c~
~ SHORT FOFM ORDER
SUPREME COURT - STATE OF NEW YORK
NASSAU COUNTY
TriaifIAS:
Motion Date:
Index No.:
Mtn. Seq. No.:
Part 12
7/27/00
12753/98
007.008.009.010
Present:
Honorable .Jerald S. Carter
-------------------------_______________~~--~~~~~~~~--~~-~~~_________~
ARABELLA STANCO,
Plaintiff.
-against31.4TCO INVESTMENT CORPOR4TION and
.4MERIC.4~ EAGLE MORTGAGE BASKER,
Defendants.
__-_______________------_-_________----------------------------~_____~~
?vIXTCO INVESTblENT CORPO~TION,
Third-Party Plaintiff,
-againstCONCETT.4 A. GALLO, ANTOINETTE N.
DiLEO, K.4THERINE R. GIBSON, JA&IES
S. LaBELLA,
Third-Party Defendants.
------------___~~----~~_~~__________----~~~~~~~~~~~~~~~~~~~~~_________~
CONCETTA A. GALLO,
Fourth-Party Plaintiff:
-againstPETER &I. PULEO, ARNOLD SPIEGEL, NANCY
S4LVATORE, PRESTIGE hI=INAGE>IENT, INC.
and STEVEN LaSALA,
Fourth-Party Defendants.
-___________________________________-----------------~~~-~~~~~~~~-~~~~~
The following papers were read on this motion:
Notice of Motion and annexed .i\ffrmation w/ Exhibits
Xffirmation In Opposition w/ Exhibits (Castro)
Reply Affirmation w/ Exhibits (Rosen)
Notice of Cross-Motion and annexed Affirmation w/ Exhibits (Moss) (008)
Notice of Cross-Motion and annexed Affirmation iv/ Exhibits (Kestenbaum) (009)
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Stance v. Matco, et al.
Index No. 12753198
Affirmation in Opposition w/ Exhibits (Rosen)
Opposing Affirmation to Cross-Motion w/ Exhibits (Chamberlain)
Supplemental Reply (Chamberlain)
Sur Reply Affirmation w/ Exhibits (Rosen)
Notice of Cross-Motion and annexed Affidavit w/ Exhibits (010)
Affirmation in Opposition to Cross-Motion (&-oil)
Reply Affirmation w/ Exhibit (Kestenbaum)
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Plaintiff, Arabella Stance (hereinafter Stance) moves (mtn $007) for partial summap judgment
pursuant to CPLR $3212, upon the
Yd. 3rd, and dth causes of action set forth in her amended complaint.
Therein. Stance alleges that certain mortgages, consolidation and assignment of rent ageements issued here
are usurious, violative of the law, and thus, null and void. Third-Party Defendant/Second Third-Party
Defendant. Antoinette DiLeo (hereinafter DiLeo) cross-moves (mtn $008) for the same relief upon the same
grounds. Defendant, American Eagle
hlortgase Banker (hereinafter Eagle) cross moves
(mtn +009) for
summary judgment dismissin,o the Plaintiffs usury claims and denying the various motions for summary
judgment. Third-Party Defendant/Fourth-Pay Plaintiff, Concetta A. Gallo, cross-moves ($010) for summary
judgment dismissing the first, second and third causes of action sounding in fraud and wrongful conversion,
on the third-party complaint.
These matters pertain to several specific moqages and agreements entered into by DiLeo. alle,oedly
as Stance’s attorney in fact, which
Stance represents to be illegal whether considered individually or
combined/consolidated. The mortgages and agreements are as follows:
- Mortgage agreement entered between American Eagle (hereinafter Eagle) and purportedly
Stance on April 30, 1996 for S175.000 at the interest rate of 16% with a loan discount of
$7,000 or 4%. In addition, a deduction of
S10,500.00. or 6%. was allegedly paid to the
0481-O-t97:
assignee Matco. Said mortgage was recorded at Liber 17360 Book M. pages
assigned to Matco and recorded at Liber 17500, Book M. pages 07 19-072 1.
