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FEDERAL NATIONAL MORTGAGE ASSOCIATION, Petitioner(s) v. David TENENBAUM, Craig Tenenbaum, Philip Tenenbaum, “John Doe,” “Jane Doe,” Respondent(s).
Petitioner, Federal National Mortgage Association (hereinafter referred to as Federal), brings this holdover proceeding to evict David Tenenbaum, Craig Tenenbaum, Philip Tenenbaum, John Doe and Jane Doe. This premises is located at 39 Anchor Street, Apt. 39K, Freeport, New York, which is a cooperative apartment (hereinafter referred to as “the Premises”). Anchors Edge Owners Corp. (hereinafter referred to as Anchors), owns the premises at 39 Anchor Street, Freeport, New York.
The holdover Petition, dated September 10, 2018, alleges that Respondents' lease was terminated on September 6, 2016, pursuant to RPAPL § 711(1). Petitioner refers to Exhibit “A” making it the owner of the premises. Exhibit “A” is a stock certificate issued by Anchors to Federal for 225 shares and the Proprietary Lease for Apartment 39K.
Paragraphs 5 and 9 of the Petition allege that a 10 day notice to quit was served upon Respondents.
“5. The term for which the said premises were occupied by the respondent tenant expired on September 6, 2018. See Ten Day Notice to Quit and supporting documents annexed hereto and made a part hereof.
9. On or about August 21, 2018, at least 10 days before the bringing of this petition, respondents were served in the manner provided by law with a notice in writing, a copy of which with proof of service is annexed hereto and made a part of this petition, that the Petitioner is now the owner of the premises, that Respondents rights were terminated and that Respondents must remove themselves from said premises within 10 days, and surrender possession thereof to the petitioner.”
The Certificate of Sale and Fact is attached to the Petition as Exhibit “G”. This Certificate states that JP Morgan Chase Bank, National Association became the owner of the 225 shares and Proprietary Lease for the Premises for the sum of $275,464.06 on December 10, 2013 as the result of a public auction. The sale was done in “accordance with the Terms of Sale which were available to all bidders.”
The Ten Day Notice to Quit states that Petitioner received ownership of the stock and lease concerning the Premises pursuant to an Assignment of Bid, dated January 7, 2014 which resulted from a sale conducted in accordance with Article 9 of the UCC. The Ten Day Notice states in part:
“Pursuant to said sale, your proprietary lease and shares of stock appurtenant to the premises have been cancelled. You are therefore occupying the premises as a holdover occupant.
FEDERAL NATIONAL MORTGAGE ASSOCIATION, as owner of the property demands that you and all others occupying the Premises quit same and surrender possession thereof to the undersigned:
Within ten (10) days after service on you of this Notice
If you shall fail to surrender possession as aforestated, a Summary Dispossess Holdover proceeding shall be instituted against you for possession of the Premises described above.”
Petitioner provides the Assignment of Bid, dated January 7, 2014, which establishes that JP Morgan Chase assigned its rights, title, and interest in the foreclosure sale, held on December 10, 2013, to Petitioner.
Respondent, David Tenenbaum, moves by the motion dated September 23, 2018, for an order to dismiss this summary proceeding on the following grounds set forth in the Affirmation of attorney Daniel A. Okrent, dated September 23, 2018, on the following grounds:
“4. There was a previous holdover proceeding involving the same parties and the same issues in this very court. The case number is LT 2532-14. That case was dismissed for lack of subject matter jurisdiction. Now the petitioner is bringing the same action again.
5. In his decision in the 2014 case (copy attached), Judge Bjorneby concluded that the case is not within the subject matter jurisdiction of this court and that, even if it was, the petitioner lacks standing to bring an eviction proceeding against this respondent. He also concluded that there is no landlord/tenant relationship between the parties. More specifically, he stated that the court is ‘without jurisdiction to allow a third-party security holder to commence a summary proceeding to evict a cooperative tenant pursuant to a non-judicial foreclosure.’ ‘Moreover’, he continued, ‘the sale of the shares in the cooperative and the lease of a cooperative corporation is not a sale of ‘real property’ ․’ In dismissing the case, Judge Bjorneby ruled that ‘the secured lender can not maintain a summary proceeding’.
