Judge Schack Refuses to be Silenced!
"Once again the ultimate defender of home owner rights steps
up and gives the banks the beat down they deserve. The Judge is really vocal on
this one! We have heard banks argue many times that JP Morgan Chase OWNS
all of the old Washington Mutual loans that went through the FDIC. We
never bought it. Leave it to Judge Schack to unearth the fact that
Chase never owned the notes – it only owned the servicing rights. However,
for almost two (2) years Chase's attorney(s) stood tall and said YES, we
own the note and the mortgage. Then, in late 2011 Chase's attorney finally
admitted they DID NOT OWN THE NOTE OR THE MORTGAGE -they only had servicing
rights! How about that! Not only a waste of the court's time (and that of the
borrower) but also a clear violation of CPLR Rule 3408 (f) BAD FAITH. Imagine
that, a bank negotiating in bad faith. Bottom line - Don't mess with Judge
Schack. Oh, did I fail to mention that the initial deposit by the borrower of
$490,000, Judge Schack released $55,617.11 back to the borrower and declared the
mortgage satisfied. How about that for justice???"
- John Brancato, Loss Mitigator
Robert E. Brown, PC
[*1]
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JP Morgan Chase
Bank, Natl. Assn. v Butler
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|
2013 NY Slip Op
51050(U)
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Decided on July 5,
2013
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|
Supreme Court, Kings
County
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Schack, J.
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Published by
New York
State Law Reporting Bureau pursuant to Judiciary Law § 431.
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This opinion
is uncorrected and will not be published in the printed Official Reports.
|
Decided on July 5, 2013
Supreme Court, Kings
County
|
JP Morgan Chase
Bank, National Association, AS PURCHASER OF THE LOANS AND OTHER ASSETS OF
WASHINGTON MUTUAL BANK, FORMERLY KNOWN AS WASHINGTON MUTUAL BANK, FA (THE
"SAVINGS BANK") FROM THE FEDERAL DEPOSIT INSURANCE CORPORATION,
ACTING AS RECEIVER FOR THE SAVINGS BANK AND PURSUANT TO ITS AUTHORITY UNDER
THE FEDERAL INSURANCE ACT, 12 U.S.C. § 1821 (d) 3415 Vinson Drive Columbus,
OH 43219, Plaintiff,
against Frederick Butler et. al., Defendants. |
Plaintiff, JP MORGAN CHASE BANK, NATIONAL
ASSOCIATION, AS PURCHASER OF THE LOANS AND OTHER ASSETS OF WASHINGTON MUTUAL
BANK, FORMERLY KNOWN AS WASHINGTON MUTUAL BANK, FA (THE "SAVINGS
BANK") FROM THE FEDERAL DEPOSIT INSURANCE CORPORATION, ACTING AS RECEIVER
FOR THE SAVINGS BANK AND PURSUANT TO ITS AUTHORITY UNDER THE FEDERAL INSURANCE
ACT, 12 U.S.C. § 1821 (d) [CHASE], commenced the instant foreclosure action
against defendant FREDERICK BUTLER [BUTLER], for the premises located at 325
Macon Street, Brooklyn, New York (Block 1847, Lot 49, County of Kings). After
numerous CPLR Rule 3408 mandatory settlement conferences, first conducted by a
Special Referee in the Foreclosure Settlement Part and then personally before
me, the instant action for the foreclosure of the subject mortgage became moot,
with the sale of the subject premises and the recording of a satisfaction by
CHASE. The issue before the Court is the distribution of $490,000.00, deposited by defendant BUTLER with the Kings
County Clerk, pursuant to my June 27, 2011 order authorizing the sale of the
premises. This money is claimed by both CHASE and BUTLER. However, CHASE never
owned the subject mortgage and note, despite asserting for almost two years
that it did, and BUTLER never paid the balance due.
After numerous misrepresentations to the
Court by various counsel for CHASE, it is clear that the actual BUTLER mortgage
and note, given in 2007 by the defunct WASHINGTON MUTUAL BANK, FA [WAMU], was
acquired in 2007 by the FEDERAL NATIONAL MORTGAGE ASSOCIATION [FANNIE MAE] from
WAMU. Despite CHASE'S claims, before December 2011, to the Special Referee and
the Court that it owned the subject mortgage and note, plaintiff CHASE only
purchased the servicing rights to the subject mortgage and note from the
FEDERAL DEPOSIT INSURANCE CORPORATION [FDIC] in September 2008, when WAMU was seized
by the FDIC.
Plaintiff CHASE, as will be explained, never
owned the subject BUTLER mortgage and note. Therefore, CHASE had no right to
foreclose on the subject mortgage and note. Moreover, the continued subterfuge
by CHASE and its counsel to the Special Referee and Court that it owned the
subject BUTLER mortgage and note demonstrated "bad faith" in
violation of CPLR Rule 3408 (f), which requires that "[b]oth the plaintiff
and defendant shall negotiate in good faith to reach a mutually agreeable resolution,
including a loan modification, if possible."
The Court has before it two orders to show
cause by defendant BUTLER. The first order to show cause, dated October 26,
2011, seeks: the release, to defendant BUTLER, pursuant to [*2]CPLR Rule 2606, of the $490,000.00 deposited with
the Kings County Clerk; reinstating defendant BUTLER's May 10, 2011 order to
show cause which sought dismissal of the instant action with prejudice since
plaintiff CHASE was not the holder of the subject promissory note; dismissing
the action with prejudice, pursuant to CPLR Rule 3211 (a) (1), (3), (7) and
(8); sanctioning plaintiff and plaintiff's counsel, pursuant to 22 NYCRR §
130-1.1; and, declaring the subject BUTLER note to be fully satisfied.
