UFP Atlantic Division, LLC v. Route 299 Retail Center, LLC et al

Filing 122

AMENDED MEMORANDUM-DECISION AND ORDER re 110 Memorandum-Decision and Order re 105 Motion to Confirm: The Court hereby ORDERS that, as set forth in the Court's July 2, 2014 Memorandum-Decision and Order, Plaintiff's motion to confirm t he Referee's Report of Sale is GRANTED; and the Court furtherORDERS that Plaintiff's motion for leave to file a deficiency judgment is GRANTED; and the Court further ORDERS that, pursuant to New York Real Property Actions and Proceedings La w § 1371, Plaintiff is granted leave to enter a deficiency judgment against Defendants Route 299 Retail Center, LLC, and Highland Square Development, LLC, in the amount of $2,840,458.15with interest thereon from July 30, 2013, and Plaintiff shall have execution therefor; and the Court further ORDERS that, pursuant to New York Real Property Actions and Proceedings Law § 1371, the amount of the deficiency against Michael Barnett and Denise Barnett is set in the amount of $2,840 ,458.15 based on a pre-bankruptcy debt that is subject to discharge inbankruptcy (In re Barnetts, S.D.N.Y. Bankr. 12-37991 cgm), and is set as to Michael Barnett and Denise Barnett solely to determine the deficiency amount due as to Plaintiff's right to file and be paid on its unsecured proof of claim in the bankruptcy pursuant to the bankruptcy court's February 21, 2013; and the Court further ORDERS that the Clerk of the Court shall enter Judgment against Defendants Route 299 Retail Center, LLC and Highland Square Development, LLC, in the amount of $2,840,458.15 with interest thereon from July 30, 2013. Signed by U.S. District Judge Mae A. D'Agostino on 12/17/14. (ban)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
____________________________________________
UFP ATLANTIC DIVISION, LLC a
Michigan limited liability company,
Plaintiff,
vs.

1:12-cv-00053
(MAD/ATB)

ROUTE 299 RETAIL CENTER, LLC
a New York limited liability company,
MICHAEL BARNETT, an individual,
DENISE BARNETT, an individual,
HIGHLAND SQUARE DEVELOPMENT, LLC,
P. SALA & SONS CONSTRUCTION, INC.,
TECTONIC ENGINEERING & SURVEYING
CONSULTANTS, P.C., CREIGHTON
MANNING ENGINEERING LLP, JOHN
DOES 1-10 said names being fictitious and
unknown to Plaintiff, the persons or parties
intended being any and all tenants, occupants,
persons or corporations, if any, having or
claiming an interest in or lien upon the
premises described in the Amended Complaint,
Defendants.
____________________________________________
APPEARANCES:

OF COUNSEL:

ISEMAN, CUNNINGHAM,
REISTER & HYDE, LLP
9 Thurlow Terrace
Albany, New York 12203
Attorneys for Plaintiff

RICHARD A. MITCHELL, ESQ.
MICHAEL W. DEYO, ESQ.

ROUTE 299 RETAIL CENTER, LLC
Defendant pro se
MICHAEL BARNETT
10 Wintergreen Place
Hopewell Junction, New York 12533
Defendant pro se

DENISE BARNETT
6 Heather Court
Fishkill, New York 12524
Defendant pro se
HIGHLAND SQUARE DEVELOPMENT LLC
Defendant pro se
CORBALLY, GARTLAND, AND
RAPPLEYEA, LLP
35 Market Street
Poughkeepsie, New York 12601
Attorneys for Defendant P. Sala &
Sons Construction, Inc.

WILLIAM W. FRAME, ESQ.

MILBER MAKRIS PLOUSADIS
SEIDEN, LLP
1000 Woodbury Road
Suite 402
Woodbury, New York 11797
Attorneys for Defendant Tectonic
Engineering & Surveying
Consultants, P.C.

PATRICK F. PALLADINO, ESQ.

DRIVER GREENE, LLP
90 State Street
Suite 1011
Albany, New York 12207
Attorneys for Defendant Creighton Manning
Engineering, LLP

JOHN D. HOGGAN, JR., ESQ.