6. In summary, this controversy is Res Judicata in this court. This proceeding must therefore be dismissed.”
Petitioner submits the Affirmation in Opposition to Cross Motion and for Judgment of Possession, dated October 17, 2018. Petitioner posits that Judge Bjorneby's decision was correct because at that time the stock and proprietary lease were not yet transferred to Petitioner. It is contended that the situation has been corrected by Anchors transferring the stock and lease to Petitioner. Thus, Petitioner argues that it has standing to bring this proceeding pursuant to RPAPL § 711(1) which states:
“1. The tenant continues in possession of any portion of the premises after the expiration of his term, without the permission of the landlord or, in a case where a new lessee is entitled to possession, without the permission of the new lessee. Acceptance of rent after commencement of the special proceeding upon this ground shall not terminate such proceeding nor effect any award of possession to the landlord or to the new lessee, as the case may be. A proceeding seeking to recover possession of real property by reason of the termination of the term fixed in the lease pursuant to a provision contained therein giving the landlord the right to terminate the time fixed for occupancy under such agreement if he deem the tenant objectionable, shall not be maintainable unless the landlord shall by competent evidence establish to the satisfaction of the court that the tenant is objectionable.”
Petitioner further argues that Respondents' lease was terminated in a UCC Article 9 foreclosure and therefore Respondents are holdover tenants in accordance with the rationale of Federal Home Loan Mortgage Association v. Perez, 40 Misc. 3d 1, 968 N.Y.S.2d 317 (2013).
Respondent submits the attorney Reply Affirmation, dated October 28, 2018. Respondent argues that this proceeding cannot be maintained under the RPAPL because the stock and lease in the cooperative are personal and not real property. Counsel urges that the subsequent transfer of the 225 shares of stock and proprietary lease does not change the rationale of Judge Bjorneby's decision.
Respondent further contends that since Respondents never received any notice from Anchors or from Fannie Mae, and there was no proceeding which terminated his lease, the lease is still in effect and RPAPL § 711(1) is inapplicable.
Petitioner submits the Sur-Reply Affirmation in Opposition to Respondent's Motion and in Support of Cross Motion for Judgment and Warrant dated, November 5, 2018. Petitioner states that no notice was served upon Respondent to commence a proceeding pursuant to RPAPL § 711(1) because none is required. Petitioner asserts that Respondent is a holdover tenant and that Respondent was never a tenant of Petitioner. However, since Respondent is a holdover tenant, Petitioner may maintain a summary proceeding pursuant to RPAPL § 711(1).
A review of the relevant portions of the proprietary lease between Anchors (lessor) and the petitioner is necessary to determine the parties' rights and interests. The sections are as follows:
“ARTICLE 9. ASSIGNMENT OF LESSOR'S RIGHTS AGAINST OCCUPANT
If at the date of the commencement of this lease, any third party shall be in possession or have the right to possession of the Apartment, then the Lessor hereby assigns to the Lessee Lessor's interest, as landlord or owner, in the lease pursuant to which such third party is in, or has the right to, possession, any security deposited thereunder, and all of the Lessor's rights against said third party from and after the date of the commencement of the term hereof including, but not limited to, Lessor's right to continue or institute any summary or other evictions proceedings, and the Lessee by the execution hereof assumes all of the Lessor's obligations to said third party from said date. The Lessor agrees to cooperate with the Lessee, but at the Lessee's expense, in the enforcement of the Lessee's rights against said third party.”
The above clause appears to transfer Anchors right to commence summary proceedings to the Petitioner against any third party (Respondent) who is in possession of the apartment.
The following clause provides for a transfer of the shares and lease to an individual designated by the Secured Party (Petitioner) provided the terms and conditions of this subdivision are complied with.