Defendant BUTLER's second order to show cause, dated March 29, 2012, seeks
leave to amend defendant's February 22, 2010-answer. Plaintiff CHASE, by an
amended cross-motion, seeks the release, pursuant to CPLR Rule 2606, of the
$490,000.00 deposited by defendant BUTLER with the Kings County Clerk, to
plaintiff CHASE.
For reasons to
be explained, in applying the Court's equitable powers, the Court grants the
October 26, 2011 order to show cause of defendant BUTLER to the extent that:
the Kings County Clerk shall release to defendant BUTLER $55,617.11 from the
$490,000.00 deposited with the Kings County Clerk; the Court's declares that
the subject BUTLER Note is fully satisfied; and a hearing shall be conducted to
(1) determine whether CHASE or FANNIE MAE is entitled to the balance of
$434,382.89 deposited with the Kings County Clerk, pursuant to my order and,
(2) to give CHASE and its counsel an opportunity to be heard as to whether or
not they engaged in frivolous conduct, in violation of 22 NYCRR § 130-1.1, and
if so should CHASE and/or its counsel pay any costs and sanctions. The March
29, 2012 order to show cause of defendant BUTLER is denied as moot. The amended
cross-motion of plaintiff CHASE for the release of the $490,000.00 deposited
with the Kings County Clerk, to plaintiff CHASE, is denied.
Background
Defendant's parents, William Butler and
Louisa Butler, purchased the subject premises in 1966 (Reel 224, Page 471 of
the New York City Register for Kings County). On July 12, 2002, the subject
premises were deeded to defendant BUTLER by Louisa Butler, the surviving spouse
of William Butler (Reel 5727, Page 1870 of the New York City Register for Kings
County). Defendant BUTLER, on January 30, 2007, refinanced his home by
executing a note and mortgage with WAMU for $450,000.00, recorded in the Office
of the City Register of the City of New York, at CRFN 2007000123607, on March
7, 2007. Also, on January 30, 2007, Mr. Butler received a home equity line of
credit with WAMU, recorded in the Office of the New York City Register, at CRFN
2007000123608, on March 7, 2007. [*3]
The Automated City Register Information
System (ACRIS) does not show any assignments of the WAMU mortgage to FANNIE MAE
or CHASE. However, a CHASE representative, Yvonne Brooks, "Home Loan
Senior Research Specialist," in her December 8, 2011-affidavit attached to
plaintiff's cross-motion, claims, in ¶ 6, that FANNIE MAE, in April 2007,
purchased the BUTLER loan and WAMU retained the servicing rights. Exhibit D of
the cross-motion contains a computer printout, dated April 20, 2007, showing
this. Thus, plaintiff CHASE ultimately acknowledged that FANNIE MAE is the
"Wizard of Oz," operating behind the curtain, and the real owner of
the subject BUTLER note and mortgage.
In 2008 there was a
dispute between WAMU and defendant BUTLER about a $10.00 late payment on
BUTLER's home equity line of credit. According to defendant BUTLER, WAMU
ultimately acknowledged its error and promised defendant BUTLER that the error
would be promptly corrected. However, in the interim, WAMU had defendant
BUTLER's home equity line of credit rescinded and injured his credit rating by
reporting erroneous information to credit bureaus.
Then, on September 24, 2008, WAMU failed and
its deposits and assets were seized by the federal government. On September 25,
2008, the Office of Thrift Supervision, a now-defunct federal agency, named the
Federal Deposit Insurance
Corp. (FDIC) as Receiver for WAMU. WAMU had not corrected its errors by
re-instituting Butler's line of credit and correcting the erroneous reporting
to credit bureaus before it was seized by the FDIC. CHASE, despite its
assertions to the contrary for almost two years in the instant action,
purchased the servicing rights to WAMU's mortgages and notes, not the actual
mortgages and notes.
In a letter, dated October 10, 2008, CHASE
advised BUTLER that WAMU was closed by the Office of Thrift Supervision and the
FDIC was named Receiver. It then states that CHASE "acquired certain
assets of Washington Mutual Bank from the FDIC, including the right to service
your loan."
Plaintiff CHASE's counsel, then Steven J.
Baum, P.C., commenced the instant foreclosure action on the subject premises, with the filing of a summons,
complaint and notice of pendency on January 20, 2010. In the first paragraph of
the complaint, Steven J. Baum, P.C., "alleges upon information and
belief" that plaintiff CHASE is "the owner and holder of a note and
mortgage being foreclosed."
After plaintiff CHASE filed a Request for
Judicial Intervention, an initial CPLR Rule 3408 mandatory settlement conference
was held on March 22, 2010, followed by at least nine additional conferences,
before Special Referee Deborah Goldstein. Defendant BUTLER appeared pro se except
for the last conference, when he was represented by Yolande I. Nicholson, Esq.
At the conclusion of the April 7, 2011-settlement conference, Special Referee
Goldstein ordered that "Plaintiff is directed to appear by Sarah Feor, the
attorney of Baum with knowledge of the standing and litigation issues.
Production of all title and ownership documentation, including the note and all
assignments are required to be produced in accordance with [CPLR] 3408 (e) at
the next conference on 4/11/11 and Sarah Feor, Esq. must appear with a Chase
rep."
In her April 14, 2011 order, Special Referee
Goldstein noted that plaintiff Chase and its counsel "failed to abide by
my last directive requiring a Chase representative to be present with a [*4]copy of the Note. In addition, Plaintiff appeared
by two different law firms, Baum and Cullen & Dykman LLP, and they cannot
agree on who is authorized to appear and negotiate on behalf of Chase."
Moreover, Special Referee Goldstein noted that the payoff letters provided by
CHASE's counsel included attorneys' fees for settlement conferences. Therefore,
Special Referee Goldstein required plaintiff to provide defense "with a
clear payoff reflecting only principal and capitalized arrears on or before
4/21/11," and to "produce a copy of the Note and all documents
reflecting the transfer of title from WAMU to Chase at the next conference on
5/2/11."
