Wells Fargo Bank, N.A. v Ahr

[*1] Wells Fargo Bank, N.A. v Ahr 2014 NY Slip Op 51757(U) Decided on December 11, 2014 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 December 11, 2014
Supreme Court, Suffolk County

Wells Fargo Bank, N.A., Plaintiff,

against

Thomas Ahr, JILL CAREY-AHR, KAMCO SUPPLY CORPORATION, THE WHEATLEY HARBOR, LLC, WAYNE DOUGHTY, Defendants.



30322-09



BERKMAN, HENOCH, PETERSON

Attys. For Plaintiff

100 Garden City Plaza

Garden City, NY 11530

CONFORTI & WALLER, LLP

Attys. for Def. Wheatley Harbor

250 North Sea Road. * Southampton NY 11968 *[FN1]

FIDELITY NATIONAL LAW GROUP

Attys. for Non-Party Purchasers Ellis

350 Fifth Ave. - Ste. 3000

New York, NY 10118
Thomas F. Whelan, J.

Upon the following papers numbered 1 to12read on this motion to set aside public sale and deeds issued thereafter; Notice of Motion/Order to Show Cause and supporting papers 1 - 4; Notice of Cross Motion and supporting papers; Opposing papers 5-8; 9-10; Reply papers; Other 11-12 (memorandum); (and after hearing counsel in support and opposed to the motion) it is,

ORDERED that this motion (#004) by defendant, The Wheately Harbor, LLC, for an order vacating the public sale of the premises, the deed issued by the referee and setting aside the deed subsequently issued by the public sale purchaser to non-party purchasers at a private sale is considered under CPLR RPAPL § 231(6) and CPLR 2003 and is denied.

The plaintiff commenced this action on August 4, 2009 to foreclose the lien of a mortgage given by the Ahr defendants to secure a mortgage loan owned by the plaintiff. In September of 2009, defendant, Wheatley Harbor, LLC., [hereinafter Wheatley] appeared herein without answering by service of notice appearance by counsel and waiver of service of papers except for the following: the Referee's computation; Notice of Motion for Judgment of Foreclosure and Sale; Notice of Sale; Notice of Proceedings to Obtain Surplus Money and Notice of Discontinuance. The joinder of defendant Wheatley was necessitated by its possession of a subordinate lien that was subject to extinguishment upon the public sale of the property, which was part of the relief demanded by the plaintiff in its foreclosure complaint.

In July of 2010, the plaintiff successfully moved for an order of reference in which the defaults in answering of all parties served with process were fixed and a referee to compute was appointed. The referee's report of amounts due was executed on August 3, 2010 and copy of such report was served by the plaintiff upon Wheatley's counsel on August 6, 2010. On August 19, 2010, the plaintiff served upon Wheatley and others a notice of motion for an order confirming the report of the referee to compute and for a judgment of foreclosure and sale. The court issued a Judgment of Foreclosure and Sale on October 26, 2010, which was entered in the office of the Clerk on [*2]November 16, 2010.

On May 9, 2013, the plaintiff served the referee's notice of sale upon counsel for Wheately and others entitled thereto. On June 25, 2013 the referee accepted the bid price of $220,00.00 from the plaintiff who assigned its bid to the Federal Home Loan Mortgage Company [hereinafter Freddie Mac] and said referee issued a deed conveying the property to Freddie Mac as purchaser on that date. That deed was thereafter recorded in the office of the County Clerk on July 23, 2013. Freddie Mac then sold the premises to Henry G. Ellis and Nancy Ellis and conveyed such premises under a deed dated September 23, 2013 that was recorded in the office of the County Clerk on October 2, 2013. Both sales fetched purchase prices that were below the amounts due to the plaintiff under the terms of the judgment of foreclosure and the referee's subsequent report of sale dated, July 26, 2013, that was filed in the office of the clerk on July 23, 2013.

