In re Cohen

• Decision Date: 29 June 2009
• Docket Number: Adversary No. 08-8058-478.,Bankruptcy No. 08-70271-478.
• Citation: 418 B.R. 785
• Parties: In re Mitchell J. COHEN, Debtor. Treuhold Capital Group LLC, Plaintiff, v. Mitchell J. Cohen, Lend America, Wells Fargo Bank, N.A., Saxon Mortgage Services, Inc., Mortgage Electronic Registration Systems, Inc., as nominee for Lend America, Inc., America's Servicing Company, and Richard L. Stern, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of New York

418 B.R. 785

In re Mitchell J. COHEN, Debtor Treuhold Capital Group LLC, Plaintiff, v. Mitchell J. Cohen, Lend America, Wells Fargo Bank, N.A., Saxon Mortgage Services, Inc., Mortgage Electronic Registration Systems, Inc., as nominee for Lend America, Inc., America's Servicing Company, and Richard L. Stern, Defendants.

Bankruptcy No. 08-70271-478.

Adversary No. 08-8058-478.

United States Bankruptcy Court, E.D. New York.

June 29, 2009.

Benowich Law, LLP, by Leonard Benowich, Esq., White Plains, NY, Meyer, Suozzi, English & Klien, P.C., by Alan E. Marder, Esq., Garden City, NY, for Plaintiff.

Law Offices of Gabriel Del Virginia, by Gabriel De Virginia, Esq., New York, NY, for Defendant Mitchell J. Cohen.

DelBello Bonnellan Weingarten et al., by Frank J. Haupel, Esq., White Plains, NY, for Defendants Saxon Mortgage Services, Inc., Wells Fargo Bank, N.A., America's Servicing Company, and Mortgage Electronic Registration Systems, Inc. as nominee for Lend America, Inc.

MEMORANDUM DECISION AND ORDER

DOROTHY EISENBERG, Bankruptcy Judge.

Before the Court is the Plaintiff's motion for summary judgment and the Defendants' joint motion for summary judgment concerning whether the Plaintiff can void the transfer of certain real properties by the Debtor to himself. The Court has jurisdiction pursuant to 28 U.S.C. § 1334(a) and (b). This matter is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A), (K) and (O) and 11 U.S.C. §§ 506 and 541. The following constitutes the Court's finding of fact and conclusions of law as mandated by Rule 7052 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules").

FACTS

Alan Sarter ("Sarter") is the sole member of Plaintiff, Treuhold Capital Group, LLC. The Debtor Defendant and his former partner, Steve Wissak ("Wissak"), were the only members of Metropolitan Housing LLC ("Metropolitan"), a successor-in-interest to City Development, LLC ("City Development") and other entities through which the Debtor operated a business of locating potential real estate for purchase, improving such real estate, and finding purchasers for such real estate.

From approximately 2002 to 2006, Plaintiff and Debtor, acting first through City Development and then Metropolitan, had a business arrangement whereby Metropolitan would locate 1 to 4-family properties for investment and enter into the contract to purchase those properties. Metropolitan would then approach the Plaintiff to see if it would be willing to purchase the properties under contract and hold title to the properties. Plaintiff had veto power over which properties it would purchase. Metropolitan would make any necessary improvements or repairs to the properties purchased, attempt to secure a buyer for each of the improved properties, and assist that buyer in obtaining financing. The Plaintiff acquired the properties free and clear of any mortgage so title could be conveyed to the subsequent purchasers without the Plaintiff having to satisfy a mortgage. In order to purchase the real properties, Plaintiff used some of its own funds and obtained asset-based loans from Medallion Business Credit LLC ("Medallion"). Medallion required Plaintiff (1) to furnish a copy of the deed to the properties in the Plaintiff's name before Medallion would fund its loans and (2) to pledge the properties to Medallion upon closing. Upon the closing of the sale of real property, Plaintiff was entitled to a return of the funds expended in acquiring the property, plus interest and the cost of obtaining insurance for the property, while Metropolitan was entitled to recover its cost of improving the property. Any proceeds in excess thereof, the profit, would be shared equally between Metropolitan and Plaintiff. There is no evidence of any agreement or discussion between the Plaintiff and the Debtor or Metropolitan to share any losses arising from a sale of property. This business arrangement is not spelled out in any written agreement.

More than 100 parcels of real property were purchased and sold under this business arrangement. Other than the closing of the first real property and one or two other closings under this arrangement, Sarter rarely attended any of the closings because the closings were often held after business hours and were time-consuming.