The next conference was held before me on May
2, 2011. Counsel were present from both Baum and Cullen & Dykman for
plaintiff, as well as counsel for defendant. CHASE'S new counsel, Cullen &
Dykman, finally presented to the Court for its inspection the original note to
WAMU executed by BUTLER. Plaintiff's counsel from both Baum and Cullen &
Dykman represented to the Court that CHASE was the holder of the note. However,
the WAMU note was not endorsed by the FDIC as Receiver or any other entity and
ACRIS does not show any assignment of the mortgage. The conference did not
result in a settlement.
Several days later, defendant BUTLER received
in his home mailbox from the Baum law firm a J. P. Morgan Payment History on
his loan, No. 3012577379, for the
subject premises. The computerized printout received by defendant BUTLER states
that there was full settlement on "5/22/10" and that the loan was
"REMOVED LOSS MITIGATION." The printout shows that on
"5-22-10" a transaction for "$454,337.35" took place, of
which "$434,382.89" is listed as "PRINCIPAL" and
"$19,954.46" is listed as "INTEREST." This is no reference
as to who paid the $454,337.35. Sarah Feor, Esq., then of the Baum firm, in her
December 12, 2011 affirmation attached to plaintiff's cross-motion, states, in
¶ 28:
On or about April 29, 2011, our office
[Baum's] received the
previously requested loan payment history
from Plaintiff. As the borrower
was previously appearing pro se and
had only recently retained counsel,
the payment history was inadvertently
[emphasis added] sent to the
Defendant directly by a legal assistant from
Plaintiff's counsel office.
The loan history was sent in an effort to
comply with a prior directive of
Referee Goldstein.
Defendant's counsel, as a result of this
payment history, moved by an order to show cause, dated May 10, 2011, for,
among other things: dismissal of the instant action based upon plaintiff's lack
of good faith in that "plaintiff had received payment on May 22, 2010 for
the amount specified" as owing in the complaint [$434,382.89]; and,
awarding costs and sanctions against plaintiff because "plaintiff withheld
material information, including the May 22, 2010 payment from the Court."
In the May 10, 2011 order to show cause, I directed plaintiff to provide the
Court with detailed information as to "the entity or third party that made
the payment to it on May 22, 2010 that is specified in the payment history it
delivered to defendant on May 4, 2011 . . . which payment resulted in plaintiff
marking its loan payment history records fully settled,' in its opposition
papers to be filed and served by June 13, 2011." Plaintiff failed to
comply with this order and at the June 27, 2011 hearing before me made an
application to extend the time to identify the May 22, 2010 payor. I denied
this request.
In my June 27, 2011 decision and order, I
granted defendant BUTLER's May 10, 2011 order to show cause to the extent that
he could close on a long-sale of the subject premises and deposit [*5]$490,000.00 of the proceeds with the Kings County
Clerk, pursuant to the CPLR § 1006 (g). Further, I directed that a certified
copy of this order be filed with the City Register and that at the closing on
the sale of the subject premises the title company could accept no proceeds on
behalf of plaintiff CHASE. The parties could then move for distribution of the
$490,000.00 deposited with the Kings County Clerk, after the closing of title
on the subject premises.
The closing on the sale of the subject
premises, for $839,000.00, took place on July 18, 2011. $490,000.00, pursuant
to my order, was deposited with Kings County Clerk on that day. As per my June
27, 2011 order, CHASE issued a satisfaction of the subject BUTLER mortgage on
September 7, 2011 and recorded it on September 26, 2011, in the Office of the
City Register of the City of New York, at CRFN 2011000340485
In her August 25, 2011 order, Special Referee
Goldstein referred the instant action back "to Part 27 for all purposes
when they [the parties] reached an impasse regarding production of the original
note."
The parties then made the orders to show
cause and cross-motion now pending before the Court. Cullen & Dykman, in
its opposition to defendant's instant order to show cause and in support of its
cross-motion for the release of the $490,000.00 deposited with the Kings County
Clerk to plaintiff CHASE, asserts that CHASE is entitled to receive the funds,
on page 2 of its December 9, 2011-memorandum of law because "Chase, the
servicer of the loan made by Washington Mutual Bank, N.A. andnow owned by
Fannie Mae, is the designated entity to collect and receive the pay-off funds to satisfy the mortgage on the Property." In his December 9,
2011-affidavit, Greg De Castro, "Director-Servicing Management," for
FANNIE MAE states, in ¶ 3, that "Fannie Mae acquired from Washington
Mutual Bank, F.A. . . . ownership of the loan executed by Frederick Butler in
the principal amount of $450,000.00 which is secured by a lien on the Property
. . . Chase is the servicer of the Loan." Further, in ¶ 5, Mr. De Castro
claims that "[a]s Fannie Mae's servicer, CHASE has authority to commence a
foreclosure action on the Loan and to receive and/or collect the proceeds from
the sale."CHASE, Mr. De Castro and FANNIE MAE must be unaware that in New
York "[t]o establish a prima facie case in an action to foreclose a
mortgage, the plaintiff must establish the existence of the mortgage and
mortgage note, ownership of the mortgage, and the defendant's default in
payment [emphasis added]." (Campaign v Barba, 23 AD3d 327 [2d Dept 2005]).
Further, "foreclosure of a mortgage may not be brought by one who has
no title to it." (Kluge v Fugazy, 145 AD2d 537, 538 [2d Dept
1988]). Moreover, "[p]laintiff's attempt to foreclose upon a mortgage in
which he had no legal or equitable interest was without foundation in law or
fact." (Katz v East-Ville Realty Co., 249 AD2d 243 [1d Dept 1998]).
It is clear, that after almost two years of its bad faith assertions to the
contrary, CHASE never owned the subject mortgage and note. Therefore, CHASE
lacks authority to be the plaintiff in the instant action. "The
foreclosure of a mortgage cannot be pursued by one who has no demonstrated
right to the debt." (Bank of New York v Silverberg, 86 AD3d 274,
280 [2d Dept 2011]).
