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[NYSC] Judge Spinner “Plaintiff’s Papers Raises Disturbing Issues”, “Appears To Run Counter To New York’s Statute of Frauds” BENEFICIAL HOMEOWNER SERV. CORP v. STEELE

[NYSC] Judge Spinner “Plaintiff’s Papers Raises Disturbing Issues”, “Appears To Run Counter To New York’s Statute of Frauds” BENEFICIAL HOMEOWNER SERV. CORP v. STEELE


2011 NY Slip Op 50015(U)

BENEFICIAL HOMEOWNER SERVICE CORPORATION, Plaintiff,
v.
STEPHEN STEELE, SUSAN STEELE, OCEAN BANK FSB, “JOHN DOE” AND “MARY ROE” (SAID NAMES BEING FICTITIOUS, IT BEING THE INTENTION OF PLAINTIFF TO DESIGNATE ANY AND ALL OCCUPANTS OF THE PREMISES BEING FORECLOSED HEREIN), Defendants.

2010-01996.Supreme Court, Suffolk County.

Decided January 7, 2011.Jonathan D. Pincus, Esq, 95 Allens Creek Road, Rochester, New York 14618, Attorneys for Plaintiff.

Steven Tekulsky, Esq., 113 Cedar Street, East Hampton, New York 11937, Attorneys for Defendants Steele.

JEFFREY ARLEN SPINNER, J.

Plaintiff has commenced this action pursuant to Real Property Actions and Proceedings Law Article 13, claiming foreclosure of a mortgage which encumbers real property located at 634 Stephen Hands Path, East Hampton, Suffolk County, New York. In both its Verified Complaint both and the present motion papers, Plaintiff alleges that it is the owner and holder of a Loan Agreement executed by STEPHEN STEELE and SUSAN STEELE dated October 26, 2006 in the principal amount of $92,696.60 which is secured by a Mortgage of the same date and executed by both STEPHEN STEELE and SUSAN STEELE, recorded with the Suffolk County Clerk in Liber 21410 of Mortgages at Page 639. Plaintiff further alleges that Defendants STEELE are in default of their obligations under the Loan Agreement (though the nature and extent of the default is nowhere specified) and it is claimed that the principal sum of $91,614.34 is due and owing, together with interest at the rate of 5.250% per annum as computed from October 1, 2008. Defendants STEELE, through counsel, have timely appeared and have interposed an Answer consisting of general denials as to the allegations of the Plaintiff’s Complaint together with eight affirmative defenses.

Plaintiff has moved for summary judgment in accordance with the provisions of CPLR 3212, having filed a Notice of Motion and supporting papers dated May 18, 2010 and containing a CPLR § 2214(b) seven day notice as well as a request for appointment of a Referee pursuant to RPAPL § 1921. Curiously and in direct derogation of the mandatory provisions of 22 NYCRR § 202.7, Plaintiff has failed to specify or insert a return date for the application and has apparently served its papers with no return date. Not surprisingly, counsel for Defendants has neither answered nor responded thereto, presumably due to the lack of both a stated return date and appropriate notice. The Clerk of the Court apparently scheduled the motion for June 10, 2010, which was administratively adjourned by the Court to November 17, 2010. In the interim period, mandatory foreclosure settlement conferences in accordance with CPLR § 3408 were convened on September 2, 2010 and November 9, 2010 respectively. Thereafter and on December 22, 2010, the Court received an Affidavit from Plaintiff’s counsel which purports to comply with the provisions of Administrative Order no. AO548/10.

It is settled law in New York that the initial burden is placed upon the proponent of an application for summary judgment as to making a prima facie case for entitlement to the relief sought, Norwest Bank Minnesota N.A. vs. Sabloff, 297 AD2d 722 (2nd Dept. 2002). Where Plaintiff comes forward with the mortgage at issue together with the underlying note or bond coupled with evidence of the alleged default, it establishes its prima facie right to judgment as a matter of law, Household Finance Realty Corporation of New York vs. Winn, 19 AD3d 544 (2nd Dept. 2005), Fleet National Bank vs. Olasov, 16 AD3d 374 (2nd Dept. 2005), leave to appeal dismissed 5 NY3d 849 (2005), Gateway State Bank vs. Shangri-La Private Club For Women, 113 AD2d 791 (2nd Dept. 1985), aff’d 67 NY2d 627 (1986). Once such a prima facie showing has been made, the burden shifts to the party opposing the application to come forward with sufficient evidence to controvert the summary judgment motion by demonstrating the existence of a genuine triable issue of fact, Barcov Holding Corp. vs. Bexin Realty Corp., 16 AD3d 282 (1st Dept. 2005). For the reasons hereinafter set forth, the Court finds that Plaintiff has failed to satisfy its burden of setting forth a prima facie case for entitlement to the relief it seeks.

