EMC Mtge. Corp. v Batista

[*1] EMC Mtge. Corp. v Batista 2007 NY Slip Op 51133(U) [15 Misc 3d 1143(A)] Decided on June 5, 2007 Supreme Court, Kings County Schack, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 June 5, 2007
Supreme Court, Kings County

EMC Mortgage Corporation, Plaintiff,

against

Carlos Batista, Julia Batista, et al., Defendants.



34145/06

Arthur M. Schack, J.

Plaintiff's motion, for an order of reference to foreclose a mortgage for real property located at 175 Moffat Street, Brooklyn, New York (Block 3441, Lot 62, County of Kings), and to amend the caption to reflect that plaintiff is now "La Salle National Bank, as Trustee for Certificateholders of Bear Stearns Asset Backed Securities I LLC, Asset Backed Certificates, Series 2006-HE7," is denied. Plaintiff EMC Mortgage Corporation (EMC) lacks standing to bring this matter before the Court. Prior to making this motion, EMC assigned the instant mortgage to La Salle National Bank, as Trustee for Certificateholders of Bear Stearns Asset Backed Securities I LLC, Asset Backed Certificates, Series 2006-HE7 (La Salle). EMC claims to be La Salle's attorney-in-fact, pursuant to a 2002 limited power of attorney [exhibit B of motion]. However, the 2002 limited power of attorney fails to specifically name La Salle as Trustee for Certificateholders of Bear Stearns Asset-Backed Securities I LLC, Asset Backed Certificates, Series 2006-HE7. Thus, the limited power of attorney is defective and invalid. Therefore: plaintiff's motion for an order of reference and amendment of the plaintiff in the caption is denied; and, the instant foreclosure action is dismissed.

EMC, according to the February 13, 2007 Securities and Exchange Commission Form 10-K filing for The Bear Stearns Companies, Inc. (Bear Stearns), for the fiscal year ended on November 20, 2006, is a wholly owned subsidiary of Bear Stearns [p. 3 of 10-K filing]. Bear Stearns' 10-K filing states, at p. 6, that EMC "purchases both conforming and non-conforming, investment-grade and non-investment grade, conventional fixed rate and adjustable rate residential mortgage loans with the right to service released or retained and sells such loans to investors. EMC also purchases and sells residual certificates and mortgage servicing rights." Bear Stearns, plaintiff EMC's parent, is a financial giant that, according to exhibit 13 of the10-K filing, had net revenues in fiscal 2006 of more than nine billion dollars and net income in excess of two billion dollars.

La Salle Bank is also a financial powerhouse. According to Julia Werdigier, in her

May 7, 2007 New York Times' article, "Bidding War for ABN Amro Division Intensifies," Bank [*2]of America bid $21 billion to purchase La Salle from its Dutch parent bank, ABN Amro. This was countered by a $24.5 billion bid on May 5, 2007 by a three-bank group led by the Royal Bank of Scotland, which wants "to expand its presence in the Northeast."

Background

The Batista defendants borrowed $532,000.00 from Sunset Mortgage Company

(Sunset) on May 11, 2006. They executed a thirty-year adjustable rate note for this amount and a mortgage to secure the loan for the 175 Moffat Street premises. Mortgage Electronic Registration Systems, Inc. (MERS) was named in the mortgage as Sunset's nominee and mortgagee of record. 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 Batista Note and Mortgage were recorded on May 22, 2006, with City Register File Number (CRFN) 2006000284518.

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, with a "balloon" payment after fifteen years. According to the May 11, 2006 Note [exhibit D of motion], the Batista defendants were to initially pay principal and interest of $4,395.92 per month for the initial two years, at 9.30 %. Then on June 1, 2008, 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 Batista note provided that the new interest rate would be the LIBOR rate, 45-days prior to the "change date," plus 7.30 %, rounded to the nearest .125%. The interest-rate could increase 1.00% on each "change date" until the LIBOR index plus 7.30% would be reached. The LIBOR rate, according to today's Wall Street Journal, is 5.36%. Therefore, the LIBOR plus 7.30% is now 12.66%. The Note capped the adjusted interest at 15.30%. If interest rates stay constant, the defendants, if they hadn't become delinquent in their payments, would be paying their mortgage loan at the rate of 12.625% on June 1, 2010, and thereafter. The Note is for a thirty-year term. However, defendants executed a balloon addendum to the note and mortgage rider, which stated that defendants "will be required to repay the entire principal balance and any accrued interest then owing 15 years from the date on which the loan is made." Further, the balloon addendum states that "Lender guarantees refinancing at maturity, but interest will be recalculated according to a pre-specified index . . . The loan will be refinanced at an interest rate established by the lender with reference to market rates. Such interest rates may be higher than the interest rate paid on this loan."

