Option One Mortgage Corporation v. Massanet

Full title: OPTION ONE MORTGAGE CORPORATION, 3 Ada, Irvine, CA 92618, Plaintiff v…

Court: Supreme Court of the State of New York, Richmond County

Date published: Feb 5, 2009

2009 N.Y. Slip Op. 30286 (N.Y. Sup. Ct. 2009)

Opinion

102944/07.

February 5, 2009.

DECISION ORDER

JOSEPH J. MALTESE, Judge.

The following items were considered in the review of this motion to vacate a default judgment.

Papers Numbered Notice of Motion and Affidavits Annexed 1 Answering Affidavits 2 Replying Affidavits 3 Exhibits Attached to Papers Memorandum of Law

Upon the foregoing cited papers, the Decision and Order on this Motion is as follows:

Defendants, Guillermo Massanet, Maria Massanet and Lucciano Santos, move this court pursuant to CPLR § 5015(a)(1) for an order vacating the default judgment of foreclosure and sale taken against them by the plaintiff. The defendants' motion is granted in its entirety.

Facts

This matter concerns a previous ex parte judgment of foreclosure and sale for the property located at 317 Boundary Avenue, Staten Island, NY 10306 granted on July 21, 2008. The moving defendants are signatories to a mortgage with Old Merchants Mortgage Bank ("Old Merchants") that closed on January 4, 2006. At some point after the execution of the mortgage by the moving defendants the mortgage was either reassigned to the plaintiff; or the plaintiff began servicing the mortgage.

According to the verified proposed answer the Massanets contacted Chris Rodriguez in response to an ad run by Old Merchants. The Massanets informed Mr. Rodriguez that they wanted to refinance their home, but could only afford a maximum mortgage payment of $2,800. The Massanets submitted an application to Old Merchants and subsequently arranged for their home to be appraised. The appraiser valued the Massanets home at $430,000. Subsequently, Old Merchants commissioned a second appraisal unbeknownst to the Massanets that valued their home at $470,000. On the eve of closing it is alleged that Mr. Rodriguez contacted the Massanets to inform them that the loans monthly payment would be $3,800 with an adjustable interest rate initially set at 10%. According to the verified proposed answer when the Massanets expressed concern about the monthly payment and high rate of interest, allegedly Mr. Rodriguez instructed them to use the cash proceeds of the loan to "bridge" the difference between the amount they could afford to pay, and the actual payments. The Massanets further allege that Mr. Rodriguez instructed them not to worry about the high rate of interest and monthly payment because they would be able to refinance their mortgage.

In or about September 2006 the Massanets contacted the plaintiff to inform them that there were having difficulty paying their monthly mortgage obligations. At that time the plaintiff informed the Massanets that they would not be able to refinance this high interest mortgage because of a pre-payment penalty.

In November 2006, Maria Massanet was awarded lump sum retroactive disability benefits in the amount of $11,747.37. The Massanets used this money to "bridge" their monthly payments until its depletion in March 2007.

In March 2007 the Massanets contacted the plaintiff in attempt to make partial payments toward their mortgage or refinance. These requests are corroborated by the plaintiff's system notes. Both requests were rejected. However, by July 2007 the Massanets and the plaintiff began the process to modify their existing mortgage. Over the next several months the Massanets and the plaintiff exchanged phone calls and documentation. The plaintiff's notes confirm that multiple telephone calls occurred between the parties during this time period. The notes further show that modification documents were sent on June 12, 2007 and that the Massanets should receive it within five to seven business days.

The plaintiff's notes indicate that prior to a decision on the requested loan modification "loss mit" began between the dates of July 11, 2007 and July 23, 2007. The entries for the dates July 20, and 23 state "FC Approved" and "Active Foreclosure" respectively. On August 1, 2007 the plaintiff filed a request for judicial intervention ("RJI") and on August 30, 2007 filed a summons and complaint. However, one day prior to filing the RJI the plaintiff transmitted an additional loan modification package to the Massanets. A close inspection of the plaintiff's notes reveal that the plaintiff never notified the Massanets with respect to a decision on their loan modification request — either before or after the commencement of foreclosure proceedings.

Subsequent to receiving the summons and complaint in October 2007, Mr. Massanet attempted to speak with Steven M. Baum, Esq. regarding the complaint. Mr. Baum's office refused to speak with Mr. Massanet. This fact is not refuted by the plaintiff.

