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SECURITY PACIFIC MORTG. v. HERALD CENTER

February 26, 1990

SECURITY PACIFIC MORTGAGE AND REAL ESTATE SERVICES, INC., PLAINTIFF,
v.
HERALD CENTER LIMITED F/K/A VOLOBY LIMITED, HERALD CENTER, INC., NYL, INC. F/K/A GREATNECKERS, INC. D/B/A THE NEW YORK LAND COMPANY, NYL PROPERTIES, INC., THE PEOPLE OF THE STATE OF NEW YORK, THE CITY OF NEW YORK, NASTASI-WHITE, INC., MELTZER MECHANICAL CONTRACTORS, INC., EMPIRE CITY IRON WORKS, ROTH PAINTING COMPANY, INC., CENTRAL PUMP SERVICE CORP., W & W PRODUCTS, INC., DAVID SHULDINER, INC., SAFETY LIFT COMPANY, ABLE SPRINKLER COMPANY, INC., AIRKEM-MANHATTAN, INC., ROBERT V. SAMUELS, INC., GLOCKHURST CORPORATION, N.V., NEW YORK STATE TAX COMMISSION AND THE REPUBLIC OF THE PHILIPPINES, DEFENDANTS.



The opinion of the court was delivered by: Leval, District Judge.

OPINION AND ORDER

This is an action for foreclosure of a mortgage on the Herald Center building. The mortgagee, Security Pacific Mortgage and Realty Estate Services, Inc., (hereinafter "SPMRES" or the "Bank") moves to amend the Final Judgment of Foreclosure and Sale ("Final Judgment") nunc pro tunc under Fed.R.Civ.Pro. 54(b) or under Rule 60(b) to include language to permit the establishment of a deficiency against Herald Center, Ltd. SPMRES also demands summary judgment against Glockhurst on the collateral mortgage. Finally, SPMRES seeks to amend the Final Judgment to include provision for collection of the deficiency by enforcement of Glockhurst Company N.V.'s collateral mortgage on 200 Madison Avenue.*fn1

BACKGROUND

SPMRES is the holder of a construction loan note executed by Voloby Limited, the predecessor of Herald Center, Ltd., as part of an agreement between Voloby and Security Pacific Mortgage Corporation ("SPMC"). That note is secured by the mortgage of the Herald Center building. The debt is further secured by a collateral second mortgage issued by Glockhurst to SPMC, on the property known as 200 Madison Avenue. SPMC has assigned this collateral mortgage to SPMRES.

On July 1, 1988, summary judgment of foreclosure was granted in favor of SPMRES foreclosing the Herald Center mortgage. No ruling was made at that time on SPMRES' motion for summary judgment on the Glockhurst collateral mortgage.

SPMRES then obtained a Final Judgment of Foreclosure and Sale, issued May 17, 1989. (An Amended Final Judgment was issued on July 28, 1989 (hereinafter "Final Judgment")). That Final Judgment contained no language relating to the recovery of a deficiency under New York Real Property Actions and Proceedings Law ("RPAPL") § 1371.*fn2 Herald Center was auctioned pursuant to the Final Judgment on November 8, 1989, to Morris Bailey, the only bidder, for a price of $25 million. Closing under the foreclosure sale has not yet occurred. The amount outstanding on the debt is in dispute, but apparently approaches $60 million.

DISCUSSION

Glockhurst argues that the relief requested by SPMRES is substantive and thus governed by state law. Because both federal and state law permit the granting of the relief, I find it unnecessary to decide whether the issue presented is substantive or procedural.

I.  Nunc Pro Tunc Amendment under New York law

In a suit to foreclose a mortgage, New York law allows a final judgment to provide as well for payment by a person "liable to the plaintiff for the payment of the debt" of the portion of the "debt remaining unsatisfied" after a sale of the mortgaged property. N.Y. Real Property Actions & Proceedings § 1371(1) (McKinney 1979). If the sale of property under such a judgment fails to cover the debt, and the judgment expressly provided for recovery of the deficiency, the mortgagee may move (within 90 days) for leave to enter a deficiency judgment under New York Real Property Actions & Proceedings § 1371. The statute then requires the court to calculate the "sum of the amount owing by the party liable," and issue an order directing the entry of the deficiency judgment. If the motion for deficiency judgment is not made as prescribed, the proceeds of the sale "shall be deemed to be in full satisfaction of the mortgage debt." § 1371(3).

