Supreme Court, New York County, October 26, 2022

Friedman Vartolo, LLP, New York City (Zachary Gold of counsel), for US Bank Trust National Association, defendant.

Aldrige Pite, LLP, Melville (Kenneth Sheehan of counsel), for MTGLQ Investors, L.P., defendant.

Rosenberg Fortuna & Laitman, LLP, Garden City (Anthony R. Filosa of counsel), for plaintiff.

This is an action for attorney fees and costs under Real Property Law § 282. Plaintiff, 21647 LLC, purchased a condominium apartment unit at a lien-foreclosure sale, and then successfully defended a separate, mortgage-foreclosure action brought by the predecessor in interest of defendant MTGLQ Investors, L.P. In this action, 21647 LLC seeks attorney fees [*2]against defendants MTGLQ Investors and US Bank Trust National Association under Real Property Law § 282's reciprocal-fee covenant.^[FN1]

MTGLQ and US Bank separately move to dismiss under CPLR 3211 and for sanctions under 22 NYCRR 130-1.1. 21647 LLC cross-moves to convert these motions into summary-judgment motions under CPLR 3212, and for the grant of summary judgment in its favor. The branches of the motions seeking dismissal of 21647 LLC's claims—which present an issue of first impression about the scope of section 282's implied attorney-fee covenant—are granted. The branches of the motions seeking sanctions are denied. 21647 LLC's cross motions are denied.{**77 Misc 3d at 579}

The underlying property is a condominium unit in a residential building in Manhattan. In 2007, nonparties Anna Davolio Meldal and Melissa Eaton executed a promissory note, secured by a mortgage on the apartment. The mortgage agreement contained a provision under which the borrowers covenanted to pay the mortgagee's reasonable attorney's fees in the event the mortgagee prevailed in any action to foreclose the mortgage. (See NY St Cts Elec Filing [NYSCEF] Doc No. 38, mortgage.)

Meldal and Eaton defaulted on the loan on June 1, 2010. In 2013, HSBC Bank, which then held the note and mortgage, brought an action to foreclose on the mortgage. (See HSBC Bank [USA] v Meldal, Sup Ct, NY County, Arlene Bluth, J., index No. 850025/2013.) In 2016, while the mortgage-foreclosure action was pending, the condominium board of managers brought a lien-foreclosure action, based on the apartment's unpaid condominium common charges. (See Board of Mgrs. of Christodora House Condominium v Meldal, Sup Ct, NY County, Robert R. Reed, J., index No. 153490/2016.)

In 2018, the board of managers obtained a judgment in the lien-foreclosure action, pursuant to which the apartment was sold at foreclosure by a referee. 21647 LLC purchased the apartment at a foreclosure sale held later in 2018, taking the property subject to the 2007 mortgage.^[FN2] In June 2019, the board and 21647 LLC obtained an order in the lien-foreclosure action granting a writ of ejectment against Meldal and Eaton and putting 21647 LLC in possession. (See Board of Mgrs. of Christodora House Condominium v Meldal, 2019 NY Slip Op 34880[U] [Sup Ct, NY County 2019]; NYSCEF Doc No. 51, decision and order, in Board of Mgrs. of Christodora House Condominium v Meldal, Sup Ct, NY County, index No. 153490/2016.)

Also in June 2019, MTGLQ obtained a judgment of foreclosure and sale in the mortgage-foreclosure action. 21647 LLC appealed. In January 2021, the Appellate Division, First Department, reversed the judgment below and dismissed the complaint on the ground that HSBC had not properly served Meldal and had not moved for default judgment within one{**77 Misc 3d at 580} year of [*3]Eaton's default. (See MTGLQ Invs., L.P. v Shay, 190 AD3d 527, 528-529 [1st Dept 2021].)^[FN3]

21647 LLC brought this action against MTGLQ and the two US Bank trusts that were assignees of the mortgage, seeking the attorney fees that 21647 LLC had incurred in defending the mortgage-foreclosure action in Supreme Court, appealing to the First Department, and opposing MTGLQ's two leave motions. (See NYSCEF Doc No. 1.)

