Decided on June 9, 2016
Supreme Court, Richmond County
HSBC Bank USA, National Association, AS TRUSTEE FOR DEUTSCHE ALT-SECURITES MORTGAGE LOAN TRUST, SERIES 2007-AR3, Plaintiff,
Veronica Sanchez, BOARD OF DIRECTORS OF THE BENZINGER AVENUE HOMEOWNERS ASSOCIATION, et.al., , Defendants.
Hogan Lovells US LLP
875 Third Avenue
New York, NY 10022
Salfarlie, Salfarlie & assoc.
88-18 Sutphin Boulvard
Jamaica, NY 11435
Philip S. Straniere, J.
The following items were considered in the review of the following Motion for
Notice of Motion 1
Memorandum in Support of Motion 2
Affirmation in Opposition 3
Reply Memorandum of Law 4
Exhibits Attached to Papers
Upon the foregoing cited papers, the Decision and Order on this Motion is as follows:
After the New York Mets initial season in 1962 where they won only 40 and lost 120 games, their manager Casey Stengel wrote a book entitled “Can’t Anyone Here Play This Game.” The more foreclosure litigation that this court reviews, the more it appears that the title of Stengel’s work would more aptly fit the mortgage industry in the United States during the first decade of this century. It would seem that the instructions to accomplish [*2]simple things like making sure the borrower actually owns the property being mortgaged, has a source of income to repay the loan, and recording the mortgage as a lien against the proper piece of property must have been given in “Stengelese.” For those of you unfamiliar with that particular language, you may want to review Casey Stengel’s testimony before the Senate’s Anti-Trust and Monopoly Subcommittee on July 8, 1958. Apparently the persons involved with this loan on behalf of the plaintiff were diverted by Stengel’s explanation as to why he platooned Hank Bauer and Gene Woodling in right field and did not focus on some of the basics from real estate 101.
Plaintiff, HSBC Bank USA National Association, as Trustee for Deutsche ALT-A Securities Mortgage Loan Trust, Series 2007-AR3, commenced this residential foreclosure action against the defendants, Veronica Sanchez, Board of Directors of The Benziger Avenue Homeowners Association, New York City Environmental Control Board, New York City Parking Violations Bureau, New York City Transit Adjudication Bureau, and “John Doe” alleging that defendant Sanchez failed to make payments as agreed in a promissory note and mortgage.
Currently before the court is plaintiff’s motion for (1) summary judgment; (2) dismissal of any counterclaims; (3) an order of reference; (4) permission to treat defendant’s answer as a limited notice of appearance permitting defendant’s counsel to receive without prior notice a copy of the notice of sale, notice of discontinuance and notice of surplus money, if any; (5) replacing “John Doe” as a party defendant with ” ‘John’ Sanchez” and Alexandra Huertas; (6) appointing a referee to determine the amount due; (7) defaulting all non-appearing or non-answering defendants; and (8) such other and further relief the Court deems just and proper.
Defendant Sanchez has submitted opposition. Plaintiff has produced memoranda of law in support of its motion and a reply.
A. Background and Title Issues:
Defendant Sanchez purchased the premises 68 Benziger Avenue, Staten Island, New York from Frank Rodriguez and Kristin Henderson by deed dated February 23, 2007 for a purchase price of $403,000.00. According to the note, mortgage, and the incomplete HUD-1 provided by plaintiff as an exhibit to its motion, defendant Sanchez borrowed $320,000.00 from a lender called Opteum Financial Services, LLC.
The original recorded mortgage listed the lender as Mortgage Electronic Registration Systems (MERS) as nominee for Opteum Financial Services, LLC. On July 22, 2009, MERS assigned the mortgage to HSBC Bank USA, National Association as Trustee for Deutsche Alt-A Securities Mortgage Loan Trust, Series 2007-AR3. By a document dated April 20, 2010, defendant Sanchez entered into a Home Affordable Modification Agreement (HAMP) with Wells Fargo Bank, NA and not the plaintiff named in this action. The HAMP agreement reflected as new principal balance of $345,319.68. There is no assignment of the obligation from the plaintiff to Wells Fargo recorded.
Search of the Richmond County Clerk’s records reveal that there may be a problem with the title.