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 [*3]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 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 January 4, 2007-affidavit of merit by Mark Cardenas, a Vice-President of EMC, EMC is the plaintiff as La Salle's attorney-in-fact. Mr. Cardenas states that EMC's assignment to La Salle has been sent for recording. What Mr. Cardenas didn't state, and ACRIS recorded, is that on November 6, 2006, MERS assigned the mortgage to EMC, which in turn, on the same day assigned the mortgage to La Salle. Both of the assignments were recorded on January 2, 2007, two days prior to the execution of Mr. Cardenas' affidavit, with CRFN's 2007000002336 and 2007000002237. Mr. Cardenas, in his affidavit, claims that EMC has a limited power of attorney from La Salle and "a true copy of the Power of Attorney from LASALLE BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR CERTIFICATEHOLDERS OF BEAR STEARNS ASSET BACKED SECURITIES I, LLC ASSET BACKED CERTIFICATES, SERIES 2006-HE7 to EMC MORTGAGE CORPORATION is attached thereto." However, as will be explained, the power of attorney is defective.

Discussion

The La Salle limited power of attorney to EMC, presented to the Court, was

executed on May 7, 2002, and recorded in the Office of the City Register for Kings County, on September 23, 2002, at Reel 5809, Page 0980, for the foreclosure of 1305 Herkimer Street, Brooklyn, New York. The document states that La Salle, "as Trustee

. . . pursuant to a number of Pooling and Servicing agreements (attached as Exhibit A')" appoints EMC as "Attorney-in-Fact, in the Trustee's name, place and stead for the Trustee's benefit, in connection with all mortgage loans serviced by the Servicer pursuant to the [pooling and servicing] Agreements" for purposes of foreclosure proceedings. Tracy M. Fourtner, Esq., of Steven J. Baum, P.C., in his affirmation of regularity claims to be the attorney for plaintiff EMC and certifies that he compared the original power of attorney with the copy presented to the court and certifies it to be "a true and complete copy thereof." Mr. Fourtner, in examining this limited power of attorney, should have noticed that Exhibit A of the limited power of attorney lists La Salle as Trustee for Certificateholders of thirty different pooling and servicing agreements. However, none of these thirty pooling and servicing agreements are for "Certificateholders of Bear Stearns Asset Backed Securities I LLC, Asset Backed Certificates, Series 2006-HE7." [*4]

Even if the proper pooling and servicing agreement were listed in Exhibit A of the instant limited power of attorney, the Court cannot without a properly offered copy of the pooling and servicing agreement referred to in the limited power of attorney determine if EMC may properly act as servicing agent for La Salle. Deutsche Bank Nat. Trust Co. v Lewis, 14 Misc 3d 1201 (A) (Sup Ct, Suffolk County 2006)

The Court of Appeals, in Saratoga County Chamber of Commerce, Inc. v Pataki,

100 NY2d 801, 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 EMC lacks standing to foreclose on the Batista mortgage since November 6, 2006, the date EMC assigned its ownership of the Batista mortgage to La Salle. The Court, in Campaign v Barba, 23 AD3d 327 (2d Dept 2005), 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 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).

Since EMC does not have ownership of the Batista mortgage since November 6,

2006, and failed to present a proper power of attorney from La Salle, the Court must dismiss this foreclosure action. La Salle may commence a new foreclosure action for the premises at 175 Moffat Street, Brooklyn, New York, if they continue to own the Batista mortgage.

Conclusion

Accordingly, it is

ORDERED that the motion of plaintiff EMC Mortgage Corporation for an

order of reference to foreclose a mortgage for real property located at 175 Moffat Street, Brooklyn, New York (Block 3441, Lot 62, County of Kings) is denied; and it is further

ORDERED, that the motion of plaintiff EMC Mortgage Corporation to amend [*5]

the caption to list the plaintiff as "La Salle National Bank, as Trustee for Certificateholders of Bear Stearns Asset Backed Securities I LLC, Asset Backed Certificates, Series 2006-HE7" is denied; and it is further

ORDERED, that the instant foreclosure action is dismissed.

This constitutes the Decision and Order of the Court.

ENTER

___________________________

Hon. Arthur M. Schack

J.S.C.