Opinion
38285/07.
Decided December 2, 2008.
Carol Ann Solferino, Esq. of Solferino Solferino LLP, Mineola NY represented plaintiff.
Plaintiff's application, upon the default of all defendants, for an order of reference for the premises located at 205 East 35th Street, Brooklyn, New York (Block 4889, Lot 54, County of Kings) and to amend the caption to reflect a purported assignee as new plaintiff, is denied without prejudice with leave to renew. The instant mortgage loan is an example of what the mortgage industry refers to as a "scratch and dent" loan, a distressed loan that was issued without proper documentation and/or a loan that became toxic because the borrower missed payments.
Plaintiff FREMONT INVESTMENT LOAN (FREMONT) gave defendant AQUILA ROSE (ROSE) the instant "scratch and dent" loan. It appears that defendant ROSE defaulted after making only one payment of principal and interest. Ultimately, FREMONT unloaded the instant toxic mortgage loan by attempting to sell it to GRP LOAN, LLC (GRP), which proclaims itself as a specialist in buying distressed mortgage loans. FREMONT's attempted assignment to GRP took place almost nine months after ROSE's default, and more than three months subsequent to FREMONT's filing of the summons, complaint and notice of pendency in this action. FREMONT's attempted conveyance of the instant nonperforming loan to GRP is an example of a small ripple in what former Federal Reserve Board Chairman Alan Greenspan called in his October 23, 2008 testimony, before the House Oversight Committee, as "a once in a century credit tsunami."
The "affidavit of merit" submitted in support of the instant application was not executed by an officer of plaintiff FREMONT, but by Natalie Bowlen, President of GRP. FREMONT's alleged assignment to GRP is unrecorded, and replete with errors of commission and omission. It was executed on FREMONT's behalf by Kristin Tess, GRP's Secretary, who is a member of the New York State Bar. Ms. Tess, in the purported assignment, states that GRP is FREMONT's attorney in fact. Thus, Ms. Tess appears to have a conflict of interest, in violation of 22 NYCRR § 1200.24, by simultaneously representing both assignor and assignee, unless she can demonstrate the informed consent of both FREMONT and GRP. Further, the photocopy of the unrecorded assignment [exhibit F of application] lacks a certification, pursuant to CPLR § 2105, that it has been compared with the original and is a true and complete copy. Also, plaintiff's counsel fails to present the Court with the purported power of attorney from FREMONT to GRP to act as its attorney in fact. The assignment is therefore a nullity without a valid power of attorney.
Leave is granted to plaintiff FREMONT to renew its motion, for an order of reference and to amend the caption, upon plaintiff's presentation to the Court, within sixty days of this decision and order, of: FREMONT's loan origination documents in giving the instant mortgage loan to defendant ROSE; an affidavit by an officer of FREMONT explaining whether fraud was committed in the origination of the instant "scratch and dent" mortgage and note, and why GRP is both assignor and assignee of the instant mortgage and note; either a certified copy of the FREMONT to GRP assignment with a valid certified power of attorney, or a copy of the January 23, 2008 FREMONT to GRP assignment, with a valid power of attorney, recorded with the Office of the City Register of the City of New York; and an affirmation by Kristin Tess, Esq., Corporate Secretary of GRP, with a satisfactory explanation of her conflict of interest; and, an affidavit by an officer of GRP explaining why it purchased the instant "scratch and dent" loan, and why it shares office space in White Plains, New York with FREMONT.
Background
Defendant ROSE borrowed $475,000.00 from FREMONT on January 8, 2007, and the Note and Mortgage were recorded in the Office of the City Register of the City of New York on January 26, 2007, at City Register File Number (CRFN) 2007000051058 [exhibit A of application]. The first payment of principal and interest was due on March 1, 2007. Defendant ROSE, according to the Natalie Bowlen affidavit of merit and amount due, defaulted after making only one payment on the instant note. FREMONT sent ROSE a notice of default, dated June 16, 2007 [exhibit B of application], informing defendant ROSE that she had 30 days to cure her default or "we will proceed with foreclosure and will accelerate the loan balance without further notices to you."
FREMONT, on October 15, 2007, 198 days after ROSE's April 1, 2007 payment default, filed with the Office of the Kings County Clerk the notice of pendency, summons and complaint in this action. All defendants defaulted.
