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UNITED STATES v. MILLER

July 16, 1975

UNITED STATES of America, Plaintiff,
v.
James E. MILLER et al., Defendants



The opinion of the court was delivered by: CARTER

ROBERT L. CARTER, District Judge.

 The United States moves for summary judgment in this suit to foreclose a mortgage on certain real property in Athens, Greene County, New York. The following facts are undisputed. On November 4, 1970, the United States, acting through the Farmers Home Administration (FmHA), Department of Agriculture, loaned defendants James E. Miller and Darlene Rae Rhoades (formerly Darlene R. Miller and hereinafter referred to by that name) the sum of $18,500. Also on November 4, 1970, the Millers used the proceeds of the loan to purchase the aforementioned real property. In exchange for the loan, the Millers executed and delivered their 7 1/4% promissory note secured by a purchase money mortgage on the aforesaid real property. The mortgage was also executed and delivered on November 4, 1970, at the same time as the conveyance to the Millers. The conveyance and the mortgage were recorded in the Greene County Clerk's Office the same day.

 On July 26, 1966, defendant Carl Stoutenberg (erroneously named in the complaint as "Carl Statenberg") filed a judgment in the amount of $598.60 against defendant James E. Miller in the Ulster County Clerk's Office. A transcript of the judgment was filed in the Greene County Clerk's Office on July 28, 1966, and the judgment remains unsatisfied.

 Plaintiffs have failed to pay amounts due under the note, and there remains outstanding a balance of $15,878.63, *fn1" principal amount, plus expenses, plus interest at 7 1/4%. Under the terms of the note and mortgage, the United States may, on the default of the borrower, declare the entire amount of the principal and interest payable. (Mortgage para. 17(a)). Moreover, the mortgage provides that the government may charge to the borrower reasonable expenses for repair and maintenance of the property (Mortgage para. 17(b)) and that the borrower is obligated (Mortgage para. 11):

 
"(11) To pay or reimburse the Government for expenses reasonably necessary or incidental to the protection of the lien and priority hereof and to the enforcement of or the compliance with the provisions hereof and of the note and any supplementary agreement (whether before or after default), including but not limited to costs of evidence of title to and survey of the property, costs of recording this and other instruments, attorneys' fees, trustees' fees, court costs, and expenses of advertising, selling, and conveying the property."

 Defendant James E. Miller has failed to answer. *fn2" Darlene R. Miller's answer admits that the Millers failed to pay amounts due under the note *fn3" and that the outstanding balance of principal and interest are immediately due and payable.

 Therefore, the United States is entitled to summary judgment decreeing that the mortgaged premises be sold, and that the proceeds of the sale be deposited into court. *fn4" In addition to the outstanding principal of $15,878.63 and interest thereon, the United States is entitled to recover from the proceeds of the sale of the property the advances and expenses specified in paragraphs 11, 17(b) and like provisions of the mortgage. The papers initially filed by the government failed properly to itemize its expenses and advances or to show that they were "reasonably necessary," as required by para. 11 of the mortgage. However, the government and the answering defendants were requested to submit additional papers on this and other issues, and the government has now justified its expenses of $3,358.75. (See Affidavit of David J. Nolan, State Director, Farmers Home Administration, State of New York, sworn to June 26, 1975).

 Turning to the affirmative defenses raised by defendant Stoutenberg's answer and moving papers, Stoutenberg seeks a determination that his judgment, concededly docketed prior to execution and recordation of the FmHA mortgage, has priority over the mortgage. Although a non-purchase money mortgage appears to be subordinate to the interest of a judgment creditor who is prior in time, see Cobleskill Savings and Loan Association v. Rickard, 15 A.D.2d 286, 223 N.Y.S.2d 246 (3d Dept. 1962), ยง 5203 (a)(2) of the New York Civil Practice Law and Rules clearly states that a purchase money mortgage prevails over a judgment creditor's interest even though the latter may be first in time. Section 5203(a)(2) provides in pertinent part:

 
"(a) * * * No transfer of an interest of the judgment debtor in real property, against which property a money judgment may be enforced, is effective against the judgment creditor * * * from the time of the docketing of the judgment with the clerk of the county in which the property is located * * * except:
 
* * *
 
"2. a transfer in satisfaction of a mortgage given to secure the payment of the purchase price of the judgment debtor's interest in the property * * *."

 Thus Stoutenberg's interest is subordinate to the government's purchase money mortgage.

 Stoutenberg's opposing papers also assert that the government's complaint is not properly verified, as required by New York State Law. Assuming that state procedural rules are applicable, *fn5" which seems doubtful, *fn6" Stoutenberg clearly waived the absence of verification by failure to give notice with due diligence. See Application of Smith, 2 A.D.2d 67, 153 N.Y.S.2d 131 (1st Dept. 1956). C.P.L.R. Rule 3022 provides in part:

 
"* * * Where a pleading is served without a sufficient verification in a case where the adverse party is entitled to a verified pleading, he may treat it as a nullity, provided he gives notice with due diligence to the ...

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