HSBC Bank USA v Picarelli

[*1] HSBC Bank USA v Picarelli 2009 NY Slip Op 51107(U) [23 Misc 3d 1135(A)] Decided on April 14, 2009 Supreme Court, Queens County Markey, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 April 14, 2009
Supreme Court, Queens County

HSBC Bank USA, etc. Motion

against

Maryann Picarelli, et al.



27632008

Charles J. Markey, J.

Plaintiff commenced this action to foreclose on a mortgage on the subject real property known as 171-50 Courtney Avenue, Flushing, New York to secure repayment of a note, evidencing a loan in the original principal amount of $500,000.00, plus interest, extended to defendants Maryann Picarelli, and her daughter, defendant Margaret Rappold, by Countrywide Bank, F.S.B. (Countrywide), with Mortgage Electronic Registration Systems acting as the nominee for Countrywide. Plaintiff alleges that it is the holder of the mortgage pursuant to an assignment, and that defendants Picarelli and Rappold defaulted under the terms of the mortgage and note by failing to make the monthly mortgage installment payment due and owing on September 1, 2007, and subsequent installments, and as a consequence, it elected to accelerate the mortgage debt.

Defendants Picarelli and Rappold served a joint answer, consisting of general denials, and asserting various defenses.

Defendants New York City Environmental Control Board, New York City Parking Violations Bureau, and New York City Transit Adjudication Bureau are in default in appearing or answering the complaint. Plaintiff used fictitious names for certain defendants named in the complaint, as persons unknown to it, and having or claiming an interest in, or lien upon, the subject premises. Plaintiff states that defendants "John Doe #

1" through "John Doe #

10" have not been served, and that it has determined they are unnecessary party defendants.

That branch of the motion by plaintiff for leave to amend the caption deleting defendants [*2]"John Doe #

1" through "John Doe #

10" is granted.

On a motion for summary judgment in a foreclosure action, a plaintiff must make a prima facie showing by producing the mortgage, the unpaid note, bond or obligation, any assignment of the mortgage documents to it, and the evidence of default (see EMC Mortgage Corp. v Riverdale Assoc., 291 AD2d 370 [2002]; IMC Mtge. Co. v Griggs, 289 AD2d 294 [2001]; Paterson v Rodney, 285 AD2d 453 [2001]; Republic Natl. Bank of NY v Zito, 280 AD2d 657, 658 [2001]; Federal Home Loan Mtge. Corp. v Karastathis, 237 AD2d 558, 559 [1997]). Upon the requisite showing by the plaintiff, the burden shifts to the defendant who must allege facts, the existence of which demonstrates a meritorious defense sufficient to defeat the plaintiff's motion (see Fleet Mortg. Corp. v Rebich, 227 AD2d 518 [1996]).

In support of that branch of the motion for summary judgment in its favor against defendants Picarelli and Rappold, plaintiff offers, among other things, a copy of the pleadings, affidavits of service, an affirmation of regularity, a copy of the subject mortgage, underlying note and adjustable rate rider, a "PREPAYMENT PENALTY ADDENDUM," assignment, a "Truth in Lending Disclosure Statement" (TILD Statement), a "HUD-1A" settlement statement (settlement statement), a document entitled "ITEMIZATION OF AMOUNT FINANCED," a borrower's notice of the right to cancel, and an affidavit of Amber Haerst, a "litigation liason" of plaintiff. In her affidavit, Haerst indicates, among other things, that defendants Picarelli and Rappold were provided with applicable disclosures, and are in default in payment of the monthly installments due under the mortgage.

