LFC ACQUISITION LLC v. ENCINO HOMES CORP (2024)

DECISION & ORDER

In an action to foreclose a mortgage, the defendants Encino Homes Corp. and Mehrdad Cohan appeal from an order and judgment of foreclosure and sale (one paper) of the Supreme Court, Kings County (Lawrence S. Knipel, J.), dated August 12, 2022.  The order and judgment of foreclosure and sale granted the plaintiff's motion to confirm the referee's report and for a judgment of foreclosure and sale, confirmed the referee's report, and directed the sale of the subject property.

ORDERED that the order and judgment of foreclosure and sale is reversed, on the law, with costs, the plaintiff's motion to confirm the referee's report and for a judgment of foreclosure and sale is denied, the referee's report is rejected, and the matter is remitted to the Supreme Court, Kings County, for a new report computing the amount due to the plaintiff in accordance herewith.

In June 2020, Flushing Bank commenced this foreclosure action against the defendants Encino Homes Corp. and Mehrdad Cohan (hereinafter together the defendants), among others, to foreclose a mortgage on certain real property located in Brooklyn.  Thereafter, in February 2021, Flushing Bank assigned all of its rights, title, and interests to LFC Acquisition 3, LLC (hereinafter LFC).  LFC then moved, inter alia, to be substituted as the plaintiff and for summary judgment on the complaint.  By order dated August 3, 2021, the Supreme Court granted the motion and appointed a referee to compute the amount due to LFC.

On November 9, 2021, the referee issued a report.  LFC then moved to confirm the referee's report and for a judgment of foreclosure and sale.  The defendants opposed the motion.  In an order and judgment of foreclosure and sale dated August 12, 2022, the Supreme Court granted the motion, confirmed the referee's report, and directed the sale of the subject property.  The defendants appeal.

Contrary to the defendants’ contention, the referee's failure to hold a hearing did not require the denial of LFC's motion to confirm the referee's report and for a judgment of foreclosure and sale.  Pursuant to CPLR 4313, “[u]nless the order of reference otherwise provides, the referee shall forthwith notify the parties of a time and place for the first hearing to be held within twenty days after the date of the order.”  However, “ ‘as long as a defendant is not prejudiced by the inability to submit evidence directly to the referee, a referee's failure to notify a defendant and hold a hearing is not, by itself, a basis to reverse a judgment of foreclosure and sale and remit the matter for a hearing and a new determination of amounts owed’ ” (U.S. Bank N.A. v. Glasgow, 218 A.D.3d 717, 720, 194 N.Y.S.3d 40, quoting Bank of N.Y. Mellon v. Viola, 181 A.D.3d 767, 770, 122 N.Y.S.3d 55).  Here, the defendants were not prejudiced by the referee's failure to hold a hearing, since, in opposing the motion, they “had an opportunity to raise questions and submit evidence directly to the Supreme Court” (Bank of Am., N.A. v. Scher, 205 A.D.3d 989, 990, 166 N.Y.S.3d 877).

Nevertheless, the Supreme Court erred in granting LFC's motion to confirm the referee's report and for a judgment of foreclosure and sale, as the referee's computation of the amount due to LFC was not substantially supported by the record.  “[C]omputations based on the ‘review of unidentified and unproduced business records ․ constitute[ ] inadmissible hearsay and lack[ ] probative value’ ” (Christiana Trust v. Campbell, 202 A.D.3d 750, 751, 158 N.Y.S.3d 835, quoting Wells Fargo Bank, NA v. Oziel, 196 A.D.3d 618, 621, 152 N.Y.S.3d 123;  see U.S. Bank N.A. v. Mays, 221 A.D.3d 934, 936, 199 N.Y.S.3d 681).  Here, the referee's findings with respect to the amount due were based on unproduced business records.  Consequently, the referee's calculation of the amount due to LFC was not substantially supported by the record (see M & T Bank v. Bonilla, 215 A.D.3d 813, 815, 188 N.Y.S.3d 509).

IANNACCI, J.P., CHAMBERS, WOOTEN and WAN, JJ., concur.