Department of Hous. Preserv. & Dev. of the City of New York v Deutche Bank Natl. Trust Co.Annotate this Case
Decided on September 12, 2013
Civil Court of the City of New York, Richmond County
Department of Housing Preservation and Development of the City of New York, Petitioner,
Deutche Bank National Trust Company AS TRUSTEE FOR SAXON ASSET SECURITIES TRUST 2001-3, Respondent.
Attorney for Petitioner
Deborah Rand, Esq
Ronald M. Smith, of Counsel
Housing Litigation Division
100 Gold Street New York, NY 10038
Attorney for Respondents
Houser & Allison
60 East 42nd Street, Suite 1148
New York, NY 10165
Philip S. Straniere, J.
Petitioner, Department of Housing Preservation and Development of the City of New York (HPD), commenced these two landlord-tenant actions by Order to Show Cause, against the respondent, Deutsche Bank National Trust Company as Trustee for Saxon Asset Securities Trust 2007-3 (Deutsche).
In action HP#115/13, petitioner is seeking civil penalties against respondent for failure to [*2]maintain the premises 99 Wright Street, Staten Island, New York in accordance with the provisions of the New York City Administrative Code.
In action HPNo.116/133 petitioner is seeking an order directing respondent to correct violations at 99 Wright Street; assessing civil penalties for failing to correct the violations; requiring compliance with the rules in regard to the Alternative Enforcement Program Notice of Participation; and mandating the filing of a Property Registration Form.
In each proceeding, respondent filed a cross-motion seeking dismissal of petitioner's action, which the court is also accepting as submitted in opposition to the petitioner's application. Petitioner has filed opposition to the cross-motion and respondent a reply. Both sides are represented by counsel in each action.
This court has jurisdiction pursuant to New York City Civil Court Act §110(a). Respondent is not challenging the authority of petitioner to seek these remedies under the New York City Administrative Code [NYCAC], respondent is asserting that the statutes and regulations in question do not apply to respondent under the facts and circumstances currently existing.
Based on a review of public records and the submission of the parties, the following can be determined.
The property in question, 99 Wright Street, in the Stapleton section of Staten Island is a four family-dwelling, which qualifies as a "multiple dwelling" under Multiple Dwelling Law [MDL] §4(7). Presumably it is an "old building" built before 1938 as there is no filed certificate of occupancy for the premises and there are no violations against it for failing to have a proper certificate of occupancy.
The building was purchased on February 28, 2002 by Bernard Rivers for $285,000.00. At that time he executed a mortgage to First Franklin Financial Corp., in the amount of $213,750.00.
On February 16, 2005, Rivers refinanced the property with a loan in the amount of $288,000.00 and entered into a new mortgage with Delta Funding Corp. with the notation that this is a "MERS" transaction. MERS stands for Mortgage Electronic Registration Systems, Inc., which is "acting solely as a nominee for Lender and Lender's successors and assigns."
On April 27, 2006, Rivers again refinanced the property. This time for $420,000.00 from Encore Credit Corp. d/b/a ECC Encore Credit. This mortgage also contained the same reference to MERS. [*3]
On June 15, 2007, Rivers refinanced the property for the third time in less than 28 months. The lender was SMI Mortgage. A consolidation, extension and modification agreement (CEMA) was used to increase the amount of Rivers' indebtedness to $460,000.00. A CEMA is a transaction in which the lender takes the current existing mortgage by assignment and has a new note and mortgage executed only for "new monies" advanced. The loan included "new monies" of $42,958.38. The mortgagor was to pay "interest only" on this loan for five years. A CEMA is a popular lending tool in New York as it saves the borrower the expense of incurring new mortgage taxes on the entire amount of the loan because the old mortgage on which the tax was previously paid is assigned to the new lender and a credit is given for the previously paid mortgage tax.
Because this transaction involved a CEMA, the lender submitted an Affidavit Under Section 255 Tax Law so as to reduce the mortgage tax only to the amount of "new money." Analysis of this affidavit discloses an interesting fact. The ECC Mortgage and the SMI Mortgage were being assigned not to the plaintiff in the foreclosure action and the respondent herein but to what appears to be a different legal entity, "Deutsche Bank Trust Company Americas formerly known as Banker's Trust Company, as Trustee and Custodian for Saxon Mortgage Services, Inc. f/k/a Meritech Mortgage Services, Inc." It should be noted that there is no explanation in the foreclosure complaint if the entity designated in the Section 255 Affidavit is the same entity as the plaintiff named in the foreclosure action or if there was an assignment from one Deutsche Bank arm to another. This leads one to question whether this corporate structure is the mortgage financing world equivalent of "Sybil" and different "personalities" of the same entity or is there an unrecorded or undocumented assignment of the mortgage.
According to the 255 Affidavit, respondent acquired these mortgages by an assignment executed on June 13, 2007, two days before the actual closing took place. This is either a typographical error, or the underwriting department employed a soothsayer able to predict loans closing before they actually did.
