Opinion
No. 130291/12.
11-24-2015
WELLS FARGO BANK, N.A., Successor by Merger to Wachovia Mortgage, FSB, Formerly Known as World Savings Bank, FSB, Plaintiff, v. Linda M. SEIBOLD, “JOHN DOE 1 TO JOHN DOE 25,”, Defendants.
David Dunn, Hogan Lovells U.S. LLP, Staten Island, Attn. for Plaintiff. Carl A. Maietta, Esq, Kuhn and O'Toole, LLP, Staten Island, Attn. for defendant.
David Dunn, Hogan Lovells U.S. LLP, Staten Island, Attn. for Plaintiff.
Carl A. Maietta, Esq, Kuhn and O'Toole, LLP, Staten Island, Attn. for defendant.
PHILIP S. STRANIERE, J.
The following items were considered in the review of the following
| Papers Numbered | |
|---|---|
| Notice of Motion for Summary Judgment | 1 & 2 |
| Notice of Cross–Motion | 3 |
| Reply | 4 |
| Reply and opposition to Cross Motion | 5 |
| Affirmation in reply to Opposition | 6 |
| Sur-reply | 7 |
| Affidavit | 8 |
| Supplemental Affidavit | 9 |
| Exhibits Attached to Papers |
Upon the foregoing cited papers, the Decision and Order on this Motion is as follows:
Plaintiff, Wells Fargo Bank, NA Successor by Merger to Wachovia Mortgage FSB, f/k/a World Savings Bank, FSB, commenced this residential mortgage foreclosure against the defendant, Linda Seibold, and “John Doe 1 to John Doe 25.”
Currently before the court is plaintiff's motion for (1) summary judgment in favor of the plaintiff; (2) dismissing defendant's Seibold's answer, counterclaims and affirmative defenses; (3) granting an order of reference in favor of plaintiff; (4) appointing a referee to determine the amount due; and other relief.
Defendant has filed a cross-motion seeking (1) summary judgment on her counterclaims; (2) denying plaintiff's motion for summary judgment; and other relief. Each party filed a reply and supplemental papers requested by the court.
Background:
On June 27, 2007 World Savings Bank made two loans to George Seibold secured by the premises, 58 Moffett Street, Staten Island, New York. The first mortgage in the amount of $311,250.00 contained a negative amortization clause of 125% which brought the borrowers potential liability to a maximum of $389,062.50. In this transaction the note was only signed by George Seibold. The mortgage was signed by both George Seibold and Linda Seibold, the defendant herein. Linda Seibold was neither on the original loan application nor on the commitment letter. At the closing on June 27, 2007 Linda Seibold's name was added to the mortgage documents as a borrower in someone's handwriting. Linda Seibold then signed the documents above her handwritten name.
Also at that time George Seibold was issued a second mortgage from World Savings Bank in the amount of $48,000.00. This lien was sold on December 21, 2007 to Old Republic Insurance Company. The assignment indicates both George Seibold and Linda Seibold were borrowers on the second mortgage. As with the first mortgage Linda Seibold's name was added by hand. This debt has apparently been satisfied and is not part of the current litigation. Old Republic is not named as a defendant in this suit. According to the acknowledgment, the assignment document was prepared in Texas and not New York. It is obvious it was not prepared in New York because it refers to a “deed of trust” dated June 27, 2007 and New York does not recognize “deeds of trust.” It also states the mortgage was recorded on June 27, 2007. It was not recorded until July 19, 2007. This does not effect the legality of the documents, but it clearly reflects the sloppy manner the residential mortgage business was being run in the run-up to the market collapse.
At the closing on June 27, 2007, neither Seibold was represented by counsel.
George Seibold died on August 30, 2007. Plaintiff contends that title to the encumbered property passed to defendant Linda Seibold by operation of law as she is alleged to be the surviving tenant by the entirety. Defendant failed to make payments on the first mortgage. In December 2009, plaintiff's predecessor in interest, Wachovia, commenced a foreclosure action against defendant (Supreme Court, Richmond County, Index # 132169/09). During the pendency of that action, defendant received a retroactive social security disability award. The amount of that award is not before the court. However, defendant alleges that she used that money to payoff the second mortgage loan owned by Old Republic and to make a payment to plaintiff to reinstate the first mortgage.
In April 2011, defendant believing she was bringing the first mortgage now held by Wells Fargo current, and with the agreement of Wells Fargo, tendered to plaintiff $73,771.41. Plaintiff by letter dated May 2, 2011 confirmed that the loan had been reinstated. On May 13, 2011 plaintiff filed a “Stipulation Discontinuing” the 2009 action dated April 29, 2011 with the clerk of the Supreme Court.
