Mortgage Elec. Registration Sys., Inc. v Folkes

[*1] Mortgage Elec. Registration Sys., Inc. v Folkes 2008 NY Slip Op 50365(U) [18 Misc 3d 1138(A)] Decided on February 5, 2008 Supreme Court, New York County Payne, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 February 5, 2008
Supreme Court, New York County

Mortgage Electronic Registration Systems, Inc. "MERS" AS NOMINEE FOR AMERICA'S WHOLESALE LENDER, ITS SUCCESSORS AND ASSIGNS, Plaintiff,

against

Carole Folkes, NEW YORK CITY ENVIRONMENTAL CONTROL BOARD, NEW YORK CITY TRANSIT ADJUDICATION BUREAU, and BARON ASSOCIATES, LLC., JOHN DOE (said name being fictitious, it being the intention of plaintiff to designate any and all occupants of premises being foreclosed herein, and any parties, corporations or entities, if any, having or claiming an interest or lien upon the mortgaged premises), Defendants.



109824/05

Kibbie F. Payne, J.

In this action, plaintiff Mortgage Electronic Registration Systems, Inc., as nominee for America's Wholesale Lender, seeks to foreclose its mortgage interest on the property known as 468 West 168th Street, New York, New York 10031 (the Premises). This lawsuit arises out of two different sales of the Premises within approximately three months of each other to two different, but related, purchasers, each of whom obtained a separate mortgage to finance its purchase. The first sale was to nonparty 468 West 146 St. Corp. (468), a corporation who principal is Paul Jaikaran (Jaikaran). In August 2004, defendant Baron Associates, LLC (Baron) issued a mortgage on the Premises to 468. The second sale was to co-defendant Carole Folkes (Folkes), who is Jaikaran's sister. In November 2004, plaintiff and Folkes executed a mortgage on the Premises, which was recorded in May 2005. Although Baron's mortgage was prior in time to the one claimed by plaintiff, it was recorded after plaintiff's mortgage [*2]was recorded.

Plaintiff now moves, pursuant to CPLR 3212 and 3215, for an order granting it a judgment of foreclosure against defendants.

Baron cross-moves, pursuant to CPLR 3212 (f), for an order denying or staying plaintiff's motion until it fully responds to Baron's August 29, 2006 Notice of Discovery and Inspection (the Notice), or, in the event plaintiff is granted foreclosure, granting Baron summary judgment on its claim for an equitable lien, and for foreclosure of its mortgage. Baron also moves for an order extending the time to file the affidavit of service of Baron's answer upon Folkes until 20 days after determination of the cross motion.

A brief statement of the facts are set forth as follows: The record owners of the Premises were Ethel Lloyd Sullivan and Shelby Sullivan. On January 11, 2001, they gave a mortgage on the Premises in the principal amount of $50,000 to Champion Mortgage Co., Inc. (Champion). On August 19, 2004, Shelby Sullivan, individually as heir-at-law and next of kin of Ethel Sullivan, executed a deed transferring the Premises to 468 for a stated consideration of $750,000 (the 468 Deed). However, this deed was not recorded until over one year later, on August 31, 2005.

As part of the same August 19, 2004 transaction, 468 gave a purchase money mortgage to Baron in the principal amount of $550,000 bearing an interest rate of 14% per annum, on which monthly payments of interest only were due for a period of one year, at which time the entire principal balance and any accrued interest was to become due and payable (the Baron Mortgage). Jaikaran signed the Baron Mortgage as President of 468. Like the 468 Deed, the Baron Mortgage was not recorded until August 31, 2005.

Ira S. Waltuch of Tower Land Service LLC (Tower) was the closing agent at the August 19, 2004 transactions. At the closing, Waltuch and Tower were given $46,369.74 of the proceeds of the Baron Mortgage to pay off the Champion Mortgage and obtain a satisfaction thereof. Champion was in fact paid shortly after the closing, and, on September 14, 2004, executed a Satisfaction of the Champion Mortgage. Although Jaikaran was obviously aware of both the August 2004 Deed and the Baron Mortgage, on November 23, 2004, Shelby Sullivan, as surviving spouse of Ethel Sullivan, executed yet another deed purporting to transfer the Premises to Jakairan's sister, defendant Folkes (the November 2004 Deed). The November 2004 Deed was recorded in the office of the New York City Register on May 27, 2005, approximately three months before the August 2004 Deed was recorded.