Mae A. D'Agostino, U.S. District Judge:
AMENDED MEMORANDUM-DECISION AND ORDER
I. INTRODUCTION
Plaintiff brought this action pursuant to New York Real Property Actions and Proceedings
Law ("RPAPL") section 1301 et seq, seeking to foreclose on a mortgage and obtain judgment on
a separate promissory note. See Dkt. No. 39 at ¶ 1. On October 4, 2013 Plaintiff filed a motion to
confirm the Referee's Report of Sale, and for leave to enter a deficiency judgment against
Defendants Route 299 Retail Center, LLC ("Route 299"), Michael and Denise Barnett, and
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Highland Square Development, LLC ("Highland"). See Dkt. No. 105-3. In a MemorandumDecision and Order dated July 2, 2014, the Court (1) granted Plaintiff's motion to confirm the
Referee's Report of Sale, (2) stayed Plaintiff's motion for leave to file a deficiency judgment, and
(3) ordered Plaintiff to submit evidence establishing the fair market value of the property within
thirty days of the Court's Memorandum-Decision and Order. See Dkt. No. 110. On August 1,
2014, Plaintiff submitted its affirmation in further support of its motion to confirm the Report of
Sale and for leave to enter deficiency judgment, in compliance with the Court's MemorandumDecision and Order. See Dkt. No. 115.
Currently before the Court is Plaintiff's motion for leave to enter deficiency judgment.
See Dkt. Nos. 105-3 and 115.

II. BACKGROUND
This action was commenced on June 17, 2011 to recover a debt owed by Defendants
Route 299, Michael Barnett, and Denise Barnett under a mortgage note. See Dkt. No. 1-2. On
March 1, 2012, Plaintiff filed an amended complaint, which converted this action into one
seeking to foreclose on a mortgage owned by Plaintiff. See Dkt. No. 39. The mortgage
encumbers certain real property owned by Highland, which is commonly known as 50-70 State
Route 299, Town of Lloyd, County of Ulster, New York. See id. at ¶ 18. The mortgage also
encumbers real property owned by Route 299, which is commonly known as 20-40 State Route
299, Town of Lloyd, County of Ulster, New York (together, the "Mortgaged Property"). See id.
at ¶ 20. In its amended complaint, Plaintiff also added M&C of Dutchess, LLC,1 P. Sala and Sons
Construction, Inc., Tectonic Engineering and Surveying Consultants, P.C., Creighton Manning

1

M&C of Dutchess, LLC is no longer a party in this action. See Dkt. No. 80.
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Engineering, LLP, and unknown parties referred to as "John Doe" Defendants because each of
these entities may claim to have an interest in the Mortgaged Property. See id. at ¶¶ 7-12.
On or around December 16, 2010, Highland and Route 299 executed and delivered to
Plaintiff a promissory note in the principle amount of $5,000,000.00. See id. at ¶ 25; Dkt. No. 396 at 35-39.2 Pursuant to the note, Highland and Route 299 are each jointly and severally liable for
all amounts due under the note. See Dkt. No. 39 at ¶ 26. To secure payment of the note,
Highland and Route 299 executed and delivered to Plaintiff a mortgage in the principle amount of
$5,000,000.00. See id. at ¶ 27; Dkt. No. 39-6 at 42-51. To further secure payment of the note,
Route 299, Highland, Michael Barnett, and Denise Barnett assigned to Plaintiff a life insurance
policy covering the life of Michael Barnett as collateral. See Dkt. No. 39 at ¶ 32; Dkt. No. 39-7 at
3-6. Moreover, Mr. and Mrs. Barnett personally guaranteed all indebtedness of Route 299 and
Highland owed to Plaintiff under the note. See Dkt. No. 39 at ¶¶ 36-37; Dkt. No. 39-7 at 58-61.
Defendants Route 299, Highland, Michael Barnett, and Denise Barnett subsequently failed
to comply with the terms and provisions of the note and mortgage. Route 299 and Highland did
not make timely interest payments, and Route 299 caused the property to become encumbered by
a separate mortgage and various liens. See Dkt. No. 39 at ¶¶ 57, 62. Similarly, these Defendants
failed to pay the premium due on the life insurance policy. See Dkt. No. 39 at ¶ 59. Plaintiff
notified them of their default and demanded full and immediate payment of all amounts due under
the note. See Dkt. No. 39 at ¶¶ 63-66. Upon Defendants' failure to make full and immediate
payment, Plaintiff sought a judicial sale of the Mortgaged Property to satisfy the amount owed to
it. See id. at ¶ 95.

To avoid confusion, whenever the Court references a specific page number for an entry
on the docket, it will cite to the page number assigned by the Court's electronic filing system.
2

