Surplus Money after foreclosure in New York

Claim to the surplus of money by second mortgagee not time barred in New York

John Bennardo et al., Respondents, v Del Monte Caterers, Inc., et al., Defendants, and J&P 1870 Realty Corp., Appellant. Astoria Caterers, Inc., et al., Nonparty Respondents.
2004-10550, (Index No. 11229/92)

Case Law
SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT
2006 NY Slip Op 1753; 27 A.D.3d 503; 811 N.Y.S.2d 434; 2006 N.Y. App. Div. LEXIS 2814

March 14, 2006, Decided

Facts: The original property owner obtained three mortgages on its commercial property, which it later defaulted on. The first mortgagee (FM) commenced a foreclosure action and named the second mortgagee (SM) as a defendant. The SM counterclaimed for recovery of taxes paid on the property and for priority, and he foreclosed on the third mortgage. The property purchaser (PP) assigned the bid to the PPA, and the SM assigned his interest to the SMA. The lessee entered into a lease agreement with the PPA with an option to purchase. Thereafter, the FM assigned his interest to plaintiffs, and they were substituted into the foreclosure action and a receiver was appointed. When the PPA could not provide marketable title to the lessee upon its exercise of the option to purchase, the lessee filed suit and recovered judgment. The SMA obtained a default judgment against the PPA and plaintiffs foreclosed, leaving a surplus for the receiver.

Issue: Whether the claim was time-barred

Ruling: No. Under the particular circumstances of this case, the claim to the surplus money by the second mortgagee, is not time-barred under CPLR 213 (4). Second mortgagee’s predecessor-in-interest, Catapano, participated in the foreclosure action of the first mortgagee, commenced in 1992, by answering the complaint and asserting counterclaims. Thus, Catapano's participation in the first mortgagee's foreclosure action placed all parties on notice of his claim as the second mortgagee. Although second mortgagee commenced a separate foreclosure action in 2002, more than six years after the default on the second mortgage, J&P appeared in that action and did not move to dismiss the action as time-barred. Moreover, once second mortgagee lien upon the property was extinguished due to the foreclosure and sale, it filed its notice of claim to the surplus money.

Lesson Learned: An invocation of a ground based on prescriptive period should be raised seasonably otherwise estoppel and laches would set thus precluding the raising of this ground.

Written by Kevin Levonas and Jerry L.