HSBC Bank USA v Holohan

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HSBC Bank USA v Holohan 2012 NY Slip Op 32553(U) October 3, 2012 Sup Ct, Suffolk County Docket Number: 09-24445 Judge: Joseph Farneti Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication. [* 1] INDEX No. "11(lk"l" FORM Ok[)[k 09-24445 SUPREME COURT - STATE OF NEW YORK IAS. PART 37 - SUFFOLK COUNTY cori PRESENT: lion. MOTION DATE 8-18-11 (#002) MOTTON DATE 9-8-11 (#003) ADJ. DATE 3-29-12 Mot. Seq. # 002 - MD # 003 - J(MG JOSEPH FARNETI Acting Justice Supreme Court ---------------------------------------------------------------X HS8C BANK USA, N.A. F/KI A HSBC BANK USA, Plaintiff, STEVEN J. BAUM, P.c. Attorney for Plaintiff 220 Northpointe Parkway, Suite G Amherst, New York 14228 PHILLIPS LYTLE LLP Attorney for Plaintiff 437 Madison Avenue, 34!h Street New York, New York ID022 - against - RA ¥MOND HOLOHAN, JR. AlKlA RAYMOND T. HOLOHAN, JR., CAROL HOLOHAN, BOARD OF DIRECTORS OF THE HAMLET AT WIND WATCH SECTION I, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. AS NOMINEE FOR FREMONT INVESTMENT & LOAN, PEOPLE OF THE STATE OF NEW YORK, JOHN DOE (Said name being fictitious, it being the intention of Plaintiff to deslgnate any and all occupants of premises being foreclosed herein, and any parties, corporations or entities, i [any, having or claiming an interest or lien upon the mortgage premises.), Defendant. ZINKER & HERZBERG, LLP Attorney for Defendants Holohan 278 East Main Suite, Suite C Smithtown, New York 11787 SCHNEIDER MITOLA LLP Attorney for Defendant Board of Directors of the Hamlet 666 Old Country Road, Suite 412 Garden City, New York 11530 SALAMON, GRUBER, BLA YMORE & STRENGER, P.c. Attorney for Defendant Mortgage Electronic System 97 Powerhouse Road, Suite 102 Roslyn Hcights, New York 11577 ---------------------------------------------------------------J( Upon the following papers numbered 1 to...12.- read on this motion and cross-motion for summary judgment; Notice of Motion! Ordcr to Show Causc and supporting papers-l..:..1...; Notice of cross-motion and supporting papers 8 - 14 ; Answering Affidnvits und Supp0l1ing papers 15 - 18 ; Rcplying Affidavits and supporting papers 19 - 29 ; Other _; it is, ORDERED that this motion for summary judgment by defendant Mortgage Electronic Registration Systems, Inc., as nomince for Fremont Investment & Loan: (i) to dismiss the plaintiffs complaint; (ii) on J<AK, [* 2] IlSBC Bank v Holohan !ndex No. 09-2444S P:lgC NO.2 its first counterclaml for a declaratory judgment declaring that its mortgage ISsuperior 10 pla1l1tdTs mortgage; (iii) on ItSsecond counterc]al111for a declaratory Judgment declanng that the plaintiffs mortgage is discharged, and (iv) on its eleventh affirmatlve defense that there is no money owed on the plal11tllTs l1lot"tgage,is denied In its entirety; and it is further ORD/:;,'R ED that thIs cross-motion for summary judgment by plainti If for a declaratory judgment, pursuant to Al1icle 15 of the Real Property Actions and Proceedings Law, cancelling and expungmg the mortgage satisfaction recorded in error, and declaring that its mortgage is superior to the Fremont Investment & Loan mortgage is granted; and it is further ORDERED AND ADJUDGED, that the satisfaction of mortgage recorded 111 the Suffolk County Clerk's Office on October 5, 2010, and the correction thereto recorded on December 7, 2010, arc cancelled from the record; and it is further ORDERED AND ADJUDGED, that the plaintiffs home equity mortgage lien on the premises described in the complaint and as hereafter described, recorded in the Suffolk County Clerk's Office on Junc 18, 2001, and the correction thereto recorded on January 9, 2002, has priority over and is senior to the defendant's, Mortgagc Electronic Registration Systems, Inc. as nominee for the Frcmont Investment & Loan, mortgage lien on the premises described in the complaint and as hereafter described, recorded in the Suffolk County Clerk's Office on February 28,2005, against the defendants Raymond Holohan, Jr. alkla Raymond T. Holohan, Jr. and