United States District Court, Western District of New York
April 2, 1990
MONROE SAVINGS BANK, FSB, PLAINTIFF,
VINCENT CATALANO, LENA M. CATALANO, AND UNITED STATES OF AMERICA, DEFENDANTS.
The opinion of the court was delivered by: Telesca, Chief Judge.
DECISION AND ORDER
Monroe Savings Bank, FSB ("Monroe") commenced this action to
foreclose a mortgage it holds against a single family residence
located at 789 Ayrault Road in Perinton,
New York (the "Property"). The property is owned by defendants
Vincent and Lena M. Catalano (the "Catalanos"). The United States
has seized the property and has brought a forfeiture proceeding,
which is currently pending before this Court. See United
States v. The Premises and Real Property at 789 Ayrault Rd.,
No. 88-8747. Monroe now moves for summary judgment seeking a
judgment of foreclosure. For the reasons discussed below, the
plaintiff's motion for summary judgment is granted.
On July 5, 1984, Monroe financed the Catalanos' purchase of the
property in exchange for a $65,000 mortgage. In the summer of
1988, the United States seized the property and subsequently
brought an action in this Court to forfeit the property pursuant
to 21 U.S.C. § 881(a)(7). Upon being served with a summons
and complaint in the forfeiture action, Monroe filed a claim with
the United States based upon its mortgage lien against the
property. Thereafter, the United States and Monroe entered into
a written stipulation which provides in pertinent part:
2. United States of America recognizes [Monroe's
mortgage] lien against the subject premises as
superior to all and any claims of the United States
3. [Monroe] . . . elects to permit said forfeiture
action to proceed to judgment with the understanding
that should the United States of America prevail in
this forfeiture, the [Catalanos'] property is to be
disposed of by the United States Marshal's Service
. . . To the extent that said sale does not result in
a sum sufficient to pay any and all of . . .
[Monroe's mortgage] lien, the lien shall continue to
remain a first and superior lien in all respects to
the claims of the United States of America . . .
6. Upon full payment of said mortgage as provided in
paragraph 3 above, . . . [Monroe] acknowledges that
all their right, title and interest in . . . [the
Catalanos'] property is thereby extinguished . . . It
is further agreed that if an order of forfeiture is
granted in this action, it will expressly provide for
full payment of . . . [Monroe's mortgage] as set
Stipulation and Order of Nov. 4, 1988 (No. 89-203T).
Soon after the United States commenced this forfeiture
proceeding, the Catalanos defaulted on their mortgage. Since no
attempt was made to cure the default, and since the United States
had asserted a claim against the property, Monroe commenced this
foreclosure action pursuant to 28 U.S.C. § 2409a. Although
the defendants do not contest the validity of Monroe's mortgage,
they do dispute the bank's right to foreclose. The Government
additionally claims that this Court lacks jurisdiction to
entertain this motion with respect to the Government's interest.
Given its threshold nature, I will consider the Government's
jurisdictional objection first.
Sections 1346(f) and 2409a of Title 28 grant the district
courts original jurisdiction over civil actions to quiet title to
real property in which the United States claims an interest.
Taken together, these provisions "cast a wide jurisdictional
net" and extend to a "variety of suits besides the typical quiet
title action," United States v. Bedford Associates,
657 F.2d 1300, 1316 (2nd Cir. 1981), cert. denied,
456 U.S. 914, 102 S.Ct. 1767, 72 L.Ed.2d 173 (1982), including those
involving simultaneous forfeiture and foreclosure proceedings,
United States v. Real Property in Sevier Cty., Tenn.,
703 F. Supp. 1306 (E.D.Tenn. 1988); United States v. Real
Property Titled in the Name of Shashin, Ltd., 680 F. Supp. 332
(D.Haw. 1987) (hereinafter "Shashin"). Indeed, as
the Second Circuit held in Bedford Associates, §
2409a (and § 1346(f)) confer jurisdiction over property
interests asserted by the United States whenever, as is the case
here, that interest is "adverse" to that of the plaintiff. 657
F.2d at 1316. Accordingly, the Government's interest is properly
the subject of this court's jurisdiction.
