| Oliveto Holdings, Inc. v Rattenni |
| 2013 NY Slip Op 06844 [110 AD3d 969] |
| October 23, 2013 |
| Appellate Division, Second Department |
| Oliveto Holdings, Inc., Respondent, v AlfredRattenni, Appellant, et al., Defendants. |
—[*1] Thomas G. Sherwood, LLC, Garden City, N.Y., for respondent.
In an action to foreclose a mortgage, the defendant Alfred Rattenni appeals from (1)an order of the Supreme Court, Putnam County (Nicolai, J.), dated November 28, 2011,which denied his motion pursuant to CPLR 4404 (b) to set aside a decision of the samecourt dated June 30, 2011, made after a nonjury trial, and for judgment as a matter of lawon the ground that the subject mortgage loan was usurious, and (2) a judgment offoreclosure and sale of the same court entered March 22, 2012, upon the decision.
Ordered that the appeal from the order is dismissed; and it is further,
Ordered that the judgment of foreclosure and sale is reversed, on the law and thefacts, the defendant's motion pursuant to CPLR 4404 (b) to set aside the decision and forjudgment as a matter of law on the ground that the subject mortgage loan was usurious isgranted, the complaint is dismissed, and the order is modified accordingly; and it isfurther,
Ordered that the matter is remitted to the Supreme Court, Putnam County, for theentry of a judgment in accordance with General Obligations Law § 5-511 (2); andit is further,
Ordered that one bill of costs is awarded to the defendant Alfred Rattenni.
The appeal from the intermediate order must be dismissed because the right of directappeal therefrom terminated with the entry of judgment in the action (see Matter ofAho, 39 NY2d 241, 248 [1976]). The issues raised on the appeal from the order arebrought up for review and have been considered on the appeal from the judgment offoreclosure and sale (see CPLR 5501 [a] [1]).
In September 2006, in return for a loan of $275,000, Ronald Mangini, asattorney-in-fact for the defendant Alfred Rattenni, executed a six-month balloonpromissory note (hereinafter the note) in favor of the plaintiff for the principal sum of$275,000, with a stated interest rate of 12% per annum. As security for the note, Manginiexecuted and delivered to the plaintiff two mortgages [*2]on property owned by Rattenni, one on a single-familyresidence in Carmel, New York (hereinafter the Carmel house), and one on acondominium in Westchester County. At the closing, the plaintiff withheld a 5%"origination fee" of $13,750 from the loan principal. Rattenni had the option to extendthe terms of the note for an additional six-month period upon payment of a"non-refundable service charge" of 2% of the principal sum, or $5,500.
Mangini made interest payments from Rattenni's accounts for the six-month term ofthe note and then exercised the option to extend the note for a second six-month term andpaid the $5,500 extension fee. In May 2007, Mangini handled the sale of Rattenni'scondominium in Westchester County and used $125,000 of the proceeds to pay down theloan principal and release the property from the mortgage. When the remaining principalsum of $150,000 became due and was not paid, the plaintiff commenced this action toforeclose on the Carmel house. Rattenni raised defenses alleging that he did not authorizeMangini to execute the note and mortgage and that the interest charged on the loanexceeded the civil usury limit, rendering the loan transaction void. In a decision madeafter a nonjury trial, the Supreme Court determined that Mangini had authority to enterinto the transaction on Rattenni's behalf pursuant to two powers of attorney, the civilusury limit did not apply to this loan, and even if the civil usury limit was applicable, theeffective interest rate did not exceed the civil usury limit. On March 22, 2012, the courtentered a judgment of foreclosure and sale upon the decision.
"On an appeal from a judgment after a nonjury trial, this Court's power to review theevidence is as broad as that of the trial court, and this Court may render the judgment itfinds warranted by the facts, giving due regard to the trial court, which had the advantageof assessing the credibility of the witnesses" (Rock v Rock, 100 AD3d 614, 615-616 [2012]; seeNorthern Westchester Professional Park Assoc. v Town of Bedford, 60 NY2d 492,499 [1983]).