Three months later, FREMONT attempted on January 23, 2008 to assign the instant nonperforming loan to GRP, in an unrecorded assignment, that appears to be part of an incestuous corporate relationship between FREMONT and GRP. The photocopied assignment states that assignor FREMONT, has "offices located at c/o 445 Hamilton Ave. 8th Fl White Plains, NY 10601" and assignee GRP has "offices located at 445 Hamilton Ave. 8th Fl White Plains, NY 10601." While the assignment is executed by Kristin Tess, Secretary of GRP, as "attorney in fact," no copy of any power of attorney is presented in the instant application. Further, the assignment mistakenly states that the mortgage was given to "Aquila Road," instead of "Aquila Rose." The assignment fails to identify the block and lot number of the property while it does identify the property address and the CRFN number of the recording of the mortgage and note.
Prior to the assignment, a "consent to change attorney" form [exhibit G of application] was executed by Joanne Di Nardo, Vice President of "GRP Loan, LLC, as assignee for FREMONT INVESTMENT LOAN," on December 31, 2007. It was filed with the Kings County Clerk on January 17, 2008, six days before the alleged assignment. The Court is at a loss to know how GRP could consent to change counsel prior to owning the instant mortgage. Further, the back of the "consent to change attorney," states that the instant action is in "County of Suffolk," not "County of Kings."
The affidavit of service upon defendant ROSE shows that personal service was made at the subject premises on October 16, 2007, and it clearly states that defendant ROSE is female. However, plaintiff's counsel, in her affirmation of regularity, ¶ 12, refers to defendant ROSE as "MR. ROSE."
Further, GRP, at its website, www.grpcapital.com, is proud to announce that it specializes in toxic mortgage loans. GRP states, at the page, "About Us," "GRP Financial Services Corporation is a White Plains, N.Y.-based firm that specializes in the acquisition and servicing of performing, scratch and dent and distressed residential mortgage loan pools. GRP is part of the Sallie Mae (NYSE: SLM) family of companies, a nationally recognized leader in the debt management industry." Further, at the page, "Loan Acquisitions," GRP claims that "GRP is a leading principal buyer of distressed residential mortgage loan portfolios," and that it purchases assets such as "sub-performing and scratch-and-dent loans," and "non-performing and first payment defaults"
Since the instant loan apparently is of the scratch and dent variety, as well as the non-performing and second payment default type, it appears that FREMONT decided to cut its losses by assigning the ROSE mortgage and note to GRP. This raises the question of why FREMONT originated a troubled mortgage. The Court needs to know why FREMONT gave the instant scratch and dent loan to ROSE and whether GRP knew it was purchasing a non-performing mortgage loan from FREMONT.
Discussion
Real Property Actions and Proceedings Law (RPAPL) § 1321 allows the Court in a foreclosure action, upon the default of the defendant or defendant's admission of mortgage payment arrears, to appoint a referee "to compute the amount due to the plaintiff." In the instant action, plaintiff's application for an order of reference is a preliminary step to obtaining a default judgment of foreclosure and sale. ( Home Sav. Of Am., F.A. v Gkanios, 230 AD2d 770 [2d Dept 1996]).
CPLR § 3215 deals with default judgments. CPLR § 3215 (f) deals with proof and states:
On any application for judgment by default, the applicant shall file proof of service of the summons and the complaint, or a summons and notice served pursuant to subdivision (b) of rule 305 or subdivision (a) of rule 316 of this chapter, and proof of the facts constituting the claim, the default and the amount due by affidavit made by the party . . . Where a verified complaint has been served, it may be used as the affidavit of the facts constituting the claim and the amount due; in such case, an affidavit as to the default shall be made by the party or the party's attorney. [ Emphasis added].
Plaintiff's application for an order of reference has the "affidavit made by the party" executed by Natalie Bowlen, President of GRP, "as assignee of FREMONT." However, the unrecorded January 23, 2008 assignment from FREMONT to GRP was executed by GRP's Corporate Secretary, Kristin Tess, Esq., as FREMONT's attorney in fact, without presenting a power of attorney to the Court. Real Property Law (RPL) § 254 (9) states:
Power of attorney to assignee. The word "assign" or other words of assignment, when contained in an assignment of a mortgage and bond or mortgage and note, must be construed as having included in their meaning that the assignor does thereby make, constitute and appoint the assignee the true and lawful attorney, irrevocable, of the assignor, in the name of the assignor, or otherwise, but at the proper costs and charges of the assignee, to have, use and take all lawful ways and means for the recovery of the money and interest secured by the said mortgage and bond or mortgage and note, and in case of payment to discharge the same as fully as the assignor might or could do if the assignment were not made. [ Emphasis added]
To have a proper mortgage assignment by an authorized agent, a power of attorney is necessary to demonstrate how the agent is vested with the authority to assign the mortgage. "No special form or language is necessary to effect an assignment as long as the language shows the intention of the owner of a right to transfer it [ Emphasis added]." ( Tawil v Finkelstein Bruckman Wohl Most Rothman, 223 AD2d 52, 55 [1d Dept 1996]) ( See Suraleb, Inc. v International Trade Club, Inc. , 13 AD3d 612 [2d Dept 2004]). Therefore, without a power of attorney from FREMONT to GRP presented to the Court, the Court cannot change the caption to reflect that GRP is now the plaintiff.
