Mortgage Electronic Registration Systems, Inc. v. Maniscalco

• Citation: 46 A.D.3d 1279,848 N.Y.S.2d 766,2007 NY Slip Op 10440
• Decision Date: 27 December 2007
• Docket Number: 502281.
• Parties: MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., Respondent, v. SAM MANISCALCO, Appellant, et al., Defendants.
• Court: New York Supreme Court — Appellate Division

46 A.D.3d 1279

848 N.Y.S.2d 766

2007 NY Slip Op 10440

MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., Respondent, v. SAM MANISCALCO, Appellant, et al., Defendants.

502281.

Appellate Division of the Supreme Court of the State of New York, Third Department.

Decided December 27, 2007.

Appeal from an order of the Supreme Court (Lalor, J.), entered April 4, 2006 in Greene County, which, among other things, granted plaintiff's motion for summary judgment seeking foreclosure of a mortgage.

Cardona, P.J.

In early 2004, defendant Sam Maniscalco (hereinafter defendant) decided to refinance his home mortgage loan. In the course of the loan application process, he allegedly informed Michael Lederman, the president of Mortgage Source, a mortgage brokerage, of an outstanding judgment taken against him by his former counsel in the amount of $17,000. According to defendant, Lederman told him that Mortgage Source could establish an escrow account of $35,000 from the mortgage proceeds without satisfying the judgment, using its title insurance company as depositary, and that those funds could then be used to retain a lawyer to negotiate the judgment to a reduced amount. Defendant was allegedly also assured that, even if negotiations were unsuccessful, the escrow account could still be used to pay the judgment.

Thereafter, on June 22, 2004, the mortgage closing was scheduled at defendant's home with a notary public appearing to assist with the mortgage documents. Defendant asserts that at the closing he was surprised to find no mention of the escrow agreement in the closing papers and was assured by both the notary public and Lederman, by telephone, that "everything was proper and the escrow agreement and its implementation would be carried out by [the law firm retained by Mortgage Source]." Defendant then executed a mortgage note with WMC Mortgage Corporation, the original lender and plaintiff's predecessor in interest, and also signed, among other things, notices regarding his right to cancel.

Subsequently, on July 2, 2004, defendant received checks and information relating to the closing that made it clear that WMC's counsel had paid the judgment in full rather than establishing an escrow account. Defendant left a message with the office of WMC's counsel indicating that he was "cancelling the mortgage." On July 8, 2004, defendant tried to rescind the mortgage by sending a letter to WMC's law firm and returning all the checks. WMC's counsel sent the checks back to defendant, advising him that his attempt to cancel the mortgage was untimely, he still owed money on the mortgage and the firm had no knowledge of the alleged escrow agreement. In August 2004, defendant failed to make his first payment on the mortgage and defaulted.

In January 2005, plaintiff commenced this mortgage foreclosure action. Defendant's amended verified answer asserted several affirmative defenses and a counterclaim requesting the rescission and cancellation of the promissory note and mortgage. Plaintiff moved for summary judgment foreclosing the mortgage and sought the appointment of a referee. Defendant cross-moved for summary judgment on his counterclaim. Supreme Court granted plaintiff's motion for summary judgment and denied defendant's cross motion, prompting this appeal.

Initially, defendant contends that Supreme Court erroneously granted plaintiff's motion for summary judgment. A plaintiff seeking to enforce an instrument for the payment of money has the initial burden of proving that the defendant executed the note and failed to make payments in compliance with its terms (see Moezinia v Baroukhian, 247 AD2d 452, 453 [1998]; Gateway State Bank v Shangri-La Private Club for Women, 113 AD2d 791 [1985], affd 67 NY2d 627 [1986]). Once a plaintiff has made this showing, the defendant must demonstrate the existence of a bona fide defense sufficient to defeat a motion for summary judgment (see Lavelle v Urbach, Kahn & Werlin, 198 AD2d 751, 751 [1993]; Abacus Real Estate Fin. Co. v P.A.R. Constr. & Maintenance Corp., 115 AD2d 576, 576 [1985]).

Here, the record establishes that plaintiff met its initial burden by demonstrating that defendant executed the note and mortgage agreement in June 2004 and, thereafter, defaulted by failing to make the first payment in August 2004. In response, defendant contends that he raised a triable issue of fact as to the bona fide defense of rescission of the loan. Upon review of the record, we cannot agree. The Federal Truth in Lending Act gives obligors, such as defendant, only until midnight of the third day after consummation of the loan to rescind (see 15 USC § 1635 [a]). Since defendant executed the subject note and mortgage agreement on June 22, 2004, but did not attempt to rescind until July 8, 2004, any attempt to rescind pursuant to federal law was untimely.

As for the issue of rescission under New York common law, a party to a contract is entitled to rescind where the other p...