        SUPREME COURT OF THE STATE OF NEW YORK
           Appellate Division, Fourth Judicial Department

1011
CA 16-00356
PRESENT: CENTRA, J.P., CARNI, LINDLEY, CURRAN, AND SCUDDER, JJ.


MEHMET CANAL, PLAINTIFF-APPELLANT,

                    V                             MEMORANDUM AND ORDER

ABDULAZIZ MUNASSAR, DEFENDANT-RESPONDENT,
ET AL., DEFENDANTS.


PIRRELLO, PERSONTE & FEDER, ROCHESTER (STEVEN E. FEDER OF COUNSEL),
FOR PLAINTIFF-APPELLANT.

LAFAY, BYRNE & LAFAY, P.C., ROCHESTER (ANTHONY P. LAFAY OF COUNSEL),
FOR DEFENDANT-RESPONDENT.


     Appeal from an order of the Supreme Court, Monroe County (John M.
Owens, A.J.), entered July 29, 2015. The order denied the motion of
plaintiff for partial summary judgment and granted the cross motion of
defendant Abdulaziz Munassar for summary judgment dismissing the
amended complaint against him.

     It is hereby ORDERED that the order so appealed from is
unanimously modified on the law by denying the cross motion,
reinstating the amended complaint against defendant Abdulaziz
Munassar, granting the motion in part and dismissing the defense and
counterclaim of that defendant for usury, and as modified the order is
affirmed without costs.

     Memorandum: Abdulaziz Munassar (defendant) borrowed $127,000
from plaintiff for the purchase of a residence in the Town of Greece.
The loan was secured by a mortgage on the property, and the total on
both the note and the mortgage was $170,000. The note states that the
interest rate during the term of the note would be “zero (0.00%)
because of the religious beliefs and requirements of Borrower.” The
difference of $43,000 between the principal set forth in the note and
mortgage of $170,000 and the amount disbursed at closing of $127,000
was stipulated by the parties to be “in the nature of interest.” In
June 2013, approximately one year later, defendant defaulted on the
loan by failing to make the required monthly and balloon payments, and
plaintiff commenced this foreclosure action. In his answer to the
amended complaint, defendant asserted a defense and counterclaim for
usury. Plaintiff moved for partial summary judgment seeking, inter
alia, dismissal of the usury defense and counterclaim, and defendant
cross-moved for summary judgment dismissing the amended complaint
against him based upon the defense of usury. The matter was referred
to a judicial hearing officer (JHO) for a hearing on the issue of
                                 -2-                          1011
                                                         CA 16-00356

usury only. Following the hearing, the JHO issued a bench decision
finding that the interest rate was 50.5% and that the loan was
therefore usurious, and Supreme Court granted defendant’s cross motion
for summary judgment dismissing the amended complaint against him. We
conclude that the court erred in granting the cross motion and instead
should have granted that part of plaintiff’s motion for partial
summary judgment dismissing defendant’s usury defense and
counterclaim. We therefore modify the order accordingly.

     In determining whether the interest charged exceeded the usury
limit, courts must apply the traditional method for calculating the
effective interest rate as set forth in Band Realty Co. v North
Brewster, Inc. (37 NY2d 460, 462, rearg denied 37 NY2d 937; see
Oliveto Holdings, Inc. v Rattenni, 110 AD3d 969, 972). According to
that method, “[s]o long as all payments on account of interest did not
aggregate a sum greater than the aggregate of interest that could
lawfully have been earned had the debt continued to the earliest
maturity date, there would be no usury” (Band Realty Co., 37 NY2d at
464 [internal quotation marks omitted]). In applying the traditional
formula, “[t]he discount, divided by the number of years in the term
of the mortgage, should be added to the amount of interest due in one
year, and this sum is compared to the difference between the principal
and the discount in order to determine the true interest rate”
(Hammelburger v Foursome Inn Corp., 76 AD2d 646, 648, mod on other
grounds 54 NY2d 580).

     Applying that formula to the case at bar, which involves a
five-year mortgage of $170,000 with a $43,000 “discount” with no
additional interest, we add $8,600, which is one-fifth of the
discount, to the interest over the first year (0%), arriving at a sum
of $8,600. Comparing the $8,600 figure to the difference between the
principal and the discount retained by plaintiff, i.e., $127,000, the
interest rate was 6.77% per annum. That interest rate is well below
the civil usury rate of 16% per annum (see General Obligations Law
§ 5-501 [1]; Banking Law § 14-a [1]).

     Defendant attempts to base his claim of usury on his advanced
interest payment, asserting that the annual interest rate should be
calculated by dividing the total interest to be received over the
five-year period, $43,000, by the total received at closing, $127,000,
resulting in an annual interest rate of 33.8%. Defendant’s argument
is unavailing, however, inasmuch as “the Court of Appeals has held
that ‘interest on the whole amount of principal agreed to be paid at
maturity, not exceeding the legal rate, may be taken in advance’ ”
(Martell v Drake, 124 AD3d 1200, 1201, quoting Band Realty Co., 37
NY2d at 463-464). Moreover, defendant’s argument fails to account for
the fact that the loan here, unlike the one-year term at issue in Band
Realty Co., Martell and Oliveto, is for a term of five years.



Entered:   November 18, 2016                    Frances E. Cafarell
                                                Clerk of the Court
