Opinion
CV-45377/10.
Decided November 5, 2010.
Alexander A. Dudelson, Esq., Brooklyn, New York, Plaintiff.
KRAMER SHAPIRO PC, Kew Gardens, NY, Defendants.
Defendants make this motion for summary judgment and an order to release to them the $20,000.00 held in escrow by defendant law firm Kramer Shapiro, P.C,. Plaintiff's cross-motion seeks the same in her favor. This action arises from a contract for the sale entered into by defendants Howard and Lori Rosenthal ("Rosenthals"), as sellers of their home, and plaintiff, as purchaser, for $390,000.00. Defendant Kramer Shapiro, PC represented the Rosenthals in the sale of their house.
Pursuant to a contract of sale executed on September 21, 2009, plaintiff tendered $20,000.00 as down payment to defendants and agreed to obtain a conventional 15-year mortgage of $190,000.00 at the prevailing interest rate. Plaintiff had thirty days to obtain a mortgage commitment and to promptly furnish defendants with all verifications or reports connected therewith. The closing date was scheduled for November 16, 2009. Plaintiff timely applied for a conventional mortgage of $190,000.00 with MCS Mortgage Bankers ("MCS"). The appraisal by MCS was $5,000.00 less than the purchase price, which resulted in an amendment to the contract of sale reducing the purchase price to $385,000.00. This occurred on or about November 30, 2009. The closing date was apparently extended. On December 14, 2009, defendants wrote to plaintiff's attorney, Larry Davis, regarding a closing date as several weeks had elapsed since the contract was amended to satisfy MCS. A follow-up letter was sent on December 16, 2009 expressing defendants' frustration with how the matter was handled on plaintiff's end. The Rosenthals were anxious as they had a binder to purchase another house, which transaction was contingent on the sale of this house. On December 31, 2009, MCS denied the application due to plaintiff's delinquent past or present credit obligations with others and prior unacceptable mortgage payment history. However, plaintiff did not inform defendants of the denial; rather, she applied for a FHA mortgage for $309,000.00.
On January 21, 2010, plaintiff received a commitment with conditions from Continental Home Loans on her FHA mortgage for $309,000.00. On January 28, defendants reminded Davis to send the commitment letter by facsimile as apparently discussed a day earlier. On February 9, defendants informed Davis by letter that they were in contact and cooperating with plaintiff's mortgage company and learned that a closing was imminent, and asked for a courtesy phone call to proceed with the matter. On February 12, 2010, the commitment was revoked due to insufficient income and on the terms and conditions requested by the plaintiff. Also by letter on the same day, defendants advised Davis that they were in receipt of the commitment and chided Davis for not sending it to them as requested. Davis had not sent the commitment letter to them "because it would jeopardize [his] client's rights" (Defendants' exh. E). The letter went on to state that defendants rejected the denial as plaintiff's FHA loan was in excess of $300,000.00 with a 5% interest rate, which was a violation of the contract, and set a time of the essence closing date for February 26, 2010. Plaintiff did not appear for the closing.
Defendants claim, inter alia, that plaintiff acted in bad faith when she did not disclose her first mortgage denial by MCS in December 2009, and that doing so was a violation of the contract. They add that had they known the reasons for the denial — delinquent credit obligations and prior unacceptable mortgage payment history — they would not have extended the closing date for as long as they did. Defendants further argue that the case must be dismissed as plaintiff did not perform after the time is of the essence letter was sent. Plaintiff, on the other hand, claimed she acted in good faith by attempting to obtain a mortgage a second time, but because she was unable to secure a mortgage, she is entitled to a return of the security deposit.
Every contract contains an implied obligation by each party to deal fairly with the other and to eschew actions which would deprive the other party of the fruits of the agreement ( see Dalton v Educational Testing Service, 87 NY2d 384 [Ct App, 2002]). Examining the contract of sale and the attached rider, paragraph fourteen (14) of the rider states, in sum and substance, that any willful default on any terms set forth in the contract will cancel the contract and entitle the sellers to retain the deposit as liquidated damages. The contract terms include that plaintiff will "promptly" furnish all reports in connection with the securing of "a conventional first mortgage in the amount of $190,000.00 with interest at the prevailing authorized rate at the date of title closing for a period of 15 years" (rider para. 7). The failure to promptly inform defendant of the mortgage rejection and its basis was in clear violation of the contract, and unfairly deprived defendants of valuable time at the very least.