By letter dated July 27, 2011, plaintiff notified the defendant that there was a deficiency in the escrow account of $6,770.97 for real estate taxes and insurance unpaid by defendant during the period she was in default. Plaintiff demanded defendant bring the account current either by a lump sum payment or the spreading of the $6,770.97 over 26 biweekly payments.
Defendant contends that she could not accept either option as she had expended all available cash in bringing the debt current in April 2011 and that she lacked the monthly income to pay an additional $260.00 every two weeks as plaintiff proposed. Unable to resolve this dispute, and defendant being incapable of making the new monthly payment imposed by the plaintiff, the plaintiff commenced the current foreclosure action in April 2012.
There is an interesting wrinkle revealed by reviewing the records of the Richmond County Clerk. Although both mortgages were signed on June 27, 2007, the $311,250.00 mortgage was not recorded until January 14, 2008, more than six months after its execution. The $48,000.00 mortgage was recorded on July 19, 2007, about three weeks after the closing. There is no explanation as to why what is purported to be the first mortgage was recorded six months after the second mortgage. Because New York is a “race notice” state, meaning that the first lien recorded has priority, the $48,000.00 mortgage was now the superior lien while the $311,250.00 one was now in second place.
Although not addressed by the parties, this created a situation where it may not have been in the best of interest of Linda Seibold to satisfy the $48,000.00 mortgage. If plaintiff proceeded to foreclose the $311,250.00 subordinate lien, the title insurance company which issued a mortgage title insurance policy in favor of World Savings Bank, might be liable on that policy because World Savings did not have a superior lien owing to the title company's failure to timely record the intended first mortgage. As discussed below, this further calls into question the decision of the defendant to pay $73,000.00 to plaintiff to reinstate the mortgage.
Legal Issues Presented:
A. Has this Loan Been Reinstated?
A review of the court file in the 2009 action discloses that on December 10, 2014 the Druckman Law Group PLLC, the attorney of record in that action and the first lawyers in this litigation, sent a letter to the Part Clerk advising the court that “the Defendant has reinstated the loan.” At that time the current action was pending and the Druckman Law Group was still the attorney of record in the current litigation.
Even though the letter was in regard to the prior 2009 action, it was from the attorneys for the plaintiff who commenced this action and was made two and one-half years after the current suit was started. The timing of that letter has created a problem. Should the court conclude that the Druckman letter is only applicable to the first, discontinued action or because it is from the same counsel who is the law firm who commenced this action, should it be deemed an admission against plaintiff and a reason to conclude the current action must be dismissed?
Because the parties have not raised this issue, the court will give them leave to address in a supplemental submission what is the legal effect of the December 2014 letter on the current action.
B. Is this a “Home Loan”?
Plaintiff in its affirmation in support of its motion alleges that this is not a “home loan” under the statute. The basis of this allegation is that because George Seibold is deceased, the premises was not his “home” at the time the litigation was commenced. This argument by the plaintiff certainly defeats the spirit of the statute and raises the specter of an interpretation which could haunt the plaintiff in similar litigation.
Plaintiff alleges that because it is not a “home loan” under Real Property Actions and Proceedings Law (RPAPL) § 1304, there was no need to request a mandatory settlement conference pursuant Civil Practice and Proceedings Law (CPLR) § 3408. Plaintiff makes this argument even though it did request and participate in settlement conferences. The statute requires that the notice be given to the “borrower” where a “home loan” is involved. Even though now claiming it is not a “home loan,” plaintiff gave written notice to both the defendant and the “Estate of George Seibold.”
RPAPL § 1304(a) defines “home loan” as:
a loan, ... in which
(i) The borrower is a natural person;
(ii) The debt is incurred by the borrower primarily for personal, family, or household purposes;
(iii) The loan is secured by a mortgage or deed of trust on real estate improved by a one to four family dwelling, or a condominium unit, in either case, used or occupied, or intended to be used or occupied wholly or partly, as the home or residence of one or more persons and which is or will be occupied by the borrower or as the borrower's principal dwelling; and
(iv) The property is located in this state.
The court is at a loss as to why the plaintiff believes this is not a “home loan.” A “natural person” means a human being as opposed to an “artificial person” such a corporation or some other legally recognized entity other than an individual. Counsel might have a valid point if the borrower was either Frankenstein's Monster, Dracula, a zombie or some other “unnatural person,” where it could be debated if they were alive at the time the mortgage documents were executed.