Plaintiff allowed the Debtor to execute the closing documents on the Plaintiff's behalf by signing "Mitchell Cohen" as authorized signatory for Alvin Sarter. However, neither the Debtor nor Metropolitan had a written power of attorney to act on the Plaintiff's behalf at these closings. The Debtor sometimes got sloppy and signed documents holding himself out to be a member of the Plaintiff or he would sign Sarter's name. Sarter kept a record of all the documents received from the Debtor relating to the purchase and sale of the properties. Sarter checked the documents to ensure that the sale price and profit margin were approximately the amounts agreed upon with the Debtor but he did not concern himself with how the documents were executed as long as he received a return of his investment and the anticipated profit margin. The Debtor usually had the Plaintiff's share of the sale proceeds disbursed or deposited into Plaintiff's bank account within a day of the closing and the Plaintiff would receive information from the Debtor as to which property the proceeds related to and the amount that would be forthcoming. Plaintiff required the Debtor to provide it with a closing statement so that it could forward the statement to Medallion as evidence that a parcel of real property was sold.

Debtor made several transfers of property without Plaintiff's knowledge allegedly in order to raise capital in part to cover post-closing expenses incurred by Metropolitan in repairing the properties. Two of these transfers are the subject of this adversary proceeding: the transfers of 39 Coursen Place, Staten Island, New York (the "Coursen Place Property") and 22-25 Brookhaven Avenue, in Queens County, New York (the "Brookhaven Avenue Property", together with the Coursen Place Property, the "Properties").

Plaintiff had acquired the Brookhaven Avenue Property on October 11, 2006 for $405,000 plus customary closing costs. Approximately one month later, the Debtor executed a contract of sale dated November 7, 2006 on behalf of the Plaintiff to sell the property to himself for $550,000 and scheduled a closing two days later and executed a deed conveying title to the property from Plaintiff to himself for $10. The Debtor's sister, Ceil Calisto, who was a public notary, acknowledged that Sarter had personally appeared before her and executed the deed even though Sarter was not present at the closing. The Debtor admitted that he had signed Sarter's signature on the transfer documents without Sarter's knowledge of the transaction. In connection with the transfer, the Debtor obtained a $341,250 first mortgage and a $131,250 second mortgage from Lend America, and gave Lend America a security interest in the property. In addition, the Debtor forged Sarter's signature on (1) a letter to Lend America falsely acknowledging that Metropolitan had done $30,000 of work on the Brookhaven Avenue Property and (2) a statement to Lend America falsely indicating that Sarter was holding $1,000 from the Debtor with respect to the Debtor's purported purchase of the property. These were all fraudulent acts perpetrated by the Debtor. The first and second mortgages were assigned to Wells Fargo Bank, N.A. ("Wells Fargo") and Saxon Mortgages, Inc. ("Saxon"), respectively on November 17, 2006. Currently, Wells Fargo holds a first mortgage lien in the amount of $337,500 and Saxon holds a second mortgage lien in the amount of $67,500.

Plaintiff acquired the Coursen Place Property on August 25, 2006 for $265,000 plus customary closing costs. Without Plaintiff's consent, the Debtor executed a contract of sale dated November 14, 2006 to sell the Coursen Place Property to himself for $450,000 by signing Sarter's name and executing a deed three days later purportedly conveying title to the Coursen Place Property from Plaintiff to Cohen for $10 without Sarter's knowledge of the transaction. Calisto again acknowledged on the deed that Sarter had personally appeared before her and executed the deed even though Sarter was not present at the closing and the Debtor was the one that signed Sarter's name. The Debtor borrowed $405,000 from Lend America of which $337,500 consisted of a first mortgage and $67,500 consisted of a second mortgage, which were secured by the Coursen Place Property. In connection with the financing, the Debtor forged Sarter's name to a statement dated November 15, 2006 that was submitted to Lend America, falsely representing that $61,000 of work had been done to the Coursen Place Property by Metropolitan. These were all fraudulent acts perpetrated by the Debtor. The first and second mortgages were assigned to Wells Fargo and Saxon, respectively, on November 17, 2006.

Plaintiff did not receive any of the proceeds of the loans extended by Lend America in connection with the transfer of the Properties. Although Debtor produced a copy of the face of a check made out to the Plaintiff by the Debtor's mortgage disbursement agent, Kenneth Golden, Esq., in the amount of $156,000 with respect to the Coursen Place Property, Plaintiff asserted that it never received such check and no evidence has been submitted that indicates that the check was ever negotiated. The Defendants also produce check number 225385, dated November 9, 2006 in the amount of $294,000 made out to the Plaintiff from Golden's mortgage disbursement account purportedly from the loan proceeds arising from the transfer of the Brookhaven Avenue Property to the Debtor. The check was deposited into Plaintiff's bank account on November 13, 2006. Plaintiff has asserted that it received the $294,000 check in connection with the sale of another parcel of property, 165-11 108th Avenue of which P...