-Mortgage agreement between Matco and purportedly Stance for $250.000 secured by her
property at an interest rate of 16O,c, recorded at Liber 17500, Book ICI, pages 0615-0633.
This was consolidated with the $175.000
Ea.,ole mortgage for a total of
S-l25.000.
Deductions here of 10% in points on the $250,000.00 mortgage or 6% of the consolidated
total of $325,000.00. This consolidation agreement vvas recorded at Liber 17800. Book M.
pages 700-708.
- Agreement for the assignment of rents between mortgagee Matco and purportedly the
plaintiff, Stance, as additional collateral for SJ25.000.00 mortgage loan. recorded at Liber
17800, Book M, pages 709-7 18.
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Stance v. Matco, et al.
Index No. 12753198
The properties secured by these various mortgages include:
PARCEL 1: 100 FOURTH STREET, GLEN HEAD, NY 11545,
PARCEL 2: 96 FOURTH STREET, GLEN HEAD, NY 11545,
PARCEL 3: 2 M CKINLEY PLACE. GLEN COVE, NY 11542,
PARCEL 4: 10 WALDO AVENUE. GREENVALE. NY
Pursuant to GOL 3 5-501and Banking Law $14-a. the maximum rate of interest applicable to
loans secured primarily by an interest in real property is
16%, with certain exceptions. GOL
an>
$501(6)fa~
specifically provides,
No law regulating the maximum rate of interest which may be charged.
taken or received. except section 190.10 and section 190.32 of the penal
law. shall apply to any loan or forbearance in the amount of two hundred
fifty thousand dollars or more, other than a loan or a forbearance secured
primarily by an interest in real property improved by a one or two farnil!
residence. A loan of two hundred fifty thousand dollars or more which is
to be advanced in installments pursuant to a written agreement by a
lender shall be deemed to be a single loan for the total amount which the
lender has agreed to advance pursuant to such agreement on the terms
and conditions provided therein.
Additionally, as noted in McKinney’s Notes $4.2 to GOL 5 5-50 1 certain additional amounts/fees
such as origination fees. points. and other discounts and all other amounts paid or payable. directly or
indirectly, by any person. to or for the account of the lender in consideration for making the loan are to be
included as interest. As to such amounts/additions the statute indicates that same will apply to any loans
secured primarily by an interest in real property improved by a one or two family residence occupied by
the owner.
Here. Stance maintains that the addition of such fees to the effective rate of the interest charged
by the mortgagee in connection with,the issuance of the mortgage elevated the interest to a percentage
above the maximum rate legally allowable thereby constitutin,u a usurious loan. In that connection.
Stance represents that the subject loans were clearly usurious in that each mortgage was issued at the
16%
maximum and. coupled with additional fees. points and or discounts, exceeded the maximum legal rate of
interest.
Stance maintains that hlatco’s mortsa_ge was usurious in that the mortga,oe executed between
Eagle and Stance for S173.000.00 was itself usuriously because it charged the maximum rate of 16% and
.
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Stance v. Matco, et al.
Index No. 12753198
coupled with additional fees/costs, of S7,OOO.OO or 4% plus $10, 500.00 or 6% and totaled 26%. This is
the loan initially assigned to Matco.
Thereafter, Matco allegedly made an additional mortgage loan to plaintiff for $250.000.00.
Which loan was consolidated with the S175.000.00 Eagle mortgage previously assigned to Matco which.
when consolidated. totaled a SQ5,OOO.OO loan. According to Stance. this loan acquired the usury taint of
the initial Ea,ole S 175,OOO.OO mortgage. This. it is claimed. is itself usurious and not enforceable GOL
4
5-5 11 Coue v Wheeler 41 NY 303.