“ARTICLE 18. PLEDGE OF SHARES AND LEASE
(b) Secured Party
(iii) If the purchase by the Lessee of the shares allocated to the Apartment was financed by a loan made by a bank, savings bank, savings and loan association or the Sponsor, or any person or entity provided by the Sponsor, or any holder of Unsold Shares as described in Paragraph 39 hereof and a default or an event of default shall have occurred under the terms of the security agreement or leasehold mortgage entered into between the Lessee and the Secured Party, and if (1) notice of said default or event of default have been given to the Lessor, (2) an individual designated by the Secured Party, or the individual nominee of the individual so designated by the Secured Party, shall be entitled to become the owner of the shares and the lessee under this lease pursuant to the terms of said security agreement or leasehold mortgage, (3) not less than five days' written notice of an intended transfer of the shares and this lease shall have been given to the Lessor and the Lessee, (4) there has been paid all rent, additional rent and other sums owed by the Lessee to the Lessor under this lease for the period ending on the date of transfer of the aforementioned shares and (5) the Lessor shall be furnished with such affidavits, certificates, and opinions of counsel, in form and substance reasonably satisfactory to the Lessor, indicating that the foregoing conditions (1) through (4) have been met, then (a) a transfer of the shares and the proprietary lease shall be made to such individual, upon request, without compliance with the Right of First Refusal provisions contained in the By-Laws, and (b) the individual to whom such transfer is made (if and as long as such individual, by himself or a member of his family, does not actually occupy the apartment) shall have all of the rights provided for in Paragraphs 16, 17, 22 and 39 of this lease as if he were a holder of Unsold Shares.”
Article 32, of the proprietary lease entitled, “Termination of Lease by Lessor,” reads:
“ARTICLE 32. TERMINATION OF LEASE BY LESSOR
If upon, or at any time after, the happening of any events mentioned in subdivisions (a) to (j) inclusive of this Paragraph 32, the Lessor shall give to the Lessee a notice stating that the term hereof will expire on a date at least ten days thereafter, the term of this lease shall expire on the date so fixed in such notice as fully and completely as if it were the date herein definitely fixed for the expiration of the term, and all right, title and interest of the Lessee hereunder shall thereupon wholly cease and expire, and the Lessee shall thereupon quit and surrender the Apartment to the Lessor, it being the intention of the parties hereto to create hereby a conditional limitation and thereupon the Lessor shall have the right to re-enter the Apartment and to remove all persons and personal property therefrom, either by summary dispossess proceedings, or by any suitable action or proceeding at law or in equity, or by force or otherwise, and to repossess the Apartment in its former state as if this lease had not been made, and no liability whatsoever shall attach to the Lessor by reason of the exercise of the right of re-entry, repossession and removal herein granted and reserved.
(b) Lessee Ceasing to Own Accompanying Shares
If the Lessee shall cease to be the owner of the shares to which this lease is appurtenant, or if this lease shall pass or be assigned to anyone who is not then the owner of all said shares;”
The above clauses require a 10 day notice to Respondent requiring Respondent to quit and surrender the premises upon a default upon ceasing to be the owner of the shares to which Respondent's lease is appurtenant.
Respondent files a motion to dismiss on the grounds that Judge Bjorneby's decision in 2014 (LT-002532-14) is res judicata and bars this present proceeding. In the 2014 case Petitioner brought a holdover summary proceeding against the same Respondents in the case at bar. According to Judge Bjorneby's decision, on December 10, 2013, J.P. Morgan Chase Bank became the successful bidder at a non-judicial foreclosure sale (brought pursuant to UCC Article 9) and “acquired the respondent's rights, title, and interest in the collateral consisting of 225 shares of capital stock and the associated proprietary lease for the premises ․”. Thereafter, J.P. Morgan assigned its rights in the shares and proprietary lease to Petitioner Federal National Mortgage Association. Petitioner then commenced a summary proceeding against Respondents and also served a 30 day notice of termination on the Respondents.
Judge Bjorneby dismissed the proceeding because:
“Recently, in Federal Home Loan Mtge. Assn. v. Perez, 40 Misc. 3d 1, 4 [968 N.Y.S.2d 317] (2013) the Appellate Term, Second Department, has recently determined that RPAPL §§ 713 (1), (5), and (7) provide no basis for the assignee of a successful bid at a UCC article 9 non-judicial sale, of shares of stock and the proprietary lease of a cooperative, to maintain a summary proceeding. The court essentially ruled that the petitioner had no recourse by way of a summary proceeding and noted, ‘that if a new category of summary proceeding is to be created, it is for the legislature, not the courts, to create it (see Rosenstiel v. Rosenstiel, 20 A.D.2d 71, 245 N.Y.S.2d 395  )’ (Id.; see also Dan M. Blumental, Recent Appellate Term Rulings Make Gaining Possession of Collateral More Difficult for Foreclosing Lenders, Purchasers, The Nassau Lawyer, September 2013; but see Emigrant Mtge. Co., Inc. v. Greenberg, 34 Misc. 3d 1236(A) [2012 WL 751562] [Nassau Dist. Ct. 2012] [court had jurisdiction to grant eviction pursuant to RPAPL §§ 710 and 713(1) where secured party petitioner obtained ownership of cooperative apartment after non-judicial sale of defaulting tenant's interest] ).
