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MLF3 Jagger LLC v. Kempton

Supreme Court, Suffolk County

March 27, 2017

MLF3 Jagger LLC, Plaintiff,
Cecilia Kempton; United Bank, Inc. and "John Doe No.1 through John Doe #12", the last twelve names being fictitious and unknown to plaintiff, the persons or parties intended being the tenants, occupants, persons or corporations, if any, having or claiming an interest upon the premises described in the complaint, Defendants.

          KRISS & FEUERSTEIN, LLP Attorneys for Plaintiff By: Jerold C. Feuerstein, Esq.

          JOHN M. GIORDANO, P.C Attorney for Defendant Cecilia Kempton.

          TWOMEY, LATHAM, SHEA & KELLEY Attorneys for Defendant United Bank, Inc.

          JAMES HUDSON, J.

         "Let the hardship be strong enough, and equity will find a way, though many a formula of inaction may seem to bar the path, " (Graf v. Hope Bldg. Corp., 254 NY 1, 13, 171 N.E. 884, 888 (Cardozo, dissent) (1930).

         The observation of the immortal Cardozo, written during an earlier mortgage foreclosure crisis, has proved remarkably prescient despite being a dissenting opinion. The discussion below demonstrates that the balm of equity can be found in legislative enactment as well as in the pronouncements of learned courts.

         The matter at hand is an action to foreclose upon a note and mortgage. The Plaintiff has moved for summary judgment and the appointment of a Referee to ascertain the sums due and owing under the note (CPLR 3212). The Defendant has cross-moved for dismissal (CPLR 3211 (a)(5), 3408(a), RPAPL 1304; 22 NYCRR § 202.12-a).

         Prior to considering the merits of the respective arguments of Plaintiff and Defendant concerning an alleged breach of contract pertaining to a note, the Court is obliged to consider the Defendants cross-motion. This questions the propriety of this case not being assigned to the Residential Foreclosure Part. Specifically, the Defendant, Ms. Kempton contends that the locus in quo constitutes a residence. Plaintiff disputes this argument and takes the position that the premises is a business. The status of the realty is of critical importance to the procedure which must be followed. Assuming, arguendo, that Plaintiff's contention is correct, the matter at hand is properly in a Commercial Division Part. The procedural and substantive law to be applied is well known and has little changed in generations. The law entitled a creditor the right to the enforcement of a contract and foreclosure. Equity provided but a narrow exception (see, Noyes v. Anderson, 124 NY 175, 79 Sickels 175, 26 N.E. 316 (1891). As discussed below, however, residential mortgage foreclosures are another matter since they have been singled out for special treatment by statute and regulation.

         A legislative response to an upsurge in foreclosures is not exclusive to recent times. In 1933, it is estimated that approximately 50% of non-farm mortgages in the United States were behind in payment and subject to default. The foreclosure rate on mortgages rose from 3.6% in 1926 to over 13% in 1934, (David C. Wheelock, Changing the Rules: State Mortgage Foreclosure Moratoria During the Great Depression, Federal Reserve Bank of St. Louis Review, November/December 2008, p. 570). The effects of the Great Depression, which called forth Cardozo's eloquence in Graf v. Hope, also spurred action on a Federal and State level. The Home Owners' Loan Act of 1933 created the Home Owners' Loan Corporation to provide low interest mortgages, (73d Cong. Sess. L.64, June 13th, 1933). The relief provided by the New York legislature, however, was dramatic. Civil Practice Act §1077-a imposed a moratorium on residential and commercial foreclosures for unpaid principal until 1940. An exception was allowed for delinquent interest and taxes. Civil Practice Act §1083-a extended the moratorium to cover deficiency judgments (S.M. Linowitz, Suits for Interest under the New York Mortgage Moratorium, Cornell Law Review, Vol 25, Issue 3 [1940]; Wheelock p.579). Although New York placed itself in the forefront of humanitarian legislation, it was not alone. More than half of our Sister States adopted mortgage moratorium laws during this time period. (Wheelock p.570, citing, Poteat, J. Douglass, State Legislative Relief for the Mortgage Debtor During the Depression, Law and Contemporary Problems, 1938, 5, pp. 517-44).

