Credit-Based Asset Servicing & Securitization, LLC v Akitoye

[*1] Credit-Based Asset Servicing & Securitization, LLC v Akitoye 2009 NY Slip Op 50076(U) [22 Misc 3d 1110(A)] Decided on January 20, 2009 Supreme Court, Kings County Schack, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on January 20, 2009
Supreme Court, Kings County

Credit-Based Asset Servicing and Securitization, LLC, Plaintiff,

against

Babtunde A. Akitoye, et al., Defendants.



11132/07



Plaintiff

David P. Case, Esq.

Fein Such & Crane LLP

Rochester NY

Arthur M. Schack, J.

The motion of plaintiff CREDIT-BASED ASSET SERVICING AND SECURITIZATION, LLC [C-BASS], upon the default of all defendants, for an order of reference in a mortgage foreclosure action for the premises located at 1039 Halsey Street, Brooklyn, New York (Block 1207, Lot 60, County of Kings) is denied without prejudice, with leave to renew upon providing the Court with: documents demonstrating plaintiff C-BASS's ownership interest in the subject mortgage and note prior to the commencement of this action on April 2, 2007; the loan origination documents for the mortgage and note executed on July 7, 2006 by defendant BABTUNDE A. AKITOYE [AKITOYE] with C-BASS's assignor, NEW CENTURY MORTGAGE CORPORATION [NEW CENTURY]; and, an affidavit from an officer of C-BASS explaining why its then wholly owned subsidiary, LITTON LOAN SERVICING LP [LITTON], attorney in fact for NEW CENTURY, assigned the instant never performed mortgage [*2]and note to C-BASS on July 9, 2007, with an effective date of January 14, 2006, almost six months prior to the execution of the subject mortgage and note; and, how LITTON, then C-BASS's subsidiary, acted in good faith and loyalty to its principal, NEW CENTURY, by assigning this loan to its parent, C-BASS.

Background

Defendant AKITOYE executed the instant mortgage and note on July 7, 2006 and borrowed $488,000.00 from NEW CENTURY. The mortgage and note were recorded on July 25, 2006, in the Office of the City Register of the City of New York, City Register File Number (CRFN) 2006000422728 [exhibit E of application]. According to the June 19, 2008-affidavit of Debra Lyman, Vice President of C-BASS, plaintiff AKITOYE defaulted on the subject loan with his first payment, due on September 1, 2006, pursuant to the terms of the note [exhibit C of application].

As noted above, plaintiff C-BASS commenced this action with the April 2, 2007 filing of the summons, complaint and notice of pendency with the Kings County Clerk. NEW CENTURY, the originator of the instant loan, on that day, filed for Chapter 11 protection under the U.S. Bankruptcy Code. In the April 3, 2007 New York Times article entitled "Home Lender is Seeking Bankruptcy," Julie Creswell and Vikas Bajaj wrote:

From an 11-story steel-and-glass tower that housed its headquarters

in Irvine, Calif., the New Century Financial Corporation ruled as one of

the nations's largest lenders to individuals with weak, or subprime, credit

during the recent housing boom.

That reign officially ended yesterday, when New Century became

the biggest, and most prominent, corporate failure in the subprime

mortgage business.

Plagued by a spike in loan defaults and a loss of confidence

among its financial patron on Wall Street, New Century filed for

Chapter 11 protection in Federal Bankruptcy Court in Wilmington, Del.

LITTON, attorney in fact for NEW CENTURY, assigned the mortgage and note on July 9, 2007 to plaintiff C-BASS, "effective as of January 14, 2006," with the assignment recorded on July 30, 2007 in the Office of the City Register of the City of New York, CRFN 2007000389125 [exhibit F of application]. January 14, 2006 was 174 days prior to defendant AKITOYE's July 7, 2006 execution of the subject mortgage and note. Thus, the effective assignment date is an impossibility. Further, LITTON's assignment, as attorney in fact for NEW CENTURY, of the subject mortgage and note to C-BASS took place 98 days subsequent to the April 2, 2007 commencement of the instant action. Absent proof that C-BASS had possession of the mortgage and note on April 2, 2008, it is clear that NEW CENTURY, not C-BASS, owned the AKITOYE mortgage on the day that this action commenced.