Summary Judgment with Respect to the Catalanos
By its own terms, Monroe's mortgage provides that it may
foreclose on the property in the event of default. While the
Catalanos admit that they have failed to make any payments since
August 1988, they claim that they were relieved of their mortgage
obligation when the Government wrongfully seized the
property.*fn1 I find such a defense to be without merit.
It is well settled in New York that a mortgagee cannot be
denied relief provided for under a mortgage because of conditions
or circumstances not attributable to the mortgagee. "[A]
mortgagor is bound by the terms of his contract as made and
cannot be relieved from his default, if one exists, in the
absence of waiver by the mortgagee, or estoppel, or bad
faith, broad, oppressive or unconscionable conduct on the
latter's part." Nassau Trust Co. v. Montrose Concrete
Products Corp., 56 N.Y.2d 175, 183, 451 N.Y.S.2d 663,
436 N.E.2d 1265 (1982) (emphasis added) (quoting Ferlazzo v.
Riley, 278 N.Y. 289, 292, 16 N.E.2d 286 (1938)); see
also Gratton v. Dido Realty Co., Inc., 89 Misc.2d 401, 403,
391 N.Y.S.2d 954 (1977), aff'd, 63 A.D.2d 959, 405
N YS.2d 1001 (1978) (in the absence of an estoppel or oppressive
and unconscionable acts by plaintiff, the Court is duty bound to
enforce the mortgage as written by the parties). Although these
conditions will relieve the mortgagor from default, each requires
some provisional language in the mortgage or some misconduct by
the mortgagee to bar foreclosure. Absent such allegations here,
the fact the United States has seized the property does not
relieve the Catalanos of their mortgage obligation. Monroe is
thus entitled to summary judgment against the Catalanos.
Summary Judgment with Respect to the Government
The Government argues initially that Monroe cannot force a
mortgage foreclosure on real property which is subject to a
pending forfeiture proceeding by the government. I disagree.
Although the Government's current possession of the property
certainly accords it some rights, its interest in the property is
necessarily delimited by, and subordinate to, Monroe's bona fide
interests which existed prior to the prohibited conduct.
The Government's interest in the property is predicated upon
21 U.S.C. § 881(a)(7), which subjects to forfeiture all real
property used in the commission of a controlled substance felony.
That provision provides, however, that "no property shall be
forfeited under this paragraph . . . to the extent of an
[innocent owner's] interest." This mitigating language, in
effect, codifies the long-standing principle first established in
United States v. Stowell, 133 U.S. 1, 20, 10 S.Ct. 244,
248, 33 L.Ed. 555 (1890), that forfeiture entitles the Government
"to no greater interest in the property than that which belonged
to the wrongdoer whose actions justified the seizure." In re
Metmor Financial, Inc., 819 F.2d 446, 448-49 (4th Cir.
1987). The purpose of the "innocent owner" provision is simply to
ensure that "bona fide parties" holding an interest in property
have an opportunity to show that illegal drug activity was
committed without their knowledge or consent. Id. at 449
(citing testimony of Rep. Rogers and Sen. Nunn, 124 Cong.Rec.
36,946, 23,057 (1978))*fn2; Shashin, 680 F. Supp. at
334. Once a bona fide party satisfies its burden of proof, the
Government takes subject to both the nature and extent of that
party's rights in the property.*fn3 Metmor, 819 F.2d
at 449. Any other result would amount to a taking without due
process. Id.; United States v. Real Property At 4492 South
Livonia Rd., 889 F.2d 1258, 1264-65 (2nd Cir. 1989).
The Government does not dispute that Monroe had a pre-existing
mortgage on the property, and that the bank neither consented to
nor knew of any illegal activity associated with the property.
Accordingly, Monroe is entitled to a judgment establishing its
rights as an innocent mortgagee. By the very nature and terms of
its mortgage agreement, those rights necessarily include the
right to foreclose on the property if the debt is unpaid.
Callaghan, Mortgages and Mort. Foreclosure N.Y. §
1:2, at 2 (rev. ed. & Supp. 1989) ("mortgage" necessarily imports
right of foreclosure); but see United States v. Parcel of
Real Property Known as 708-710 W. 9th St., 715 F. Supp. 1323,
1327 (W.D.Pa. 1989) (foreclosure provisions only remedial and
therefore not part of mortgagee's property interest). To hold
otherwise would effectively transform Monroe's mortgage into an
unsecured and interest-free loan and thereby eviscerate its
interest in the property. As discussed above, such a result would
amount to an impermissible "taking" under the Fifth Amendment.