         In response to the economic distress which befell our Country and State beginning 2007-2008, the State Legislature and the Federal Congress responded to what was perceived to be a rapidly deteriorating economy, and altered (as was their right) common law principles and interposed new mechanisms to decide the rights and obligations of parties to residential mortgages. The profusion of statutes and regulations enacted within the last ten years bears witness to the legislative focus in this area. Federal statutes/regulations include 12 U.S.C.A. § 2601 et seq. Real Estate Settlement Procedures Act ("RESPA"); The Housing and Economic Recovery Act of 2008 (H.R. 3221); The Home Affordable Modification Program ("HAMP") derived from the Emergency Economic Stabilization Act of 2008 (Public Law 110-343); 12 C.F.R. § 1024.41[c] (Federal Consumer Financial Protection Bureau's ("CFPB") Regulation "Title X"). State protection for residential borrowers can be found in CPLR Rule 3408 as added by L. 2008, ch. 472, § 3 and amended L. 2016, ch. 73; 22 NYCRR § 202.12-a; RPAPL §§ 1303, 1304 as well as RPL§ 265-a, the Home Equity Theft Protection Act ("HETPA").

         From the point of view of a creditor/mortgagee, it is readily apparent that the legislative remedies of the 1930's were far more draconian than the Statutes and Court Rules which are imposed upon them today. The same principles which sustained the constitutionality of the antecedent laws, govern and uphold their modern counterparts. It cannot be denied that CPLR 3408 and 22 NYCRR § 202.12 delay and thus, to a degree, impose burdens on the ability of a mortgagee to enforce their contractual rights. In the absence of these socially ameliorative measures, the cold application of Contract Law and the RPAPL could resolve the question of a defaulting mortgage in an afternoon or on papers alone. "Equity and justice recognize the inviolability of contracts, protect and enforce the rights of parties thereunder, inhibit an unlawful abrogation of the same, award damages arising from a breach thereof, and likewise decree specific performance of contract" (Gordon v. State, 233 NY 1, 8, 134 N.E. 698, 21 A.L.R. 562 [1922] Hogan J., Cardozo concur). Instead, RPAPL § 1304's notice requirement delays the commencement of an action as well as imposing additional costs of representation. The mandatory conference aspect of CPLR § 3408 can easily add many months to foreclosure litigation. These procedures and the hurdles they raise for creditors, however, cannot be said, at this time, to offend the constitution.

         The Appellate Courts of our State have passed on the question of the constitutionality in the application of CPLR 3408. In Wells Fargo Bank, N.A. v. Meyers (2nd Dept. 2013) 108 A.D.3d 9, 966 N.Y.S.2d 108, the Court reversed a lower Court decision in which the Judge had directed a specific modification of a mortgage as a sanction for not negotiating in good faith. To countenance such an action " would violate the Contract Clause of the United States Constitution " (Id. at 22 citing U.S. Const, art I, § 10 [1]). In Bank of America, Nat. Ass'n v. Lucido (2nd Dept. 2014) 114 A.D.3d 714, 981 N.Y.S.2d 433, it was held that a lower court's imposition (without notice) of exemplary damages had the effect of reducing the principal of the note underlying the mortgage and was thus violative of the mortgagee's right to due process (Id. at 715). CPLR § 3408's December 20, 2016 amendments require that a plaintiff bring certain documents to mandatory settlement conferences.

         The new statutory amendments also delineate the remedies that a Court may impose for failure to negotiate in "good faith." Subdivision (j) provides that " the court shall, at a minimum, toll the accumulation and collection of interest, costs, and fees during any undue delay caused by the plaintiff, and where appropriate, the court may also impose one or more of the following:

"1. Compel production of any documents requested by the court pursuant to subdivision (e) of this section or the court's designee ...

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