This history tends to confirm that "ain't America great" as sophisticated institutional lenders determined that 99 Wright Street in Staten Island, had more than doubled in value between February 2002 and June 2007. When Rivers purchased the property the loan-to-value ratio was 75%, which at one time was the industry standard for mortgages on investment properties. If these "sophisticated institutional lenders" followed that 75% loan-to-value ratio, in June 2007 the fair market value of 99 Wright Street was about $614,000.00.
If these lenders abandoned that standard, and the market value was closer to the value the Department of Finance placed on the property, as set forth below, then these "sophisticated institutional lenders" were lending money at 100% or more than the market value of the property.
These "sophisticated institutional lenders" determined that Rivers could afford to make the PITI payments for the property (principal, interest, taxes and insurance), when [*4]Rivers in an affidavit he filed in the foreclosure action, swore that when the loan was made his gross income was only $47,000.00 a year.
What makes this even more amazing is that the Department of Finance of the City of New York in determining the taxes to be assessed against Wright Street found that the "estimated market value" for the property for 2006-2007 was $286,000.00 and for 2007-2008 it was estimated at $293,000.00. For some reason, New York City was either stupidly or deliberately undervaluing this property by 100% so that it could collect less tax revenue from property owners. In the past the City of New York's estimate of property value was unrelated to actual fair market value. However, in the last dozen-years or so there has been an effort to have the estimated market value reflected on tax bills be as close to the actual fair market value as possible, something that seems to be required by statute [Real Property Tax Law §502; New York City Administrative Code §11-207]. It is not credible that the Department of Finance market value would be so far off from the estimates prepared by the lenders' respective "expert appraisers," although such a conclusion may be challenged by appraisers.
Although the appraisal community may disregard the City's evaluation as not being accurate and not reflective of current changing market conditions, until the City's numbers, which are required to be set by statute, are proven to be inaccurate, they must be given deference. Especially because many private appraisals relied upon by lenders during this time period were apparently artificially inflated by such devices such as "seller's concession" agreements to permit loans to otherwise unqualified borrowers.[FN1] If these lender market value appraisals were "accurate" and those of the City "inaccurate," why are so many mortgages not only "underwater" but closer to the bottom in the "Mariana Trench?"
In fact, because this is rental property the sales comparison approach for appraisals would generally not be used. The income capitalization approach more commonly called the "income approach" should have been used. This methodology takes into account items such as rental income and operating expenses. Although information as to the income being generated by this property is not available, significant expense items are. The monthly interest only payment for the first two years was to be $2,970.83, the property [*5]taxes were in excess of $3,000.00 a year or $250.00 a month. Added to this would be insurance which is not known but conservatively would be at least $100.00 a month. Adding these together would require a rent role of in excess of $3,200.00 a month just to cover these expenses. Is that credible for a four family building on Wright Street with numerous violations?
On or about August 28, 2008, Deutsche, as plaintiff, commenced a foreclosure action against Rivers in regard to this property in Supreme Court, Richmond County (Index # 103728/08). A review of the complaint in that action discloses that although Deutsche is listed in the caption as the plaintiff, there is no allegation as to who is Deutsche, what is its relationship to the property and how it acquired the mortgage and note on which it alleges Rivers was in default. Plaintiff in the foreclosure action has apparently adopted a cross between Harold Hill's "think system" and Mammy Yokum's "I has spoken" as a litigation technique or believes that when Rivers received the pleadings he would invite Madame Arcati over to figure out what was Deutsche's connection to the property and litigation.[FN2]
It should be noted that in its cross-motion in this action Deutsche asserts that its correct name is "Deutsche Bank National Trust Company, as Trustee for Saxon Asset Securities Trust 2007-3, Mortgage Loan Asset Backed Certificates, Series 2007-3" and not the name petitioner placed in the caption. Which deserves the response "you've got to be kidding." Deutsche is not mentioned in the chain of title; it is listed in these HP proceedings with the same name as on the caption of the foreclosure action in which it is the plaintiff and which its counsel drafted; and its name is not in the body of foreclosure action pleadings. In the foreclosure proceeding Deutsche pleads that it "was and still is duly organized and existing under the laws of the UNITED STATES OF AMERICA." However, there is no reference to or pleading of the particular law of the USA under which it exists leaving the court to speculate whether it is some federal banking statute, or one that allows Volkswagens, BMW's and Mercedes-Benz's to be imported to the US or one that permitted German scientists to come to the US and develop our space program after World War II.
On November 8, 2012, Judge McMahon, of the Supreme Court, signed a Judgment of Foreclosure and Sale which appointed a referee and directed that the property be sold at auction.
On or about May 13, 2013, almost five years after the foreclosure action was commenced, Rivers filed an order to show cause seeking a stay of the sale of 99 Wright Street. The application was granted and the sale is currently stayed pursuant to that [*6]order.[FN3]
Attached as an exhibit to the petition in Index # HP116/13 are thirty-eight pages of violations assessed by HPD against the premises. There are six violations per page. It should be noted that twenty-five of the thirty-eight pages list violations arising after 2007 when the mortgage respondent is allegedly holding was given to Rivers. The HPD record shows that eight pages of violations were incurred between the time Rivers purchased the property in 2002 and respondent's predecessor in interest issued the last mortgage in 2007. Why any entity would lend money secured by a property with such an extensive record of failing to be maintained in accordance with the housing maintenance code must be questioned.
