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HSBC Bank, USA, NA v. Margineanu

Supreme Court, Suffolk County

October 9, 2018

HSBC Bank, USA, NA, Plaintiff,
Mihai Margineanu and JULIA MARGINEANU a/k/a JULIA MARGINEANU, a/k/a JULIA VARGA, if they be living and if they be dead, the respective heirs at law, next of kin, distributees, executors, administrators, trustees, devisees, legatees, assignors, lienors, creditors, and successors, in interest and generally having or claiming under by or through said, defendants who may be deceased, by purchase, inheritance, lien or otherwise of any right, title or interest in and to the premises described in the complaint herein and their respective husbands, wives, widow, if any and each and every person not specifically named who may be entitled to or claim to have any right, title or interest in the property described in the verified complaint, all of whom and whose names and places of residence unknown and cannot after diligent inquiry be ascertained by the plaintiff, THE UNITED STATES OF AMERICA o/b/o INTERNAL REVENUE SERVICE, NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE, STATE FARM BANK FSB, PALISADES COLLECTION, LLC, LVNV FUNDING LLC, MANDEE SHOPS, a div. of Big "M", Inc., MAYRA A. VILES, MIGUEL RIVERA EVELYN QUINONES, Defendants.

          FRIEDMAN VARTOLO, LLP Attys. For Plaintiff

          MARTIN SILVER, ESQ.Atty. For Defendants Margineanu MARK GOLDSMITH, ESQ. Guardian Ad Litem STERN & EISENBERG, PC Attys. For Defendant State Farm


         Upon the following papers numbered 1 to 8 read on this motion for an order appointing a receiver and cross motion for summary judgment; Notice of Motion/Order to Show Cause and supporting papers 1 - 4; Notice of Cross Motion and supporting papers: 5-6; Opposing papers:; Reply papers 7-8; Other; (and after hearing counsel in support and opposed to the motion) it is, ORDERED that this motion (#004) by the plaintiff seeking the appointment of a receiver pursuant to CPLR 5228, is denied, with leave to renew pursuant to CPLR 6401; and it is further

         ORDERED that the cross motion (#005) by defendants Mihai & Julia Margineanu, for summary judgment dismissing the action as barred by the statute of limitations, is denied; and it is further

         ORDERED that plaintiff is directed to file a notice of entry within five days of receipt of this Order pursuant to 22 NYCRR § 202.5-b(h)(2).

         Because of the importance, for statute of limitation purposes, to both lenders and borrowers, the Court will explore the distinction between automatic acceleration provisions of an installment mortgage contract and the optional acceleration clauses that are common in today's mortgage contracts. The Court holds that under the optional acceleration clause, the statute of limitations does not offer a defense to future monthly installment payments that are due and owing, until the entry of a judgment of foreclosure.

         Uncontested Facts

         The facts, while as bewildering as the applicable law, are uncontested. This is a foreclosure action on property located in Centereach, New York. In essence, on, defendants Mihai Margineanu and Julia Margineanu borrowed $324, 950.00 from the plaintiff's predecessor-in-interest and executed a promissory note and mortgage. Defendants defaulted on the loan by failing to make the monthly installment payment due on December 1, 2008. As a result, plaintiff's related entity, HSBC Mortgage Corporation (USA), commenced a foreclosure action on April 27, 2009, by the filing of an unverified complaint (Suffolk County Index Number 15674/2009). The borrower-defendants filed an unverified answer, dated May 18, 2009, by a prior counsel.

         Thereafter, plaintiff's motion for summary judgment was granted by order dated January 26, 2010 (Tanenbaum, JSC), and entered with the Clerk of Suffolk County on February 4, 2010. The Order with Notice of Entry was forwarded to defendants' counsel on April 29, 2010. The plaintiff filed a consent to change on December 15, 2011. The new counsel disposed of the first action by a Stipulation Discontinuing Action, without prejudice, dated October 9, 2012. However, that stipulation was only signed by plaintiff's attorney, was not signed by defendants' prior attorney and improperly states that "no Defendants have appeared in the instant foreclosure proceeding...".

