Raiolo v B.A.C Home Loans

[*1] Raiolo v B.A.C Home Loans 2010 NY Slip Op 52065(U) [29 Misc 3d 1227(A)] Decided on November 8, 2010 Civil Court Of The City Of New York, Richmond County Straniere, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 November 8, 2010
Civil Court of the City of New York, Richmond County

Louis Raiolo, Plaintiff,

against

B.A.C Home Loans, Defendant.



024567/09



APPEARANCES

PLAINTIFF

MICHAEL BOTTON, ESQ

c/o LAW OFFICE OF JONATHAN GOULD

603 West 115th Street, #198

New York, New York 10025

DEFENDANT

ROSICKI, ROSICKI & ASSOCIATES

51 E. Bethpage Road

Plainview, NY 11803

Philip S. Straniere, J.

come ev'ryone, come and share

the American dream

name what you want and it's there

the American dream

spend and have money to spare

the American dream

live like you haven't a care

the American dream

what other place can compare

the American dream

come and get more than your share [*2]

the American dream [FN1]

Plaintiff, Louis Raiolo, commenced this action against the defendant, BAC Home Loan Servicing LP, alleging that through the actions of the defendant, plaintiff's credit was damaged. A trial was held on October 4, 2010. Plaintiff initially commenced this action without an attorney, but by the date of trial he had retained counsel. Defendant was also represented by counsel. The caption was amended to reflect the correct name of the defendant.

Plaintiff testified that in May 2005 he purchased two properties in Cape Coral, Florida as investment properties hoping to share in the "American Dream." The plaintiff apparently also bought other properties in Florida which were not financed through this defendant or a predecessor in interest. Those properties are not part of this litigation, but like the properties in question, they too wound up "underwater [FN2]." In May 2006 he refinanced the properties through Countrywide Mortgage [FN3]. In 2007 the housing market began to decline in Florida and plaintiff found himself owning properties having a fair market value less than the mortgage amount. This set of circumstances occurred across the United States and has been cited as a significant factor in causing the economic crash of 2008.

In late 2008 or early 2009, Countrywide Mortgage was taken over by Bank of America, an entity "too big to fail." Plaintiff's mortgages became part of Bank of America's portfolio. Defendant is a mortgage servicing arm of Bank of America. The court is relying solely on the testimony of the witnesses in regard to the activities which form the basis of these transactions and plaintiff's claim as neither side bothered putting any documents into evidence to support their respective contentions.

At some point in 2007 plaintiff stopped making payments on each of these mortgages and the defendant commenced foreclosure proceedings. Plaintiff asserts that the defendant should have accepted a "deed in lieu of foreclosure" for the properties instead of [*3]approving a "short sale" for them [FN4]. Plaintiff alleges that owing to the defendant's failure to accept the "deed in lieu of foreclosure", his credit rating was somehow damaged. Plaintiff contends that the actions of the defendant constituted either a breach of contract or breach of warranty. Plaintiff has failed to provide a copy of any contract, yet alone one in which the defendant made some representations to the plaintiff which would rise to the level of a warranty. Plaintiff also never specified what "warranty" was made by the defendant and subsequently breached. Plaintiff has completely ignored the fact that there is the "slight possibility [FN5]" that his defaulting on the terms of the two notes and mortgages may have triggered a negative credit report and rating.

Plaintiff stated that he was advised by the defendant to stop paying on his note and mortgage so he could do a "short sale" and that a "short sale" would not hurt his credit rating as much as if the bank went through the entire legal process and concluded a foreclosure sale. He stated that one of the properties, 115 SW 57th Street, was a single-family dwelling which he purchased solely as an investment property. He asserted that he never had a tenant in the house. Plaintiff testified that 2314 SE 28th Street was purchased as a second home for himself and that when the market declined he never sought to rent this premises either.

In regard to 115 SW 57th Street, the defendant's witness testified that the plaintiff initially refinanced the property with Trust America. The plaintiff borrowed $608,000.00 on May 3, 2006 agreeing to an adjustable rate, negative amortization mortgage which would have a loan value of $699,200.00. Defendant purchased the loan from Trust America and took an assignment of the mortgage. Defendant asserts that the plaintiff was advised [*4]that in order for the lender to consider accepting a "deed in lieu of foreclosure" the lender would need a fair market value appraisal. The plaintiff never provided that information instead, opted to do a "short sale." The property was sold on March 17, 2008. The defendant received net proceeds of $288,492.90 and at that time the plaintiff owed $626,597.81.