It appears that respondent in this matter may have become involved with the real estate equivalent of a "pig in a poke." Apparently Maleficient, the evil fairy from "Sleeping Beauty" having realized Briar Rose had beaten her curse, and having been unsuccessful in screwing up the world's computers when 2000 began, decided to cast a spell over the mortgage industry in the United States. Mysteriously seemingly knowledgeable legislators passed statutes permitting government agencies to finance mortgage loans in amounts for more than the property is worth, to people who could not afford to pay, without the need to document things such as income, and then to allow the chopping up the [*7]loans into little pieces to sell to new investors, so that if a borrower defaulted in repayment of the loan, the lender would not have the ability to prove it actually owned the debt, let alone plead its name correctly. The spell cast was so widespread that courts find almost everyone involved in mortgage foreclosure litigation raising the "Sgt. Schultz Defense" of "I know nothing."
RPAPL §1307 Duty To Maintain Foreclosed Property provides:
1. A plaintiff in a mortgage foreclosure action who obtains a judgment of foreclosure and sale pursuant to section thirteen hundred fifty-one of this article, involving residential real property as defined in section thirteen hundred five of this article, that is vacant, or becomes vacant after the issuance of such judgment, or is abandoned by the mortgagor but occupied by a tenant, as defined under section thirteen hundred five of this article, shall maintain such property until such time as the ownership has been transferred through the closing of title in foreclosure, or other disposition, and the deed for such property has been duly recorded;...
2. Such plaintiff shall have the right to peaceably enter upon such property or cause others to peaceably enter upon the property for the limited purpose of inspections, repairs and maintenance as required by this section, or as otherwise ordered by court; provided however, that if the property is occupied by a tenant, at least seven days notice must be given such tenant, unless emergency repairs are required in which case reasonable notice shall be provided to the tenant.
3. The municipality in which said residential real property is located, any tenant lawfully in possession,...shall have the right to enforce the obligations described in this section in ay court of competent jurisdiction after at least seven days notice to the plaintiff in the foreclosure action unless emergency repairs are required. Any entity acting pursuant to this subdivision shall have a cause of action in any court of competent jurisdiction against the plaintiff in the foreclosure action to recover costs incurred as a result of maintaining the property. The authority provided by this subdivision shall be in addition to, and shall not be deemed to diminish or reduce, any rights of the parties described in this section under existing law against the mortgagor of such property for failure to maintain such property....
5. For the purposes of this section "maintain" shall mean keeping the subject property in a manner that is consistent with the standards set forth in the New York property maintenance code chapter 3...; provided, however, that if the property is occupied by a tenant, then such property must also be maintained in a safe and habitable condition....
8. This section shall not preempt, reduce or limit any rights or obligations imposed by any local laws with respect to property maintenance and the locality's ability to enforce those laws. [*8]
This statute was enacted in 2009 to be effective April 14, 2010 as part of an extensive
package of legislation to deal with certain abuses that had been revealed by the collapse of
the mortgage market in 2008. As noted in the legislative history in support of this act:
A significant issue confronting the State as a result of the spike in foreclosure filings is the maintenance of abandoned property. Homeowners often abandon their homes upon the commencement of a foreclosure action, and the property goes into disrepair, serving as an eye sore and nuisance for the rest of the neighborhood. The problem is compounded when multiple homes are foreclosed upon in the same neighborhood. Eventually, these properties may become a haven for crime and drugs, thus decreasing property value in the surrounding areas and beyond.
This bill would require a plaintiff in a foreclosure action, upon the issuance of a judgment of foreclosure and sale pursuant to RPAPL §1351, to maintain the property. In particular, the bill would require the plaintiff, post-judgment, to keep the property in a manner so that it does not pose a blight or a nuisance, or create a blighting influence upon neighboring properties. If the property is occupied by a tenant, the plaintiff must also maintain the property in a safe and habitable condition. This provision of the bill is to be enforced by the municipality in which the property is located, the tenant occupying the property,....The provision of the bill is not intended to diminish in any way the obligations of the mortgagor of the property or the receiver to maintain the property prior to the closing of title pursuant to the foreclosure sale.
Article 19-A of the RPAPL is entitled Special Proceeding to Convey Title to Abandoned Dwelling to City, Town or Village.
RPAPL §1970 "Applicability" states:
The department or agency of a city, town, or village responsible for the enforcement of the multiple dwelling law, code or ordinance governing the occupancy and maintenance of residential property (hereinafter in the article referred to as "the department") may institute a proceeding in accordance with the provisions of this article for a judgment vesting in the city, town or village title to a dwelling which has been abandoned by the owner. This article shall not apply to a one-family or two-family dwelling occupied by the owner thereof.