Yvonne Brooks, CHASE's Home Loan Senior
Research Specialist, in her December 8, 2011-affidavit, admits, in ¶ 6, that
FANNIE MAE, in April 2007 "purchased the loan from Washington Mutual . . .
However, Washington Mutual retained the servicing rights." Then, Ms.
Brooks, in ¶ 7 of her affidavit, states that on September 25, 2008 WAMU was
placed into [*6]receivership by the FDIC and
CHASE purchased certain assets, "including mortgage servicing
rights." She then states, in ¶ 8, "[d]ue to the Chase's purchase of
Washington Mutual's servicing rights, Chase took over the servicing obligations
of the Loan."
Ms. Brooks, in ¶ 13 of her affidavit, alleges
that the Fannie Mae 2006 Servicing Guide, VIII, 102, "Initiation of
Foreclosure Proceedings [exhibit H of cross-motion]," allows CHASE to be
the plaintiff in the instant action. A reading of this FANNIE MAE regulation
demonstrates the lengths to which FANNIE MAE evaded its responsibility to be
the real plaintiff in interest in the instant action or other foreclosure
proceedings. It demonstrates the "unclean hands" of FANNIE MAE and
its servicer, CHASE. It is FANNIE MAE'S roadmap of how to inveigle and deceive
a court. This FANNIE MAE regulation states, in relevant part:
Fannie Mae is at all times the owner of
the mortgage note, whether
the note is in our portfolio or whether we
own it as trustee for an MBS trust.
In addition, Fannie Mae at all times has
possession of and is the holder of
the mortgage note, except in the limited
circumstances expressly described
below. We may have direct possession of the
note or a custodian may have custody of the note for us. If we possess the note
through a document
custodian, the document custodian has custody
of the note for our exclusive
use and benefit.
In most cases, a servicer will have a copy of
the mortgage note that
it can use to begin the foreclosure process.
However, some jurisdictions
require that the servicer produce the
original note before or shortly after
initiating foreclosure proceedings. If our
possession of the note is direct
because the custody documents are at our
document delivery facility, to
obtain the note or any other custody
documents that are needed, the servicer
should submit a request to our Custody
Department . . . the servicer should
specify whether the original note is required
or whether the request if for
a copy.
In some jurisdictions, only the
"holder" of the note may conduct a
foreclosure. In any jurisdiction in which
our servicer must be the holder
of the note in order to conduct the
foreclosure, we temporarily transfer
our possession of the note to our
servicer, effective automatically and
immediately before commencement of the
foreclosure proceeding. When
we transfer our possession, our servicer
becomes the holder of the note
during the foreclosure proceedings. If the borrower reinstates the loan or
the servicer ceases to service the loan for
Fannie Mae for any reason, then
possession of the note at that time
automatically reverts to Fannie Mae and
the note must be returned to the document
custodian. At that time, Fannie
Mae also resumes being the holder, just as it
was before the foreclosure
proceedings. The transfer of our possession,
and any reversion of
possession to us are evidenced and
memorialized by our publication of
this paragraph. This Guide provision may
be relied upon by a court to
establish that the servicer conducting the
foreclosure proceeding has
possession, and is the holder, of the note
during the foreclosure proceeding, [*7]
unless the court is otherwise notified by
Fannie Mae. [Emphasis added]."
Thus, it appears to the Court that the delay
by CHASE in producing the subject BUTLER Note was to give Baum and/or Cullen & Dykman ample time to temporarily
borrow the BUTLER Note from FANNIE MAE for its May 2, 2011 presentation to the
Court. Despite its December 2011 admission that FANNIE MAE owned the subject
BUTLER mortgage and note, CHASE, prior to this, continuously presented its
ownership subterfuge to Special Referee Goldstein and the Court. The Court
cannot countenance the deceptive behavior of CHASE, the alleged owner of the
subject BUTLER mortgage and note, its counsel, and FANNIE MAE, the real owner
of the subject BUTLER mortgage and note. FANNIE MAE's Servicing Guide, with its
deceptive practices to fool courts, does not supercede New York law.
Further, Ms. Brooks explains the May 22, 2010
transaction, in ¶ 14 of her affidavit, as "an automatic cashless Fannie
Mae transaction . . . which reclassifed the loan from being a schedule/schedule
loan to an actual actual/actual remittance loan mortgage. See Fannie Mae
2006 Servicing Guide I, 208.06: Reclassification of Certain MBS Pool Mortgages
attached hereto as Exhibit "H [sic]." This regulation, in its
version of Orwellian Nineteen Eighty-Four "Newspeak," states:
Rather than requiring the servicer to
repurchase certain delinquent
MBS pool mortgages that are serviced under
the special servicing option -
those for which we have the entire foreclosure
loss risk and those for
which Fannie Mae and the servicer share the
foreclosure loss risk with
Fannie Mae having the responsibility for
marketing the acquired property -
we will automatically reclassify a mortgage
that satisfies our selection
criteria as an "actual/actual"
remittance type portfolio mortgage. Generally,
we will select mortgages that have at least
three payments past due for
reclassification
in the month when the fourth payment is delinquent.
Ms. Brooks, based upon the reclassification of the Butler mortgage, alleges in
¶ 16 of her affidavit, that the BUTLER loan "reclassification presents as
FULL SETTLEMENT 5/22/10' on defendant's loan history and does not represent a
payment [exhibit G of cross-motion]."
Discussion
In analyzing the instant orders to show cause
and cross-motion, the Court is cognizant that, with the sale of the subject premises and the $490,000.00 of
the proceeds deposited with the Kings County Clerk, the instant BUTLER
foreclosure action is now moot. However, the Court must deal with the
aftermath, namely: the issue of bad faith by CHASE, its counsel and FANNIE Mae;
the distribution of the $490,000.00 on deposit with the Kings County Clerk;
and, whether the bad faith by CHASE and its counsel is frivolous conduct.
