New Century Mortg. Corp. v. McDonald

Full title: New Century Mortgage Corporation, Plaintiffs, v. Nicola McDonald, Greagory…

Court: Supreme Court Of The State Of New York Bronx County

Date published: Mar 7, 2011

2011 N.Y. Slip Op. 50299 (N.Y. Sup. Ct. 2011)

Opinion

14859/06

03-07-2011

New Century Mortgage Corporation, Plaintiffs, v. Nicola McDonald, Greagory Pinnock, Rolda v. Furlonge, First Franklin, a Division of Nat City Bank of in and Mortgage Electronic Registration Systems, Inc., Defendants.

DELBELLO DONNELLAN WEINGARTEN WISE & WIEDERKEHR, LLP Attorney for Plaintiff NEW CENTURY MORTGAGE CORPORATION By: Jacob E. Amir EDWARD C. KESSELMAN, ESQ. Attorney for Defendant FIRST FRANKLIN ROLDA V. FURLONGE JOSEPH A. ALTMAN, P.C. Attorney for Defendant NICOLA McDONALD

Kenneth Thompson, J.

DELBELLO DONNELLAN WEINGARTEN

WISE & WIEDERKEHR, LLP

Attorney for Plaintiff

NEW CENTURY MORTGAGE CORPORATION

By: Jacob E. Amir

EDWARD C. KESSELMAN, ESQ.

Attorney for Defendant

FIRST FRANKLIN

ROLDA V. FURLONGE

JOSEPH A. ALTMAN, P.C.

Attorney for Defendant

NICOLA McDONALD

Kenneth Thompson, J.

Plaintiff NEW CENTURY MORTGAGE CORPORATION's ("New Century") motion for an Order pursuant to CPLR § 3212 granting it summary judgment and § 6501 extending the Notices of Pendency filed in the consolidated actions; Defendants' FIRST FRANKLIN and ROLDA V. FURLONGE ("First Franklin") cross-motion for an Order pursuant to CPLR §§ 3001, 3212, and RPAPL Art. 13 and Art. 15, declaring Ms. Furlonge the record owner of the underlying property at issue by valid deed, and that First Franklin holds a subsisting first mortgage lien on that property; and Defendant NICOLA McDONAL's cross-motion for and Order pursuant to CPLR § 3212 granting her summary judgment and canceling the deed purporting to convey title in the property at issue, as well as the March 31, 2006 Mortgage are all consolidated for Decision herein.

New Century's motion is granted to the extent that 1) its interest in the property at issue is superior to any Defendant named herein and 2) that Defendant McDonald "owned" the Property as the mortgagor-debtor.

New Century's motion to extend the Notices of Pendency is also granted. The Court requests that New Century Settle the Order regarding this holding.

First Franklin's cross-motion is denied in its entirety.

Ms. McDonald's cross-motion is granted in its entirety.

This case epitomizes the pitfalls created by the fast and loose mortgage practices that lead to the demise of New York's once lucrative real-estate market. You have a prospective homeowner with poor credit relying on the kindness of a relative and a mortgage company closing a deal absent any semblance of due-diligence. The result: one Property, two estranged relatives, a dubious Power of Attorney, a questionable deed conveyance, two separate mortgages, over $150,000.00 in unaccounted for funds and a pending foreclosure. Now the Court is left—as usual—to sort out this quagmire.