RPAPL §1971 Certification of abandonment provides:
1. The department may make a finding that a dwelling is abandoned if:
(a) In the case of an occupied dwelling, the owner has failed for a period of at least three consecutive months either to collect rent or to institute summary proceedings for nonpayment of rent, and the department finds that the dwelling has become a danger to life, health or safety as a result of the owner's failure to assume his responsibility for its condition. Such failure may be shown by such facts as an owner's failure to provide services including but limited to, the failure to make repairs, supply janitorial service, purchase fuel or other needed supplies, or pay utility bills. The appointment of an [*9]administrator pursuant to article seven-A of this chapter shall not prevent the department from making a finding that a dwelling is abandoned;...
2. When the department finds that a dwelling is abandoned within the meaning of this article, it shall make and file among its records a certification containing such finding and the facts on which it is based. Further, it shall immediately affix to the dwelling in a prominent and conspicuous location, a notice that the building has been found to be an abandoned building and that it is a crime to take, remove or otherwise damage any fixture or part of the building structure.
A. Is Respondent Responsible for the Maintenance of the Premises?
Respondent is not contesting the authority of petitioner to provide emergency services to the residents of 99 Wright Street, nor is respondent challenging petitioner's right to levy penalties against persons or entities who fail to meet their legal obligations in this regard. The thrust of respondent's opposition and cross-motion is that Deutsche is not the proper party against whom to seek enforcement. Respondent alleges that RPAPL §1307 does not apply because the foreclosure sale was stopped as a result of an order to show cause filed by the owner, Rivers, and that this action establishes that the premises is not "abandoned" as defined in the statute.
The court cannot agree. The statute makes a mortgagee, such as respondent, responsible for maintenance of residential property when it obtains a "judgment of foreclosure and sale." Respondent herein, in the Supreme Court action, did obtain a judgment of foreclosure and sale on November 8, 2012. There is nothing in the statute that relieves the mortgagee of its obligation when an order to show cause is filed by the mortgagor. The triggering event is the obtaining the judgment of foreclosure and sale [RPAPL §1351] and not the sale and conveyance of the property.
The statute then sets forth certain conditions which have to be met before the mortgagee can be forced to maintain the premises. Because there is no evidence that the building is "vacant," the issue becomes whether the premises has been "abandoned" by the mortgagor even though occupied by tenants. Respondent contends that the affidavit filed by the mortgagor in support of his order to show cause in the foreclosure action is sufficient to establish that there is no intent by the mortgagor to abandon the property. A review of that affidavit discloses that Rivers never asserts that he wants to remain the owner of the property. In fact, the thrust of the allegations of the order to show cause is that Rivers was never properly served with process and that as a victim of predatory lending he was defrauded or misled into borrowing money by the mortgage broker. There is no indication that he wants to remain the owner and renegotiate the terms of the loan so that he can remain in title.
Respondent relies on the statement in Rivers' affidavit that he wants to "keep his home and place of business." Factually this allegation must be discounted as 99 Wright Street is neither his home, nor is it his place of business. Rivers has always lived elsewhere [*10]and this is a residential multiple dwelling and not the site of a business. When he borrowed the money in 2007 he listed Brighton Avenue as his residence.
Even assuming that Rivers would want to either go into possession or resume his role of an absentee landlord, and start paying the mortgage, the principal of which is about double the value of the property, none of which has he indicated he wants to do, that would not be dispositive of the issue of whether the property is abandoned. It is stipulated Rivers does not live at Wright Street, and the fact that he asked to stay the foreclosure does not relieve respondent of its obligation to maintain the property under the statute.
Petitioner, is advocating that the court look to the criteria listed in RPAPL Article 19-A, and use that as a basis for determining whether the property has been "abandoned." RPAPL §1971 which is set forth above requires that the following facts or circumstances be present in order for the property to be deemed "abandoned."
First, "the owner has failed for a period of at least three consecutive months either to collect rent or to institute summary proceedings for nonpayment of rent." A search of the Housing Part records indicates that the owner has not commenced any landlord-tenant action in regard to this property since June 26, 2006. Neither has Deutsche brought an action. However, the fact that there is no summary proceedings pending does not mean that the tenants are not paying the rent to either the owner or Deutsche. But the statute has alternative criteria, either the owner has failed to collect rent or (emphasis added) failed to institute summary proceedings. There is no indication that any summary proceedings against any tenant has been filed for three months.
The petitioner may proceed under the statute because the record establishes no summary proceedings have been commenced for nonpayment of rent in seven years. If it were established that rent had been collected and a summary proceeding commenced in the last three months then it would appear to preclude the City from prevailing on the first prong of the abandonment test.
Respondent has not asserted that it is collecting any rent. This is an important factor because the mortgagee, whether it is Deutsche or its predecessor in interest has the right under the terms of the mortgage to assume control of the premises, collect rents and insure that the premises is in compliance with municipal housing maintenance and safety codes. A copy of the mortgage is obtainable from a website maintained by the Richmond County Clerk and is a public record. Analysis of its terms confirms that respondent had the legal right to maintain the premises if not the obligation.
