Costa v. Deutsche Bank Nat'l Trust Co.

247 F.Supp.3d 329

Vito V. COSTA and Marion P. Costa, Plaintiffs,

v.DEUTSCHE BANK NATIONAL TRUST COMPANY as Trustee FOR GSR MORTGAGE LOAN TRUST 2006–OA1, Mortgage Pass–Through Certificates, Series 2006–OA1, and Specialized Loan Servicing LLC, Defendants.

15 Civ. 2674 (KPF)

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

Signed March 30, 2017

Scott J. Steiner, Steiner & Kostyn LLP, White Plains, NY, for Plaintiffs.

Kristine L. Grinberg, Richard P. Haber, Buckley Madole, P.C., New York, NY, Brian Peter Scibetta, Buckley Madole, P.C., Iselin, NJ, for Defendants.

OPINION AND ORDER

KATHERINE POLK FAILLA, United States District Judge

Stripped of its technical jargon, this case is about whether a nearly decade-old defaulted mortgage loan remains enforceable. Plaintiffs Vito and Marion Costa argue that the applicable six-year statute of limitations has expired and that they are therefore entitled to the cancellation and discharge of their mortgage loan. Defendants, the loan trustee and the servicer, maintain that the limitations period has not expired because it had not started prior to this action or, if it had, it was tolled or renewed; thus, foreclosure is warranted. Even if their foreclosure claim is time-barred, however, Defendants still seek to recoup their expenses in maintaining the property over the past decade. The parties filed cross-motions for summary judgment pursuant to Federal Rule of Civil Procedure 56 following the close of discovery. For the reasons that follow, Plaintiffs' motion is granted and Defendants' motion is denied.

BACKGROUND¹

A. Factual Background²

1. The Costas' Mortgage Loan

Plaintiffs own the property located at 60 Interlaken Avenue in New Rochelle, New York (the "Property"). (Pl. 56.1 ¶ 1). On May 9, 2006, Vito took out a mortgage loan with IndyMac Bank F.S.B. ("IndyMac") as nominal lender in the amount of $544,000 (the "Loan"). (Id. at ¶ 17). To accomplish this, Vito executed a note to IndyMac in that amount (the "Note"), and both Vito and Marion secured the Note by granting a corresponding mortgage on the Property (the "Mortgage," and collectively, the "Loan Instruments") to Mortgage Electronic Registration Systems, Inc. ("MERS") as nominee for IndyMac. (Id. at ¶¶ 12, 17, 30; Steiner Decl., Ex. E (Note); id. , Ex. D (Mortgage)).³ The adjustable-rate Note, which IndyMac endorsed in blank, has an initial yearly interest rate of

2.85% and an interest-rate cap of 9.95%. (Pl. 56.1 ¶¶ 18, 22).

Defendant Deutsche Bank National Trust Company ("DB") is a National Banking Association with its principal place of business in Los Angeles, California. (Pl. 56.1 ¶ 2). DB is the Trustee for GSR Mortgage Loan Trust 2006–OA1, Mortgage Pass–Through Certificates, Series 2006–OA1, which owns the Loan (the "Trust"); DB is being sued in its capacity as Trustee. (Id. ; Def. 56.1 ¶ 10).⁴ Defendant Specialized Loan Servicing LLC ("SLS") is a Delaware limited liability company and the current servicer of the Loan. (Pl. 56.1 ¶ 5).

On May 18, 2006, just over a week after the Loan closing, DB took physical possession of the Note and Mortgage, and maintained possession of these instruments at a location in Santa Ana, California, until January 7, 2016. (Pl. 56.1 ¶¶ 25–26; Def. 56.1 ¶¶ 5–6; Steiner Decl., Ex. A (Ward Dep.), at 46:8–47:6). On that date, SLS caused DB to transfer the instruments to Defendants' counsel in this matter, with whom the instruments remain. (Def. 56.1 ¶ 7; Haber Decl., ¶¶ 2–3).

2. The Costas' Loan Default and the 2008 Foreclosure Action

Vito began making monthly payments on the Loan starting in July 2006. (Costa Decl., ¶ 11). He made seventeen payments through November 2007, but was unable to make the December 2007 monthly payment or any thereafter. (Id. at ¶¶ 11, 13; Pl. 56.1 ¶ 43; Def. 56.1 ¶ 11).

On or about February 4, 2008, IndyMac sent Vito a notice notifying him that the Loan was in default (the "Notice of Default" or the "Notice"). (Pl. 56.1 ¶ 44; Def. 56.1 ¶ 12; Steiner Decl., Ex. M (Notice of Default)). The Notice is examined in greater detail infra but, broadly speaking, it informed Vito of the amount owed on the Loan and the consequences of not curing the default by March 7, 2008. (Pl. 56.1 ¶ 45; Def. 56.1 ¶ 12; Steiner Decl., Ex. M (Notice of Default); Ward Decl. ¶ 15). Those consequences included a potential foreclosure action and sale of the Property. (Steiner Decl., Ex. M (Notice of Default)).

