Auroa Loan Servs. LLC v Scheller
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Auroa Loan Servs. LLC v Scheller 2014 NY Slip Op 31416(U) May 22, 2014 Supreme Court, Suffolk County Docket Number: 2009-22839 Judge: Jeffrey Arlen Spinner Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various state and local government websites. These include the New York State Unified Court System's E-Courts Service, and the Bronx County Clerk's office. This opinion is uncorrected and not selected for official publication. [* 1] INDEX SJ I( ifn Ft il{M OJml II SUPREME COURT: ST ATE OF NEW YORK I.A.S. PART XXI : SUFFOLK COUNTY PRESENT: NO. 2009-22839 COPY HON. JEFFREY ARLEN SPINNER Justice of the Supreme Court ----------------------------------------------------------x AUROA LOAN SERVICES LLC, Plaintiff -against- MANFRED SCHELLER, CHERYL MENDENHALL, ct. al., Motion Sequence: 002-MG Original Return Date: February 26, 2014 Final Submission Date: April 30, 2014 Motion Sequence: 003-XMD Original Return Date: April 30, 2014 Final Submission Date: April 30, 2014 ORDER Defendants ----------------------------------------------------------x Before the Court is a written application by Defendants MANFRED SCHELLER and CHERYL MENDENHALL wherein they seek an Order, pursuant to CPLR § 602(a), consolidating the within matter with that filed under Suffolk County Index Number 2013-61765, on the basi:s that both actions claim foreclosure of the same mortgage lien, albeit by different named plaintiffs. Defendants also seek an Order of this Court, pursuant to CPLR § 3025(b) compelling Plaintiff to accept service of their Second Amended Answer. For the reasons which follow, the relief sought by Defendants must be granted and Plaintiff's cross-motion must be denied. In the present action, Plaintiff claims foreclosure of first mortgage in the original principal amount of $ 999,000.00 dated April 28, 2006 and recorded with the Clerk of Suffolk County, New York in Liber 21298 of Mortgages, Page 40. Said mortgage was given to secure an Adjustable Rate Note of the same date and it encumbers real property known as 12 Bay Colony Court, East Hampton, New York. This action was filed with the Clerk of Suffolk County on June 11, 2009 by Plaintiff's predecessor counsel. Defendants seasonably appeared through predecessor counsel and Ll1e matter appeared on the foreclosure settlement conference calendar on not less than eleven occasions. The second action, entitled "Nationstar Mortgage LLC vs. Manfred Scheller, Cheryl Mendenhall et. al." was filed under Suffolk County Index Number 2013-61675 on July 11, 2013. In that action, Plaintiff claims foreclosure of the same mortgage lien upon the same real property. Defendants have appeared and interposed an Answer. Plaintiff's successor counsel has cross-moved to discontinue the first action wl thout prejudice, which is vehemently opposed by Defendants. [* 2] In order for joinder to properly lie, there must be common questions of law and fact in both actions, such that it would be fair and equitable to addre ss the matters in a single proceeding. Part and parcel of such conside ration in cl udes both the avoidance of unnecessary expense as well as the delay that might be engendered by reason of separate proceedings and trials. The court must also determine whether or not the actions are at dissimilar stages as well as whether or not substantial prejudice would be sustained by the adverse party were the application granted. That having been said, where the Court is faced with a joinder application, the burden is placed upon the party opposi ng such a motion to demonstrate the likelihood of substantial prej ud i ce that would ensue if the relief were granted, Vigo S.S. Corp. v. Marship Corp. 26 NY 2d 157 (1970). Where the actions sought to be joined are at disparate or dissimilar stages of the litigation, joinder is improper, Shelly v. Sachem Central School District 309 AD 2d 917 (2n d Dept. 2003). The provisions of CPLR § 602 are not mandatory but instead vest the trial court with a fair degree of discretion in determining whether or not such a motion should be granted, Woods v. County of Westchester 112 AD 2d 1037 (2nd Dept. 1985). It is only where the party opposing such an application demonstrates the likelihood of substantial prejudice that joinder will be denied, Johnson v. Berger 171 AD 2d 728 (2 nd Dept . 