Matter of Levinsky, Bankruptcy No. 181-13387-16.

• Decision Date: 22 September 1982
• Docket Number: Bankruptcy No. 181-13387-16.
• Citation: 23 BR 210
• Parties: In the Matter of Harold LEVINSKY, Fannie Levinsky and Albert Levinsky, a partnership t/a 1122 Realty Company, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of New York

23 B.R. 210 (1982)

In the Matter of Harold LEVINSKY, Fannie Levinsky and Albert Levinsky, a partnership t/a 1122 Realty Company, Debtors.

Bankruptcy No. 181-13387-16.

United States Bankruptcy Court, E.D. New York.

September 22, 1982.

Sprague, Dwyer, Aspland & Tobin, P.C., Mineola, N.Y., for Long Island City Sav. & Loan Ass'n, for the motion; Joseph A. Mulé, Mineola, N.Y., of counsel.

Guggenheim & Untermeyer, New York City, for debtor/respondent, in opposition; Ephraim K. Leibowitz, New York City, of counsel.

MANUEL J. PRICE, Bankruptcy Judge.

This is a motion made by the Long Island City Savings and Loan Association (the Bank), pursuant to section 1112(b) of the Bankruptcy Reform Act of 1978 (the Code), 11 U.S.C. § 1112(b), to dismiss the petition for relief filed by 1122 Realty Company (the Debtor), a partnership consisting of Harold and Albert Levinsky, and their mother Fannie Levinsky, as general partners, under Chapter 11 of the Code, 11 U.S.C. § 1101 et seq., on the ground that the debtor filed its petition "in fraud of the bankruptcy court and with the intent to hinder, delay and defraud the debtor's creditors. . . ." (Notice of Motion to Dismiss Chapter 11 Petition, dated November 30, 1981, p. 1) In the alternative, the Bank seeks an order pursuant to section 362(d), 11 U.S.C. § 362(d), granting relief from the stay imposed by the commencement of this bankruptcy proceeding.

The debtor, a partnership organized under the laws of New York, filed its petition for relief with this court on November 4, 1981. The movant is a secured creditor of the debtor which filed its claim in the amount of $614,132.96, representing the balance due and owing on a first mortgage held by the Bank on an apartment house owned by the debtor.

The Bank's motion was opposed by the debtor and, after oral argument, an evidentiary hearing was subsequently held. Thus, to set this matter in proper perspective, a summary of the pertinent facts follows.

The chronology of the events leading up to the present controversy begins nearly 30 years ago. In 1955, Harold and Albert Levinsky, together with their father, Samuel, built a 96-unit, six-story apartment house located at 1122 Ocean Avenue in Brooklyn, New York. They evidently held title in the name of Stratford Realty Corp., which obtained an $800,000 mortgage, secured by the property, from Bankers Trust Company on September 23, 1955. Bankers assigned the mortgage to Massachusetts Mutual Life Insurance Company on July 31, 1956. Massachusetts Mutual assigned it to the Comptroller of the State of New York as Trustee for the New York Retirement System on November 14, 1966. (Affidavit of Harold Levinsky sworn to December 14, 1981, pp. 1 and 2) By 1971, the balance due on the mortgage had been amortized to about $500,000. Sometime during this period, title to the property had been transferred from Stratford to Harold, Albert and Fannie Levinsky (the Levinskys) as tenants in common.

In 1971, the Levinskys decided to refinance the mortgage and to obtain additional financing. In the summer of that year, through Kenneth M. Goldman (Goldman), a mortgage broker, they initiated negotiations with the Bank to refinance the mortgage and to increase it to $800,000. In order to avoid the strictures of the New York State Usury Laws, they formed a corporation called Brolev Realty Corporation (Brolev) and, on August 25, 1971, prepared an application for a loan with the Bank in that amount in the name of the corporation which they had formed solely for that purpose. The application (Respondent's Exhibit A) was signed by Albert Levinsky, on behalf of Brolev, and was sent to the Bank by Goldman on September 2, 1971 with a covering letter and a financial report on the property. (Respondent's Exhibits E and F) In the meantime, the Bank had ordered a credit report on Brolev from an entity known as Excelsior Investigation Services. (Tr. of January 25, 1982, afternoon session, p. 11) The report is dated September 3, 1971 and was marked in evidence as Respondent's Exhibit D.

