You are here: / Debtor-Creditor
, , ,

IN A FORECLOSURE CONTEXT, THE BANK, WHEN MOVING FOR A DEFICIENCY JUDGMENT, GETS TWO CHANCES TO DEMONSTRATE THE VALUE OF THE PROPERTY; IF THE FIRST SUBMISSION IS DEEMED INADEQUATE, THE BANK MUST BE ALLOWED TO TRY AGAIN (FIRST DEPT).

The First Department, reversing Supreme Court, determined the bank in this foreclosure action should have been given a second opportunity to present evidence of the value of the property for purposes of a deficiency judgment:

A lender in a foreclosure action moving for a deficiency judgment “bears the initial burden of demonstrating, prima facie, the property’s fair market value as of the date of the auction sale” … . Upon a lender’s motion for a deficiency judgment, RPAPL 1371(2) provides, in part: “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.”

The Court of Appeals has interpreted this provision as “a directive that a court must determine the mortgaged property’s ‘fair and reasonable market value’ when a motion for a deficiency judgment is made. As such, when the court deems the lender’s proof insufficient in the first instance, it must give the lender an additional opportunity to submit sufficient proof, so as to enable the court to make a proper fair market value determination” … . Valley Natl. Bank v 252 W. 31 St. Corp., 2025 NY Slip Op 04528, First Dept 7-31-25

Practice Point: In a foreclosure action, if the bank is seeking a deficiency judgment it gets two shots at proving the value of the property.

 

,

WHAT IS THE DIFFERENCE BETWEEN A REVENUE PURCHASE AGREEMENT AND A LOAN?

The Fourth Department, reversing Supreme Court, over a two-justice concurrence, determined the contract between plaintiff and defendants was a revenue purchase agreement, not a loan. Therefore defendants’ argument the agreement constituted a usurious loan was rejected. However, questions of fact about the extent of the damages precluded summary judgment in favor of plaintiff. The concurring justices agreed the contract was a revenue purchase agreement, but argued the analysis of the issue used by the majority, based upon a specific case, was wrong and suggested a different approach:

Under the agreement, plaintiff advanced a monetary amount to the entity defendants in exchange for 25% of the future revenues of their business, until the purchased amount, i.e., an agreed-upon amount that was greater than the advanced amount, was paid to plaintiff. There was no interest rate or payment schedule and no time period during which the purchased amount was to be collected by plaintiff. Indeed, the agreement specifically stated that it was not a loan and that the entity defendants were “not borrowing money from” plaintiff. The agreement contained a daily remittance amount, which constituted “a good faith estimate of” plaintiff’s share of the future revenue stream. The agreement also contained an acknowledgment from plaintiff that it was “entering this [a]greement knowing the risks that [the entity defendants’] business may slow down or fail, [that plaintiff] assumes these risks,” and that there would be no recourse for plaintiff in the event the entity defendants went bankrupt, went out of business, or experienced a slowdown in business, among other things. The agreement also contained two reconciliation provisions, whereby the daily remittance would be modified both retroactively and prospectively upon request and with proof of earned revenue amounts. * * *

In determining whether a transaction constitutes a loan, courts must determine whether the plaintiff ” ‘is absolutely entitled to repayment under all circumstances’ “; “[u]nless a principal sum advanced is repayable absolutely, the transaction is not a loan” … . “Usually, courts weigh three factors when determining whether repayment is absolute or contingent: (1) whether there is a reconciliation provision in the agreement; (2) whether the agreement has a finite term; and (3) whether there is any recourse should the merchant declare bankruptcy” (… see Samson MCA LLC, 219 AD3d at 1128 …). Bridge Funding Cap LLC v SimonExpress Pizza, LLC, 2025 NY Slip Op 04306, Fourth Dept 7-25-25

