Aurora Loan
Services LLC, Plaintiff,
against
Manfred Scheller, CHERYL MENDENHALL, et. al., ,
Defendants.
|
2009-22839
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
Jeffrey Arlen Spinner, J.
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 basis 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 [*2]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 the 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
without prejudice, which is vehemently opposed by Defendants.
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 address the matters in
a single proceeding. Part and parcel of such consideration includes 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 opposing such a
motion to demonstrate the likelihood of substantial prejudice that would ensue if the
relief were granted, Vigo S.S. Corp. v. Marship Corp. 26 NY2d 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 AD2d
917 (2nd 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 AD2d 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 AD2d 728 (2nd Dept. 1991).
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 [*3]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, it 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 well not be
either of the named Plaintiffs in these two actions). Defendants have raised serious and
substantial questions as to the identity of the party that is entitled to enforce the note 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 from Aurora Loan Services LLC to
Nationstar Mortgage LLC transfers only the mortgage but does not convey the
underlying obligation. Moreover, a plaintiff, in order to establish standing, must come
forward with proof sufficient to demonstrate that it was actually in possession of both the
mortgage and the underlying obligation that it secures at the time of the commencement
of the suit, HSBC Bank USA v. Hernandez 92 AD3d 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
[*4]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 cannot claim to be bona fide purchasers thereafter inasmuch as they
would either know or would have reason to know that any interest transferred would be
subject to the operative terms of the trust, Smith v. Kidd 68 NY 130 (1877),
McPherson v. Rollins 107 NY 316 (1887).
Plaintiff further claims that Defendants have no standing to challenge or
otherwise attack the assignment. This argument, while superficially correct, is likewise
untenable. While it is true that third parties do not, under ordinary circumstances, enjoy
standing to challenge the assignment of an indebtedness from one obligee to another,
Bank of New York Mellon v. Gales 116 AD3d 723 (2nd Dept. 2014), in the
present matter that assertion is decidedly misplaced. A fair reading of Defendants'
proposed Second Amended Answer discloses that Defendants are attempting to
challenge the validity of the initial assignment which, it is claimed, has caused them to
incur damages respecting the marketability of title to the property herein. Defendants
mount their challenge only to the particular transactions respecting the mortgage for
which 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 interest 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 title would serve to effectively diminish the value of the fee simple absolute
interest. Standards for marketable title and insurable title are markedly different, with
marketable title being title that is "...reasonably free from any doubt which would
interfere with its market value." Voorheesville Rod & Gun Club Inc. v. E. W.
Tompkins Co. 82 NY2d 564 (1993). For title to be insurable, it need only be that
which a title insurer would insure, a far lower standard and one which seems elusive at
best. It logically follows then that if the REMIC, as real party 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 Plaintiffs in these actions, as purported successors in interest thereto
would be without any authority to enforce the same, their assertions to the contrary
notwithstanding. This, in turn, leads inexorably to invocation of the ancient maxim of
"Nemo dat quod non habet" ("You cannot give what you do not have"). The
question, to be directed to both Plaintiffs, "What do they have?" cannot be answered to
the satisfaction of the Court at this point in time.
It has long been the public policy of New York that matters be resolved on
their merits rather than by default wherever it is possible. That having been said, it is the
custom and practice of the courts that leave to be amend be freely given, provided that it
does not impose either surprise or prejudice upon the adverse party, Balport
Construction Co. v. New York Telephone Co. 134 AD2d 309 (2nd Dept. 1987),
Ozen v. Yilmaz 181 AD2d 666 (2nd Dept. 1992). No actual prejudice or surprise
has been advanced by either Plaintiff which could be said to be of sufficient magnitude
to warrant preclusion of the relief sought by Defendants. Moreover, since an action to
foreclose a mortgage is a suit in equity, Jamaica Savings Bank v. M.S. Investment Co.
274 NY 215 (1937), equity mandates that the Court do that which is right and fair,
that which ought to be done.
It 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 granted 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
COUNTY OF SUFFOLK
x
AURORA LOAN SERVICES LLC andIndex No. 2009-22839
NATIONSTAR MORTGAGE LLC,(Consolidated)
Plaintiffs
vs.-
MANFRED SCHELLER, CHERYL
MENDENHALL, et. al.,
Defendants
x
and it is further
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 serve a copy of this Order with Notice
of Entry upon all parties as well as Plaintiff in the second action within twenty one days
from the date hereof.
Dated: May 22, 2014
Riverhead, New York
_____________________________
HON. Jeffrey Arlen Spinner
J.S.C.
_X__Non Final Disposition
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