However, both Matco and Eagle represent that these mortgage loans
were not usurious. .Llatco
specifies that pursuant to GOL $5-501 (6) (ai the loan limit of 16% does not apply to loans
equai to or
exceedins $250.000.00 Machidera. Inc. v Toms 258 AD2d 41% Thus. the 16% interest rate and the 65
in points added thereto totals an interest rate of 22% - a figure within the acceptable rate of interest in
light of the $250,000.00 exception. In addition. it bears mention here that the
.%25,000.00 hlatco
mortgage was secured by four parcels of Stance property, thereby removing it from the statutory rule that
applies to real estate improved by a one or two story residence. (See,
McKinney Notes, $4.2. GOL 4 5-
501).
However, Stance maintains that Marco did not pay off the existing S 175,OOO.OO mortgage
assiged to it by Eagle on April 30. 1996. According to Stance it was eight months later on or about
December 30, 1996 that it satisfied the loan and included it with the $250,000.00 one for a consolidated
mortgage of $-!25,000.00.
In its cross motion for partial summary judgment, Eagle maintains that as a mortgage banker it is
exempt from State Usury Laws. Even if not so exempt, Eagle maintains that it is exempt from the
application of the General Obli,oation Law in that the mortgage it issued was a “junior
mortgage”. Eagle
maintains that the interest it charged on the Sl75,OOO.OO mortgage was the maximum 16% rate with a 4%
loan discount added for a total of 20%. According to Eagle the 20% figure vvas not usurious. However.
Stance maintains that Eagle charged 26% interest on the loan. According to Eagle once the Matco
consolidation took place establishing a loan of $425,000 the Eagle mortgage was satisfied. no longer
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St&co v. Matco, et al.
Iudex No. 12753198
existed and cannot be claimed to be usurious. This fact is evident by the estoppel certificate signed in this
matter. (See “Exhibit A ” Eagle Reply).
Matco opposes Stance’s application for summary judgment and a declaration by the court that its
mortgage loan was usurious. Citing the General Obligations Law
9 5-501 (6j (a) Matco maintains that
the usury loan limit of 16’% does not apply to loans of S250,OOO.OO or more. Thus the S325.000.00
consolidated loan includes the initial S 175.000.00 Eagle mortgage assigned to ;Llatco and the S250.000.00
loan by Jvlatco for a total of S-J25,000.00. Furthermore, since this mortgage is secured by four parcels of
property, it is exempt from the GOL exception for real property improved by a one or two
residence. The total interest payable to Matco was
farnil!
22% which included the 16% maximum interest rate
coupled with 6% in points. The additional 6% was a broker
’s fee paid to Prestige Brokeraze and.
accordins to the statute. does not constitute an addition to the interest rate
charsed.
Defendant, American Eagle Mortgage Banker (hereinafter Eagle) cross moves (mtn #009) for
summary judgment and maintains that its mortgage was not usurious in that the deficiencies, if any. in
the Eagle mortgage loan are not applicable to the Matco consolidated mortgage. In any case. any taint
applicable to that specific loan does not apply here. The interest rate received by Eagle for the mortgage
issued to Stance was the 16% maximum rate permitted by the statute coupled with a 4% discount for a
total of 20%.
CONCLUSION
Regarding the Eagle loan for S175.000, the uncontroverted proof (see Apicella affidavit)
demonstrates that Eagle is a “qualified creditor ”exemptin s it from New York State usury laws. (Cohen v.
Eisenberz. 265 AD2d 365, 2d Dept, 1999: Galatti v. Alliance
Funding Co.. Inc.. 225 ADZd 550, 2d Dept.
1996) Secondly, the Eagle loan was a junior mortgage (See, Eusle motion. EX. 3), again exemptins it from
state usury laws (River Bank America v. Gatov. _303 XD2d 5% 2d Dept. 199-1: Noveltv Textile Xlills. Inc..
v. Houkins, l-l5 Misc.2d 583. Bronx Cty. 19S9).
In response to Plaintiffs attorney ’s arrgument that the subject mortgage document is not in proper
form. the Court notes that any deficiencies in the form or substance of the
mortgage document does not
.
