Monroe Sav. Bank, FSB v. Catalano

• Decision Date: 02 April 1990
• Docket Number: No. CIV-89-0203T.,CIV-89-0203T.
• Citation: 733 F. Supp. 595
• Parties: MONROE SAVINGS BANK, FSB, Plaintiff, v. Vincent CATALANO, Lena M. Catalano, and United States of America, Defendants.
• Court: U.S. District Court — Western District of New York

733 F. Supp. 595

MONROE SAVINGS BANK, FSB, Plaintiff, v. Vincent CATALANO, Lena M. Catalano, and United States of America, Defendants.

No. CIV-89-0203T.

United States District Court, W.D. New York.

April 2, 1990.

Harter, Secrest & Emery (Brian V. McAvoy, of counsel), Rochester, N.Y., for plaintiff.

Dibble, Wright & Lloyd, P.C. (Frank H. Lloyd, Jr., of counsel), Rochester, N.Y., for Vincent and Lena M. Catalano.

U.S. Atty's. Office (Charles M. Pilato, Asst. U.S. Atty., of counsel), Rochester, N.Y., for U.S.

DECISION AND ORDER

TELESCA, Chief Judge.

Monroe Savings Bank, FSB ("Monroe") commenced this action to foreclose a mortgage it holds against a single family residence located at 789 Ayrault Road in Perinton, New York (the "Property"). The property is owned by defendants Vincent and Lena M. Catalano (the "Catalanos"). The United States has seized the property and has brought a forfeiture proceeding, which is currently pending before this Court. See United States v. The Premises and Real Property at 789 Ayrault Rd., No. 88-8747. Monroe now moves for summary judgment seeking a judgment of foreclosure. For the reasons discussed below, the plaintiff's motion for summary judgment is granted.

On July 5, 1984, Monroe financed the Catalanos' purchase of the property in exchange for a $65,000 mortgage. In the summer of 1988, the United States seized the property and subsequently brought an action in this Court to forfeit the property pursuant to 21 U.S.C. § 881(a)(7). Upon being served with a summons and complaint in the forfeiture action, Monroe filed a claim with the United States based upon its mortgage lien against the property. Thereafter, the United States and Monroe entered into a written stipulation which provides in pertinent part:

2. United States of America recognizes Monroe's mortgage lien against the subject premises as superior to all and any claims of the United States of America.

3. Monroe ... elects to permit said forfeiture action to proceed to judgment with the understanding that should the United States of America prevail in this forfeiture, the Catalanos' property is to be disposed of by the United States Marshal's Service ... To the extent that said sale does not result in a sum sufficient to pay any and all of ... Monroe's mortgage lien, the lien shall continue to remain a first and superior lien in all respects to the claims of the United States of America ...

6. Upon full payment of said mortgage as provided in paragraph 3 above, ... Monroe acknowledges that all their right, title and interest in ... the Catalanos' property is thereby extinguished ... It is further agreed that if an order of forfeiture is granted in this action, it will expressly provide for full payment of ... Monroe's mortgage as set forth above.

Stipulation and Order of Nov. 4, 1988 (No. 89-203T).

Soon after the United States commenced this forfeiture proceeding, the Catalanos defaulted on their mortgage. Since no attempt was made to cure the default, and since the United States had asserted a claim against the property, Monroe commenced this foreclosure action pursuant to 28 U.S.C. § 2409a. Although the defendants do not contest the validity of Monroe's mortgage, they do dispute the bank's right to foreclose. The Government additionally claims that this Court lacks jurisdiction to entertain this motion with respect to the Government's interest. Given its threshold nature, I will consider the Government's jurisdictional objection first.

DISCUSSION

Jurisdiction

Sections 1346(f) and 2409a of Title 28 grant the district courts original jurisdiction over civil actions to quiet title to real property in which the United States claims an interest. Taken together, these provisions "cast a wide jurisdictional net" and extend to a "variety of suits besides the typical quiet title action," United States v. Bedford Associates, 657 F.2d 1300, 1316 (2nd Cir.1981), cert. denied, 456 U.S. 914, 102 S.Ct. 1767, 72 L.Ed.2d 173 (1982), including those involving simultaneous forfeiture and foreclosure proceedings, United States v. Real Property in Sevier Cty., Tenn., 703 F.Supp. 1306 (E.D. Tenn.1988); United States v. Real Property Titled in the Name of Shashin, Ltd., 680 F.Supp. 332 (D.Haw.1987) (hereinafter "Shashin"). Indeed, as the Second Circuit held in Bedford Associates, § 2409a (and § 1346(f)) confer jurisdiction over property interests asserted by the United States whenever, as is the case here, that interest is "adverse" to that of the plaintiff. 657 F.2d at 1316. Accordingly, the Government's interest is properly the subject of this court's jurisdiction.

