Deutsche Bank Natl. Trust Co. v CastellanosAnnotate this Case
Decided on May 11, 2007
Supreme Court, Kings County
Deutsche Bank National Trust Company, As Trustee of Argent Mortgage Securities, Inc. Asset-backed Pass Through Certificates Series 2005-W4 Under the Pooling and Servicing Agreement Dated as of November 1, 2005, Without Recourse, Plaintiff,
Gustavo Castellanos, Argent Mortgage, LLC, and New York State Department of Taxation and Finance, Defendants.
Knuckles & Komosinski, PC
Arthur M. Schack, J.
Plaintiff's application for a judgment of foreclosure and sale for the premises located at 78 Van Siclen Avenue, Brooklyn, New York (Block 3932, Lot 45, County of Kings) is denied without prejudice. Plaintiff Deutsche Bank National Trust Company (Deutsche Bank), a financial powerhouse, lacks standing to bring this matter before the Court. Deutsche Bank, after making this application, and prior to the instant application being forwarded to me by court clerks, assigned the instant mortgage to MTGLQ Investor, L.P., a subsidiary of the financial goliath, The Goldman Sachs Group, Inc., (Goldman Sachs). Neither Deutsche Bank nor Goldman Sachs informed the Court of this assignment.
This mortgage, for a property in the East New York section of Brooklyn, illustrates how a subprime mortgage loan is assigned from one huge firm to another to maximize profits in the securitized mortgage asset market. The Deutsche Bank Group, parent of Deutsche Bank, according to a May 8, 2007 press release at its website, www.db.com, had income of 3.2 billion Euros (more than four billion dollars) in the first quarter of 2007, while Goldman Sachs, in its 2006 Annual Report, had 2006 net revenues of $37.62 billion. When these financial giants moved to foreclosure on the defendant's subprime [*2]mortgage loan, it appears that they neglected to see who actually owned the mortgage loan.
Many of today's mortgage borrowers, in their attempt to obtain a piece of the "American dream" no longer deal with local banks, savings and loan associations or credit unions. Instead, they deal with large financial organizations, national and international in scope, motivated primarily by their interest in maximizing profit, and not necessarily by helping people.
In 1946, Frank Capra directed the film classic, It's a Wonderful Life, in which George Bailey (James Steward), the head of a local savings and loan in fictional Bedford Falls, New York, fights the evil banker, Mr. Potter (Lionel Barrymore), in attempting to help the people of Bedford Falls secure mortgages. George Bailey, after his father's death in 1928, is elected as head of the savings and loan at a tumultuous Board meeting, and tells Mr. Potter, according to the screenplay, at www.imdb.com:
Now, hold on, Mr. Potter. You're right when you say my father was
no businessman. I know that. Why he ever started this cheap, penny-
ante Building and Loan, I'll never know. But neither you nor anyone
else can say anything against his character . . . But he did help a few
people get out of your slums, Mr. Potter, and what's wrong with that?
Why - here, you're all businessmen here. Doesn't it make them better
citizens? Doesn't it make them better customers? You - you said -
what'd you say a minute ago? They had to wait and save their money
before they even ought to think of a decent home. Wait? Wait for what?
Until their children grow up and leave them? Until they're so old and
broken down that they . . . Do you know how long it takes a working
man to save five thousand dollars? Just remember this, Mr. Potter, that
this rabble you're talking about . . . they do most of the working and
paying and living and dying in this community. Well, is it too much to
have them work and pay and live and die in a couple of decent rooms
and a bath? Anyway, my father didn't think so. People were human
beings to him. But to you, a warped, frustrated old man, they're cattle.In today's newspapers and magazines we read numerous stories about subprime mortgages and "predatory" lending. Lenders should not lose sight that they are dealing with humanity, not Mr. Potter's "rabble" and "cattle." Multibillion dollar corporations must follow the same rules in foreclosure actions as the local banks, savings and loan associations or credit unions, or else they have become the Mr. Potters of the 21st century.
