
    The Builders Mortgage Company, Plaintiff, v. Davis Berkowitz et al., Defendants.
    (Supreme Court, Kings Special Term for Motions,
    May, 1910.)
    Foreclosure of mortgages on lands — Foreclosure by action and sale: Sale — Setting aside sale — Proceedings and order: Distribution of proceeds and surplus — Distribution of proceeds in general — On resale after embezzlement of proceeds of former sale by referee.
    Where, prior to the granting of a motion made by the purchaser at a sale of mortgaged premises in foreclosure to be relieved from her purchase because of defective title, the referee who made the sale embezzled the money deposited by the purchaser, the court will order that she be paid said amount with interest, costs and expenses out of the proceeds of a resale of the premises; or that the plaintiff in the foreclosure action, in event of its making such payment to the purchaser so relieved, recover the same from the proceeds of sale in addition to the amount of its mortgage.
    Motiok to discharge a referee.
    W. C. Damron, for plaintiff.
    Rollins & Rollins, for defendant Crescent Brick & Supply Company.
    Joseph J. Schwartz, for defendant Zwerling.
    George E. Miner, for the purchaser.
   Crane, J.

This motion to discharge a referee appointed by the court to sell in foreclosure requires me to determine who must stand the loss occasioned by his defalcation.

On August 20, 1908, the property in suit was sold under a judgment of foreclosure by a referee appointed therein for that ¡impose, the purchaser, Annie Wolf, paying to the referee the sum of $2,350, ten per cent, of the purchase price.

Subsequently the purchaser rejected the title as defective; but, upon motion made at Special Term, her objections were overruled and she was ordered to take title. Upon appeal, the Appellate Division reversed the Special Term, so that the purchaser has now been relieved of her purchase. Pending these proceedings, the referee embezzled the deposit and, not having given security, there is no fund in court out of which to repay to the purchaser the ten per cent, she advanced on the purchase. This motion is made by the plaintiff mortgagee for the appointment of a new referee to sell and, is met by all parties in interest with a demand that the order directing a resale also give direction about the repayment of $2,350 previously deposited. The mortgagee .and owner insist that the purchaser must look to the absconding referee; the purchaser claims a first lien upon the funds of a resale.

Search has failed to discover any case where the purchase price could not be returned to the purchaser; but there are numerous cases where the costs, expenses and fee for searching have been paid out of the funds to the purchaser on resale.

Wiltsie on Mortgage Foreclosure (p. 664) says: “ The former purchaser must be fully and liberally indemnified for all damages, costs, and expenses to which he has been subjected. These include the deposit or percentage advanced, by him on the sale, the expense of investigating the title, the costs of the motion for repayment, if he is compelled to make a motion, the interest on his deposit, together with all the reasonable costs and expenses which he has paid or been subjected to in opposing the application for resale.”

Sugden on Vendors (Amer. filotes, p. 153) says: “If the title prove bad the purchaser will be paid out of the funds in the cause the costs of the orders for confirming him as purchaser, of the reference, and of the application, and the expense of investigating the title. If there are no funds in court, the plaintiff will, in a common case, be ordered to pay the purchaser in the first instance but he will be at liberty to recover them over in the suit.”

Dart on Vendors (p. 1350) has the following: “The Court will protect the purchaser against the parties to the action and all parties coming in under the decree.”

These text-books have gathered their statements from the following cases: Smith v. Kelson, 2 Simmons & Stuart,. 557. The vice-chancellor said: “It did not seem consistent with principle that the right of the purchaser to he indemnified for expenses improperly occasioned to him by the suit, should depend upon the circumstances whether there did or not happen to be funds in court at the time of the Master’s Report.” He ordered the costs to be paid by the plaintiff to the purchaser without prejudice to the question how much costs should ultimately be satisfied.

Berry v. Johnson, 2 Younge & C. Ch. 564, decided that, where a resale was directed and there were no available funds in court, the purchaser was entitled to be reimbursed by the plaintiff the costs of investigating the title and confirming the purchase.

So, likewise, in Mullins v. Hussey, 35 Beav. 301, the purchaser was directed to be paid out of the funds.

Lechmere v. Brasier, 2 Jac. & W. 287, cited in Raynor v. Selmes, 52 N. Y. 579, while it contains the phrase by Lord Eldon, “ The rule in general is, that the suitors must pay for the mistakes of the court,” yet in that case no decision was made as to who should pay, the purchaser relinquishing his costs.

In this State we have the case of Morris v. Mowatt, 2 Paige, 586, where, upon discharging the purchaser, the chancellor said: “ The purchaser must be discharged of his purchase and the deposit must be restored to him. He is also entitled to interest on that deposit and to the costs to which he has been subjected. At present there is no fund under the control of the Court out of which the interest and costs can be paid; and as all the parties have acted in perfect good faith in relation to this sale the expenses must be paid out of the fund hereafter to be raised if a second sale takes place. If no sale of the property is had and no other way is provided for payment the charge must fall on the complainants personally.”

In Kohler v. Kohler, 2 Edw. Ch. 69, the purchaser was discharged and held to be entitled to his costs; but, as there was no fund in court out of which they could be paid, the complainants were directed to pay them in the first instance.

Most of these cases are cited with approval in Raynor v. Selmes, 52 N. Y. 579, where it was stated: “ On a sale of lands under the order of the court if the title proves defective the innocent bidder must be repaid his proper expenses. These include the deposit or percentage paid by him on the sale, the expenses of investigating the title, and the costs of the motion for repayment, if he is put to a motion.” As the plaintiff in that case, however, was clearly negligent, the money was taken out of his share.

Likewise in Angel v. Clark, 21 App. Div. 339, the above rule was followed making the purchase money and expenses a first claim upon the funds arising on the resale.

If interest on the deposit money, costs of searching the title and other expenses can be taken, in the first instance, out of the moneys arising on a resale, I* can see no reason why the same rule should not apply to the repayment of the deposit money.

Therefore, in granting this motion for the appointment of a referee in place of the absconding referee, to make a resale, I shall order that out of the proceeds arising on this resale the purchaser shall be paid her deposit, with interest •and costs and expenses.

That, if the plaintiff repay these, as perhaps it should in the first instance, it may recover the amount out of the property, together with the amount of its mortgage. Naturally this means that, ultimately, the loss will fall upon the owner of the equity. I can find in this case no evidence of negligence of any one of the parties which would enable me to charge up this amount to his share. ^

Ordered accordingly.  