Honig v US Bank N.A.

[*1] Honig v US Bank N.A. 2013 NY Slip Op 51189(U) Decided on July 8, 2013 Supreme Court, Nassau County Jaeger, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 July 8, 2013
Supreme Court, Nassau County

Edward Honig and Beth Honig, Plaintiffs,

against

US Bank N.A. as trustee for CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP. CSFB PASS THROUGH CERTIFICATES, SERIES 2005-2; WELLS FARGO BANK, N.A., Defendants.



602597-12



David Stein, Esq.

Attorney for Plaintiff

1323 E 66TH ST

BROOKLYN, NY 11234-5632, NY.

Hogan Lovells US LLP

Attorneys for Defendants

875 Third Avenue

New York, NY 10022

Steven M. Jaeger, J.

Motion by defendants pursuant to CPLR 3211 (a)(1), (5) and (7), for judgment dismissing the complaint is granted only as to the first, second and fifth causes pursuant to CPLR 3211(a)(7). Dismissal of the second and third causes of [*2]action is denied.

Plaintiffs are the owners of property located at 61 Muriel Avenue, Lawrence, New York. This action arises out of a loan transaction that took place in 2004, when plaintiffs obtained a loan from First Central Savings Inc. ("First Central") in the sum of $999,999.00, which was secured by a mortgage dated October 28, 2004 (the "Mortgage") on the property. The loan was memorialized by a note (the "Note") executed by plaintiff Beth Honig, and the Mortgage was executed by both plaintiffs. The mortgagee of record on the Mortgage was Mortgage Electronic Registration Systems, Inc. ("MERS")[FN1], identified as the "nominee for Lender and Lender's successors and assigns." The history of MERS is set forth in Bank of NY v. Silverberg, 86 AD3d 274 (2d Dept. 2011).

Defendant US Bank N.A., as trustee for Credit Suisse First Boston Mortgage Securities Corp. CSFB Pass Through Certificates, Series 2005-2 ("the trustee"), alleges that it is the holder of the Note and the Mortgage. Plaintiffs deny this claim.

Defendant Wells Fargo Bank, N. A. ("Wells Fargo") is the servicer for the loan at issue. Plaintiffs made loan payments to Wells Fargo for eight years without objection.

In this action plaintiffs allege claims against both defendants for fraud, negligent misrepresentation, an invalid assignment, quiet title, and unjust enrichment. The factual basis for these claims is that the trustee is not the holder of the Note, and that the March 16, 2012 Assignment of the Mortgage (Exhibit D to the complaint herein) from MERS to the trustee, is invalid.

On this pre-answer motion, defendants seek dismissal of all of plaintiffs' claims pursuant to CPLR 3211(a)(1), (5), and (7).

In 2013, the trustee filed a foreclosure action in Nassau County Supreme [*3]Court against plaintiffs and Sterling National Bank under Index No.3578/13. A copy of the foreclosure complaint is annexed as Exhibit 4 to the opposition papers. According to defendants, the original Note is in the possession of Gross Polowy Orlans, LLC, counsel for the trustee in the foreclosure action. The foreclosure complaint provides that plaintiffs defaulted on their loan on January 1, 2012.

3211 Dismissal Standard

On a motion to dismiss pursuant to CLR 3211, the facts as alleged must be accepted as true, the pleader must be accorded the benefit of every favorable inference, and the court must determine only whether the facts as alleged fit within any cognizable theory (ABN AMRO Bank, NV v MBIA, Inc, 17 NY3d 208, 227 [2011] citing Leon v Martinez, 84 NY2d 83, 87 [1994]; Samiento v World Yacht Inc., 10 NY3d 70, 79 [2008]).

The criterion on a motion pursuant to CPLR 3211(a)(7) is whether the pleader has a cause of action (Leon v Martinez at 88; Grant v Aurora Loan Servs., 88 AD3d 949, 950 [2nd Dept 2011], lv app den 18 NY3d 804 [2012]). Bare legal conclusions asserted in a complaint are not presumed to be true (Nasca v Sgro,101 AD3d 963 [2nd Dept 2012]; Sanford/Kissena Owners Corp v Daral Props., LLC, 84 AD3d 1210, 1211 [2nd Dept 2011]).