In motion sequence 001, the US Bank defendants move to dismiss the claim against them under CPLR 3211 (a) (7) and for sanctions under 22 NYCRR part 130 (NYSCEF Doc No. 4); 21647 LLC cross-moves to convert the motion to dismiss into a CPLR 3212 summary-judgment motion and for the grant of summary judgment in its favor against the US Bank defendants (NYSCEF Doc No. 9). On motion sequence 002, MTGLQ also moves to dismiss under CPLR 3211 (a) (7) and for sanctions under 22 NYCRR part 130 (NYSCEF Doc No. 27); and 21647 LLC again cross-moves to convert the motion into one for summary judgment and for the grant of summary judgment in its favor against MTGLQ (NYSCEF Doc No. 55).

Motion sequences 001 and 002 are consolidated here for disposition. The branches of defendants' motions seeking dismissal are granted; the branches of defendants' motions seeking sanctions are denied; plaintiff's cross motions to convert and for summary judgment are denied.

Plaintiff's claims against defendants are based on Real Property Law § 282. That statute provides that "a covenant contained in a mortgage on residential real property" that permits the mortgagee to recover attorney fees in a foreclosure action gives rise to an implied reciprocal covenant by the mortgagee in favor of the mortgagor. (Real Property Law § 282 [1].) Under that implied covenant, the mortgagee shall "pay to the mortgagor the reasonable attorneys' fees and/or expenses incurred by the mortgagor . . . in the successful defense of any action or proceeding commenced by the mortgagee against the mortgagor arising out of the contract." (Id.)

{**77 Misc 3d at 581}It is undisputed that the mortgage in this case contains a clause permitting the mortgagee to recover attorney fees in a foreclosure action—thus implicating section 282's reciprocal attorney-fee covenant. It is also undisputed that 21647 LLC obtained dismissal of the mortgage-foreclosure action brought by MTGLQ.^[FN4] Interpreting this aspect of section 282 as a matter of first impression, [*4]though, this court concludes that 21647 LLC's attorney fees incurred in that foreclosure action were not "incurred by the mortgagor" within the meaning of Real Property Law § 282.

As discussed above, 21647 LLC is not the original mortgage borrower with respect to the condominium apartment at issue. Instead, 21647 LLC purchased the condominium, subject to the original mortgage, at an arm's length public sale following a lien foreclosure. 21647 LLC, relying on a range of principles derived from the common law and other statutes, contends that it thereby succeeded to all of the rights and interests of the original borrowers, including their (then-inchoate) attorney-fee claims against defendants. (See NYSCEF Doc No. 12 at 9-15; NYSCEF Doc No. 59 at 3-6.) But 21647 LLC's claims against defendants are grounded in one particular statute—namely Real Property Law § 282. Whether those claims state a cause of action, in turn, depends on whether a party in 21647 LLC's situation is a "mortgagor" for purposes of Real Property Law § 282 (1)'s implied attorney-fee covenant.

The statutory text's reference to "mortgagor" is ambiguous about whether the statute's implied covenant confers an attorney-fee claim on parties beyond the original borrowers on the note, such as purchasers at a foreclosure sale. And this{**77 Misc 3d at 582} court's research has not found any prior decision addressing this question. The court must therefore construe the statute for itself.

Real Property Law § 282's departure from the "common-law rule disfavoring any award of attorney's fees to the prevailing party in a litigation . . . favors a narrow interpretation" of the implied covenant created by the statute. (Gottlieb v Kenneth D. Laub & Co., 82 NY2d 457, 464 [1993].) That narrow interpretation must, in turn, track "the mischief to be remedied" by the statute. (Morris v Snappy Car Rental, 84 NY2d 21, 28 [1994]; accord Chianese v Meier, 285 AD2d 315, 322 [1st Dept 2001] [same].)