Carol Holohan. Plaintiff HSBC Bank USA, N.A., [Ikla HSBC Bank USA ("HSBC") commenced this action to foreclose on a mortgage securing a home equity line of credit ("HELOC"). HSBC clmms to have a first lien position on the prenuses owned by the defendants Carol and Raymond Holohan (the "Holohans") by virtue of a home equity line mortgage securing the .HELOC (the "HSBC HELOC Mortgage"). Defendant Mortgage Electronic Registration Systems, Inc. ("MERS"), as nommee for Fremont Investment & Loan ("Fremont") counterclaimed for, inter alia, a judgment declaring that Fremont's subsequent mortgage has priority as the HELOC was paid off and a satisfaction recorded discharging the HSBC HELOC Mortgage. [n June 2001, plaintiffHSBC provided the BELOC to the Holohans for advances to a maxImum amount of$1 00,000 secured by the HSBC HELOC Mortgage on the premises known as 26 Hamlet Drive in Hauppauge, New York (the "Premises"). On June 18,2001, the HSBC HELOC Mortgage was recorded wlth the Suffolk County Clerk's office, and on January 9, ZOOZ, a correction was recorded. in January ZOOS, Fremont loaned the Holohans $600,000 lJ1connection "'·,litha refinance, whIch was secured by a mortgage on the Premises and recorded with the Suffolk County Clerk's Office on February 28,2005 (the "Fremont Mortgage''). Accordmg to the HUD-I Settlement Statement dated January 6,2005, a portlon of the refinance proceeds was used to pay off the HELOC balance, which at the time of the closing was $96,092.58. However, the HELOC was not closed by HSBC; mstead the outstanding balance was reduced to zero and the line of credit left open and available for future advances. On February 24,2005, with111a few weeks of closing title to the Premlses, and four days before the Fremont Mortgage \vas recorded, the Holohans obtained an advance from the HELOC in the amount of [* 3] I ISBC Bank v Holohan Index No. ()l)-2444B Page No. J AdditIOnal advances were obtained by the Holohans in March and Apnl lOOS for $1,000 and $]9,000, respectively, bnnging the HELOe balance to the $100,000 maximum availablc. Thereafter, the Holohans made payments on the HELOC account from June 21,2005 to September 15,2008, obtaining additional advances of$7J)00 in November 2006 and $4,500 in August 2007. $(jO,ooo. On October 24, 2008, the Holohans defaulted on payments under the HELOC. in June 2009, plainti ff commenced the instant foreclosure action seeking to recover the sums due and owmg under the HELOC in the principal amount 01'$93,047.94. In its answer, as amended, MERS asserls several al"lirll1atiyc defenses and counterclaims. As is pertinent here, MERS alleges in its eleventh affirmative defense, that there IS no money owed under the HSBC HELOC Mortgage, and In its first counterclaIm seeks a declaratory judgment declaring that the HSBC HELOC Mortgage has been paid in full, and that the Fremont Mortgage is a first lien on the Premises. In its second counterclaim MERS seeks a declaratory judgment dcclanng that the HSBC HELOC Mortgage is discharged as of record. The Holohans have interposed an answer denying every allegation in the complaint, includmg that on June 7, 2001 they executed and delivered a note promising to pay the sum of$100,000, and that the note "vas secured by a mortgage on the Premises. The Ho1ohans also assert several affirmative defenses, includmg, IIlter alia, that they were not properly served, challenging HSBC's standing and disputing the amount due and owmg. MERS now moves for summmy judgment on its eleventh affimlative defense, and on its first and second counterclaims. HSBC opposes the motion and cross-moves for summary Judgment declanng cancelled and expunged the satisfaction of mortgage discharging the HSBC HELOC M0l1gage, and declaring that the HSBC Mortgage is superior to the Fremont Mortgage. In opposition, the Holohans also maintain that no money is due under the HELOC, but also argue that HSBC merely possesses an unsecured claim aga111stthe Ho10hans as it lost all nghts In the HSBC HELOC Mortgage upon recording the satisf1ctlon. The Holohans also argue