1 9 91 ) . In the matter that is sub judice, counsel for Defendants correctly and adeptly points out that while the two actions were commenced more than four years apart, they share identical (rather than similar) questions of both law and fact and that they are at not at different stages of the legal process. The failure to join these actions together, it is asserted, would engender substantial prejudice to the detriment of Defendants. Inasmuch as the issues of law fact herein have not been resolved, i t is hard to imagine that any prejudice at all would befall Plaintiff. It is clear beyond cavil that these matters should be properly joined and adjudicated as one. Defendants further seek leave to interpose a Second Amended Answer, based in part, upon substantial questions of fact, not the least of which are who the real party in interest is respecting the mortgage and which party, if any, is vested with the legal right to enforce the note and mortgage. Defendants' counsel has raised genuine and substantial issues as to just who the real party Plaintiff might be (and it may we ll not be either of the named Plaintiffs in these two actions) . Defendants have raised serious and substantial questi o ns as to the id entity of the party that is entitled to enforce the not e and mortgage. The Court is constrained to note, from an examination of all of the papers filed herein, that the plain and express language of the instrument dated June 28 , 2012 which purports to assign the mortgage at issue fro m Aurora Loan Services LLC to Nationstar Mortgage LLC transfers o nly the mortgage but does not convey the und e rlying oblig at io n. Moreover, a plaintiff, in order to establish standing, mu st come f o rward with proof sufficient to demonstrate that it was actual l y jn possession of both the mortgage and the underlying obligation that it secures at the time of the commencement of the suit, [* 3] HSBC Bank USA v. Hernandez 92 AD 3d 843 (2nd Dept. 2012). In New York, it has long been settled law that the assignment of a mortgage without a concomitant transfer of the underlying obligation that it secures is a nullity, Merritt v. Bartholick 36 NY 44 (1867); hence, this assignment is absolutely void on its face. This is particularly so where, as here, Plaintiff has failed to adduce any proof that the mortgage and note were delivered to it prior to the commencement of this action. In addition to the foregoing, Defendants' proposed Second Amended Answer asserts that, contrary to the allegations contained within the complaints in both actions, that the loan at issue herein was actually owned by a common law trust known as a Real Estate Mortgage Investment Conduit or REMIC, prior to its purported transfer to Plaintiff Aurora Loan Services LLC. Defendants further assert that the entity that possesses the loan herein has been structured in a manner calculated to ensure that the assets that comprise the pool be wholly insulated from creditors who may seek to reclaim or "claw back" REMIC assets that may have been obtained from transferors who were insolvent as well as to legally avoid taxation at the level of the investor therein. The proposed Second Amended Answer also contains counterclaims demanding, in essence, annulment of the Assignments together with a declaratory judgment pursuant to RPAPL § 1501 et. seq. quieting title to the property in Defendants. These claims are based upon the premise that the acts of the Trustee of the REMIC were ultra vires pursuant to the provisions of EPTL § 7-2.4 and hence were void. It has not been determined as to whether or not Defendants' loan is or was held by a trust, by Aurora Loan Services LLC, by Nationstar Mortgage LLC, by a combination of them or by none of them. This is clearly a triable issue of fact which cannot be disposed of summarily but instead requires further searching examination. As a consequence, the Court must, at this juncture, necessarily limit its inquiry to the sufficiency of the allegations in the proposed Second Amended Answer, particularly when the same is juxtaposed with the complaints that have been filed in both matters. Plaintiff counters Defendants' claims by asserting that the proposed Second Amended Answer is palpably insufficient. This Court strongly disagrees with that posture. Defendants allege, inter alia, that the acceptance of the asset, viz. the note and mortgage at issue, by the Trustee was actually accomplished in a manner other than that either prescribed or permitted by the Pooling & Servicing Agreement or PSA, which is the controlling instrument for the REMIC. If the allegations of the foregoing counterclaim by Defendants is borne out by the facts, then it inexorably follows that the acts taken by the Trustee were clearly ultra vires and therefore would necessarily be void ab initio. For well over one hundred years, it has been the law in New York that where the transfer of a mortgage to a third party is effectuated in a manner that contravenes the express terms of a governing trust, the transfer is ultra vires and is void, Kirsch v. Tozier 143 NY 390 (1894). Indeed, it follows logically that where the Trustee's acts are ultra vires, all successors and subsequent assignees are charged with constructive knowledge of the express terms of the trust and hence [* 4] c ann o t c laim to be bona fide purchasers thereafter inasmuch as they wo u l d either know or would have reason to know that any in te rest tra ns f erred would be subject to the operative terms of the trust, Smith v. Kidd 68 NY 130 (1877), McPherson v. Rollins 107 NY 316 (1887). Pla i ntiff further claims that Defendants have no standing to challenge o r ot herwise attack the assignment. This argument, while superficially co rre c t, is likewise untenable. While it is true that third parties do not, under ordinary circumstances, enjoy standing to challenge the as s ignment of an indebtedness from one