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In a Judgment of Foreclosure and Sale dated March 21, 2013, this Court ordered the sale
of the Mortgaged Property. See Dkt. No. 82. On June 5, 2013, the Referee appointed by the
Court, William N. Cloonan, held a public auction and sold the Mortgaged Property to Plaintiff for
the sum of $1,000,000.00. See Dkt. No. 92 at 1. The deed was delivered on July 30, 2013. See
Dkt. No. 105-1 at ¶ 5.
In a Decision and Order dated August 28, 2013, Magistrate Judge Baxter granted Hiscock
and Barclay, LLP's motion to withdraw as counsel for Route 299, Michael and Denise Barnett,
and Highland. See Dkt. No. 93. The Court ordered that Michael and Denise Barnett obtain
counsel by September 30, 2013 to represent themselves and their related entities. See id. The
Court also warned them that their failure to comply with the order could result in a default
judgment against them. See id. There is no indication that Mr. and Mrs. Barnett have since
obtained counsel in this action or complied with the Court's orders. Moreover, they failed to
participate in a mandatory telephone conference on June 26, 2014.
On October 4, 2013, Plaintiff filed a motion to confirm the Referee's Report of Sale and
for leave to enter a deficiency judgment pursuant to the RPAPL against Defendants Route 299,
Michael and Denise Barnett, and Highland. See Dkt. No. 105-1. Plaintiff contends that "the
deficiency is in the sum of $6,840,458.15, less the maximum fair and reasonable value of the
property as $1,000,000, yielding a net deficiency pursuant to the terms of New York Real
Property Actions and Proceedings Law § 1371 of $5,840,458.15." Id. at ¶ 9.
In a July 2, 2014 Memorandum-Decision and Order, the Court stayed Plaintiff's motion
with respect to its request for leave to enter a deficiency judgment, finding that Plaintiff's only
statement regarding the fair market value of the property at the time of auction consisted of the
following: "[u]pon information and belief, the fair and reasonable value of the premises on June
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5, 2013, was not in excess of $1,000,000." Dkt. No. 110 at 7. The Court found that this
conclusory statement was insufficient to meet its burden in establishing the fair market value of
the property at the time of auction. See id. at 7-8. Accordingly, the Court stayed that portion of
Plaintiff's motion and afforded it additional time to submit evidence establishing the fair market
value, which Plaintiff has done. See id.
Currently before the Court is Plaintiff's motion for leave to enter a deficiency judgment.
See Dkt. No. 105 and 115.

III. DISCUSSION
Section 1371(2) of the New York Real Property Actions and Proceedings Law provides
as follows:
Simultaneously with the making of a motion for an order
confirming the sale, provided such motion is made within ninety
days after the date of the consummation of the sale by the delivery
of the proper deed of conveyance to the purchaser, the party to
whom such residue shall be owing may make a motion in the action
for leave to enter a deficiency judgment upon notice to the party
against whom such judgment is sought or the attorney who shall
have appeared for such party in such action. Such notice shall be
served personally or in such other manner as the court may direct.
Upon such motion the court, whether or not the respondent appears,
shall determine, upon affidavit or otherwise as it shall direct, the
fair and reasonable market value of the mortgaged premises as of
the date such premises were bid in at auction or such nearest earlier
date as there shall have been any market value thereof and shall
make an order directing the entry of a deficiency judgment. Such
deficiency judgment shall be for an amount equal to the sum of the
amount owing by the party liable as determined by the judgment
with interest, plus the amount owing on all prior liens and
encumbrances with interest, plus costs and disbursements of the
action including the referee's fee and disbursements, less the market
value as determined by the court or the sale price of the property
whichever shall be the higher.