that MERS lacks the capacity to prosecute any defense to the instant foreclosure action because it was never the owner and holder of the Fremont Mortgage and thus not the real party m interest. First, the Holohans' argument, which is in essence, that MERS does not have the capacity to offer a defense In which it IS a named defendant IS specious. Moreover, unavailing is the Holohans' argument that I"vlERS, as nominee, and thus not the real party in interest, does not have the capacity to defend Fremont. The language of the recorded Fremont Mortgage, which fOnTISan agency relationship between MERS and Fremont authonzes MERS to take any action reqUlred of Fremont (see Deutsche Balik Natl. Trust Co. v Pietranico, 33 Misc 3d 528, 928 NYS2d 818 [Sup Ct Suffolk County 2011J). The case relied upon by the Ho1ohans in support of theIr argument that MERS lacks standing, Balik of New York v Silverberg (86 AD3d 274, 926 NYS2d 532 [2d Dept 2011]), is not dispositive as the instant action was not commenced by MERS to foreclose on the Fremont Mortgage (see Shut Fong Loo v HSBC J1org. Corp. (USA), 36 Mise 3d ]223[AJ, 20]2 WL 3139879, 20]2 NY Slip 01' 5]455[U] [Sup Ct Suffolk County]). Therefore, these arguments are lllsufficicnt to raise an issue of fact as to the motion by MERS. Turning to the motion, in support thereoC MERS has provided the payofflcttcr from f-ISBC to the Holohans dated January 10, 2005 (the "Payoff Letter"). The Payoff Letter mdicaies that the amount due [* 4] ISB(' Bank v Holohan Index No. 09-24448 ['age No.4 J and owing was $95,881.44, which by the time of closing, had increased to $96,092.58. Additionally MERS has provided the HUD-l Settlement Statement from the Fremont refinance which indicates that $96,09258 had been paid 10 HSBC, and a certified copy of the corresponding cancelled check Indicating that HSBC deposited the check MERS has also provided cCliified copies of the satisfaction of mortgage and the correction, as executed by HSBC and recorded with the Suffolk County Clerk's Office. MERS argues this evidence demonstrates that the HELOC was paid in full and the HSBC HELOC Mortgage satisfied and discharged as of record. Thus, MERS' continues, the ullderlymg debt no longer exists, the HSBC HELOC Mortgage is a nullity and cannot be a first lien against the Premises with priority over the Fremont Mortgage. Therefore, MERS mamtains, its motion for summa\)' judgment should be granted in its entirety. HSBC argues that the motion should be denied as the 2005 tender of the payoff balance then owed on the HELOC (the "'2005 Payment") was not m satisfaction of the HSBC HELOC Mortgage as there was no request to close the HELOC or discharge the HSBC HELOC Mortgage. Additionally, HSBC argues that its cross-lllotion should be granted as the Holohans continued to take advances from the HELOC and defaulted in making payments. HSBC maintains that the satisfaction of mortgage discharging the HSBC HELOC Mortgage was filed in error, as there was and is still an outstanding balancing due and owing. 11is also argued that the HSBC HELOC Mortgage holds a first priority lien position as it was recorded In 2001, before the Fremont Mortgage recorded in 2005. HSBC further argues that it IS uncontroverted that the 2005 Fremont MOligage was not made in reliance on the HELOC being closed, and not in reliance of the erroneous fihngs of the mortgage satisfaction in 2010. ESBC also asserts that the branch oftlle motion by MERS for the discharge of the HSBC HELOC Mortgage should be denied as it 1S procedurally improper and must be brought 111 proceeding under section 1921 of the Real Property and Proceedings Law a (""RPAPL"). RPAPL 1921, with respect to a credit line mortgage, provides that "[a]fter payment of authorized principal, interest and any other amounts due thereunder or otherwise owed by law has actually been made, and ... on written request, a mortgagee of real property situate in this state ... must execute ... a satisfaction of mortgage" (RPAPL 1921 [1]). However, it has been held that" 'the mere reduction to zero of the