The purpose of § 1371 was to protect mortgagors, after default, from double recovery through combined suits in equity — for the sale of the property — and in law, on the note. Before § 1371, the mortgagee could manipulate two awards so as to recover, by obtaining a judgment at law for the full amount of the debt, as well as a decree in equity for the sale of the mortgaged property. 14 Carmody-Wait 2d § 92:7 (1967). The § 1371 deficiency proceeding combines the legal and equitable remedies for mortgage default, so that the mortgagor can be held liable on the note only for that amount unsatisfied after the foreclosure sale.

SPMRES requests relief from its inadvertent omission of language under § 1371(1) awarding it the payment of the residue of the debt remaining unsatisfied after the sale of Herald Center. Glockhurst, holder of a collateral mortgage, joined by Herald Center Ltd., as represented by Sheriff Friedman, responds that under New York law, SPMRES' failure to include language "awarding a deficiency" before the holding of the auction bars it from seeking a deficiency judgment either from Herald Center, Ltd. or from Glockhurst.

Under New York law, a trial judge may amend a final judgment so that the judgment effectuates the intention of the court and provides relief to which a party would be entitled as a matter of course. Stannard v. Hubbell, 123 N.Y. 520, 25 N.E. 1084 (1890). Haven Associates v. Donro Realty Corp., 149 A.D.2d 667, 540 N.Y.S.2d 478 (App. Div. 1989). Such an amendment is regarded as procedural, and governed by procedure law. N.Y.Civ.Prac.L. & R. § 5019(a).*fn3 Haven Associates, 540 N YS.2d at 479 ("[C]lerical amendments may be made to a judgment when it inadvertently omits provisions clearly intended by the court."). In Stannard, a trial judge issued findings of facts and law in an action for breach of contract, without expressly speaking to the validity of a compensation clause contained in the contract. At the request of plaintiffs, the judge amended his findings in a subsequent order. The amendment stated that the findings did not dispose of the compensation clause question, and hence was "without prejudice to either party asserting or denying such abrogation in any other action." 123 N.Y. at 524. The Court of Appeals found such amendment to be within the trial judge's power. The Court stated that the trial judge has the inherent power to correct "clerical errors or a mistake in the entry of [a final] judgment, or . . . [to] direct the insertion in the judgment of a provision to which the party would have been entitled as matter of course in connection with the relief granted." 123 N Y at 527, 25 N.E. 1084 (emphasis added).*fn4 See also Herpe v. Herpe, 225 N.Y. 323, 327, 122 N.E. 204 (1919) ("[O]mission of a right or relief to which a party is entitled as a matter of course may alone be corrected by the trial court through an amendment."), cited in Irving Trust Co. v. Seltzer, 265 A.D. 696, 40 N.Y.S.2d 451, 454 (App. Div. 1943).

If the requested amendment alters substantive rights of parties, it is beyond the power of the court. Stannard, supra; CPLR 5019(a). In the mortgage foreclosure context, substantive rights would be affected by an amendment adding a deficiency if, for example, the party against whom the deficiency is sought had relied upon the absence of the language in the judgment in not attending the foreclosure sale or otherwise protecting her interests in avoiding deficiency, or if that party were prejudiced by inadequate notice of the proceeding. See, e.g., Irving Trust Co. v. Seltzer, 265 A.D. 696, 40 N YS.2d 451 (App. Div. 1943) (default judgment of sale cannot be amended after sale to include deficiency language; however, plaintiff granted leave to proceed in separate suit for judgment on bond); Baehr v. Smith, 169 A.D. 574, 155 N.Y.S. 453 (App. Div. 1915) (amendment not permitted, since plaintiff was presumed to rely in not appealing or attending the sale); Gellens v. Saso, 44 N.Y.S.2d 84 (Sup.Ct. 1943) (reliance is presumed); Folser v. Brown, 43 N.Y. So.2d 247 (Sup.Ct.), aff'd, 266 A.D. 954, 44 N.Y.S.2d 590 (App. Div. 1943) (court has "power to amend judgment" where deficiency was obviously being sought by party but should not exercise it because of actual reliance); Tousey v. Barber, 132 Misc. 861, 231 N.Y.S. 133 (Sup.Ct. 1928) (reliance on lack of deficiency language presumed). See also Banker's Trust v. 1 East 88th St., 283 N.Y. 369, 373, 28 N.E.2d 875 reh'g denied, 284 N.Y. 593, 29 N.E.2d 668 (1940) (framing, without ...


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