LITTON, according to a July 5, 2007 Atlanta Business Chronicle article, "Litton Loan Servicing plots growth in Henry County," "is a mortgage servicing company specializing in loss mitigation and default management for residential loans. Litton is a wholly-owned subsidiary of Credit-Based Asset Servicing and Securitization LLC of New York." Subsequently, C-BASS sold LITTON to Goldman Sachs. A December 10, 2007 C-BASS press release, titled "C-BASS LLC Completes Sale of Litton Loan Servicing," states: [*3]

Credit-Based Asset Servicing and Securitization LLC ("C-BASS")

today announced that it has successfully completed the sale of Litton Loan

Servicing to Goldman Sachs. The sale of Litton, a recognized industry

leader in mortgage default management, was a key step for C-BASS

(the "Company") to reach a long-term agreement with its secured

and unsecured creditors on November 13, 2007. The terms of the

transaction were not disclosed.

Since late July 2007, the company had been under liquidity

pressure from its lenders and worked with numerous potential

counterparties to come up with a solution that would satisfy the

Company's creditors and equity holders. . . .

The agreement provides a framework for the Company to

manage its portfolio assets, allowing the underlying cashflow to

repay the secured and unsecured creditors of C-BASS over time.

NEW CENTURY's limited power of attorney to LITTON, which includes the power to execute mortgage assignments, was not included in plaintiff's moving papers. However, the Court found this document in a search of the Automated City Register Information System (ACRIS) of the New York City Department of Finance. The Court notes that NEW CENTURY's limited power of attorney is dated June 22, 2007, which was 80 days after the commencement of the instant action.

This Court is concerned that LITTON, as NEW CENTURY's attorney in fact, assigned the never performed AKITOYE mortgage and note on July 7, 2007 to its owner, C-BASS, for below market value, depriving NEW CENTURY, then in Chapter 11 bankruptcy proceedings of market value for the AKITOYE mortgage and note. Further, the Court wonders why C-BASS would purchase a loan that never performed, 312 days after its September 1, 2006 default. Did C-BASS pay a bargain basement price to NEW CENTURY? Did LITTON report this assignment price to the Bankruptcy Trustee? Did LITTON, NEW CENTURY's agent, in the July 7, 2007 assignment give an undue advantage to its owner, C-BASS, or did LITTON act properly on behalf of its principal, NEW CENTURY? These questions beg answers, even if C-BASS can prove ownership of the instant mortgage and note when this action commenced on April 2, 2007, 80 days before NEW CENTURY gave LITTON a limited power of attorney and 98 days before the assignment by LITTON, as attorney in fact for NEW CENTURY, to C-BASS.

Discussion

Plaintiff C-BASS must have "standing" to bring this action. "Standing to sue is critical to the proper functioning of the judicial system. It is a threshold issue. If standing is denied, the pathway to the courthouse is blocked. The plaintiff who has standing, however, may cross the threshold and seek judicial redress." (Saratoga County Chamber of Commerce, Inc. v Pataki, 100 NY2d 801 812 [2003], cert denied 540 US 1017 [2003]). Professor David Siegel, in NY Prac, § 136, at 232 [4th ed] instructs that:

[i]t is the law's policy to allow only an aggrieved person to bring a

lawsuit . . . A want of "standing to sue," in other words, is just another

way of saying that this particular plaintiff is not involved in a genuine [*4]

controversy, and a simple syllogism takes us from there to a "jurisdictional"

dismissal: (1) the courts have jurisdiction only over controversies; (2) a

plaintiff found to lack "standing" is not involved in a controversy; and

(3) the courts therefore have no jurisdiction of the case when such a

plaintiff purports to bring it.

"Standing to sue requires an interest in the claim at issue in the lawsuit that the law will recognize as a sufficient predicate for determining the issue at the litigant's request." (Caprer v Nussbaum (36 AD3d 176, 181 [2d Dept 2006]). If a plaintiff lacks standing to sue, the plaintiff may not proceed in the action. (Stark v Goldberg, 297 AD2d 203 [1st Dept 2002]).

