Harris v Thompson

ateral Estoppel[*1] Harris v Thompson 2009 NY Slip Op 51919(U) [24 Misc 3d 1248(A)] Decided on September 10, 2009 Supreme Court, Queens County Sampson, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 September 10, 2009
Supreme Court, Queens County

Mary Harris

against

Sylvia Thompson, et al.



296152008

Frederick D.R. Sampson, J.

Plaintiff alleges that she is a disabled senior citizen who is the true owner in fee simple of the premises known as 119-26 177th Place, Jamaica, New York, having continuously resided there since 1970 when she purchased the property with her late first husband. She claims to have lost record title to, and equity in, the property by virtue of a fraudulent scheme perpetrated by defendants Sylvia Thompson, Sylvia Banks, Jason Leslie and Robin Gray. Plaintiff Harris claims that during a period in 2005, when she was experiencing financial difficulties, defendant Banks, a mortgage broker, contacted her, after learning through Harris's daughter that Harris desired to refinance her mortgages.

Plaintiff Harris claims that defendant Banks told her that her credit was insufficient to obtain a good interest rate in her own name, but a third party with good credit was willing to help her, and would cosign the mortgage loan. Defendant Banks allegedly represented that Harris would pay the mortgage for one year, during which time Harris could improve her credit score, and then remove the cosigner's name from the mortgage. Plaintiff Harris alleges that defendant Banks took steps to gain her trust, with the objective of inducing her to "refinance" her mortgages. Plaintiff also claims she grew to view defendant Banks as a friend who wanted to help her, and, therefore, she went to Banks's office, believing Banks's representation that she needed to sign documents to effectuate a refinancing of her mortgage loans. Plaintiff Harris alleges that at that time, she may have unwittingly executed a contract of sale, selling the subject property to defendant Leslie. [*2]

Plaintiff Harris claims that she thereafter attended a closing, which she believed was a refinancing transaction, where she unwittingly executed a deed conveying title to the subject property to defendant Leslie. Defendant Leslie encumbered the subject property by obtaining two mortgage loans in the principal amounts of $252,800.00 and $47,250.00 dated October 31, 2005, from Ohio Savings Bank (OSB), the assignor of defendant AmTrust. Plaintiff Harris allegedly did not intend to transfer ownership of her property, and after signing all the documents at the closing, first learned from defendant Banks, that Leslie's name "would be added" to the deed, and "would be removed from the mortgage documents and [the] deed once [her] credit improved." Plaintiff Harris alleges that she was not provided with a copy of any of the documents she signed, and, thus, was unaware defendant Leslie had received title in fee simple to the property and her name had been removed from the deed into Leslie.

At the closing, plaintiff Harris was allegedly introduced to defendant Gray, a lawyer who was listed on the closing documents as the attorney purportedly representing Harris in connection with the transaction. Defendant Gray allegedly instructed Harris to sign a document denominated "LETTER OF UNDERSTANDING AND AGREEMENT BETWEEN MARY COLE HARRIS AND JASON LESLIE" (Letter Agreement) which, among other things, required that plaintiff Harris deposit a sum of money equal to "12 months of mortgage payments for the sole purpose of having the mortgage paid on the [subject] property...." Plaintiff Harris alleges that defendant Gray represented that the Letter Agreement would protect Harris's interests.[FN1] Plaintiff Harris alleges she signed the Letter Agreement, because the Letter Agreement recited that she was the "current owner," and appeared to promise that defendant Leslie would have no access rights to the property, and would transfer "full ownership to [her] at any time within 12 months when SHE [was] able to refinance." Plaintiff Harris claims she received two checks totaling approximately $78,000.00, which she endorsed over defendant Banks to cover 12 months of mortgage payments, and an additional $5,000.00, which Harris used for home improvements. Plaintiff Harris alleges that although she knew defendant Leslie would receive some money, she was unaware defendant Banks received approximately $52,000.00 as a result of the transaction.

Plaintiff Harris alleges that following the closing, she continued to function as the property's owner, paying debts to improve her credit score, and in March 2006 signed more documents at the behest of defendant Banks, believing the papers would serve to transfer full ownership of the property back to her. Plaintiff Harris claims that notwithstanding defendants Banks's and Leslie's promises that Leslie would reconvey his title once she (Harris) was "able to refinance," she learned in November 2006 that defendant Leslie had conveyed title to the premises by deed dated October 30, 2006 to defendant Thompson, the aunt of defendant Banks. Plaintiff Harris additionally discovered that defendant Thompson had financed the acquisition of the property by a loan from OSB, in the principal amount of $375,000.00, secured by a mortgage [*3]dated October 30, 2006 and recorded on December 18, 2006. Plaintiff Harris allegedly expressed her concerns to defendant Banks, who assured her that the mortgage would be "paid off for another year" and that she had no reason to worry. Plaintiff Harris allegedly continued to rely upon such assurances until she received a letter addressed to her deceased first husband stating that a judgment of foreclosure and sale had been obtained against the property. At that juncture, plaintiff Harris sought legal assistance.

