Sacks v. Deutsche Bank Nat'l Trust Co.

LOIS SACKS, Plaintiff, v. DEUTSCHE BANK NATIONAL TRUST COMPANY

as Indenture Trustee for American Home Mortgage Investment Trust 2006-3,

AMERICAN HOME MORTGAGE CORPORATION, AHM SV, INC.,

AMERICAN HOME MORTGAGE SERVICING, INC.,

MERSCORP HOLDINGS, INC.,

FEDERAL DEPOSIT INSURANCE CORPORATION, JOHN DOES 1-10,

and OCWEN LOAN SERVICING, LLC, Defendants.

DEUTSCHE BANK NATIONAL TRUST COMPANY

as Indenture Trustee for American Home Mortgage Investment Trust 2006-3,and OCWEN LOAN SERVICING, LLC, Third-Party Plaintiffs, v. ROBERT SACKS, Third-Party Defendant.

2:12-cv-6338 (ENV) (SIL)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

FILED: April 12, 2019

April 1, 2019

MEMORANDUM & ORDER

VITALIANO, D.J.

Plaintiff Lois Sacks brought this quiet title action against Deutsche Bank National Trust Company ("DBNTC"), naming American Home Mortgage Corporation, AHM SV, American Home Mortgage Servicing, MERSCORP Holdings, the FDIC, and ten John Does as co-defendants. (Compl., ECF No. 1). Ocwen Loan Servicing, LLC ("Ocwen") would later appear as a co-defendant. (See, e.g., Answer, ECF No. 12). The action arises from a note and mortgage on one of Sacks's properties, located at 72 Becky's Path, Bridgehampton, NY 11932 (the "Becky's Path Property"). (Compl. ¶ 1). Sacks seeks a declaration that the note and mortgage are invalid and that defendants have no claim to the property. She also seeks an order (1) cancelling or reforming all records of the note and mortgage and (2) awarding title and final possession of the property to her. (Id. ¶¶ 40-42, 45, 52, 58-59). Defendants counterclaimed for breach of contract, account stated, unjust enrichment, equitable mortgage, fraudulent transfer, and declaratory judgment. (Am. Answer, ECF No. 80). As third-party plaintiff, Ocwen impleaded Lois Sacks's son, Robert Sacks,¹ as well as Fidelity National Title Insurance Company ("Fidelity") and Ira Kahn. Ocwen brought claims of breach of contract, fraud, unjust enrichment, indemnification, contribution, and declaratory judgment. (Answer, ECF No. 12). It subsequently voluntarily dismissed its claims against Fidelity and Kahn. (Notice of Voluntary Dismissal, ECF No. 46). On top of these claims, DBNTC brought third-party claims against Robert Sacks and Fidelity. After dismissing its claims against Fidelity, DBNTC still maintains claims of common law fraud and breach of contract against Robert Sacks. (Notice of Voluntary Dismissal, ECF No. 85).

Trial before the Court (Wexler, J.), sitting without a jury, began on August 15, 2017 and concluded the following day. Sacks and DBNTC each submitted proposed findings of fact and conclusions of law. After the case was reassigned, upon the death of Judge Wexler, the parties agreed not to call additional witnesses or to retry the case but, rather, consented to decision resting upon the closed record. (Stipulation, ECF No. 117). Pursuant to Rule 63 of the FederalRules of Civil Procedure, the Court now certifies that it is familiar with the record and may decide the case without prejudice to the parties. Having considered the testimony, the exhibits received in evidence, and the arguments of counsel, this Memorandum and Order, pursuant to Rule 52 of the Federal Rules of Civil Procedure, constitutes the Court's findings of fact and conclusions of law.

Findings of Fact

At the time of trial, Lois Sacks was 81 years old. (Tr. at 19).² Her husband, Ira, died in 2001. (Id.). Lois now lives by herself. (Id.). She has three sons: Evan, Kenneth, and Robert. (Id.). Education for both Lois and Robert ended with high school graduation, and neither has worked for 30 years. (Id. at 20-21). Robert has attention-deficit/hyperactivity disorder and a low IQ. (Id. at 20). Notwithstanding her obvious awareness of these conditions, for many years, Lois allowed him check signing power over her accounts. (Id. at 45). Separately, she continues to give him $3,000 each month. (Id. at 44). Lois made provision for her son even beyond that. When Robert was arrested by federal authorities for a series of fraud crimes, she paid his bail and legal fees. (Id. at 42). It was not until January 2006 that she revoked his check signing power. (Id. at 33, 84-85).

Lois purchased the Becky's Path Property on July 28, 1998. (Pl.'s Ex. 2). On June 26, 2006, Robert executed a promissory note in the amount of $805,000 and a mortgage on the property, purporting to act as attorney-in-fact for his mother, who is listed as the borrower. (Defs.' Exs. A5, A6). DBNTC is the current holder of the note and mortgage. (Pretrial Stipulation ¶ 3, ECF No. 108). Ocwen is the current servicer of the mortgage. (Tr. at 106-07).At the closing, Robert presented his driver's license, (Tr. at 159-66), as well as a power of attorney in his favor (the "POA"), dated June 22, 2006, with Lois as the stated principal. (Defs.' Ex. A26). The POA purported to be notarized by Ira Kahn and witnessed by Dennis Medeco and Santos Becker.³ (Id.). By its terms, it authorized Robert to execute a promissory note and a mortgage encumbering the Becky's Path Property. (Id.). At trial, Lois denied signing the POA, (Tr. at 70-71), but also denied that Robert forged the POA, (id. at 70).