Defendant's witness testified in regard to 2314 SE 28th Street, that on August 10, 2007, the plaintiff proposed a "deed in lieu of foreclosure" and that after investigating the request defendant learned that the investor who had purchased the mortgage would not accept a "deed in lieu of foreclosure." If the defendant had to ask the consent of an "investor," then who actually was holding the mortgage? Was defendant merely the entity servicing the loan with the mortgage and note having been sold to some unknown third party? Defendant was not able to clarify this situation from its records. The request for the "deed in lieu of foreclosure" was denied by the defendant on October 24, 2007 and the plaintiff began pursuing a "short sale." Defendant testified that the property was sold on September 19, 2008 with the defendant receiving $599,142.08. Defendant had no documents to verify any of the underlying facts of this transaction such as what was the original amount borrowed, but believed that it was owed more than one million dollars by the plaintiff in regard to this property.

In the case of a "short sale" it is customary for the lender to issue a 1099 Form to the defaulting borrower representing the difference between the amount the borrower owed the lender and the amount received. The Internal Revenue Service treats the amount of debt forgiven as income to the borrower. Neither party produced a copy of the 1099 Form. In this case the defendant agreed to accept the purchase price generated by the short sale and release the plaintiff of all liability for any deficiency between the amount owed on the note and the amount received. There are also situations where the lender only agrees to a release of the lien created by the mortgage and does not forgive the debt created by the note leaving the borrower liable for any deficiency created by the short sale.

The media is full of stories of persons facing foreclosure who assert that they were taken advantage of by unscrupulous lenders. The court does not intend to diminish the hardships many homeowners are suffering as a result of the seemingly unregulated mortgage practices tolerated in this industry over the last decade. An industry that routinely encouraged financing in excess of the fair market value of the property.

These "news" stories often fail to distinguish between persons who borrowed money in order to purchase a home to live in; those who were speculators seeking to quickly resell the properties at a profit in a rising market; and persons who bought property solely as an investment. In these stories, if the transaction was a refinance of currently owned property, there is never an explanation as to what happened to the money given by the lender to the borrower as part of the refinance? If there are tenants in the property either because it was a two-family or an investment property-what happened to the rent being collected? Or, [*5]if the borrower did not lose his or her job, what does the fact that the property value declined, have to do with the legal obligation to make the monthly mortgage payment? And what did the borrower do with the money he or she was obligated to pay the lender monthly under the terms of the note and mortgage? If a decline in value of property is a reason to stop payment and blame the lender, then everyone who buys an automobile could, under the same theory, walk away from that obligation. After all, are we not told that once you drive a vehicle off the dealer's lot it has depreciated in value? This is not to discount the number of persons who were placed into unaffordable mortgages by unscrupulous mortgage brokers and are in good faith trying to live up to their legal obligations in that regard, but the current placing of all defaulting mortgagors under the same umbrella does a disservice to those persons who have been legitimately harmed by industry-wide practices. Why do these stories seemingly never ask, did the borrower have counsel at the closing and if they did, did the lawyer also represent the lender? Was the lawyer selected by the borrower or recommended by the mortgage broker?

Part of the problem created by the current mortgage foreclosure crisis could be resolved by two relatively simple pieces of legislation. One would make all mortgage brokers fiduciaries of the borrower so that they would have to use their best efforts for the benefit of the client and not be motivated by the "kickback" euphemistically described as a "yield-spread" in the transaction. This system allowed the broker to factor into the transaction how much would be paid to the broker by the lender for placing the loan. Unless you are Bartholomew Cubbins [FN6], wearing more than one hat will surely lead to trouble.

The second borrower protection legislation would be to require the lender to issue a disclosure advising the borrower to consult with or obtain independent counsel as the transaction involves serious legal implications and then having any borrower who proceeds without counsel to sign a waiver form.

Plaintiff testified that he is a successful businessperson and he entered into each of these transactions of his own volition. He did not claim that he was enticed to do this by "evil companions who are always offering sucker bets.[FN7]" Neither did he assert that the "devil made me do it.[FN8]" Nor did plaintiff mention finding a horse's head on his pillow [*6]from the Corleone family.[FN9] Yet somehow the actions of the defendant, in not agreeing to a method for resolving his financial problems on the terms that the plaintiff wanted, has damaged his credit. He wants the court to believe that he has no culpability for his actions and that the mere allegation that "this is another fine mess you've gotten me into [FN10]" should be recognized as a viable legal defense.