Clearly, had plaintiff attempted in good faith to secure a mortgage with MCS, but was declined, and it was promptly reported to defendants, the down payment unquestionably would or should have been returned to her ( see Buxton v Streany , 68 AD3d 1036 [App Div 2d Dept, 2009]). However, this is not the case here, and since plaintiff failed to perform a material term of the contract by withholding information pertinent to her mortgage, and thereby causing defendants to extend the closing date, defendants may retain the down payment as liquidated damages ( cf. Zheng v Evans , 63 AD3d 791 [App Div 2d Dept, 2009]; Hoft v Frenkel , 52 AD3d 779 [App Div 2d Dept, 2008]). The frustrated attempts by defendants to reach a closing date, after an extended period of time, are undisputed. Indeed, plaintiff does not contest that she did not inform defendants of the denial of her MCS loan application, and did not disclose her attempt to secure a FHA loan that exceeded $300,000.00. Therefore, absent any issues of fact as to the MCS loan and plaintiff's failure to comply with the mortgage contingency clause, defendants have established a prima facie case for summary judgment in its favor ( see generally Alvarez v Prospect Hosp., 68 NY2d 320; Zuckerman v City of New York, 49 NY2d 557).
Plaintiff, however, proffers her second loan application and denial thereof as her good faith attempt to secure a loan and a condition by which the contract may be cancelled with the down payment returned to her. She suggests that because defendants knew about the FHA loan commitment and, indeed, cooperated with the mortgage company, they waived the argument that the mortgage contingency clause was violated. Finally, plaintiff noted that "the contract was completely silent as to the legal consequences of revocation of a mortgage commitment" (pltf's affirmation ¶ 8). Plaintiff's whole contention is problematic on several grounds.
First, the Continental Home Loans commitment with conditions was not a firm commitment and does not satisfy a mortgage contingency clause ( see Kressel, Rothlein Roth v Gallagher, 155 AD2d 587, 588 [App Div 1st Dept, 1989]). Therefore, there was not a revocation of a firm commitment that required addressing by the contract. Secondly, for several months after the contract price was amended to satisfy MCS, plaintiff did not respond to defendants' several inquiries regarding the closing based on the MCS mortgage. There is nothing in the record that remotely satisfies the contractual requirement to "promptly furnish all reports, documents, . . . in connection [with the mortgage commitment]" to seller. Thirdly, plaintiff faults defendants for cooperating with her mortgage company and paints it as a tacit acceptance of her FHA loan application. The "cooperation" was a result of defendants' own investigation of plaintiff's mortgage situation that was prompted by plaintiff's non-responsiveness on the issue. And the compliance with the mortgage company consisted of furnishing them with a title report, rider to the contract, and the price amendment to the contract, as requested. Apparently, these items could have been also furnished by plaintiff, and apparently, the mortgage company was unable to secure these documents from plaintiff as was evident from defendants' February 18, 2010 letter to Davis. In this light, defendants' cooperation was a consequence of plaintiff's lack of cooperation with defendants, at the very least — a sure sign of lack of good faith and diligent effort. Notably, by defendants' February 12, 2010 letter to Davis, it was clear that they did not know of the FHA loan amount until they ultimately received the commitment letter with conditions from the mortgage company since plaintiff's attorney had refused to send it to them lest it prejudice plaintiff. Therefore, the cooperation in no way signaled a consent to the material change of the mortgage amount or the type of mortgage.
On these facts, the second mortgage application denial was properly rejected by defendants as it was a violation of a material term of the contract. Given that defendants had consented to extending the closing date without knowledge that plaintiff's initial conventional mortgage application was denied, or that she was seeking a $309,000.00 FHA mortgage, instead of the agreed upon $190,000.00 conventional mortgage, defendants are not bound to the denial of the second mortgage application as a valid means for plaintiff to cancel the contract.
Accordingly, defendants' motion for summary judgment is granted and the complaint is dismissed. Plaintiff's cross-motion for summary judgment is denied. Defendants are awarded the $20,000.00 currently held in escrow by Kramer Shapiro P.C., without interest, costs or disbursements. The court directs Kramer Shapiro P.C., as escrowee, to release the funds accordingly.
This constitutes the decision and order of this court.