On the morning of the scheduled foreclosure sale, Harris moved, by order to show cause, for, among other things, leave to intervene in a foreclosure action entitled AmTrust Bank v Thompson (Sup Ct, Queens County, Index No. 21253/2007) and serve an answer with counterclaims and cross claims, claiming that she resided in the property and was its true owner.[FN2] By order dated October 16, 2008, the court denied the motion, without prejudice to any claim Harris might seek to pursue by means of a separate action as against Thompson, Banks, Leslie or Gray. The AmTrust court noted that because Harris was not a named defendant in the foreclosure action, her interest as an alleged occupant of the premises remained unaffected by the judgment of foreclosure and sale.

Plaintiff Harris commenced this action by filing a copy of the summons and complaint on December 11, 2008, seeking a judgment declaring she is the sole owner in fee simple of the premises, and the Leslie and Thompson deeds and the OSB mortgages are null, void and unenforceable, and awarding damages. In essence, she claims that defendants Banks, Leslie, Gray and Thompson acted to fraudulently procure the deed to the property by misrepresenting she was refinancing her mortgages with respect to the property when, in fact, she was unknowingly transferring the entire property to defendant Leslie. Plaintiff Harris asserts causes of action against defendant AmTrust based upon negligence, fraud and pursuant to RPAPL article 15.

Plaintiff Harris obtained the instant order to show cause seeking a preliminary injunction to prevent the property from being sold at foreclosure (or otherwise), and her eviction from the premises. The order to show cause included a stay of the foreclosure sale of the property.

Defendant Thompson, an 84-year-old Brooklyn resident, appears in support of plaintiff Harris's motion, asserting that she (Thompson) was fraudulently induced by defendants Banks and Grays to sign documents effectuating the mortgage loan to her from OSB. According to defendant Thompson, defendant Banks approached her and asked Thompson to "help" an elderly woman, who was about to lose her home to foreclosure. Defendant Thompson states defendant Banks misrepresented that Thompson's name would be added "temporarily" to the deed for the [*4]property, and that moneys would be held to pay a mortgage thereon for one year, thus protecting against any default during the period Thompson's name was on the deed. Defendant Banks allegedly also misrepresented that at the end of one year, all documents signed by Thompson would be cancelled. Defendant Thompson also states that because she trusted her niece and desired to help a senior citizen in financial trouble, she agreed to sign the mortgage documents, notwithstanding she has never met the "elderly lady." Defendant Thompson also states that she does not believe she received any proceeds from the transaction, or recall endorsing any checks in connection with it.

Defendant AmTrust opposes the motion of plaintiff Harris, and in lieu of serving an answer, cross-moves to dismiss the complaint pursuant to CPLR 3211(a)(5) and (7), asserting that plaintiff is barred by the doctrines of res judicata and collateral estoppel from pursuing this action, and that the claims asserted against it fail to state a cause of action.

With respect to the cross motion to dismiss the complaint based upon the doctrines of res judicata and collateral estoppel, defendant AmTrust asserts that Harris made the same allegations, regarding the fraudulent scheme to deprive her of her ownership interest in the property, in the AmTrust action when she sought to intervene therein and serve a proposed answer with counterclaims against it. Defendant AmTrust argues that the court in the AmTrust action determined Harris' proposed counterclaims against it were devoid of merit, and because Harris failed to appeal timely the order dated October 16, 2008, denying her motion for leave to intervene, she is bound by such determination.

Plaintiff Harris counters that because her motion for leave to intervene in the AmTrust action was denied, she was neither a party to, nor in privity with any party to the Amtrust action, and cannot be bound by the doctrines of res judicata and collateral estoppel with respect to the determination of issues therein, citing Pouncy v Dudley (27 AD3d 633 [2006]).