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Stance v. Matco, et al.
Index No. 12753198
change the true nature of the document, providin g for a second mortgage on the various propenies. Such
deficiencies in the document merely render the subject provisions inoperable and/or ineffective and if such
provisions were not included in the document but are required they may be read into the document in a legal
contest.
Turning to the Matco
mortga,ae. this loan consolidated the
Ea@e mortgage for Sl75.000 with a
Matco mortgage of S250.000 for a total consolidation. extension and modification ageement in the amount
of $125.000. (See Castro aff. Ex. Cj. The consolidated mortgage secured the consolidated note and
constituted a single lien upon the secured properties as described in paragraph
“G” of the consolidation
agreement (Castro aff. Ex. C). These properties are described herein above.
As noted previously. GOL 5-501(6j(a). provides for a maximum interest rate in certain instances.
however. as the statute provides. ” No law regulating the maximum rate of interest which may be charged.
taken or received, except section 190.10 and section
190.-!2 of the penal law, shall apply to any loan or
forbearance in the amount of two hundred fifty thousand dollars or more, other than a loan or a forbearance
secured primarily by an interest in real property improved by a one or two family residence.
”
In the instant case, the ;Clatco consolidated loan was for %25.000. primarily secured by four pieces
of property. three of which were residential rental properties and one being
Stance’s primary residence.
Notwithstanding the allegations of fraud running rampant through this action - which allegations shall be
dealt with by the Court at a later date - the subject properties were commercial investments offering a cash
flow to the owner through the collection of rents. This is amply demonstrated by the assignment of rents
ageement purportedly executed by the parties to the loans.
In Beroman on New York Mortgage Foreclosures. Vol 1. 86.01r21 (19YO), it is noted that “[o]ne
stated purpose of the usury laws is to protect poor people who are desperate for loans fromexcessi\.c interest.
(citations omitted).” Here, there is no such circumstance.
The parties to the transaction entered into this
sophisticated transaction to secure a payoff of one mortgage and to
sain immediate access to a significant
amount of money in consideration of placing a lien of three pieces of rental properties and a properry owned
by the borrower. It is plain to this Court that this is not the type of transaction contemplated by the Iesislature
.
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Stance v1 Matco, et al.
Index No. 12753198
when drafting GOL $5-50 1. The intended purpose was to provide protection for those individuals\vho sought
to achieve the American dream of owning their own home, in allowins for affordable rate of interest to the
borrower and, at the same time. allowing for an ample rate of return on monies advanced to the borrower b>
the lender. Such is not the case here. this transaction was pure business and has no relation to the intended
purpose of the legislature in enacting this legislation.
Accordingly, the Court finds that as a matter of law, upon the undisputed facts and circumstances or‘
the instant case. the interest rate restriction found in GOL
S5-501(6)(a) does not apply to the
\LIatco
transaction. Therefore. any causes of action and/or affirmative defenses set forth by the Plaintiff indoor the
respective defendants based upon a claim of usury are hereby dismissed.
In sum. Plaintiffs motion (#007) for summary judgment on her second. third. and fourth causes
action as set forth in her amended complaint is DENIED. Third-Party Defendant.
oi
DiLeo’s cross-motion
(#OOS) for summary judgment dismissing the Third-Party complaint of Matco and the Second Third-Party
complaint of Eagle is DENIED. Eagle
’s cross-motion
(X)09) for partial summary judgment dismissing the
usury claims of the Plaintiff and the respective defendants is GRANTED. Third-Party Defendant/Fourth
Party Plaintiff, Gallo’s, cross-motion (gOlO) for summary judgment dismissins the first. second and third
causes of action on the third-party complaint as those causes of action relate to
Gallo upon the gound that
the subject loans were usurious is DENIED.
This matter is set down for conference before theundersiged on April 12.2001 at 930 a.m..
So Ordered.
Dated: hlineola. NY
hlarch 30. 200 1
ENTER.