M & T Mortg. Corp. v. Miller

• Decision Date: 28 June 2004
• Docket Number: No. 02 CV 5410.,02 CV 5410.
• Citation: 323 F.Supp.2d 405
• Parties: M & T MORTGAGE CORPORATION, Plaintiff, v. Cedric D. MILLER and Elizabeth Miller, New York City Health & Hospitals Corporation, City of New York Department of Transportation, Parking Violation Bureau, New York City Transit Adjudication Bureau, New York City Department of Environmental Control, People of the State of New York, New York City Bureau of Highway Operations, New York City Department of Taxation and Finance, Taxi and Limousine Commission, "John Doe" and "Mary Roe," Defendants, Cedric D. Miller and Elizabeth Miller, Third-Party Plaintiffs, v. United States Department of Housing and Urban Development, Ackerman, Raphan & Sultzer, Neal Sultzer, Better Homes Depot, Inc., Eric Fessler, President of Better Homes Depot, Inc., John Glenn, Real Estate Broker Employed by Better Homes Depot, Inc., Madison Home Equities Inc., Nadine Malone, President of Madison Home Equities, Inc., Michael Rindenow, Marc Oringer, Alton Brown, C. Peter David, CLA, Inc., Robert Dosch, A.V.P. Exterminators, Inc., Verrazano Associates Ltd., and Fidelity National Title Insurance Company, Third-Party Defendants.
• Court: U.S. District Court — Eastern District of New York

323 F.Supp.2d 405

M & T MORTGAGE CORPORATION, Plaintiff, v. Cedric D. MILLER and Elizabeth Miller, New York City Health & Hospitals Corporation, City of New York Department of Transportation, Parking Violation Bureau, New York City Transit Adjudication Bureau, New York City Department of Environmental Control, People of the State of New York, New York City Bureau of Highway Operations, New York City Department of Taxation and Finance, Taxi and Limousine Commission, "John Doe" and "Mary Roe," Defendants, Cedric D. Miller and Elizabeth Miller, Third-Party Plaintiffs, v. United States Department of Housing and Urban Development, Ackerman, Raphan & Sultzer, Neal Sultzer, Better Homes Depot, Inc., Eric Fessler, President of Better Homes Depot, Inc., John Glenn, Real Estate Broker Employed by Better Homes Depot, Inc., Madison Home Equities Inc., Nadine Malone, President of Madison Home Equities, Inc., Michael Rindenow, Marc Oringer, Alton Brown, C. Peter David, CLA, Inc., Robert Dosch, A.V.P. Exterminators, Inc., Verrazano Associates Ltd., and Fidelity National Title Insurance Company, Third-Party Defendants.

No. 02 CV 5410.

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

June 28, 2004.

COPYRIGHT MATERIAL OMITTED

Evelyn H. Seeler, Buchanan Ingersoll, P.C., New York City, for Plaintiff.

Hillary Exter, Brooklyn Legal Services Corp., Brooklyn, NY, for Defendants/Third-Party Plaintiffs.

Carolyn Lisa Miller, United States Attorney's Office, Brooklyn, NY, Scott E. Kossove, L'Abbate, Balkan, Colavita & Contin, Garden City, NY, Anthony J. Genovesi, Jr., Borchert, Genovesi, LaSpina & Landicino, P.C., Brooklyn, NY, Anthony Wayne Vaughn, Borchert, Genovesi, Laspina & Landicino, Whitestone Expressway, NY, Andrew M. Lauri, Carle Place, NY, Alan J. Firestone, Firestone & Harris, Brooklyn, NY, Bill Tsevis, Solomon & Siris, LLP, Garden City, NY, for Third-Party Defendants.

OPINION ORDER

GERSHON, District Judge.

Plaintiff, M & T Mortgage Corporation ("M & T"), commenced this action against defendant/third-party plaintiffs Cedric and Elizabeth Miller (the "Millers"), seeking to foreclose on a mortgage loan made by third-party defendant, Madison Home Equities, Inc., which had been sold to M & T. The Millers answered and asserted affirmative defenses and third-party complaint against third-party defendants Madison Home Equities, Nadine Malone and Michael Rindenow (collectively the "Madison Defendants"); Better Homes Depot, Inc., Eric Fessler, President of Better Homes Depot, Inc., and Glenn John, individually and in his capacity as a real estate broker employed by Better Homes (collectively the "Better Homes Defendants"); Neal Sultzer and the law firm Ackerman, Raphan & Sultzer (collectively the "Sultzer Defendants"); Marc Oringer, A.V.P. Exterminators, Inc., Verrazano Associates Ltd., Fidelity National Title Insurance Company, Alton Brown, C. Peter David, CLA, Inc., and Robert Dosch (together with the Madison Defendants, the Better Homes Defendants and the Sultzer Defendants the "Private Defendants"). On February 20, 2003, the Millers filed an "Answer and Amended Third Party Complaint." The Millers raise, as affirmative defenses, provisions of the Equal Credit Opportunity Act ("ECOA"),15 U.S.C. § 1691 et seq., the Fair Housing Act ("FHA"), 42 U.S.C. § 3605, and the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq. They also bring claims against Third-Party Defendants of: (1) conspiracy to commit fraud; (2) fraud in the inducement; (3) rescission; (4) violations of the New York Deceptive Practices Act, General Business Law ("GBL") § 349, (5) breach of fiduciary duty; (6) malpractice; (7) conversion; and (8) unconscionability. The Millers also seek a declaratory judgment against the United States Department of Housing and Urban Development ("HUD"), pursuant to the Declaratory Judgment Act ("DJA"), 28 U.S.C §§ 2201-2202, on the ground that HUD negligently performed its duties under the National Housing Act, 12 U.S.C. § 1708, and an injunction preventing the further issuance of FHA insurance on certain classes of homes except where HUD has performed due diligence regarding the terms of the sale and financing.