The copy of the mortgage appended to Plaintiff’s moving papers bears the signatures of both STEPHEN STEELE and SUSAN STEELE and contains an acknowledgment by a notary public. However, the copy of the Loan Agreement that is appended to Plaintiff’s papers raises disturbing issues. That instrument bears the date of October 26, 2006 and recites a principal amount of $92,696.60. The Loan Agreement clearly reflects Defendant STEPHEN STEELE as the sole obligor thereunder but, most glaring of all, the Loan Agreement bears no signature whatsoever. General Obligations Law § 5-701 requires promises such as those contained in the Loan Agreement to be both in writing and signed by the party to be charged [G.O.L. § 5-701(a)(1)]. This Court must question how, under the circumstances presented here, Plaintiff can, with unbridled temerity, demand enforcement of the Loan Agreement against Defendant STEPHEN STEELE, who has not executed that instrument and against Defendant SUSAN STEELE, who is not even a party to that agreement. The most cursory reading of these instruments reveal the obvious facts as set forth above. This posture by Plaintiff strains credulity and causes the Court to seriously question Plaintiff’s good faith in commencing this action.

Distilled to its essence, a mortgage is a conveyance of an interest in land that is expressly intended to constitute security for some obligation, most commonly an indebtedness, Burnett v. Wright 135 NY 543, 32 NE 253 (1895). It follows logically then that in order for a mortgage to be valid and subsisting, there must be an underlying obligation that is to be secured by an interest in the real property, owed by the obligor to the obligee, which contains both the right of the obligee to foreclose and the right of the obligor to redeem, Baird v. Baird 145 NY 659, 40 NE 222 (1895), R.H. Macy & Co. v. Bates 280 AD 292, 114 NYS 2d 143 (3rd Dept. 1952). Absent these essential elements, a valid mortgage cannot exist because it is the underlying obligation which gives rise to the validity of the mortgage as a lien upon the real property. Here, the Loan Agreement that has been presented to the Court facially appears to run counter to New York’s Statute of Frauds, G.O. L. § 5-701. Since there has been presented to this Court no valid underlying obligation and no further explanation, the mortgage appears to fail as a matter of law.

This situation is all the more disturbing when it is considered that the sworn statements contained in the both the Complaint and the Affidavit in Support Of the Motion for Summary Judgment expressly and falsely assert that Defendant SUSAN STEELE executed the Loan Agreement. This is compounded by the sworn statement of Shana Richmond, Plaintiff’s foreclosure specialist, which is dated April 28, 2010 and which contains the same painfully obvious mis-statements of fact. Going further, Plaintiff’s counsel has submitted an Affirmation dated December 2, 2010 which purports to comply with Administrative Order no. AO548/10 in which he ratifies and confirms, in essence, the incorrect assertions in the Complaint and the Summary Judgment application. Aside from the papers themselves, it appears that counsel’s affirmation runs afoul of the provisions of 22 NYCRR § 130-1.1.

An action claiming foreclosure of a mortgage is a suit in equity, Jamaica Savings Bank v. M.S. Investment Co. 274 NY 215 (1937), and the very commencement of the proceeding invokes the equity jurisdiction of the Supreme Court. Thus, in order to obtain equitable relief, the applicant must come before the Court with clean hands, else such relief will be denied. Thus, where a party comes before the Court and is shown to have acted in a manner which is offensive to good conscience, fairness and justice, that party will be completely without recourse in a court of equity, no matter what his legal rights may be, York v. Searles 97 AD 331 92nd Dept. 1904), aff’d 189 NY 573 (1907). Stated a bit differently, in order to obtain equity, one must do equity.

Here, it is irrefutable that Defendant SUSAN STEELE was not a party to the Loan Agreement and certainly did not execute the same. It is equally indubitable that Defendant STEPHEN STEELE did not execute the Loan Agreement that has been presented on this application. Nonetheless, Plaintiff has vigorously prosecuted this action, demanding foreclosure of the mortgage as well as money damages against both named Defendants. Under these circumstances, the Court is compelled to conduct a hearing to determine whether or not Plaintiff has proceeded in good faith and what sanction, if any should be imposed should the Court find a lack of good faith.

It is, therefore,

ORDERED that the Plaintiff’s application for summary judgment and other relief is hereby denied; and it is further

ORDERED that a hearing shall be held in this matter, at which all counsel and parties shall appear, which shall not be adjourned except by the Court; and it is further

ORDERED that said hearing shall be held on March 16, 2011 at 2:30 p.m. in Courtroom 229-A, Supreme Court, 1 Court Street, Riverhead, New York; and it is further

ORDERED that Plaintiffs’ counsel shall, within ten days after entry hereof, serve a copy of this Order with Notice of Entry upon all parties in this action as well as all counsel who have appeared in this action.

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