Waterfall Victoria Master Fund, Ltd. v. Fowkes
| Decision Date | 07 January 2016 |
| Docket Number | Index No. 32725/2010 |
| Citation | 2016 NY Slip Op 30091 (U) |
| Parties | WATERFALL VICTORIA MASTER FUND, LTD., Plaintiff(s) v. WILLIAM J. FOWKES, JR, SUFFOLK COUNTY NATIONAL BANK, UNITED STATES OF AMERICA (EASTERN DISTRICT), BOARD OF MANAGERS OF THE EAST HAMPTON OFFICE PARK CONDOMINIUM, et al., Defendant(s). |
| Court | New York Supreme Court |
PRESENT HON. ANDREW G. TARANTINO, JR. A.J.S.C.
Upon consideration of the order to show cause why an order should not be issued and entered vacating so much of the judgment of foreclosure that granted the plaintiff a deficiency judgment due to newly discovered evidence, or in the alternative, pursuant to this Court's inherent discretionary power, and staying the fair market value hearing pending the determination of this motion (sequence 009), the supporting affirmation, affidavit, and exhibits, the affirmation in opposition on behalf of the plaintiff Waterfall Victoria Master Fund, LTD [" Waterfall Victoria" or "the plaintiff"], and supporting exhibit, and further,
Upon the hearing conducted before this Court commencing on September 24, 2014, and continuing on December 19, 2014, February 20, 2015, and concluding on May 8, 2015, the exhibits introduced into evidence at the hearing, and the parties' respective post-hearing briefs, it is now
ORDERED that the defendant's motion to vacate so much of the judgment of foreclosure and sale that granted a deficiency judgment in the plaintiff's favor and against the defendant William J. Fowkes, Jr. ["the borrower" or "the defendant"], entered on December 26, 2012, and the plaintiff's application for a determination as to the fair market value of the subject premises as of the foreclosure sale date upon completion of the fair market value hearing, are considered together for purposes of this determination; and it is further
ORDERED that so much of the defendant's motion that seeks to vacate so much of the judgment of foreclosure and sale granting a deficiency judgment due to newly discovered evidence is denied; and it is further
ORDERED that so much of the defendant's motion that seeks to vacate so much of the judgment of foreclosure and sale granting a deficiency judgment pursuant to this Court's inherent discretionary power is denied; and it is further ORDERED that so much of the defendant's motion that seeks a stay of the fair market value hearing is denied as moot, the application having been denied prior to the commencement of the fair market value hearing; and it is further
ORDERED that upon the evidence presented at the hearing the Court finds that the fair market value of the subject premises as of the date of the foreclosure sale is $500,000.00.
The parties' familiarity with the underlying facts for the most part set forth in the Court's prior order dated June 6, 2014, confirming the referee's report of sale, is assumed and will not be repeated here except to inform the instant decision. Briefly, this action involves the enforcement of a note and the foreclosure of a mortgage executed and delivered by the defendant on May 31, 2006, encumbering commercial property located at 300 Pantigo Place, East Hampton, New York ["the subject premises"]. The defendant defaulted in his obligations under the loan by failing to make the payment due on April 1, 2010. Notably, notwithstanding that the defendant was represented by counsel, and received notice of the plaintiff's motion for ajudgment of foreclosure and sale and a deficiency, the defendant failed to oppose the plaintiff's motion for that relief. Counsel for the defendant maintains that the defendant does not seek to vacate the judgment of foreclosure and sale or the referee's deed transferring title to the subject premises.
Rather, the defendant's request for relief is limited to so much of the foreclosure judgment that granted a deficiency judgment in favor of Waterfall Victoria, a self-described hedge fund that purchased a poo! of distressed notes and mortgages from the original lender's assignee, including the loan made to the defendant. The plaintiff now seeks a deficiency judgment in the amount of the total deficiency as reported by the referee, less the fair market value of the subject premises on the date of the foreclosure sale in May of 2013, pursuant to RPAPL § 1321.
Before the Court are two main issues. The first issue is the defendant's request for relief in motion sequence 009: whether there is a basis for the Court to vacate only so much of the judgment of foreclosure and sale in the amount of $585,357.46, that granted a deficiency judgment in the plaintiff's favor. Part of that analysis raises a question that the Court and the parties believe is one of first impression- whether a plaintiff, a hedge fund, that is neither a traditional lender nor originator of mortgage loans, may avail itself of RPAPL §1371 allowing for a deficiency judgment.