In Pouncy, the plaintiff sued for a judgment pursuant to RPAPL article 15, declaring a deed to certain real property was void and that he was the owner in fee simple of the property. The defendant cross-moved pursuant to CPLR 3211(a)(5) and (7) to dismiss the complaint asserted against it arguing the plaintiff was collaterally estopped from pursuing the quiet title action based upon the foreclosure judgment obtained in another action. By order of the Supreme Court, the cross motion was denied, and the Appellate Division, Second Department, affirmed the order, with costs (27 AD3d 633 [2006]). The Appellate Division held that since the plaintiff had not been a party to, or in privity with a party in the prior foreclosure case, he could not be bound by the doctrine of collateral estoppel with respect to the issues in the quiet title action. The Appellate Division noted that although the plaintiff had moved for leave to intervene in the foreclosure action,[FN3] the defendant had opposed the motion on the ground, among others, [*5]that the plaintiff's remedy was not intervention in the foreclosure action, but rather was to bring an action to quiet title. The Appellate Division also noted that the order denying the motion for leave to intervene had been affirmed (see Bankers Trust Co. of Cal., N.A. v Dudley, 13 AD3d 567 [2004]) on the ground the motion for leave to intervene had been made too late in the litigation. The Appellate Division further noted that had the defendant expected to impose preclusion consequences on the plaintiff, it should have consented to, or at least refrained from, opposing the application for intervention.

The facts and circumstances presented herein fit squarely within the holding in Pouncy. In AmTrust, Amtrust opposed Harris' motion for leave to intervene and the court denied the motion on the ground that Harris failed to make a sufficient showing of a real and substantial interest in the outcome of the foreclosure action. Thus, the branch of the cross motion by defendant AmTrust pursuant to CPLR 3211(a)(5) to dismiss the complaint asserted against it based upon the doctrines of collateral estoppel and res judicata is denied.

With respect to that branch of the cross motion by defendant AmTrust pursuant to CPLR 3211(a)(7) to dismiss the complaint asserted against it based upon failure to state a cause of action, on a CPLR 3211 motion to dismiss, the court will accept the facts as alleged in the complaint as true, accord the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory (see Leon v Martinez, 84 NY2d 83, 87-88 [1994]).

Plaintiff Harris alleges in her complaint that defendant AmTrust's assignor negligently originated loans to defendant Leslie and Thompson in an amount "equal to or exceeding the estimated value of the subject property securing the underlying loans." Assuming such allegation can be read to constitute an allegation that OSB negligently made the mortgage loans without regard to the fair market or appraised value of the property, such allegation fails to support a cause of action against defendant AmTrust. Although a prudent lender normally investigates, prior to the origination of a mortgage loan, whether the fair market value of a property is sufficient to protect its interest in the event of foreclosure and avoid a deficiency, it owes no duty to do so to the prospective borrower or a third party in the absence a contractual duty requiring such investigation or a fiduciary relationship with the borrower or third party. Plaintiff Harris has failed to allege any contractual or fiduciary relationship between her and OSB. The complaint, therefore, fails to state a claim against defendant AmTrust based upon OSB's negligence in underwriting the mortgage loans in amounts greater than or equal to the fair market value of the property.

Defendant AmTrust argues that plaintiff Harris also has failed to state a cause of action against it based upon fraud, because Harris fails to allege that OSB engaged in any fraudulent conduct or made any fraudulent misrepresentations to her, and because plaintiff Harris was obligated to read the various documents, including the contract of sale and the deed into Leslie, before signing them. [*6]

Plaintiff Harris makes no claim that OSB, defendant AmTrust's assignor, itself made any fraudulent misrepresentations to induce her to sign the Leslie deed or was itself involved in any trickery or deception to cause her to sign it, or made any fraudulent misrepresentations to cause her to refrain from acting to set aside any transfer of her interest in the property to Leslie. Under such circumstances, plaintiff Harris has failed to state a cause of action against defendant AmTrust based upon fraud.

With respect to the claim pursuant to RPAPL article 15, defendant AmTrust claims that its assignor was a bona fide encumbrancer, and, thus, it is protected in its interest as holder of the Thompson mortgage. Plaintiff Harris argues that OSB was not a bona fide encumbrancer, insofar as she was in open and continuous possession and occupancy of the subject premises, and OSB made the mortgage loans to Leslie and Thompson without inquiring as to Harris' presence there. Plaintiff Harris alleges that an inquiry as to her status at the time of the making of the mortgage loans to defendants Leslie and Thompson, would have alerted OSB as to the alleged fraud being perpetrated upon her by defendants Banks, Leslie, Gray and Thompson.