Practice Point: Consult this decision for a discussion of the nature of a revenue purchase agreement, as opposed to a loan. The majority used a Second Department case to structure its analysis. The two-justice concurrence agreed with the majority that the contract was a revenue purchase agreement, but suggested a different approach to the analysis.​

 

,

A PARTY WHO IS NOT A OBLIGOR ON THE NOTE, BUT IS A SIGNATORY ON THE MORTGAGE, IS SUBJECT TO FORECLOSURE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined that defendant (Lucy), who was not an obligor on the note, but who executed the mortgage, was subject to foreclosure:

A party who is not an obligor on a note but is a signatory on the corresponding mortgage, while not personally liable for the debt, is a mortgagor and has agreed to mortgage his or her interest in the property as security for the debt … . Here, although Lucy did not execute the Obligation to Pay and is not personally liable for the payment obligation, she executed the mortgage whereby she pledged her interest in the property as security for the obligations set forth in the co-ownership agreement and the Obligation to Pay, and thus, Lucy’s interest in the property is subject to foreclosure … . Deutsche Bank Trust Co. Ams. v Zzoha, 2025 NY Slip Op 03793, Second Dept 6-25-25

Practice Point: A party who is not on obligor on the note but is a signatory on the corresponding mortgage is subject to foreclosure.

 

, , ,

SUPREME COURT HAS SUBJECT MATTER JURISDICTION OVER THIS PROCEEDING UNDER CPLR ARTICLE 52 TO ENFORCE A MONEY JUDGMENT AGAINST THE STATE INSURANCE FUND TO THE EXTENT THE STATE IS A GARNISHEE (SECOND DEPT)

The Second Department, in a full-fledged opinion by Justice Dillon, determined Supreme Court had subject matter jurisdiction over this CPLR article 52 action to enforce a money judgment against New York State Insurance Fund. Ordinarily an action for money damages against a state agency is litigated in the Court of Claims:

In this proceeding, the State Insurance Fund is postured not as a judgment debtor but as a garnishee. As such, under CPLR 5207, all procedures for the enforcement of money judgments against other judgment debtors are applicable to it, as a garnishee, “except where otherwise prescribed by law” and except that an order “shall only provide for the payment of moneys not claimed by the [S]tate” and that no judgment may be entered against the State in such a procedure.

The State Insurance Fund has not shown that this proceeding is otherwise prescribed by law. To the contrary, CPLR 5221(a)(4) provides that the Supreme Court or a County Court has authority to hear enforcement proceedings “authorized by this article,” meaning the entirety of CPLR article 52, which, of course, includes CPLR 5207 garnishment proceedings against the State. … The petition seeks entry of an order, not a judgment. Thus, contrary to the State Insurance Fund’s contention, we hold that the Supreme Court possessed subject matter jurisdiction over this proceeding pursuant to CPLR article 52 to enforce a money judgment as against the State Insurance Fund to the extent that the State’s role in this instance is that of a garnishee. Matter of Doran Constr. Corp. v New York State Ins. Fund, 2025 NY Slip Op 03716, Second Dept 6-18-25

Practice Point: Here, under very complicated facts, Supreme Court was deemed to have subject matter jurisdiction over an action to enforce a money judgment against a state agency where the state’s role is that of a garnishee.

 

, , , , ,

PETITIONER JUDGMENT-CREDITOR WAS ENTITLED TO THE TURNOVER OF CERTAIN REAL PROPERTY WHICH HAD BEEN FRAUDULENTLY TRANSFERRED TO A TRUST BY THE RESPONDENT JUDGMENT-DEBTORS, AS WELL AS THE CONTENTS OF RESPONDENTS’ SAFETY DEPOSIT BOX (SECOND DEPT).

