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March 21, 1995


The opinion of the court was delivered by: BRIEANT


 Brieant, J.

 By motion fully submitted and supplemented by matters of record in another lawsuit filed in this Court entitled, United States v. Holiday Syrups, et al., 93 Civ. 1620 (GLG) ("the Holiday Syrups Case"), the Government seeks summary judgment in its favor and a default judgment enforcing a junior mortgage upon residential property occupied by defendant Herman Levine as his residence and owned by defendants Lisa and Jennifer Levine. The Court concludes for the reasons set forth below that summary judgment should be granted in favor of the non-moving defendants, dismissing this action as a matter of law. The facts set forth below are uncontested.

 The complaint in this action was filed on January 18, 1994. Familiarity therewith is assumed. The complaint alleges that it was, "brought by the United States of America to collect a sum due and owing to the Small Business Administration (SBA)" on a promissory note and to foreclose a mortgage on property known as 34 Kennedy Terrace located in the City of Middletown, County of Orange, State of New York, in this district (Complaint, P 1).

 On or about April 29, 1977, Bankers Trust Company of Hudson Valley, N.A. (the Lender) loaned to Holiday Syrups, Inc. (the Borrower) the sum of $ 250,000.00, eighty percent of which was guaranteed by the plaintiff through the SBA. The loan was secured by a first mortgage on the business premises of Holiday Syrups, 12-14 Stanton Street, in the City of Middletown, New York.

 On or about the same date, Herman Levine, a principal of the Borrower, and his since deceased wife Linda, delivered their own promissory note to the Lender in the same amount. It is undisputed that the Levine note represented the same indebtedness, and the status of the Levines was that of guarantor of the Holiday Syrups loan. The Levines also delivered a junior real estate mortgage covering their home at 34 Kennedy Terrace in Middletown, New York, the mortgage sought to be foreclosed in this lawsuit, in the amount of $ 35,000.00 in favor of Bankers Trust Company of Hudson Valley, N.A., which mortgage was duly recorded on May 5, 1977 in Orange County Liber 1717 mp 747. That mortgage, which is attached to the complaint in this action, expressly recites that it is given as collateral security for the indebtedness of Holiday Syrups, Inc.

 The complaint in this action seeks judgment holding that Herman Levine and Linda Levine (since deceased) are in default as to that mortgage, and foreclosing their interest in the property and all liens or ownership interests junior in equity to that of the United States as successor of the SBA as guarantor of the loan made by Bankers Trust Company of Hudson Valley, N.A. to Holiday Syrups. *fn1"

  A notice of pendency was duly filed in this Court and in the Office of the Clerk of the County of Orange on or about January 20, 1994.

 The answer in this action, docketed February 24, 1994, pleads as a third affirmative defense in law, the pendency before this Court of another action relating to the same indebtedness. That "other action" is, of course, the Holiday Syrups litigation under Docket No. 93 Civ. 1620 (GLG).

 Holiday Syrups, the principal obligor or borrower, defaulted on or about June 24, 1980, and on that day the Lender assigned the note, a mortgage on the Borrower's business premises on Stanton Street in Middletown, New York, and the guaranty and mortgage given as collateral by the Levines on the Kennedy Terrace home to SBA, the SBA accelerated the indebtedness and made demand upon the Borrower and the Levines for the full amount then owed by Holiday Syrups. As of June 24, 1994, the SBA certified that the unpaid balance due to the United States of America under the guaranty by Herman Levine was $ 84,000.00.

 On April 28, 1991, an involuntary bankruptcy petition was filed in this district with respect to Holiday Syrups. This debtor's estate was closed January 29, 1987 by the Bankruptcy Court pursuant to Chapter 7 of the Bankruptcy Code and the collateral abandoned. See In re: Holiday Syrups, Inc., 81 B 30228. On March 16, 1993, the United States filed the Holiday Syrups action, 93 Civ. 1620, previously referred to herein, seeking to foreclose the mortgage on the business real property formerly owned by the Borrower and located in the City of Middletown, New York, at 12-14 Stanton Street, hereinafter referred to for convenience as the "Holiday Syrups Property". The defendants named in 93 Civ. 1620 in addition to Holiday Syrups included the City of Middletown, the New York State Industrial Commissioner and the New York State Workers Compensation Board. However, none of the Levines were sued in that case.