Vito failed to cure the defaulted Loan by the March 7, 2008 deadline. (Def. 56.1 ¶ 13). Consequently, on March 20, 2008, IndyMac commenced a foreclosure action against the Costas in New York State Supreme Court, Westchester County (the "Westchester Court"), entitled IndyMac Bank, F.S.B. v. Vito V. Costa, et al. , Index No. 005909/2008 (the "2008 Foreclosure Action"). (Def. 56.1 ¶ 14; Pl. 56.1 ¶ 48). On April 15, 2008, the Costas filed an answer and counterclaims in that action; they also filed a third-party complaint against the mortgage broker and affiliated individuals, all of whom had originally facilitated the Loan. (Pl. 56.1 ¶ 52; Steiner Decl., Ex. P, Q). The gist of both pleadings was that the Costas had been duped into taking out the Loan: They thought they were receiving a fixed -rate loan at 2.85%, when in fact they were given an adjustable -rate loan with an initial rate of 2.85% and a capped rate of 9.95%. (Pl. 56.1 ¶ 53; Costa Decl. ¶¶ 5–6, 8–9, 11, 15). The third-party action was removed to federal court and eventually settled, but the 2008 Foreclosure Action remained active in the Westchester Court. (Pl. 56.1 ¶¶ 54–57).

On July 11, 2008, the Office of Thrift Supervision closed IndyMac and appointed the Federal Deposit Insurance Corporation (the "FDIC") as its receiver. (Pl. 56.1 ¶ 36). The FDIC organized IndyMac as a federal savings association, IndyMac FederalSavings Bank F.S.B. ("IndyMac Federal"), and became its conservator. (Id. ). IndyMac Federal never substituted for IndyMac in the 2008 Foreclosure Action after the latter's failure. (Pl. 56.1 ¶ 58; Steiner Decl., Ex. V). And there was no case activity in the 2008 Foreclosure Action between April 15, 2008, the date on which the Costas filed their answer and counterclaim, and roughly four years later, on May 3, 2012, when IndyMac filed a Request for Judicial Intervention (the "RJI"). (Pl. 56.1 ¶¶ 59–60; Steiner Decl., Ex. V, O). Following the RJI, the 2008 Foreclosure Action was referred to the Westchester Court's "Foreclosure Settlement Part," and a May 7, 2012 "Foreclosure Conference Notice" was issued to Vito, notifying him that an initial settlement conference was scheduled for June 26, 2012. (Pl. 56.1 ¶ 61; Steiner Decl., Ex. W, X).

3. The Parties' Unsuccessful Settlement Efforts and Dismissal of the 2008 Foreclosure Action for Failure to Prosecute

In an effort to resolve the 2008 Foreclosure Action, the parties engaged in seven settlement conferences between June 26, 2012, and August 26, 2013. (Haber Decl., Ex. C; Steiner Decl., Ex. W). As part of this process, the court referee set forth a schedule for the submission and consideration of a loan-modification application. (Pl. 56.1 ¶ 70; Steiner Decl., Ex. AQ). Between October 2012 and June 2013, Vito submitted five applications to IndyMac under the Home Affordable Modification Program ("HAMP"), a federal program designed to assist financially struggling homeowners with their monthly loan payments. (Pl. 56.1 ¶¶ 68–79; Steiner Decl., Ex. Z (Oct. 2012); id. , Ex. AB (Feb. 2013); id. , Ex. AP (Apr. 2013); id. , Ex. AE (May 2013); id. , Ex. AG (June 2013)). Along with his February 2013 and April 2013 applications, Vito submitted identical hardship letters outlining the reasons for his request (the "Hardship Letters"). (Pl. 56.1 ¶ 80; Steiner Decl., Ex. AK). The contents of these HAMP applications, and IndyMac's responses, are detailed infra. Ultimately, however, IndyMac found none of Vito's HAMP applications to be complete and, therefore, never considered him for a loan modification. (Def. 56.1 Opp. ¶¶ 69–79).

Accordingly, on August 26, 2013, the Westchester Court issued a Notice to Resume Prosecution. (Pl. 56.1 ¶ 81). That notice told IndyMac that its prosecution of the 2008 Foreclosure Action "must be resumed"; that its note of issue "must be served" within 90 days of the receipt of the notice; and that its motion for summary judgment "must be made" within 120 days after the filing of the note of issue. (Steiner Decl., Ex. AL). The notice also cautioned that failure to comply with any of the aforementioned directives would require IndyMac to show a justifiable excuse for its failure at a January 29, 2014 conference. (Id. ). The notice concluded with the following warning: "[IndyMac's] failure to appear and show justifiable excuse on said date shall result in the dismissal of the complaint, upon the court's own initiative, for want of prosecution of the above-referenced action pursuant to CPLR [§] 3216(a) and (e)." (Id. ).

IndyMac never filed a note of issue. (Pl. 56.1 ¶ 84). Nor did it take any other steps to prosecute the 2008 Foreclosure Action. (Id. ). Accordingly, on January 31, 2014, the Westchester Court dismissed the 2008 Foreclosure Action for failure to prosecute. (Id. ; Def. 56.1 ¶ 16; Steiner Decl., Ex. AM).⁵

4. The Property's Carrying Costs

After the Plaintiffs' December 2007 default, the Loan's servicers began making payments toward the Property's taxes, assessments, water rates, escrow, insurance premiums, and related charges (the "Carrying Costs"). (Def. 56.1 ¶ 17; Ward Aff., ¶ 19). When SLS began servicing the Loan in June 2014, it reimbursed the prior servicer for the entire balance of the escrow advances, $106,116.59. (See Ward Aff., ¶ 20). From June 2014 through the present, SLS has continued to make advances for the Property's Carrying Costs. (See id. at ¶ 20, Ex. O). Moreover, the entirety of the escrow advances made by the prior servicers and SLS has been reimbursed by DB, totaling about $149,042.93 as of the date of Defendants' Local Rule 56.1 Statement. (See i...