Since the Bowlen affidavit is not "proof of the facts" in "an affidavit made by the party," absent a power of attorney to that effect, there must be an affidavit by an officer of FREMONT, or FREMONT's servicing agent, possessing a valid power of attorney from FREMONT for that express purpose. If FREMONT can present the Court with a properly recorded FREMONT to GRP assignment and power of attorney, or an original or certified copy of the January 23, 2008 assignment with an original or certified copy of the FREMONT to GRP power of attorney, then the Court will accept the Bowlen affidavit. Additionally, if a power of attorney is presented to this Court and it refers to pooling and servicing agreements, the Court needs a properly offered copy of the pooling and servicing agreements, to determine if the servicing agent may proceed on behalf of plaintiff. ( Finnegan v Sheahan, 269 AD2d 491 [2d Dept 2000]; Hazim v Winter, 234 AD2d 422 [2d Dept 1996]; EMC Mortg. Corp. v Batista, 15 Misc 3d 1143 (A) [Sup Ct, Kings County 2007]; Deutsche Bank Nat. Trust Co. v Lewis, 14 Misc 3d 1201 (A) [Sup Ct, Suffolk County 2006]).
Further, if plaintiff again presents to the Court the unrecorded January 23, 2008 assignment, as well as a power of attorney from FREMONT to GRP, the documents must be originals or a copy certified by an attorney, pursuant to CPLR § 2105. Plaintiff's counsel must comply with the statutory requirement that if a copy of a power of attorney is submitted, "an attorney admitted to practice in the court of the state may certify that it has been compared by him with the original and found to be a true and complete copy." ( See Security Pacific Nat. Trust Co. v Cuevas, 176 Misc 2d 846 [Civ Ct, Kings County 1998]).
Also, in the instant action, with defendant ROSE allegedly defaulting after making only one payment of principal and interest, the Court is concerned that defendant ROSE's default could be a strong indicator of either her inability to pay or outright fraud by FREMONT in giving her a "scratch and dent loan." Therefore, to determine if this has happened, plaintiff's application for an order of reference is denied without prejudice for FREMONT to provide the Court with all documentation used to grant the underlying loan. The Court will determine if defendant ROSE did not have sufficient income to make payments, which could mean that the loan may have been in violation of federal statutes, or that the entire mortgage event was a fraud. Further, the Court needs an affidavit by an officer of FREMONT explaining: whether fraud was committed in the origination of the instant "scratch and dent" mortgage and note; why FREMONT allowed GRP to be both assignor and assignee of the instant mortgage and note; and, why FREMONT shares office space at 445 Hamilton Avenue, 8th Floor, White Plains, New York 10601.
Even if plaintiff can cure the assignment defects, plaintiff has to address the conflict of interest presented by Kristin Tess, Esq.'s simultaneous representation of both assignor FREMONT and assignee GRP with respect to the unrecorded January 23, 2008 assignment of the instant mortgage loan. 22 NYCRR § 1200.24, of the Disciplinary Rules of the Code of Professional Responsibility, entitled "Conflict of Interest; Simultaneous Representation," states in relevant part:
(a) A lawyer shall decline proffered employment if the exercise of independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, or if it would be likely to involve the lawyer in representing differing interests, except to the extent permitted under subdivision (c) of this section. (b) A lawyer shall not continue multiple employment if the exercise of independent professional judgment in behalf of a client will be or is likely to be adversely affected by the lawyer's representation of another client, or if it would be likely to involve the lawyer in representing differing interests, except to the extent permitted under subdivision (c) of this section. (c) in the situations covered by subdivisions (a) and (b) of this section, a lawyer may represent multiple clients if a disinterested lawyer would believe that the lawyer can competently represent the interest of each and if each consents to the representation after full disclosure of the implications of the simultaneous representation and the advantages and risks involved. [ Emphasis added]
The Court needs to know if both FREMONT and GRP were aware of the simultaneous representation by Ms. Tess, and whether both consented. If plaintiff moves to renew its application for an order of reference, the Court needs an affirmation by Ms. Tess, explaining if both FREMONT and GRP consented to simultaneous representation in the instant action with "full disclosure of the implications of the simultaneous representation and the advantages and risks involved."