Real Property Law § 282's bill jacket provides valuable insight into the mischief the legislature intended the statute to address. Section 282 was enacted in December 2010, in the depths of the post-2008 foreclosure crisis. (L 2010, ch 550.) The bill's Senate and Assembly sponsors explained in letters to the Governor that the bill is intended to ensure that "people with meritorious defenses to foreclosure who currently cannot afford to pay a private attorney to defend themselves will now be able to do so." (Sponsors' Letter, Bill Jacket, L 2010, ch 550 at 5; Senate Introducer's Mem in Support, Bill Jacket, L 2010, ch 550 at 8 [explaining that the "purpose of this bill is to allow borrowers in a foreclosure proceeding access to legal representation"].) The bill sponsors explained that the bill "creates parity between the lender and borrower" in the foreclosure context by providing "borrowers the same ability banks have to collect reasonable attorney's fees when the borrowers are successful in a foreclosure proceeding," similar to the reciprocal landlord-tenant provisions of Real Property Law § 234. (Sponsors' Letter, Bill Jacket, L 2010, ch 550 at 5; accord Assembly Sponsor's Letter, Bill Jacket, L 2010, ch 550 at 7 [same].)^[FN5] The sponsors also provided supportive [*5]letters and memos from several advocacy organizations, all emphasizing the importance of the bill to "borrowers" and "homeowners." (See Bill Jacket, L 2010, ch 550 at 15-26.)

In other words, the mischief Real Property Law § 282 was intended to address, and the means chosen to address that{**77 Misc 3d at 583} problem, focused on the need for mortgage borrowers—often suffering financially straitened circumstances—to have access to counsel. Having counsel, in turn, would enable those borrowers to mount a meaningful defense against foreclosure actions and improve their chances of staying in their homes. According a corresponding scope to "mortgagor" in section 282 places a party in 21647 LLC's circumstances outside the statute's coverage.

21647 LLC was not a borrower on the condominium mortgage loan. Instead, 21647 LLC purchased the condominium apartment at a public foreclosure sale after the mortgage borrowers had been foreclosed upon for failure to pay common charges. 21647 LLC chose to purchase the apartment subject not only to the mortgage but also to the pending mortgage-foreclosure action; and then had the mortgage borrowers ejected from the apartment.^[FN6] And 21647 LLC has not suggested that it would have had any difficulty obtaining counsel to represent it in the prior actions related to the apartment absent the potential for recovering fees under section 282.

In short, construing "mortgagor" in Real Property Law § 282 to apply to parties in 21647 LLC's position would not remedy the mischief at which the statute is aimed, or otherwise fulfill the statutory purpose—it would simply afford parties in that position a windfall recovery. This court declines to take that step. The mortgage on the condominium apartment in this case does not contain a covenant permitting 21647 LLC to recover the attorney fees and expenses it incurred in successfully defending against the mortgage-foreclosure action brought by MTGLQ. 21647 LLC lacks a cause of action against MTGLQ (and the US Bank defendants) for attorney fees and costs.

Although this court agrees with MTGLQ and the US Bank defendants that 21647 LLC's claims against them are without merit, this court is not persuaded that those claims are frivolous. The court perceives no basis for awarding sanctions against 21647 LLC under 22 NYCRR 130-1.1.

Accordingly, it is ordered that the branch of the US Bank defendants' motion seeking dismissal under CPLR 3211 of the claims against them (mot seq 001) is granted; and it is further{**77 Misc 3d at 584} ordered that the branch of the US Bank defendants' motion seeking sanctions against 21647 LLC (mot seq 001) is denied; and it is further ordered that 21647 LLC's cross motion to convert the motion into one for summary judgment under CPLR 3212, and upon conversion grant summary judgment in favor of 21647 LLC (mot seq 001) is denied; and it is further ordered that the branch of MTGLQ's motion seeking dismissal under CPLR 3211 of the claims against it (mot seq 002) is granted; and it is further ordered that the branch of MTGLQ's motion seeking sanctions against 21647 LLC (mot seq 002) is denied; and it is further ordered that 21647 LLC's cross motion to convert the motion into one for summary judgment under CPLR 3212, and upon conversion grant summary judgment in favor of 21647 LLC (mot seq 002) is denied; and it is further ordered that the action is dismissed, and the clerk shall separately award the US Bank defendants and MTGLQ costs and disbursements upon the submission of appropriate bills of costs; and it is further ordered that 21647 LLC serve a copy of this order with notice of its entry on all parties and on the office of the County Clerk, which shall enter judgment accordingly.