1. On February 22, 2002, Felix Alla conveyed to Sela Development Corp., a piece of land described as being 33.33 feet wide and 100 feet long at the corner of Benziger Avenue and Daniel Low Terrace. It was also identified as Block 24 Lot 37.
2. On June 18, 2004 Sela Development Corp. conveyed to Tia Johnson a piece of land described as beginning 47.50 from the corner of Benziger Avenue and Daniel Low Terrace and being 33.33 feet wide and 52.50 feet long. It is identified as Block 24 Lot 36. It is also known as 64 Benziger Avenue.
3. On June 13, 2006 Sela Development Corp conveyed to Kristen Henderson and Frank Rodriguez a piece of land described as beginning 47.50 feet from the corner of Benziger Avenue and Daniel Low Terrace and being 33.33 feet wide and 52.50 long. It is identified as Block 24 Lot 36. It also contains the notation that it is a correction deed for a deed dated July 15, 2004 which seeks to correct the property from being listed as Block 24 to 37 in the original deed to Block 24 Lot 36. The original deed created a problem in that the metes and bounds description for the Johnson parcel matches that of the Sanchez lot. The correction deed did not address the duplicate metes and bounds issue.
4. On February 23, 2007 Rodriguez and Henderson conveyed to Veronica Sanchez a piece of land described as beginning 47.50 feet from the corner of Benziger Avenue and Daniel Low Terrace and being 33.33 feet wide and 52.50 long. It is described as Block 24 Lot 36. It is also known as 64 Benziger Avenue.
Based on this title history it appears that Tia Johnson was also the owner of the property in question. The description of the property in Johnson’s original deed by its metes and bounds and tax block and lot matches the property which is the subject to this foreclosure. It may be a “wild deed” or it may have created a title problem which will delay this foreclosure. A correction deed dated June 12, 2006 with the proper description was filed with the County Clerk on November 15, 2006 in regard to Johnson’s purchase which is designated as 64 Benziger Avenue. This correction deed seems intended to properly describe the property that Tia Johnson purchased as 64 Benziger Avenue, Block 24 Lot 37. If this was the intent, then this deed would have effectively caused title to 68 Benziger Avenue, Block 24 Lot 36, to be vested only in Veronica Sanchez. Had someone paid attention at the start, the sloppy workmanship initially pervading this transaction would not have required a correction deed two years later to ensure the purchasers got title to the proper parcels.
There is another problem. On June 18, 2004 Johnson used the property to secure two mortgages. One is a line of credit mortgage from Countrywide Home Loans, Inc. for $49,500.00 and the second for $264,000.00 from MERS. Both loans were secured by mortgages on the Sanchez property and not the Johnson property as the original wrong description was attached to the filed instruments. On January 24, 2006 a correction mortgage with the proper description was recorded with the County Clerk in regard to the $264,000.00 loan. A satisfaction of the $49,500.00 mortgage was recorded on June 20, 2008 [*3]which was more than one year after Sanchez went into title. Whether this is sufficient to correct any title defects is an issue that needs to be addressed by the parties.
There is a more serious issue with the title documents. The description recorded with the Wells Fargo modification agreement of May 2010 which is the document triggering this foreclosure action is not of the Benziger Avenue property. It covers a parcel of land on Woodland Avenue near Giffords Lane on Staten Island, an area miles away in the Great Kills section of Staten Island. Although the Wells Fargo mortgage is filed against the proper block and lot, it contains an incorrect description. The problem that this creates is that a metes and bounds description is paramount to all other subordinate means of describing real property.
It would appear that the property encumbered by the Wells Fargo modification is not the parcel which is supposed to be subject to the mortgage lien. This may be a fatal defect preventing the foreclosure process from going forward. It also may create some liability on Wells Fargo in regard to wrongfully encumbering the lot on Woodland Avenue.
Based on the foregoing the plaintiff will need to produce an expert from a title insurance company acceptable to the court to appear at a hearing and confirm that Sanchez is the proper owner of the property and that plaintiff has the only mortgage lien on the premises and that it is valid irrespective of the patently incorrect metes and bounds description, which is the description contained in the last relevant instrument of record; the Wells Fargo modification agreement.