"A foreclosure action is equitable in
nature and triggers the equitable powers of the court (see Notey v Darien
Constr. Corp., 41 NY2d 1055, 1055-1056 [1977]). Once equity is invoked, the
court's power is as broad as equity and justice require.' (Norstar Bank v
Morabito, 201 AD2d 545 [2d Dept 1994])." (Mortgage Elec. Registration Sys., Inc. v Horkan (68 AD3d
948 [2d Dept 2009]). (See Jamaica Sav. Bank v M.S. Inv. Co., 274 NY
215 [1937]). "Since it is the plaintiff lender who seeks equitable relief
from this court, the onus is upon the lender to satisfy the requisites of equity and come
to this court with clean hands.' (Junkersfeld v Bank of Manhattan Co.,
250 App Div 646 [ld Dept 1937].)" (M & [*8]T Mtge.
Corp. v Foy, 20 Misc 3d 274, fn 1 [Sup Ct, Kings County 2008]). (See Wells Fargo Bank, N.A. v Hughes, 27 Misc 3d 628,
634 [Sup Ct, Erie County 2010]).
A principal of equity is that "[a] wrongdoer should not be permitted to profit from his or her wrong (see Kirschner v KMPG LLP, 15 NY3d 446, 464 [2010]; Campbell v Thomas, 73 AD3d 103, 116-117 [2d Dept 2010]; Beaumont v American Can Co., 215 AD3d 249 [1d Dept 1995])." (Norwest Bank Minn. N.A. v E.M.V. Realty Corp., 84 AD3d 835, 836 [2d Dept 2012]).
CHASE, in the instant action, committed a fraud upon the Court by claiming to be the plaintiff. FANNIE MAE should have been the plaintiff as the owner of the note and mortgage when the BUTLER foreclosure action commenced. Thus, CHASE went to numerous CPLR Rule 3408 mandatory settlement conferences with unclean hands, falsely alleging that it was the plaintiff owner of the BUTLER mortgage and note. Recently, the Court in Wells Fargo Bank, N.A. v Meyers (___ AD3d ___, 2013 NY Slip Op 03085 at
* 1-2 [2d Dept, May 1, 2013]) instructed:
CPLR 3408 provides for mandatory settlement conferences
in
certain residential foreclosure actions (see
former CPLR 3408). In 2009,
shortly after the passage of the Subprime
Residential Loan and Foreclosure
Laws, the Legislature amended a number of the
recently enacted statutes,
including CPLR 3408 (see L 2009, ch
507). The purposes of the
amendments were to allow more homeowners at
risk of foreclosure
to benefit from consumer protection laws and
opportunities to prevent
foreclosure; to establish certain
requirements for plaintiffs in foreclosure
actions obligating them to maintain the
subject properties; to establish
protections for tenants living in foreclosed
properties; and to strengthen
consumer protections aimed at defeating
"rescue scams" (Governor's
Mem, Bill Jacket, L 2009, ch 507, at 5). The
2009 amendments include
a provision requiring that "[b]oth the
plaintiff and defendant shall
negotiate in good faith to reach a mutually
agreeable resolution,
including a loan modification, if
possible" (CPLR 3408 [f]).
While CPLR 3408 (f) requires the parties at a
settlement
conference to negotiate in good faith, that
section "does not set forth
any specific remedy for a party's
failure" to do so (Hon. Mark C.
Dillon, The Newly-Enacted CPLR 3408 for
Easing the Mortgage
Foreclosure Crisis: Very Good Steps, but
not Legislatively Perfect,
30 Pace L. Rev 855 at 875 [2010]).
The Chief Administrator for the Courts
promulgated 22 NYCRR 202.12-a, the rules for CPLR Rule 3408 mandatory
settlement conferences. 22 NYCRR 202.12-a (c) (4) provides that: [*9]
The parties shall engage in settlement
discussions in good faith
to reach a mutually agreeable resolution,
including a loan modification
if possible. The court shall ensure that each
party fulfills its obligation
to negotiate in good faith and shall see that
conferences not be unduly
delayed or subject to willful dilatory
tactics so that the rights of both
parties may be adjudicated in a timely
manner.
In HSBC Bank, USA v McKenna (37 Misc
2d 885, 905-906 [Sup Ct, Kings County 2012]), the Court provides a lengthy
discussion as to the meaning of "good faith," finding:
Generally, "good faith" under New
York law is a subjective
concept, "necessitat[ing] examination of
a state of mind." (See Credit
487 [1d Dept 2011], quoting Coan v Estate
of Chapin, 156 AD2d 318,
319 [1d Dept 1989]). "Good Faith"
is an intangible and abstract quality
with no technical meaning or statutory
definition." (Adler v 720 Park
Ave. Corp., 87 AD2d 514, 515 [1d Dept 1982], quoting Doyle v
Gordon, 158 NYS 2d 248, 249 [Sup Ct, New York County 1954]).
"It encompasses, among other things, an
honest belief, the absence of
malice and the absence of a design to defraud
or to seek an unconscionable advantage." (Doyle v Gordon, 158 NYS2d
at 259-160; see also UCC
1-201 [19] ["Good Faith' means honesty
in fact in the conduct or
transaction concerned."] "Good
faith is . . . lacking when there is a
failure to deal honestly, fairly, and
openly." (Matter of CIT Group/
Commerical Servc., Inc. v 160-09 Jamaica
Ave. Ltd. Partnership,
25 AD3d 301, 303 [1d Dept 2006] [internal
quotation marks and
citation omitted]; see also Southern
Indus. v Jeremias, 166 AD2d 178,
183 [2d Dept 1978]). "In New York, as
elsewhere, good faith'
connotes an actual state of mind—a state of
mind motivated by
proper motive." Plotti v Fleming, 277
Fed 864, 868 [2d Cir 1960]).
