was filed that the Village might be the holder of a lien against the mortgaged premises which would be extinguished by a judgment of foreclosure and sale.
The Village's motion to dismiss is granted to the following extent: the relief granted will be limited to foreclosure of junior liens other than liens for "taxes, assessments, and water rates" as set forth in RPAPL § 1354(2). FHLMC may, under the judgment to be issued, foreclose on and cause the sale of the subject premise. Upon sale of the property, the Village may ascertain any liens it claims at that time by submitting to the court and all parties a list of such liens for payment out of the proceeds of the sale, if proper under RPAPL § 1354.
Absent special circumstances, it is appropriate to follow state law with respect to priority of liens and not to exercise the authority under N.Y. Real Property Actions & Procedures Law ("RPAPL") § 1354 to direct "otherwise", as permitted pursuant to RPAPL §§ 1354 (2), thereby extinguishing local tax and water claims.
See Federal Home Loan Mortgage Corporation v. Spark Tarrytown, Inc., 822 F. Supp. 137 (S.D.N.Y. 1993). In order to protect the legitimate interests of the Village where, as here, no special circumstances have been presented, it would be inappropriate to order "otherwise". I do not invoke such power here.
Municipalities are understandably concerned that applicable taxes and fees are at risk during foreclosures and at the same time they are reluctant to incur litigation costs entailed when they are, as the Village was in this case, named as defendants in mortgage foreclosure actions. Such entities appear to be appropriate but not necessary parties to such actions whose interests can be appropriately protected and properly limited by routine protective clauses in mortgage foreclosure complaints or by stipulation. A foreclosing creditor may be able to make appropriate provision for public sector parties such as the Village in its pleadings or proposed judgment on the one hand without endangering the legitimate interests of such parties or, on the other hand, compelling them to litigate.
Where public sector or federal agencies acquire financial and property claims that may result in foreclosure actions, prelitigation contact with political subdivisions holding or possibly holding liens for taxes, water charges and the like, might avoid the need for judicial involvement in dealing with such matters. This might be accomplished by routine stipulation that the judgment sought will not invoke the "otherwise directed" provisions of RPAPL § 1354. See Fed.R.Civ.P. 1; 28 USC § 473.
An alternative solution would be a complaint which makes it clear, in the prayer for relief or otherwise, that the party seeking foreclosure does not seek the subordination of any liens of the type protected in RPAPL § 1354 (2). If this approach is followed, there will be minimal burden on municipalities if named in complaints seeking limited relief.
Another option is available to a municipal defendant where, as here, the municipality believes that there are no outstanding liens nor any expectations of liens developing prior to the sale of the mortgaged property. The municipality may take the risk, as the state defendants have done in this case, of defaulting with dignity by submitting a notice of appearance and waiving service of all papers and notices with certain specified exceptions.
Deficiency judgments can have extremely harsh consequences, especially if natural persons should turn out to be liable for payments of those judgments. Accordingly, careful scrutiny is indicated of the applicant's entitlement to this type of relief and of the contractual limitations on liability which may be contained in the documents involved.
Should a foreclosure action focus at an early stage on claims for deficiencies, the result may be delay and uncertainty concerning ongoing responsibility for the property and the incentive to protect it.
Consideration of deficiency judgment issues at this pre-foreclosure juncture may lead to additional legal expenses imposed on all parties concerning matters which may turn out to be speculative. Whether there will be a deficiency will be unknown until the foreclosure sale has taken place. Decisions relating to the doctrine of ripeness are analogous if not directly applicable. See Rivervale Realty Co., Inc. v. Town of Orangetown, N.Y., 816 F. Supp. 937 (S.D.N.Y. 1993).
FHLMC's motion for a deficiency judgment is denied without prejudice to its renewal pursuant to RPAPL § 1371 (2) at the time FHLMC seeks confirmation of the sale of the mortgaged property.
FHLMC seeks attorney's fees of $ 7,745.50 for legal services rendered up to the time of filing its present motion.
Paragraph 8 of the original mortgage agreement provides in relevant part:
If Borrower fails to perform the covenants and agreements contained in this instrument . . . then Lender at Lender's option may . . . take such action as Lender deems necessary, in its sole discretion, to protect Lender's interest, including, but not limited to, (i) disbursement of attorney's fees . . . .
The contract in this case was originally an agreement between two private parties, neither of which is a federal agency, and therefore state law as well as common law are potential sources of authority for contractual construction. State law requires reasonableness as a basis for determination of the appropriate attorney's fee. See First National Bank of East Islip v. Brower, 42 N.Y.2d 471, 398 N.Y.S.2d 875, 368 N.E.2d 1240 (1977); Mead v. First Trust & Deposit Co., 60 A.D.2d 71, 400 N.Y.S.2d 936, 939 (4th Dep't 1977).
Furthermore, the concept of reasonableness is inherent in the concept of good faith in contracts generally.
Attorney's fees out of line with the underlying debt incurred should obviously not be countenanced whether the grounds upon which such a determination is made flow from state or federal law. See Schueler v. Roman Asphalt Corp., 827 F. Supp. 247, 1993 U.S. Dist. LEXIS 10200 (S.D.N.Y. 1993).
In this instance, FHLMC seeks to recover $ 7,745.50 in attorney's fees
as of the date when this application was filed where the principal amount owed on the note was $ 705,000. The attorney's fees sought appear to be reasonable in light of the services performed up to the stage of the litigation under consideration here and the hours set forth in FHLMC's motion papers, and they are well below ten per cent of the amount involved.
Dated: White Plains, New York
September 28, 1993
VINCENT L. BRODERICK, U.S.D.J.