By the instant motion, interposed by use of an order to show cause dated September 11, 2014, defendant Wheatley seeks an order vacating the judgment of foreclosure and sale and, in effect, a further order setting aside of the public sale of the premises and its subsequent sale to the Ellis purchasers and each deed issued after such sales. The motion rests upon allegations that the law firm representing Wheatley vacated its 140 Fell Court, Hauppauge, New York offices in November 1, 2010, nearly 14 months after it filed its notice of appearance listing that address as the address of the firm and that mail forwarding from such address to the firm at its new offices ended on June 1, 2011. Wheatley's counsel goes on to complain that the court's file contains no proof of service of the computations of the referee to compute and that the May 9, 2013 notice of sale was served upon counsel's old Hauppauge office and "doubtless" was returned to the plaintiff. Both the plaintiff and the Ellis purchasers oppose each and every demand for relief that is advanced in the moving papers.

Upon its review of the papers submitted in support of and in opposition to the instant motion by defendant Wheatley, the court denies such motion in its entirety. The record reflects that the one year Statute of Limitation set forth in the RPAPL §231(6) and in CPLR 2003 began to run on June 25, 2013, which was the date of the public sale and conveyance of the subject premises to Freddie Mac under the deed of the referee of sale. These statutory limitations periods thus expired on June 26, 2014. Interposition of this motion by the September 11, 2014 Order to Show Cause and Wheatley's subsequent service of these motion papers upon Freddie Mac on September 16, 2014 and upon the Ellis purchasers on September 23, 2014, were well beyond the June 26, 2014 expiration date of the statutory one year limitations period. The statute of limitations defense raised by both the plaintiff and the Ellis purchasers is thus sustained by the court (see Home Fed. Sav. Bank v Versace, 272 AD2d 576, 709 NYS2d 409 [2d Dept 2000]; see also Mooring Capital Fund, LLC v Bronx Miracle Gospel Tabernacle, Inc., 119 AD3d 490, 990 NYS2d 508 [1st Dept 2014)].

In actions at law, the statute of limitations defense, being one in the nature of a complete bar to Wheatley's demands for relief, would obviate consideration of Wheatley's demands for vacatur of the judgment, the sales and the deeds. Since, however, this action is equitable in nature, the successful invocation of the statute of limitations defense by the plaintiff and the Ellis purchasers does not render Wheatley's reliance on the equitable powers of this court to reach and consider its [*3]claims, unavailing. Indeed, Wheately's resort to the equitable powers of this court finds support in recent appellate case authorities that continue to recite long standing rules regarding this court's exercise of equitable jurisdiction over mortgage foreclosure actions and suggest that resort thereto may be proper even where an applicable of the statute of limitations has run (see Wells Fargo Bank, N.A. v IPA Asset Mgt. III, LLC, 111 AD3d 820, 975 NYS2d 156 [2d Dept 2013]).

Nevertheless, the court's invocation of its equity powers to deny the remedy of foreclosure and sale or to set aside its effects is limited to cases wherein there is clear and convincing evidence of fraud, exploitive overreaching or unconscionable conduct on the part of the mortgagor or other party (see Nassau Trust Co. v Montrose Concrete Prods. Corp., 56 NY2d 175, 183, 451 NYS2d 663, 667 [1982]; Ferlazzo v Riley, 278 NY 289, 16 NE2d 286 [1938]; Wells Fargo Bank, N.A. v IPA Asset Mgt. III, LLC, 111 AD3d 820, supra; Bank of New York v Segui, 91 AD3d 689, 937 NYS2d 95 [2d Dept 2012]). This limitation arises from the unique nature of an action to foreclose a mortgage which, while equitable in nature, is a proceeding in rem to appropriate the land and, as such, is unlike most other equity actions which operate in personam (see Jo Ann Homes v Dworetz, 25 NY2d 112, 302 NYS2d 799 [1969]). This distinction is not without a difference as it compels a vastly more limited application of equitable principles to foreclosure actions than to other actions equitable in nature.