The complaint states a cause of action for foreclosure and plaintiff's submissions establish its prima facie entitlement to summary judgment as against defendants Picarelli and Rappold (see EMC Mortgage Corp. v Riverdale Associates, 291 AD2d 370 [2002], supra ; Republic Natl. Bank of NY v Zito, 280 AD2d 657, 658 [2001], supra ; see also IMC Mtge. Co. v Griggs, 289 AD2d 294 [2001], supra ; Paterson v Rodney, 285 AD2d 453 [2001], supra ). Thus, that branch of the motion by plaintiff to strike the fifth defense asserted by defendants Picarelli and Rappold based upon failure to state a cause of action is granted. The burden shifts to defendants Picarelli and Rappold to raise a triable issue of fact regarding their defenses (see Barcov Holding Corp. v Bexin Realty Corp., 16 AD3d 282 [2005]; EMC Mtge. Corp. v Riverdale Assoc., 291 AD2d 370 [2002], supra ; First Nationwide Bank, FSB v Goodman, 272 AD2d 433 [2000]).

To the extent defendants Picarelli and Rappold assert the lack of personal jurisdiction due to improper service, defendants Picarelli and Rappold failed to move to dismiss the complaint upon such ground within 60 days of service of a copy of their answer, and as a consequence, the affirmative defense is deemed waived (CPLR 3211[e]; DeSena v HIP Hosp., Inc., 258 AD2d 555 [1999]; Wade v Byung Yang Kim, 250 AD2d 323 [1998]; Fleet Bank, N.A. v Riese, 247 AD2d 276 [1998]). Furthermore, the affidavits of service presented by plaintiff dated February 8, 2008, constitute prima facie evidence of proper service upon defendants Picarelli and Rappold in accordance with CPLR 308(4) (see Skyline Agency, Inc. v Ambrose Coppotelli, Inc., [*3]117 AD2d 135, 139 [1986]; see also RPAPL 1303). That branch of the motion by plaintiff to strike the sixth affirmative defense asserted by defendants Picarelli and Rappold is granted.

With respect to the seventh and eighth affirmative defenses based upon the claim by defendants Picarelli and Rappold that any damages suffered by plaintiff are the proximate result of the actions of Countrywide, such claim does not constitute a defense to this mortgage foreclosure action. The concept of apportioning culpable conduct is one related to tort. Since the claims asserted by plaintiff in this case sound in breach of contract, as opposed to tortious conduct, an affirmative defense based on a notion of culpable conduct is unavailable herein (see CPLR 1401; Pilweski v Solymosy, 266 AD2d 83 [1999]; Nastro Contracting Inc. v Agusta, 217 AD2d 874 [1995]; Schmidt's Wholesale, Inc. v Miller & Lehman Const., Inc., 173 AD2d 1004 [1991]; Castleton Holding Corp. v Forde, 15 Misc 3d 1111[A] [2007]). That branch of the motion by plaintiff to dismiss the seventh and eighth affirmative defenses asserted by defendants Picarelli and Rappold is granted.

The ninth affirmative defense asserted by defendants Picarelli and Rappold is based upon failure to mitigate damages. Mitigation of damages is not an affirmative defense to an action to foreclose a mortgage. Any dispute as to the exact amount owed plaintiff pursuant to the mortgage and note, may be resolved after a reference pursuant to RPAPL 1321 (see Crest/Good Mfg. Co. v Baumann, 160 AD2d 831 [1990]). The existence of such dispute does not preclude the granting of summary judgment as to liability (see Layden v Boccio, 253 AD2d 540 [1998]). That branch of the motion by plaintiff to dismiss the ninth affirmative defense asserted by defendants Picarelli and Rappold is granted.

With respect to the remaining affirmative defenses, defendants Picarelli and Rappold claim that they sought to refinance a mortgage in the original principal amount of $390,000, plus interest, held by Wells Fargo, on their residential property, to obtain a loan with more favorable terms and cash to pay for home improvements. Defendant Rappold states she was solicited by an individual named Richard White, on behalf of an entity known as Nationwide Lending Group (Nationwide), who allegedly advised her that given the equity she and her mother had in the subject premises, they qualified for a mortgage in an approximate principal amount of $550,000.00 with a 1.5% annual rate of interest for the first three years, and then a "low" fixed-rate of interest thereafter. Mr. White allegedly also advised defendant Rappold that the refinancing would result in a monthly savings of $700.00, which defendants Picarelli and Rappold could use for home improvements. In reliance upon such representations, defendant Rappold asserts that she provided Mr. White with her income information, and executed tax and income record authorizations for use by Nationwide. She further asserts that her mother has not been employed for a period of years.