In or about November 2007 the Massanets aver in their affidavits that the plaintiff contacted them to ask if they wanted to apply for a loan modification. The plaintiff does not refute this statement. On December 3, 2007 the plaintiff moved for an order of reference and the court signed the same on December 18, 2008. The plaintiff's notes indicate that it sent a loan modification package to the Massanets on January 8, 2008. On precisely the same date, the plaintiff's counsel submitted an ex parte judgement of foreclosure. However, the submission was rejected. Once again, according to the plaintiff's notes, the plaintiff sent an additional loan modification package on January 30^th.

The Massanets then attended an event for homeowners facing foreclosure sponsored by State Senator Diane Savino on February 24, 2008. The Massanets attendance is confirmed by the State Senator's office, yet the plaintiff's notes make no reference to the event. At that event the Massanets met with the plaintiff's representatives Claudia Ornales and Mike Riola. At that event the Massanets were informed that they would be able to modify their loan and received assurances that the a hold was placed on the foreclosure action. The plaintiff offers no evidence to contradict these statements.

Subsequent to receiving this event the Massanets received no confirmation from the plaintiff that it completed the loan modification. The Massanets attempted to contact Ms. Ornales to no avail. Finally, in June of 2008 the Massanets aver that they spoke to a representative named "Brad." The plaintiff's notes indicate that it transferred the Massanets file to Mr. Brad Bigda on May 7, 2008. According to the Massanets, Brad indicated that Ms. Ornales did not complete all the tasks assigned to her and were being reassigned to other employees. Additional attempts to contact Ms. Ornales directly yielded an answer from a full voicemail inbox. Once again the plaintiff does not offer any evidence to refute the statements in the Massanets sworn affidavits.

Nearly concurrently with receiving assurances by the plaintiff that their loan modification was being processed, the plaintiff's attorney submitted a proposed order of foreclosure and sale on June 17, 2008, which was signed on July 21, 2008. While the plaintiff never informed the Massanets that their loan modification was rejected it did notify the Massanets by letter that their home was going to be sold at auction on September 10, 2008. These facts are not refuted by the plaintiff.

Discussion

Recently this court rendered a decision whereby it vacated a judgement of foreclosure and sale obtained by a plaintiff ex parte during loan modification negotiations with pro se defendants¹ The case involved a similar fact pattern and concerned the same attorney for the plaintiff.

1 Deutsche Bank Natl. Trust Co. v. Miele, 20 Misc.3d 1146 (A), [Sup Ct, Richmond County 2008].

The CPLR permits a court to vacate a default judgment where the moving party demonstrates both a reasonable excuse for the default and a meritorious defense.²The determination of what constitutes a reasonable excuse is ". . . left to the sound discretion of the court. . ."³

2 CPLR § 5015(a)(1).

3 Savino v. "ABC Corp.", 44 AD3d 1026, [2d Dep't, 2007].

Reasonable Excuse

As was the case in Miele this court must again determine whether the defendants failure to answer the complaint served by the plaintiffs counsel during the course of good faith loan modification negotiations constitutes a reasonable excuse under CPLR § 5015(a)(1). The record once again supports an affirmative finding.

The Appellate Division, Second Department has long recognized that a default judgment may be overturned where the interest of justice requires such action.⁴ In addition, the Appellate Division, Second Department reasoned that there is a " . . . strong public policy that actions be resolved on their merits. . ." rather than on default especially where there is evidence that the default by the defendant was not wilful, nor where there is prejudice to the plaintiff.⁵

4 See, Gunther v. American Label Co., Inc., 243 AD 528, [2d Dep't 1934].

5 New York Univ. Hosp. Rusk Inst. v. Illinois Natl. Ins. Co., 31 AD3d 511, [2d Dep't 2006].

As was the case in Miele, the plaintiff relies on the Appellate Division, Second Department case in detail in an attempt to persuade the court that ongoing negotiations do not constitute a reasonable excuse to vacate a default judgement of foreclosure and sale. The plaintiff's rely on the Appellate Division, Second Department's holding American Shoring, Inc. v. D.C.A. Construction, Ltd.⁶ This case is once again distinguished from the matter currently under consideration. In finding that the defendant's excuse was unreasonable the Appellate Division, Second Department found:

6 American Shoring, Inc. v. D.C.A. Constr., Ltd., 15 AD3d 431, [2d Dep't 2005].

. . . any reliance by the defendant on the parties' settlement negotiations between October 2003 and January 2004 did not constitute a reasonable excuse for the default, since the defendant was aware d uring those negotiations that the plaintiff had already obtained a default judgment. (Emphasis added)⁷

7 Id.

In this case it is not contested that the moving defendants time to answer the plaintiff's complaint expired. Instead, the issue is whether their excuse is reasonable. In American Shoring the defendant's attorney, and by extension the defendant, was aware that the plaintiff had already taken a default judgment against them while negotiations progressed between the parties. Here, the moving defendants were pro se at the time they received the plaintiff's summons and complaint. Concurrently, with their receipt of legal process they were engaged in ongoing negotiations directly with the plaintiff. These negotiations are confirmed by the plaintiff's own internal notes system.

