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VAUGHN v. CONSUMER HOME MORTGAGE

March 27, 2003

PAULETTE VAUGHN AND JOY VAUHN, PLAINTIFFS
v.
CONSUMER HOME MORTGAGE, INC. (CHM), THE FORECLOSURE NETWORK OF NEW YORK (FNNY), MICHAEL ASHLEY, INDIVIDUALLY AND IN HIS CAPACITY AS AN OFFICER AND/OR SUBSTANTIAL SHAREHOLDER OF CHM, JAS PROPERTY SERVICES A/K/A JAS LLC, ABN ABRO MORTGAGE GROUP, INC, AS ASSIGNEE OF AND SUCCESSOR TO CHM, ROBERT E. STANDFAST, INDIVIDUALLY AND AS PRESIDENT OF CHM, MICHAEL PARKER, INDIVIDUALLY AND AS AN OFFICER/EMPLOYEE OF CHM, GARY LEWIS, INDIVIDUALLY AND AS PRESIDENT OF FNNY, JOSHUA SMILING, CHARLES SALVA APPRAISALS, INC., CHARLES SALVA, MARTIN SILVER, SQ. ANN MCGRANE, ESQ., KENNETH GOLDEN, ESQ., AND UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, DEFENDANTS.



The opinion of the court was delivered by: I. Leo Glasser, Senior District Judge

MEMORANDUM & ORDER

BACKGROUND

This action stems from the plaintiffs' purchase of a property and the mortgage financing of that purchase. Plaintiffs contend that numerous parties. including the seller/broker, the mortgage lender, several of their officers and employees, and several attorneys, engaged in a predatory lending scheme, centered around inducing the plaintiffs to finance the purchase at an inflated price. Plaintiffs' claims against the moving defendants arise under the Truth-in-Lending Act ("TILA"). 15 U.S.C. § 1601 et. seq., the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. § 1691 et. seq., the New York State Deceptive Practices Act, N.Y.G.B.L. § 349, and the common law of fraud, fraudulent concealment, fraudulent inducement, breach of fiduciary duty and malpractice. All defendants but three*fn1 now move to dismiss the First Amended Complaint (except for the TILA and ECOA claims), primarily for failure to state a claim and failure to plead fraud with particularity. For the reasons that follow, the motion is granted as to the breach of fiduciary duty claim against Defendant Silver, but otherwise denied.

FACTS

In mid-December, 2000, Paulette and Joy Vaughn ("plaintiffs" when referred to collectively), an African-American mother and daughter, contacted the Foreclosure Network of New York, Inc. ("FNNY") about their interest in purchasing a home. They dealt with Joshua Smiling ("Smiling"), an officer and employee of FNNY, who arranged for Joy Vaughn to look at a property at 247 Cooper Street in Brooklyn (the "property"). On January 6, 2001, Ms. Vaughn met Smiling at the property and he showed her around it. The interior was dark, and they had to use flashlights to view it. Smiling told Ms. Vaughn that the house was "a good investment" and was being sold for less than its market price. When asked about needed renovations, Smiling told her that they would be completed prior to the sale. They did not discuss the purchase price. but Smiling told Ms. Vaughn that the monthly mortgage payment would be around $2,300.00 to $2400.00. He further told her that she could generate rental income from an apartment to be constructed within the property of around $1400.00 a month, and that he would find her a tenant. On the next day, Smiling again showed the property. this time to both plaintiffs. He repeated his statements that the house was a good investment and would be fully renovated and repaired, and that he would find them a tenant who would pay $1400.00 per month in rent. Again, the sales price was not discussed.

The next day, plaintiffs went to the offices of FNNY and met with Gary Lewis ("Lewis"). the company's president. They discussed their financial situation with Lewis, who told them that FNNY would find them a mortgage lender. He reiterated Smiling's promise that FNNY would find them a tenant who would pay $1400.00 per month in rent. Further, he discussed with them repairs and renovations to the property that FNNY was going to make.

Lewis asked the plaintiffs to come back in a short while, at which time he would provide an attorney for them and the contract of sale could be signed. He discouraged them from seeking another, independent lawyer and still did not discuss the purchase price. When they returned, they were introduced to Ann McGrane, Esq. ("McGrane"), who Smiling told them would act as their lawyer in the transaction. McGrane told plaintiffs that she would represent them, protect their interests, and make herself available by telephone for questions arising in the future. Plaintiffs told McGrane that they did not understand the contract of sale, and were unfamiliar with the process of buying and financing a home. McGrane repeated her assurances. She reviewed the contract and told plaintiffs to sign it, but offered no other advice. No fee for her services was discussed. After she told the plaintiffs that a government grant was available to reduce the amount they would have to borrow, and that "what you buy it for, you can sell it for," plaintiffs signed the contract.

Plaintiffs were then "steered" to a mortgage lender, Consumer Home Mortgage ("CHM"). On January 10, plaintiffs met with a Michael Parker ("Parker"). Though he was merely an officer and employee of the company, he told plaintiffs that he was its president (CHM's actual president and CFO was a Robert Standfast ("Standfast")). Plaintiffs expressed their concern about being able to obtain a mortgage, due to their low income, and were told by Parker that since he was the president, if he approved the loan they would certainly get it.

The Plaintiffs were approved for a loan of $287,700.00. Parker prepared and submitted an application for mortgage insurance to the Department of Housing and Urban Development's Federal Housing Administration unit (the "FHA"). Lewis and Parker then told plaintiffs that the purchase price for the property was $290,00.00. Shortly thereafter, CHM hired Charles Salva Appraisals, Inc. ("CSAI") to appraise the property. CSAI completed the appraisal but, according to plaintiffs, intentionally misstated or omitted material facts in order to inflate the purported value of the property up to the purchase price, although the property had been purchased two months earlier for $165,000.00.*fn2 The FHA later issued the requested mortgage insurance policy.

On February 9, 2001, plaintiffs and Smiling went for a final "walk through" of the property. Plaintiffs noted that the promised repairs and renovations had not been completed. Smiling told them that they would be completed within 10 days after the closing, and that a "repair agreement" would be made part of the transaction. The three then went to the offices of Kenneth Golden, Esq. ("Golden") to complete the transaction. At no time prior to the closing were the plaintiffs given any documentation regarding the loan, or a "Truth-in-Lending" statement.

Smiling, Lewis and Golden were present at the closing, as was a Martin Silver, Esq. ("Silver"), who plaintiffs were told was there to represent them. Relying upon Silver's representations that the documents were "standard," that there was "no problem" and that they should just "sign it here," the plaintiffs signed the papers put before them without knowing what they were signing. The deed was executed by Lewis, who, according to plaintiffs, was not the owner*fn3 and therefore lacked authority to convey the property. The closing was completed, and plaintiffs were given a collection of closing documents that did not include the contract of sale, a deed, or a copy of the appraisal. They did not receive the keys to the property.

On or about February 26, 2001 the plaintiffs met with Smiling and Lewis again to complain about the lack of repairs and their failure to receive a key. Lewis told them "if you don't take this house, you'll never get another house in New York." On March 10, 2001 a key was left for plaintiffs at the property.

Plaintiffs received a letter dated April 9, 2001, in which Golden advised them to sign a new mortgage note reflecting a new, slightly lower, rate of interest, an initial escrow account statement. first payment letter, payment coupons, a lending statement, a statement of mortgage closing, a settlement statement and owner's estoppel certificate.

The promised improvements to the property were never made to any significant extent. The mortgage was subsequently assigned to a company called ABN Amro Mortgage Group, Inc. ...


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