Where documentary evidence definitively contradicts the plaintiff's factual allegations and conclusively disposes of the plaintiff's claim, dismissal pursuant to CPLR 3211(a)(1) is warranted (Snyder v Voris, Martini & Moore, LLC, 52 AD3d 811 [2nd Dept 2008]; M. Fund Inc. v Carter, 31 AD3d 620 [2nd Dept 2006]; Berardino v Ochlan, 2 AD3d 556 [2nd Dept 2003]).

"A defendant who seeks dismissal of a complaint pursuant to CPLR 3211(a)(5) on the ground that it is barred by the statute of limitations bears the initial burden of proving, prima facie, that the time in which to sue has expired"

(Benjamin v Keyspan Corp., 104 AD3d 891 [2nd Dept 2013] quoting LaRocca v DeRicco, 39 AD3d 486 [2nd Dept 2007]), lv app dsmd 9 NY3d 859 [2007]).

Discussion

The Court commences its consideration of this matter with the facts that are not disputed. Plaintiffs borrowed money from a lender. Plaintiff Beth Honig signed the Note promising to repay the loan; both plaintiffs signed the Mortgage pledging the subject property as security for the promise to repay the loan. Plaintiffs have defaulted in repaying the Note. A mortgage foreclosure action against plaintiffs has been commenced.

An essential element of a cause of action for fraud is damages (Eurycleia [*4]Partners, LP v Seward & Kissel, LLP, 12 NY3d 553, 559 [2009]) or injury (Lama Holding Co. v Smith Barney, 88 NY2d 413, 421[1996]). In a fraud action, a plaintiff may recover only the actual pecuniary loss sustained as a direct result of the wrong (Continental Cas. Co. v PricewaterhouseCoopers, LLP, 15 NY3d 264, 271 [2010]). The damages are to compensate plaintiffs for what they lost because of the fraud, not for what they might have gained (Continental Cas. Co. at 271, citing Lama Holding Co.).

Here, plaintiffs have sustained no damages or injury. While the parties argue over which entity should be, and should have been, receiving plaintiffs' mortgage payments, it is clear that plaintiffs are not entitled to the funds. Moreover, plaintiffs have not alleged that any entity other than the defendants has sought payment on the Note. On this record at this time, in the absence of any damages or injury, plaintiffs have no cause of action for fraud (see generally Dweck v Oppenheimer & Co. Inc., 30 AD3d 163 [1st Dept 2006]).

On a claim for negligent misrepresentation a plaintiff must allege "both that defendant's misrepresentation induced plaintiff to engage in the transaction in question (transaction causation), and that the misrepresentations directly caused the loss about which plaintiff complains (loss causation)" (Water St. Leasehold LLC v Deloitte & Touche LLP, 19 AD3d 183, 185 [1st Dept 2005], lv app den 6 NY3d 706 [2006], citing Laub v Faessel, 297 AD2d 28 [1st Dept 2002]). Again, as plaintiffs have no damages or injury or loss at this time, they have no cause of action for negligent misrepresentation.

The fifth cause of action is for unjust enrichment. Plaintiffs seek restitution of the mortgage payments they have made for eight years to Wells Fargo. Although plaintiffs identify Wells Fargo as the loan "servicer" (complaint, par 12, 13), it is unclear how plaintiffs came to know this, and to make payments to Wells Fargo for eight years. The original Note identifies First Central as the lender and the original mortgage lists MERS as the nominee. The Loan Modification Agreement ("LMA") dated October 29, 2010, identifies Wells Fargo as "Lender" and MERS as "Mortgagee" (as nominee). While the Pooling and Servicing Agreement ("PSA"), dated "as of February 1, 2005" and annexed to the complaint herein as Exhibit E, does mention Wells Fargo, the Court has not discerned where in this voluminous document Wells Fargo is named the servicer of these plaintiffs' loan.