In light of the Perez decision, the lack of a landlord and tenant relationship and the nature of the ownership of a cooperative (i.e. the ownership of stock in a cooperative company) necessitates the granting of the petitioner's motion here. This court is constrained to act within the limits of its jurisdiction and cannot expand its statutorily-authorized power. Therefore, the petition must be dismissed.
Assuming arguendo, that this court had subject matter jurisdiction, the petitioner would nevertheless, lack standing. RPAPL § 721(3), entitled ‘Person who may maintain proceeding’, delineates the parties that may bring summary proceedings, and specifically, states:
‘The purchaser upon the execution or foreclosure sale, or the purchaser on a tax sale to whom a deed has been executed and delivered or any subsequent grantee, distributee or devisee claiming title through such purchaser.’
In the instant summary proceeding, the petitioner cannot produce a deed, as required pursuant to RPAPL, since a cooperative is owned pursuant to a stock certificate and not a deed. Indeed, the petitioner's reliance on RPAPL § 721(3) is misplaced since the petitioner did not acquire title as a result of the non-judicial sale (see generally Newell Funding, LLC v. Tatum, 24 Misc. 3d 597 [884 N.Y.S.2d 577] [Civ. Ct., Kings County 2009] ).
Accordingly, the respondents' motion to dismiss the petition is granted.
The foregoing constitutes the Decision and Order of the court.”
This court holds that Judge Bjorneby's decision is not res judicata which bars this summary proceeding. This present proceeding is distinguishable because Petitioner has become the owner of the 225 shares and the proprietary lease as a result of Anchor's transfer of the shares and lease into the name of Petitioner; this was not the factual situation when Judge Bjorneby rendered his decision.
In Newell Funding, LLC v. Tatum, 24 Misc. 3d 597, 884 N.Y.S.2d 577 [Civ. Ct., Kings County 2009], the Court dismissed the summary proceeding because petitioner lacked standing to bring the summary proceeding. The Court held that petitioner lacked actual possessary interest in the apartment because the shares and lease had not been assigned to petitioner:
“In this case, petitioner foreclosed on its loan to respondents who pledged their stock in the cooperative as collateral for the loan. However, petitioner has not acquired title as a result of the sale, and therefore does not meet the requirements of RPAPL § 721(3). The cooperative's refusal to issue a new stock certificate does not create an exception to the law.
Essentially, petitioner in this proceeding has no greater rights than the lender in City Enterprises Ltd. v. Posemsky, 184 Misc. 2d 287, 708 N.Y.S.2d 230 . The petitioner in that proceeding commenced a summary proceeding against respondents who defaulted on a loan for which they pledged their shares in the cooperative as collateral. However, there was no transfer of the title, and the court citing Suderov v. Ogle, 149 Misc. 2d 906, 574 N.Y.S.2d 249  found that petitioner had no standing to maintain the proceeding. Although, petitioner in this case has foreclosed on the loan, the limitations placed by the cooperative foreclose its ability to meet the requirements of RPAPL § 721.
Moreover, a petitioner in a summary eviction proceeding must also have an actual possessory interest in the apartment, Residential Landlord-Tenant Law in New York § 7:86 (2008). In this case, only the cooperative can confer the right to possession. The rules of the cooperative prohibit petitioner from owning the stock and from any right of occupancy. Therefore, petitioner has no possessory interest and has no standing to maintain this proceeding.”
NY Condo. & Coop. Law § 11:10, provides the following analysis:
“As discussed in the main text, after a nonjudicial sale the purchaser may obtain possession of the unit by bringing an action under the Real Property Actions Proceedings Law.
