ORDERED that this motion by defendant Merle Chong ("Chong") for an order inter alia staying the foreclosure sale is granted to the extent indicated; and it is further

ORDERED that pending further order of the court, the plaintiff is temporarily stayed from proceeding with the foreclosure sale. [*2]

This is an action to foreclose a mortgage given by Lend America and recorded by its nominee, plaintiff Mortgage Electronic Registration Systems. Inc. ("MERS") to defendant Mary Lou Bastian to secure a note for monies borrowed by Bastian to purchase the subject premises located at 132 Washington Avenue, Wyandanch, New York. Defendant, Merle Chong was the prior owner of the property, and apparently sold the same in order to avoid foreclosure. On July 28, 2004, a foreclosure action was commenced against Chong, which was discontinued on September 21, 2004 after Chong sold the property to defendant Bastion. Bastion financed the purchase of this house with Lend America, who nominated MERS to file the mortgage. The closing on that deal occurred on August 31, 2004.

The instant foreclosure action was commenced on March 16, 2005. The plaintiff obtained an ex parte order of reference on June 2, 2005 after defendants failed to answer the complaint. Chong, sued originally herein as John Doe 1 was added to the complaint pursuant to the June 2, 2005 order. Chong did not answer the complaint and claims both that service upon her was improper and further that plaintiff fraudulently caused her to believe an answer was not necessary.

In her motion, Chong seeks the following relief:

Staying and cancelling the foreclosure sale;

Joining this action with a so-called third party action commenced by Chong against Gary Dolan, Esq., Chris Shapiro a/k/a John Doe, d/b/a Quality First Development;

Deeming service of the order to show cause sufficient service of the attached proposed Third Party Summons and Complaint and Answer.

Chong claims that one day later after the closing she and Bastian entered a lease agreement wherein Chong agreed to lease the premises for one year for a term of one year plus an additional $1,800.00 per month. In addition, according to the terms of the purported lease agreement, Chong was to have given Bastian a security deposit in the amount of $30,000.00, which was to be returned to Chong at the end of the term upon the full and faithful performance by Chong under the terms of the lease. In addition, this alleged agreement provides that at the end of the term, or any time during the term of the lease Chong, or other tenant has the option to purchase the property from Bastian and that the $30,000.00 security deposit would be applied as a down payment.

Bastian submits an affidavit in opposition to this motion wherein she denies that she entered into a lease agreement with Chong and claims that her signature on the lease agreement attached to Chong's motion is a forgery. The affirmation of Bastian's counsel was unsigned and not considered by the court. While Bastian denies that she entered a lease agreement with Chong, she does not dispute that Chong has continued to reside in the premises after Bastian took title in August 2004. Nor does she claim that she timely paid the mortgage payments to plaintiff. [*3]

While not specifically stated, the court infers from the remainder of the motion that Chong is seeking to vacate her default in answering plaintiff's claim, and seeking leave to serve a late answer and third party complaint.

"A strong public policy exists which favors the disposition of matters on their merits (see Bunch v. Dollar Budget, 12 AD3d 391, 783 NYS2d 829. A party seeking to vacate an order entered upon his or her default is required to demonstrate both a reasonable excuse for the default and the existence of a meritorious cause of action or defense ( see CPLR 5015[a][1]); Hageman v, Home Depot USA, 25 AD3d 760, 808 NYS2d 763; Zrake v. New York City Dept. Of Educ., 17 AD3d 603, 793 NYS2d 151. The determination of whether or not to vacate a default in answering is generally left to the sound discretion of the court ( see Hegarty v Ballee, 18 AD3d 706, 795 NYS2d 747 (Ahmad v. Aniolowski, ___ AD3d ___, 2006 WL 1086227 [2d Dept. April 25, 2006]).

