The Trust commenced an action to recover the balance owed, including interest and attorneys’ fees. The Supreme Court granted summary judgment in favor of the Trust and appointed a referee to calculate the total amount owed, which was done by the referee and the Supreme Court ultimately confirmed the referee report awarding the Trust $9,307.50. A judgment of foreclosure and sale was entered in May 2007 and Jackson appealed from said judgment.

The foreclosure sale was scheduled for August 24, 2007 and a week before the sale, the Trust forwarded a payoff letter to Jackson indicating that the sum of $19,070.74 could be paid to redeem the property prior to sale. Instead of remitting full payment to the Trust, Jackson deposited $19,563.77 with the Bronx County Clerk on August 16, 2007. Jackson advised the Trust that it had filed an undertaking with the County Clerk that “stayed” the foreclosure sale. The sale, however, proceeded and the third party bought the parcel with a high bid of $160,000.

Subsequently, Jackson moved the cancel the foreclosure sale and to enjoin the referee from conveying title the to third-party claiming that property had been sold in violation of CPLR 5519 and RPAPL 1341. The Supreme Court denied the motion, the Appellate Division affirmed both the foreclosure judgment and the Supreme Court’s denial of the motion and the Court of Appeals granted leave to appeal.

First, the Court of Appeal ruled that Jackson’s deposit of $19,563.77 with the Bronx County Clerk did not automatically stay the sale under CPLR § 5519(a)(2) and (a)(6). The Court reasoned that CPLR 5519(a)(2) is relevant only where “the judgment or order directs payment of a sum of money” and therefore is not applicable to a foreclosure judgment. Also, the Court ruled that Jackson could not rely upon CPLR 5519(a)(6) as its “undertaking was not ‘in a sum fixed by the court’ as required by that provision.”
Turning next to Jackson’s claim that there was a stay under RPAPL 1341, the Court of Appeals noted that the Appellate Division found that this provision did not apply as the provision was not self-executing and requires that a court order the stay. The Court of Appeals, however, ruled that “we reject Jackson’s argument for a more fundamental reason – RPAPL 1341 simply had no application here.”

The Court of Appeals cited the relevant portion of RPAPL 1341 as follows:

Where an action is brought to foreclose a
mortgage upon real property upon which any
part of the principal or interest is due, and
another portion of either is to become due,
and the defendant pays into court the amount
due for principal and interest and the costs
of the action, together with the expenses of
the proceedings to sell, if any, the court
shall:
. . .
"2. Stay all proceedings upon judgment, if
the payment is made after judgment directing
sale and before sale; but, upon a subsequent
default in the payment of principal or
interest, the court may make an order
directing the enforcement of the judgment for
the purpose of collecting the sum then due.

The Court of Appeals ruled that RPAPL 1341 is, “by its plain terms,” limited to partial foreclosures. The Court noted that in typical mortgage foreclosure cases, after a default, the entire balance is accelerated and immediately due and consequently, there is no portion that is “to become due” in the future. Thus, the Court of Appeals ruled that since the action to foreclose the Trust’s tax lien does not involve a partial foreclosure, RPAPL 1341 was inapplicable.

Nonetheless, the Court of Appeals noted that although RPAPL 1341 does not apply outside the partial foreclosure context, recent Appellate Division cases have “engrafted that statute’s requirements onto a property owner’s common-law right of redemption.” The Court explained that “[t]he equity of redemption, which long predates the RPAPL, allows property owners to redeem their property by tendering the full sum at any point before the property is actually sold at a foreclosure sale.” All that is required is “an unconditional tender of the full amount due.”

But this is not what occurred in this case – the Court of Appeals noted that Jackson conceded that it only sought to stay the sale through its deposit with the County Clerk and that it did not tender the sum to the Trust. Jackson informed neither the Court nor the Trust that it was making full payment to redeem the property. Rather, Jackson informed the Trust that its deposit “stayed the sale.” As Jackson did not “redeem the property by unconditionally tendering the total amount owed,” the Court ruled that the property was properly sold at auction.

By Katherine Zalantis

Also executed on that same date (November 19, 1998) was: (i) a personal guaranty by defendant’s sole stockholder and officer, Joseph Berkovitz; and (ii) a possession agreement between Berkovitz and plaintiff that allowed plaintiff to keep certain equipment on the premises and required that plaintiff pay rent after the equipment remained for more than six months. The possession agreement specifically provided that any equipment remaining after two years “shall be removed at the cost of [the plaintiff] which may be offset against mortgage payments to [the plaintiff].”

After the defendant admittedly defaulted on the mortgage by failing to make payments, plaintiff commenced a mortgage foreclosure action. Defendant and Berkovitz counterclaimed, seeking an offset against the balance due for unpaid rent for the equipment left at the property. The counterclaim was subsequently amended to conform to the proof at the nonjury trial, allowing them to seek an offset for the cost of removing the equipment.

The Supreme Court ruled that while the balance owed on the mortgage was $821,976.24, defendant was entitled to offset for the cost of removing the equipment in the amount of $220,000. The Appellate Division, Second Department ruled that the Supreme Court properly determined that defendants were entitled to an offset. The Court ruled that “[e]ven though the defendants waived their right to interpose an offset in the rider annexed to the mortgage agreement, the rider must be viewed together with the possession agreement, which provided for an offset, since these documents were executed on the same day, by the same parties, and for the same purpose.”

The Second Department also ruled that the Supreme Court acted within its discretion in ruling on the cost to remove the equipment; in calculating the default interest owed; and in deducting the offset from the principal amount due prior to calculating the default interest owed “since the obligation to remove the equipment arose before the defendants defaulted on the mortgage by failing to make payments.”

By Katherine Zalantis

The Court ruled that a “referee lacks authority to alter the terms of the judgment of foreclosure.” Further, the Court ruled that the referee’s “unauthorized actions” caused injury to Empire’s property rights as the “referee added a liability to the terms of the sale that had been affirmatively stricken from the judgment.” Finding that courts have “equitable powers” to set aside a foreclosure sale where there is “evidence of fraud, collusion, mistake or misconduct,” the Court set aside the foreclosure sale and directed that the referee return to Empire its full deposit of $60,000.