It is unclear whether Sanchez, or for that matter Wells Fargo, was represented by counsel during the negotiation of the modification agreement. Perhaps had counsel been present when the document was executed, a cursory glance at the instrument would have readily disclosed that the legal description referred to a parcel that bore no relationship to the real property in question. In fact, as noted above, such improperly described real property resulting from flippant and errant drafting may contain a “cloud on title” for that property giving rise to an action in tort by the owners of that property against the lender herein, and for that matter, possibly against Sanchez.
B. Analysis of the Mortgage Closing
Based on the documents produced by the plaintiff, there are several issues raised which call into question the legitimacy of the loan transaction.
First, the copy of the HUD-1which is required by federal law, is incomplete. There are no charges reflected on the sellers’ side of the transaction.
On the buyers’ side an entry labeled “proceeds from 2nd mortgage” is blank. As there is no second mortgage of record, is this a mistake or did the sellers or some other third party make a loan which was not recorded with the County Clerk.
Also on the buyers’ side an entry labeled “seller concession” is likewise blank. Was there or was there not a sellers’ concession? Based on what is disclosed on the HUD-1, Sanchez made a downpayment of $3,500.00 and produced an additional $96,766.63 at closing. Where did that money come from? Did she write a check, incur a second mortgage, or bring the proverbial suitcase of cash?
The $96,766.63 due from Sanchez excludes all of her title charges none of which are shown on the document. Title charges would include a mortgage tax of $5,575.00, plus title insurance premiums, endorsements, search fees and recording charges. Why these expenses are not listed is not disclosed.
This is an issue because the defendant has raised a defense an allegation that the plaintiff violated the Home Ownership and Equity Protection Act of 1994 (HOEPA). The defendant does not cite any particular section of this law. The plaintiff however in its brief analyzed the statute. Presumably defendant is referring to the Truth-in-Lending Act [15 USCA §1601 et seq]. Plaintiff asserts that the act has two possible thresholds to be met to be applicable; the “annual percentage rate (APR) threshold” when the APR exceeds 10 percent or the “points and fees threshold” where the closing costs will exceed the greater of 8% of the total loan amount or $400.00. If the face amount of the mortgage of $320,000.00 is used, 8% would be $25,600.00. Because all of the closing costs are not disclosed, it is impossible to determine if the threshold has been met. Defendant needs to provide a more specific reference to the statute counsel contends has been violated and both parties are to provide some documentation as to the missing figures so that the court can determine if the statute is applicable.
Also, because the HUD-1 is incomplete, the court cannot state for certain that the one-year statute of limitations has run. If the borrower did not receive a completed form at the closing setting forth the total expenses, there cannot have been the required statutory notice to the borrower to trigger the statutes protections.
Plaintiff must produce the complete closing file with all documents executed by the borrower including a properly completed HUD-1, the contract of sale, and all applications submitted indicating the borrower’s ability to pay the loan amount.
C. Is the Mortgage Broker the Agent of the Borrower or the Lender?
As is the case in many of these foreclosure actions, the court
finds it asking for whom was the mortgage broker working; the lender, the borrower or themselves? There would be only one answer if the persons who regulated this industry required mortgage brokers to be deemed a “fiduciary” for the borrower. This is an issue because a review of the HUD-1 provided and the loan documents calls into question which party actually benefited from this transaction other than the mortgage broker.
The mortgage broker listed on the HUD-1 is Hi-Tech Funding. This entity received $9,672.00 as a “mortgage broker” fee which is more than 3% of the loan value. In addition Hi-Tech Funding received an “application fee” of $495.00 and a “processing fee” of [*4]$495.00. This totals $10,662.00. A search of Department of State records discloses that “Hi-Tech Funding, Ltd.” was filed as a domestic corporation in December 2000 and was dissolved by proclamation on July 28, 2010. Dissolution by proclamation is done when an entity fails to pay its required fees for two consecutive years [Tax Law §203-a]. The court needs to take testimony on how did the defendant find this entity?
The lender of the original loan was Opteum Financial Services, LLC. It is listed with the Department of State as a Delaware corporation formed on November 2, 2004. It changed its name to Orchid Island Trs, LLC on July 5, 2007 about four months after this transaction closed. Opteum may actually be the “Sybil” of mortgage lending having had the name Northern Star Funding, LLC (1999); Northern Star Capital, LLC (2000); and Home Star Mortgage Services, LLC (2001) before Opteum. Although Orchid Island is currently an active entity, Opteum is no longer a viable limited liability company. In addition to some minor standard loan related charges Opteum was paid a “lender administration fee” of $795.00. Considering this loan was allegedly immediately transferred the Deutsche Bank Trust, what exactly was Opteum “administering” in order to obtain a fee?
