938 St. Nicholas Ave. Lender v. 936-938 Cliffcrest Hous. Dev. Fund Corp.

2022 NY Slip Op 30385(U)

938 ST. NICHOLAS AVENUE LENDER LLC, Plaintiff, v. 936-938 CLIFFCREST HOUSING DEVELOPMENT FUND CORPORATION, NEW YORK CITY DEPARTMENT OF HOUSING PRESERVATION AND DEVELOPMENT, NEW YORK CITY ENVIRONMENTAL CONTROL BOARD, NEW YORK STATE DEPARTMENT OF TAXATION AND NANCE, NEW YORK CITY DEPARTMENT OF FINANCE, HESS CORPORATION, CHAMPION COMBUSTION CORP., S.J. FUEL CO, MICHELLE R. FINCHER, NYC COMMISSIONER OF SOCIAL SERVICES, DIANA MORGAN, CITIMORTGAGE, INC.CARLTON BURROUGHS, HOPE PRUITT, SYDNEY PRUITT, AND JOHN DOE 1 THROUGH JOHN DOE 12, THE LAST TWELVE NAMES BEING FICTITIOUS AND UNKNOWN TO PLAINTIFF, THE PERSONS OR PARTIES INTENDED BEING THE TENANTS, OCCUPANTS, PERSONS OR CORPORATIONS, IF ANY, HAVING OR CLAIMING AN INTEREST UPON THE PROPERTY DESCRIBED IN THE COMPLAINT, Defendant.

936-938 CLIFFCREST HOUSING DEVELOPMENT FUND CORPORATION Plaintiff, v. MAVERICK REAL ESTATE PARTNERS LLC Defendant.

MOTION SEQ. No. 004

Index Nos. 850233/2018, 595851/2019

Supreme Court, New York County

January 27, 2022

Unpublished Opinion

PRESENT: HON. FRANCIS KAHN, III Justice.

DECISION + ORDER ON MOTION

FRANCIS A. KAHN III JUDGE.

The following e-filed documents, listed by NYSCEF document number (Motion 004) 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97 98, 99, 100, 101, 102, 103, 104, 105, 106, 107108 109 110 111112 113, 114, 115, 116, 117, 118, 123, 126, 127, 128, 129 130, 131, 132, 133, 134, 135, 136137 138, 139, 140, 141, 142, 143, 144, 145, 146, 147, 148, 149, 150, 151, 152, 153, 154, 155, 156 were read on this motion to/for JUDGMENT - SUMMARY

Upon the foregoing documents, the motion and cross-motion are determined as follows:

Plaintiff 938 St. Nicholas Avenue Lender, LLC ("938 LLC") commenced this action to foreclose on a mortgage encumbering real property located at 938 St. Nicholas Avenue, New York, New York.

Defendant 936-938 Cliffcrest Housing Development Fund Corporation ("Cliffcrest") is the mortgagor which obtained a loan of $1, 650, 000.00 from non-party Community Capital Bank. The loan was memorialized by a mortgage note dated September 28, 2006 and is secured by a document of the same date titled Mortgage, Assignment of Leases and Rents and Security Agreement.

Cliffcrest moved, pre-answer, to dismiss the complaint for lack of standing, pendency of a prior action, and failure to state a claim. Plaintiff opposed the motion. By order dated May 31, 2019, Justice Arlene Bluth denied the motion entirely. Justice Bluth held Plaintiff established its standing "by attaching the note to the complaint", that no prior action was pending as the action titled Peny & Co. v. 936-938 Cliffcrest Housing, NY Cty. Index No 850011/2013 was "marked disposed" and that dismissal was not justified as, inter alia, Cliffcrest accepted the loan proceeds and paid installments under the note for five years.

Cliffcrest joined issue and raised fifteen affirmative defenses and included a third-party action therein. Cliffcrest later filed a third-party summons and complaint against Third-Party Defendant Maverick Real Estate Partners LLC ("Maverick") containing a single cause of action based in champerty. Plaintiff and Maverick collectively replied to Cliffcrest's answer and answered the third-party complaint, which contained six affirmative defenses. Defendants, Michelle R. Fincher, Diana; Morgan, Carlton Burroughs, Hope Pruitt and Sydney Pruitt ("Board Defendants"), shareholders and former officers on the Board of Directors of Cliffcrest, also answered and raised four affirmative defenses and five counterclaims.

Defendant Cliffcrest is a Housing Development Fund Corporation ("HDFC"), created pursuant to the Private Housing Finance Law and the Not-for-Profit Corporation Law, and organized as a cooperative owned by the residents. The legislative purpose of an HDFC is, among other things, to rehabilitate housing for low-income families and enable these entities to participate more effectively in existing municipal, state and federal assistance programs (Private Housing Finance Law §571). "An HDFC project is to be 'operated exclusively for the benefit of the persons or families who are entitled to occupancy in such housing project by reason of ownership of shares in such corporation'" (546 W. 156th St HDFC v. Smalls, 43 A.D.3d 7, 14 [1st Dept 2007][citations omitted]).