The Second Department, reversing Supreme Court, determined petitioner was entitled to real property which was fraudulently transferred by respondents to a trust, as well as to the contents of respondents’ safety deposit box, to satisfy a judgment against respondents in the approximate amount of $338,000:

… [P]etitioner commenced this proceeding pursuant to CPLR article 52, seeking … the turnover of a safety deposit box maintained by the respondents Zakhar Brener and Ninel Krepkina and of certain residential real property owned by the respondent B and K Trust. * * *

… [P]etitioner established her prima facie entitlement to judgment as a matter of law on the cause of action seeking relief pursuant to Debtor and Creditor Law former § 273 by submitting evidence that Brener was insolvent at the time of the conveyance of the property, which was made without fair consideration … .  * * *

… [P]etitioner established her prima facie entitlement to judgment as a matter of law on the cause of action seeking relief pursuant to Debtor and Creditor Law former § 276. “Pursuant to Debtor and Creditor Law former § 276, every conveyance made with actual intent to hinder, delay, or defraud either present or future creditors is fraudulent. The requisite intent required by this section need not be proven by direct evidence, but may be inferred from the circumstances surrounding the allegedly fraudulent transfer” … . “In determining whether a conveyance was fraudulent, the courts consider the existence of certain common ‘badges of fraud,’ which include ‘a close relationship between the parties to the alleged fraudulent transaction; a questionable transfer not in the usual course of business; inadequacy of the consideration; the transferor’s knowledge of the creditor’s claim and the inability to pay it; and retention of control of the property by the transferor after the conveyance'” … . “A prime example of this type of fraud is where a debtor transfers his property to another while retaining the use thereof so as to continue . . . free from the claims of creditors” … . Here, the petitioner submitted, among other things, the Brener respondents’ answer, wherein they admitted that Brener continued to occupy and use the property with Krepkina. …

… [P]etitioner established her prima facie entitlement to judgment as a matter of law on the cause of action to direct Chase Bank to turn over of the contents of the safe deposit box maintained by Brener and Krepkina by submitting a letter establishing that Brener and Krepkina jointly held a safe deposit box at one of Chase Bank’s branches in Brooklyn … . Matter of Schiffman v Affordable Shoes, Ltd., 2025 NY Slip Op 02786, Second Dept 5-7-25

Practice Point: Consult this decision for a concise description of a CPLR Article 52 turnover proceeding by a judgment creditor against judgment debtors based in part upon respondents’ fraudulent transfer of real property to avoid creditors (Debtor and Creditor Law sections 273 and 276).

 

, , ,

WHETHER THE JUDGMENT DEBTOR IS ENTITLED TO RESTITUTION AFTER REVERSAL OF A RESTRAINING NOTICE AND WHETHER PLAINTIFF IS ENTITLED TO AN INSTALLMENT PAYMENT ORDER ARE DISCRETIONARY ISSUES TO BE DECIDED UPON REMAND; CRITERIA EXPLAINED (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Higgitt, reversing Supreme Court and remanding the matter, determined that whether the judgment debtor was entitled to restitution based on the reversal of a restraining notice and whether the plaintiff is entitled to an installment payment order were not decided by the reversal, but  rather were discretionary issues to be resolved on remand. The facts are too complex to fairly summarize here:

… CPLR 5015(d) provides that, “[w]here a judgment or order is set aside or vacated, the court may direct and enforce restitution in like manner and subject to the same conditions as where a judgment is reversed or modified on appeal.” … Thus, “CPLR 5015[d] empowers a court that has set aside a judgment or order to restore the parties to the position they were in prior to its rendition, consistent with the court’s general equitable powers” … . The essential inquiry for a court addressing a request for the equitable remedy of restitution is whether it is against equity and good conscious to permit a party to retain the money that is sought to be recovered … . The determination whether to award restitution is committed to the trial court’s discretion … . * * *