Defendant Linda Seibold is clearly a natural person. She is alive and well. The debt was incurred for personal, family or household purposes. The security interest is on a one to four family home in New York. Whether she is a “borrower” will be addressed below.
Is plaintiff contending that the definition of “home loan” does not apply because George Seibold is deceased? Clearly once you are dead you no longer a “natural person” for any purpose. However, George Seibold presumably was alive on June 27, 2007 when the mortgage closing took place as there is no showing he participated by séance or someone showed up and impersonated him at that time.
Contrary to plaintiff's allegation, this is a “home loan” under the statute entitling the defendant to all of the statutory notices and protections imposed since the collapse of the mortgage market in 2008. In fact, plaintiff admits that fact in its complaint at paragraph 3D where it alleges:
Pursuant to CPLR Rule 3408, the above-entitled action is a foreclosure action on a residential mortgage loan as such term is defined in RPAPL § 1304. Thus a settlement conference is necessary in this matter.
There is an error in the complaint in paragraph 7 where the loan is referred to as bimonthly. The mortgage documents refer to it as a “biweekly loan,” meaning payments being made twice a month. The common definition of bimonthly is every two months; although a secondary meaning is also twice a month. How something can be both is beyond explanation.
C. Is the Estate of George Seibold a Necessary Party?
The documents submitted in regard to this motion establish that only George Seibold signed the Note on June 27, 2011 and that although both George Seibold and Linda Seibold signed the mortgage, only George Seibold's name was typed on the document. Linda Seibold's name was added by hand. A review of the mortgage document discloses that although Linda Seibold's name is added to paragraph 1(B) entitled “Borrower,” the designation “borrower” appears only after George Seibold's name. Both George Seibold and Linda Seibold signed the mortgage but as before, Linda Seibold's name is added by hand. Unlike other mortgage documents, the designation “borrower” does not appear next to each name. However, above the space for signatures is the label “Borrower.”
In order to comply with notice requirements of RPAPL § 1304, plaintiff had served upon both Linda Seibold and the “Estate of George Seibold (Estate)” separate 90 Day Notices on November 15, 2011. In spite of determining that such notice was required to be given to the Estate, plaintiff did not include the Estate as a defendant in this action.
Plaintiff asserts that the Estate is not a necessary defendant because Linda Seibold inherited the property by operation of law as the surviving tenant by the entirety. Under this theory there is no need to name the Estate because all of the decedent's interests in the property are now in the defendant. A statement of the applicable law in these situations is set forth in Wells Fargo Bank, NA v. Cerotano, 45 Misc.3d 1226(A) (2014) (internal citations omitted).
That “the dead cannot be sued” is a well established principle of jurisprudence of this state....It gives rise to the rule that a claimant may not bring a legal action against a person already deceased at the time of the commencement of such action, but instead, must proceed against the personal representative of the decedent's estate ... or against those who have succeeded, by operation of law, to the interests of the decedent in the property that is subject to the judgment of foreclosure and sale....
Distilled from these concepts is the rule that no action may be effectively commenced against a deceased person subsequent to his or her death and prior to the appointment of a personal representative....The death of a named defendant prior to the commencement of an action has thus been held to render the action, insofar as asserted against deceased defendant, a legal ity from its inception which leaves the Court without jurisdiction to grant any requested relief....
That the forgoing rules are applicable to mortgage foreclosures actions is clear....Due, however, to the unique nature of such actions ... courts have held that the personal representative of the estate of a deceased mortgagor, who died intestate and against whom no deficiency judgment is sought, is not a necessary party to a mortgage foreclosure action and that such action may be commenced or continued against the distributees of any such intestate mortgagor....Accordingly, a foreclosing plaintiff may prosecute its claims against the distributees of a deceased mortgagor only where said mortgagor died intestate and no deficiency judgment is sought by the plaintiff in such action.... Where the deceased mortgagor died testate, or where he or she was personally liable on the mortgage note or bond and the plaintiff seeks a deficiency judgment against him or her in its mortgage foreclosure complaint, the plaintiff cannot proceed against the distributees of the deceased mortgagor, but instead, must proceed against the personal representative of the estate of the deceased mortgagor....
It is equally well settled law that “a mortgagor who has made an absolute conveyance of all his interest in the mortgaged premises including his equity or redemption, is not a necessary party to a foreclosure action, unless a deficiency judgment is sought....Accordingly, where a deceased mortgagor owned the encumbered property jointly with right of survivorship in one more other persons such mortgagor, to the extent he or she predeceases his or her joint tenant, is not a necessary party to a foreclosure action. In those cases wherein such mortgagor was joined as a defendant to a foreclosure action, the death of such mortgagor defendant during the pendency of the action will not effect a stay and the action may be continued against the surviving property owners alone, upon the withdrawal by discontinuance or otherwise of the claims interposed against the deceased defendant ... It is only where the deceased mortgagor was also an obligor under the mortgage note or any guaranty thereof and a deficiency judgment against such deceased obligor/mortgagor is demanded, will the joiner of the estate representative of obligor/mortgagor be required ...