Defendant Rappold asserts that in April 2007, Mr. White advised her that Nationwide would be the lender for the proposed mortgage loan, the Wells Fargo mortgage would be satisfied out of the proceeds of the proposed loan, her income status would allow them to remain current with the new mortgage, and they then could qualify for future refinancing with even more favorable payment terms. Defendant Rappold also asserts that she inquired whether the new loan would include a [*4]"negative amortization" feature, but that Mr. White assured her it would not.

Defendant Rappold further asserts that Larry Burke, a colleague of Mr. White, scheduled a closing of the loan transaction at her and her mother's home, on April 12, 2007, at 10:00 P.M., insisting it was the only time available for such proceeding, and advising them it was "not necessary" for them to retain an attorney to represent them at the closing. Defendant Rappold states that at no time prior to the closing did she or her mother receive any documents or written information concerning the nature or status of the loan transaction, including any preliminary disclosures concerning the material terms of the loan. Defendant Rappold also states that they first learned at the closing that Countrywide was to be the mortgage lender. Defendant Rappold asserts that at the closing, she again inquired whether the new loan would include any "negative amortization" or "reverse amortization" feature, and that Mr. Burke responded "Absolutely not," and an unidentified representative from Countrywide, who also was in attendance, also confirmed that the loan did not involve such features. Mr. White purportedly informed defendant Rappold that she would receive an unspecified amount of cash from the transaction, but that it would not be until sometime "later," because the amount was "still being computed."

Defendants Picarelli and Rappold admittedly executed the loan documents while at the closing. Defendant Rappold asserts, however, following the closing, she realized that notwithstanding the representations made to her, prior to and at the closing, the mortgage loan included an adjustable rate of interest, including an initial interest rate of 8.375% per year, and a negative amortization feature. In addition, defendant Rappold asserts that unbeknownst to her, a yield spread premium, in the amount of $17,500.00 was paid out of the proceeds of the loan.

Defendants Picarelli and Rappold assert that Countrywide failed to disclose the information regarding the subject mortgage loan as required under the Federal Truth in Lending Act (15 USC § 1601 et seq.) (TILA), and the TILA implementing regulations, (found in Federal Reserve Board Regulation Z [Regulation Z], 12 CFR 226), and in particular, failed to provide them with preliminary disclosures regarding the variable rate feature, including negative amortization. They also assert that Countrywide, Nationwide, Burke and White engaged in fraudulent, unfair and deceptive consumer practices in relation to the refinancing, having made fraudulent misrepresentations to induce them to enter into the loan, in an effort to strip them of the equity in their home, including the misrepresentations that there was no negative amortization feature and that they would receive cash benefits from the refinancing. They also assert that the loan terms are so burdensome that they are cannot pay the loan, and are in arrears, thereby jeopardizing their title. They further assert that Nationwide is no longer in business and White and Burke have been indicted for mail and wire fraud, resulting from the operation of "Nationwide Lending Group," a fraudulent mortgage brokerage firm.

"The declared purpose of [the TILA] is to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit ..." (Beach v Ocwen Federal Bank, 523 US 410, 412 [1998] [quoting 15 USC § 1601(a)]). "In furtherance of this goal, TILA requires that creditors provide [*5]borrowers with clear and accurate disclosures of terms dealing with things like finance charges, annual percentage rates of interest, and the borrower's rights,' [Beach v Ocwen Federal Bank, 523 US at 412] as well as notice of the borrower's right of rescission [see 12 CFR 226.23[b][1]). Additionally, if a loan contains a variable rate, a borrower will be entitled to additional disclosures regarding the variable rate feature [see id. 226.19(b)])" (Fiorenza v Fremont Inv. & Loan, 2008 WL 2517139 at *3, 2008 US Dist LEXIS 47831 at *8 [SD NY June 20, 2008]).