obligee to another, Bank of New Yo rk Mellon v . Gales 116 AD 3d 72 3 (2 nd Dept. 2014), in the present matter that assertion is decidedly misplaced. A fair reading of De f e ndants' proposed Second Amended Answer discloses that Defendants ar e attempting to challenge the validity of the initial assignment whi c h, it is claimed, has caused them to incur damages respecting the marketability of title to the property herein. Defendants mount their c h a ll e nge on l y to the particular transactions respecting the mortgage for wh i ch foreclosure is claimed, asserting that the REMIC is a common law trust and that it falls within the narrow purview of EPTL § 7-2.4. If Defendants' allegations are proven to be factually correct, it is entirely within the realm of reasonable probability that neither Aurora Loan Services LLC, Nationstar Mortgage LLC nor the REMIC have any i nt e rest whatsoever in the mortgage sought to be foreclosed. At this juncture, it is the opinion of this Court that based upon all of the foregoing, the true identity of the party in interest with the power to enforce the terms of the mortgage and note is clearly unknown. This level of uncertainty creates a situation where the marketability of Defendants' title is likely to be adversely impacted. Even assuming arguendo that fee title to Defendants' property is insurable, any cloud on t itle would serve to effectively diminish the value of the fee s i mple absolute interest. Standards for marketable title and insurable ti tle are markedly different, with marketable title being title that is " . .. reasonably free from any doubt which would interfere with its market va.Lue." Voorheesville Rod & Gun Club Inc. v. E. W. Tompkins Co. 82 NY 2d 564 (1993). For title to be insurable, it need only be that whi c h a t i tle insur e r would insure, a far lower standard and one which s eems elusive at best. It logically follows then that if the REMIC, as real part y in interest, did not take title to the note and mortgage in accordance with the express terms and conditions of the trust, then the party Pla i ntiffs in these actions, as purported successors in interest there t o would be without any authority to enforce the same, t heir assertions to the contrary notwithstanding. This, in turn, leads inexorably to invocation of the ancient maxim of "Nemo dat quad non h ab e t" ("You cannot give what you do not have"). The question, to be dire c ted to both Plaintiffs, "What do they have?" cannot be answered to t h e s atisfaction of the Courtat this point in time. [* 5] It has long been the public policy of New York that matters be resolved o n the ir meri ts rathe r than by default wherever it is possible. That having been said, i t is the custom and practice of the courts that l eave to be amend be freely given, provided that it does not impose eit h e r surprise or prejudice upon the adverse party, Balport Constr uction Co. v. New York Telephone Co. 134 AD 2d 309 (2" d Dept. 1987), Ozen v. Yilmaz 181 AD 2d 666 (2 nd Dept. 1992). No a ct ual pr e jud ic e or surpr ise has been advanced by either Plaintiff which could be said to b e o f sufficient magnitude to warrant preclusion of the r e li ef sought by Defendants. Moreover, since an action to foreclose a mortgage is a s uit in equity, Jamaica Savings Bank v. M.S. Investment Co. 274 NY 215 (1937), equity mandates that the Court do that which is rig ht and fair, that which ought to be done. I t is, therefore, ORDERED that Defendants' Application (seq. 002), made pursuant to CPLR § 602(a) and CPLR § 3025(b) shall be and the same is hereby gra nt ed in its entirety; and it is further ORDERED that Plaintiff's application (seq. 003) seeking dismissal of this action shall be and the same is hereby denied in its entirety; and it is further ORDERED that Defendants shall serve and file their Second Amended Answer within twenty one (21) days from the date of this Order; and it is further ORDERED that this action and the one pending under Suffolk County Index No. 2013-61675 shall be joined and consolidated, for all purposes, under Suffolk County Index No. 2009-22839; and it is further ORDERED that the caption of this action shall read as follows: SUPREME COURT OF THE STATE OF NEW YORK CO UNTY OF SUFFOLK --- ------------------------------------x AURORA LOAN SERVICES LLC and NATI ONSTAR MORTGAGE LLC, Index No. 2009 -22839 (Consolidated) Plaintiffs -vs. MANFRED SCHELLER, CHERYL MENDENHALL, et. al ., Defendan ts --- --------- ---- ------------------------x an d it is further [* 6] ORDERED that any relief not expressly granted herein shall be and the same is hereby denied; and it is further ORDERED that counsel for Defendants shall Order with Notice of Entry upon second action within twenty one days f o Dated: May 22, 2014 Riverhead, New York Shawn Spielberg Esq. Frenkel Lambert Weiss Weisman & Gordon LLP Attorneys for Plaintiff 53 Gibson Street Bay Shore, New York 11706 Charles Wallshein Esq. Macco & Stern LLP Attorneys for Defendants SCHELLER and MENDENHALL 135 Pinelawn Melville, New York 11747 X X Non Final Disposition Scan
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