Note: The court above when referring to “right of survivorship” and “joint tenant” could also have referred to the rights created by marriage in a tenancy by the entirety as it existed in that case and exists in the current litigation. [See also Deutsche Bank National Trust Co. v. Torres, 24 Misc.3d 1216(A) (2009) ].
Case law has also held that it is necessary part of a plaintiff's complaint in a mortgage foreclosure action to contain factual allegations as to whether the deceased mortgagor died testate or intestate and whether a personal representative has been appointed [Citimortgage, Inc. v. Balbi, 22Misc 3d 1102(A) (2009) ].
A review of plaintiff's complaint only contains an allegation that title to the mortgaged premises vested in Linda Seibold as the surviving spouse by operation of law (Complaint paragraph 9B). It does not contain an allegation that George Seibold and Linda Seibold are the owners of the mortgaged premises. Nor does it allege whether George Seibold died testate or intestate. There are no exhibits attached to the summary judgment motion to address any of these issues.
If there was a will, then the case law requires that the personal representative of George Seibold be named as a party. There is no allegation as to whether George Seibold had a will. If he did and no one has undertaken to admit it to probate, one of the parties would be required to do so and have the Surrogate issue the appropriate order to permit the continuing or the defense of this action on behalf of the Estate.
If there is no will then there would not be any need to name the personal representative if the plaintiff is not seeking a deficiency judgment against the decedent. A review of the pleadings confirms that plaintiff is seeking a deficiency judgment only against Linda Seibold and not George Seibold. Whether Linda Seibold has any obligation in that regard will be addressed below. Also because George Seibold is not a party to the action, obviously there is no intention to seek a deficiency judgment against him or his estate.
Procedurally, the court must question why the Estate is not named as a party. Plaintiff presumes that Linda Seibold is the surviving tenant by the entirety. Suppose Linda Seibold and George Seibold are divorced? Or there is a will from George Seibold disposing of his share of the property which has not been submitted to probate? Either of these occurrences would alter plaintiff's legal position in the litigation. Defendant made no admissions concerning any of plaintiff's allegations in her answer. Therefore the burden is on the plaintiff to establish its right to bring this action in the manner it has.
Plaintiff needs to produce additional evidence in order to convince the court that the Estate is not a necessary party to the litigation.
D. Does Defendant Have Any Liability on the Note?
It is conceded that Linda Seibold did not sign the Note when the loan closed on June 27, 2007. She had no legal obligation to repay the money arising from the Note, unless it is argued that when she signed the Mortgage, she accepted the obligation created in the Mortgage which states:
Section II:
I am giving the Lender these rights to protect the Lender from possible losses that might result if I fail to:
(i) pay all amounts owed to Lender under the Note, ...
Section IV of the Mortgage states:
1. Borrower's Promise to Pay
I will pay to Lender, on time, all principal and interest due under the Note and any prepayment and late charges due under the Note.
However, there is a clause further on in the Mortgage which specifically addresses the current situation. Section IV, Paragraph 11 provides:
Obligations of Borrower, Co–Signer, and of Persons Taking Over Borrowers Rights and Obligations
Any Borrower who co-signs this Security Instrument but does not execute the Note (a “co-signor”): (a) is co-signing this Security Instrument only to mortgage, grant, and convey the co-signor's interest in the Property under the terms of this Security Instrument; (b) is not personally obligated to pay the sums secured by this Security Instrument; and (c) agrees that Lender and any other Borrower can agree to extend, modify, forbear or make any accommodations with regard to the terms of this Security Instrument or the Note without the co-signor's consent.
Even though Linda Seibold had no obligation under the Note, plaintiff was able to convince her to pay in excess of $73,000.00 from her funds in an effort to reinstate a mortgage on which she had no personal liability. There is no indication that when defendant paid the $73,000.00 to bring the Note current she was required to sign a promise to pay the balance due or in any other manner asked to assume the debt created by the original Note.