Summary Judgment with Respect to the Catalanos

By its own terms, Monroe's mortgage provides that it may foreclose on the property in the event of default. While the Catalanos admit that they have failed to make any payments since August 1988, they claim that they were relieved of their mortgage obligation when the Government wrongfully seized the property.¹ I find such a defense to be without merit.

It is well settled in New York that a mortgagee cannot be denied relief provided for under a mortgage because of conditions or circumstances not attributable to the mortgagee. "A mortgagor is bound by the terms of his contract as made and cannot be relieved from his default, if one exists, in the absence of waiver by the mortgagee, or estoppel, or bad faith, broad, oppressive or unconscionable conduct on the latter's part." Nassau Trust Co. v. Montrose Concrete Products Corp., 56 N.Y.2d 175, 183, 451 N.Y.S.2d 663, 436 N.E.2d 1265 (1982) (emphasis added) (quoting Ferlazzo v. Riley, 278 N.Y. 289, 292, 16 N.E.2d 286 (1938)); see also Gratton v. Dido Realty Co., Inc., 89 Misc.2d 401, 403, 391 N.Y.S.2d 954 (1977), aff'd, 63 A.D.2d 959, 405 N.Y.S.2d 1001 (1978) (in the absence of an estoppel or oppressive and unconscionable acts by plaintiff, the Court is duty bound to enforce the mortgage as written by the parties). Although these conditions will relieve the mortgagor from default, each requires some provisional language in the mortgage or some misconduct by the mortgagee to bar foreclosure. Absent such allegations here, the fact the United States has seized the property does not relieve the Catalanos of their mortgage obligation. Monroe is thus entitled to summary judgment against the Catalanos.

Summary Judgment with Respect to the Government

The Government argues initially that Monroe cannot force a mortgage foreclosure on real property which is subject to a pending forfeiture proceeding by the government. I disagree. Although the Government's current possession of the property certainly accords it some rights, its interest in the property is necessarily delimited by, and subordinate to, Monroe's bona fide interests which existed prior to the prohibited conduct.

The Government's interest in the property is predicated upon 21 U.S.C. § 881(a)(7), which subjects to forfeiture all real property used in the commission of a controlled substance felony. That provision provides, however, that "no property shall be forfeited under this paragraph ... to the extent of an innocent owner's interest." This mitigating language, in effect, codifies the long-standing principle first established in United States v. Stowell, 133 U.S. 1, 20, 10 S.Ct. 244, 248, 33 L.Ed. 555 (1890), that forfeiture entitles the Government "to no greater interest in the property than that which belonged to the wrongdoer whose actions justified the seizure." In re Metmor Financial, Inc., 819 F.2d 446, 448-49 (4th Cir.1987). The purpose of the "innocent owner" provision is simply to ensure that "bona fide parties" holding an interest in property have an opportunity to show that illegal drug activity was committed without their knowledge or consent. Id. at 449 (citing testimony of Rep. Rogers and Sen. Nunn, 124 Cong.Rec. 36,946, 23,057 (1978))²; Shashin, 680 F.Supp. at 334. Once a bona fide party satisfies its burden of proof, the Government takes subject to both the nature and extent of that party's rights in the property.³Metmor, 819 F.2d at 449. Any other result would amount to a taking without due process. Id.; United States v. Real Property At 4492 South Livonia Rd., 889 F.2d 1258, 1264-65 (2nd Cir.1989).

The Government does not dispute that Monroe had a pre-existing mortgage on the property, and that the bank neither consented to nor knew of any illegal activity associated with the property. Accordingly, Monroe is entitled to a judgment establishing its rights as an innocent mortgagee. By the very nature and terms of its mortgage agreement, those rights necessarily include the right to foreclose on the property if the debt is unpaid. Callaghan, Mortgages and Mort. Foreclosure N.Y. § 1:2, at 2 (rev. ed. & Supp.1989) ("mortgage" necessarily imports right of foreclosure); but see United States v. Parcel of Real Property Known as 708-710 W. 9th St., 715 F.Supp. 1323, 1327 (W.D.Pa.1989) (foreclosure provisions only remedial and therefore not part of mortgagee's property interest). To hold otherwise would effectively transform Monroe's mortgage into an unsecured and interest-free loan and thereby eviscerate its interest in the property. As discussed above, such a result would amount to an impermissible "taking" under the Fifth Amendment. Metmor, 819 F.2d at 449; Parcel of Real Property Known as 708-710 W. 9th St., 715 F.Supp. at 1326. Accordingly, Monroe is entitled to exercise its right of foreclosure subject only to certain restrictions imposed by § 2409a(b).

Under § 2409a(b), the Government possesses a circumscribed right of election whenever, as here, it is presently in the possession of property. Section 2409a(b) provides in pertinent part:

the United States ... may not be disturbed in possession or control of any real property involved in any action under this section pending a final judgment or decree, the conclusion of any appeal therefrom, and sixty days; and if the final determination shall be

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