A loan with such expenses may make sense because it is a “really good deal.” A review of the note and mortgage reveals it is an “interest only” loan for ten-years with the initial rate of 7.85% which changes after five years in March 2012. The interest only monthly payment the defendant was scheduled to make was $2,100.00. On the other hand a self-amortizing thirty-year loan at 7.85% interest has payments of $2,320.00 a month. A mortgage loan at that interest rate in 2007 would seem to indicate that the borrower may have had credit problems, or a limited source of income making it impossible for her to pay an additional $220.00 a month. On the other hand perhaps it was a loan which generated the most profit for the mortgage broker. So what was the benefit of the defendant paying all of these fees for an interest only loan when a self-amortizing loan would have cost about the same each month. What if some of the fees the borrower paid the mortgage broker “working for her interest” were used to “buy-down” the rate rather than compensate the mortgage broker or lender, would the parties be in their current positions?
Plaintiff is going to have to produce the mortgage broker to explain why the loan was structured in this manner and whether there was a second mortgage or seller’s concession in the original transaction which is not reflected on the HUD-1.
D. Other Problems in the Documents
1. The default letter dated January 23, 2013, and the default notice of July 23, 2012 are not from Wells Fargo. They are from ASC, America’s Servicing Company. There is no explanation in the letter as to what or who ASC is, what its relationship to the lender is, and why it is sending the default letter. The address in the letter for the borrower to make payment to is in Los Angeles, California. The address on the modification agreement for Wells Fargo is Fort Mill, South Carolina. The address of the lender in the original mortgage is Paramus, New Jersey. Payments in the original note are to be made to an [*5]Atlanta, Georgia address. How would a borrower reasonably know to whom to make payments or to whom to contact about the loan?
2. The “Proof of Filing Statement” required by the New York State Banking Department pursuant to Real Property Actions and Proceeding Law (RPAPL) §1306 to be filed by a lender before commencing a foreclosure proceeding, in the category “Loan Modification” is completed “No Modification” which is not correct. The original loan of February 23, 2007 was modified with Wells Fargo Bank, NA as the lender. It is dated April 10, 2010 yet May 4, 2010 is the date the borrower signed it and May 5, 2010 the date Wells Fargo signed it. There is no indication if a “right of rescission” notice was given to the borrower at that time or if one was required.
3. If the loan was “modified” pursuant to HAMP with Wells Fargo Bank, NA as the lender, should not Wells Fargo be the plaintiff and not the trust? The parties need to brief this issue.
4. Also, because the original note is endorsed in blank, is it necessary for the plaintiff to be in possession of the note not only to commence the action but also during the entire litigation? If not, then what is to prevent someone who obtains possession of the instrument from becoming the holder of this “bearer” paper and terminating the litigation? The parties need to brief this issue.
Based on the foregoing the parties will appear on Monday, June 27, 2016 at 11:00 AM at the courthouse 927 Castleton Avenue, Staten Island, New York prepared to resolve the issues raised in this decision.
1. Plaintiff will produce the documents requested above as well as a witness a title expert acceptable to the court to testify as to the validity of the title and plaintiff’s lien. The title expert should be prepared to opine as to whether the incorrectly described real property in the Wells Fargo modification agreement mandates dismissal of this foreclosure action because of the improper description. If that is the case, because the plaintiff has elected its remedy would the action have to be dismissed with prejudice leaving the plaintiff only the option of suing on the note and becoming a general judgment creditor of the defendant.
2. Plaintiff will produce the mortgage broker familiar with this transaction to explain why it was structured the way it was.
3. Plaintiff will produce the closing agent to resolve the discrepancies in the HUD-1 and brief the issue if there is any penalty to be imposed under federal or state law for failing to provide a completed HUD-1 at closing.
Defendant Sanchez is to appear along with her counsel. Defendant’s counsel should be familiar with file and able to negotiate the issues.
The foregoing constitutes the decision and order of the court.
Staten Island, NY
HON. Philip S. Straniere
Judge, Civil Court
ANS by _______ on _________________