Plaintiff in its complaint is seeking a deficiency judgment against the defendant. RPAPL § 1371 sets forth the procedures for a plaintiff to obtain a deficiency judgment in a mortgage foreclosure. It provides:
1. If a person who is liable for the payment of the debt secured by the mortgage is made a defendant in the action, and has appeared or has been personally served with the summons, the final judgment may award payment by him of the whole residue, or so much as the court may determine to be just and equitable, of the debt remaining unsatisfied, after the sale of the mortgaged property and the application of the proceeds, pursuant to the directions contained in such judgment, the amount thereof to be determined by the court as herein provided. [Note the statute is not gender neutral].
Based on the documents provided to the court, it must be concluded that defendant is not liable for payment of the debt secured by the mortgage. Defendant did not sign the Note. She is not liable for “the debt secured by the mortgage.” She was neither on the application nor the commitment letter. The plaintiff did not look to her assets in making the initial loan decision. She was added to the Mortgage at the closing under questionable circumstances. No deficiency judgment may be obtained against her. In fact, the very language of the Mortgage document which forms the basis of this foreclosure specifically relieves Linda Seibold of any personal liability on the Note.
Plaintiff's cause of action for a deficiency judgment against Linda Seibold is dismissed.
E. Was Defendant Fraudulently Induced into Reinstating the Mortgage?
Although having no personal liability for the debt, in April 2011, defendant was induced to pay $73,771.42 to plaintiff to reinstate the June 27, 2007 first mortgage and $12,000.00 to Old Republic in full satisfaction of the $48,000.00 second mortgage. Upon receipt of their respective payments, plaintiff discontinued the prior mortgage foreclosure (Index# 132169/09) by filing a Stipulation Discontinuing Action on May 13, 2011 and Old Republic filed a satisfaction of mortgage.
Plaintiff had calculated the $73,771.42 due it on the mortgage loan as follows:
Total Unpaid Payments $68,049.62
Accrued Late Charges $1,576.80
Corporate Advances $4,130.00
Other Fees $15.00
By a notice dated July 27, 2011, from plaintiff, the Estate of George Seibold was notified that plaintiff had conducted an analysis of the escrow account and that there was a shortage of $6,770.97. Presumably this was for real property taxes paid by the plaintiff during the period the George Seibold and the defendant had failed to make mortgage payments. The mortgage gave the lender the right to escrow for property taxes, homeowners insurance, flood insurance and private mortgage insurance.
Although the plaintiff had in April 2011 negotiated the reinstatement with Linda Seibold, no notice about an escrow shortage was addressed to her individually. Defendant, and her counsel who represented her in the negotiations, assert that this additional charge came as a total surprise to them because no such monies being due was ever discussed during the period of the negotiations for the loan reinstatement. Defendant contends that she lacked the financial resources to either pay the $6,770.97 in one lump sum or over the period of one year as dictated by the plaintiff.
Defendant alleges that had she known that this amount was due she would either not have paid $73,000.00 from a social security settlement, which she alleges are exempt funds, to bring the loan current or would have negotiated different terms. Realistically, why would she make such a payment to plaintiff only to find herself in the same position she would have been in had she not made any payment?
Analysis of the documents submitted leads to the conclusion that there is some merit to defendant's contention. Either the plaintiff fraudulently induced the defendant to make the $73,000.00 payment because it knew of the escrow shortage at the time of the negotiations or plaintiff was so negligent in maintaining its books and records that it should have known of the shortage and disclosed that fact to the defendant.
At the Court's request, plaintiff has submitted documents from its file executed by George Seibold and Linda Seibold at the closing on June 27, 2007. One of the papers is a document labeled “World Savings–Escrow Account Agreement.” It is signed only by George Seibold and by its language George Seibold acknowledged that the lender would not maintain an escrow account for the payment of real estate taxes and homeowner's insurance. George Seibold agreed to make those payments directly. In New York City the tax year runs from July 1 to June 30. In general, residential properties such as defendants, are permitted to pay the taxes quarterly, that is July 1, October 1, January 1 and April 1.
The Escrow Account Agreement provided that in the event the borrower failed to make the payments directly as agreed, the lender could pay the taxing authority directly and charge the borrower in that regard and then begin to collect monies to be placed in an escrow account in the future to prevent a shortage occurring each year.
Apparently George Seibold failed to make the payments to the taxing authority as agreed and Wachovia exercised its rights by beginning to collect an escrow for taxes with each biweekly payment. Plaintiff has produced a notice addressed to the Estate of George Seibold dated October 28, 2008 notifying the Estate of the actions the lender was taking to keep the taxes current. Although plaintiff contends that Linda Seibold was a “borrower” no such notice was sent to her.
