Weiss v. Phillips

• Decision Date: 21 November 2017
• Citation: 65 N.Y.S.3d 147,157 A.D.3d 1
• Parties: Peter WEISS, Plaintiff–Respondent, v. Edward PHILLIPS, Defendant–Appellant, Austin Smith, et al., Defendants.
• Court: New York Supreme Court — Appellate Division

157 A.D.3d 1

65 N.Y.S.3d 147

Peter WEISS, Plaintiff–Respondent,

v. Edward PHILLIPS, Defendant–Appellant,Austin Smith, et al., Defendants.

Supreme Court, Appellate Division, First Department, New York.

Nov. 21, 2017.

Shaw & Binder, P.C., New York (Stuart F. Shaw and Daniel S. LoPresti of counsel), for appellant.

Dorf & Nelson LLP, Rye (Jonathan B. Nelson, Laura–Michelle Horgan and Jami L. Mevorah of counsel), and Cox Padmore Skolnik & Shakarchy LLP, New York (Solomon J. Borg of counsel), for respondent.

ROLANDO T. ACOSTA, P.J., DIANNE T. RENWICK, ANGELA M. MAZZARELLI, JUDITH J. GISCHE, ELLEN GESMER, JJ.

RENWICK, J.

In this case, plaintiff Peter Weiss seeks, among other things, a foreclosure and sale based on a Mortgage and Note Extension and Modification Agreement (CEMA)¹ executed by defendant Edward Phillips. Plaintiff lent $500,000 to borrowers who purported to own the real estate property they sought to mortgage.² The borrowers signed a note, in which they promised to pay the loan, and a mortgage, in which they gave the plaintiff/lender a security interest in the property they purported to own. The borrowers, however, acquired the property by fraudulent means. After the rightful owner, Phillips, reacquired the property, he executed the CEMA with the individual lender, Weiss. Pursuant to the CEMA, Phillips acknowledged Weiss's rights under the note and mortgage; and, Weiss agreed to forbear from foreclosing on the subject property for a year, presumably to permit Phillips to obtain refinancing.

We find that the motion court properly granted Weiss summary judgment. Unlike the dissent, under the circumstances of this case, we find that Weiss's interest in the property as a mortgagee was not rendered null and void because his borrowers, the mortgagors, had acquired the property by fraudulent means. In addition, we find that Weiss met his burden for summary judgment, on his claim for foreclosure and sale, by submitting the Mortgage and CEMA, along with undisputed evidence establishing both the existence of the note, which obviated the need to submit the note as proof that Weiss had the right to foreclose, and the nonpayment.

Procedural and Factual History

In the 1990's, Phillips bought two distressed properties in Harlem (8 West 130th Street and 10 West 130th Street). On September 15, 1999, Phillips deeded 10 West 130th Street to a relative, Arque McCarthy, for no consideration. Phillips transferred the property to McCarthy so that McCarthy could obtain a mortgage for him to make repairs and pay accumulated debt. McCarthy held legal title with the understanding that Phillips would pay the loan and McCarthy would transfer the deed back to Phillips at a later date.

Four and one-half years later, in April 2004, Phillips's lawyer told him that he was sending his paralegal, Austin Smith, to obtain McCarthy's signature on a deed to transfer the property back to Phillips. Smith provided McCarthy with a blank deed. Rather than filling in Phillips's name on the deed as the transferee, Smith inserted his mother's name (Jeanetta Welch–Ford) as the grantee for no consideration. Then, on December 8, 2005, 18 months after the fraudulent transfer, Welch–Ford unlawfully deeded the property to herself and Smith.

Also on or about December 8, 2005, Weiss lent $500,000 to Welch–Ford and Smith pursuant to their signing a note and mortgage in favor of Weiss, encumbering the property for the subject loan amount.³ Welch–Ford and Smith breached the terms and conditions of the note by failing to make the required payments due on the note. Subsequently, when Phillips learned of the fraudulent transfer, he sued McCarthy to recover his property. Phillips later abandoned his lawsuit against McCarthy when she agreed to sue Welch–Ford and Smith to recover the property from them. Eventually, the lawsuit settled when Welch–Ford and Smith agreed to transfer title to the property back to Phillips. This deed transfer took place on February 23, 2009. At the time, the original McCarthy loan (made by McCarthy on behalf of and at the request of Phillips) reportedly remained unpaid; the principal and accumulated interest totaled $450,000.

Once Phillips learned of Weiss's intention to foreclose on Phillips's reclaimed property, Phillips executed the CEMA with Weiss, on April 8, 2009, extending and modifying the terms of Weiss's mortgage.⁴ The CEMA stated that Smith and Welch–Ford were conveying the property to Phillips, and that Weiss agreed to extend and modify the terms of the note and mortgage that were executed by Smith and Welch–Ford. Paragraph 2(a) of the CEMA stated that Phillips consented to the conveyance of the property and understood that he was not personally assuming payment of the note executed by Smith and Welch–Ford. Paragraph 4 stated that Phillips warranted that the principal outstanding balance under the note was $500,000; that Smith and Welch–Ford had no deductions, counterclaims, defenses, or offsets to the note or mortgage; and that the note and mortgage remained in full force and effect and were fully enforceable in accord with their terms and the modification in the CEMA.

