United States v. Lawrence Towers, Inc.

• Decision Date: 07 December 1964
• Docket Number: No. 64-C-141.,64-C-141.
• Citation: 236 F. Supp. 208
• Parties: UNITED STATES of America, Plaintiff, v. LAWRENCE TOWERS, INC., et al., Defendants.
• Court: U.S. District Court — Eastern District of New York

236 F. Supp. 208

UNITED STATES of America, Plaintiff, v. LAWRENCE TOWERS, INC., et al., Defendants.

No. 64-C-141.

United States District Court E. D. New York.

December 7, 1964.

Joseph P. Hoey, U. S. Atty., Eastern District of New York, for plaintiff; Thomas J. Lilly, Asst. U. S. Atty., of counsel.

M. Carl Levine, Morgulas & Foreman, New York City, for defendants Atlas Tile & Marble Works, Inc., and Parkchester Glass Corp.; Edwin Efros, New York City, of counsel.

Fink, Weinberger & Levin, New York City, for defendants Capitol Mail Chute Corp. and Martin Katz Corp.; Martin S. Saiman, New York City, of counsel.

BARTELS, District Judge.

This is a motion for summary judgment pursuant to Rule 56, Fed.Rules Civ. Proc., 28 U.S.C.A., as against Parkchester Glass Corp. (Parkchester), Atlas Tile & Marble Works, Inc. (Atlas), Capitol Mail Chute Corp. (Capitol) and Martin Katz Corp. (Katz), mechanics' lien holders named as defendants in an action to foreclose a mortgage owned and held by the Federal Housing Commissioner (Commissioner). The moving papers, including the affidavits of the General Counsel for the Federal Housing Administration and Vice-President and Secretary of Lincoln Savings Bank (Bank), establish the following facts:

I

On August 9, 1962, Lawrence Towers, Inc. (Towers) executed and delivered to the Bank a note and mortgage in the sum of $2,719,800 and in conjunction therewith both parties executed on the same date a building and loan agreement. The mortgage was recorded in the office of the City Register of the City of New York, Kings County, on August 13, 1962, and the loan agreement was filed in the office of the County Clerk of said County on the same date. The loan was insured by the Commissioner pursuant to the National Housing Act (Act) and it was disbursed by the Bank between August 10, 1962 and June 28, 1963, as indicated by a transcript of account attached to the moving papers. Towers failed to make the initial installment payment, as a result of which the Bank exercised its option under its insurance agreement and assigned the note and mortgage to the Commissioner. Accordingly, an action to foreclose the mortgage was instituted on February 7, 1964.

Capitol and Katz answered by denying knowledge or information sufficient to form a belief as to the material allegations of the complaint and denying that their liens were subordinate to the lien of the mortgage. No factual issues were thus raised. According to their brief, they rely on an alleged violation of that provision of the Act, 12 U.S.C.A. § 1713, which requires that the principal of any mortgage eligible for insurance must not exceed 90% of the estimated value of the property.

Parkchester and Atlas answered by denying the validity of the note and mortgage and any knowledge or information sufficient to form a belief as to the other allegations. No factual issues were thereby presented. These defendants also set up three separate and distinct defenses, claiming, among other things, that the Commissioner and the Bank failed to comply with the terms of the building and loan agreement and that they relied upon such compliance in furnishing labor and materials to Towers and that consequently their liens were superior to the lien of the mortgage. They abandoned two of their claims and according to their brief, they now predicate their defense upon a claim that the Commissioner failed to comply with the building and loan agreement, the provisions of the Act and the regulations of the Federal Housing Administration (FHA) in that (1) when the loan was made the mortgagor did not have funds sufficient to complete the construction of the project as required by Section 207.19(c) of the FHA regulations, (2) upon completion of the project and prior to the final payment the mortgagor was not required to submit a certificate of payment of all costs for labor and material and sub-contract work in violation of Section 207.27 of the FHA regulations, (3) the mortgage was issued in excess of 90% of the estimated value of the property in violation of 12 U.S.C.A. § 1713, and (4) the attempt of the Government to place the estimated value of the property at the replacement value of $3,024,536.40 results in a violation of Section 207.19(c) (5) (i) of the FHA regulations which requires the project bond to be not less than 10% of such estimated value.

While the Government denies any failure to comply with all the applicable statutes and regulations in insuring the mortgage loan, it is willing, for the purpose of resolving this motion, to admit that there were statutory violations as asserted by the defendants, upon the theory that such violations do not present a material issue in this foreclosure action. Under the circumstances, the issue is whether the violations claimed by the defendants are relevant to the right of the Government to foreclose and this is a legal issue and not a factual question.

II

From the record it becomes clear as a matter of fact that the Bank advanced the money to the mortgagor, that the note and mortgage were executed as security therefor in conjunction with a building and loan agreement, that both were recorded before any of the defendants' liens attached to the property, that the mortgage was insured by the Commissioner, that the...