What makes plaintiff's claim that it had no knowledge that there was an escrow shortage in April 2011 when it negotiated the reinstatement with defendant a tad disingenuous is the fact that the lender at the closing required that George Seibold pay $61.00 to First American Real Estate as “tax service” fee. This is a fee lender's charge borrowers to have an independent service monitor the borrowers' account to insure tax payments are being properly applied and credited so as to prevent a missed tax payment from becoming a superior lien to the mortgage.
A search of the New York City Department of Finance records discloses that as of January 5, 2009, tax bills were going directly to “World Savings” at an address in Murray, Utah. The Finance Department records show that address was in effect through January 5, 2011 the last notice prior to the reinstatement payment by the defendant.
Based on this information, it is not credible that the plaintiff did not know of the escrow shortage when the settlement was reached. It was receiving the tax bills directly and paying them in a timely manner. It had actual knowledge of the account status at the time it negotiated reinstatement of the mortgage with the defendant.
Defendant has also raised a legitimate point in questioning what was included in the $4,130.00 plaintiff labeled as “Corporate Advances” in the reinstatement amount of $73,000.00. There is no explanation in the plaintiff's submissions as to what was included in that amount. The court must also question the statement in plaintiff's Reply Affidavit, that it did not conduct an escrow review in 2009 and 2010 while the loan was in default. No review should have been necessary because plaintiff was paying the tax bills directly. Plaintiff must produce the monthly mortgage payment bill for that period for the court to determine whether it was including real property charges in the amount sought biweekly from the defendant or the Estate of George Seibold.
Defendant has raised a legitimate issue in regard to why plaintiff did not know of the escrow shortage and as to what monies were included in the $4,130.00 defendant paid. Plaintiff must provide evidence as to how the $4,130.00 was calculated and how each biweekly payment was calculated.
F. Can Plaintiff Verify the Amount Due and Owing?
Plaintiff has provided a copy of the “Adjustable Rate Mortgage Note” signed by George Seibold on June 27, 2007. It is part of the “Pick–A–Payment Loan” program World Savings Bank marketed at that time.
Having read the terms of the Note, it is readily apparent that had IBM done a commercial of a mortgage broker explaining the terms to Watson, within a relatively short period of time Watson would have blown a circuit and opted to become a back-up singer for Bob Dylan.
There are some parts of the Note which require analysis and comment. First, Paragraph 2(D) sets forth the Index. It states:
The Index is the “Cost of Savings Index” as published by Wachovia Corporation. The Cost of Savings Index is the weighted average of the interest rates in effect as of the last business day of each calendar month on the U.S. dollar denominated personal time deposits (as defined by the Board of Governors of the Federal Reserve System for the purpose of reporting deposits on FR 2900 by commercial banks) held by the U.S. branches and non-US branches located on U.S. military facilities of the depository institution subsidiaries of Wachovia Corporation that hold federally insured deposits.
Considering that it appears that World Savings Bank, FSB, the lender on the Mortgage and Note did not change its name to Wachovia Mortgage, FSB as evidenced by a filing on November 8, 2007 with the Office of Thrift Supervision to be effective December 31, 2007, it must be asked why an Index published by Wachovia Corporation would govern a Note made by George Seibold six-months earlier in June 2007 with World Savings? What was the relationship between these lenders at that time?
An initial question to be asked what is meant by a “weighted average of the interest rates?” What is a “weighted average” and how is it calculated? It must also be questioned how a borrower would even find this Index so as to determine whether the proper numbers were being used to calculate the biweekly interest rate? The court must also inquire whether this is a legitimate independent index or is it something the lender can manipulate. Who is calculating and reporting the amount of “personal time deposits” at subsidiaries of Wachovia Corporation? For that matter, how can a borrower have any idea what entities are “subsidiaries” of Wachovia Corporation to be included in the calculation?
According to the Note:
The Index will be published by Wachovia Corporation on or before the fifteenth day of each month, and made readily available. The most recent Index figure available on each Interest Change Date is called the “Current Index.”
In November 2009 Wells Fargo became the successor by merger of Wachovia. Plaintiff has not indicated what happened to the “Index” when Wachovia ceased to exist. Does Wells Fargo have the same Index or was some other Index substituted as permitted under the terms of the Note?
Without any additional information, it would seem that this “index” is about as legitimate as the one maintained by the “Bank of Detroit.” Detroit being Nathan from “Guys & Dolls,” not the City, where the interest rate is determined by the number of pieces of strudel sold each week at Mindy's.
