February 1, 2008. On May 25, 2007, plaintiff's loan proceeds in the sum of $753,032.12 were used to satisfy two existing mortgages purportedly of non-party Countrywide Home Loans (Countrywide) on the property, one securing payment of a $552,000.00 loan and another securing payment of a $200,000.00 loan. Defendant Judith Walker obtained a money judgment in the sum of $355,403.53 against defendant Wesley D. Walker in the context of a divorce action and said money judgment was filed in the Suffolk County Clerk's Office on April 26, 2007. There is no evidence that the same was otherwise docketed, indexed and/or recorded in the division of land records in the office of the County Clerk as contemplated by CPLR 5018.

Plaintiff's title insurer, non-party First American Title Insurance Company of New York, performed a title search on March 15, 2007 which revealed four outstanding mortgages on the property and purportedly one judgment in favor of the Town of Babylon against defendant Wesley D. Walker in the amount of $255.00. Schedule B of the title report listed exceptions to title and item 12 indicated "Due to the implementation of a new computer system in the office of the Suffolk County Clerk, searches are not able to be conducted to date for judgments and notices of pendency. Until this problem is resolved, the seller and mortgagor for the transaction for which this report has been prepared must provide an affidavit at closing that there are no judgments against them, or actions commenced against the property, in any state or federal court, not disclosed in this title [*2]report."

Defendant Wesley D. Walker allegedly defaulted on his loan payments beginning with the October 1, 2007 payment and those due thereafter. Plaintiff's complaint alleges a first cause of action to foreclose its mortgage, a second cause of action to recover reasonable attorneys fees, and a third cause of action for equitable subrogation of its mortgage to the prior Countrywide mortgages on the subject property.

Plaintiff now seeks partial summary judgment on its third cause of action and a declaration that its mortgage is equitably subrogated to the prior Countrywide mortgages and that defendant Judith Walker's money judgment is subordinate to plaintiff's mortgage. Plaintiff asserts that it relied on the results of the title search contained in the title report as well as on representations by defendant Wesley D. Walker in the mortgage and related documents that there were no other outstanding liens or judgments against him. In addition, plaintiff asserts that based on the information available to plaintiff and its title insurer, plaintiff was not aware at any time prior to closing of the existence of defendant Judith Walker's judgment and that had it known, plaintiff would not have proceeded with the closing without some assurance that said judgment would either be satisfied or subordinated to plaintiff's mortgage. Plaintiff's submissions in support of the motion include its supplemental summons and amended complaint, the answer of Judith Walker, the prior mortgages dated January 14, 2005 on the property in favor of non-party WMC Mortgage Corp., the money judgment, plaintiff's mortgage, the title report and certification, effective March 15, 2007, of non-party First American Title Insurance Company of New York, a payoff demand statement from Countrywide dated May 17, 2007, and recorded satisfactions of the prior Countrywide mortgages.

In opposition to the motion, defendant Judith Walker contends that the application of equitable subrogation would be unfair to her under the circumstances and notes that plaintiff's counsel has omitted mentioning that the usual and customary procedures followed by title companies is to furnish on the day of closing the results of a continuation search that will disclose any judgments or liens recorded against the property from the time that the initial title commitment was provided to the day of closing. Defendant Judith Walker also contends that if plaintiff was unable to obtain the results of such a search on the day of closing, it had the option of rescheduling the closing but instead chose to proceed with the transaction, even given the exception in the title report, and knowingly assumed the risk of any prior liens and encumbrances on the property. She further notes that no affidavit has been submitted from the title insurer to substantiate plaintiff's claims that the Suffolk County Clerk's Office computers were not operating and the Walker judgment was undiscoverable. In addition, defendant Judith Walker contends that plaintiff's carelessness should not be used to compromise her money judgment. Her submissions in support of her opposition include her affidavit.

In reply, plaintiff argues that the money judgment was "entered" with the County Clerk on April 26, 2007 but was never "recorded" in the County land records in the same manner as the conveyance of real property pursuant to Real Property Law § 297-b such that plaintiff had no actual or constructive notice of the money judgment at the time of its loan transaction with defendant [*3]Wesley D. Walker. Plaintiff further argues that equity and justice will prevail under these circumstances if plaintiff is subrogated to the rights of the 2005 mortgagee.

A party seeking summary judgment must establish its position by evidentiary proof in admissible form sufficient to warrant judgment for it as a matter of law (see Zuckerman v City of New York, 49 NY2d 557, 562, 427 NYS2d 595 [1980]). If the proponent of such motion does not tender evidence which would eliminate material issues of fact, the motion must be denied, regardless of the sufficiency of the opposition (see Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853, 487 NYS2d 316 [1985]). "Once this showing has been made, however, the burden shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action" (Alvarez v Prospect Hosp., 68 NY2d 320, 324, 508 NYS2d 923 [1986], citing to Zuckerman v City of New York, 49 NY2d at 562).

Real Property Law § 297-b provides that "[w]hen a judgment, final order or decree is rendered by a New York state court of record ... affecting the title to or possession, use or enjoyment of real property, a copy of such judgment, order or decree, duly certified by the clerk of the court wherein said judgment was rendered, may be recorded in the office of the recording officer of the county in which such property is situated, in the same manner as a conveyance duly acknowledged or proved and certified so as to entitle it to be recorded ..." (see Real Property Law § 297-b).