The mortgage entered into on June 15, 2007 between Rivers and SMI Mortgage (New York-Single Family-Fannie Mae/Freddie Mac Uniform Instrument Form 3033, 1/01) provides the following:
9. Lender's Right to Protect Its Rights in The Property: If:...( c) I have abandoned the Property, then Lender may do and pay for whatever is reasonable or appropriate to [*11]protect Lender's interest in the Property and Lender's rights under this Security Instrument....Lender can also enter the Property to make repairs, change locks, replace or board up doors and windows, drain water from pipes, eliminate building or other code violations or dangerous conditions, have utilities turned on or off and take any other action to secure the Property. Although Lender may take action under this Section 9, Lender does not have to do so and is under no duty to do so.
The mortgage contained a 1-4 Family Rider (Assignment of Rents) (Multistate 1-4 Family Rider-Fannie Mae/Freddie Mac Uniform Instrument Form 3170 1/01) provided the following:
F. Assignment of Leases. Upon Lender's request after default, Borrower, shall assign to Lender all leases of the Property and all security deposits made in connection with leases of the Property. Upon the assignment, Lender shall have the right to modify, extend or terminate the existing leases and to execute new leases, in Lender's sole discretion. As used in this paragraph G [FN4], the word "lease" shall mean "sublease" if the Security Instrument is on a leasehold.
G. Assignment of Rents; Appointment of Receiver; Lender in Possession. Borrower absolutely and unconditionally assigns and transfers to Lender all the rents and revenues ("Rents") of the Property, regardless of to whom the Rents of the Property are payable. Borrower authorizes Lender or Lender's agents to collect the Rents, and agrees that each tenant of the Property shall pay the Rents to Lender or Lender's agents. However, Borrower shall receive the Rents until (i) Lender has given notice of the Borrower of default pursuant to Section 22 of the Security Instrument and (ii) Lender has given notice to the tenant(s) that the Rents are to be paid to Lender or Lender's agent. This assignment of Rents constitutes an absolute assignment and not an assignment for additional security only.
If Lender gives notice of default to Borrower (i) all Rents received by Borrower shall be held by Borrower as trustee for the benefit of Lender only, to be applied to the sums secured by the Security Instrument: (ii) Lender shall be entitled to collect and receive all Rents of the Property; (iii) Borrower agrees that each tenant of the Property shall pay all Rents due and unpaid to Lender or Lender's agent upon Lender's written demand to the tenant;(iv) unless applicable law provides otherwise, all Rents collected by Lender or Lender's agent shall be applied first to the costs of taking control of and managing the Property and collecting Rents, including but not limited to...repair and maintenance costs,...and other charges on the Property, and then to the sums secured by the Security Instrument;...(vi) Lender shall be entitled to have a receiver appointed to take possession of and manage the Property and collect the Rents and profits derived from the Property without any showing as to the inadequacy of the Property as security.
If the Rents of the Property are not sufficient to cover the costs of taking control of and managing the Property and collecting the Rents, any funds expended by Lender for such purposes shall become indebtedness of Borrower to Lender secured by the Security Instrument pursuant to Section 9....
Lender, or Lender's agents or a judicially appointed receiver, shall not be required to enter upon, take control of or maintain the Property before or after giving notice of default to the Borrower. However, Lender or Lender's agent of a judicially appointed receiver, may do so at any time when a default occurs. Any application of Rents shall not cure or waive any default or invalidate any other right or remedy of Lender. This assignment of Rents of the Property shall terminate when all the sums secured by the Security Instrument are paid in full.
What the mortgage terms disclose is that the respondent had the legal ability to collect the rents from the premises, maintain the building for the benefits of the tenants, and charge back the costs against the borrower. Clearly once the respondent defaulted the borrower under the terms of the mortgage respondent could do so. Obviously a notice of default was given to the borrower as that was a prerequisite to respondent to instituting the foreclosure action in Supreme Court in 2008. Rather than assert its rights and perhaps obligations under the terms of the mortgage to maintain the property and its investment, respondent has asserted the Herman Melville "Bartleby the Scrivener Defense" of "I prefer not to" and relying on the word "may" in the document, has elected to do nothing in this regard. Because this loan appears to have been sold to investors, it may be asked, does not the respondent have a legal obligation to those investors to take whatever steps are necessary to preserve the property such as collecting the rents and maintain the property as permitted in the mortgage documents?
As a result, respondent has elected to have the taxpayers of the City of New York intervene and insure that the tenants at 99 Wright Street are living in habitable conditions. Ultimately the borrower should and will be responsible for these costs. However, the respondent is the entity that financed this transaction, has a legal contractual relationship with the borrower, and the contractual ability to enforce the borrower's obligations to the tenants. Clearly none of the parties would be before the court had the respondent elected to assert its rights under the terms of the mortgage.
