Linker Notes, LLC v. Kallman

• Docket Number: Index No. 850273/2019,Motion Seq. No. 003
• Decision Date: 13 November 2023
• Parties: LINKER NOTES, LLC, Plaintiff, v. MARC SCOTT KALLMAN, BOARD OF MANAGERS OF 52 EAST END AVENUE CONDOMINIUM, CITIBANK, N.A. AS TRUSTEE FOR AMERICAN HOME MORTGAGE ASSETS TRUST 2006-3 MORTGAGE-BACKED PASS-THROUGH CERTIFICATES, SERIES 2006-3, JOHN DOE NO. 1 THROUGH JOHN DOE NO. 99, SAID NAMES BEING FICTITIOUS, PARTIES INTENDED BEING POSSIBLE TENANTS OR OCCUPANTS OF PREMISES, AND CORPORATIONS, OTHER ENTITIES OR PERSONS WHO CLAIM, OR MAY CLAIM, A LIEN AGAINST THE PREMISES Defendant.
• Court: New York Supreme Court

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2023 NY Slip Op 34103(U)

LINKER NOTES, LLC, Plaintiff, v. MARC SCOTT KALLMAN, BOARD OF MANAGERS OF 52 EAST END AVENUE CONDOMINIUM, CITIBANK, N.A. AS TRUSTEE FOR AMERICAN HOME MORTGAGE ASSETS TRUST 2006-3 MORTGAGE-BACKED PASS-THROUGH CERTIFICATES, SERIES 2006-3, JOHN DOE NO. 1 THROUGH JOHN DOE NO. 99, SAID NAMES BEING FICTITIOUS, PARTIES INTENDED BEING POSSIBLE TENANTS OR OCCUPANTS OF PREMISES, AND CORPORATIONS, OTHER ENTITIES OR PERSONS WHO CLAIM, OR MAY CLAIM, A LIEN AGAINST THE PREMISES Defendant.

Index No. 850273/2019, Motion Seq. No. 003

Supreme Court, New York County

November 13, 2023

Unpublished Opinion

PRESENT: HON. FRANCIS A. KAHN, III, Justice

DECISION + ORDER ON MOTION

HON FRANCIS A. KAHN, III, A.J.S.C.

The following e-filed documents, listed by NYSCEF document number (Motion 003) 119, 120, 121, 122, 123, 124, 125, 126, 127 128, 129, 130, 131, 132, 133, 134, 135, 136, 137, 138, 139 140, 141, 142, 144, 145, 146, 147, 148, 149, 150, 151, 152, 153, 154, 155, 156, 157, 158, 159, 160, 161, 162, 163, 165, 166, 167, 168, 169, 170, 171, 172, 173, 174, 175, 176, 177, 178, 179, 180, 181, 182, 183, 184, 186, 187, 188, 189, 190, 191, 192, 193, 194, 195, 196, 197, 198, 199, 200, 201, 202, 203, 204, 205, 207, 208, 209, 210, 212, 213, 214, 215, 216, 217, 218, 219, 220, 221,222, 223, 224, 225, 226, 227, 228, 229, 230, 231,232, 233, 234, 235, 236, 237, 238, 239, 240, 241, 242, 243, 244, 245, 246, 247, 248, 249, 250, 251,252, 253, 254, 255, 256, 257, 258, 259, 260, 261, 262, 263, 264, 265, 266, 267, 268, 269, 270, 271, 272, 273, 274, 275, 276, 277, 278, 279, 280, 281 were read on this motion to/for SUMMARY JUDGMENT(AFTER JOINDER

Upon the foregoing documents, the motion is determined as follows:

This is an action to foreclose on a mortgage on residential real property located at 152 East End Avenue, Unit PH-2, New York, New York. The mortgage Plaintiff seeks to foreclose, dated September 21, 2006, was executed by Defendant Marc Kailman ("Kailman") and given to non-party The National City Bank ("NCB") to secure a loan of $350,000.00 which was memorialized by a note of the same date. The NCB mortgage was recorded on October 18, 2006. Plaintiff claims it acquired the NCB note and mortgage via a series of three assignments. The first assignment from non-party PNC Bank NA, successor by merger to National City Bank, to non-party DBI/ASG Mortgage Holdings ("DBI"), dated September 3, 2010, was recorded on April 11,2017. The second assignment, from DBI to non-party Windward Bora, LLC ("Windward"), dated October 2, 2017, was recorded on November 30, 2017. Then Windward purportedly assigned the mortgage to Plaintiff by document dated May 2, 2019, which was recorded on May 21, 2019.

Kaliman acquired the property by deed from non-party eMercado Holding LLC ("eMercado"), dated June 30, 2006. At transfer of title, the property was encumbered by a mortgage, dated July 22, 2005, which was given by eMercado to secure a loan of $2,770,000.00 it received from non-party Bridge Funding, LLC ("Bridge"). The Bridge mortgage was recorded on December 8, 2005. Bridge supposedly assigned its note and mortgage to American Brokers Conduit ("ABC") by document dated June 29, 2006. On July 7, 2006, Kaliman gave a mortgage to ABC to secure a loan of $230,000.00. On the same day, the eMercado and ABC mortgages were consolidated into a single mortgage securing a total indebtedness of Kailman to ABC of $3,000,000.00. Curiously, the Kailman deed, the assignment from Bridge to ABC and the ABC mortgages were not recorded until December 28, 2006. Thereafter, ABC allegedly assigned the consolidated note and mortgage to Defendant Citibank, N.A. as Trustee for American Home Mortgage Assets Trust 2006-3 Mortgage-Backed Passthrough Certificates, Series 2006-3 ("Citibank") on April 24, 2009. A correction assignment of the consolidated mortgage and underlying mortgages, dated August 5, 2010, was recorded on August 25, 2010.