If the answer to that novel question is answered in the affirmative, the second issue before the Court is, based upon the evidence presented by both parties at the fair market value hearing conducted over the course of four days and concluding on May 8, 2015, to what extent the amount of indebtedness on the mortgage as calculated by the referee exceeded the fair market value of the property. The plaintiff contends that the fair market value of the property was the price for which it sold the subject property to a third party on or about October 22, 2013, the amount of $362,500.00. The defendant contends that according to his appraiser, the fair market value of the subject premises was actually $500,000.00, thereby reducing the amount of any deficiency owed to the plaintiff by the defendant.
With respect to the motion to vacate so much of the judgment of foreclosure that granted a deficiency judgment against the defendant, the latter makes two arguments. First, the defendant argues that newly discovered evidence provides a justification for vacating so much of the judgment of foreclosure and sale that granted a deficiency to the plaintiff. The defendant purchased the property in May, 2006, for the amount of $750,000.00. The newly discovered evidence relied upon by the defendant consists of assertions that before the foreclosure sale, the defendant had been negotiating with Waterfall Victoria to purchase the subject property and the plaintiff's agent, Peter Marsh, allegedly told the defendant that the plaintiff believed the property was worth $700,000.00, an amount in excess of the amount of indebtedness reported by the referee. The defendant also contends that in negotiating for the purchase of the subject premises the defendant actually offered the plaintiff more than what the plaintiff ultimately received from the third party purchaser. The defendant asserts that it is unjust to allow the deficiency judgment to stand when the specific facts giving rise to the existence of a deficiency judgment did not present themselves until after the foreclosure judgment was signed.
Further, the defendant asserts that when the judgment of foreclosure was entered in late 2012, the original lender's assignee, Capital One, had already sold the subject mortgage and note to the plaintiff hedge fund who had been substituted as a party plaintiff in 2011. When Waterfall Victoria purchased the pool of notes that included the defendant's note, Waterfall Victoria was aware that the note was distressed and, according to the defendant, should not be permitted to profit through the vehicle of a deficiency judgment.
An application to review a judgment based upon newly discovered evidence must be based upon newly discovered evidence which, although in existence at the time of the original motion, was not then known to the defendant, together with a reasonable justification for not previously presenting such evidence (State of New York v Williams, 73 A.D.3d 1401, 901 N.Y.S.2d 751 [3d Dept. 2010]). Only evidence which was in existence but undiscoverable with due diligence at the time of judgment may be characterized as newly discovered evidence (Commercial Structures v City of Syracuse, 97 A.D.2d 965, 468 N.Y.S.2d 957 [4th Dept. 1983]). The "newly discovered evidence" asserted by the defendant on this motion clearly does not fit within the parameters of the established case law precedent for vacating a judgment, nor does the case relied upon by the defendant, Griffo v Swartz, support the defendant's position (Griffo v Swartz, 61 Misc.2d 504, 306 N.Y.S.2d 64 [Monroe County Court 1969]).
In Griffo, a default judgment of foreclosure and sale provided, inter alia, that the plaintiff recover of the defendant the whole deficiency or so much thereof as the court determined to be just and equitable of the residue of the mortgage debt remaining unsatisfied after the sale. As in the case at bar, the defendant defaulted in both the action and on the application for a judgment of foreclosure and sale which included a request for a deficiency judgment. No exceptions were ever filed to the Referee's report. The defendant in Griffo opposed the application for a deficiency judgment pursuant to §1371 of the REAL PROPERTY ACTIONS AND PROCEEDINGS LAW on the ground that the long delay between the entry of the judgment and the actual foreclosure sale constituted latches ( Griffo, 61 Misc.2d at 505-06). According to the defendant, had there been no delay in conducting the foreclosure sale, there would have been no deficiency (Id. at 508).
The Griffo Court rejected the defendant's argument on the basis that a defense to the deficiency could have been raised in pleadings, in opposition to the application for the judgment of foreclosure and sale, or in opposition to the referee's report of sale. The court quoted the following rule:
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