Provident Bank v. Community Home Mortg. Corp.

• Citation: 498 F.Supp.2d 558
• Decision Date: 07 May 2007
• Docket Number: No. 02-CV-5219 (JFB)(AKT).,02-CV-5219 (JFB)(AKT).
• Parties: The PROVIDENT BANK, Plaintiff, First Savings Bank, FSB, Intervenor Plaintiff, Warehouseone Acceptance Company IV, LLC, Intervenor Plaintiff, and Netbank, Intervenor Plaintiff, v. COMMUNITY HOME MORTGAGE CORP., Community Home Funding Group, Ltd., and Ira Silverman, Defendants.
• Court: U.S. District Court — Eastern District of New York

498 F.Supp.2d 558

The PROVIDENT BANK, Plaintiff, First Savings Bank, FSB, Intervenor Plaintiff, Warehouseone Acceptance Company IV, LLC, Intervenor Plaintiff, and Netbank, Intervenor Plaintiff, v. COMMUNITY HOME MORTGAGE CORP., Community Home Funding Group, Ltd., and Ira Silverman, Defendants.

No. 02-CV-5219 (JFB)(AKT).

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

May 7, 2007.

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David Buono, Esq., Richard A. Illmer, Esq., Brown McCarron LLP, Dallas, TX, for Intervenor Plaintiff Southwest.

Andrew Scott Kazin, Esq., Thomas E. Stagg, Esq., Simmons, Jannace & Stagg, LLP, Syosset, NY, for Intervenor Plaintiff NetBank.

MEMORANDUM AND ORDER

BIANCO, District Judge.

Plaintiff Provident Bank ("Provident") brings the instant action alleging breach of contract, fraudulent representation and breach of guaranty, and requesting an accounting and appointment of a receiver, against defendants Community Home Mortgage Corp. and Community Home Funding Group, Ltd. (collectively, "Community") and Ira Silverman ("Silverman") (collectively, "defendants"). Intervenor-plaintiffs Southwest Securities Bank, formerly known as First Savings Bank, FSB ("Southwest"), Warehouseone Acceptance Company IV, LLC ("Warehouseone") and NetBank ("NetBank") intervened in the action to assert claims against Community and each other.

NetBank asserts a cross-claim against Southwest for a declaratory judgment in Netbank's favor; in addition, Southwest asserts counter-claims against NetBank for constructive trust, unjust enrichment, conversion, and for a declaratory judgment in Southwest's favor.

Southwest now moves, under Federal Rule of Civil Procedure 56, for summary judgment as to NetBank's cross-claim and its own counter-claim for a declaratory judgment, or, in the alternative, for relief pursuant to the Court's equity powers. NetBank cross-moves for summary judgment, seeking a declaratory judgment in its favor as to its cross-claim and Southwest's counter-claim. For the reasons that follow, Southwest's motion for summary judgment is denied. NetBank's motion for summary judgment is granted.

I. BACKGROUND

A. The Facts

The following facts are taken from the parties' depositions, declarations, exhibits and respective Local 56.1 statements of facts.¹

Defendant Community was a mortgage banker authorized to conduct mortgage banking operations in New York, as well as other states. (Southwest's 56.1, ¶ 5.) Community originated residential mortgage loans. (Id.) Southwest and RBMG, Inc. ("RBMG") did business with Community — Southwest, as a "warehouse lender,"² and RBMG as a "correspondent lender." (Southwest's 56.1, ¶¶ PA.) Intervenor-plaintiff NetBank is a successor in interest to RBMG, Inc. (Stagg Alf., ¶ 1.)

In order to obtain the money to fund the mortgages it originated, Community entered into agreements with banks such as Southwest and RBMG to fund a portion of the purchase price associated with the loans. (Southwest's 56.1, ¶ 6; Ex. A.) In a Mortgage Purchase Agreement ("MPA") between Community and Southwest, the parties provided that Community would sell a loan it had originated to Southwest, and that the purchase price paid by Southwest would be used by Community to fund the closing of the loan.³ (Southwest's 56.1, ¶ 7, Ex. A.) Community would then be obligated to sell the loan within 60 days in order to repay Southwest, plus interest and fees. (Southwest's 56.1, ¶ 8, Ex. A.) Similarly, under RBMG's Correspondent Mortgage Purchase Agreement ("CMPA") with Community, RBMG agreed to purchase mortgage loans from Community. (NetBank's 56.1, ¶ 2; Southwest's 56.1, Ex. W.)