The court, in its discretion finds that the plaintiff has shown a reasonable excuse for the default and a meritorious defense sufficient to warrant vacature of her default in answering the complaint. More specifically, Chong alleges that one "Lizette Doe", an alleged agent of Lend America and its agent Ideal Mortgage falsely reassured her that she need not answer the complaint. These allegations are in the nature of extrinsic fraud, which if true, would obviate the need to demonstrate a meritorious defense (see Tonawanda School Employees Federal Credit Union v. Zack , 242 AD2d 894, 662 NYS2d 885 [4th Dept. 1997]). However, a hearing on this issue is not necessary since the court finds that Chong has adequately demonstrated the existence of a meritorious defense.

Defendant Chong raises several issues and the court has ascertained other issues that warrant proper review by the court. For instance, the contract of sale, which Chong never executed includes a certain "Seller's Concession" which provides that the seller (Chong) would pay the purchaser's closing costs in the amount of $6,900.00 and referred thereafter to a separate attached Rider, which again is not executed by Chong. According to that Rider, the seller Chong was to pay $60,000 in renovation costs directly to a contractor selected by the Lender at the closing. Documents included in Chong's motion papers indicate disbursements at the closing to Quality First Development in the combined amount in excess of $60,000.00. In her proposed Answer and Third Party Complaint, Chong alleges that Quality First Development acted in collusion with plaintiff to induce Chong to enter the contract with Bastion. In opposition to this motion, plaintiff does not submit an affidavit from any person from either Lend America or MERS, but simply submits an affirmation of counsel, denying the allegations. Counsel does not have knowledge of the facts alleged and the issues raised. Nor is it clear if counsel is speaking for MERS, which is simply a recording agent and presumably not involved in the underlying transaction, or Lend America, the holder of the note. The court notes that there is no evidence that Lend America ever assigned the note or mortgage to MERS, which is necessary to show the facts constituting the claims against the defaulting defendants (see, Kluge v. Fugazy, 145 AD2d 537, 536 NYS2d 92). [*4]

Moreover, there is no evidence in this record that Chong received any proceeds from the sale of her residence, even though the house allegedly sold for $230,000.00 with a mortgage and other liens not in the amount of just over $151,000.00. Chong alleges plaintiff, through its alleged agent Ideal Mortgage and Lizette Doe induced Chong to not only transfer the house to Bastian, but also enter a lease agreement wherein Chong was required to pay a security deposit in the amount of $30,000.00 and $1,800.00 per month rent by falsely promising her that after one year title would be transferred back to her. While Bastian claims that the lease is a forgery, factual question exist as to its validity and whether Chong's allegations have merit. Neither Bastian nor plaintiff provide any accounting of the net proceeds disbursed at closing. It is not clear if they went to a contractor as set forth in the contract or to Bastian for the alleged security deposit and pre paid rent. The court notes that while Bastian denies the validity of the lease agreement, she does not deny that after closing Chong continued to reside in the residence. Bastian does not indicate what steps, if any, she took to evict Chong from the premises since the closing in August 2004. The court again notes that Bastian's lawyer submitted an unsigned affirmation, which was not considered by the court. Finally, Chong raises questions of legal

malpractice and conflict of interest.

Given the totality of the issues raised herein, the court in its discretion vacates Chong's default in answering the plaintiff's complaint. The proposed answer in the form annexed to the complaint shall be deemed served upon service of a copy of this order. Chong is granted leave to serve her third party complaint in the form annexed to the motion within 20 days of service of a copy of this order and upon payment of any required fee. Personal service upon the named third party defendants is required. However, service of a copy of this order shall constitute service of the third party complaint upon plaintiff and existing defendants. All parties and counsel are directed to appear for a preliminary conference in IAS Part 7, 400 Carleton Avenue, Central Islip, New York on July 10, 2006 at 9:30am.

Movant is directed to immediately notify the referee, Deborah Harper of the stay contained in this order.

Dated: May 22, 2006

HON. WILLIAM B. REBOLINI, J.S.C.