Calendar Date: January 10, 2017
Schiller, Knapp, Lefkowitz & Hertzel, LLP, Latham
(Gregory J. Sanda of counsel), for appellant.
D. Lubow, Tannersville, for Robert Kallman, respondent.
Freeman Howard, PC, Hudson (Paul M. Freeman of counsel), for
Gregory J. Allen, respondent.
Before: Garry, J.P., Rose, Devine, Clark and Mulvey, JJ.
MEMORANDUM AND ORDER
from an amended order of the Supreme Court (McDonough, J.),
entered February 4, 2016 in Greene County, which granted a
motion by the receiver for defendant Windy Ridge Corp. to,
among other things, permit a sale of the property and mandate
plaintiff's discharge of the mortgage.
2003, defendant Robert Kallman and Sheldon Krupnick,
plaintiff's husband, borrowed funds from plaintiff to
finance their purchase of all of the capital stock in
defendant Windy Ridge Corp . Kallman and Krupnick, in
their capacity as the sole members of Windy Ridge, executed a
promissory note that obligated Windy Ridge to repay the loan.
To secure payment of the note, they also executed a mortgage
on all of the real property owned by Windy Ridge in the Town
of Windham, Greene County, and personally guaranteed the
note. After Windy Ridge failed to make payment, plaintiff
commenced this action against Windy Ridge and Kallman to,
among others, foreclose the mortgage and obtain a deficiency
judgment. Issue was joined and, in 2011, plaintiff moved for
summary judgment. Kallman then cross-moved for summary
judgment dismissing the complaint, alleging that he was
fraudulently induced to execute the note, mortgage and
thereafter, Kallman commenced a separate proceeding to
judicially dissolve Windy Ridge (see Business
Corporation Law § 1104-a). Supreme Court granted the
petition, appointed a receiver in that proceeding to
supervise the winding up of Windy Ridge's assets,
including the real property that is the subject of this
foreclosure action, and stayed this action (see
Business Corporation Law §§ 1008 [a] ; 1115 [a]
). Four years later, in 2015, the receiver entered into a
contract to sell all of Windy Ridge's assets. After
plaintiff sent the receiver a payoff letter indicating that
she was owed $460, 819.76, the receiver moved in this action
for an order directing that, upon the closing of title to
Windy Ridge's real property, he is to deliver to
plaintiff's attorney $480, 819.76 (the payoff amount of
$460, 819.76, plus $20, 000 as an estimated amount of
accruing interest) to be held in the attorney's escrow
account and, upon such payment, directing the Greene County
Clerk to, among other things, discharge plaintiff's
mortgage. Although the mortgage would then be discharged,
thereby allowing the receiver to transfer title, the funds
would remain in the escrow account of plaintiff's
attorney until further direction of the court after its
determination of the long-pending summary judgment motions.
Supreme Court granted the receiver's motion in full and
provided, among other things, that the payment into the
attorney's escrow account constituted "substitute
collateral" for the mortgage. Plaintiff now appeals.
agree with plaintiff that Supreme Court lacked the authority
to grant the relief requested by the receiver. It is well
settled that "a foreclosure action is a 'proceeding
in a court of equity which is regulated by statute'"
(Jo Ann Homes at Bellmore v Dworetz, 25 N.Y.2d 112,
122 , quoting Dudley v Congregation of Third Order
of St. Francis, 138 NY 451, 457 ). Here, Supreme
Court erroneously relied on RPAPL 1921 as authority for
directing the County Clerk to mark the mortgage as
"discharged" upon proof of payment into the escrow
account. While the RPAPL provides "a mortgagor or other
interested party with a statutory remedy for obtaining a
satisfaction of mortgage" (Merrill Lynch Equity Mgt.
v Kleinman, 246 A.D.2d 884, 886 , lv
denied 92 N.Y.2d 802');">92 N.Y.2d 802 ), the condition precedent to
receiving a discharge is that full "payment of
authorized principal, interest and any other amounts due
thereunder or otherwise owed by law has actually
been made" (RPAPL 1921  [emphasis added];
see Farmingdale Realty Trust v Real Props. MLP Ltd.
Partnership, 225 A.D.2d 656, 657-658 ; Weiss v
Weiss, 206 A.D.2d 741, 743 ). In our view, the
receiver's deposit of the money into the escrow account
of plaintiff's attorney falls short of full payment
actually made to plaintiff because, even assuming that $480,
819.76 represents the actual dollar amount of the loan plus
interest owed to plaintiff, payment to plaintiff is
contingent upon the occurrence of a later event, namely,
Supreme Court's determination of the long-pending summary
judgment motions . Thus, we find that RPAPL 1921 did not
provide Supreme Court with the authority to direct the County
Clerk to mark the mortgage as discharged of record.
we are unpersuaded by the receiver's contention that UCC
9-313 permits Supreme Court to direct that the escrowed funds
would constitute substitute collateral for the mortgage. UCC
9-313 merely provides that a security interest is perfected
when a secured party takes possession of the collateral. It
does not authorize Supreme Court to substitute
plaintiff's collateral in the first instance and, as we
have said, payment into the escrow account under the
conditions imposed here is not tantamount to possession of
the collateral by plaintiff (see UCC 9-313 [a]).
there is no merit to the receiver's assertion that
Business Corporation Law § 1206 gives him the same power
that a trustee in bankruptcy has under chapter 7 of the
Bankruptcy Code to dispose of real property free and clear of
all liens and mortgages. In short, Supreme Court lacked the
equitable authority to fashion the remedy at issue. The
parties' remaining contentions have been considered and
found to be without merit.
J.P., Devine, Clark and Mulvey, JJ., concur.
that the amended order is reversed, on the law, without