         The instant action was commenced by a different law firm by filing on August 20, 2015. On December 16, 2015, plaintiff submitted an ex parte Order of Publication to the court for signature, due to the inability to serve the defendant, Mihai Margineanu. That Order was signed on March 14, 2016 by the Hon. Peter H. Mayer. On May 6, 2016, a second Order of Publication was submitted to the court due to the inability to serve both defendants. That order was signed nearly a year later by Justice Mayer, on April 14, 2017. It is uncontradicted that the defendants do not reside at the premises and, instead, rent the property to various tenants. In accordance with the Order, an amended summons and complaint was filed on April 26, 2017. By letter dated May 5, 2017, the appointed Guardian ad Litem notified the court that since January 29, 2016, he was no longer on the appointment list. By application dated May 10, 2017, plaintiff's counsel submitted a proposed Order Appointing a Successor Guardian Ad Litem, which was not signed by the court until September 28, 2017. Issue was joined with service of defendants' answer, through new counsel, on May 19, 2017, a filing which plaintiff's apparently accepted. On April 18, 2018 plaintiff filed a new consent to change attorney (NYSCEF Doc. No. 54). The matter was reassigned to this Part pursuant to Administrative Order No. 32-18 dated April 19, 2018. On August 6, 2018, plaintiff filed the instant motion (#004) seeking the appointment of a receiver. The defendants cross moved (#005) for summary judgment. Both motions were submitted for decision on September 21, 2018.

         Contentions of the Parties

         The defendants claim that this action is time-barred (see CPLR 213[4]). The contention is that the plaintiff's related entity and predecessor-in-interest accelerated the Note and Mortgage on April 27, 2009, when it commenced the prior, but subsequently discontinued, action (see HSBC Mortgage Corporation (USA) v Mihai Margineanu, et. al., Suffolk County Index No. 15674/2009). Defendants do not challenge the terms of the mortgage or note. Their sole claim is that plaintiff lost the right to seek foreclosure based upon distinct defaults that occurred subsequent to the discontinuance of the initial foreclosure complaint.

         Plaintiff insists that in the absence of a final judgment in its favor, the borrowers still have the right under certain contract provision of the mortgage, the reinstatement provisions, to cure the default and to continue making monthly installment payments.

         Burden of Proof

         Here, the defendants, as movants, bear the burden of proof to establish its claim (see generally U.S. Bank Trust, N.A. v Cater, 164 A.D.3d 539, N.Y.S.3d [2d Dept 2018]; HSBC Mtge. Corp. [USA] v MacPherson, 89 A.D.3d 1061, 1062, 924 N.Y.S.2d 428');">924 N.Y.S.2d 428 [2d Dept 2011]), rather than the plaintiff. This Court finds that counsel for the defaulting defendants has failed to establish, prima facie, that this action is time-barred (see Nationstar Mtge., LLC v Weisblum, 143 A.D.3d 866, 39 N.Y.S.3d 491');">39 N.Y.S.3d 491 [2d Dept 2016]).

         The Court notes that the cross motion is based solely upon the attorney's affirmation. However, an affirmation from an attorney having no personal knowledge of the facts is without evidentiary value and, thus, is insufficient to raise a triable issue of fact (see Zuckerman v City of New York, 49 N.Y.2d 557, 427 N.Y.S.2d 595');">427 N.Y.S.2d 595 [1980]; see also Bank of New York Mellon v Aiello, 164 A.D.3d 632, ___N.Y.S.3d ___ [2d Dept 2018]). The only evidence submitted is the unverified complaint from the prior action, without an affidavit from a party with personal knowledge. Such is insufficient.