Plaintiff has the burden of proof. Plaintiff has not produced any documentation that he ever owned either of these properties or that they were financed by the defendant. He has not put forth any evidence such as the mortgage and note from each transaction, nor a federal or state statute or regulation which required the defendant to accept a "deed in lieu of foreclosure" or for that matter consent to a "short sale" in order to forestall a foreclosure action and relieve him of his legal obligations. Plaintiff has not shown that the defendant treated his transactions in a manner different from that of other borrowers who failed to make payments on their legal obligations and had their property foreclosed. Plaintiff has alleged that his credit has been damaged by the defendant's actions. Yet he has failed to produce a copy of his credit report showing that there has been any change in his rating owing to the actions of the defendant. There is no testimony from anyone, let alone an expert, to establish that there is a difference in the adverse effect on a borrower's credit depending on which road to resolution of the mortgage account is undertaken by the lender.

The court must question whether it even has the jurisdiction to hear this matter. Defendant was served at a California address while the properties in question were located in Florida. Although Bank of America has numerous branches in New York State, it appears that its mortgage department is operated out of Calabasas, California. Because neither party placed into evidence the note or mortgage, the court is unable to determine if these documents require the litigation to be governed by Florida, New York, California or some other state's law. Although the issue of jurisdiction was raised in defendant's answer, no motion to dismiss was ever made in this regard.

The court must also question how the defendant was successful in commencing a foreclosure of these loans in Florida if the documentary evidence available in this New York litigation was the entire extent of its file. Among other things, its witness was unable to verify the loan history when the court inquired as to whether Countrywide Mortgage was the original lender or acquired them by assignment or even the face amount of one of the mortgages.

Judgment for defendant. Plaintiff's cause of action is dismissed on the merits. He has not presented any evidence to support his contentions.

[*7]Exhibits, if any, will be available at the office of the clerk of the court thirty days after receipt of a copy of this decision.

The foregoing constitutes the decision and order of the court.

Dated: November 8, 2010

Staten Island, NYHON.PHILIP S. STRANIERE

Judge, Civil Court

Footnotes

Footnote 1: "The American Dream" from "Miss Saigon" music by Claude-Michel Schonberg and Alain Boublil, lyrics by Alain Boublil and Richard Maltby, Jr., sung by the Engineer, played by Jonathan Pryce on Broadway.

Footnote 2: "Underwater" is being used in the colloquial sense of being encumbered by a mortgage in excess of the current market value and not in the manner used by the Marx Brothers in the stage play and film "The Cocoanuts."

Footnote 3: Bank of American Corporation purchases Countrywide Financial Corporation on July 1, 2008. The name was changed to Bank of America on April 27, 2009. A spin off of Countrywide Mortgage Investments became IndyMac Bank an institution which was seized by federal regulators on July 11, 2008.

Footnote 4: (a) A "deed in lieu of foreclosure" is a situation where the lender agrees to accept title to the property from the mortgagor prior to the completion of the foreclosure process. By accepting title, the mortgagee agrees to release the mortgagor of any and all liability arising from the mortgage and the promissory note.

(b) A "short sale" arises when the mortgagee agrees to permit the mortgagor to sell the property to a bona fide purchaser at the current fair market value, which is an amount less than the monies owed by the mortgagor on the mortgage and note. The lender agrees to accept the negotiated sale price in full settlement of the mortgagor's obligation under the mortgage and note and release the mortgagor of any liability.

As noted above, there are situations where the lender only will release the lien on the property created by the mortgage and not the borrowers obligation to repay the balance due on the note.

Footnote 5: The court chose to use the term "slight possibility" rather than the more accurate term "distinct possibility" either because the court was engaging in "judicial sarcasm" or the decision was written on "Opposite Day" as declared by Patrick on "Spongebob Square Pants."

Footnote 6: Bartholomew Cubbins is the lead character in the Dr. Seuss story, " The 500 Hats of Bartholomew Cubbins."

Footnote 7: Explanation given by Sky Masterson to Arvide Abernathy as to why he is a gambler in the film version of Frank Loesser's "Guys and Dolls."

Footnote 8: Explanation given by "Killer" the boyfriend of Geraldine Jones as to why he was always in trouble. Both characters were created by comedian Flip Wilson.

Footnote 9: Scene made famous in the film version of Mario Puzo's novel "The Godfather."

Footnote 10: Oliver Hardy to Stanley Laurel on numerous occasions.