In the context of negotiations, the absence
of agreement does not itself
establish the lack of good faith. (See
Brookfield Indus. v Goldman,
87 AD2d, 752, 753 [1d Dept 1982]). [*10]Usually, a finding of lack of good faith in CPLR
Rule 3408 settlement conferences has been determined from the conduct of the
mortgagee/plaintiff. "Conduct such as providing conflicting information,
refusal to honor agreements, unexcused delay, unexplained charges, and
misrepresentations have been held to constitute "bad faith." (Flagstar Bank, FSB v Walker, 37 Misc 3d 312, 318
[Sup Ct, Kings County 2012]). (See Wells Fargo Bank, N.A. v Ruggiero, 39
Misc 3d 1233 (A), at * 6 [Sup Ct, Kings County 2013]; One W. Bank, FSB v
Greenhut, 36 Misc 3d 1205 (A), at * 4-5 [Sup Ct, Westchester County 2012]).
In the instant action, it is obvious that plaintiff CHASE and its counsel
provided conflicting information, unexplained charges and misrepresentations.
Clearly, CHASE and its counsel engaged in bad faith, with its "failure to
deal honestly, fairly, and openly."
The Appellate Division, Second Department, in
Wells Fargo Bank, N.A. v Meyers at * 7, discussed the remedies that
courts may use if foreclosure plaintiffs violated their obligation, pursuant to
CPLR Rule 3408 (f), to negotiate in good faith. The Court observed:
In the absence of specific guidance from the
Legislature or the
Chief Administrator of the Courts as to the
appropriate sanctions or
remedies to be employed where a party is
found to have violated its
obligation to negotiate in good faith
pursuant to CPLR 3408 (f), the
courts have resorted to a variety of alternatives
in an effort to enforce
the statutory mandate to negotiate in good
faith. For example, upon
finding that foreclosing plaintiffs have
failed to negotiate in good faith,
courts have barred them from collecting
interest, legal fees, and expenses
(see Bank of Am., N.A. v Lucido, 35 Misc 3d 1211 [A]
[Sup Ct., Suffolk
County 2012]; BAC Home Loans v Westervelt,
29 Misc 3d 1224 [A]
[Sup Ct., Dutchess County 2010]; . . .
Wells Fargo Bank v Hughes,
27 Misc 3d 628 [Sup Ct., Erie County 2010] .
. . [and] imposed a
monetary sanction pursuant to 22 NYCRR part
130 (see Deutsche
Bank Trust Co. of Am. v Davis, 32 Misc 3d 1210 [A] [Sup Ct, Kings
County 2011]; cf. BAC Home Loans v
Westervelt, 29 Misc 3d 1224.
Further, in Wells Fargo Bank, N.A. v Meyers at * 9, the Court
instructed:
In the absence of a specifically authorized
sanction or remedy in the
statutory scheme, the courts must employ
appropriate, permissible,
and authorized remedies, tailored to the
circumstances of each given
case. What may prove appropriate recourse in
one case may be
inappropriate or unauthorized under the
circumstances presented in
another. Accordingly, in the absence of further
guidance from the
Legislature or the Chief Administrator of the
Courts, the courts must
prudently and carefully select among
available and authorized remedies,tailoring their application to the
circumstances of the case. [*11]
Therefore, in the instant action, the Court
has tailored an equitable remedy to the particular circumstances of the BUTLER
foreclosure action, that will determine how the $490,000.00 on deposit with the
Kings County Clerk will be distributed. According to the CHASE or FANNIE MAE
computerized printout sent to defendant BUTLER, in May 2011, there was full
settlement of the BUTLER loan on "5/22/10," with the loan
"REMOVED LOSS MITIGATION." The printout shows that on
"5-22-10" a transaction for "$454,337.35" took place, of
which "$434,382.89" is listed as "PRINCIPAL" and
"$19,954.46" is listed as "INTEREST." This is no reference
as to who paid the $454,337.35. Therefore, a hearing shall be held to determine
whether CHASE, FANNIE MAE or any other entity is entitled to the $434,382.89 settlement
of the BUTLER loan. Since CHASE failed to negotiate in good faith, not
admitting until December 2011 that FANNIE MAE was the real plaintiff, and
numerous CPLR Rule 3408 mandatory settlement conferences were conducted before
Special Referee Goldstein and myself, CHASE is barred from collecting interest,
legal fees, and expenses after May 22, 2010. (See Wells Fargo Bank, N.A. v
Meyers at * 7; Bank of Am., N.A. v Lucido, supra; BAC Home Loans v
Westervelt, supra; Wells Fargo Bank v Hughes, supra.). $55,617.11, the
balance of the $490,000.00 on deposit with the Kings County Clerk, will be
distributed to defendant BUTLER. This remedy is necessitated by the bad faith
of CHASE in this action. This Court will follow the observations of the Court
in Bank of Am., N.A. v Lucido, at * 6, that:
equity will not intervene on behalf of one
who acts in an unjust,
unconscionable or egregious manner, York v
Searles, 97 AD331
[2d Dept 1907], aff'd 189 NY 573
[1907]). This Court cannot, and will
not, countenance a lack of good faith in the
proceedings that are brought
before it, especially where blatant and
repeated misrepresentations of
fact are advanced, neither will it permit
equitable relief to lie in favor
of one who so flagrantly demonstrates such
obvious bad faith. Further, the Court needs to determine if the bad faith of
CHASE and its counsel, Cullen & Dykman is frivolous conduct. 22 NYCRR §
130-1.1 (a) states that "the Court, in its discretion may impose financial
sanctions upon any party or attorney in a civil action or proceeding who
engages in frivolous conduct as defined in this Part, which shall be payable as
provided in section 130-1.3 of this Subpart." Further, it states in 22
NYCRR § 130-1.1 (b), that "sanctions may be imposed upon any attorney
appearing in the action or upon a partnership, firm or corporation with which
the attorney is associated."