On November 23, 2004, Folkes executed a mortgage note in the principal amount of $650,250.00 to plaintiff. As security for repayment of the indebtedness, Folkes also executed a mortgage [*3]instrument covering the Premises. The mortgage was recorded in the Office of the New York County Clerk on May 27, 2005.

Plaintiff commenced this mortgage foreclosure action in July 2005. Plaintiff alleges that Folkes has failed to pay the principal and interest due on the mortgage, and is now in default (Aff. of Ely Harless, ¶ 4). Plaintiff further alleges that demand has been made for payment of the mortgage note, but that it has not received any monies representing either interest or principal due on the mortgage note since the date of the last demand (id., ¶ 5). Plaintiff asserts that, after giving full credit for all payments made, a principal balance of $649,153.96, plus interest at the rate of 8.9% from March 1, 2005, is due on the mortgage (id., ¶ 6).

Because of the delay in recording the Baron Mortgage, plaintiff did not originally name Baron as a defendant. On May 12, 2006, Baron moved to intervene in this action as a defendant, based on an alleged partial defense to the foreclosure of plaintiff's mortgage interest on the ground that plaintiff's mortgage lien is equitably subrogated to Baron's mortgage, to the extent that Baron paid off a mortgage prior to both that of Baron and plaintiff. By order dated July 27, 2006, this court granted Baron's motion to intervene, and permitted Baron to serve an answer to the complaint.

Baron asserts that 468 is in default of the Baron Mortgage, in that 468 has failed to timely pay the installments of interest due on February 1, 2005 and March 1, 2005 (Aff. of Barry Levites, ¶ 3). By letter dated March 24, 2005, Baron accelerated the interest rate on the Baron Mortgage to a default interest rate of 24%, and declared due and payable all monies due under the mortgage (id.). Subsequently, Baron received payments from 468 totaling $38,713.08 (id., ¶ 4). Baron asserts that these payments were received without prejudice or waiver of any event of default (id.). Baron claims that there is now due and owing on the Baron Mortgage the principal amount of $550,000, plus interest at the rate of 24% per annum from March 24, 2005, less $38,713.08 (Miller Aff., ¶ 8).

After serving its answer, Baron served the Notice on plaintiff. Among the items demanded were "all checks issued by or on behalf of plaintiff at the Closing" and "all records of payments made by defendant Carole Folkes to plaintiff since November 23, 2004 on account of the Mortgage including but not limited to checks, statements and reconciliations" (Notice, Items 5, 10) [Aff. of Neil Miller, Exh A]).

Baron asserts that, while plaintiff has produced documents in response to other requests on two occasions, it has never produced the documents responsive to these requests. Specifically, Baron asserts that it has not received copies of checks from plaintiff's closing agent showing the disbursements [*4]of the mortgage proceeds, or copies of monthly loan statements. This outstanding discovery was acknowledged at a recent compliance conference held on August 15, 2007 (see 8/15/07 Compliance Conference Order [Miller Aff., Exh K]).Plaintiff moves, pursuant to CPLR 3215, for a default judgment against defendants Folkes, the New York City Environmental Control Board and the New York City Transit Adjudication Bureau. Plaintiff asserts that none of these defendants have appeared in this action, and the time by which to answer or move with respect to the complaint has lapsed for these defendants. Plaintiff also asserts that, as required by CPLR 3215(g)(3), the additional service of the summons and complaint upon Folkes has been made.

Plaintiff's motion for a default judgment against Folkes is denied. Folkes has served and filed a motion, by limited appearance, to dismiss this action against her, pursuant to CPLR 3211(a)(5), on the ground that this court does not have personal jurisdiction over her. Defendant's motion to dismiss with its supporting papers creates an issues of fact as to whether this court has jurisdiction to render a default judgment against her (see Cordova v Thessalonica Court Assocs., 35 AD3d 256 [1st Dept 2006]). Accordingly, the motion to dismiss is denied.

