GANFER & SHORE, LLP
DISPUTED DEFAULT INTEREST ON MORTAGE AWARDED
TO BORROWER; COURT FINDS TAX PAYMENT WAS TIMELY,
AND ALTERNATIVELY, ANY DEFAULT WAS INCONSEQUENTIAL
Property owners often dispute the amount that a lender claims is owed to pay off a mortgage. For example, the lender may be claiming default interest and attorneys' fees, while the borrower denies that any default occurred. We previously reported on the decision in Lispenard, LLC v. Kenmare Square LLC, Index No. 850032/2010 (Sup. Ct. N.Y. Co. Apr. 21, 2011), in which the court permitted the borrower to refinance its property while placing the disputed amount into escrow until the dispute was resolved. The court's decision defeated an attempt by the lender to hold the property hostage in a foreclosure action and refuse to deliver an assignment or satisfaction of mortgage, thereby compelling the borrower to pay money that the court might ultimately determine is not owed. (For discussion of this case, please see the June 2011 issue of this Client Advisory.) The case was settled thereafter, so the issue of who was entitled to the disputed interest was not resolved.
A similar issue was raised, however, in a related case that was not settled. In Lispenard, LLC v. Lispenard Group LLC, Index No. 850001/2011 (Sup. Ct. N.Y. Co. Apr. 25, 2012), the court rendered its decision, determining that the lender was not, in fact, entitled to interest at the default rate and directing that the escrow fund be released back to the borrower.
The plaintiff in this case had purchased the mortgage on the defendant's property just a few months before the mortgage's scheduled maturity date. Plaintiff almost immediately declared a default based on alleged arrears in defendant's payments of New York City real estate taxes on the property. The borrower countered that no default had occurred because it had mailed a check in payment of the taxes to the City on time, although the payment had not been recorded by the City by the deadline. In the alternative, the borrower asserted that any alleged default was de minimis and excusable, particularly because the alleged default related to a collateral obligation of the mortgage. Moreover, it was undisputed that the borrower had attempted on multiple occasions to confirm the payment with the purchaser of the loan, which had refused to acknowledge the borrower's attempts to resolve the issue and instead aggressively sought foreclosure.
After the disputed amount of default interest was placed in escrow and the property was successfully refinanced, the parties filed competing motions for summary judgment setting forth arguments why each side felt it was entitled to the escrowed default interest. The court sided with the borrower, finding that the record was uncontroverted that the tax payment had been mailed on time. Moreover, the court found, even if a late real estate tax payment to the City were deemed a default, the circumstances of such default would not warrant the imposition of default interest. In the court's words, "the equitable remedy of foreclosure may be denied in the case of an inadvertent, inconsequential default in order to prevent unconscionably overreaching conduct by a mortgagee."
In addition, the court refused to find that the borrower had defaulted on the mortgage simply because the maturity date had passed after the foreclosure complaint was filed. The court observed that the plaintiff, the purchaser of the loan, had declined to amend its complaint to seek relief on this basis. Therefore, this alleged default was not properly before the court.
Ganfer & Shore, LLP represented the defendant borrowers in both this and the related case. Copies of the decisions are available on our website, www.ganfershore.com.
PROPRIETARY LEASE DID NOT AUTHORIZE COOPERATIVE TO
CHARGE FOR SECURITY COSTS CAUSED BY UNAUTHORIZED OCCUPANT
The tenant-shareholder of a cooperative apartment added two additional persons as purported joint owners of her shares, with the understanding that the original tenant-shareholder's son would be the occupant of the apartment. After the original tenant-shareholder died, the cooperative served a notice to cure, asserting that this arrangement breached the proprietary lease, because the surviving tenant-shareholders were not occupying the apartment and were allowing an unauthorized person to do so. The cooperative then brought and prevailed in a holdover proceeding in landlord-tenant court. It was awarded possession of the apartment, which was sold, and its attorneys' fees.
The cooperative then asked the court to award it, from the proceeds of the sale, costs that it allegedly sustained for security services necessitated by the unauthorized occupant's presence. This request, however, was rejected, both by the trial court and on appeal. Both courts reviewed the terms of the proprietary lease for the apartment and found no provision in the lease that provided any basis for the claim for security services. Himmelberger v. 40-50 Brighton First Road Apartments Corp., 2012 WL 1194330, 2012 N.Y. Slip Op. 2636 (App. Div. 2d Dep't Apr. 10, 2012).
CONDOMINIUM HAD PROPER BASIS FOR DENYING CONSENT TO LEASE OF
COMMERCIAL SPACE BASED ON OBJECTION TO ON-PREMISES COOKING
A condominium acted legitimately in refusing to approve a lease of commercial space in the building on the basis that the tenant would have violated a "no cooking" provision contained in the By-Laws of the condominium, according to the decision in Big Four LLC v. Bond Street Lofts Condominium, 941 N.Y.S.2d 567, 2012 N.Y. Slip Op. 2421 (App. Div. 1st Dep't Apr. 3, 2012).
In this case, the owner of the commercial unit entered into a lease of its unit to a 7-Eleven store. The condominium board objected, asserting that the proposed use of the premises included on-premises cooking in violation of the By-Laws. After the condominium refused to approve this use of the premises, 7-Eleven terminated the lease. The unit owner then sued the condominium.
The court upheld the condominium's actions, which it found represented a good-faith exercise of the board's judgment, in the lawful and legitimate furtherance of the purposes of the condominium. Had the 7-Eleven occupied the premises under the lease, its activities there would have included heating hot dogs, sausages, and other food products – activity that the board had a rational basis for characterizing as "cooking," a use prohibited in the By-Laws.
The court declined, however, to award the condominium its legal fees. Under the By-Laws, only a "defaulting unit owner" could be held liable for attorneys' fees. While the commercial unit owner was unsuccessful in this litigation, there was no showing that it had defaulted on any obligation that it owed to the condominium. As discussed in past issues of this Client Advisory, condominiums and cooperatives may wish to consult counsel regarding the possibility of including more broadly worded legal fee provisions in their documents to avoid a similar outcome.