outstanding balance of a credit line mortgage during the term of the mortgage does not constitute payment of the 11101igage the Plllvoses of deteffilining whether the mortgagee must execute a satisfaction upon for request' Matter oj"Reitman v Wachovia Natl. Bank, N.A., 49 AD3d 759, 760, 854 NYS2d 179" (HSBC Baak, USA v PlIgkhem, 88 AD3d 649, 650, 931 NYS2d 635 [2d Dept 2011 J; Barelay's Bank oj N. Y. v Market St. Mtge. Corp., 187 AD2d 141, 144,592 NYS2d 874 [3d Dept 1993]). Moreover, the mere transmission of a check paying off the entire outstanding balance of a line of credit, "does not require the mortgagee to close the line of credit or issue a satisfaction of mortgage pursuant to RPAPL 1921 (1)" (IlSBC Bank, USA lJ Pugkhem, supra at 651; see Matter of Reitman v WacllOvia Natl Bank, Nil.. supra). Rather, wntten notice is required (see Matter of Reitman, supra). However, under the common law, a mortgagee may also become obligated to prov](le a satisfaction of mortgage where a mortgagor or party tendenng the balance owed on a credit line mortgage, makes lt clear that a satisfaction is a condition of accepting the payoff balance (see Merrill Lynch Equity Mgmt., Inc. l' Kleinman, 246 ADZe! 884, 668 NYS2d 726 [3d Dept 1998]). The Payoff Letter, in addItion to setting forth the amount due, the per diem rate, and where to make or mail the payment, provides, in pertinent pati as f'ol1ows: [* 5] IISHe Bank v Holohan InJL'x No. 09-24448 Pagt: No.5 This payoff amount could change if any recent charges or payments have not yet been applied to tillS account. Therefore, we request that you contact our Customer Service Department to verify the original c1oseoul balance on the date of the payoff. * * * 1'0close your account and obtam a satisfaction of mortgage, please include with your payoff check a \ctter requesting this be closed. This must be signed by all parties who cstablished thiS account. In order to release the property mortgage, a dischargc of mortgage must be t~led with the County Clerk where your property IS located. To cnsure proper handling of the discharge, you must inform us whether or not you would like HSBC to record the discharge. Please complete the tear-off portion of this lettcr and return it with your payoff to the address mentioned above. lfwe do not hear from you within ten days from the date of this letter, it is your responsibility to record the discharge which we will send to your mailing address. Based upon the plain language of the Payoff Letter, it is apparent that the intent thereof is to infonn the customer that the account will not be closed and the mortgage will not be discharged once the payoff is received, but that the customer has the right to close the account once HSBC receives a letter signed by the customer instructing it to do so. The facts show that there was no compliance with the Payoff Letter, since the Holohans, after its receipt, continued to obtain funds from the HELOC until August 24, 2007, and made payments thereon, albeit sporadically and late, until September 15, 2008. Significantly, MERS has not submitted any documentation to establish that Fremont instructed HSBC to close the account and execute a satisfaction discharging the lD0l1gage (see Matter of Reitman v Wachoiva Nat. Bank, N.A., supra; ef Merrill Lynch Equity Mgt. v Kleinman, supra [check sent to payoff line of credit balance accompanied by cover letter requesting mortgagee send mortgage satisfaction, and the next day a second request sent to 1ll0I1gagec to forward a discharge of mortgage]; Barclay's Bank of N. Y. v Market St. Mtge Corp., supra (enclosed with check tendered to payoff line of credit was a satisfaction of mortgage requesting mortgagee cxecute and return to the title company for recording); E*Trtlde Bank v Perez, 22 Misc 3d 1127[A], 2009 WL 50081,2009 NY Slip Op. 50314[U] [Sup Ct Queens County] [check for balance of line of creditsent with a cover letter indicating funds were to payoff the mortgage and requesting mortgagee to close account and forward mortgage satisfaction]). MERS consequently has failed