Plaintiff C-BASS lacked standing to foreclose on the instant mortgage and note when this action commenced on April 2, 2007, the day C-BASS filed the summons and complaint with the Kings County Clerk, because it did not own the mortgage and note that day. The instant mortgage and note were assigned to C-BASS 98 days later on July 9, 2007. The printed July 9, 2007 assignment states that "[a]ssignor has caused this instrument to be duly executed as of this 9th day of July, 2007, by a duly authorized officer" and then, handwritten, it states "[e]ffective as of January 14, 2006." This attempt at retroactivity to January 14, 2006, 174 days prior to the July 10, 2006 execution of the mortgage and note, fails to demonstrate C-BASS's ownership interest on the action's commencement date. The Court, in Campaign v Barba (23 AD3d 327 [2d Dept 2005]), instructed that "[t]o establish a prima facie case in an action to foreclose a mortgage, the plaintiff must establish the existence of the mortgage and the mortgage note, ownership of the mortgage, and the defendant's default in payment [ Emphasis added]." (See Witelson v Jamaica Estates Holding Corp. I, 40 AD3d 284 [1st Dept 2007]; Household Finance Realty Corp. of New York v Wynn, 19 AD3d 545 [2d Dept 2005]; Sears Mortgage Corp. v Yahhobi, 19 AD3d 402 [2d Dept 2005]; Ocwen Federal Bank FSB v Miller, 18 AD3d 527 [2d Dept 2005]; U.S. Bank Trust Nat. Ass'n Trustee v Butti, 16 AD3d 408 [2d Dept 2005]; First Union Mortgage Corp. v Fern, 298 AD2d 490 [2d Dept 2002]; Village Bank v Wild Oaks, Holding, Inc., 196 AD2d 812 [2d Dept 1993]).

In this case, "the crucial issue then is whether the written assignment, dated after the commencement of the action but stated to be effective on a date before the commencement, was effective to give plaintiff the requisite interest in the mortgage and thus standing to commence an action to foreclose it." (Deutsche Bank Trust Co. Americas v Peabody,20 Misc 3d 1108 [A][Sup Ct, Saratoga County 2008]). Assignments are made by either written instrument or the assignor physically delivering the mortgage and note to the assignee. The written assignment to C-BASS was not effective due to the impossible retroactive effective date. Also, C-BASS failed to demonstrate to the Court that it had physical possession of the AKITOYE mortgage and note on April 2, 2007. "Our courts have repeatedly held that a bond and mortgage may be transferred by delivery without a written instrument of assignment." (Flyer v Sullivan, 284 AD 697, 699 [1d Dept 1954]). (See Levy v Louvre Realty Co., 222 NY 14, 20 [1917]; Curtis v Moore, 152 NY 159 [1897]; Bankers Trust Co. v Hoovis, 263 AD2d 937, 938 [3d Dept 1999]; Washington Mut. Bank v Patterson, 21 Misc 3d 1145 (A) [Sup Ct, Kings County 2008]; Fremont Investment & Loan v Laroc, 21 Misc 3d 1124 (A) [Sup Ct, Queens County 2008]; Deutsche Bank Trust Co. Americas v Peabody, supra; Countrywide Home Loans, Inc. v Taylor, 17 Misc 3d 595 [Sup Ct, Suffolk County 2007]. Plaintiff C-BASS "offers no evidence that it took physical possession of [*5]the note and mortgage before commencing this action, and again, the written assignment was signed after defendant was served. The assignment's language purporting to give it retroactive effect, absent a prior or contemporary delivery of the note and mortgage is insufficient to grant it standing." (Deutsche Bank Trust Co. Americas v Peabody, supra).

If C-BASS is able to prove that it owned the subject mortgage and note on April 2, 2007, then the Court must address issues regarding the origination of the AKITOYE mortgage and note. Defendant AKITOYE never made any payments of principal and interest. The Court is concerned that defendant AKITOYE's immediate default was a strong indicator of either defendant AKITOYE's inability to pay or outright fraud. Therefore, to determine if fraud has been perpetrated, plaintiff C-BASS must provide the Court with all documentation used to grant the subject loan. The Court will determine if the borrower did not have sufficient income to make any payments, which could mean that the loan may have been in violation of federal statutes, or that the entire mortgage event was a fraud.

Next the Court is confronted with the issue of LITTON, attorney in fact for NEW CENTURY, assigning the AKITOYE mortgage and note to C-BASS, LITTON's owner. "An attorney in fact is merely a special kind of agent." (Etterle v Excelsior Ins. Co. of New York, 74 AD2d 436, 441 [2d Dept 1980]). Further, the agent, who has a fiduciary relationship with the principal, "is a party who acts on behalf of the principal with the latter's express, implied, or apparent authority." (Maurillo v Park Slope U-Haul, 194 AD2d 142, 146 [2d Dept 1992]). "Agents are bound at all times to exercise the utmost good faith toward their principals. They must act in accordance with the highest and truest principles or morality." (Elco Shoe Mfrs. V Sisk, 260 NY 100, 103 [1932]). (See Sokoloff v Harriman Estates Development Corp., 96 NY 409 [2001]); Lamdin v Broadway Surface Advertising Corp., 272 NY 133, [1936]).