* * *
In Newell Funding LLC v. Tatum, 24 Misc. 3d 597, 884 N.Y.S.2d 577 (N.Y. City Civ. Ct. 2009), the court did not permit a purchaser at auction of a cooperative apartment to commence an Article 7 proceedings pursuant to RPAPL §§ 713 (5) and 721(3). However, in that case no shares or proprietary lease had been issued in the name of the petitioner, and the petitioner, which was a private lending company, could not hold a proprietary interest in the apartment because the rules of this cooperative permitted only residential occupancy and did not allow investors or sponsors to maintain a proprietary interest. The court concluded the petitioner, which was a private lending company, had not acquired title as required by RPAPL § 721(3). See also City Enterprises, Ltd. v. Posemsky, 184 Misc. 2d 287, 708 N.Y.S.2d 230 (App. Term 2000), where the court emphasized that neither a landlord-tenant nor a licensor-licensee relationship existed that might allow a summary proceeding. In that case, the holder of a security interest in a cooperative apartment had terminated the cooperative apartment owner's interest, via a 10-day notice of termination, and then sought possession under RPAPL § 713 alleging that the apartment owner's license had expired. No public sale pursuant to Article 9 had occurred and therefore the court, in the City Enterprises case never considered whether the petitioner might be a purchaser upon a foreclosure sale as provided for in section 713.”
In the case at bar, it appears that Anchor transferred the shares and proprietary lease to Petitioner which potentially would allow a proceeding to be commenced pursuant to RPAPL § 711(1). However, Article 18 (b) (iii) of the proprietary lease prohibits corporate ownership of the shares and proprietary lease. Instead, Article 18 (b) (iii) allows the corporate Secured Party to designate an individual to whom the shares and proprietary lease may be transferred by Anchor.
The prohibition against the corporate secured lender or corporate assignee from actual ownership of the stock and proprietary lease has been upheld by the Second Department in LI Equity Network, LLC v. Village In the Woods Owner Corp., 79 A.D.3d 26, 910 N.Y.S.2d 97 (Second Dept. 2010). In LI Equity the successful bidder on foreclosed shares allocated to a cooperative apartment sought specific performance of the closing of title in connection with the transfer of the shares. The Supreme Court granted summary judgment to the bidder and allowed corporate ownership of the shares and proprietary lease. The Second Department reversed because the corporate bidder on the foreclosed shares took subject to the prohibition against corporate ownership of the shares contained in the cooperative corporation's governing documents.
In the case at bar, this court cannot determine if the transfer of the shares and proprietary lease to Petitioner was appropriate in consideration of the prohibition on corporate ownership contained in Article 18 (b) (iii). This court does not understand why the Petitioner did not designate an individual to take ownership as contemplated by Article 18 (b) (iii). The designated individual would have been able to commence a summary proceeding provided that the terms and conditions of the lease were complied with.
The court notes that Article 9 of the proprietary lease assigns lessor's (Anchor) rights to evict Respondent upon a proper transfer of ownership of the stock and lease.
Article 32 (b) of the proprietary lease provides that Respondent shall be in default if Respondents cease being the owners of the shares to which the proprietary lease is appurtenant. Based upon Judge Bjorneby's decision, it is clear that Respondents lost ownership of the shares and proprietary lease due to a UCC Article 9 non-judicial sale. Article 32 (a) contemplates lessor serving a 10 day notice to quit upon Respondent. The court further observes that Petitioner alleges in its Petition that a 10 day notice to quit was served upon Respondents.
Generally, there is no need to serve a holdover tenant with notice upon the expiration of the lease term, but this rule is subject to the terms of the lease. See NY Practice Landlord and Tenant Practice in New York, § 15:98 entitled “When Notice is Not Required - Expired Lease.” In the case at bar, Article 32 (a) of the proprietary lease requires a 10 day notice to quit be served upon Respondents.
Based upon the above, a trial/hearing is needed to determine whether the transfer of the shares and proprietary lease to a Petitioner was appropriate, given the terms of the proprietary lease. Also, to be determined is if the proper notice was given to Respondents.
The court notes that the proprietary lease between Anchors and the Respondents has not been provided. What effect, if any, that this lease would have on these proceedings is not clear to the court.
1. Motion and Cross Motion are denied.
2. Respondents shall serve an answer within 15 days of this decision.
3. This matter is set down for trial/hearing for February 6, 2019, at 9:30 a.m., and marked FINAL.
Scott Fairgrieve, J.
Response sent, thank you
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Docket No: LT-005247-18NA
Decided: January 10, 2019
Court: District Court, New York,
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