The Appellate Division, Second Department, the Department in which Ms. Tess is admitted, suspended an attorney for two years, for inter alia, violating 22 NYCRR § 1200.24, by representing both buyers and a seller in a real estate transaction. ( Matter of Stella, 193 AD2d 235 [2d Dept 1993]). The Appellate Division, Fourth Department censured an attorney, for inter alia, violating 22 NYCRR § 1200.24, by representing both a buyer and sellers in the sale of a motel ( In re Rogoff, 31 AD3d 111 [4th Dept 2006]). The Rogoff Court, at 112, found that the attorney, "failed to make appropriate disclosures to either the sellers or the buyer concerning dual representation." Further, the Rogoff Court, at 113, censured the attorney, after it considered the matters submitted by respondent in mitigation, including "that respondent undertook the dual representation at the insistence of the buyer, had no financial interest in the transaction and charged the sellers and the buyer one half of his usual fee. Additionally, we note that respondent cooperated with the Grievance Committee and has expressed remorse for his misconduct."
Last, the Court requires an explanation from an officer of GRP, why in the middle of our national subprime mortgage financial crisis, GRP purchased a nonperforming or "scratch and dent" loan from FREMONT. Did GRP purchase the ROSE mortgage loan at a deep discount or did GRP violate a corporate fiduciary duty to its stockholders with the purchase of a loan that defaulted more than nine five months prior to its assignment to GRP? Also, the GRP officer must explain why GRP shares office space with FREMONT at 445 Hamilton Avenue, 8th Floor, White Plains, New York 10601.
Conclusion Accordingly, it is
ORDERED, that the application of plaintiff FREMONT INVESTMENT LOAN, for an order of reference for the premises located at 205 East 35th Street, Brooklyn, New York (Block 4889, Lot 54 County of Kings) and to amend the caption to have GRP LOAN, LLC as the plaintiff, is denied without prejudice; and it is further
ORDERED, that leave is granted to plaintiff FREMONT INVESTMENT LOAN, to renew its application for an order of reference for the premises located at 205 East 35th Street, Brooklyn, New York (Block 4889, Lot 54 County of Kings) and to amend the caption to have GRP LOAN, LLC as the plaintiff, upon presentation to the Court, within sixty (60) days from the date of this decision and order, of: the loan origination documents for the January 8, 2007-mortgage loan given by plaintiff FREMONT INVESTMENT LOAN to defendant AQUILA ROSE; an affidavit by an officer of plaintiff FREMONT INVESTMENT LOAN explaining whether fraud was committed in the origination of the January 8, 2007-mortgage loan given by plaintiff FREMONT INVESTMENT LOAN to defendant AQUILA ROSE, and why plaintiff's assignee, GRP LOAN, LLC is both assignor and assignee in the unrecorded January 23, 2008 assignment of the instant loan; either a certified copy of the January 23, 2008 FREMONT INVESTMENT LOAN to GRP LOAN, LLC assignment of the instant mortgage loan with a valid certified power of attorney, or a copy of the January 23, 2008 FREMONT INVESTMENT LOAN to GRP LOAN, LLC assignment, with a valid power of attorney, recorded with the Office of the City Register of the City of New York; an affirmation by Kristin Tess, Esq., Corporate Secretary of GRP LOAN, LLC, explaining if she violated 22 NYCRR § 1200.24 in her simultaneous representation of both assignor FREMONT INVESTMENT LOAN and assignee GRP LOAN, LLC with respect to the January 23, 2008 assignment of the instant mortgage loan; and an affidavit by an officer of GRP LOAN, LLC, explaining why it purchased the instant non-performing mortgage loan from plaintiff FREMONT INVESTMENT LOAN, and why it shares office space at 445 Hamilton Avenue, 8th Floor, White Plains, New York 10601 with FREMONT INVESTMENT LOAN.
This constitutes the Decision and Order of the Court.