Contrary to defendant’s contention that an installment payment order cannot be directed at funds exempt from execution under CPLR 5231 (i.e., 90% of his monthly disability insurance payments), such an order is the expedient for accessing exempt income … . As Professor Siegel stated long ago, “[o]ne of [CPLR 5226’s] prime uses is in that situation . . . where it appears that the judgment debtor can afford more than the 10% to which the income execution is limited” … . Thus, “[t]he court on the [CPLR 5226] motion can direct the debtor to make regular payments to the judgment creditor in any sum it finds the debtor able to afford, not limited by the 10% that restricts the income execution of CPLR 5231” … . Hamway v Sutton, 2025 NY Slip Op 01062, First Dept 2-25-25

Practice Point: Although this opinion is fact-specific, it includes the criteria for some fundamental debtor-creditor issues, i.e., the amount of monthly disability insurance payments which is available to a judgment debtor, the income-sources which are available to a judgment debtor, whether a plaintiff is entitled to an installment payment order, the criteria for a court’s discretionary determination of the amount a judgment debtor can afford to pay every month, etc.

​

, , , ,

DEFENDANT BOUGHT THE FORECLOSED PROPERTY WITHOUT KNOWLEDGE THE JUDGMENT OF FORECLOSURE AND SALE HAD BEEN APPEALED; DEFENDANT WAS A PURCHASER IN GOOD FAITH AND FOR VALUE AND WAS THEREFORE INSULATED FROM THE EFFECTS OF THE APPELLATE REVERSAL (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendant (Bartlett) was a purchaser in good faith and for value of the foreclosed property. The foreclosure was reversed on appeal. Defendant, as the fee owner of the property, was insulated from the effects of the reversal:

Where a judgment of foreclosure and sale is reversed on appeal, the successful appellant may seek restitution of the real property lost by the judgment (see CPLR 5015[d]; 5523). However, where the real property was sold pursuant to the judgment of foreclosure and sale, and the title is held by “a purchaser in good faith and for value,” recovery is limited to the value of the real property (id. § 5523). In the absence of a stay of the sale or an outstanding notice of pendency, title of the purchaser in good faith and for value “is . . . insulate[d] . . . from the effects of an appellate reversal” … .

Here, in support of its cross-motion, Bartlett established, through an affidavit of its member, that Bartlett acquired title to the property subsequent to a foreclosure sale, without actual knowledge of a successful appeal by the plaintiffs in the underlying action that resulted in a vacatur of the judgment of foreclosure and sale … . The affidavit also demonstrated that the plaintiffs had not obtained a stay of the foreclosure sale in the underlying action. Under these circumstances, Bartlett established … that it was a purchaser in good faith and for value entitled to the protection of CPLR 5523 … . Puretz v Mae, 2024 NY Slip Op 06227, Second Dept 12-11-24

Practice Point: A buyer of foreclosed property who had no knowledge the judgment of foreclosure had been appealed is insulated from the effects of a reversal on appeal. The buyer, as a purchaser in good faith for value, is the fee owner of the property.

 

, , ,

HERE AN OTHERWISE UNTIMELY COUNTERCLAIM WAS RENDERED TIMELY PURSUANT TO CPLR 203(D) TO THE EXTENT IT SOUGHT EQUITABLE RECOUPMENT, AS OPPOSED TO AFFIRMATIVE RELIEF (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined the counterclaim alleging professional malpractice was timely pursuant to CPLR 203(d) to the extent the counterclaim sought equitable recoupment, as opposed to affirmative relief:

Even crediting the court’s determination that this claim accrued on February 4, 2019, rendering time-barred the counterclaim alleging professional malpractice asserted on February 15, 2022, the defendants are permitted, pursuant to CPLR 203(d), to seek equitable recoupment in a counterclaim. CPLR 203(d) provides, “[a] defense or counterclaim is interposed when a pleading containing it is served. A defense or counterclaim is not barred if it was not barred at the time the claims asserted in the complaint were interposed, except that if the defense or counterclaim arose from the transactions, occurrences, or series of transactions or occurrences, upon which a claim asserted in the complaint depends, it is not barred to the extent of the demand in the complaint notwithstanding that it was barred at the time the claims asserted in the complaint were interposed.” “This provision allows a defendant to assert an otherwise untimely claim which arose out of the same transactions alleged in the complaint, but only as a shield for recoupment purposes, and does not permit the defendant to obtain affirmative relief” … . Getzel Schiff & Pesce, LLP v Shtayner, 2024 NY Slip Op 06186, Second Dept 12-11-24