According to the report, the three designated officers of Brolev were "Harold Levinsky, his brother, Albert and his mother, Fannie." It also contains the following statement:

"This is sic Nominee corp. sic financing will be obtained under this name, which will be sic refinancing of property at 1122 Ocean Ave. . . . "

On September 10, 1971, the Bank informed Goldman, by letter, that it had approved Brolev's loan application in the amount of $800,000. It sets forth the terms and conditions under which it would make the loan. It provided, inter alia, that the mortgage would be for a term of ten years at 8½% interest with payments of $6,667 monthly to cover principal and interest; that the loan would be made to Brolev "whose principal officers are Harold Levinsky, Albert Levinsky and Mother, Fannie Levinsky"; and that a non-refundable commitment fee "of $16,000" would be paid on the issuance of the commitment. (Respondent's Exhibit B). On September 13, 1971, it was accepted by Harold and Albert Levinsky who appended their signatures to the letter.

On November 3, 1971, the mortgage closing took place and various documents were executed by the parties. Although they were apparently entered into "contemporaneously" (Tr., December 17, 1981, p. 3), I will discuss them in their logical order of sequence.

First, a full covenant and warranty deed to the property, dated November 3, 1971, was executed by the Levinskys, without consideration, to Brolev which was recorded in the office of the City Register, Kings County, by the City Title Insurance Company (City Title) on November 9, 1971 at 2:40 p.m. at Reel 518, pages 1863-64. (Movant's Exhibit 4) As noted above, this conveyance from the individuals to the corporation served to protect the Bank from the operation of the state's usury laws. (Tr., January 25, 1982, morning session, p. 25)

Second, Brolev, as obligor, executed a bond, dated November 3, 1971, in the sum of $321,988.95, to the Bank, as obligee, which recited the terms and conditions of repayment. (Movant's Exhibit 1) At the same time, a mortgage, in the same amount between Brolev, as mortgagor, and the Bank, as mortgagee, was executed as security for the bond. As with the deed, the mortgage was recorded in the Office of the City Register, Kings County, by City Title, on November 9, 1971 at 2:40 p.m., at Reel 518, pages 1867-71. (Movant's Exhibit 2)

Third, on the same date, the Comptroller of the State of New York, as trustee of the New York State Retirement System, executed and delivered to the Bank an assignment of the mortgage on the property which had originally been executed by Stratford to Bankers Trust and which had subsequently been assigned to him, in consideration of the payment to him of $478,511.05 which was evidently the balance due thereon. This instrument was recorded in the office of the City Register, Kings County, by City Title on November 9, 1971 at 2:40 p.m. at Reel 518, page 1866. (Exhibit A attached to the affidavit of Harold Levinsky, sworn to December 4, 1981)

Fourth, again, on the same day, the Bank and Brolev entered into a consolidation and extension agreement whereby the two mortgages, the original one between Stratford and Bankers Trust on which there was a balance of $478,011.05, and the new mortgage, executed by Brolev to the Bank in the sum of $321,988.95, were merged and consolidated to constitute one mortgage of $800,000 to be paid in monthly installments of $6,667 which included interest at 8½%. The agreement also provided that the entire principal balance remaining unpaid would be due and payable on November 1, 1981. This agreement too, was recorded in the office of the City Register, Kings County, by City Title on November 9, 1971 at 2:41 p.m. at Reel 518, pages 1872-78. (Movant's Exhibit 3)

The final transaction that occurred on November 3, 1971 was the execution of a bargain and sale deed by Brolev to Fannie, Herbert and Albert Levinsky. (Movant's Exhibit 5) In this instrument, also recorded at the same register's office on Reel 518, pages 1879-80, and by the same title company, the Levinskys, as officers of Brolev, reconveyed title to the property at 1122 Ocean Avenue from their corporation, Brolev, to themselves individually. This document was recorded at 2:41 p.m., or within a minute of the other recorded instruments discussed above.

It should be noted that an apparent discrepancy exists between the mortgage agreements signed on November 3. The original mortgage, in the amount of $321,988.95, contains 28 covenants, together with an additional seven covenants contained in a rider attached to the mortgage, for a total of 35. (Movant's Exhibit 2) The twenty-eighth covenant was excised completely. Of the seven additional convenants, the thirty-first was crossed out. The text of this covenant is as follows:

"That the whole of the principal sum remaining unpaid shall become due forthwith at the option of the mortgagee, its successors or assigns, in the event that the mortgagor shall convey title to the premises described in this mortgage without the written consent of the mortgagee, its successors or assigns, thirty days prior to the proposed transfer, which consent will not be unreasonably withheld provided, however, that a refusal on the part of the mortgagee, its successors or assigns, to consent to such proposed transfer of title shall not be deemed unreasonable if the credit standing of the proposed grantee is not acceptable to the mortgagee, its successors or assigns, and the mortgagor hereby covenants and agrees to pay to the mortgagee, its successors or assigns the reasonable cost of conducting a credit investigation of the proposed grantee." (Id.)

The consolidation and extension agreement containing 18 printed covenants also had an additional eight covenants included as part of a rider. (Movant's Exhibit 3) The same provision numbered in this document as "22" which was crossed...