Defendant Castellanos borrowed $412,000.00 from Argent Mortgage Company,
LLC (Argent), on November 16, 2005. He executed a thirty-year adjustable rate note for this amount and a mortgage to secure the loan for the 78 Van Siclen Avenue premises. I checked the Automated City Register Information System (ACRIS) website of the Office of the City Register, New York City Department of Finance and verified that the Castellanos' Note and Mortgage were recorded on December 7, 2005.
The instant mortgage loan is an example of the subprime loan denominated in the mortgage industry as a "2-28" adjustable rate mortgage (ARM) loan. According to the November 16, 2005 Note, defendant Casetellanos was to initially pay principal and interest of $3,023.12 per month for the initial two years, at 8.00 %. Then on December 1, 2007, and every six months thereafter, the interest rate could change on the "change date," based upon an "index" that is the average of interbank offered rates for the six-month U.S. dollar-denominated deposits in the London market (LIBOR) as published in the Wall Street Journal. The specific terms of the Castellanos note provided that the new interest rate would be the LIBOR rate, 45-days prior to the "change date," plus 6.00 %, rounded to the nearest .125%. The interest-rate could increase 1.00% on each "change date" until the LIBOR index plus 6.00% would be reached. The LIBOR rate, according to today's Wall Street Journal, is approximately 5.3%. Therefore, the LIBOR plus 6.00% rate is now approximately 11.30%. The Note capped the adjusted interest at 14.00% and set 8.00% as the floor, if rates go down. If interest rates stay constant, the defendant, if he hadn't become delinquent in his payments, would be paying his mortgage loan at the rate of 11.25% on December 1, 2009, and thereafter.
Gretchen Morgenson, in the April 6, 2007 New York Times, reported in "Fair Game; Home Loans: A Nightmare Grows Darker," that "with home foreclosures and mortgage delinquencies soaring, it is becoming clear that the innovative loans that lenders championed in what the industry called the democratization of credit' are turning the American dream into a nightmare for many borrowers." Ms. Morgenson quotes Thomas A. Lawler, founder of Lawler Economic and Housing Consulting Daily, a newsletter, that
subprime loans, similar to the one in this action, "are designed to make borrowers refinance and keep the loan production mill churning." Further, Mr. Morgenson writes that "[w]hile subprime borrowers try to climb out of the holes they fell into, those who sold and packaged the loans are laughing all the way to the bank. Folks who ran these companies are going to walk away not just unscathed but extraordinarily well rewarded,' Mr. Calhoun [Michael D. Calhoun, President of the Center for Responsible Lending] said."
U.S. Senator Christopher Dodd (D-Connecticut), Chairman of the Senate
Committee on Banking, Housing, and Urban Affairs, in his opening statement at the [*4]March 22, 2007 Committee hearing on "Mortgage Market Turmoil: Causes and Consequences," noted that "[o]ur mortgage system appears to have been on steroids in recent years giving everyone a false sense of invincibility." He observed that:
The subprime market has been dominated in recent years by hybrid
ARMs, loans with fixed rates for 2 years that adjust upwards every
6 months thereafter. These adjustments are so steep that many borrowers
cannot afford to make the payments and are forced to refinance, at great
cost, sell the house, or default on the loan. No loan should force a
borrower into this kind of devil's dilemma. These loans are made on
the basis of the value of the property, not the ability of the borrower
to repay. This is the fundamental definition of predatory lending.
With respect to the instant mortgage loan, according to the July 21, 2006-affidavit of merit by Jeff Rivas, Deutsche Bank Vice-President for Default Timeline Management, "[t]he mortgage was subsequently assigned to the Plaintiff herein by instrument dated July 21, 2006 which is to be recorded with the City Register of the County of Kings [sic]." Mr. Rivas, possibly because he is in Orange, California, is not aware that the City Register is for the City of New York, not the County of Kings. Further, it is curious that he executed his affidavit on the same day that Argent assigned the Casetellanos mortgage loan to Deutsche Bank. My check of ACRIS verified that Argent assigned the mortgage to Deutsche Bank on July 21, 2006. It was recorded in the Office of the City Register on August 16, 2006.