So while this court is ever mindful that it may exercise its inherent equitable powers to ensure that a foreclosure sale conducted pursuant to a judgment of foreclosure "is not made the instrument of injustice" (Guardian Loan Co. v Early, 47 NY2d 515, 520, 419 NYS2d 56 [1979]), and, therefore, may set aside a foreclosure sale where "fraud, collusion, mistake, or misconduct casts suspicion on the fairness of the sale" (Bank of New York v Segui, 91 AD3d 689, supra; see Wells Fargo Bank, N.A. v IPA Asset Mgt. III, LLC, 111 AD3d 820, supra; Fleet Fin. v Gillerson, 277 AD2d 279, 280, 716 NYS2d 66 [2002]), it declines to do so in this case. Although collusive conduct on the part of a mortgagor and a senior mortgagee encumbrancer that is aimed at prejudicing the rights of junior mortgagee may be raised by the junior encumbrancer in an action to foreclose the senior mortgage (see Lawrence Ave. Group, USA, Inc. v Parnes, 134 AD2d 172, 520 NYS2d 762 [1st Dept 1987]), or thereafter following a sale (see Polish Natl. Alliance of Brooklyn, U.S.A. v White Eagle Hall Co., Inc., 98 AD2d 400, 470 NYS2d 642 [2d Dept 1983]; Aubrey Equities, Inc. v SMZH 73rd Assoc., 212 AD2d 397, 622 NYS2d 276 [1st Dept 1995]; Kossoff v Wald, 241 AD483, 272 NYS2d 787 [1st Dept 1934]), the record here is devoid of evidence from which the court might discern engagement by the plaintiff alone or in concert with others in any of the acts of nefarious conduct which sometimes warrant the setting aside of sale and/or judgment of foreclosure and sale under the appellate case authorities cited above.

In addition, the rights of the George and Nancy Ellis, as third party, bona fide purchasers for value, tips the balance of the equities in their favor rather than in the favor of defendant Wheatley. This finding is guided by the pronouncements of the Court of Appeals in the case of Dorff v Bornstein, (277 NY 236, 241 14 NE2d 51 [1938]). Writing for a unanimous court, Judge Rippey, acknowledged that the interests of a second mortgagee may survive a foreclosure sale conducted upon the foreclosure of senior mortgage that is the product of a collusive or fraudulent scheme [*4]designed to eliminate the junior mortgage, but he went on to state as follows with respect to bona fide purchasers:

In situations such as arose in this case there are fundamental principles which we are bound to recognize and which equity cannot set aside. A bona fide purchaser (other than the owner) on an unconditional sale of real property pursuant to a regular foreclosure acquires a clear and absolute title as against all parties to the suit and their privies which relates back to the date of the mortgage so as to cut off all intervening rights and equities. All parties to the foreclosure sale are estopped from disputing the title acquired by the purchaser on the sale. Such a title so acquired is beyond attack directly or collaterally. Thereby every interest of the owner has been divested, and his estate has been completely cut off with no outstanding right to redeem. All rights of subsequent mortgagees have been finally and conclusively cut off and a new estate in the new owner has been created. The holder of a junior mortgage who stands by while the sale is made and confirmed must be deemed to have waived any right thereafter to redeem. As to those whose interests in the property are cut off by the foreclosure, such a purchaser has no further obligation or duty after the actual delivery of the referee's deed. He may do with the property as he sees fit. He may convey it back to the original owner without thereby revesting liens which were cut off by the sale and conveyance in the foreclosure proceedings. If the foreclosure and sale were tainted with fraud as between the parties, the rule might be different, but, even then, account must be taken of intervening equities; as to any subsequent bona fide purchaser the title still would not be subject to attack. [internal citations omitted].

Here, the default in answering by defendant Wheatley was fixed and determined in the July 9, 2010 order of reference. Wheatley's lien was extinguished and its right of redemption cut off by the foreclosure sale conducted in June of 2013 pursuant to the terms of the judgment and the premises were thereafter sold to the Ellis purchasers. Assuming without so finding, that the notice failures, about which Wheatley complains, were attributable to defalcations on the part of the plaintiff and were established as such in the moving papers, such failures do not rise to the level of fraudulent or collusive conduct upon which a vacatur of the judgment of foreclosure sale or any subsequent proceedings and conveyances might properly rest.

In view of the foregoing, the instant motion (#004) by defendant, The Wheatley Harbor, LLC, is denied.

DATED: _December 11, 2014_________________________________

THOMAS F. WHELAN, J.S.C. Footnotes

Footnote 1: The backing of this defendant's motion papers recites its counsel's office address as 140 Fell Court, Hauppauge, New York, the vacatur of which by the firm in November of 2010 is a principal ground on which this motion rests.