The incestuous relationship between NEW CENTURY's agent LITTON and C-BASS, especially while NEW CENTURY was in Chapter 11 bankruptcy, forces the Court to determine if LITTON acted with "the highest good faith toward" NEW CENTURY, when assigning the AKITOYE never performed loan to C-BASS. Did C-BASS purchase the AKITOYE loan for market value or did LITTON take advantage of NEW CENTURY's Chapter 11 bankruptcy proceedings for the benefit of C-BASS? The Court, without knowledge of the financial details of the July 7, 2007 assignment is unable to make that determination. Further, if LITTON violated its duty of loyalty to NEW CENTURY, then it is not entitled to any compensation from its principal, NEW CENTURY. If an agent acts "adversely to his employer in any part of the transaction or omits to disclose any interest which would naturally influence his employer's conduct in dealing with the subject of employment, it is such a fraud upon his employer as [the agent] forfeits any right to compensation for his services. (Murray v Beard, 102 NY 505 [1886])." (Beatty v Guggenheim Exploration Co., 223 NY 294, 304 [1918]). "The faithless agent rule thus is founded upon the agent's duty of loyalty to the principal." (G.K. Alan Assoc., Inc. v Lazzari, 44 AD3d 95, 101 [2d Dept 2007]). Therefore, if plaintiff C-BASS renews its application for an order of reference, it must include an affidavit from an officer of C-BASS explaining how its wholly owned subsidiary LITTON acted in good faith and loyalty to its principal, NEW CENTURY, when assigning the instant mortgage and note on July 9, 2007, and why C-BASS purchased a never performed loan, 214 days in default when this action commenced on April 2, 2007.

[*6]Conclusion

Accordingly, it is

ORDERED, that the motion of plaintiff CREDIT-BASED ASSET SERVICING

AND SECURITIZATION, LLC, for an order of reference for the premises located at 1039 Halsey Street, Brooklyn, New York (Block 1207, Lot 60, County of Kings) is denied without prejudice; and it is further

ORDERED, that leave is granted to plaintiff CREDIT-BASED ASSET SERVICING AND SECURITIZATION, LLC, to renew its application for an order of reference for the premises located at 1039 Halsey Street, Brooklyn, New York (Block 1207, Lot 60, County of Kings), if it presents to the Court, within 60 days of the date of this decision and order: documents demonstrating plaintiff CREDIT-BASED ASSET SERVICING AND SECURITIZATION, LLC's ownership interest in the subject mortgage and note prior to the commencement of this action on April 2, 2007; the loan origination documents for the mortgage and note executed on July 7, 2006 by defendant BABTUNDE A. AKITOYE with NEW CENTURY MORTGAGE CORPORATION; an affidavit from an officer of plaintiff CREDIT-BASED ASSET SERVICING AND SECURITIZATION, LLC explaining why its then wholly owned subsidiary, LITTON LOAN SERVICING LP, attorney in fact for NEW CENTURY MORTGAGE CORPORATION, assigned the instant never performed mortgage and note to plaintiff CREDIT-BASED ASSET SERVICING AND SECURITIZATION, LLC on July 7, 2007, with an effective date of January 14, 2006, almost six months prior to the execution of the subject mortgage and note, and how LITTON LOAN SERVICING LP, then plaintiff CREDIT-BASED ASSET SERVICING AND SECURITIZATION, LLC's wholly owned subsidiary, acted in good faith and loyalty to its principal NEW CENTURY MORTGAGE CORPORATION, by assigning the subject never performed loan to its parent, CREDIT-BASED ASSET SERVICING AND SECURITIZATION, LLC; and an affidavit or affirmation identifying whether the instant mortgage loan, pursuant to L 2008, ch 472, § 3-a is a subprime home loan as defined in Real Property and Actions Proceedings Law § 1304 or is a high-cost home loan as defined in Banking Law § 6-l.

This constitutes the Decision and Order of the Court.

ENTER

___________________________

Hon. Arthur M. SchackJ. S. C.