M & T Mortgage Corp. v. White

Decision Date26 August 2010
Docket NumberNos. 04-CV-4775 (NGG) (VVP),Nos. 04-CV-5620 (NGG) (VVP),s. 04-CV-4775 (NGG) (VVP),s. 04-CV-5620 (NGG) (VVP)
Citation736 F.Supp.2d 538
CourtU.S. District Court — Eastern District of New York
PartiesM & T MORTGAGE CORP., Plaintiff, v. Leo WHITE et al., Defendants. and Leo White, Third-Party Plaintiff, v. Better Homes Depot, Inc., et al., Third-Party Defendants. Linda Council and Kimberly Council, Plaintiffs, v. Better Homes Depot, Inc., et al., Defendants.

Evelyn Harrison Seeler, Timothy J. Fierst, Crowell & Moring LLP, New York, NY, for Plaintiff.

Joseph M. Sanders, Brooklyn Legal Services, Brooklyn, NY, for Defendants.



This court has reviewed the unopposed Report and Recommendation ("R & R") of Magistrate Judge Viktor V. Pohorelsky dated March 18, 2010. (Docket Entry # 290, No. 04-CV-4775; Docket Entry # 313, No. 04-CV-5620.) Finding no clear error, the court adopts Judge Pohorelsky's thorough and well-reasoned R & R pursuant to 28 U.S.C. § 636(b)(1). Accordingly, the Motion for Summary Judgment by Better Homes Depot, Inc. and Madison Home Equities, Inc. (Docket Entry # 279, No. 04-CV-4775; Docket Entry # 310, No. 04-CV-5620) and the Motion for Summary Judgment by Defendant/Third-Party Plaintiff Leo White and Plaintiffs Linda Council and Kimberly Council (Docket Entry # 282, No. 04-CV-4775; Docket Entry # 313, No. 04-CV-5620) are DENIED.



POHORELSKY, United States Magistrate Judge:

The parties in the above-captioned cases have moved for summary judgment, and Judge Garaufis has referred the motions to me for a report and recommendation pursuant to 28 U.S.C. § 636(b)(1)(B). Both cases arise out of materially similar transactions, which consist of the plaintiffs' 1 purchase of a dwelling from the defendant Better Homes Depot, Inc. ("Better Homes" or "BHD") financed by a mortgage issued by the defendant Madison Home Equities, Inc. ("Madison" or "MHE"). The allegations sound primarily in fraud, conspiracy, deceptive trade practices, and federal housing discrimination in connection with those transactions. The Better Homes defendants have moved for summary judgment pursuant to Federal Rule of Civil Procedure 56 against the plaintiffs, Leo White, Linda Council, and Kimberly Council, while White and the Councils have cross-moved for partial summary judgment on many of their claims. For the reasons that follow, the undersigned finds that genuine issues of material fact remain, and respectfully recommends that both BHD motions be DENIED and that the White and Council motions be DENIED as well.


The facts on which the court relies will be drawn from the Local Civil Rule 56.1 Statements of Fact that the parties have filed, as well as from the exhibits attached to the parties' moving papers, and from the pleadings, admissions, and prior discovery rulings that occurred. The transactions in question both occurred in 1999, when Leo White and the Councils separately purchased residential properties in Brooklyn, New York from Better Homes, with financing provided by Madison. At issue are the defendants' alleged representationsthat the properties were or would be converted into legal four-family (White) and two-family (the Councils) homes, that Certificates of Occupancy would be obtained, and that the premises would be substantially repaired and renovated. Their respective experiences with the defendants-including their discussions, the transactions at issue, and the events that ensued-are separately described below.

Leo White

At the time that White first approached Better Homes about purchasing a home, he was a 21 year-old African-American hotel doorman earning roughly $2,100 per month. He had not graduated high school. White was interested in purchasing a multi-family dwelling in the Bedford-Stuyvesant section of Brooklyn. To enable him to carry the mortgage that would be necessary, White wanted to have rent-paying tenants. Thus, he planned to live with his family on one floor, and collect rent from tenants on the other floors. Because White's aunt had previously purchased a home from BHD financed by an MHE mortgage, she took White to BHD and MHE offices to begin inquiries about buying and financing a home. Over a period of approximately one month, White had numerous meetings with Better Homes and Madison agents, including Glen John and Charles Styles, and was shown an estimated 20 houses. Although he initially agreed to purchase a different property, White ultimately settled on the purchase of a house at 164 Macon Street.