The Index recited in the Note, is a self-determined Index by the lender. It is not an independent Index. It makes the borrower subject to the success of the lender in attracting deposits to its branches. Because branch managers in Oakland California, or Roanoke, North Carolina cannot attract enough accounts by giving away toasters, a borrower, could have his or her interest rate adversely affected. Why these loans were not tied to more recognized independent indices such as the federal funds rate or prime rate is a mystery. The court must question whether the Index used is illusory.
The Note discloses the initial interest rate as 8.090% to be calculated on the basis of a 364 day year. The interest rate will change on August 20, 2007 and “on every Monday thereafter.” The new rate becomes effective on the change date.
Paragraph 3 of the Note provided for the payments to be made biweekly beginning August 6, 2007 and every other Monday thereafter. The biweekly payment will change on August 4, 2008 and yearly thereafter. Paragraph 3(D) goes on to spell out that in spite of tying the payments to the Index, there may be a different calculation. It states:
(M)y biweekly payment may be changed to an amount sufficient to pay the unpaid Principal balance, including any deferred interest as described in Section 3(E) below together with interest at the interest rate in effect on the of calculation of the “Modified Maturity Date.” The Modified Maturity Date is the date on which the note will be paid after accounting for acceleration of the payment schedule resulting from biweekly payments rather than the monthly payment schedule used to calculate the Maturity Date described in Section 3(A) above. However, the amount by which my payment can be increased will not be more than 7 1/2% of the then existing Principal and interest payment....The Lender will perform this Payment Change calculation at least 50 but not more than 90 days before the Payment Change Date.
There is also a further caveat of which the borrower must be aware. Paragraph 3(G), “Payment Cap Limitation; Exceptions” provides:
Beginning with the 10th Payment Change Date and every 5th Payment Change Date thereafter, my biweekly payment will be calculated as described in Section 3(d) except that the Payment Cap limitation will apply. In addition, the Payment Cap limitation will not apply on the final Payment Date.
This is of course a negative amortization loan. However, the amount owed by the borrower can never exceed 125% of the original Principal borrowed. If it does, the loan will convert to a self-amortizing biweekly loan payment so that the unpaid Principal balance will be paid in full on the Maturity Date at the interest rate then in effect (Section 3(F)).
The court has serious concerns of the ability of a borrower to easily verify the interest rate biweekly based on the source of the Index and the calculations involved. Even when Grandma would play the number at the local candy store, she could determine whether she won or not by checking the newspaper for the “take” at the local race track.
Based on the foregoing, plaintiff will be required to produce evidence as to how it calculates any amount of money due and owing on this mortgage. Included will be disclosure of the biweekly Index, and how the interest was calculated each billing period.
G. Where Are the Lawyers?
“Lawyer? You don't need no stinkin' lawyer!” attributed to Gold Hat of “The Treasure of Sierra Madre” fame, after he moved to the U.S. and became a mortgage broker.
There is one constant in these mortgage foreclosure cases involving refinances or second mortgage loans, that is the lack of legal counsel for borrowers. Ask any attorney, real estate broker or mortgage broker familiar with industry practices in the first decade of the twenty-first century and they will readily admit that lenders not only discouraged the use of counsel by borrowers by remaining silent on the issue, many lenders actually advised borrowers that they did not need a lawyer.
If having a lawyer is of such little merit, why does the lender always have one in these transactions? And as is the usual practice, the borrower pays for the lender's attorney. In this case, as disclosed on the HUD–1A, a federal form summarizing expenses the borrower incurred, the Seibolds paid $875.00 to the lender's attorney. Where this obligation arose is not apparent, as the commitment letter does not list this as a charge the borrower agreed to pay. Where else but in real estate transactions does one party who is unrepresented voluntarily pay the legal fees of another party. In a matrimonial proceeding, at least the court is involved in supervising agreements in that regard.
This court in OneWest Bank FSB v. Prestano, 49 Misc.3d 1209(A) (2015), addressed the issue of lenders not informing borrowers of the need to consult an attorney when mortgaging their homes and the potential ethical violation it creates for a bank closing counsel. It also posited why there was no requirement that a lender be required to advise a borrower to consult an attorney and thereafter obtain a written waiver of that right from the borrower at closing.
There is also another questionable charge on the HUD–1A. It is $375.00 charged for “notary fees.” New York Executive Law § 136 sets the fees which can be charged for notary services as $2.00 per person for an acknowledgment such as is required on a mortgage document. Aside from the fact that this charge is not set forth in the commitment letter, it appears that the notary services were only required on two documents, the Mortgage and the Fixed–Rate Option Rider. The total charge for that service should be $8.00, $4.00 for each Seibold, and not $375.00, or $187.50 for each signator. Either that or the file is missing in excess of 90 other documents which were notarized.