There is something troubling by respondent claiming that the property has not been abandoned by the borrower when public records establish that no one is maintaining the premises other that the City of New York. There is no evidence that respondent found a "horse's head on its pillow" prior to entering into this mortgage agreement. Public policy dictates that respondent has to maintain the property. Respondent cannot prepare documents which give it the right to act to protect its interest in the property, affirmatively decide not to assert those rights because it made a bad investment in a property that probably never warranted the amount of the loan, and then try to stick the bill for [*12]maintenance on the public. Any expenses respondent incurred could be collected from the monies it will receive when the foreclosure is completed. The only reason respondent would not do so, is that it knows that it will never recoup the monies it loaned to borrower and it does not want to throw more "good money after bad money." Apparently respondent and other lenders caught in the web it helped to spin, is more than willing to stick the taxpayers with the equivalent of a $40.00 hamburger.[FN5]
Second, as required by the statute, there is clear evidence that the owner has failed to assume responsibility for conditions at the premises and that failure has created a "danger to life, health or safety." Petitioner has attached to its papers a printout of all violations assessed against the premises. The report discloses that since June 2007 when respondent became the mortgagee the property has received 27 Class A violations, 49 Class B violations, and 48 Class C violations. This accumulation of violations establishes that the maintenance or lack thereof and conditions at the property has deteriorated creating a "danger to life, health or safety" to the tenants in the building. This is substantiated by a review of the violations incurred since November 2012 when the judgment of foreclosure and sale was entered. This discloses that of the above listed violations incurred in less than a year there have been 13 Class A violations, 13 Class B violations and 35 Class C.
A Class C violation is deemed to be "immediately hazardous" and requires prompt attention. The penalties and procedures for enforcement of violations are set forth in New York City Administrative Code §27-2115. It can only be concluded that since the respondent has had the legal right to enter into control of the property the conditions have worsened to such an extent that action must be taken to protect the tenants. In fact, the situation may have deteriorated to such a degree that a "public nuisance" exists. A public nuisance is described as a situation which "is dangerous to human life or detrimental to health" [NYCAC §27-2114].
Respondent in its papers relies on common law definitions of "abandonment" and seeks to apply the findings of those cases to the facts of this case. Respondent's reliance on those cases is misplaced. This is not a common law abandonment situation. It is in fact the very type of "abandonment" the New York State legislature sought to prevent from happening with the legislative package passed in regard to mortgage foreclosures in 2009. Petitioner is asserting that the definition set forth in RPAPL §1971 is the standard to be applied in this situation. Petitioner is correct. This is not a situation where the common law definition is to be applied. This is where the new statutory language must be utilized. [*13]
The facts of the case establish that the petitioner could rightfully "make a finding" that the premises has been "abandoned" as defined in RPAPL §1971. No rent has been collected and there exists a sufficient amount of "immediately hazardous" Class C violations that there are a "danger to life, health or safety" for the tenants at 99 Wright Street. Petitioner has established that respondent is subject to RPAPL §1307 and has a duty to maintain the premises.
B. Is Respondent Subject to any Statutory Penalties?
There is one major problem with petitioner's attempt to enforce the housing code against this respondent, almost all of the sections of the administrative code relevant to holding respondent responsible either as a "person" or "owner" for the existence of a "public nuisance"contain an exception because respondent is not a "mortgagee in possession." Such language excepting respondent from penalty as an "other than" is found in NYCAC §27-2004(a)(5) & (45) §27-2114 and is set forth below [FN6]:
a banking organization as defined in section two of the banking law, a national banking association, a federal savings and loan association, the mortgage facilities corporation, savings banks life insurance fund, the savings banks retirement system, an authorized insurer as defined in section one hundred seven of the insurance law, or a trust company or other corporation organized under the laws of this state all of the capital stock of which is owned by at least twenty savings banks or by at least twenty savings and loan associations or a subsidiary corporation all of the capital stock of which is owned by such trust company or other corporation.
Someone might conclude that there is no logical reason for the New York City
Council to exclude banks who are engaged in foreclosing on property from coverage of the
statute and such persons might think that this is the local version of Charles Wilson's
famous quote that "What's good for the country is good for General Motors, and what's
good for General Motors is good for the country" or Al Capp's "Li'l Abner" equivalent of
"What's good for General Bullmoose is good for the USA" with the substitution of the
financial services industry for GM and NY City and NY State for the country.
NYCAC §27-2115 deals with the "Imposition of civil penalty" for violations of Class
A, B & C. As noted above since the date of the closing in June 2007 there have been 120
violations with over one-half of them being incurred since the issuance of the judgment of
foreclosure and sale in November 2012. But this statute only permits imposition of such
penalties against a "person" and both MDL §304(11) and NYCAC §27-2004(a)(5) excludes
entities such as respondent from the definition of a "person" because it is not yet a
"mortgagee in possession" of the property. So only individuals and corporations
"other than" financial institutions are responsible for the property and can incur penalties.
What results is a conflict between the RPAPL and the NYCAC. RPAPL§1307
requires the respondent and similar entities who are plaintiffs in the foreclosure action to
be responsible for the maintenance of the foreclosed property from the time of the
judgment of foreclosure and sale until the transfer of title with the recording of the deed
after sale. There does not appear to be any exception in the RPAPL to exclude plaintiffs in
a mortgage foreclosure action from being free from the penalties levied pursuant to the
NYCAC for failing to properly maintain tenant occupied property such as in this case.
Review of the legislative history of the new statutes enacted in 2009 in regard to mortgage
foreclosures leads to the conclusion that the clear intent is to make mortgagees responsible
for maintenance of distressed properties in situations such as exist in the current matter.