The premises at 164 Macon Street, which were built around 1899, consisted of a basement and four floors. The apartments on the first and second floors each have one bedroom, while the third and fourth floor apartments each have two bedrooms. It appears that the property did not have a Certificate of Occupancy ("CO") for use as a four-family dwelling at the time; White testified that the existing CO was for use as a three-family house. White testified, however, that BHD promised to perform any necessary repairs so that the property could be legally categorized as a four-family dwelling. White also testified that he was told by BHD and MHE agents-including John, Styles, Eric Fessler (the President of Better Homes), and Nadine Malone (the President of Madison Home Equities)-that he would be able to rent the three other units in the home, and realize approximately $3,600 per month in rental revenue. Never having purchased a home before, however, White did not independently verify that information. Nor did he obtain an independent engineering inspection or appraisal, or independently investigate the house's market value or condition. White was not represented by an attorney when he signed the contract of sale, and does not remember speaking with or consulting anyone about its terms prior to signing. He did not object to any of the contract terms, and testified that he had read through and understood the document.

The MHE mortgage that White used to finance the purchase of 164 Macon Street was insured by the Federal Housing Administration (the "FHA"). The rental income he expected to realize was included on his mortgage application, subject to verification in the appraisal. At the behest of Madison, the residence was appraised by Robert Dosch, an employee of CLA Appraisals. His appraisal report contained the following provision: "The appraiser has based his or her appraisal report and valuation conclusion for an appraisal that is subject to satisfactory completion, repairs, or alterations on the assumption that completion of the improvements will be performed in a workmanlike manner." The appraisal amount in his report essentially matchedthe purchase price, and was calculated on the basis that the legal occupancy status of the property was a four-family dwelling. Dosch's appraisal indicated that White would be able to rent each unit for $1,200 per month.

White remained without counsel until the closing, when he was represented by C. Peter David, an attorney who had been recommended to him by BHD or MHE. Better Homes had informed White that David's legal services were included as part of his down payment. White stated that at the closing David told White that he had looked through the paperwork, and that everything was proper.

Prior to the closing, Better Homes performed a number of cosmetic repairs or renovations on White's home, including installation of ceramic flooring and stoves, painting, carpeting, sheet-rocking, and fixing a leak, and White indicated his satisfaction with the work. Roughly one year after moving in, however, the roof began to leak. White also experienced leaks in some of the piping, and encountered other problems with the chimney and windows. Shortly thereafter, the boiler broke, costing White approximately $2,000. White did not ask Better Homes to make repairs. Ultimately, although White did not realize the level of rental income he had anticipated, he continuously had at least one paying tenant in the premises, and frequently more.2 When he failed to make his mortgage payments, foreclosure proceedings were initiated and While filed a bankruptcy petition in 2003.

The Councils

The Councils, who are also African-American, learned of Better Homes after seeing signs on a house listing BHD as the seller, as well as from newspaper advertisements. Because the Councils were unable to remain in the apartment they occupied at the time, there was some urgency in finding a house or, at a minimum, another place to live. Although similarly inexperienced in real estate transactions, Linda Council and her daughter, Kimberly, had both earned college degrees and had done post-graduate work when they first came into contact with BHD and MHE. Linda worked for the United States Postal Service, and together with Kimberly, they were earning approximately $74,000 per year.

After contacting BHD by telephone, they were shown several properties by Mitch Lewis, a Better Homes agent. They ultimately became interested in a house at 102 Etna Street. The property was undergoing extensive repair and renovation, and the basement was being redone. Linda Council expressed to Lewis her interest in obtaining rental income from the basement unit, and both Linda and Kimberly testified that Lewis represented to them that they would be able to rent out the basement for up to $1,200 a month. While the house was undergoing renovation, Better Homes and Lewis "always made it clear that they would fix the house ... to [their] specifications and what had to be done to the house." Linda Council said she was specifically told that the dwelling was a two-family house, that the basement would be fixed and thus able to be rented out. She was assured that "everything was going to be done that needed to be done, that the house would be up to HUD's codes, everything would be in working condition." Like White, however, the Councils did not have an independent engineering inspection or appraisal performed, nor did they independentl...

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