Nevertheless, plaintiffs do not deny that mortgage payments were due. "Enrichment alone will not suffice to invoke the remedial powers of a court of equity. Critical is that under the circumstances and as between the two parties to [*5]the transaction the enrichment be unjust" (McGrath v Hilding, 41 NY2d 625, 629 [1977]; Old Republic Natl. Tit. Ins. Co. v Cardinal Abstract Corp., 14 AD3d 678, 680 [2nd Dept 2005]). Where, as here, plaintiffs admit that mortgage payments were due and payable, and such mortgage payments were made to the loan servicer, the cause of action for unjust enrichment must be dismissed for failure to state a cause of action.

As the Court hereby dismisses the three causes of action wherein plaintiffs seek damages, there is no need to consider the arguments by Wells Fargo that such claims for damages must be dismissed to the extent that they are time-barred.

The nub of the parties' dispute herein lies in the third and fourth causes of action wherein plaintiffs challenge the Assignment of Mortgage by MERS to the Trust dated March 16, 2012, and seek to quiet title to the property pursuant to Article 15 of the Real Property Action and Proceedings Law. These claims raises legitimate questions as to the documents memorializing the transfer of plaintiffs' loan to the trustee.

Either a written assignment of the underlying note or the physical delivery of the note is sufficient to transfer the obligation (Deutsche Bank Nat. Trust Co. v Whalen, __AD3d__, 2013 WL 3198184 [2nd Dept 2013]; Deutsche Bank Natl. Trust Co. v Spanos, 102 AD3d 909, 912[2nd Dept 2013]; US Bank N.A. v Cange, 96 AD3d 825 [2nd Dept 2012]; HSBC Bank USA v Hernandez, 92 AD3d 843, 844 [2nd Dept 2012]; US Bank N.A. v Madero, 80 AD3d 751, 753 [2nd Dept 2011]). Where a note is properly transferred, a mortgage securing the debtpasses as an incident to the note (Deutsche Bank Natl. Trust Co. v Spanos at 911; US Bank N.A. v Cange at 826; US Bank N.A. v Madero at 753).

In contrast, a mortgage is merely security for a debt and cannot exist independently of the debt (Deutsche Bank Natl. Trust Co. v Spanos, at 911; Bank of NY v Silverberg, 86 AD3d 274, 280 [2nd Dept 2011]). A transfer of the mortgage without the debt is a nullity, and no interest is acquired by it ((Deutsche Bank Natl. Trust Co. v Spanos, at 911; HSBC Bank USA v Hernandez, at 843; Bank of NY v Silverberg, at 280).

Here, defendants annex a copy of the Note, together with an undated Allonge, to the Bundt Affirmation. The lender in the Note, as set forth above, is First Central. The Allonge is endorsed from First Central to Meridian Services Inc ("Meridian"), and then endorsed in blank by Meridian. Defendants identify Meridian as "one of the intermediate "successors and assigns" of the original mortgage" (Reply memorandum, p.4). According to defendants, after the Note was [*6]endorsed in blank, it was delivered to the trust pursuant to the PSA at §2.01(b)(i)(A). This does not suffice because the PSA implies that delivery was yet to be accomplished (US Bank Nat. Assn v Bresler, 39 Misc 3d 1205[A], 2013 NY Slip Op 50498[U], 2013 WL 1339550 [Sup Ct, Kings Cty, 2013]); it describes what was planned to happen to broad categories of documents. No one with knowledge of the facts has stated when this took place; nor does the PSA provided to the Court reference this Note and Mortgage.

Ms. Bundt affirms that she is an attorney with the law firm that represents the trustee in the foreclosure action, and that the file includes the original Note with Allonge. This documentary evidence does not suffice because Ms. Bundt is not a person with knowledge of the facts as to when and how the note came into the trustee's possession (see generally HSBC Bank USA NA v Cayo, 34 Misc 3d 850 [Sup Ct, Kings Cty 2011] and IndyMac Bank F.S.B. v Garcia, 2010 WL 2606498 [Sup Ct, Suffolk Cty, 2010]).