2003

Sometime in 2003, Gregory Pinnock contacted his cousin Lisa McDonald about co-signing for a mortgage so that he could purchase the premises known as 928 Calhoun Avenue, Bronx, NY ("the Property"), to which she eventually agreed to do. (L. McDonald EBT at 10:9-24; 12:1-7; see also First Franklin Aff. Supp. at Ex. C, G. Pinnock Aff. at ¶ 7.) He needed her to do him this "favor" because he had poor credit, and no other family member would assist him with the purchase. (Id. at 18:15-24; 19:1-15; G. Pinnock EBT at 23:19-24; 26:6-9.) He wanted the property as his residence. (Id. at 18:1-10.) Ms. McDonald lived in Georgia and came up to New York to attend the closing, when she viewed the property for the first time. (Id. at 15:1-24.) She realized at the closing that she was not co-signing for Mr. Pinnock, but rather the mortgage documents were all in her name (id. at 19:23-24; see also First Franklin Aff. Supp. at Ex. C, G. Pinnock Aff. at ¶ 7.) This caused her to balk at completing the transaction. (Id. at 20:22-24; 21:1-5.) She relented, however, after Mr. Pinnock promised compensate her, and told her that she only had to keep the Property in her name for a year, then she could sell it to him. (Id. at 21:1-11; G. Pinnock EBT at 27:2-7, 13-20.) Mr. Pinnock claims, however, that she agreed to remove her name from the title at his request. (First Franklin Aff. Supp. at Ex. C, G. Pinnock Aff. at ¶ 10.)

Mr. Pinnock put up $36,000.00 at the closing (G. Pinnock EBT at 19:16-17; see also First Franklin Aff. Supp. at Ex. C, G. Pinnock Aff. at ¶ 8), Ms. McDonald did not use any of her own money in connection with the purchase. (L. McDonald EBT at 21:15-23; G. Pinnock EBT at 16:22-23.) The property was subsequently conveyed from 2280 Sedgwick Avenue Realty Corp. to Ms. McDonald on December 4, 2003. (Pl. Aff. Supp. at Ex. A.) Ms. McDonald executed a mortgage with Argent Mortgage Company, LLC in the amount of $319,500.00 on that day. (Id. at Ex. B.) This mortgage was then assigned by Argent to Ameriquest Mortgage Co., and then from Ameriquest to U.S. Bank National Association—also on that day. (Id. at Ex. C.) Ms. McDonald eventually returned to Georgia with the impression that Mr. Pinnock was going to handle the monthly mortgage payments. (Id. at 22:9-22.)

2004

Sometime in the fall of 2004, Ms. McDonald started to receive phone calls sometime in 2004, it is unclear form the record when exactly this occurred, informing her that there was an issue with the mortgage payments. (Id. at 23:1-14.) She spoke to Mr. Pinnock about this and he stated that he had made some late payments. (Id. at 24:8-16.) He eventually made the necessary payments and made the mortgage current. (Id. at 27:18-23.) During this time, Ms. McDonald was aware that Mr. Pinnock was still living alone in the property (id. at 25:9-24.) Ms. McDonald also acknowledges that she did not make any payments to make the mortgage current nor did she pay any property taxes. (Id. at 26:4-16.)

2005

Ms. McDonald started receiving calls informing her that the Property was under threat of foreclosure in 2005 ¹ . (Id. at 28:18-24.) She called Mr. Pinnock at that time to tell him that: she "needed the house out of [her] name," (id. at 29:6-9); she would inquire herself as to how to get the house out of her name, (id. at 29:16-20); she was concerned that a disreputable company, Litton, was servicing the mortgage, (id. at 29:20-24); she wanted to refinance the mortgage and get it out of Litton's hands, (id. at 30:10-12). As far as the Court can discern from Ms. McDonalds testimony, it seems that the impending foreclosure somehow adversely affected the amount of the payments. (Id. at 29:20-24; 304-19.) Mr. Pinnock tried to find someone to take over the mortgage and the title to the property, but he was unsuccessful at the time. (Id. at 30:15-19.)

1 U.S. Bank Nat'l v. McDonald, et al., Index No. 6622/05.

Around November 2005, Ms. McDonald purportedly signed a document giving Mr. Pinnock, what she thought, was the Power of Attorney to settle the foreclosure action on her behalf, since she was named on the mortgage and the deed. (see Pl. Aff. Supp. at Ex. D and at Ex. T.) At that time, it appears that Ms. McDonald gave Mr. Pinnock the authority to handle "claims and litigation" related to the U.S. Bank foreclosure matter. (Id.) Mr. Pinnock avers that this Power of Attorney was to effectuate a settlement of the foreclosure action on behalf of his cousin, which he did for $49,782.98 on or about December 27, 2005. (First Franklin Aff. Supp. at Ex. C, G. Pinnock Aff. at ¶ 9.) Mr. Pinnock seemed totally unaware of the history of the Power of Attorney at his deposition, however, such as when she signed it or if it was her that signed it. (G. Pinnock EBT at 58-60.)