The claims against A.V.P. Exterminators, Inc. were settled by stipulation dated April 8, 2003. The Millers have represented that the claims against Third-Party Defendants Verrazano Associates Ltd., Fidelity National Title Insurance Company, and the United States Department of Housing and Urban Development have been settled. The Millers have also represented that M & T's claims against them have been settled.

The remaining Private Defendants jointly move to dismiss the Third-Party Complaint or in the alternative for summary judgment pursuant to Federal Rules of Civil Procedure 12(b)(6) or 56 on the grounds that: (1) the TILA, ECOA, FHA and GBL § 349 claims are barred by the statute of limitations; (2) the Millers have failed to state a claim of unconscionability; (3) the fraud claims are not permissible in a breach of contract case, are barred by the merger doctrine, and are not pled with sufficient particularity; and (4) the fraud, GBL § 349 and FHA claims are barred by the Millers' election of remedies.

Statement of Facts

The Millers allege the following facts in the Third-Party Complaint:

Private Defendants are engaged in a scheme to fraudulently lend money and sell houses at inflated prices to low or moderate-income racial minorities, particularly African-American and Hispanic persons. Private Defendants target members of these groups because their relative inexperience in property ownership prevents them from identifying fraudulent or predatory sales and lending. The Millers are a middle-income minority family, and the house that is the subject of this action is located within an area identified by HUD as having the highest occurrence of predatory lending practices in the nation. HUD has made a finding that the Millers were the victims of a predatory lending scheme.

In December of 1998 the Millers contacted defendant Better Homes to discuss the possibility of buying a home. The Millers expressed their concern to Glenn John, a Better Homes broker, that, because they were first-time purchasers, they did not know if they could afford to purchase a home. John informed the Millers that they would have to undergo a screening process to determine if they could afford a house and what type of house was most suitable for them. In fact, the true purpose of this process was to establish a "profile" that would confirm that the Millers were likely targets for a fraudulent buying and lending scheme.

John showed the Millers a house located at 1333 East 49th Street, Brooklyn, New York, with a purchase price of $229,000, which John assured them that they could afford. John also promised the Millers that he would arrange for a lender, Madison, to finance the purchase and obtain FHA mortgage insurance. John did not inform the Millers that the seller, Marc Oringer, a real estate speculator with a business relationship with Better Homes, had recently purchased the home for $164,000 in substantially the same condition as he was then selling it. It is unclear as to whether a contract of sale was ever entered into for this property.

The closing on the 49th Street house was scheduled for March 27, 1999. When the Millers appeared for the closing, they were informed that they could not afford the home, but that there was another, slightly cheaper property located at 1230 Troy Avenue, Brooklyn, that was within their price range. As evidenced by their immediate default on the Troy Avenue property, the Millers could not afford either property. In essence, Private Defendants used the Millers' bid as a price floor and continued to shop the 49th Street property. Once a higher bidder was procured, Private Defendants told the Millers that they could not afford the 49th Street property and steered them to the Troy Avenue property. This property, with a sale price of $219,000 was also owned by Oringer, who had purchased it for $135,000 six weeks earlier. To convince the Millers to buy the Troy Avenue property, Better Home Defendants told the Millers that: the purchase price was fair and affordable; there was a rental unit in the property that would generate at least $1,200 a month; all repairs would be completed prior to their move in; all aspects of the transaction were being handled to protect their interests; and that it was the altruistic mission of John to assist people of color in achieving the American dream of home ownership. Unfortunately, none of these statements proved true.

In furtherance of this fraud, Better Home Defendants obtained a fraudulent appraisal from Third-Party Defendant, CLA, Inc. The appraisal was based upon the inspection of Third-Party Defendants A.V.P. Exterminators and Robert Dosch, who has since been charged by the New York County District Attorney with defrauding HUD and the FHA program in connection with asset flipping. The fair market value of the 1230 Troy Avenue property appears to have been, at most, $150,000. (Exhibit B to Exeter Declaration). The appraisal, however, provided by CLA and Dosch places the property value at the exact sale price of $219,000; fails to note the purchase of the house by Oringer for $135,000 six weeks earlier; misrepresents what types of properties were comparable to the subject property; conceals the condition of the property, the repairs needed and the status of the certificate of occupancy. (Exhibit D to Exeter Declaration). The appraisal also omits that, prior to the Millers entering into the contract for sale, another party had agreed to buy the home for $20,000 less, and that the contract of sale was with Better Homes, not Oringer the deed holder, and was not labeled as a "flip" transaction.

Having convinced the Millers to purchase the Troy Avenue property, Better Homes instructed the Millers to use Madison to acquire the necessary financing. Fessler, the president of...