Zinn v. Mortg. Lender of Am. & Co. (In re Zinn)
| Decision Date | 18 January 2017 |
| Docket Number | Adversary Proceeding No. 13-00708-LSS,Case No. 13-14270-LSS |
| Parties | IN RE: HENRY ALLEN ZINN, Debtor. HENRY ALLEN ZINN, Plaintiff, v. MORTGAGE LENDER OF AMERICA AND COMPANY, INC., et al., Defendants. |
| Court | U.S. Bankruptcy Court — District of Maryland |
Not for publication in West's Bankruptcy Reporter.
Flagstar Bank, FSB ("Flagstar"), one of the defendants, has filed a motion to dismiss the plaintiff's Third Amended Complaint.
The Third Amended Complaint sets forth the following facts, which, for purposes of the motion to dismiss, are accepted as true (to the extent not merely conclusory allegations instead of well-pled facts). In 2002 the plaintiff, Henry Zinn, and his son, Joseph Zinn, purchased a 46.7 acre parcel of property, the "Original Parcel," in Montgomery County, Maryland.1 Later, Joseph and his wife, Billie Joe Zinn, acquired an adjoining, unimproved parcel of 26.7 acres of real property, the "Additional Parcel," located in the same county. In 2003, Henry, Joseph, and Billie Joe obtained construction loans from Severn Savings Bank to construct two homes on the Original Parcel, one for Henry and one for Joseph and Billie Joe. The three Zinns all served as the obligors for both loans and each loan was secured by deeds of trust on both parcels. The loans, for $650,000 and $360,000, totaled $1,010,000. The Zinns constructed a residence for Henry and a residence for Joseph and Billie Joe on the Original Parcel.
In 2008, Henry, Joseph and Billie Joe endeavored to take out refinancing loans so that Henry would be the sole owner of his own home and a surrounding five-acre tract of land ("Parcel 1"),to be used as the collateral for a refinancing loan to him, and Joseph and Billie Joe would be the joint owners of their own home and a surrounding five-acre tract of land ("Parcel 2"), to be used as the collateral for a refinancing loan to them.
The Zinns engaged Mortgage Lenders of America and Company, Inc. ("Mortgage Lenders") for the purpose of creating the new loans. Representatives of Mortgage Lenders indicated that they could create two separate mortgage loans, one to Henry secured by Parcel 1, the five-acre parcel surrounding his home, and one to Joseph and Billie Joe secured by Parcel 2, the five-acre parcel surrounding their home. A land surveyor prepared metes and bounds descriptions of Parcel 1 and Parcel 2, as well as a plat drawing. Mortgage Lenders obtained appraisals of each of the five-acre parcels. Flagstar was the underwriter for a $401,000 loan that was to be made to Henry. Mortgage Lenders assured the Zinns that the transactions would go off as represented, and in reliance on Mortgage Lenders' representations, the Zinns proceeded with the transactions. The refinancing transactions did result in satisfying the debts owed to Severn Savings Bank; part of the proceeds of the $401,000 refinancing loan to Henry was used to pay off the $356,298.05 balance of the $360,000 construction loan, and part of the proceeds of the refinancing loan to Joseph and Billie Joe was used to pay off the balance ofthe $650,000 construction loan. However, the transactions did not otherwise go off as envisioned by the Zinns.
First, as part of the transactions, the Zinns executed two quit claim deeds:
As a result the Original Parcel (including the two homes that sit on the Original Parcel, i.e., both Henry's home and Joseph's and Billie Joe's home) is now solely owned by Henry, and the unimproved Additional Parcel is now owned jointly by Joseph and Billie Joe.
Second, the deeds of trust executed pursuant to the transactions were not as envisioned:
(1) for the loan to Henry of $401,000, the collateral for the deed of trust executed by Henry on February 27, 2008, and recorded on October 20, 2009 (the "Henry Deed of Trust"), was the Additional Parcel, instead of Parcel 1 of the Original Parcel; and(2) for the loan to Joseph and Billie Joe of $856,000, the collateral for the deed of trust, executed by Joseph and Billie Joe on February 27, 2008, and recorded on August 8, 2008 (the "Joseph and Billie Joe Deed of Trust"), was also the Additional Parcel, instead of Parcel 2 of the Original Parcel.