Metmor, 819 F.2d at 449; Parcel of Real Property
Known as 708-710 W. 9th St., 715 F. Supp. at 1326.
Accordingly, Monroe is entitled to exercise its right of
foreclosure subject only to certain restrictions imposed by §
Under § 2409a(b), the Government possesses a circumscribed
right of election whenever, as here, it is presently in the
possession of property. Section 2409a(b) provides in pertinent
the United States . . . [may] not be disturbed in
possession or control of any real property involved
in any action under this section pending a final
judgment or decree, the conclusion of any appeal
therefrom, and sixty days; and if the final
determination shall be adverse to the United States,
. . . [it] nevertheless may retain such possession or
control of the real property or any part thereof as
it may elect, upon payment to the person determined
to be entitled thereto . . . an amount which . . .
the District Court . . . shall determine to be just
compensation for such possession or control.
28 U.S.C. § 2409a(b) (emphasis added).
Pending an appeal, the Government therefore has the option under
§ 2409a(b) of either releasing the property to Monroe for
foreclosure, or retaining the property and compensating Monroe to
the extent of its interest. Cf. Shashin, 680 F. Supp. at
335 (Government's election may occur after resolution of
This manner of disposition fairly accommodates the competing
interests of both parties. Should the Government elect to release
the property for foreclosure, forfeiture will entitle it to the
proceeds from any subsequent sale to the same extent as the
mortgagors. See Mortgages & Mort. Foreclosure N.Y. §
27:1, at 588. Alternatively, if the Government opts to pay Monroe
and take assignment of the mortgage, it could foreclose on the
mortgage and recoup its losses even should it fail to obtain a
judgment of forfeiture.*fn4
I am unpersuaded by the Government's argument that such a
resolution will deny it any financial benefit from its forfeiture
proceeding and thereby undermine the policies
of the forfeiture statutes. The primary purpose of these statutes
is to deprive narcotic peddlers of the operating tools of their
trade, and not, as the Government argues, to boost the Federal
treasury. See United States v. One 1972 Datsun,
378 F. Supp. 1200 (D.N.H. 1974); Certain Real Property Known as
Gulfstream West, 710 F. Supp. at 794; cf. Metmor,
819 F.2d at 450 n. 7. A broader policy, such as that suggested by
the Government, would run afoul of the Fifth Amendment to the
extent it permitted the Government to deprive innocent parties of
their interests in property.
Monroe's Purported Contractual Waiver Of Its Right To
The Government nonetheless argues that Monroe waived and/or
subrogated its rights to foreclose by agreeing "to permit . . .
the forfeiture action to proceed to judgment with the
understanding that should the United States prevail in th[e]
forfeiture, the defendant property is to be disposed . . .
according to law." Stipulation and Order of Nov. 4, 1988, at
¶ 3. Monroe argues that it did not intend by this language to
waive any of its rights under the mortgage and that the purpose
of the stipulation was simply to relieve it from any obligation
to appear and participate in the forfeiture action in which
Monroe had been named a defendant. Affidavit of Brian McAvoy, at
Under New York law, contractual intent poses a triable issue of
fact only when the contractual provision in question is
ambiguous. International Klafter Co. v. Continental Casualty
Co., 869 F.2d 96, 100 (2d Cir. 1989); Walk-In Medical
Centers, Inc. v. Breuer Capital Corp., 818 F.2d 260, 263
(2nd Cir. 1987); Teitelbaum Holdings, Ltd. v. Gold, 48
N Y2d 51, 56, 421 N.Y.S.2d 556, 396 N.E.2d 1029 (1979). Such is
not the case here. According to the express terms of the
stipulation, the United States recognized Monroe's superior right
to both the property and any attendant proceeds received upon
sale. Nowhere in the agreement is there any suggestion that
Monroe intended to waive its right to foreclose nor is such a
construction reasonable. Monroe is therefore entitled to summary
judgment with respect to the Government as well.
ALL OF THE ABOVE IS SO ORDERED.