Plaintiff's motion for a default judgment against the remaining defendants is also denied. Pursuant to CPLR 3215 (f), a party seeking to enter a default judgment must submit " some firsthand confirmation of the facts'" (St. Paul Fire & Marine Ins. Co. v A.L. Eastmond & Sons, 244 AD2d 294, 294 [1st Dept 1997] [citation omitted]; see also CPLR 3215 [f] ["On any application for judgment by default, the applicant shall file ... proof of the facts constituting the claim"]). Here, plaintiff's only proof of the facts constituting the claim is a conclusory statement, contained in Schedule B to the complaint, that these entities are holders "of possible judgments against Carole Folkes" (Complaint, Schedule B). This conclusory statement, which fails to contain any actual factual allegations, is insufficient to satisfy plaintiff's burden under the statute (see Luna v Luna, 263 AD2d 470 [2d Dept 1999] [lower court property denied plaintiff's motion for leave to enter a judgment upon defendant's default in appearing and answering where plaintiff's complaint was conclusory in nature, and failed to contain actual factual allegations supporting the claim]; see also St. Paul Fire & Marine Ins. Co. v A.L. Eastmond & Sons, 244 AD2d 294, supra [subrogee insurer was properly denied default judgment based on its failure to submit some firsthand confirmation of facts in support of its application; conclusory submission that was devoid of evidentiary value was not satisfactory proof of facts constituting claim]).

Turning to that branch of plaintiff's motion seeking an order of summary judgment granting it a judgment of foreclosure [*5]against the Premises, that application must also be denied. The summary judgment application is deficient on its face. In order to establish a prima facie case in an action to foreclose a mortgage, the plaintiff must establish the existence of the mortgage and mortgage note, ownership of the mortgage, and the defendant's default in payment (see Witelson v Jamaica Estates Holding Corp. I, 40 AD3d 284 [1st Dept 2007]; Campaign v Barba, 23 AD3d 327 [2d Dept 2005]). In support of its motion, plaintiff submits the affidavit of Ely Harless, who is identified as a "Vice President of Countrywide Loans, the successor-in-interest to the plaintiff, Mortgage Electronic Registration Inc., as Nominee for America's Wholesale Lender." As to Folkes' alleged default, Harless refers only to Schedule E of the complaint for the facts (see Harless Aff., ¶ 4). However, Schedule E is merely a statement of the amount due on the mortgage, and does not state any particular failure by Folkes to make a payment. Here, plaintiff failed to establish competent evidence of a default, therefore the motion for summary judgment must be denied (see Witelson v Jamaica Estates Holding Corp., 40 AD3d 284, supra; North Fork Bank v 163-35 L & M Realty Corp., 298 AD2d 444 [2d Dept 2002]).

Additionally, Baron has raised issues of fact as to whether plaintiff ever funded its mortgage, which also precludes summary judgment.

A " mortgage is an interest in land created by a written instrument providing security for the performance of a duty or the payment of a debt'" (Moon v Moon, 6 AD3d 796, 797 [3d Dept 2004] [citation omitted]). Thus, "[i]t has long been held that a mortgage is not valid and enforceable unless there is an underlying valid debt or obligation for which the mortgage is intended as security" (see Coronet Capital Co. v Spodek, 265 AD2d 292, 292 [2d Dept 1999], citing Beck v Sheldon, 259 NY 208 [1932], and Baird v Baird, 145 NY 659 [1895]; accord Tornatore v Bruno, 12 AD3d 1115 [4th Dept 2004]). Accordingly, plaintiff's note and mortgage are invalid if there is no consideration for them (see Tornatore v Bruno, 12 AD3d 1115, supra [mortgage void for lack of consideration]; Coronet Capital Co. v Spodek, 265 AD2d 292, supra [mortgage invalid and could not be foreclosed, because mortgage was not given as security for valid debt]).

Baron sought discovery of these issues in the Notice. The proof of the funding of the loan (see Notice, Item 5) would clearly show whether or not consideration was given for the note and mortgage. Moreover, records of payments, statements and reconciliations (see id., Item 10) also relate to that issue, since such documents might reflect the actual consideration given for the mortgage.