The plot in the tale of Lois's purported signature on the POA would thicken. Lois testified that she suffers from arthritis in her fingers, is ambidextrous, signs different documents with different hands (which is normally penmanship altering), and always varies her signature. (Id. at 53-54). At trial, her counsel did not call a handwriting expert, the professed notary, or either of the persons who signed as witnesses to the POA. Detective Bradford Stephenson, formerly of the United States Secret Service and now of the Broward County Sheriff's Office, did testify that, while conducting a mortgage fraud investigation, he learned that Ira Kahn's notary stamp had been stolen and was used on several falsified mortgage documents. (Id. at 205). However, in the absence of testimony about how Detective Stephenson learned this or testimony from Kahn himself, the Court is unable to place significant weight on this assertion, much less to find that Kahn's notary stamp had, in fact, been stolen. Therefore, as will be elaborated in the conclusions of law, infra, the Court finds that Lois signed the POA running to Robert's favor.

After it was executed but before the closing, the POA received the approval of the originating lender, American Broker's Conduit ("ABC"). (Id. at 143:17-23, 149:2-20). The original POA was in possession of the lender's representative, Mary Mark, at the closing. (Id. at 143:4-6). Mark followed standard procedures during the closing, providing all relevant documents to Robert Sacks and providing him an explanation of each document. (Id. at 148:2-9, 150:2-10). Mark signed the mortgage and the HUD-1 settlement statement, witnessing Robert's signature. (Def.'s Ex. A6, A26: Tr. at 150-152). Robert signed the mortgage, note, HUD-1 settlement statement, and loan application as "Lois Sacks by Robert Sacks her attorney in fact" where a signature was required and initialed "LS by RS" where initials were required. (Tr. at 122:7-24; Pl.'s Ex. 6; Def.'s Exs. A5, A6). The signature affidavit was executed by Robert Sacks in the same manner. (Pl.'s Ex. 9). Lisa Gadzinsky was present at the closing on behalf of a title insurance company that served as the title closer. (Tr. 152:5-9). She notarized Robert's signature on the mortgage as attorney-in-fact for his mother, Lois. (Id.; Def.'s Ex. A26). The mortgage was recorded in the Records Office of the Suffolk County Clerk on July 27, 2006. (Def.'s Ex. A6). Pursuant to the terms of the note and the mortgage, payments were due on a monthly basis, starting on October 1, 2006, each in the amount of $2589. (Def.'s Exs. A5, A6). It is uncontested that payments were made from October 2006 through February 2009. (Tr. at 118:7-17).

After the required documents were signed, Mark authorized the transfer of the loan proceeds from ABC to Lois. (Id. at 152:11-23, 156:5-159:14). Of the $805,000 total loan proceeds, $756,153 was the amount to be realized by her, after deducting closing costs. (Id. at 152:10-23). On June 30, 2006, Mark received a fax from an employee of Juice Wireless, Inc., a startup company in which Robert was involved. (Def's Ex. A22). The fax instructed Mark - atthe direction of Sandy Becher, an attorney who Robert knew and Lois had encountered - to wire $750,000 to the account of Juice Wireless, Inc. (Id.). It was a matter of dispute among the parties whether Lois, herself, planned to invest in the startup. In any event, the record establishes that the funds were transferred to Juice Wireless in accordance with this request, and the remaining $6153 was transferred to Becher. (Def.'s Exs. A16, A26).

Moving forward, payments were made on the mortgage loan from October 2006 to February 2009. (Def.'s Ex. A43). With its nonpayment, the loan fell into default on March 1, 2009. (Tr. at 118:7-17). Thereafter, plaintiff has failed to pay the loan balance, interest, late fees, attorney's fees, costs of collection, or any other charges that default triggers perforce of the loan agreement. (Id.; Def.'s Ex. A43). Two notices, dated February 17, 2009 and July 22, 2010, were sent to plaintiff, advising her of the default. (Def.'s Ex. A29; Tr. at 121-29). These notices were received by Lidia Mooney, who handled Lois's financial affairs, including her bills and income. (Tr. at 47:17-20, 81:12-13, 86:22-24). Mooney testified that she informed Lois of these notices. (Id. at 86:18-20). As of August 9, 2017, the total amount due on the mortgage loan, exclusive of attorney's fees, was $1,216,304.09. (Def.'s Ex. A28).

Conclusions of Law

I. Enforceability of the Mortgage

Although it is true that if a document essential to a valid mortgage has been forged, then the mortgage is unenforceable, see Jiles v. Archer, 116 A.D.3d 664, 983 N.Y.S.2d 283 (2d Dep't 2014), plaintiff must first establish that the...