In paragraph 5, Phillips "ratifie[d] and reaffirm[ed]" that the terms and revisions of the note and mortgage remained in effect, and were true and correct, without modification, "except as necessary to implement" the CEMA. Paragraph 6 provided that Phillips warranted that the CEMA was a "valid, enforceable and binding obligation of [his]." In paragraph 7, Phillips "represent[ed] and warrant[ed] that there [we]re no deductions, counterclaims, defenses, or offsets of any nature whatsoever to any of [his] obligations under the Note or Mortgage, as ... modified [by the CEMA]."

Paragraph 15 stated that the note and mortgage as modified by the CEMA remained in full force and effect. Paragraph 16 provided that "[n]o extension, change, modification or amendment of any kind" of the CEMA, note, or mortgage would be effective unless it was in writing and signed by Weiss and Phillips. Paragraph 19 provided that all prior agreements between the parties with respect to the subject matter of the CEMA were merged into the CEMA.

Finally, Weiss agreed to forbear from foreclosing on the property for a year to permit Phillips to obtain refinancing. Specifically, paragraph 3 of the CEMA extended the due date for a year until April 1, 2010; it also capped the interest due at 9.6%, and required Phillips to make interest payments accruing each month in the amount of $4,000. Phillips paid $4,000 of accrued interest toward Weiss's mortgage on the first of each month for four consecutive months following the CEMA's execution, but he ceased doing so in September 2009.

Upon the expiration of the CEMA's extension period in April 2010, Weiss commenced this action against Phillips, Welch–Ford, and Smith. Subsequently, Weiss moved for summary judgment on the first cause of action of the complaint against Phillips. Along with his motions papers, Weiss provided a copy of the CEMA and the mortgage contract, but he did not provide a copy of the promissory note. Phillips both opposed the motion and cross-moved for summary judgment dismissing the complaint, arguing that the mortgage was unenforceable as it was based on a void deed. The motion court granted Weiss's motion for summary judgment on the first cause of action of the complaint for foreclosure on the mortgage and denied Phillips's cross motion for summary judgment dismissing the complaint. The motion court found that Weiss satisfied his prima facie burden of demonstrating his entitlement to judgment as a matter of law, and that Phillips offered insufficient evidence to raise a triable issue of fact.

Discussion

As a threshold consideration, given Phillips's execution of the CEMA and other unique facts of this case, we reject the dissent's argument that the failure to produce the note prevents plaintiff from establishing a prima facie case for foreclosure.

The basis of a foreclosure is that an actionable breach of the mortgage has occurred entitling the plaintiff/mortgagee to sell the property to satisfy the debt the mortgage secured (see e.g. Fortress Credit Corp. v. Hudson Yards, LLC, 78 A.D.3d 577, 912 N.Y.S.2d 41 [1st Dept.2010] ; Red Tulip, LLC v. Neiva, 44 A.D.3d 204, 209, 842 N.Y.S.2d 1 [1st Dept. 2007], lv. dismissed 10 N.Y.3d 741, 853 N.Y.S.2d 283, 882 N.E.2d 896 [2008] ). The complaint must allege statements that will ultimately establish a judgment of foreclosure and sale (id.). Accordingly, a motion for summary judgment requires the plaintiff to prove the allegations of the complaint which, absent a viable defense or efficacious counterclaim, would entitle a plaintiff to the relief requested (see Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 508 N.Y.S.2d 923, 501 N.E.2d 572 [1986] ; Winegrad v. New York Univ. Med. Ctr., 64 N.Y.2d 851, 487 N.Y.S.2d 316, 476 N.E.2d 642 [1985] ).

In this case, the complaint seeks a foreclosure and sale based on the CEMA and the mortgage encumbering the subject property. As indicated, under the CEMA, as the "new owner," Phillips ratified and affirmed all the terms of the note and mortgage and warranted that there were no deductions, counterclaims, defenses, and/or setoffs to any obligations under the note. When the CEMA's extension period expired, without complete payment, Weiss commenced this action. Under these circumstances, Weiss established the allegations of the complaint by submitting the CEMA and the mortgage contract, along with unchallenged deposition testimony of the existence of the note and nonpayment.

Unlike the dissent, we do not view this action as a typical mortgage foreclosure action. In a typical mortgage foreclosure transaction, a prima facie case is based on production of the unpaid note and mortgage, which establishes that the plaintiff is entitled to foreclose on the unpaid note. A prima facie case is established here, however, by plaintiff's submission of the mortgage and the CEMA, in which...