 As of the date of the notice of pendency, the record title of 34 Kennedy Terrace appears to have been in defendants Lisa Levine and Jennifer Levine, with occupancy by defendant Herman Levine. Their title was subject to a prior first mortgage of record initially held by Inter County Savings Bank, and a junior lien of Old Dutch Mustard Co., Inc., another defendant in this lawsuit.

 The Holiday Syrups litigation proceeded to final judgment before Judge Goettel of this Court. The Government, although well aware of the underlying facts, declined to make the Levines parties to that litigation. The United States Marshal sold the Stanton Street property in foreclosure on November 18, 1994 at a Public Judicial Sale, equivalent to an auction, conducted in the lobby of the Supreme Court Wing of the Orange County Government Center in Goshen, New York. The SBA purchased the Holiday Syrups property for the sum of $ 45,000.00. The Court has been informed without contradiction that the value of the Stanton Street property was approximately $ 100,000.00 according to a recent appraisal by the SBA. See Tr. of July 22, 1994 at p. 9 in this action. *fn2"

 No application for a deficiency judgment was made in the Holiday Syrups case. None could be made as to the debtor because the debt itself had been discharged in bankruptcy, and, as noted, Herman Levine was not made a party, although he could have been.

 This transaction is an ordinary commercial loan of the sort made, financed and enforced by a method which is common in the State of New York. Our Supreme Court has held that absent a special provision of federal law to the contrary, the State Court rules and laws relating to the foreclosure of mortgages, where they "furnish convenient solutions in no way inconsistent with the adequate protection of the federal interest", and are laws of general commercial applicability upon which private lenders base their daily commercial transactions, should be followed when the United States forecloses a commercial mortgage. United States v. Kimbell Foods, Inc., 440 U.S. 715, 729, 59 L. Ed. 2d 711, 99 S. Ct. 1448 (1979). See also Stochastic Decisions, Inc. v. Wagner, et al., 34 F.3d 75 (2d Cir. 1994) (applying New York statute, RPAPL Section 1371, discussed below).

 We turn therefore to the effect of the third affirmative defense pleaded in the answer in this case, based on the New York statute and cases pertaining to the foreclosure of commercial mortgages. The applicable New York statute, Section 1371 of New York Real Property Actions and Proceedings Law ("RPAPL") provides that, "if no motion for a deficiency judgment is made as described in this section, the proceeds of the [judicial] sale regardless of amount shall be deemed to be in full satisfaction of the mortgage debt and no right to recover any deficiency in any action or proceeding shall exist."

 The foreclosure of the Stanton Street property in the Holiday Syrups action before Judge Goettel of this Court is such a sale, and it is uncontested that no application was made therein for a deficiency judgment. Indeed, Herman Levine was not even sued in the action, although there was no reason why he could not have been.

 The clear and direct provisions of the New York Real Property Action and Proceedings Law which bar this second bite in the litigation are amplified and explained in Sanders v. Palmer, 68 N.Y.2d 180, 507 N.Y.S.2d 844, 499 N.E.2d 1242 (1986), a case involving a guarantor factually similar to the instant case. The New York Court of Appeals held in Sanders that where, as here, principals of a corporation guaranteed a mortgage loan made to the corporation, and a third guarantor secured her guaranty by giving a second mortgage on her own unrelated real property, a failure of the plaintiff mortgage holder to seek and obtain a deficiency judgment in the prior foreclosure against the third guarantor, resulted in the satisfaction of her mortgage.

 This Court, finding the Sanders case indistinguishable, concludes that as a matter of law, having failed to sue Herman Levine in the case before Judge Goettel and obtain a deficiency judgment against him between the true market value of the Stanton Street mortgaged premises in that foreclosure and the amount owed, the Government is barred in this lawsuit just as would be a private commercial lender. See Security Pacific Mortgage and Real Estate Services, Inc. v. Herald Center, 731 F. Supp. 605, 611 (S.D.N.Y. 1990), citing Sanders with approval (opinion by Hon. Pierre N. Leval, now a United States Circuit Judge).

 This Court concludes that the Government lost the right to obtain a deficiency judgment and to enforce the guaranty against the Levines and the Kennedy Terrace property, by failing to name Herman Levine as a defendant in the Holiday Syrups case as required by the New York Real Property Action and Proceedings Law, as explained in Sanders, supra. *fn3"

 The Court directs that the Clerk shall enter a final judgment dismissing this action. The judgment shall provide that the notice of pendency shall not be cancelled of record pending appellate finality.


 Dated: White Plains, New York

 March 21, 1995

 Charles L. Brieant


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