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LLC v. Burnell's Enterprises, Inc.

United States District Court, E.D. New York

September 7, 2019

SAC FUND II 0826, LLC, Plaintiff,
v.
BURNELL'S ENTERPRISES, INC., AMERICAN BUG CO., INC., a/k/a AMERICAN BUG COMPANY, INC., RONALD BASSETT as EXECUTOR OF THE ESTATE OF ADELL D. BASSETT, RONALD BASSETT, individually, NEW YORK CITY DEPARTMENT OF FINANCE, NEW YORK CITY ENVIRONMENTAL CONTROL BOARD, AMERICAN EXPRESS CENTURION BANK, and “JOHN DOE NO. I” to “JOHN DOE NO. XXX, ” inclusive, the last thirty names being fictitious and unknown to plaintiff, the persons or parties intended or corporations, if any, having or claiming an interest in or lien upon the premises described in the complaint, Defendants.

          REPORT AND RECOMMENDATION

          Peggy Kuo, United States Magistrate Judge

         Plaintiff SAC Fund II 0826, LLC brought this action against Defendants Burnell's Enterprises, Inc. (“Burnell's”), American Bug Company, Inc. (“American Bug”), Ronald Bassett, individually and as the Executor of the Estate of Adell D. Bassett, the New York City Department of Finance (“DOF”), the New York City Environmental Control Board (“ECB”), and American Express Centurion Bank (“American Express”), [1] pursuant to N.Y. Real Prop. Acts. Law §§ 1301 et seq. (McKinney, 2019), to foreclose a mortgage encumbering four separate properties located at (1) 193-02 Linden Boulevard., St. Albans, New York, (2) 110-11 Sutphin Boulevard., Jamaica, New York, (3) 111-21 Farmer's Boulevard., St. Albans, New York, and (4) 112-13 Francis Lewis Boulevard., Jamaica, New York (collectively, the “Properties”). (See Compl., Dkt. 1.) Plaintiff is the owner and holder of the note secured by the mortgage on the Properties. (Compl. ¶¶ 24-26; see also Compl., Ex. A, I.)

         Before this Court on referral from the Honorable Eric N. Vitaliano is Plaintiff's Motion for Default Judgment (the “Motion”). (See Dkt. 22; Oct. 10, 2018 Order.) For the reasons stated herein, the undersigned respectfully recommends that the Motion be granted as to Defendants, American Bug, Ronald Bassett, and American Express, but denied as to Defendants DOF and ECB.

         FACTUAL BACKGROUND

         A. Agreements between the Parties

         The Properties were encumbered through various instruments, including mortgages, notes, guaranties, and consolidation agreements (collectively, the “Loan Documents”) over the course of several years, as follows:

         April 16, 2002 “Mortgage and Security Agreement”

         On April 16, 2002, Burnell's[2], American Bug[3] and Luke Bassett executed a credit line mortgage, secured by a credit note, mortgaging the Properties and thereby securing a non-revolving credit line of $499, 000. Burnell's owned the property located at 193-02 Linden Boulevard, American Bug owned the properties located at 110-11 Sutphin Boulevard and 111-21 Farmers Boulevard, and Luke Bassett owned the property located at 112-13 Francis Lewis Boulevard. (Compl., Ex. G.) The mortgage was guaranteed “unconditionally” by American Bug and Luke Bassett, and was recorded in the Office of the City Register of the City of New York, Queens County (“Queens County Recording Office”). (Compl., Ex. B, C, I.)

         March 4, 2004 “Loan and Mortgage Modification Agreement”, “Gap Mortgage” & “Consolidation, Modification, and Extension Agreement”

         On March 4, 2004, a modification agreement converted the 2002 credit line into a term loan, and the credit line mortgage into a term mortgage. Luke Bassett had died, and Adell D. Bassett was named Executor of his Estate, [4] which assumed ownership of the mortgaged property at 112-13 Francis Lewis Boulevard (Compl., Ex. C). Under the agreement, his Estate assumed all of Luke Bassett's obligations under the guaranty and mortgage. Adell D. Bassett also assumed the role of “Unsecured Guarantor, ” and together with the mortgagors (Burnell's, American Bug, and the Estate of Luke Bassett), agreed to be jointly and severally liable under the mortgage and related notes. The agreement was recorded in the Queens County Recording Office. (Id.)

         On the same date, a “gap” mortgage added an additional $251, 000 of indebtedness to the original mortgage. (Compl., Ex. D.) The agreement provides for joint and several liability among the mortgagors and Adell D. Bassett as an additional guarantor.

         Burnell's, American Bug, and the Estate of Luke Bassett also executed an agreement restating the mortgagors' responsibilities in both the 2002 mortgage and the “gap” mortgage, and clarifying that the total principal mortgage had become $750, 000. (Compl. Ex. E.) An affidavit signed by Adell Doris Bassett noted that none of the $750, 000 had yet been repaid. (Id.)

         October 1, 2005 “Gap Mortgage”, “Consolidation, Modification, and Extension Agreement”, “Restated Promissory Note” & “Guaranty of Payment”

         On October 1, 2005, the mortgagors entered into a second “gap” mortgage in the amount of $200, 000. (Compl., Ex. F.) At the same time, an agreement acknowledged that the prior mortgages, plus the second “gap” mortgage, brought the total indebtedness on the properties to $950, 000 in a single mortgage. (Compl., Ex. G.) The mortgagors agreed they would be jointly and severally liable for the debt. The mortgagors also agreed that mortgagee could pursue a deficiency judgment in the event that a foreclosure action is brought. (Id., Ex. A, Section 10.9.) The gap mortgage and this agreement were recorded on March 15, 2006 in the Queens County Recording Office.

         Burnell's, as the named Borrower, also executed a Restated Promissory Note, which includes a security clause stating that payment under the loan is guaranteed jointly and severally by American Bug and Adell D. Bassett in her individual capacity and as Executor of the Estate of Luke Bassett. (Compl., Ex. A.)

         A “Guaranty of Payment” states that the mortgagee was willing to make the loan to Burnell's only if Adell D. Bassett, American Bug, and the Estate of Luke Bassett jointly and severally guaranteed payment of the debt to Community Capital Bank and its “successors and assigns.” (Compl., Ex. H., at ¶ 11.) The guaranty also bound “the heirs, executors, administrators, legal representatives, successors and assigns” of the guarantors to the agreement. (Id.)

         B. Succession of Ownership of the Loan Documents

         The original mortgagee on the Properties and holder of the Loan Documents, Community Capital Bank, merged with Carver Federal Savings Bank (“Carver”), which became the owner and holder of the Loan Documents. (Compl. ¶¶ 13; 23; Compl., Ex. I.) Carver subsequently assigned the Loan Documents to Plaintiff on September 24, 2015. (Compl. ¶¶ 24-26; see also Compl., Exs. A, I.) The assignment of the mortgages was duly recorded in the Queens County Recording Office on December 28, 2015. (Compl. ¶ 27; see also Compl., Ex. I.)

         C. ...


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