As a result, the Original Parcel was left unencumbered, whereas the Additional Parcel, which the Zinns had not discussed or contemplated to serve as collateral for either loan,2 is now encumbered for repayment of both loans.
Henry maintains that he, Joseph, and Billie Joe executed the loan documents on the basis of the explicit understanding reached in numerous conversations with Mortgage Lenders, as confirmed by the loan origination documents, that the security for the loans would be the respective five-acre parcels. Henry asserts that they would not have executed the documents had they been aware of the need to include either the entire Original Parcel or the Additional Parcel as collateral for the loans. The Zinns lay blame on Flagstar, pointing to a Purchase Commitment Letter of February 25, 2008, listing the status of Henry's loan as FinalApproval Clear to Close, in which Flagstar indicated that "[t]he title to the property located at the above address, given to secure this loan and all other legal matters pertaining to this transaction must meet with the approval of FLAGSTAR BANK."3
In October 2008, Henry retained an attorney, Susan S. Jamison. On October 7, 2008 (before the Henry Deed of Trust was recorded), Jamison wrote to Mortgage Lenders, Flagstar, and other entities involved in the refinancing transactions and recited what had gone wrong in the transactions, including, as pertinent to Henry, that the Henry Deed of Trust (which Jamison noted may not yet have been recorded at that time) had erroneously designated the Additional Parcel as collateral for the $401,000 loan to Henry, and that the two quitclaim deeds were inconsistent with the intentions of Henry, Joseph, and Billie Joe.
When the Henry Deed of Trust was filed on October 20, 2009, Flagstar was the loan servicer for Henry's $401,000 loan and was accepting payments from Henry. Further missteps followed regarding the Henry Deed of Trust:
The two Affidavits were drafted with knowledge that the collateral identified in the Henry Deed of Trust (the Additional Parcel) was not offered by Henry as collateral for Henry's refinancing loan. The Zinns' attorney had advised Flagstar of that problem in 2008. Moreover, representatives from Flagstar downloaded the loan origination file, which supported Henry's account of what the Zinns had intended and expected, on September 21, 2011.
On or about February 2, 2012, an altered version of the Henry Deed of Trust (the "Altered Henry Deed of Trust") was inserted into the land records of Montgomery County, Maryland. This altered deed of trust is referred to by Henry as the "Fraudulent DOT." It states that "the document is being re-recorded to correct the legal description which was incorrectly stated previously." The Altered Henry Deed of Trust amended the Henry Deed of Trust by inserting as the second page the legal description of the entire Original Parcel as collateral, while also still attaching the description of the Additional Parcel originally attached to the Henry Deed of Trust. The Altered Henry Deed of Trust thus constitutes a lien against both the Original Parcel and the Additional Parcel. As in the case of the Additional Parcel, none of the Zinns ever offered the entire Original Parcel as collateral for either of the loans, and none of the parties had ever discussed the possibility of the entire Original Parcel being offered as collateral.
On February 23, 2012, a Vice President of Flagstar, acting on behalf of Mortgage Lenders, executed a Transfer and Assignment of Security Instrument to convey to Flagstar the Henry Deed of Trust, and the document was recorded on March 8, 2012. There is no indication that prior to February 23, 2012, Flagstar had acted as a holder of the promissory note for the $401,000 refinancing loan to Henry.
On March 8, 2012, an Appointment of Substitute Trustees was filed in the land records of Montgomery County, Maryland. It purports to have been executed by an Assistant Vice President of Flagstar and to have been prepared under the supervision of Cohn, Goldberg and Deutsch, LLC, another defendant in this case. On its first page, the Appointment of Substitute Trustees represents that:
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