A sticky issue arises at this juncture regarding the Powers of Attorney purportedly signed by Ms. McDonald. There is the abovementioned one that indicates that Ms. McDonald signed it on November 8, 2005 and initialed the section regarding "claims and litigation," which is not signed by Mr. Pinnock ("POA I"). (Pl. Aff. Supp. at Ex. D.) Yet, there is another one that appears to be identical to this one, but that has numerous additional authorities purportedly initialed by Ms. McDonald, which Mr. Pinnock did not sign until May 31, 2006 ("POA II"). (Id. at Ex. I.) Ms. McDonald avers that she revoked the first POA and that Mr. Pinnock forged her initials into a second POA after this revocation. (N. McDonald Reply Aff. at ¶ 10.) Mr. Pinnock claims, however, that Ms. McDonald modified the Power of Attorney after he compensated her for certain expenses. (First Franklin Aff. Supp. at Ex. C, G. Pinnock Aff. at ¶ 11.) He did state, however, that Ms. McDonald filled in the rest of the Power of Attorney because "she wanted the house out of her name." (G. Pinnock EBT at 74:20-24; 75.)

2006

This is where it gets interesting. On or about March 28, 2006, Ms. McDonald—unbeknownst to Mr. Pinnock—re-financed the property with New Century for $385,000.00, (L. McDonald EBT at 36:9-16; 40:22-24), New Century paid of the U.S. Bank Nat'l mortgage, and Ms. McDonald took over $30,000.00 ² for herself (id. at 41:16-24). New Century satisfied the U.S. Bank Nat'l mortgage on behalf of Ms. McDonald on or about April 20, 2006, but did not record its mortgage until May 4, 2006. (See Pl. Aff. Supp. at Ex. H.) Ms. McDonald made a couple of payments on this mortgage, but eventually stopped, resulting in the house once again falling into foreclosure. (Id. at 41:4-8; New Century Mortgage Co. v. McDonald, et al. Index No. 6274/07.)

2 According to Uniform Settlement Statement, Ms. McDonald walked away from the table with $36,885.01. (Pl. Aff. Supp. at Ex. F.)

In 2006, Mr. Pinnock—unbeknownst to Ms. McDonald—also went to a real estate broker with POA II to get the house out of his cousin's name and to try and get a loan to take over the existing mortgage. (G. Pinnock EBT at 63:2-3; 64:10-24.) When Mr. Pinnock was unable to get a mortgage in his own name, he enlisted the help of Rolda Furlonge—whose relationship to Mr. Pinnock is unknown. (Id. at 63:7-22.) He apparently used the POAII to convey the property from Ms. McDonald to Ms. Furlonge, so that Ms.Furlonge could mortgage the Property in her name. On or about March 31, 2006, Ms. Furlonge and Mr. Pinnock appeared at a closing so Ms. Furlonge could take title to the house. (Id. at 66:2-13; see also Pl. Aff. Supp. at Ex. K.) Mr. Pinnock claims that Ms. Furlonge paid $400,000.00, via a mortgage, to have the title transferred to her from Ms. McDonald and that he retained an additional $50,000.00 ³ plus from the transaction. (Id. at 68:8-24; 69:1-11.) This mortgage was recorded on or about April 11, 2006. (See Pl. Aff. Supp. at Ex. K.) Mr. Pinnock claims that he has been making the payments on this mortgage. (Id. at 71:1-4.)

3 It appears from the Settlement Statement contained in First Franklin's cross-motion that Ms. McDonald actually received $128,697.42 in cash from the transaction. (Def. Aff. Supp. at Ex. D.)

Ms. Furlonge stated that she did not have any agreement with Mr. Pinnock regarding "the arrangement he had on the transfer of the property," (V. Furlonge EBT at 19:13-17), nor did she have a contract with Ms. McDonald regarding the transfer of title. (Id. at 19:18-20.) She did not recall what documents she signed at the closing (id. at 21:2-18); she did not contribute any of her own money at the closing (id. at 22:4-10) nor was she aware what obligations she incurred under the proposed mortgage (id. at 22:14-22). She was under the impression that she was buying the Property from Mr. Pinnock. (Id. at 25:6-9.)