CPLR 5203(a) gives priority to a judgment creditor over subsequent transferees with regard to the debtor's real property in a county where the judgment has been docketed with the clerk of that county (see CPLR 5203[a]; Schiff Food Prods., Co., Inc. v M & M Import Export, 84 AD3d 1346, 1347, 924 NYS2d 158 [2d Dept 2011]). "In pertinent part, a judgment is docketed when the clerk makes an entry under the surname of the judgment debtor ... consist[ing] of ... the name and last known address of [the] judgment debtor"" (CPLR 5018[c][1][I]; In re Accounts Retrievable Sys., LLC, 83 AD3d 1052, 1053, 921 NYS2d 575 [2d Dept 2011]). " Once docketed, a judgment becomes a lien on the real property of the debtor in that county" (Matter of Soressi v SWF, L.P., 81 AD3d 1143, 1144, 916 NYS2d 349 [3d Dept 2011]; see CPLR 5203[a]; Schiff Food Prods., Co., Inc. v M & M Import Export, 84 AD3d 1346, supra; Matter of Mason v Belski, 73 AD2d 779, 780, 423 NYS2d 528 [3d Dept 1979]). "It attaches to any property in which the debtor has an interest at that time (see CPLR 5201[b]), and remains effective against such property for a period of 10 years (see CPLR 5203[a])" (Cadle Co. v Calcador, 85 AD3d 700, 702, 926 NYS2d 106 [2d Dept 2011]). "Any transfer of the judgment debtor's interest in the property after the judgment is docketed is ineffective against the judgment creditor" (id; see CPLR 5203[a]; Phillip v Zanani, 67 AD3d 877, 878, 889 NYS2d 637 [2d Dept 2009]; Matter of Jones v Knowlton, 199 AD2d 871, 872, 606 NYS2d 355 [3d Dept 1993]; Greenhouse Realty v St. George, 151 AD2d 7, 9, 546 NYS2d 483 [3d Dept 1989]).

The doctrine of equitable subrogation applies "where the funds of a mortgagee are used to satisfy the lien of an existing, known incumbrance when, unbeknown to the mortgagee, another lien on the property exists which is senior to his but junior to the one satisfied with his funds. In order to avoid the unjust enrichment of the intervening, unknown lienor, the mortgagee is entitled to be subrogated to the rights of the senior incumbrance" (King v Pelkofski, 20 NY2d 326, 333-334, 282 [*4]NYS2d 753 [1967]; see Arbor Commercial Mtge., LLC v Associates at the Palm, LLC, 95 AD3d 1147, 1149, 945 NYS2d 694 [2d Dept 2012]). The doctrine operates to "erase[ ] the lender's mistake in failing to discover intervening liens, and grants him the benefit of having obtained an assignment of the senior lien that he caused to be discharged" (United States v Baran, 996 F 2d 25, 29 [2d Cir 1993]; see Arbor Commercial Mtge., LLC v Associates at the Palm, LLC, 95 AD3d 1147, supra). "In this manner, equitable subrogation preserves the proper priorities by keeping the first mortgage first and the second mortgage second and prevents a junior lienor from converting the mistake of the lender into a magical gift for himself" (see Arbor Commercial Mtge., LLC v Associates at the Palm, LLC, 95 AD3d 1147, supra [internal citations and quotations omitted]). While a lender's actual notice of an intervening interest or lien operates as an absolute bar to the application of the doctrine of equitable subrogation, the lender's constructive notice thereof does not (id. at 1150).

Here, the record adduced on the instant motion sufficiently established the absence of any actual notice on the part of the plaintiff of defendant Judith Walker's money judgment at the time of the closing of the plaintiff's loan to defendant Wesley D. Walker. The record further contains due evidence that the plaintiff's loan proceeds satisfied the two Countrywide mortgage liens that were senior to defendant Judith Walker's money judgment. It was thus incumbent upon the Walker defendants to establish the existence of some factual circumstance which would give rise to a genuine question of fact regarding the inapplicability of the doctrine of equitable subrogation. A review of the record reveals, however, that no such question of fact was raised. Contrary to the contentions of the defendants, the plaintiff's reliance on the title report prepared one month prior to the filing of defendant Judith Walker's April 26, 2011 judgment and its alleged failure to discover such judgment does not give rise to circumstances that would preclude the application of the doctrine of equitable subrogation. To hold otherwise, would result in the unjust enrichment of the Walker defendants whose interests in the subject premises are now free from the encumbrances of the prior liens that were satisfied out of the proceeds of the plaintiff's loan (see King v Pelkofski, 20 NY2d 326, supra; Arbor Commercial Mtge., LLC v Associates at the Palm, LLC, 95 AD3d 1147, supra at 1150; Elwood v Hoffman, 61 AD3d 1073, 876 NYS2d 538 [3d Dept 2009]). The plaintiff is thus entitled to be subrogated to the superior rights of Countrywide to the extent that its senior liens were satisfied by the proceeds of plaintiff's loan (see King v Pelkofski, 20 NY2d 326, supra at 334).

The plaintiff's remaining demands for an order reducing the amount of Judith Walker's judgment due to her purported admission of receipt of partial payments thereon is denied. No showing of any entitlement to such relief was made by the plaintiff on this motion.

Accordingly, the instant motion is granted to the extent set forth above. Entry of a judgment on the THIRD cause of action shall abide resolution of the remaining issues.

Dated:__________________________________________________ THOMAS F. WHELAN, J.S.C.