Practice Point: An otherwise untimely counterclaim which arises from a claim asserted in the complaint may be deemed timely pursuant to CPLR 2013(d) to the extent it seeks equitable recoupment as opposed to affirmative relief.​

 

, ,

ALTHOUGH THE GUARANTEES REQUIRED THAT THE TENANT SURRENDER THE PREMISES IN THE CONDITION DESCRIBED BY THE LEASE, THE GUARANTEES DID NOT INCORPORATE THE LEASE OR EXPRESSLY REQUIRE COMPLIANCE WITH THE SURRENDER TERMS OF THE LEASE; THEREFORE THE TENANT’S FAILURE TO COMPLY WITH THE SURRENDER TERMS OF THE LEASE DID NOT TRIGGER THE GUARANTORS’ OBLIGATIONS (FIRST DEPT). ​

The First Department, reversing Supreme Court, determined the language of the guarantees controlled and the guarantors were relieved of responsibility for the tenant’s rent payments when the tenant surrendered the property in compliance with the terms of the guarantees. Although the guarantees referred to surrendering the premises in the condition required by the lease, the guarantees did not incorporate the lease or expressly require compliance with the surrender terms of the lease. Therefore the tenant’s failure to comply with the surrender terms of the lease did not trigger any obligation on the part of the guarantors:

… [T]he guarantees expressly limit defendants’ liability to the terms contained therein, which, as relevant here, only require that tenant surrender the premises in compliance with the surrender provisions set forth in the guarantees. While the guarantees mandated tenant surrender the premises in the condition required by the terms of the lease, they do not incorporate the terms of the underlying lease by reference … or expressly require that tenant’s surrender of the premises be performed pursuant to the terms of the lease … .

Therefore, while tenant was required to obtain written consent of the surrender from plaintiff under the lease, the motion court improperly determined that tenant’s failure to do so precluded the guarantors’ avoidance of liability for unpaid rent after tenant’s surrender … . ROC-Lafayette Assoc., LLC v Sturm, 2024 NY Slip Op 06016, Frist Dept 12-3-24

Practice Point: The language of a guarantee is strictly construed. Here the guarantees required surrender of the premises in the condition described by the lease but did not incorporate the lease or expressly require compliance with the surrender terms of the lease. Therefore the tenant’s failure to comply with the surrender terms of the lease did not trigger the guarantors’ responsibility for the tenant’s rent payments. The tenant had fully complied with the surrender terms in the guarantees.

 

,

A LIENHOLDER NONPARTY TO AN ACTION THAT RESULTED IN A FEE AWARD TO A DEBTOR MAY SUE TO RECOVER THOSE FEES WHERE THE LIENHOLDER WAS NEITHER JOINED NOR REQUIRED TO INTERVENE IN THAT ACTION (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Rivera, reversing the Appellate Division, determined: “[a] lienholder nonparty to an action that resulted in a fee award against a debtor may challenge the legal basis of the judgment in a separate proceeding to recover those fees. We conclude that because the nonparty was neither joined nor required to intervene in the action against the debtor, it had no prior opportunity to challenge the award and thus is not barred from doing so in this proceeding … “.  Matter of Kasowitz, Benson, Torres & Friedman, LLP v JPMorgan Chase Bank, N.A., 2024 NY Slip Op 05876, CtApp 11-26-24

 

Categories

Sign Up for the Mailing List to Be Notified When the Site Is Updated.

  • This field is for validation purposes and should be left unchanged.

Copyright © 2026 New York Appellate Digest, Inc.
Site by CurlyHost | Privacy Policy