It gets even more fascinating at this point. Edward Kesselman, counsel for First Franklin, avers that there were "respective closings" occurring regarding the Property. The one involving Ms. McDonald, New Century and U.S. Bank Nat'l that occurred on March 28, 2006, and 2) the one that involved Mr. Pinnock, Ms. Furlonge, First Franklin and U.S. Bank Nat'l on March 31, 2006 ⁴ . (E. Kesselman Aff. at ¶ 8.) He concedes, however, that "New Century's payoff was received and negotiated by the foreclosing lender first and $325,883.57 of the $490,000.00 borrowed by Furlonge was returned to First Franklin." (Id.) This "mortgage" was recorded on or about April 14, 2006. (Pl. Aff. Supp. at Ex. K.)

4 The Court presumes that those are the dates of the closings because that is when the respective mortgages were signed by Ms. McDonald and Ms. Furlonge.

Arguments

New Century has instituted a separate foreclosure action against Ms. McDonald. Given the confusion stated above, New Century also commenced the instant action, seeking a declaration that New Century is the holder of a first mortgage lien encumbering the Property in the amount of $385,000.00 and that Ms. McDonald is the owner of the Property. It is now seeking summary judgment on those allegations, and an extension on the Notices of Pendency due to the delay brought on by these proceedings.

First Franklin is cross-moving for summary judgment on the grounds that: 1) Ms. McDonald had no right to encumber the Property; 2) the Property was validly conveyed by Mr. Pinnock to Ms. Furlonge; 3) First Franklin's mortgage is superior to New Century's because it was recorded first; and 4) Ms. Furlonge's title is protected because she was a bona fide purchaser of the Property.

Ms. McDonald is also cross-moving for summary judgment on the grounds that she is the rightful owner of the Property, so the Court should cancel both the Deed and Mortgage recorded by Mr. Pinnock, Ms. Furlonge and First Franklin on March 31, 2006.

Summary Judgment

The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact. Failure to make such prima facie showing requires a denial of the motion, regardless of the sufficiency of the opposing papers. Once this showing has been made, however, the burden shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action

Alvarez v. Prospect Hosp., 68 NY2d 320, 324.

Findings of Fact

The Court has made several findings of fact that warrant granting New Century's and Ms. McDonalds applications and denying First Franklin's. 1) Ms. McDonald "owned" the Property as a mortgagor-debtor. 2) Ms. McDonald held the Property as a trustee, which bestowed her with the authority to encumber it with the New Century mortgage. 3) First Franklin does not have a valid lien on the Property. 4) Ms. Furlonge was not a bona fide purchaser of the Property. 5) The Property was not validly conveyed to Ms. Furlonge. New Century is also entitled to have the Notices of Pendency extended as requested.

Ms. McDonald's right to encumber

It appears that from the very beginning of this escapade that Ms. McDonald was only holding the deed to the Property in trust for Mr. Pinnock. This status of trustee bestowed with "legal title ⁵ " to the Property, which gave her the authority to encumber the property in order to protect the title she held in trust for Mr. Pinnock as his fiduciary. See Matter of Rotraut L.U. Beiny, 23 Misc 3d 1112A, *3 (stating that "neither the beneficiaries of a trust nor any one other than the trustee may validly encumber or convey legal title to property owned by a trust"); see also In re Estate of STRAUT, 126 NY 201, 212 (stating that "[i]t is the duty of a trustee to defend and protect the title to the trust estate, and as the legal title is in him, he alone can sue and be sued in a court of law").

5 Defined as "[a] title that evidences apparent ownership but does not necessarily signify full and complete title or a beneficial interest." Blacks Law Dictionary (7th ed.), at 1493.