to set forth a meritorious defense to the foreclosure action, or to establish entitlement to its motion for summary judgment. In support orits cross~motion, HSBC has demonstrated that it did not receive a request to close the line of credit or send a mortgage satisfaction discharging the HSBC HELOC Mortgage. HSBC has also established that the satisfactions dischargmg the HSBC HELOC Mortgage were recorded in error. "A mortgagee may have an erroneous discharge of mortgage, without concomitant satisfaction of the underlying mortgage debt, set aside, and have the mortgage reinstated where there has not been detrimental reliance on the erroneOus recording" (Deutsche Bank Trust Co. v Stathakis, 90 AD3d 983, 984, 935 NYS2d (,51 (2d Dcpt 20] 1]; New York Community Balik" Vermonty, 68 AD3d 1074, 1076,892 NYS2d 137 [2d Dept 2009]). Additionally, "a lien affecting real estate, satisfied through mistake, may be restored to it original status and priority as a lien, prOVided that no one innocently relicd upon the discharge and [* 6] IISB(' Ihlllk \' Holohan Index No. O()-2444g Page No. () either purchased the property or made a loan thereon in reliance upon the validity of the satisfaction" (DLJ Mtge. Cap., Illc. I' Him/sor, 78 AD3d 645, 647, 910 NYS2d 160 [2d Dept 2010]). The Coun agrees with IISBC that since the mortgage satisfactions were not recorded until 2010, Fremont could not have relied on sallle In providmg the Holohans with a refinance in 2005. HSBC has also demonstrated that there was still a balance on the HELOC at the time the satisfactions were rccorded. HSBC has submitted the affidavit of Dana 51. Clair-Hougham, Vice President and Assistant Secretary, Administrative Services Division for HSBC Mortgage Services, Inc. St. ClairHougham asserts that she has personal knowledge of litigation matters concerning mortgage loans involving the various HSBC companies, lllcluding the plaintiff'herein. According to her review or HSBC's r~cords, 51. Clair-Hougham explained that the error was caused by the transfer of the balance for the HELOC from an old computer system to a new computer system on April 15,2009. Upon transfer, in the old computer system the HELOC would appear as a zero balance, while in the new computer system the correct balance would be displayed. St. Clair-Hougham, thus, attributes the erroneous filing to human error in failing to check the HELOC account balance in the new computer system. IISBC has also submitted the HELOC Monthly Statements addressed to the Holohans. The Monthly Statement with a payment due date of March 25, 2005, reflects that the 2005 Payment was credited on February 4th, and that the Holohans obtained an advance of$60,000 on February 24th. HSBC has also submitted the subsequent HELOC Monthly Statements with payment due dates from April 2005 through May 2009, which reflect payments made and the additional advances obtained by the Holohans. Neither MERS nor the Holohans have submitted any evidence to controvert this evidence or raise an issue of fact. To the extent it is contended the summary judgment should be denied because additional discovery is needed, such contention is unavailing. "A detemlination of summary judgment cannot be avoided by a claimed need for discovery unless some evidentiary basis is offered to suggest that discovery may lead to relevant evidcnce" (Wyllie )! Db:.trictAttortley of COlint of Kings, 2 AD3d 7]4, 770 NYS2d 110 [ld Dept 1003J). The mere hope based on speculation and sunnisc that discovery will reveal the existence oftriablc issues of f~\ctis insuffiCIent to forestall the grant of summary judgment in HSBC's favor (see id.) The contention that HSSC's cross-motion should be denied based on the doctrine of laches is without merit (see Deutsche Hank Trust Co. v Stathakis, supra). Accordingly, this motion by MERS is denied in its entirety, and this cross-motion by HSBC is granted in its entirety. /~~ Dated: October 3, 2012 }10}9ieph ~ng FINAL DISPOSITION X Farnet; Justice Supreme Court NON-FfNAL DISPOSITION

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