The Supreme Court correctly determined that the plaintiff was entitled to rely uponthe statutory short form power of attorney granting Mangini authority with respect to,among other things, real estate transactions, which Rattenni executed two days before theclosing (see General Obligations Law § 5-1502A). The power of attorneywas facially valid and unrevoked at the time of the closing, and the "circumstancessurrounding its presentation would not have put a reasonable person on notice thatsomething was amiss" (Neildan Constr. Corp. v Angona, 209 AD2d 389, 390[1994]; see Hudson Enters. v Wasserman, 256 AD2d 550, 550-551 [1998];Grasso v Fiumara, 167 AD2d 510 [1990]; see also Yabkow v Yabkow, 89 AD3d 932, 933 [2011];Crandall v Personal Mtge. Corp., 210 AD2d 981, 982 [1994]; cf. CollisionPlan Unlimited v Bankers Trust Co., 63 NY2d 827, 831 [1984]).
Under the civil usury statute, the maximum interest rate on a loan is 16% per annum(see General Obligations Law § 5-501 [1]; Banking Law § 14-a [1]).General Obligations Law § 5-501 (6) (a) provides that the 16% maximum interestrate is not applicable "to any loan or forbearance in the amount of [$250,000] or more,other than a loan or a forbearance secured primarily by an interest in real propertyimproved by a one or two family residence." Contrary to the plaintiff's contention, theplain language of section 5-501 (6) (a) does not require that a one- or two-familyresidence securing a loan be occupied by the owner for the civil usury limit to apply.Despite using the narrowing term "occupied by the owner" or "owner-occupied" in otherusury statutes (see General Obligations Law §§ 5-501 [3]; 5-527[2]), and despite being aware of preexisting usury regulations that applied differently toone- and two-family residences occupied by the owner (see 3 NYCRR 4.2-4.4),the Legislature specifically chose not to include the term "occupied by the owner" in thestatute (see Commonwealth ofthe N. Mariana Is. v Canadian Imperial Bank of Commerce, 21 NY3d 55, 60[2013]). Nor does the commercial or personal nature of a loan have a bearing on whetherthe civil usury limit will apply to a loan secured by a one- or two-family residence underthe plain language of the statute.
In order for the civil usury limit to apply to a loan over $250,000, the statute requiresthat the loan be "secured primarily by an interest in real property improved by a one- ortwo- family residence" (3 NYCRR 4.2-4.4). Here, the mortgage on the Carmel houseprovides that Rattenni mortgaged the property as security for the full amount of the loan,$275,000. Thus, under the plain terms of section 5-501 (6) (a), the civil usury limit isapplicable to the loan transaction.[*3]
A borrower bears the burden of proving eachelement of usury by clear and convincing evidence, and usury "will not be presumed"(Freitas v Geddes Sav. & Loan Assn., 63 NY2d 254, 261 [1984]). "Indetermining whether a transaction is usurious, the law looks not to its form, but itssubstance, or real character" (O'Donovan v Galinski, 62 AD3d 769, 769 [2009] [internalquotation marks omitted]; seeUjueta v Euro-Quest Corp., 29 AD3d 895, 895 [2006]). Here, the evidence attrial established that the plaintiff retained half of the 5% origination fee, or $6,875, and$3,300 of the $5,500 extension fee, and it distributed the remainder of those fees to theprincipals of an entity that performed broker-related services in connection with thetransaction. The parties do not dispute that the amounts retained by the plaintiff areincluded as interest (see General Obligations Law § 5-501 [2]; BankingLaw § 14-a [2]).
To determine whether the interest charged exceeded the usury limit, we must applythe traditional method for calculating the effective interest rate as set forth in BandRealty Co. v North Brewster, Inc. (37 NY2d 460, 462 [1975]). Viewing the loan as aone-year loan, the total annual interest is $43,175 ($33,000 in annual interest at 12% on$275,000, plus $10,175 in retained interest fees). The net loan funds advanced, i.e., theloan principal ($275,000) minus the retained interest ($10,175), equals $264,825.Expressed as a percentage of the net loan funds advanced, the $43,175 in total annualinterest equals 16.3% of $264,825. The effective interest rate of 16.3% exceeds the civilusury limit, and the loan was therefore usurious. As such, we need not reach Rattenni'scontention that the total amount of the origination and extension fees should be includedas interest.
Since the loan was usurious, the loan transaction and the associated note andmortgage are void, the plaintiff is precluded from recovering the unpaid principal of$150,000 and all outstanding interest, and all the documents and collateral must becancelled and surrendered (see General Obligations Law § 5-511 [2];Seidel v 18 E. 17th St. Owners, 79 NY2d 735, 740 [1992]; Szerdahelyi vHarris, 67 NY2d 42, 47-48, 50-51 [1986]). Dillon, J.P., Angiolillo, Leventhal andLott, JJ., concur.