Plaintiff Deutsche Bank commenced the instant foreclosure action with the filing of the summons, complaint, and notice of pendency with the Kings County Clerk on July 27, 2006. Initial service of the summons and complaint was made on July 29, 2006. Defendant Castellanos defaulted in answering. On November 16, 2006, I signed an order of reference to ascertain and compute the amount due plaintiff. The Referee prepared a report, dated January 4, 2007, finding that in excess of $427,000.00 was due to the plaintiff as of July 21, 2006. Plaintiff's counsel prepared an affirmation of regularity on January 10, 2007. Subsequently, counsel for Deutsche Bank filed the proposed judgment of foreclosure and sale in Part 72, the special part for ex-parte applications in Civil Term, Kings County Supreme Court. Part 72 forwarded the instant application for a judgment of foreclosure and sale, with all its exhibits, affidavits, affirmations and attachments to me on April 26, 2007.
My check of ACRIS discovered that while the proposed judgment of foreclosure and sale was in Part 72, for review by court clerks, plaintiff Deutsche Bank assigned the instant mortgage, on January 19, 2007, to MTGLQ Investors, L.P. According to Exhibit 21.1 of the November 25, 2006 Goldman Sachs 10-K filing with the Securities and Exchange Commission, MTGLQ Investors, L.P. is a "significant subsidiary" of Goldman [*5]Sachs. The Deutsche Bank to MTGLQ Investors, L.P. assignment was recorded on February 7, 2007, with City Register File Number 2007000073000. In the July 21, 2006 Argent to Deutsche Bank assignment, Deutsche Bank used an Orange, California address. However, the January 19, 2007 assignment has the same address for both the assignor Deutsche Bank and the assignee MTGLQ Investors, L.P., at 1661 Worthington Road, Suite 100, West Palm Beach, Florida 33409.
The Court will not speculate about why two major financial behemoths, Deutsche Bank and Goldman Sachs share space in a West Palm Beach, Florida office suite. What is clear to this Court is that Deutsche Bank assigned the mortgage during the pendency of this application, but neglected to move to amend the caption to reflect the assignment or discontinue the foreclosure action. The Court, as will be explained, has no choice but to deny the application for a judgment of foreclosure and sale without prejudice. Plaintiff Deutsche Bank lacks standing to proceed with this action since January 19, 2007.
The Court of Appeals, in Saratoga County Chamber of Commerce, Inc. v Pataki,
100 NY2d 81, 812 (2003), cert denied 540 US 1017 (2003), declared that "[s]tanding 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." 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
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.
In Caprer v Nussbaum, 36 AD3d 176, 181 (2d Dept 2006), the Court held that "[s]tanding 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." If a plaintiff lacks standing to sue, the plaintiff may not proceed in the action. Stark v Goldberg, 297 AD2d 203 (1st Dept 2002).
It is clear that plaintiff Deutsche Bank lacks standing to sue since January 19, 2007, when it assigned its ownership of the Castellanos' mortgage loan to the Goldman Sachs subsidiary, MTGLQ Investors, L.P. The Court, in Campaign v Barba, 23 AD3d 327, 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 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 [*6]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).
However, in light of the fact that Deutsche Bank has established the existence of the mortgage and the note, and defendant's default in payment, the Court is denying the judgment of foreclosure and sale without prejudice. If Deutsche Bank moves to substitute assignee MTGLQ Investors L.P. as plaintiff, pursuant to CPLR § 1021, and no other material facts change, the Court will grant the substitution of plaintiff to MTGLQ Investors L.P., which will allow the proper mortgagee, the one with standing, to receive a judgment of foreclosure and sale. East Coast Properties, v Galang, 308 AD2d 431 (2d Dept 2003); Lincoln Savings Bank, FSB v Wynn, 7 AD3d 760 (2d Dept 2004); CPLR § 1018; GOL § 13-101.
Accordingly, it is
ORDERED that the application of plaintiff Deutsche Bank National Trust
Company, as Trustee of Argent Mortgage Securities, Inc. Asset-backed Pass Through Certificates Series 2005-W4 under the Pooling and Servicing Agreement, dated as of November 1, 2005, Without Recourse, for a judgment of foreclosure and sale for the premises located at 78 Van Siclen Avenue, Brooklyn, New York (Block 3932, Lot 45, County of Kings) is denied without prejudice.
This constitutes the Decision and Order of the Court.
HON. ARTHUR M. SCHACK,J. S. C.