As the Court sees it, both parties were trying to fulfill their obligations. There is evidence that Ms. McDonald intended to protect the title to the Property by re-financing the Property with New Century to thwart the impending U.S. Bank Nat'l foreclosure. There is also evidence that Mr. Pinnock was also endeavoring to resolve the foreclosure—which it appears he actually did. It also appears from the record that he was also trying to get the Property out of his cousin's name, just as Ms. McDonald wanted. Had each communicated with the other, it seems that all would have obtained what they desired—Ms. McDonald's name would have been off of the mortgage and deed and the Property would have been saved from foreclosure. Alas, the tragic maxim, that you should never do business with family, rears its ugly head once again.

The Court rejects First Franklin's contention that Ms. McDonald could not encumber the Property as a trustee: An especially dubious stance given that Ms. McDonald encumbered the Property on behalf of Mr. Pinnock when she entered into the original mortgage in 2003.

Ms. McDonald's Ownership

Even though Mr. Pinnock may have been the "beneficial owner ⁶ " of the Property, Ms. McDonald was the mortgagor ⁷ of the Property, thus, she was the "legal owner ⁸ " of it. See WALTON v. CRONLY'S ADMINISTRATOR, 14 Wend. 63, 66 (holding that "a mortgagor is the owner of the property mortgaged, against all the world, subject only to the lien of the mortgagee"); ASTOR, Appellant, & HOYT, 5 Wend. 603, 615 (same).

6 Defined as "[o]ne recognized in equity as the owner of something because use and title belong to that person, even though legal title may belong to someone else; esp., one for whom property is held in trust." Id. at 1130.

7 Defined as "[o]ne who mortgages property; the mortgage-debtor, or borrower." Id. at 1030.

8 Defined as "[o]ne recognized by law as the owner of something; esp., one who holds legal title to property for the benefit of another." Id. at 1131.

Validity of First Franklin's Lien/Priority

Regardless of the questionable nature of the Power of Attorney purportedly conveying the Property from Ms. McDonald to Ms. Furlonge, there is no evidence that First Franklin gave its mortgage as security for a valid debt. See Coronet Capital Co. v. Spodek, 265 AD2d 292 (holding that "[i]t has long been held that a mortgage is not valid and enforceable unless there is an underlying valid debt or obligation for which the mortgage is intended as security"). First Franklin never assumed the obligation to pay off the Property on behalf of Ms. Furlonge. It admits that $325,883.57 of the $490,000.00 it gave to Ms. Furlonge—which was intended to satisfy the U.S. Bank Nat'l mortgage—was returned to it. Consequently, no monies were ever exchanged by First Franklin on behalf of Ms. Furlonge to Ms. McDonald, U.S. Bank Nat'l or New Century. Thus, there was no debt created that would require First Franklin's mortgage to secure.

Also, "[a] mortgage is the conveyance of an interest in property intended by the parties at the time of its making to be security for the payment of money or the doing of some prescribed act." W. L. Development Corp. v. Trifort Realty, Inc., 44 NY2d 489, 498 (citations omitted). As will be explained below, Ms. Furlonge did not have an interest in the Property that could be exchanged in return for the $128,697.42 ⁹ she received at the closing. When you couple this with the fact that First Franklin did not pay any money on behalf of Ms. Furlonge or pay off the existing mortgage on the Property, there was no consideration given for the aforementioned monies she received. Consequently, there can be no mortgage. See Beck v. Sheldon, 259 NY 208, 211 (holding that where a grantee suffered no detriment, but rather a benefit, there was no consideration for the mortgage); Tornatore v. Bruno, 12 AD3d 1115, 1117 (holding that "[i]f the underlying indebtedness is found at a later time to be unenforceable for want of consideration, the mortgage, even if supported by its own consideration, will be of no effect"). Therefore, First Franklin's mortgage is null and void—regardless of when it was recorded.

9 Ms. McDonald avers that this money was actually supposed to go to her, but that it was "converted" by Mr. Pinnock and Ms. Furlonge. (N. McDonald Reply Aff. at ¶ 15.)