In fact, RPAPL§1307 specifically gives the municipality the authority to take steps
in any court of competent jurisdiction "to recover costs incurred as a result of maintaining
the property." Reading the two statutes together, it would appear that petitioner can
collect the actual costs of maintaining the property in this action from respondent, but is
precluded from collecting the statutory penalties assessed against the respondent for failing
to act. Petitioner is left to reducing the fines and monetary penalties to liens to be recorded
against the property and recovered when the property is sold from the proceeds. This is
the only way to read the two statutes together so that they make any sense. Petitioner has
not argued that the state statute preempts the local law so as to permit enforcement of
penalties as well as actual costs incurred. The preemption argument would fail in any case
because the same exceptions for respondent exists in the MDL. If this is not the correct
interpretation of RPAPL§1307, then the statute would make no sense as the municipality
would have no ability to enforce the law.
C. Does Respondent Have a Fiduciary Responsibility to Maintain the Property?
Respondent has as part of its name the words "trust company" along with the added
designation that it is acting "as trustee." Back in law school we learned that the use of
terms such as "trust" or "trustee" created a fiduciary relationship where property was
being held for the benefit of someone other than the trustee and this relationship imposed
certain duties and obligations on the trustee.[FN7]
An examination of the Estates, Powers, and Trusts Law [EPTL] at §11-1.1
"Fiduciaries powers" appears to exclude entities such as the respondent from the coverage
of that "section." However, the EPTL in other sections does impose certain duties and
obligations on trustees which may be applicable to respondent and could be interpreted to
require the respondent to maintain the real property during the entire time it takes to
resolve the foreclosure litigation especially in light of respondent's contractual right to do
so under the terms of the mortgage i.e EPTL §11-2.3.
On the remote possibility that the respondent as a financial institution somehow
convinced the legislature to exclude it from the fiduciary duties imposed on other trustees [*15]
by statute or common law, it appears that the Banking Law, Article 3, which creates Banks
and Trust Companies in New York, also recognizes that these entities do have certain
fiduciary obligations [Banking Law §100]. Banking Law §98 specifically gives banks and
trust companies the right to "purchase, hold, lease and convey" real property.
In fact, Banking Law §100, "Fiduciary powers," may require the respondent to
assume management and control of the Wright Street property. It provides:
Every trust company shall have, subject to the restrictions and limitations contained in this chapter, the following powers:...
5. To take, accept, and execute any and all such trusts, duties and powers of whatever nature or description as may be conferred upon or entrusted or committed to it by any person or persons, or any body politic, corporation, domestic or foreign, or other authority by grant, assignment, transfer, devise, bequest or otherwise, or which by order of any court of competent jurisdiction, or any surrogate, receive, take, manage, hold and dispose of according to the terms of such trust, duty or power, any property or estate, real or personal, which may be the subject of ant such trust, duty or power.
This statute requires the respondent to manage the real property because that duty
has devolved upon respondent by RPAPL §1307. As a fiduciary, respondent has a duty to
the trust beneficiaries to maintain the premises. By failing to do so, respondent is
potentially diminishing the value of the investment. Repairs are not being made thereby
reducing the market value of the property and its attractiveness to a potential buyer either
in a "short sale" or at the foreclosure sale. In addition, respondent's "hands-off attitude" is
requiring the petitioner to provide these services thereby creating a lien in petitioner's
favor not only for the costs of repair and maintenance of the premises but for the penalties
which respondent may statutorily be able to escape from incurring, which will be
assessed against the owner of the premises. As petitioner's lien for these items will be
superior to that of respondent as the mortgagee, respondent's actions are making the
property less attractive to any potential purchaser, increasing the likelihood that
respondent will be the only bidder at a foreclosure sale. Respondent's actions have no
benefit to the trust beneficiaries.
Irrespective of the statutory obligation placed upon respondent to maintain the
premises respondent has a fiduciary duty to the trust beneficiaries to maintain the
D. Other Issues
Respondent contends that Rivers is a necessary party and has to be named in these
proceedings. Respondent is not correct. The statute, RPAPL §1307 makes respondent
responsible and not the absent owner. There is something ironic about respondent raising
this issue especially since it has the legal ability to collect the rents and maintain the
property under the terms of the mortgage. Had it done so, this litigation would not be
Likewise, respondent asserts that the proceeding by petitioner is defective because
there is no showing that the notices required by RPAPL§1971(2) have either not been
served or if served, proof of service was not submitted to the court. Respondent again has
missed the point. Petitioner is not seeking to have the property declared abandoned so as to
have title of the property conveyed to the City pursuant to RPAPL Article 19-A, which
would require the notices. Petitioner is contending that the definition of "abandoned" as set
forth in that statute is the standard to be applied for RPAPL §1307 purposes and not the
common law principles advocated by respondent.
These contentions of respondent must be rejected.
In regard to Index #HP115/13 petitioner has established that the respondent is
responsible for maintaining the premises at 99 Wright Street, Staten Island, New York and
that petitioner is entitled to be paid prior to the completion of the foreclosure sale for all
monies expended in that regard to date and in the event respondent fails to abide by its
statutory obligations in that regard, to amend this application to collect for future expenses
incurred in fulfilling respondent's legal obligations.