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N.Y. R.P.A.P.L. § 1371(2). In other words, "RPAPL 1371(2) permits the mortgagee in a
mortgage foreclosure action to recover a deficiency judgment for the difference between the
amount of indebtedness on the mortgage and either the auction price at the foreclosure sale or the
fair market value of the property, whichever is higher." BTC Mtge. Invs. Trust 1997–SI v.
Altamont Farms, 284 A.D.2d 849, 849-50 (3d Dept. 2001) (citing Columbus Realty Inv. Corp. v.
Gray, 240 A.D.2d 529, 530 (2d Dept. 1997); Marine Midland Bank v. Harrigan Enters., 118
A.D.2d 1035, 1037 (3d Dept. 1986)). "The mortgagee has the initial burden to make a prima
facie showing of the fair market value of the property as of the foreclosure sale date", id. at 850
(citations omitted), and whether the mortgagee meets that initial burden presents "a factual
question for the court to resolve based on the entire record." Marine Midland Bank, 118 A.D.2d
at 1037 (citation omitted).
The price at which the foreclosed property is sold is not necessarily determinative of fair
market value.
A court determining the fair market value of mortgaged property
can take a variety of factors into consideration, including the price
actually obtained at the foreclosure sale. 79 N.Y. Jur. 2d Mortgages
§ 809 (Updated 2011) ("The court should receive evidence of the
age and construction of the buildings on the premises, the rent
received therefore, assessed value, location, condition of repair, and
sale price of property of a similar nature in the neighborhood,
conditions in the neighborhood which affect the value of property
therein, accessibility, and all other elements which may be fairly
considered as affecting the market value of real property in a given
neighborhood." (quoting Heiman v. Bishop, 272 N.Y. 83, 4 N.E.2d
944, 946 (1936))). But cf. 79 N.Y. Jur. 2d Mortgages § 810
(Updated 2011) (noting while foreclosure in an ordinary market
furnishes some criterion of the value of the realty, an emergency
foreclosure with no bidders other than a plaintiff is not a true
criterion of value (citing Central N.Y. Mortg. & Title Co. v.
Williams, 155 Misc. 376, 279 N.Y.S. 451 (N.Y. Sup. Ct. 1935))).
In re Ebadi, 448 B.R. 308, 314-15 (Bkrtcy. E.D.N.Y. 2011).
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In the present matter, the deed was delivered on July 30, 2013, and Plaintiff's motion was
filed on October 4, 2013. See Dkt. No. 105; Dkt. No. 105-1 at ¶ 5. Thus, Plaintiff's motion was
timely served within ninety (90) days.
In its affirmation in further support of its motion, Plaintiff now provides the Court with
sufficient evidence to satisfy its burden in establishing the fair market value of the property at the
time of auction. See Dkt. No. 115. Specifically, the affidavit establishes that the Referee's report
of sale shows the sum of $6,840,458.15 as the total amount due to Plaintiff on the Judgement of
Foreclosure and Sale together with interest through the date of the delivery of the deed, which
occurred on July 30, 2013. See Dkt. No. 115 at ¶ 6. Plaintiff engaged R.P. Hubbel and Company,
Inc. to perform an independent appraisal of the mortgaged premises. See id. at ¶ 9. In his report,
Grant Ackerly, a State Certified General Real Estate Appraiser employed by R.P. Hubbel and
Company, determined that the fair market value of the property was $4,000,000. See id. at ¶ 10;
see also id. at Exhibit "B." Mr. Ackerly's valuation was based upon the comparable property
sales data covering the period from March 2008 to June 2013. See id. at ¶ 11; see also id. at
Exhibit "B." Plaintiff's additional submissions are sufficient to satisfy its burden. See Flushing
Sav. Bank, FSB v. Bitar, 106 A.D.3d 690, 691 (2d Dept. 2013); Capital One, N.A. v. Knollwood
Properties II, LLC, 38 Misc. 3d 1216(A), *2 (N.Y. Sup. Ct., Dutchess County 2013) (citation
omitted).
The Court must subtract the higher of either the fair market value or the sale price of the
property when calculating the amount of a deficiency. See N.Y. R.P.A.P.L. § 1371(2). The
deficiency is in the sum of $6,840,458.15, less the fair market value of the property of $4,000,000
as of the foreclosure sale date, yielding a net deficiency of $2,840,458.15.
Based on the foregoing, the Court grants Plaintiff's motion.
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IV. CONCLUSION
After carefully reviewing the entire record in this manner, the parties' submissions and the
applicable law, and for the above-stated reasons, the Court hereby
ORDERS that, as set forth in the Court's July 2, 2014 Memorandum-Decision and Order,
Plaintiff's motion to confirm the Referee's Report of Sale is GRANTED; and the Court further
ORDERS that Plaintiff's motion for leave to file a deficiency judgment is GRANTED;
and the Court further
ORDERS that, pursuant to New York Real Property Actions and Proceedings Law §
1371, Plaintiff is granted leave to enter a deficiency judgment against Defendants Route 299
Retail Center, LLC, and Highland Square Development, LLC, in the amount of $2,840,458.15
with interest thereon from July 30, 2013, and Plaintiff shall have execution therefor; and the
Court further
ORDERS that, pursuant to New York Real Property Actions and Proceedings Law §
1371, the amount of the deficiency against Michael Barnett and Denise Barnett is set in the
amount of $2,840,458.15 based on a pre-bankruptcy debt that is subject to discharge in
bankruptcy (In re Barnetts, S.D.N.Y. Bankr. 12-37991 cgm), and is set as to Michael Barnett and
Denise Barnett solely to determine the deficiency amount due as to Plaintiff's right to file and be
paid on its unsecured proof of claim in the bankruptcy pursuant to the bankruptcy court's
February 21, 2013; and the Court further
ORDERS that the Clerk of the Court shall enter Judgment against Defendants Route 299
Retail Center, LLC and Highland Square Development, LLC, in the amount of $2,840,458.15
with interest thereon from July 30, 2013; and the Court further

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ORDERS that the Clerk of the Court shall serve a copy of this Amended MemorandumDecision and Order and Judgment on all parties in accordance with the Local Rules.
IT IS SO ORDERED.
Dated: December 17, 2014
Albany, New York

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