| Congregation Beth Medrosh of Monsey, Inc. v Rolling Acres ChestnutRidge, LLC |
| 2012 NY Slip Op 08481 [101 AD3d 797] |
| December 12, 2012 |
| Appellate Division, Second Department |
| Congregation Beth Medrosh of Monsey, Inc.,Respondent, v Rolling Acres Chestnut Ridge, LLC, et al., Defendants, and Empire StateBank, N.A., Appellant. (And a Third-Party Action.) |
—[*1] Isabel L. Becker, LLC, New City, N.Y. (James E. Sterns of counsel), forrespondent.
In an action to foreclose a mortgage and, in effect, for a judgment declaring the relativepriority of mortgages on the subject property, the defendant Empire State Bank, N.A., appeals, aslimited by its brief, from so much of an amended order of the Supreme Court, Rockland County(Alfieri, Jr., J.), entered August 19, 2011, as granted that branch of the plaintiff's motion whichwas for summary judgment on the amended complaint insofar as asserted against it and denied itscross motion to extend discovery.
Ordered that the order is modified, on the law, by deleting the provision thereof granting thatbranch of the plaintiff's motion which was for summary judgment on so much of the amendedcomplaint insofar as asserted against the defendant Empire State Bank, N.A., as, in effect, soughta declaration that the plaintiff's mortgage was entitled to priority over the previously recordedassigned mortgage of the defendant Empire State Bank, N.A., in the sum of $1 million, andsubstituting therefor a provision denying that branch of the motion; as so modified, the order isaffirmed insofar as appealed from, without costs or disbursements, upon searching the record,summary judgment is awarded to the defendant Empire State Bank, N.A., declaring that itsmortgage in the sum of $1 million is entitled to priority over the plaintiff's mortgage, and thematter is remitted to the Supreme Court, Rockland County, for the entry of a judgment, inter alia,declaring that the mortgage of the defendant Empire State Bank, N.A., in the sum of $1 millionhas priority over the plaintiff's mortgage, and that plaintiff's mortgage has priority over the$2,425,000 mortgage of the defendant Empire State Bank, N.A.
In November 2005, the defendants Rolling Acres Chestnut Ridge, LLC, and Rolling AcresDevelopers, LLC, executed a mortgage note in the sum of $1.2 million. As security for the note,they executed and delivered to the plaintiff a mortgage covering two parcels of property, whichwas recorded on November 21, 2005. Previously, a $1 million mortgage on the first of the twoparcels identified in the plaintiff's mortgage had been delivered to FKF3, LLC, which wasrecorded on July 14, 2005. Subsequently, the plaintiff received a payment of $450,000 on thenote, leaving [*2]a balance of $750,000, and released the secondparcel from the mortgage lien.
On March 11, 2007, FKF3, LLC, assigned its mortgage to the defendant Empire State Bank,N.A. (hereinafter Empire). Two days later, Rolling Acres Chestnut Ridge, LLC, delivered toEmpire a new mortgage on the property for $2,425,000, and Empire entered into an agreementconsolidating its two mortgages for a total lien of $3,425,000. Empire alleges that in enteringthese transactions, it relied on the representation of its title insurer, supported by a purportedletter from the plaintiff's treasurer, that the plaintiff's $750,000 mortgage had been satisfied.However, no satisfaction of mortgage was ever recorded. Empire's consolidated mortgage wasrecorded on May 25, 2007.
In May 2009, Empire commenced an action to foreclose on its consolidated mortgage. Tosettle the matter, in November 2009, Empire accepted a deed in lieu of foreclosure. In January2010, the plaintiff commenced this action, inter alia, to foreclose on its mortgage. The plaintiffjoined Empire as a defendant so as to obtain a declaration that its interest in the property wassuperior to that of Empire, alleging that Empire's mortgage interest merged into its ownershipinterest upon acceptance of the deed in lieu of foreclosure, thereby extinguishing its mortgages.Thereafter, the plaintiff moved, among other things, for summary judgment on the amendedcomplaint insofar as asserted against Empire, and Empire cross-moved to extend discovery. TheSupreme Court, inter alia, granted that branch of the plaintiff's motion which was for summaryjudgment on the amended complaint insofar as asserted against Empire and denied Empire'scross motion.