Petitioner is precluded under the NYCAC from collecting any statutory penalties
assessed against respondent and the property arising from the failure of respondent to
provide essential services to the tenants. Petitioner is relegated to asserting a lien against
the property to be collected from the proceeds of the foreclosure sale or in some other
In regard to Index #HP116/13 for the reasons cited above petitioner is precluded
from collecting any penalties from respondent until in either sells the property or becomes
a mortgagee in possession. Because respondent is not an "owner" under the NYCAC,
petitioner cannot compel respondent to register as required by NYCAC §27-2097, nor can
petitioner fine respondent for failing to register as permitted by NYCAC §27-2107 because
respondent is not a "person" under the NYCAC.
Although this system does not require the respondent and other foreclosing entities
to be responsible to pay the statutory penalties, the monies expended by the City in
maintaining these premises and providing for basic services for tenants can be reduced to
lien against the property which would then be superior to that of the mortgagor and would
have to be satisfied from the proceeds generated at the foreclosure sale.
Although petitioner has established that the property qualifies for the Alternate
Enforcement Program [NYCAC§2153], that program is only available against an "owner"
of property and respondent is not an "owner" under the NYCAC.
It Is Ordered that:
1. Respondent is subject to RPAPL§1307 and is to maintain the premises 99 Wright Street, Staten Island, New York.
[*17]2. Petitioner may, by affidavit from someone with personal knowledge of the facts submit documentation to establish how much money it has expended in maintaining the premises on behalf of respondent since November 8, 2012 to August 31, 2013 and shall be entitled to a money judgment in that amount.
3. Petitioner may seek future judgments in this proceeding by submitting similar affidavits until title to the property vests in a new person or owner for monies expended on behalf of respondent.
The foregoing constitutes the decision and order of the court.
Staten Island, NYHON. PHILIP S. STRANIERE
Judge, Civil Court
ASN by ________ on ____________.
Note: Is there any wonder as to why there is confusion in regard to respondent's name?
The Department of State lists 24 entities with the name Deutsche Bank. There is no
telling how many are registered with the Department of Financial Services. Meanwhile,
Deutsche Bank National Trust Co, is listed with the securities and exchange
commission with a Los Angeles, California address and Deutsche Bank Trust Company
Americas entered into an agreement with the Federal Reserve Bank of New York and
the New York State Banking Department where it is designated a New York State
The court was unable to determine the market value the City fixed on the property for 2001-2002, the tax year in which the property was purchased. The closest year is 2004-2005 and the market value was set at $236,544.00. Assuming for the sake if argument the market value in 2001-2002 was the same, then when the purchase was made the purchase price was 120% above the tax year market value. Using that as the standard the market value in 2007 when the loan was made would be $351,000.00. A loan of $460,000.00 is about 150% above the tax market value.
The "think system" is used by Prof. Harold Hill in Meredith Wilson's "Music Man." Mammy Yokum is a character in Al Capp's "Li'l Abner." Madame Arcati is a clairvoyant from Noel Coward's "Blithe Spirit."
Footnote 3: At some point someone should inquire as to Rivers' credibility as a "novice" in the world of mortgage financing in view of the fact he refinanced the Wright Street property several times, and apparently purchased other properties on Brighton Avenue, Van Duzer Street, and Targee Street during this time period. If he was "duped" by unscrupulous mortgage brokers, perhaps inquiry should be made as to whether he filed a criminal complaint with the district attorney or attorney general in that regard. Someone should also ask, "what happened to the approximately $250,000.00 in cash which he received by these multiple refinances of the property?" Based on the amount of violations being assessed by the City it may be concluded that the money was not plowed back into maintenance of the building.
Also as Wright Street is a four family house, who is collecting the rents all these years? There does not appear to be any residential nonpayment proceedings commenced in the last five years by Rivers to collect rents from tenants at Wright Street, so presumably the tenants are paying him.
Of course some of the problems caused by the flood of underwater mortgages could have been prevented had the legislature or the state agency regulating the mortgage lending industry required mortgage brokers to be fiduciaries for their clients, they would have to use their best efforts for the borrowers benefits and not to find the best deal for generating commissions and fees for themselves. Needless to say, some people believe based on the number of indictments of persons involved in the mortgage industry collapse, the odds are better that Vladimir and Estragon will meet Godot, then the persons who caused the problems will be punished.
Footnote 4: Once again it appears no one ever reads these mortgage documents. This is not "paragraph G" it is "paragraph F."
Footnote 5: Remember when you went to the dinner with a large group of friends, ordered a
hamburger and soda, but were the last one to leave? Remember when you counted the money your friends left on the table and were a more than a little short? That's when you learned that the $6.00 hamburger you ordered actually cost you $40.00.
Footnote 6: Similarly Multiple Dwelling Law §4(44) excludes mortgagees from the definition of "owner" and from being liable for a "public nuisance."
Footnote 7: Unless of course the word "trust" is being used here in a manner which made
Teddy Roosevelt upset.