         Reliance upon an Unverified Complaint is Legally Insufficient

         Any discussion on the law of acceleration of a mortgage debt, must begin with the seminal mortgage acceleration case of Albertina Realty Co. v Rosbro Realty Corp., 258 NY 472, 180 NE 176 (1932). Therein, the lender filed a foreclosure action after the borrower failed to make a timely installment payment. The borrower tendered the payment three days after the action was filed but prior to service of the pleadings. The lender refused the payment arguing that the verified complaint had accelerated the entire debt. The High Court agreed and declared that the plaintiff had elected the whole amount due.

         We are satisfied, however, that the unequivocal overt act of the plaintiff in filing the summons and verified complaint and lis pendens constituted a valid election (italics added).

         The Second Department has recognized the filing of a verified complaint constituted a valid election to accelerate (see NMNT Realty Corp. v Knoxville 2012 Trust, 151 A.D.3d 1068, at 1070, 58 N.Y.S.3d 118');">58 N.Y.S.3d 118 [2d Dept 2017]). In Beneficial Homeowner Serv. Corp. v Tovar, 150 A.D.3d 657, 55 N.Y.S.3d 59 (2d Dept 2017), where a prior action was dismissed for failure to effectuate personal service. The Court held:

... the failure to properly serve the summons and complaint upon the defendant homeowner did not as a matter of law destroy the effect of the sworn statement that the plaintiff had elected to accelerate the maturity of the debt (citing Albertina) (italics added).

         Recently, the Second Department once again noted the significance of the "sworn statement" of acceleration in Deutsche Bank Nat. Trust Co. v Adrian, 157 A.D.3d 934, 69 N.Y.S.3d 706');">69 N.Y.S.3d 706');">69 N.Y.S.3d 706');">69 N.Y.S.3d 706 (2d Dept 2018), a case where a voluntary discontinuance was filed after the running of the six year statute of limitations (see CPLR 213[4]), As noted in Puzzuolio v JPMorgan Chase Bank, N.A., 55 Misc.3d 417, 49 N.Y.S.3d 228 (Sup Ct Dutchess County 2016):

Although the Verified Complaint was not filed until several days later, the choice to accelerate the Mortgage was made on July 24, 2009, when the oath was administered. [ Gold v Vanden Brul, 28 Misc.2d 644, 211 N.Y.S.2d 757');">211 N.Y.S.2d 757 (1961) (the "sworn act" of verifying the foreclosure complaint "constituted an election to accelerate"); see also Albertina, 472 NY at 476, 180 NE 176 (stating that a tender of payment does not "destroy the effect of the sworn statement that plaintiff has elected")].

         It is clear that an unverified complaint cannot stand as the basis for a default judgment pursuant to CPLR 3215 (see HSBC Bank USA, Nat. Assn. v Cooper, 157 A.D.3d 775, 69 N.Y.S.3d 350 [2d Dept 2018]; see also HSBC Bank USA, Nat. Assn. v Simms, 163 A.D.3d 930, 81 N.Y.S.3d 517');">81 N.Y.S.3d 517 [2d Dept 2018]; Michael v Atlas Restoration Corp., 159 A.D.3d 980, 73 N.Y.S.3d 622');">73 N.Y.S.3d 622 [2d Dept 2018]).

         Caselaw often notes that there must be a "clear and unequivocal" intention to accelerate the mortgage debt in accordance with the acceleration provisions of the mortgage (see Wells Fargo Bank, N.A. v Burke, 94 A.D.3d 980, 982-3, 943 N.Y.S.3d 540');">943 N.Y.S.3d 540 [2d Dept 2012]; Sarva v Chakravoty, 34 A.D.3d 438, 439, 826 N.Y.S.2d 74');">826 N.Y.S.2d 74');">826 N.Y.S.2d 74');">826 N.Y.S.2d 74 [2d Dept 2006]). It seems inconsistent, then, to hold that an unverified complaint cannot support a default judgment but that ...

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