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EMPIRE STATE COLLATERAL CO. v. BAY REALTY CORP.

July 23, 1964

EMPIRE STATE COLLATERAL CO., a partnership, Plaintiff,
v.
BAY REALTY CORPORATION, Director of Internal Revenue, First District, State of New York, Neumann-Kahn Chevrolet Inc., People of the State of New York, United States of America, State Tax Commission, Goodyear Plastic Specialty Company, Inc. and'John Doe' doing business as King Chevrolet, person intended being the occupant of the garage space on the level below the street level of the building on the premises hereinafter described, and Michael Dalessio, Defendants



The opinion of the court was delivered by: ZAVATT

This is an action to foreclose the liens of four consolidated mortgages on real property situated in Richmond County, New York (within the territorial jurisdiction of this court), which was removed to this court upon the petition of the defendant, United States of America (the Government), pursuant to 28 U.S.C. §§ 1444 and 2410. The Government is the owner and holder of a fifth mortgage which is subject and subordinate to the liens of the consolidated mortgages. The following motions are now before the court:

1. Plaintiff's motion for an order directing the receiver to pay the New York City real estate taxes, water rates and sewer rents out of the rents collected by him;

 2. the Government's motion to modify the order of this court which appointed the receiver and authorized him, among other things, to pay real estate taxes, water rates and sewer rents by deleting therefrom the authorization of the receiver to pay these items;

 3. plaintiff's motion for an order confirming the report of the master to compute the amount due and owing on the consolidated mortgages and for judgment of foreclosure and sale.

 For the reasons hereinafter stated, motion 1 is granted; motion 2 is denied; motion 3 is denied. The four consolidated mortgages became liens prior to the Government's mortgage, as follows: Principal Rate of Amount Recorded Interest (1) $ 50,000.00 May 8, 1946 4% L 882 mp 379 (2) $ 6,000.00 January 8, 1949 4% L 966 mp 453 (3) $ 10,000.00 June 3, 1949 4% L 976 mp 182 (4) $ 25,000.00 July 17, 1951 5% L 1045 mp 265

 Mortgages 1, 2 and 3 were consolidated, by virtue of the terms of mortgage 3, so as to constitute 'equal and co-ordinate liens * * * without priority of any one over the other, so that together they shall constitute in law but one first mortgage * * *.' When mortgage 4 was executed and delivered on July 16, 1951, it was not then consolidated with the prior mortgages but, rather, recited that it was 'subject and subordinate to three prior mortgages now held and owned by Staten Island Savings Bank * * *.' The plaintiff acquired mortgages 1, 2 and 3 by assignment dated March 23, 1961, recorded April 6, 1961, in Liber 1367 of mortgages at page 186 and acquired mortgage 4 by assignment dated March 10, 1961, recorded April 6, 1961, in Liber 1367 of mortgages at page 190.

 Prior thereto, and on December 17, 1951, the then owner, the defendant Bay Realty Corporation, executed and delivered to the Government its note and mortgage in the sum of $ 170,000.00, dated December 17, 1951, recorded February 1, 1952, in Liber 1061 of mortgages at page 227. (Bay Realty Corporation was also the mortgagor in mortgages 2, 3 and 4 and is still the owner of the fee). This mortgage (designated herein as mortgage 5) recited that it was 'Subject to any and all prior and existing mortgages, liens or other encumbrances of record affecting the aforedescribed premises.' This mortgage does not secure an indebtedness of the defendant Bay Realty Corporation. Rather it was executed and delivered to secure the individual indebtedness of the defendant, Michael Dalessio, the sole stockholder of Bay Realty Corporation. Some time after mortgage 4 and before mortgage 5, the Government made assessments of deficiency income taxes against Michael Dalessio for the years 1945 through 1950 in the aggregate sum of $ 297,478.83, plus unassessed interest. It agreed to defer the enforcement of collection of these assessments upon the terms and conditions stated in an agreement between the Government, Michael Dalessio and others dated December 17, 1951, pursuant to which various assets of Michael Dalessio and other signatories thereto were assigned to the Government. By a separate agreement between the Government and Dalessio, dated December 17, 1951, Dalessio assigned all of the issued and outstanding stock of Bay Realty Corporation to the Government pursuant to the terms and conditions of the multiparty agreement of that same date. Mortgage 5 recites that the principal sum thereof is 'to be paid pursuant to and in accordance with the terms of the collateral agreement' of December 17, 1961, executed by the Government, Dalessio and others. It bears no due date nor does it provide for the payment of interest. But, like mortgages 1, 2, 3 and 4, it does contain a clause that the mortgage shall become due, at the option of the Government, should the mortgagor default in the payment of any tax, water rate, sewer rent or assessment for 30 days after notice and demand. There is nothing in the record to indicate that the Government served any such notice and demand or exercised this option. The court has not been advised as to the value of the several assets that were assigned to the Government by Dalessio and others nor as to what disposition has been made of them. The court has been advised, however, that the amount of the unpaid deficiency assessments has been reduced to $ 127,939.96. For the purposes of the motions before the court, it will be assumed that mortgage 5 is a valid lien upon the premises and that it is due and payable.

 After the 'collateral agreement' and mortgage 5 had been executed and delivered and the latter recorded (and without the knowledge or consent of the Government), mortgages 1, 2, 3 and 4 were consolidated (by an agreement between the plaintiff and Bay Realty Corporation, dated March 24, 1961, recorded April 6, 1961, in Liber 1367 of mortgages at page 181) into one first mortgage securing the principal sum of $ 21,750.00 with interest. Whereas, by their terms, mortgages 1, 2, 3 bore interest at 4% And mortgage 4 bore interest at 5%, this consolidation agreement increased the rate of interest to 6% And extended the due date of the four mortgages as so consolidated to March 24, 1962.

 Two additional modifications of mortgages 1, 2, 3 and 4, as consolidated, were made. The rate of interest was increased to 2% Per month from the date when the consolidated mortgage should become due by reason of any default under the terms of the mortgages as consolidated 'whether any action or proceeding to recover the same or to enforce or foreclose this mortgage shall have been taken * * * and that the amount thereof shall be an additional lien upon the property covered by this mortgage and shall be secured by this mortgage.' A counsel fee clause was added whereby the mortgagor agreed to pay a counsel fee of fifteen percent of the then unpaid balance of the mortgage debt and all disbursements incurred by the mortgagee, should the mortgagee retain counsel to collect any money due under the mortgage or to recover the mortgaged property, 'and such counsel fees and all disbursements incurred by the mortgagee shall be added to the indebtedness secured by this mortgage and shall be and hereby are made part of the mortgage debt, and shall become an additional lien on said mortgaged property and payable on demand.'

 In and by this consolidation agreement, the plaintiff and Bay Realty Corporation ratified and confirmed the terms and conditions of the four mortgages except insofar as they conflict with the terms of the consolidation agreement, in which event the terms and conditions of the latter shall prevail.

 The terms and conditions of the mortgages as to taxes, water rates, sewer rents, and the appointment of a receiver antedate mortgage 5 and are not inconsistent with the terms of the agreement consolidating mortgages 1, 2, 3 and 4. The mortgagor agreed that:

 (a) If desired, the mortgagee could apply the monthly payments to the payment of taxes, water rates, fire and war risk insurance premiums;

 (b) In an action to foreclose, the holder of the mortgage would be entitled to the appointment of a receiver of the rents and profits;

 (c) The mortgagor would pay all taxes, assessments and water rates, and in default thereof, the ...


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