The Supreme Court properly awarded summary judgment to the plaintiff on so much of theamended complaint as, in effect, sought a declaration that Empire's $2,425,000 mortgage issubordinate to the plaintiff's previously recorded mortgage. "The recording of a transactioninvolving real property provides potential subsequent purchasers [and encumbrancers] withnotice of 'previous conveyances and encumbrances that might affect their interests' " (Stracham v Bresnick, 76 AD3d1009, 1010 [2010], quoting Andy Assoc. v Bankers Trust Co., 49 NY2d 13, 20[1979]). "If the [encumbrancer] fails to use due diligence in examining the title, he or she ischargeable, as a matter of law, with notice of the facts which a proper inquiry would havedisclosed" (Fairmont Funding v Stefansky, 301 AD2d 562, 564 [2003]). Here, theplaintiff demonstrated that its mortgage was recorded prior to Empire's consolidated mortgageand, therefore, Empire had constructive notice of the plaintiff's prior interest. In opposition,Empire failed to raise a triable issue of fact as to the priority between the plaintiff's mortgage andits $2,425,000 mortgage. Whether Empire reasonably relied on the letter, purportedly from theplaintiff's treasurer, stating that the plaintiff's $750,000 mortgage had been satisfied, is irrelevantto the determination of priority of interests here. No satisfaction of mortgage was recorded.
However, the Supreme Court improperly awarded summary judgment to the plaintiff on somuch of the amended complaint as, in effect, sought a declaration that the plaintiff's mortgagewas entitled to priority over Empire's previously recorded $1 million assigned mortgage. "As ageneral rule of law, a mortgage may become merged and extinguished where title to the land andownership of the mortgage become vested in the same person" (Cambridge Factors vThompson, 215 AD2d 427, 427 [1995]). Nevertheless, the doctrine of merger is disfavored(see Jemzura v Jemzura, 36 NY2d 496, 502 [1975]; Dunkum v Maceck Bldg.Corp., 256 NY 275, 281 [1931]), and "equity will intervene to bar a merger where such wasthe intent of the mortgagee or if justice so requires," in the absence of intervening rights ofcreditors and third parties (Cambridge Factors v Thompson, 215 AD2d at 427; seeDunkum v Maceck Bldg. Corp., 256 NY at 281; Matter of Long Is. Light. Co. vCommissioner of Taxation & Fin. of State of N.Y., 235 AD2d 637, 638 [1997]). "Thus, thedeterminative issue is whether the owner intended there be a merger, which must be discernedfrom all the circumstances, including the effect a merger would have on the owner's interest"(Matter of Long Is. Light. Co. v Commissioner of Taxation & Fin. of State of N.Y., 235AD2d 637, 638 [1997]). Here, the plaintiff submitted no evidence of Empire's intent to merge itsmortgage and ownership interests when it accepted the deed in lieu of foreclosure. Moreover, amerger would injure Empire by subordinating its prior assigned mortgage to the plaintiff'ssubsequent mortgage, and the plaintiff would not be unjustly injured if a merger is notrecognized, given that it accepted its mortgage [*3]interest withthe knowledge that the previously recorded assigned mortgage was superior. Accordingly, justicerequires that a merger be prevented here, and, upon searching the record, we award summaryjudgment to Empire declaring that its $1 million assigned mortgage is entitled to priority over theplaintiff's mortgage.
Empire also contends that further discovery is required to determine whether the plaintiff'smortgage is invalid and unenforceable for its failure, as a religious Type B not-for-profitcorporation, to obtain leave of the Supreme Court to make the loan in accordance withNot-For-Profit Corporation Law §§ 510 and 511. However, since Empire is not amember of the plaintiff, it lacks standing to challenge the alleged statutory violation (see Congregation Atzei Chaim v 26 AdarN.B. Corp., 27 AD3d 412, 412-413 [2006]; Matter of Bridge to SpiritualFreedom, 304 AD2d 574 [2003]; Matter of Friends World Coll. v Nicklin, 249 AD2d393 [1998]; see also Female Academyof the Sacred Heart v Doane Stuart School, 91 AD3d 1254, 1256 [2012]).
Since this is, in part, a declaratory judgment action, the matter must be remitted to theSupreme Court, Rockland County, for the entry of a judgment, inter alia, declaring that Empire'smortgage in the sum of $1 million has priority over the plaintiff's mortgage, and that theplaintiff's mortgage has priority over Empire's $2,425,000 mortgage (see Lanza vWagner, 11 NY2d 317, 334 [1962], appeal dismissed 371 US 74 [1962], certdenied 371 US 901 [1962]). Rivera, J.P., Angiolillo, Chambers and Roman, JJ., concur.