In support of their motion the defendants cite two Appellate Division, Second Department cases where it vacated default judgments taken during the course of good faith negotiations.⁸ Counsel for the plaintiff seeks to persuade the court that these holdings do not apply to this situation, as the negotiations in these two case occurred between attorneys for the litigants. This argument is not compelling. Whether negotiations are between parties to a litigation represented by counsel or not has no bearing on whether the defendants are offering a reasonable excuse. The fact that negotiations were actively being conducted is the dispositive fact in the court's inquiry into reasonableness. This court will not differentiate between negotiations between counsel and litigants.

8 See, Swain v. Janzen, 121 AD2d 378, [2d Dep't 1986](A defendant's default was reasonable where counsel for both parties were in constant communication and plaintiff never mentioned that it would move for a default.); See also, Scarlett v. McCarthy, 2 AD3d 623 [2d Dep't 2003] (A defendant's default was found to be reasonable where counsel for the parties were engaged in negotiations and the plaintiff's counsel never mentioned that he would move for a default)

When Mr. Massanet attempted to contact Mr. Baum regarding the complaint he was rebuffed and ignored. It is striking that the plaintiff's counsel does not address this allegation in her opposition. This court is aware of no disciplinary rule or other ethical standard in New York that prevented Mr. Baum, or a member of his staff familiar with Mr. Massanet's file from speaking to him. The fact that Mr. Massanet does not have legal training, nor his inability to retain private counsel to act on his behalf should prevent him from speaking with his adversary to effect a prospective settlement. This court finds that a defendant acting pro se must be treated with the same respect as an attorney when attempting to contact opposing counsel upon receipt of a summons and complaint.

Strikingly, while the plaintiff's attorney points to the statutory notice accompanying foreclosure actions to demonstrate that the Massanets had knowledge of the consequences if they failed to answer the summons and complaint; the plaintiff, in its own capacity, contacted the Massanets to try to modify their existing mortgage. Furthermore, prior to the plaintiff's counsel taking the ex parte judgment of foreclosure and sale against the moving defendants, the plaintiff's own employee, Ms. Ornales, represented to the Massanets that they no longer needed to worry about losing their home.

The blatantly contradictory actions taken by both the plaintiff and its counsel justify a finding that moving defendants failure to serve an answer is reasonable under the statute.

Meritorious Defense

The second prong that must be demonstrated by a moving party seeking to vacate a default judgment is the demonstration of a meritorious defense. In addition, to their own affidavits and attorney's affirmation the moving defendants annex a proposed verified answer verified by Mrs. Massanet.

The moving defendants allege various defenses, counterclaims, and third party claims in their proposed answer. These claims include violations of the federal Truth in Lending Act, ⁹ the Home Ownership and Equity Protection Act, ¹⁰ New York's Deceptive Practices Act, ¹¹ the Credit Repair Organizations Act (CROA), ¹² fraud, and unjust enrichment. In response, the plaintiff's counsel argues that the defendants will not be able to successfully meet evidentiary standards to prove their defenses, counterclaims and third party claims at trial.

9 15 USC § 1601

10 15 USC § 1602(a)(1)(B)16

11 GBL § 349

12 15 USC § 1679

Where a party moves to vacate a default judgment the moving party need not prove its proposed meritorious defenses by trial evidentiary standards. The movant is only required to set forth facts that sufficiently establish that its claims and defenses are meritorious.¹³ This court finds only that based on the record before it, that the defenses, counterclaims and third party claims contained in the defendants proposed answer are meritorious and worthy of being interposed.

13 See, Anamdi v. Anugo, 229 AD2d 408 [2d Dep't 1996]

Conclusion

The moving defendants established a reasonable excuse for their default, as well as a meritorious defense in accordance with CPLR § 5015(a)(1). As such the default judgment of foreclosure and sale previously issued by this court is vacated and the moving defendants have leave to serve their proposed verified answer.

Accordingly, it is hereby:

ORDERED, that the motion brought by defendants, Guillermo Massanet, Maria Massanet and Lucciano Santos is granted in its entirety; it is further

ORDERED, that the judgment of foreclosure and sale dated July 21, 2008 is hereby vacated; it is further

ORDERED, that the defendants shall serve their proposed verified answer by March 20, 2009; and it is further ORDERED, that all parties to this action return to DCM Part 3 on Wednesday, May 19, 2009 at 9:30 A.M. for a Preliminary Conference.