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FEDERAL HOME LOAN MORTG. CORP. v. SPARK TARRYTOWN

August 12, 1993

FEDERAL HOME LOAN MORTGAGE CORPORATION, Plaintiff,
v.
SPARK TARRYTOWN, INC., PEOPLE OF THE STATE OF NEW YORK, THE TOWN OF MOUNT PLEASANT, VILLAGE OF NORTH TARRYTOWN, and JOHN DOE NOS. 1 TO 20, Defendants. VILLAGE OF NORTH TARRYTOWN, Third Party Plaintiff, v. LARRY RUSH, Third Party Defendant.



The opinion of the court was delivered by: VINCENT L. BRODERICK

 VINCENT L. BRODERICK, U.S.D.J.

 I

 This mortgage foreclosure action raises important issues with respect to the duties of a court-appointed receiver, the mortgagee, and municipal agencies where the property is not reliably generating sufficient funds to make urgently required repairs.

 The receiver for the subject property was appointed by order dated September 29, 1992, for the purpose of collecting rents and profits for the benefit and to protect the rights of the plaintiff mortgagee, Federal Home Loan Mortgage Corporation ("FHLMC"). On May 27, 1993, I granted a judgment of foreclosure and sale to FHLMC. Federal Home Loan Mortgage Corp. v. Spark Tarrytown, 822 F. Supp. 137 (SDNY 1993). The sale of the property has not yet taken place.

 The receiver has moved for guidance with regard to priorities for expenditure of monies available to the receiver, for insulation of the receiver and his managing agent from personal liability for failure to correct violations of the housing maintenance code of the Village of North Tarrytown (the "Village"), and for a determination of whether the receivership should be terminated. The Village has opposed portions of the motion.

 Where health and safety is at stake, it would not do for a receiver to devote attention to fears of potential personal liability. Accordingly, in the circumstances of this case, I grant the motion to the extent of determining that (1) the receivership shall continue, (2) the receiver shall have no personal liability for any acts or omissions in connection with the performance of his duties as receiver, and (3) the receiver shall proceed diligently to undertake exigent repairs of outstanding health and safety hazards to the property and shall seek to increase the monthly rent revenues, with the cooperation of the Village in advancing these goals, as set forth in part V below.

  II

 The building involved in the present controversy was constructed between approximately 1885 and 1895. It includes 18 residential apartments of which 14 had been rented as of July 7, 1993, one commercial space and a superintendent's apartment. Monthly receipts between November 1992 and May 1993 ranged from $ 1,200 to $ 8,983. *fn1" As of May 31, 1993 the receiver held a cash balance of $ 10,312.21 with respect to the property, which included an advance of $ 10,000 made by FHLMC at the time the receivership was established.

 The receiver first inspected the building shortly after his appointment. Several weeks later, FHLMC provided the receiver with a copy of a report prepared by a professional consulting engineer dated August 12, 1992 concerning the condition of the building (the "engineer's report"). The estimated cost of repairing the building was $ 416,300, of which $ 337,350 represented "Priority A (Top Priority)" repairs, relating to "all life, safety and basic service issues." Defendant Spark Tarrytown, Inc.'s total indebtedness to FHLMC was $ 441,231.02 as of January 12, 1993. The appraised value of the property as of June 1992 was $ 275,000.

 On October 1, 1992 the tenants were notified of the receiver's appointment and that all subsequent rents were to be paid to him. A majority of the tenants failed to do so. In March 1993 *fn2" the receiver instituted ten summary proceedings for non-payment of rent in the Village Court, pursuant to Article 7 of New York Real Property Actions and Proceedings Law, against those tenants who were in arrears.

 Several months of settlement negotiations with Westchester/Putnam Legal Services, representing the respondent tenants, resulted in a tentative stipulation of settlement which was presented to the Village Court for execution on June 3, 1993. The receiver first met the Village housing inspector on that occasion, during which he learned that the prior owner had failed to cure violations placed on the building prior to the commencement of the foreclosure action *fn3" pursuant to Village Code ยง 30A-31 et seq. The receiver also learned that the housing inspector had recently inspected the building, finding such extensive violations that a vacate order could be placed on the premises *fn4" but that the housing inspector would not do so because he did not want to displace the tenants.

 The receiver states that he was then informed about the following Village requirements:

 
(a) for each and every job done on the premises costing $ 100.00 or more, I would be required to purchase a work permit from the Village of North Tarrytown;
 
(b) any work performed would have to be done under the housing inspector's supervision;
 
(c) any work performed would have to be done by a contractor licensed by ...

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