22 NYCRR § 130-1.1(c) states that:
For purposes of this part, conduct is frivolous if:
(1) it is completely without merit in law and cannot be supported
by a reasonable argument for an extension,
modification or
reversal of existing law;
(2) it is undertaken primarily to delay or prolong the resolution of
the litigation, or to harass or maliciously
injure another; or
(3) it asserts material factual statements that are false.
It is clear that CHASE's representations that it was the plaintiff in the
instant action "is [*12]completely without
merit in law" and "asserts material factual statements that are
false."
Several years before the drafting and
implementation of the Part 130 Rules for costs and sanctions, the Court of Appeals (A.G. Ship Maintenance Corp. v
Lezak, 69 NY2d 1, 6 [1986]) observed that "frivolous litigation is so
serious a problem affecting the proper administration of justice, the courts may proscribe such conduct and
impose sanctions in this exercise of their rule-making powers, in the absence
of legislation to the contrary (see NY Const, art VI, § 30, Judiciary
Law § 211 [1] [b])."
Part 130 Rules were subsequently created,
effective January 1, 1989, to give the courts an additional remedy to deal with frivolous conduct, along with
Appellate Division disciplinary case law against attorneys for abuse of process
or malicious prosecution. The Court, in Gordon v Marrone (202 AD2d 104,
110 [2d Dept 1994], lv denied 84 NY2d 813 [1995]), instructed that:
Conduct is frivolous and can be sanctioned under the court rule if
it is completely without merit . . . and cannot be supported by a
reasonable argument for an extension, modification or reversal of
existing law; or . . . it is undertaken primarily to delay or prolong
the resolution of the litigation, or to harass or maliciously injure
another" (22 NYCRR 130-1.1[c] [1], [2] . . . ).
In Levy v Carol Management Corporation (260
AD2d 27, 33 [1st Dept 1999]) the Court stated that in determining if sanctions
are appropriate the Court must look at the broad pattern of conduct by the
offending attorneys or parties. Further, "22 NYCRR 130-1.1 allows us to exercise our discretion to impose costs and sanctions on
an errant party . . ." Levy at 34, held that "[s]anctions are
retributive, in that they punish past conduct. They also are goal oriented, in
that they are useful in deterring future frivolous conduct not only by the
particular parties, but also by the Bar at large."
The Court, in Kernisan, M.D. v Taylor
(171 AD2d 869 [2d Dept 1991]), noted that the intent of the Part 130 Rules
"is to prevent the waste of judicial resources and to deter
vexatious litigation and dilatory or malicious litigation tactics (cf.
Minister, Elders & Deacons of Refm. Prot. Church of City of New York v 198
Broadway, 76 NY2d 411; see Steiner v Bonhamer, 146 Misc 2d 10) [Emphasis
added]." The instant action, with CHASE, the improper plaintiff, engaging in bad faith is "a waste of
judicial resources."
This conduct, as noted in Levy, must be deterred. In Weinstock v
Weinstock (253 AD2d 873 [2d Dept 1998]), the Court ordered the maximum
sanction of $10,000.00 for an attorney who pursued an appeal "completely
without merit," and holding, at 874, that "[w]e therefore award the
maximum authorized amount as a sanction for this conduct (see, 22 NYCRR
130-1.1) calling to mind that frivolous litigation causes a substantial
waste of judicial resources to the detriment of those litigants who come to
the Court with real grievances [Emphasis added]." Citing Weinstock,
the Appellate Division, Second Department, in Bernadette Panzella, P.C.
v De Santis (36 AD3d 734 [2d Dept 2007]), affirmed a Supreme Court,
Richmond County $2,500.00 sanction, at 736, as "appropriate in view of the
plaintiff's waste of judicial resources [Emphasis added]." [*13]
In Navin v Mosquera (30 AD3d 883 [3d Dept 2006]), the
Court instructed that when considering if specific conduct is sanctionable as
frivolous, "courts are required to examine whether or not the conduct was continued when its lack of legal or
factual basis was apparent [or] should have been apparent' (22 NYCRR 130-1.1
[c])." The Court, in Sakow ex rel. Columbia Bagel, Inc. v Columbia Bagel, Inc. (6
Misc 3d 939, 943 [Sup Ct, New York County 2004]), held that "[i]n assessing whether to award
sanctions, the Court must consider whether the attorney adhered to the standards
of a reasonable attorney (Principe v Assay Partners, 154 Misc 2d 702
[Sup Ct, NY County 1992])."
Therefore, the Court will examine the conduct
of plaintiff CHASE and plaintiff's counsel, in a hearing, pursuant to 22 NYCRR § 130-1.1, to determine if
plaintiff CHASE and plaintiff's present counsel, Jennean Rogers, Esq. and her
firm, Cullen & Dykman LLP engaged in frivolous conduct, and to allow
plaintiff CHASE and plaintiff's present counsel, Jennean Rogers, Esq. and her
firm, Cullen & Dykman LLP a reasonable opportunity to be heard.