Validity of the Conveyance

The deed conveyed to Ms. McDonald, as well as the mortgage taken out in her name were indivisible. See Rawson v. Lampman, 5 NY 456, 461 (finding that "[a] deed and purchase money mortgage, given at the same time, are to be construed together as forming one instrument or contract"). Making the deed defeasible, ¹⁰ which means that although Mr. Pinnock was the "beneficial owner" of the Property with "equitable title ¹¹ " in it, he was not entitled to have the deed conveyed to him—or anyone else—without first redeeming ¹² the mortgage taken out in Ms. McDonald's name. Compare Pardee v. Treat, 82 NY 385, 391 (holding that "[a]t common law a mortgagee has the legal title to the land. A mortgage is a defeasible deed, and a provision for the reconveyance to the grantor, on performance of the condition, is usually contained in English conveyances by mortgage"); Mowry v. Sanborn, 68 NY 153, 160 (finding that "a deed is necessary to satisfy the statute of frauds, and to vest the title in the purchaser"); Garnsey v. Rogers, 47 NY 233, 238-39 (stating that "a deed, though absolute on its face, may be proved by parol to have been given as security for a debt, and that when that fact is established it is defeasible by redemption"); Stoddard v. Whiting, 46 NY 627, 635 (holding that "a party, coming into court, asking for a redemption, must pay all the costs, although found entitled to the relief sought"); Ross v. Glenwood Cemetery Ass'n, 81 A.D. 357, 361 (finding that "[t]he deed and mortgage constitute an indivisible act, and are to be regarded as one instrument and construed as a conveyance upon condition of payment expressed in the mortgage");Zivotosky v. Max, 190 Misc. 1044, 1047 (holding that "[s]uch a deed is a mortgage, by operation of law, and the right to redeem is read into it by law") (emphasis in opinion) (citations omitted). Given that there is no evidence that First Franklin ever redeemed either the U.S. Bank Nat'l or the New Century Mortgages on behalf of either Mr. Pinnock or Ms. Furlonge—or that Mr. Pinnock otherwise paid off the mortgage in Ms. McDonald's name—neither he nor Ms. Furlonge have a right to have had the deed conveyed to them.

10 "Defeasible deed" defined as "[a] deed containing a condition subsequent causing title to the property to revert to the grantor or pass to a third party." Id. at 424.

11 Defined as "[a] title that indicates a beneficial interest in property and that gives the holder the right to acquire formal legal title." Id. at 1493.

12 "Redemption" defined as "[t]he act or an instance of reclaiming or regaining possession by paying a specific price." Id. at 1282.

Ms. Furlonge as bona fide purchaser

First Franklin claims that Ms. Furlonge's title should be protected because she was a bona fide purchaser of the Property according to NY Real Property Law § 266, which states that, "[t]his article does not in any manner affect or impair the title of a purchaser or incumbrancer for a valuable consideration, unless it appears that he had previous notice of the fraudulent intent of his immediate grantor, or of the fraud rendering void the title of such grantor." Mr. Pinnock could not have conveyed the deed to himself by way of either POA, without redeeming the mortgage in Ms. McDonald's name. It logically follows that the deed could not have been conveyed to Ms. Furlonge either, without her redeeming the mortgage in Ms. McDonald's name. And since that did not happen, she had no title to protect or record. Add this to the fact that Ms. Furlonge never actually purchased anything from anybody—the monies First Franklin forwarded to U.S. Bank Nat'l to redeem the mortgage were returned—First Franklin's claim that she was a "bona fide purchaser" is ridiculous on its face. If anyone was a bona fide purchaser—entitled to have its interest protected—it is New Century. That is the entity that redeemed Ms. McDonald's U.S. Bank Nat'l mortgage, thus, incurring a debt that required the Property to secure.

Notices of Pendency

A notice of pendency shall be effective for a period of three years from the date of filing. Before expiration of a period or extended period, the court, upon motion of the plaintiff and upon such notice as it may require, for good cause shown, may grant an extension for a like additional period. An extension order shall be filed, recorded and indexed before expiration of the prior period.

CPLR § 6513. New Century has stated sufficient "good cause" to warrant extending the Notices of Pendency in the actions under Index No. 14859/06 and Index No. 6274/07 as requested, and pursuant to statute.

The foregoing shall constitute the decision and order of this Court.

Dated:

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J.S.C.