Cliffcrest took ownership of the premises at issue under a "Third Party Transfer Program" ("TPT") established pursuant to section 11-412.1 of the Administrative Code of the City of New York. Created in 1997, the TPT Program in New York City is administered by The Department of Housing Preservation and Development ("HPD") which coordinates with the New York City Department of Finance to transfer, through foreclosing on liens on tax-delinquent buildings in poor condition, to new owners who will repair the premises and provide affordable housing to low-income tenants.

In this instance, the building was obtained by the City of New York via an in rem tax foreclosure proceeding and deeded to a not-for-profit Neighborhood Restore Housing Development Fund Corporation in May 2001. The Neighborhood HDFC transferred the premises to non-party Shuhab Housing Development Fund Corporation ("Shuhab") in December 2002, the entity chosen by the City as Chffcrest's sponsor to supervise rehabilitation of the building. To fund the comprehensive repairs Shuhab entered into joint construction loans with HPD and Fleet National Bank ("Fleet") which were memorialized by construction Loan Participation Agreement. The loans were secured by mortgages held by HPD and Fleet. Shuhab also retained The Wavecrest Management Team, Ltd. ("Wavecrest") as the managing agent for the building.

The renovations were supposedly completed in September 2006 and early the following year Shuhab transferred title to the premises to Cliffcrest The apartments in the building were sold to low-income individuals as below market cooperative apartments. Concomitantly with the transfer, Cliffcrest assumed responsibility for all the mortgage obligations on the premises, including the HPD and Fleet encumbrances. Prior to the transfer, Cliffcrest entered into the loan and mortgage transaction that is the subject of this action with Community Capital Bank ("CCB"). In accordance with the TPT program, the HPD mortgages were subordinated to the CCB mortgage. CCB allegedly immediately assigned the note and mortgage to Peny & Co. ("Peny") for consideration equal to the loan amount.

Cliffcrest apparently made payments in accordance with the note and mortgage without objection from 2006 until 2012. Peny claimed in the prior foreclosure action-Percy & Co. v. 936-938 Cliffcrest Housing, NY Cty. Index No 850011/2013-that, beginning in March 2012, Cliffcrest stopped payments on the loan, real estate taxes and failed to provide proof of property insurance, In the prior action, Cliffcrest claims that in October 2011 it discovered irregularities with the renovations performed by Shuhab. Cliffcrest avers it retained an architectural firm, Balaton Corporation ("Balaton"), to provide an evaluation of the condition of the building. Balaton reported to Cliffcrest that, despite the certifications, most of the renovation work was not complete and that widespread remediation work, estimated to cost nearly $12, 000, 000.00, would be required. Consequently, Cliffcrest ceased making payments under the note and the prior foreclosure action ensued, The prior foreclosure action can best be described as a vexing thicket of litigation which included assertions by Cliffcrest in its answer and third-party action of, inter alia, fraud, conspiracy and federal civil rights violations against Wavecrest, CCB, Shuhab and HPD. During the litigation, the note and mortgage purportedly changed hands at least twice, a receiver was appointed at a cost of hundreds of thousands of dollars, and the parties traded salvos via some two dozen motions. Ultimately, the prior foreclosure action was "dismissed in its entirety without prejudice" by order of Justice Joan A. Madden dated August 8, 2019. The dismissal was the culmination of the mortgagee's motion for summary judgment. Justice Madden issued an interim order, dated December 19, 2017, finding the Mortgagee established prima facie entitlement to summary judgment, except on the issue of whether service of notices in accordance with RPAPL §1303 was made. Justice Madden held an issue of fact on this point existed and directed a hearing be conducted. After the hearing, Justice Madden concluded the mortgagee failed to sustain its burden and her conclusion was affirmed on appeal (938 Si Nicholas Ave, Lender, LLC v. 936-938 Cliffcrest Hous. Dev. Fund Corp., 170A.D.3d623 [1st Dept 2019]). By order dated June 17, 2019, Justice Madden restored the action to the calendar "for the purposes of adjudicating the third party action" and severed the dismissed main action. It appears from the Court record that action is presently active.

Now, Plaintiff and Maverick move for summary judgment against Cliffcrest on its foreclosure cause of action, for summary judgment dismissing the third-party complaint, for summary judgment against Shareholder Defendants, for summary judgment and a default judgment against Defendant New York City Department of Housing Preservation and Development ("HPD"), for a default judgment against all non-appearing defendants and to amend the caption, Cliffcrest opposes the motion and cross-moves for denial of Plaintiff s motion and dismissal of Plaintiff s complaint.

Plaintiff was required on the branch of its motion for summary judgment to establish prima facie proof of the mortgage, the note, and evidence of the borrower's default (see US Bank N.A v. James, 180 A.D.3d 594 [1^st Dept 2020]; Bank of NY v. Knowles, 151 A.D.3d...