Conclusion
Accordingly, it is
ORDERED, that the order to show cause of
defendant FREDERICK BUTLER, dated October 26, 2011, is granted to the extent
that: the Kings County Clerk shall release to defendant FREDERICK BUTLER
$55,617.11, made payable to him, from the $490,000.00 deposited with the Kings
County Clerk; the Court's declares that the subject BUTLER Note is fully
satisfied; and a hearing shall be conducted to (1) determine whether plaintiff
JP MORGAN CHASE BANK, NATIONAL ASSOCIATION, AS PURCHASER OF THE LOANS AND OTHER
ASSETS OF WASHINGTON MUTUAL BANK, FORMERLY KNOWN AS WASHINGTON MUTUAL BANK, FA
(THE "SAVINGS BANK") FROM THE FEDERAL DEPOSIT INSURANCE CORPORATION,
ACTING AS RECEIVER FOR THE SAVINGS BANK AND PURSUANT TO ITS AUTHORITY UNDER THE
FEDERAL INSURANCE ACT, 12
U.S.C. § 1821 (d) or the FEDERAL NATIONAL MORTGAGE ASSOCIATION is entitled to
the balance of $434,382.89 deposited with the Kings County Clerk, pursuant to
my June 27, 2011 decision and order and, (2) to give plaintiff JP MORGAN CHASE
BANK, NATIONAL ASSOCIATION, AS PURCHASER OF THE LOANS AND OTHER ASSETS OF
WASHINGTON MUTUAL BANK, FORMERLY KNOWN AS WASHINGTON MUTUAL BANK, FA (THE
"SAVINGS BANK") FROM THE FEDERAL DEPOSIT INSURANCE CORPORATION,
ACTING AS RECEIVER FOR THE SAVINGS BANK AND PURSUANT TO ITS AUTHORITY UNDER THE
FEDERAL INSURANCE ACT, 12 U.S.C. § 1821 (d) and its present counsel, Jennean
Rogers, Esq. and her firm, CULLEN & DYKMAN LLP an opportunity to be heard
as to whether or not they engaged in frivolous conduct, in violation of 22
NYCRR § 130-1.1, and if so should plaintiff JP MORGAN CHASE BANK, NATIONAL
ASSOCIATION, AS PURCHASER OF THE LOANS AND OTHER ASSETS OF WASHINGTON MUTUAL
BANK, FORMERLY KNOWN AS WASHINGTON MUTUAL BANK, FA (THE "SAVINGS
BANK") FROM THE FEDERAL DEPOSIT INSURANCE CORPORATION, ACTING AS RECEIVER
FOR THE SAVINGS BANK AND PURSUANT TO ITS AUTHORITY UNDER THE FEDERAL INSURANCE
ACT, 12 U.S.C. § 1821 (d) [*14]and/or its
present counsel, Jennean Rogers, Esq. and her firm, CULLEN & DYKMAN LLP pay
any costs and sanctions; and it is further
ORDERED, that the order to show cause of
defendant FREDERICK BUTLER, dated March 29, 2012, is denied as moot; and it is further
ORDERED, that the amended cross-motion of
plaintiff JP MORGAN CHASE BANK, NATIONAL ASSOCIATION, AS PURCHASER OF THE LOANS
AND OTHER ASSETS OF WASHINGTON MUTUAL BANK, FORMERLY KNOWN AS WASHINGTON MUTUAL
BANK, FA (THE "SAVINGS BANK") FROM THE FEDERAL DEPOSIT INSURANCE
CORPORATION, ACTING AS RECEIVER FOR THE SAVINGS BANK AND PURSUANT TO ITS
AUTHORITY UNDER THE FEDERAL INSURANCE ACT, 12 U.S.C. § 1821 (d), for the
release of the $490,000.00 deposited with the Kings County Clerk, to plaintiff
JP MORGAN CHASE BANK, NATIONAL ASSOCIATION, AS PURCHASER OF THE LOANS AND OTHER
ASSETS OF WASHINGTON MUTUAL BANK, FORMERLY KNOWN AS WASHINGTON MUTUAL BANK, FA
(THE "SAVINGS BANK") FROM THE FEDERAL DEPOSIT INSURANCE CORPORATION,
ACTING AS RECEIVER FOR THE SAVINGS BANK AND PURSUANT TO ITS AUTHORITY UNDER THE
FEDERAL INSURANCE ACT, 12 U.S.C. § 1821 (d), is denied; and it is further
ORDERED, that: (1) to determine the
distribution of the $434,832.89 balance on deposit with the Kings County Clerk;
and (2) it appearing that plaintiff JP MORGAN CHASE BANK, NATIONAL ASSOCIATION,
AS PURCHASER OF THE LOANS AND OTHER ASSETS OF WASHINGTON MUTUAL BANK, FORMERLY KNOWN AS WASHINGTON MUTUAL
BANK, FA (THE "SAVINGS BANK") FROM THE FEDERAL DEPOSIT INSURANCE CORPORATION, ACTING AS RECEIVER FOR THE SAVINGS BANK
AND PURSUANT TO ITS AUTHORITY UNDER THE FEDERAL INSURANCE ACT, 12 U.S.C. § 1821
(d), plaintiff's present counsel Jennean Rogers, Esq. and her firm, CULLEN
& DYKMAN LLP engaged in "frivolous conduct," as defined in the
Rules of the Chief Administrator, 22 NYCRR § 130-1 (c), and that pursuant to
the Rules of the Chief Administrator, 22 NYCRR § 130.1.1 (d), "[a]n award
of costs or the imposition of sanctions may be made . . . upon the court's own
initiative, after a reasonable opportunity to be heard"; this Court will
conduct a hearing in Part 27, on Thursday, September 12, 2013, at 2:30 P.M., in
Room 277, 360 Adams Street, Brooklyn, NY 11201; and it is further
ORDERED, that Ronald David Bratt, Esq., my
Principal Law Clerk, is directed to serve this order by first-class mail, upon:
Jamie Dimon, Chairman and Chief Executive Officer of plaintiff, JP MORGAN CHASE
BANK, NATIONAL ASSOCIATION, 270 Park Avenue, New York, New York 10017; Jennean
Rogers, Esq., CULLEN & DYKMAN LLP, 100 Quentin Roosevelt Boulevard, Garden
City, New York 11530; CULLEN & DYKMAN LLP, 100 Quentin Roosevelt Boulevard,
Garden City, New York 11530; and Yolande I. Nicholson, Esq., 26 Court Street,
Suite 602, Brooklyn, New York 11242.
This constitutes the Decision and Order of the Court. [*15]
ENTER
