Sadow v. Poskin Realty Corp.

• Decision Date: 01 July 1970
• Citation: 63 Misc.2d 499,312 N.Y.S.2d 901
• Parties: Bernard J. SADOW, Plaintiff, v. POSKIN REALTY CORP. et al., Defendants.
• Court: New York Supreme Court

Page 901

312 N.Y.S.2d 901

63 Misc.2d 499

Bernard J. SADOW, Plaintiff, v. POSKIN REALTY CORP. et al., Defendants.

Supreme Court, Special Term, Queens County, Part I.

July 1, 1970.

[63 Misc.2d 501] Kornblum & Shlefstein, Brooklyn, for claimant, Louis D. krasner, inc.

Louis P. Rosenberg, Brooklyn, for claimant, Brewster House, Inc.

Marvin Usdin, Massapequa, for tenants.

MEMORANDUM

J. IRWIN SHAPIRO, Justice.

This is a motion in a surplus money proceedings pursuant to section 1362 of the Real Property Actions and Proceedings Law to confirm the report of the referee appointed to ascertain and report the amounts due to those persons who have liens upon the surplus moneys realized upon the sale of the mortgaged premises and to ascertain the priorities of those liens.

The property covered by plaintiff's mortgage was sold on July 12, 1968 and a surplus of $71,911.62 above the amount due under the judgment of foreclosure was realized. On August 7, 1968, the referee's report of sale, dated July 30, 1968, was filed. In his report the referee stated that, subsequent to the sale, he executed and delivered to the purchaser upon the foreclosure sale the usual referee's deed to the property. By order of this court made on February 17, 1969 that report of sale was confirmed and the referee in this surplus money proceedings was appointed to ascertain and report the amounts due to the persons claiming the surplus moneys and the priorities of such claimants. Some ninety-six claims in all have been filed against the surplus moneys. They are (1) eighty-nine by the tenants of the property foreclosed for the loss of the security deposit made by each to Poskin Realty Corp. (Poskin), the owner of the fee, under a lease, some of which also include claims for prepaid rent and similar losses; (2) by Brewster House, Inc. (Brewster) for $74,000, by virtue of an alleged unrecorded mortgage given by Poskin to Brewster (which claim, filed on November 25, 1968, is made by Gabriel Arab, Trustee in Bankruptcy of David Merkin, who allegedly owned 90% Of the outstanding common shares of stock of Brewster); (3) by Anita G. Greenfield, as Executrix of the Estate of Nathan Mittag, deceased (Greenfield), for $23,529.32, by virtue of holding all the issued and outstanding shares of stock of Poskin as collateral security for loans made to David Merkin and Harold B. Posner; (4) by Louis D. Krasner, Inc. (Krasner) for $809.50, by virtue of a judgment against Poskin, docketed in the Office of the County Clerk of Queens County on September 30, 1968; (5) by Consolidated Edison Company (Consolidated) for $736.74 for electric current furnished; (6) by New York Telephone Company for an unspecified amount for telephone service; (7) by the State of New York for $910.72 for unpaid franchise taxes by virtue of a warrant (which has the force and effect of a judgment) docketed in the Office of the Clerk of the County of Kings on November 27, 1968; (8) by Burns Bros. Preferred, Inc. for $5,229.36 by virtue of a judgment docketed in the Office of the Clerk of Queens County on June 4, 1969.

Although a consideration of the validity of the claims to the surplus money and the priorities among them makes it manifest that they raise a number of questions of law, the referee's report is utterly devoid of any citation of applicable authority or discussion of the legal principles involved. It consists merely of dogmatic dispositions of those claims. Thus, the referee has rejected claims of Brewster, Greenfield, some of the tenants and Burns Bros. Preferred, Inc., and has found the claims of the balance of the tenants, Krasner, The State of New York and Consolidated entitled to share in the surplus moneys. Some of these findings are clearly contrary to governing principles of law, and those are rejected as specifically set forth below. (See, CPLR 4403.)

Before discussing the individual claims and the referee's findings relative to each, an analysis of the principles of law applicable to the issues seems desirable. Such an analysis necessarily starts with the basic premise that surplus money realized upon a sale in foreclosure is not a general asset of the owner of the equity of redemption, for it stands 'in the place of the land for all purposes of distribution among persons having vested interests or liens upon the land' (15 Carmody-Wait 2d, New York Practice, § 92.425; also see, Albro v. Blume, 5 App.Div. 309, 310--311, 39 N.Y.S. 215, 216). Put another way, surplus money takes the place of the equity of redemption. (Davison v. MacDonald, 124 Misc. 726, 728, 209 N.Y.S. 145, 147, affd. 216 App.Div. 759, 214 N.Y.S. 825.) It thus follows that only one who had a vested estate or interest in the land sold under foreclosure which was cut off by the foreclosure sale is entitled to share in the surplus money. (15 Carmody-Wait 2d Op. cit., §§ 92:426, 92:427; Albro v. Blume, Supra, 5 App.Div. [63 Misc.2d 503] pp. 310--311, 39 N.Y.S. pp. 215--216; Davison v. MacDonald, Supra, p. 728, 209 N.Y.S. p. 147; Goldberg v. Feltmans of Coney Island, Inc., Sup., 144 N.Y.S.2d 250, 252.) The mechanism by which this is accomplished is by considering the lien existing on the land at the time of the foreclosure to have been transferred to the fund of surplus moneys. (Nutt v. Cuming, 155 N.Y. 309, 313, 49 N.E. 880.)