Plaintiff has failed to produce proof of the funding of the loan or records of payments, statements and reconciliations as [*6]demanded in the Notice, and as required to support its motion for summary judgment. In support of its application plaintiff refers to Exhibit 8 of its attorney's reply affirmation as "the documents sufficient to establish the funding of the loan and that the Mortgage Note and Mortgage are indeed supported by consideration" (Reply Aff. of Albert Rizzo, ¶ 11). However, the only checks annexed thereto are two checks to the abstract company, one for $1,652.63 and one for $83,014.50. These are handwritten checks written from the IOLA account of an attorney, Peter S. Port. Plaintiff's failure to produce any other documentation of disbursements leads to the inference that were no other loan proceeds disbursed.

In light of plaintiff's failure to produce proof of the disbursement of any loan proceeds to its borrowers or to the seller, plaintiff's motion for summary judgment is denied (see

Dolphin v Marocik, 222 AD2d 549 [2d Dept 1995] [action to foreclose mortgage denied, as mortgagee failed to submit sufficient documentation to establish that he paid valuable consideration for the mortgage]; see also Hicksville Props., LLC v Wollenhaupt, 273 AD2d 356 [2d Dept 2000]).

Furthermore, some of the other proof of consideration offered by plaintiff raises questions about the authenticity of plaintiff's transaction with Folkes. The HUD-1 annexed as part of exhibit 8 to plaintiff's attorney's reply affirmation, upon which plaintiff heavily relies, sets forth an alleged "principal amount of new loan," of $650,250.00 as part of the payment made by the borrower against the purchase price, yet plaintiff has failed to provide specifics of how the payment was paid out. The seller listed on the deed, Shelby Sullivan, is not listed as the seller on the HUD-1. Instead, the seller on the HUD-1 is listed as "Mary M. Jackson and Ethel Lloyd Sullivan." Moreover, the deed to Folkes indicates that "Ethel L. Sullivan" is deceased.

There are also issues of fact as to the possibility of mortgage fraud, given the fact that title to the Premises was given to two different, but related, owners in the space of three months, each of whom was able to obtain a first mortgage loan due to delays in recording various instruments, and the possible role of plaintiff in this potential fraud. Indeed, Baron presents evidence that Mr. Port, the attorney who disbursed the alleged loan funds on behalf of plaintiff, subsequently pleaded guilty in Federal Court in New Jersey in March 2006 to providing false documents used in a scheme to commit mortgage fraud (see March 27, 2006 press release from the United States Attorney's Office for the District of New Jersey [Miller Reply Aff., Exh C]).

Accordingly, plaintiff's motion for summary judgment granting a judgment of foreclosure of the Premises is denied. In light of this determination, it is unnecessary to consider Baron's cross motion, except for Baron's request to extend the [*7]time to file the affidavit of service of its answer upon defendant Folkes until 20 days after determination of the cross motion. Baron asserts that it has had difficulty locating Folkes, and finally found her in Maryland. She was served at her residence in Maryland in May 2006 by CPLR 308 (4) service (see Miller Aff., Exh L). Baron asserts that, however, it inadvertently failed to file the affidavit of service with the New York County Clerk. CPLR 308 (4) allows only 20 days to do so.

Courts have consistently held that defects in an affidavit of service do not defeat an otherwise properly commenced action, but are mere non-jurisdictional irregularities (see Bell v Bell, Kalnick, Klee & Green, 246 AD2d 442 [1st Dept 1998]). In such actions, a court may extend the period of time within which the proof of service may be filed, in the absence of prejudice (see Paracha v County of Nassau, 228 AD2d 422 [2d Dept 1996]; Weininger v Sassower, 204 AD2d 715 [2d Dept 1994]).

Here, a late filing of the affidavit of service will not cause any conceivable prejudice to Folkes. Her time to answer will not be begin to run until 40 days after the affidavit of service has been filed. Accordingly, Baron's motion seeking leave to file the affidavit of service within 20 days after the cross motion is determined is granted.

The court has considered the remaining claims, and finds them to be without merit.

Accordingly, it is

ORDERED that the motion for summary judgment is denied; and it is further

ORDERED that the cross motion is granted to the limited extent that defendant Baron Associates, LLC is permitted to extend the time to file the affidavit of service of its answer upon defendant Carole Folkes until twenty days after service of a copy of this order with notice of entry thereof; and it is further

ORDERED that the remainder of the cross motion is denied.

Dated:_____________

ENTER:

__________________________

J.S.C.