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AUSTIN LORD v. MARINE MIDLAND TRUST COMPANY SOUTHERN NEW YORK (12/11/69)
SUPREME COURT OF NEW YORK, SPECIAL TERM, BROOME COUNTY
1969.NY.43893 <http://www.versuslaw.com>; 306 N.Y.S.2d 82; 61 Misc. 2d 776
December 11, 1969
AUSTIN LORD, PLAINTIFF,v.MARINE MIDLAND TRUST COMPANY OF SOUTHERN NEW YORK, DEFENDANT
Remo A. Allio for plaintiff.
Willsey, Meagher, Hummer, Madigan & Buckley (Jefferson F. Meagher of counsel), for defendant.
Howard A. Zeller, J.
In this action to recover moneys, defendant has moved to dismiss the complaint for failure to state a cause of action. (CPLR 3211, subd. [a].) Plaintiff has moved for summary judgment in his favor for the amount requested in the complaint. (CPLR 3212.)
Early in 1969 plaintiff listed his one-family residence in the Town of Fenton, Broome County, New York with a licensed real estate broker for sale at the price of $23,900. As of May 9, 1969 an offer was received and accepted at $23,900 from Robert and Mary Peters conditioned upon their obtaining an F. H. A. mortgage on a 10% down payment or another means of financing. Upon the Peters' application through defendant bank an F. H. A. commitment was issued June 13, 1969 on an F. H. A. valuation of $22,500 on the property and a maximum mortgage commitment of $21,000 for 20 years at 7 1/2%. Defendant bank notified the Peters by letter dated June 18, 1969 that the F. H. A. valuation of the property was $22,500, or $1,400 less than the purchase contract price of $23,900 and set forth three options:
"1. You may negotiate with the seller for a price in line with the F. H. A. appraisal.
"2. You may request to be released from the Contract as set forth in Paragraph 11 * * *. [Paragraph 11 is a no penalty release clause in the event of an F. H. A. valuation lower than the contract price.]
"3. You may disregard the F. H. A. appraisal and purchase at the present contracted price."
The letter then states that the bank would consider an F. H. A. mortgage of $20,200, but noted that it "appears the third option is not open to you as your down payment would be increased to $3,700.00 and you would have insufficient funds for closing costs."
The contract already had been renegotiated and re-executed between the seller and the purchasers on June 17, 1969 at a purchase price of $22,500. Both the sale and the mortgage transactions were completed at the defendant bank in Binghamton on July 16, 1969.
Pursuant to a prior notice, at this closing the purchasers were required to pay the lending defendant bank a flat fee of $202 or 1% (one point) of the mortgage principal and the plaintiff seller was assessed $1,010 or 5% (five points) of the mortgage principal.
It is the $1,010 point payment which the plaintiff seller seeks to recover on the grounds (1) that there was no consideration therefor; (2) that the payment was made under a form of duress and coercion, and (3) that the payment as an addition to the maximum allowable 7 1/2% interest rate on the mortgage under State law, constituted usury and voided seller's agreement with defendant bank to pay it five points.
At the time plaintiff listed his property with the real estate broker it appears he was then advised that in the existing mortgage money market the assessment of points, in effect a discounting, was likely. The broker's listing card, under remarks, states, "Owner aware of points.".
In the course of processing the prospective purchasers' application for an F. H. A. mortgage the defendant bank advised the applicants and the broker advised the seller that at that time six points, or a discount of 6% of the mortgage principal, would have to be assessed by the bank if it were to make this mortgage loan. The contract parties were advised that only one point could be imposed upon the purchasers and the remaining five points necessarily had to be paid by the seller if the transaction were to be completed. (See F. H. A. Administrative Rules for Section 203, Ch. XIII, §§ 1301, 1302, 1303; F. H. A. Mortgagee Handbook.)
Accordingly, on June 6, 1969 a printed form agreement was executed by plaintiff seller stating in essence that in consideration of the bank's acceptance of the purchasers' F. H. A. mortgage application the seller agreed to pay the bank a 5% discount fee, which fee could not "be imposed against or paid by the borrower". This agreement also provided for a renegotiation of the points should interest rates (on the market) change prior to the closing date.
Discounting of their particular paper commodity is common in various money markets in the financial world. The practice there of discounting the principal of mortgage paper at this time is a frequent and legally accepted one with mortgages insured, funded or traded by, through or under Federal agencies and their regulations. (See, e.g., Publ. L. 90-565, subd. [a], Oct. 12, 1968, 82 U.S. Stat. 1001, amdg. Publ. L. 90-301, § 4; U. S. Code, tit. 12, §§ 1706c, 1709, 1709-1, 1720.) Whether labeled points, discount or origination or service charges, the practice is "common and permitted ...