It follows, as a necessary corollary, that since a contract or general creditor of a mortgagor whose property is foreclosed has no lien on the property at the time of the sale, he has no lien upon the surplus money fund and he cannot claim any portion of the fund. (15 Carmody-Wait 2d, op. cit., § 92:440; Powell v. Harrison, 88 App.Div. 228, 232, 85 N.Y.S. 452, 455; Delafield v. White, 19 Abb.N.C. 104, 110.)

As occasionally occurs, a slight mutation in the law governing which liens are entitled to share in surplus money has developed without an adequate explanation for the variation. Although the cases above cited determined that only liens existing at the time of the sale in foreclosure are entitled to surplus moneys, with priority in each creditor determined by the filing date of his lien or judgment (see e.g., Nutt v. Cuming, Supra, 155 N.Y. at p. 313, 49 N.E. at p. 880; Davison v. MacDonald, Supra, 124 Misc. at p. 728, 209 N.Y.S. at p. 147), it was nevertheless held in Warwick Savings Bank v. Long Island Chap. K.C. Soc. Serv. Inc., 253 App.Div. 276, 1 N.Y.S.2d 877; Anderman v. 1395 E. 52 St. Realty Corp., 60 Misc.2d 437, 440, 303 N.Y.S.2d 474, 477 and Nichols v. Howell, 116 Misc. 340, 190 N.Y.S. 1, that the lien of a judgment docketed After the delivery of the deed of referee in foreclosure but Before the confirmation of the foreclosure sale shares in surplus moneys pro rata with other similar liens without priorities.

Applying these principles of law to the claims made against the surplus money fund, I determine that:

1. The claims of the tenants for security deposits and advance payments of rent, listed as claims 1 to 89 in the referee's report, are disallowed and the referee's finding that these are valid claims against the surplus money is rejected. Apart from the fact that a security deposit under a lease continues to be the property of the tenant and constitutes a trust fund in the hands of the landlord (General Obligations Law, § 7--101), such a security deposit merely gives the depositor a claim against the person with whom the deposit was made. It is not, without more, a claim against or a lien upon the rented property. Absent such a status, the security deposit is not a lien upon surplus moneys and is therefore not entitled to share in the fund.

The tenants contend, however, that their claims to recover the security deposits constitute equitable liens against the property, and that therefore they are entitled to share in the surplus moneys. The difficulty with their contention is that they do not have equitable liens on the property. 'Equitable liens' it has been held, 'arise only upon proof that money was expended for the improvement of the premises by a person in a confidential relationship to the owner * * * or upon proof of an agreement that the premises would be held as security for the obligation' (Anderman v. 1395 E. 52 St. Realty Corp., 60 Misc.2d 437, 439, 303 N.Y.S.2d 474, 477, and cases there cited). '* * * (T)o find an equitable lien it is necessary that an intention to create such a charge clearly appear from the language and the attendant circumstances. Strict proof of such intention is required. * * * 'There should also appear proof that clearly established the intention that the premises would 'be held, given or transferred as security for the obligation' of the contract * * *. " (Penn. Oil P.R. Co. v. Willrock Producing Co., 267 N.Y. 427, 434--435, 196 N.E. 385, 387--388.) The elements to support an equitable lien being absent, the security depositors (the tenants) have no claim to the surplus fund here being distributed.

Hopefully, the tenants may not be remediless. Since, by virtue of statute, title to the security deposits remained in the tenants and constituted trust funds in the hands of the landlord, the withholding of that money in light of the factual situation here may well constitute a wrongful conversion sufficient to support an attachment of the surplus moneys. (See CPLR 6201.)

2. The Brewster claim: The referee's finding that the evidence submitted in support of this claim was insufficient to establish the existence of an unrecorded mortgage is confirmed, and that claim is rejected. The referee, in reaching his conclusion, has reviewed the evidence on this claim in his report, and it is not required that it be reviewed here again. Suffice it to say that no unrecorded mortgage was produced by the claimant nor did any person with personal knowledge of the transaction testify that a mortgage in favor of Brewster was executed by Poskin or that such a mortgage ever existed. To establish title by a lost deed or a lien by a lost...