This loan also raises the issue of why the lender structured the transaction as a first mortgage of $311,250.00 with negative amortization of $389,062.50 along with a second mortgage of $48,000.00, rather than a single first mortgage of $359,250.00. Plaintiff has not presented any evidence as to what the loan-to-value ratio was when the loan was made in June 2007. It can be argued that by requiring two mortgages, the plaintiff negated ability of the defendant to seek private mortgage insurance (PMI). If there was PMI in place, it is the court's understanding that it would have “kicked in” and paid the lender when George Seibold and Linda Seibold defaulted and perhaps prevented this foreclosure. For some reason the borrowers were placed into a transaction involving two independent mortgages without PMI. In fact, the mortgage by its terms permitted the lender to escrow for PMI payments, which means that it should have been amenable to a transaction of that nature.
Although the plaintiff has not presented any appraisal or documents showing the loan-to-value ratio in June 2007, there is some independent documentation from which an analysis can be made. The NYC Department of Finance each year fixes the “market value” when setting the assessment for real property taxation purposes. Although it is not as exact as an appraisal, by statute, Finance is supposed to be as accurate as possible in fixing the value. Finance records for the fiscal year July 1, 2006 to June 30, 2007 set the market value of the property at $373,100.00. The first and second mortgages totaled $359,250.00 or a loan-to-value ratio of 96%. This would normally trigger PMI if it were one loan instead of two. If the negative amortization numbers are used of $389,062.50, the loan-to-value ratio is 104%.
Because the closing took place so close to the end of the fiscal year, the court looked at the market value set by finance for July 1, 2007 to June 30, 2008. This was $413,600.00 an increase in value of $40,500.00 and 11% in one year. The loan-to-value ratio of the face amount of the mortgages against the tax market value is 87%. This figure too would normally require PMI. The court must question why the loans were structured like this.
The court begins to wonder at what point do the totality of the actions of the lender become a deceptive practice in violation General Business Law (GBL) § 349 ?
The above being said, and the court's strong belief the right to counsel at a mortgage refinance is something that should be promoted and not summarily dismissed, a check of the Richmond County Clerk's records reveals that the Seibolds were not novices in the mortgage finance game. In fact, it appears that the Seibolds were using their home as an ATM.
Their first mortgage loan in July 1975 was for the purchase of the premises. However, beginning in February 2000 and ending with this loan in July 2007, which is not included in the calculation, the Seibolds refinanced their home at least nine times from different lenders in ever increasing amounts. The court is unaware of any particular financial problems facing the Seibolds during that time period. Irrespective of that fact, by the time they refinanced with the plaintiff's predecessor in interest, they were seasoned veterans at what to expect.
The fact that they were experienced does not change the obligation of the lender to notify them and other borrowers of the serious legal implications of a mortgage refinance and the advisability of seeking independent counsel.
What is troubling about this particular transaction is that Linda Seibold did not apply for the loan and the commitment letter is not issued to her. Review of the commitment letter discloses that having her sign the mortgage in any capacity is not even a term of the loan. It appears that she attended the closing and at that time was told she had to sign the mortgage. If she did not sign the mortgage, then plaintiff would be in the unenviable position of not being able to foreclose on her interest in the real property as she would have had no legal obligation to the plaintiff.
If she had an attorney, perhaps an attorney would have added language to the mortgage to indicate that she was not a “borrower” but that she was agreeing to have her ownership interest foreclosed upon should George default under the terms of the agreement. Although the language of the Mortgage as analyzed above appears to have given her some protection in regard to her not incurring any personal liability. This issue was also discussed in One West v. Prestano, supra.
Further submissions are needed to determine whether the plaintiff has engaged in deceptive practices under the GBL.
Conclusion:
Based on the foregoing, plaintiff's motion for summary judgment in its favor is denied without prejudice to renew when the issues the court identified above are resolved.
Plaintiff's motion dismissing defendant's answer and counterclaims is granted as to defendant's third affirmative defense, fourth affirmative defense, and eighth affirmative defense and second counterclaim for punitive damages are dismissed. It is also granted to the extent of dismissing all of the “John Does” and amending the caption in that regard.
Defendant's motion for summary judgment is granted to the extent of dismissing the claim against Linda Seibold for a deficiency judgment. The balance of the summary judgment motion is also denied without prejudice to renew when the issues the court identified above are resolved.
The parties are to appear for a conference on Monday, December 14, 2015 at 11:00 AM at the courthouse, 927 Castleton Avenue, Staten Island, New York.
The foregoing constitutes the decision and order of the court.
Acting Justice of the Supreme Court