Community allegedly engaged in a scheme known as "double-booking."⁴ (Southwest's 56.1, ¶ 13.) Pursuant to this scheme, each mortgage borrower executed duplicate original promissory notes and mortgage assignments.⁵ (Southwest's 56. 1, ¶ 14.) Community thereby obtained duplicate funding for one loan from two different warehouse lenders, and retained the entire value of the loan for its own purposes. (NetBank's Intervenor Compl., ¶ 48.) After the loan was sold to a permanent investor, only one of the warehouse lenders would be paid in full. (NetBank's Intervenor Compl., ¶ 49.) As a result, the investor and the unpaid warehouse lender would have conflicting recorded mortgages and assignments. (NetBank's Intervenor Compl., ¶ 49.) In the case of nine loans, one original note and assignment was sold to Southwest, and duplicate original documents were sold to RBMG.⁶ (Southwest's 56.1, ¶ 14.) As a result of Community's fraud, there are a total of nine loans which were sold to both Southwest and RBMG and for which each now claims a priority interest:

(1) The Brockman loan, in the amount of $246,050;

(2) The Duhigg loan, in the amount of $238,000;

(3) The Kassorla loan, in the amount of $300,000;

(4) The Martinez loan, in the amount of $236,000;

(5) The Matterson loan, in the amount of $284,500;

(6) The McDuffie loan, in the amount of $177,050;

(7) The Nienstedt loan, in the amount of $195,000;

(8) The Ladioray loan, in the amount of $238,000; and

(9) The Musgrove loan, in the amount of $251,000.

(Wicker Aff., Exs. B-J.)

When Southwest purchased mortgages from Community it, inter alia, took possession of the original notes and received and recorded assignments of the mortgages. (Southwest's 56.1, ¶ 9, Ex. A.) Southwest took possession of its notes after RBMG in the case )f all but the Kassorla loan, which it received on the same day. (NetBank's 56. 1, ¶ 9.) Community did not endorse any of the notes provided to Southwest. (NetBank's 56.1, ¶ 6.) Southwest recorded its assignments of the mortgages before RBMG in the case of five loans: the Duhigg, Kassorla, Martinez, Ladioray, and Musgrove loans. (Southwest's 56.1, Exs. B-S.)

RBMG received the original note and assignment for each of the nine disputed loans. (NetBank's 56.1, ¶ 4.) Seven of the notes (for the Brockman, Duhigg, Kassorla, Martinez, Matterson, McDuffie and Nienstedt loans) were endorsed by Community through defendant Daniel Silverman, its Executive Vice-President. (NetBank's 56.1, ¶ 5, Exs. B-H.) Daniel Silverman made the endorsements by stamping the last page of each note as "[p]ayable to the order of RBMG, Inc. without recourse," and by signing each stamped note. (NetBank's 56.1, ¶ 5, Exs. B-H.)

B. Procedural History

On September 27, 2002, Provident Bank filed the instant action. On October 11, 2002, the Honorable Denis R. Hurley granted Southwest's motion to intervene in the instant action. On July 28, 2005, Judge Hurley granted NetBank's motion to intervene in this action.

This case was reassigned to the undersigned on October 2, 2006. On November 1, 2006, Southwest moved for summary judgment and NetBank cross-moved for summary judgment. Oral argument was held on April 13, 2007.⁷

II. DISCUSSION

A. Standard of Review

The standards for summary judgment are well-settled. Pursuant to Federal Rule of Civil Procedure 56(c), a court may not grant a motion for summary judgment unless "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); Globecon Group, LLC v. Hartford Fire Ins. Co., 434 F.3d 165, 170 (2d Cir.2006). The moving party bears the burden of showing that he or she is entitled to summary judgment. See Huminski v. Corsones, 396 F.3d 53, 69 (2d Cir.2005). The court "is not to weigh the evidence but is instead required to view the evidence in the light most favorable to the party opposing summary judgment, to draw all reasonable inferences in favor of that party, and to eschew credibility assessments." Amnesty Am. v. Town of West Hartford, 361 F.3d 113, 122 (2d Cir. 2004); Anderson v. Liberty Lobby, Inc., 477 U. S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (summary judgment is unwarranted if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party").

Once the moving party has met its burden, the opposing party "must do more than simply show that there is some metaphysical doubt as to the material facts.... [T]he nonmoving party must come forward with specific facts showing that there is a genuine issue for trial." Caldarola v. Calabrese, 298 F.3d 156, 160 (2d Cir.2002) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). As the Supreme Court stated in Anderson, "[i]f the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." 477 U.S. at 249-50, 106 S.Ct. 2505 (citations omitted). Indeed, "the mere existence of some alleged factual dispute between the parties" alone will not defeat a properly supported motion for summary judgment. Id,. at 247-48, 106 S.Ct. 2505. Thus, the nonmoving party may not rest upon mere conclusory allegations or denials, but must set forth "concrete particulars" showing that a trial is needed. R.G. Group, Inc. v. Horn & Hardart Co., 751 F.2d 69, 77 (2d Cir.1984) (internal quotations omitted). Accordingly, it is insufficient for a party opposing summary judgment "merely to assert a conclusion without supplying supporting arguments or facts." BellSouth Telecomms., Inc. v. W.R. Grace & Co., 77 F.3d 603, 615 (2d Cir.1996) (internal quotations omitted).

B. Evaluating Mortgage Assignments Under Real Property Law and UCC Article 9

Generally, a secured real property transaction consists of two documents: the mortgage document and the note or bond. In re Stockbridge Funding Corp., 145 B.R. 797, 807 (Bkrtcy.S.D.N.Y.1992), aff'd in part & vacated in part on other grounds, 158 B.R. 914 (S.D.N.Y.1993). The mortgage document creates a security interest in the real property, while the note or bond represents the debt that is secured by a mortgage. Id. While it is apparent that "these...