In a foreclosure action based upon similar facts, a mortgagee's reliance upon an undated allonge on a separate page, and a conclusory affidavit of physical possession, were insufficient to establish the mortgagee's standing, and the foreclosure action was dismissed (US Bank Nat. Assn v Bresler, supra). In other foreclosure cases, such circumstances have been acknowledged as raising a potentially meritorious defense (US Bank Nat. Assn v Nyarkoha, 34 Misc 3d 1232[A], 2012 NY Slip Op 50353[U], 2012 WL 662205 [Sup Ct, Queens Cty, 2012](undated endorsement of note in blank and the affidavit of possession which fails to state the actual date of physical delivery of the note raised a defense); HSBC Bank USA NA v Cayo, supra,(note endorsed in blank, together with lack of evidence by person with knowledge of physical delivery of note); IndyMac Bank F.S.B. v Garcia, supra, (undated endorsement of note in blank and on separate page held unreliable; no proof of proper delivery of the note prior to commencement of the action)). Conclusory evidence of delivery or assignment of a note, without any details as to dates, has also warranted denial of summary judgment for the foreclosing bank (US Bank Nat. Assn v Sakizada, 2013 NY Slip Op 31029[U], 2013 WL 2147537 [Sup Ct, Queens Cty, 2013]; Deutsche Bank Nat. Trust Co. v Maio, 2013 NY Slip Op 30858[U], 2013 WL 1808105 [Sup Ct, Suffolk Cty, 2013]).

In a recent case, through the production of evidence of dates of receipt by its custodian of the note and mortgage, followed by the safeguarding of those original documents in a secure location, a mortgagee did establish that it was the holder of the note and mortgage by physical delivery prior to the commencement of its [*7]foreclosure action (Deutsche Bank Nat. Trust Co. v Whalen). In comparison, where the affidavit of plaintiff's servicing agent did not give any factual details of a physical delivery of the note, the foreclosing bank failed to establish its standing, prima facie, and was denied summary judgment (HSBC Bank USA v Hernandez).

This is not a foreclosure action and the trustee's standing is not at issue. But plaintiffs' causes of action seeking to quiet title and invalidate the assignment of the Mortgage require the same detailed evidence of the trustee's status as the holder and owner of the Note. On this record, plaintiffs have stated a claim for invalidation of the Assignment dated March 16, 2012, which on its face purports to transfer only the Mortgage. As the Mortgage, Note and Assignment may be considered an interest in plaintiffs' real property that is adverse to plaintiffs' ownership interest (Barberan v. Nationpoint, 706 FSupp 2d 408, 419-420 [SDNY 2010], plaintiffs have also stated a claim for a judgment of quiet title. These claims are adequately pleaded, and the documentary evidence does not conclusively dispose of them. Finally, plaintiffs' claims are not premature or unripe (Shui Fong Loo v HSBC Mortg. Corp. (USA), 36 Misc 3d 1223[A], 2012 NY Slip Op 51455[U], 2012 WL 3139879 (Sup Ct., Suffolk Cty, 2012), as the trustee has commenced a foreclosure action against them.

Based on the foregoing the motion for judgment dismissing the complaint pursuant to CPLR 3211(a)(7) is granted as to plaintiffs' first, second and fifth causes of action, and denied as to the second and third causes of action.

Dated: July 8, 2013

_____________________________________________

STEVEN M. JAEGER, A.J.S.C. Footnotes

Footnote 1: "In 1993 the MERS system was created by several large participants in the real estate mortgage industry to track ownership interests in residential mortgages. Mortgage lenders and other entities known as MERS members, subscribe to the MERS system and pay annual fees for the electronic processing and tracking of ownership and transfers of mortgages ... During the lifetime of the mortgage, the beneficial ownership interest or servicing rights may be transferred among MERS members (MERS assignments), but these assignments are not publicly recorded; instead they are tracked electronically in MERS' private system. In the MERS system, the mortgagor is notified of transfers of servicing rights pursuant to the Truth in Lending Act, but not necessarily of assignments of the beneficial interest in the Mortgage" (Matter of MERSCORP, 8 NY3d 90, 96 [2006]).