" A bona fide purchaser or encumbrancer for value is protected in its title unless it had previous notice of the fraudulent intent of its immediate grantor' (Fleming-Jackson v Fleming, 41 AD3d 175, 176 [2007]; see Real Property Law § 266; Fischer v Sadov Realty Corp., 34 AD3d 630, 631 [2006]; Karan v Hoskins, 22 AD3d 638, 638 [2005])" (Mathurin v Lost & Found Recovery, LLC, ___ AD3d ___, 2009 WL 2516872, 2009 NY App Div LEXIS 6077). "Actual possession of real estate is sufficient notice to a person proposing to take a mortgage on the property, and to all the world, of the existence of any right which the person in possession is able to establish" (Phelan v Brady, 119 NY 587, 591-592 [1890]; see Leeds v State of New York, 20 NY2d 701, 703 [1967]; see also Greenpoint Sav. Bank v McMann Enterprises, Inc., 214 AD2d 647 [1995]). Under such circumstance, the purchaser or encumbrancer is presumed either to have made the inquiry, and ascertained the extent of such prior right, or to have been guilty of a degree of negligence equally fatal to its claim to be considered as a bona fide purchaser or encumbrancer (see Phelan v Brady, 119 NY 587, 591-592 [1890], supra; Vitale v Pinto, 118 AD2d 774 [1986]).

When taken together, the allegations of plaintiff Harris in her complaint and in her affidavit are sufficient to state a cause of action against defendant AmTrust pursuant to RPAPL article 15 (see Mathurin v Lost & Found Recovery, LLC, ___ AD3d ___, 2009 WL 2516872, 2009 NY App Div LEXIS 6077, supra; LaSalle Bank Natl. Assn. v Ally, 39 AD3d 597, 599-600 [2007]; see also Fischer v Sadov Realty Corp., 34 AD3d 630, 631 [2006], supra; cf. Merritt v Merritt, 47 AD3d 689, 689 [2008]; Fleming-Jackson v Fleming, 41 AD3d 175, 176 [2007], supra; Deutsche Bank Nat. Trust Co. v Fitzworme, 22 Misc 3d 1134[A]).

That branch of the cross motion by defendant AmTrust pursuant to CPLR 3211(a)(7) to dismiss the complaint asserted against it is granted only to the extent of dismissing those portions of the complaint based upon OSB's negligence in underwriting the mortgage loans in amounts [*7]greater than or equal to the fair market value of the property and fraud.

With respect to the motion by plaintiff Harris, the court may grant a preliminary injunction in its discretion where the plaintiff shows: (1) probability of success on the merits; (2) danger of irreparable injury in the absence of an injunction; and (3) balance of the equities in its favor (see CPLR 6301; W.T. Grant Co. v Srogi, 52 NY2d 496, 517 [1981]; Ying Fung Moy v Hohi Umeki, 10 AD3d 604 [2004]; Hightower v Reid, 5 AD3d 440 [2004]). In the absence of injunctive relief prohibiting defendant AmTrust from taking any steps to continue to prosecute the AmTrust action, encumber, rent, sell or transfer any interest in the property, or evict Harris, a later judgment herein, in Harris' favor, may be rendered ineffectual (see Hightower v Reid, 5 AD3d 440 [2004], supra). The equities lie in favor of preserving the status quo (see Ying Fung Moy v Hohi Umeki, 10 AD3d 604 [2004], supra).

Accordingly, a preliminary injunction is granted to the extent that defendant AmTrust is enjoined from taking any steps to prosecute the AmTrust action, including scheduling a foreclosure sale, selling, transferring, conveying or encumbering title or seeking the eviction or removal of plaintiff Harris from the subject premises. The foregoing is conditioned upon plaintiff Harris paying the continued carrying charges, including hazard insurance premiums, and filing an undertaking in accordance with CPLR 6312. The parties are directed to appear before this court in Part 31, on September 24, 2009 at 10:00 A.M. for a hearing to determine the undertaking at 25-10 Court Square, Long Island City, NY.

Dated: September 10, 2009

J.S.C. Footnotes

Footnote 1: The submissions do not indicate whether the Letter Agreement was ever submitted for recording against the property by defendant Gray.

Footnote 2:Defendant AmTrust had commenced the AmTrust action, seeking to foreclose the mortgage given by Thompson on the subject property, due to Thompson's default in payment thereunder. In that action, AmTrust obtained a judgment of foreclosure and sale dated January 7, 2008.

Footnote 3:The proposed intervenor in the foreclosure action had sought to interpose an answer with counterclaims including claims pursuant to RPAPL article 15 and negligence.