"A creditor's failure to comply with these disclosure requirements may result in actual and statutory damages. 15 USC § 1640(a). Additionally, if a creditor fails to provide a consumer with material disclosures when the loan is secured by the consumer's principal dwelling,' the consumer has the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required ... whichever is later.' 15 USC § 1635(a). However, the extended rescission right is only available when a creditor fails to provide the disclosures required by 15 USC § 1635(a) and 12 CFR 226.23(a)(3) n 48. see e.g. Fiorenza v Fremont Inv. & Loan, 08 Civ 858, 2008 WL 2517139 at *3, 2008 US Dist LEXIS 47831 at *12 (SD NY June 20, 2008) ( Only the failure to provide those disclosures required by section 1635 and set forth in footnote 48 will result in an extension of the rescission period'); Mayfield v Gen. Elec. Capital Corp., 97 Civ. 2786, 1999 WL 182586 at *7 (SD NY Mar. 31, 1999) ( [O]nly failure to provide material disclosures' or failure to disclose a right to rescind, give rise to a right to rescind.')" (Ngwa v Castle Point Mortg., Inc., 2008 WL 3891263 at *7-8, 2008 US Dist LEXIS 63552 at *25-26). The rescission rights are equally enforceable against the original creditor and against the assignee (15 USCA 1641[c]; Stone v Mehlberg, 728 F Supp 1351, 1348 [WD Mich 1990]).

To the extent defendants Picarelli and Rappold assert they were not given preliminary disclosures, "[the] TILA's mandatory disclosures must be made prior to consummation' of the transaction, which is defined as the time that a consumer becomes contractually obligated on a credit transaction' (12 CFR 226.17[b], 226.2[a][13])" (Ngwa v Castle Point Mortg., Inc., 2008 WL 3891263 at *8, 2008 US Dist LEXIS 63552 at *28-29, supra ). In this instance, defendants Picarelli and Rappold became contractually obligated on April 12, 2007, when the loan documents were executed (see mortgage and note). Thus, to the extent defendants Picarelli and Rappold assert an affirmative defense based upon failure to provide the preliminary disclosures, the defense lacks merit.

However, to the extent defendants Picarelli and Rappold claim a representative of plaintiff's assignor misrepresented that the mortgage loan did not have a negative amortization feature, and the TILD statement did not fully disclose those items required pursuant to section 1638(a)(4) of the TILA (see generally Ralston v Mortgage Investors Group, Inc., 2009 WL 688858, 2009 US Dist LEXIS 24288 [ND Cal March 16, 2009]; Amparan v Plaza Home Mortg., Inc., 2008 WL 5245497 [ND Cal Dec. 17, 2008]; Plascencia v Lending 1st Mortgage ("Plascencia I"), 2008 WL 1902698, at *4-6, 2008 US Dist LEXIS 87300, [ND Cal April 28, 2008]; Pham v T.J. Fin., Inc., 2008 WL 3485589, at *2, 2008 US Dist LEXIS 72150 [CD Cal Aug. 11, 2008]), they have raised triable issues of fact in connection with their affirmative defenses based upon fraud in the inducement, violation [*6]of the disclosure requirements of section 1638(a)(4) of the TILA (see First Trust Natl. Assn. v Chiang, 242 AD2d 599 [1997]; April M's Enterprises, Inc. v Scott, 178 AD2d 572 [1991]) and violation of section 349 of the General Business Law (see e.g. Popular Financial Services, LLC v Williams, 50 AD3d 660 [2008]; Delta Funding Corp. v Murdaugh, 6 AD3d 571 [2004]). That branch of the motion to dismiss the first and second affirmative defenses is granted only to the extent of striking so much of the first and second affirmative defenses as are based upon the claim that defendants Picarelli and Rappold were not given preliminary disclosures in violation of the TILA. Thus, summary judgment with respect to defendants Picarelli and Rappold is not warranted (see First Trust Natl. Assn. v Chiang, 242 AD2d 599 [1997], supra ). That branch of the motion by plaintiff for summary judgment against defendants Picarelli and Rappold is denied.

That branch of the motion which seeks leave to appoint a referee is denied at this juncture.

Dated: April 14, 2009J.S.C.