In 2010, Citibank commenced an action to foreclose on the consolidated mortgage in Supreme Court, New York County (see Citibank N.A. as Trustee for American Home Mortgage assets Trust 2006-3 Mortgage-Backed Pass-Through Certificates, Series 2006-3 v Marc Scott Kailman, et al., Index No. 810107/2010). Neither Plaintiff herein nor any of the prior assignors of the mortgage at issue were joined as defendants in the Citibank action. After a long litigation, a final judgment of foreclosure and sale was entered on September 27, 2017, and an appeal therefrom was denied (see Citibank, N.A. v Kailman, 172 A.D.3d 489 [1^st Dept 2019]). Citibank was the successful bidder ($1,000.00) at the foreclosure sale which left an alleged deficiency of $5,542,283.11.

After the sale, Plaintiff commenced this action to foreclose on its mortgage and alleged in its complaint that Citibank's mortgage is subordinate to its mortgage. Citibank joined issue and, in an amended answer, pled ten affirmative defenses, including standing and statute of limitations. Citibank also pled counterclaims for discharge of Plaintiff s mortgage pursuant to RPAPL §1501 [4] claiming the statute of limitations to foreclose has expired, for equitable subordination and subrogation and for a declaration of priority of the eMercado mortgage as well as for imposition of constructive trusts. In the alternative, Citibank asserted a crossclaim against Kailman for unjust enrichment. Plaintiff served a reply to the counterclaims. Defendant Board of Managers of 52 East End Avenue Condominium answered and pled sixteen affirmative defenses. Defendant Kailman failed to answer and, by order dated March 22, 2022, this Court granted a default judgment against him.

Now, Defendant Citibank moves for summary judgment on its second^[1], fourth^[2] and fifth^[3]counterclaims regarding priority of the subject liens. Plaintiff opposes the motion and cross-moves for summary judgment against Defendant Citibank, to strike Defendants' answers, for a default judgment against the non-appearing Defendants, for an order of reference. Defendant Citibank opposes the crossmotion.

In moving for summary judgment, each party was required to establish prima facie entitlement to judgment as a matter of law (see generally U.S. Bank, N.A., v James, 180 A.D.3d 594 [1^st Dept 2020]; Bank of NY v Knowles, 151 A.D.3d 596 [1^st Dept 2017]; Fortress Credit Corp, v Hudson Yards, LLC, 78 A.D.3d 577 [1^st Dept 2010]). Proof supporting a prima facie case on a motion for summary judgment must be in admissible form (see CPLR §3212[b]; Tri-State Loan Acquisitions III, LLC v Litkowski, 172 A.D.3d 780 [1^st Dept 2019]).

As to the branches of Citibank's motion for summary judgment on its counterclaims for equitable subordination and subrogation, an overarching principle in disputes over the priority of encumbrances, including successive mortgages on the same property, is that such liens are prioritized in the order in which they have attached to the property (see RPL §291; Varon v Annino, 170 A.D.2d 445 [2d Dept 1991]; see also Empire Trust Co. v Park-Lexington Corp., 243 AD 315 [1^st Dept 1934]). However, that precept is modified in New York by its "race-notice" recording act (RPL §290, et seq) which "protects a good faith purchaser for value from a prior unrecorded interest in real property provided, inter alia, that the subsequent purchaser's interest is the first to be duly recorded" (80P2L LLC v United States Bank Trust, N.A., 194 A.D.3d 593, 600 [2d Dept 2021]). "In other words, in order to cut off a prior lien, such as a mortgage, the purchaser must have no knowledge of the outstanding lien and win the race to the recording office" (71-21 Loubet, LLC v Bank of Am., N.A., 208 A.D.3d 736, 742 [2d Dept 2022], citing Goldstein v Gold, 106 A.D.2d 100, 101 [2d Dept 1984]). "The status of good faith purchaser for value cannot be maintained by a purchaser with either notice or knowledge of a prior interest or equity in the property, or one with knowledge of facts that would lead a reasonably prudent purchaser to make inquiries concerning such" (see eg Yen-Te Hsueh Chen v Geranium Dev. Corp., 243 A.D.2d 708, 709 [2d Dept 1997]).

It is also well established that a senior mortgagee can agree with the mortgagor to modify the terms of the underlying note or mortgage, including by execution of a CEMA, as occurred here, and retain its priority (see Bank of Am., N.A. v Schwartz, 199 A.D.3d 975, 978 [2d Dept 2021]). This right is subject to the limitations that any junior lienors are notified and their consent obtained to the change or the modification neither prejudices any junior lienors' rights nor impairs their security (see Shultis v Woodstock Land Dev. Assoc., 188 A.D.2d 234, 236 [3d Dept 1993]). "If the senior lienor enters into such an agreement without obtaining that consent, and the agreement substantially impairs the security interest of the junior lienors or effectively destroys their equity, courts have divested the senior lienor of its priority and elevated the junior lienors to a position of superiority" (Fleet Bank v County of Monroe Indus. Dev. Agency, 224 A.D.2d 964, 965 [4^th Dept 1996]). "Where, however, the actions of the senior lienor prejudice the junior lienors but do not substantially impair their security interest or destroy their equity, the senior lienor will be required to relinquish to the junior lienors its priority with respect to the modified terms only" (id.). These principles are the essence of equitable subordination (see 3 Bergman on New York Mortgage Foreclosures §24.12 [2023]).

The doctrine of equitable subrogation applies "where the funds of a mortgagee are used to satisfy the lien of an existing, known encumbrance when, unbeknown to the mortgagee another lien on the property exists which is senior to his but junior to the one...