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Mary Lodge v. United Homes

May 26, 2011

MARY LODGE,
PLAINTIFF,
v.
UNITED HOMES, LLC, UNITED PROPERTY GROUP, LLC, YARON HERSHCO, GALIT NETWORK, LLC, OLYMPIA MORTGAGE CORP., BAYVIEW LOAN SERVICING, LLC, BAYVIEW ASSET MANAGEMENT, LLC, U.S. BANK, N.A. AS TRUSTEE FOR BAYVIEW ASSET-BACKED SECURITIES TRUST SERIES 2007-30, BAYVIEW FINANCIAL, L.P., AND BAYVIEW FINANCIAL MANAGEMENT CORP., DEFENDANTS.



The opinion of the court was delivered by: Matsumoto, United States District Judge:

MEMORANDUM & ORDER

Plaintiff Mary Lodge ("plaintiff" or "Lodge") moves to preclude defendants Bayview Loan Servicing, LLC, Bayview Asset Management, LLC, U.S. Bank, N.A. as Trustee For Bayview Asset-Backed Securities Trust Series 2007-30, Bayview Financial, L.P., and Bayview Financial Management Corp. (collectively, the "Bayview Defendants")*fn1 from presenting evidence that U.S. Bank, N.A. as Trustee For Bayview Asset-Backed Securities Trust Series 2007-03 ("U.S. Bank") can assert the holder-in-due-course defense in its own right and/or under the shelter rule on the theory that Bayview Financial Trading Group, L.P. ("Bayview Financial") is the original holder in due course. Plaintiff also moves for an order precluding the Bayview Defendants from relying on the pleadings in this case to establish that U.S. Bank is the current holder of the Lodge mortgage.

For the reasons that follow, Bayview Defendants are precluded from asserting that U.S. Bank is a holder in due course in its own right and/or under the shelter rule on the theory that Bayview Financial was the original holder in due course of the Lodge mortgage. The Bayview Defendants may, however, rely on Plaintiff's Local Civil Rule 56.1 Statement ¶ 20, and the Third Amended Complaint and the Bayview Defendants' Answer to the Third Amended Complaint to establish that U.S. Bank is the current holder of the Lodge mortgage, but not that U.S. Bank is a holder in due course. Further, the Bayview Defendants may not present testimony that Wachovia was a holder in due course in its own right because the Bayview Defendants have not identified a witness with personal knowledge regarding Wachovia's lack of notice, payment and good faith, nor produced documents during the course of discovery establishing that Wachovia actually paid value for the subject note, in good faith and without notice or actual knowledge of any defense.

BACKGROUND

The court assumes familiarity with the underlying facts and procedural history of this case as it relates to the Bayview Defendants, which are set out in more detail in a Memorandum and Order dated May 5, 2011. (See ECF No. 585, Memorandum & Order dated 5/5/11 ("5/5/11 Order").) Those facts and procedural history are repeated here only to the extent necessary to inform the court's analysis.

Plaintiff commenced this action in January of 2005, alleging that certain defendants conspired to conduct a property-flipping scheme whereby she was targeted based on her race and deceived into purchasing an overvalued, defective home, financed with predatory loans. (ECF No. 1, Complaint ("Compl.").) The Lodge action has since been consolidated with five related actions, all brought by Brooklyn homeowners alleging that they were victims of the property-flipping scheme. (ECF No. 472, Memorandum & Order dated 9/13/10 (consolidating actions).) In her original complaint, plaintiff named the seller of her property, the lawyer who purportedly represented her in the transaction, and the lender that originated her two "piggyback" mortgage loans. (Compl. ¶¶ 9-12.) Plaintiff also named, as necessary parties pursuant to Federal Rule of Civil Procedure 19, the servicer of her First Note and First Mortgage (the "Lodge mortgage") and Wachovia Bank, N.A. ("Wachovia"). (Id. ¶¶ 13-14.) Wachovia was named because public records showed that the originating lender had sold the Lodge mortgage and that it had been assigned to Wachovia. (Id. ¶ 13.) Bayview Loan Servicing, LLC ("BLS") was substituted as a party in the action after it assumed servicing rights to the Lodge mortgage. (ECF No. 32, Stipulation Substituting Party.)

Based on the Bayview Defendants' repeated and protracted failures to comply with their disclosure and discovery obligations and misstatements in their memoranda of law and supporting sworn statements (as detailed in the court's May 5, 2011 Memorandum and Order), plaintiff was compelled to file and serve a Second Amended Complaint on January 10, 2011, and a Third Amended Complaint on February 28, 2011. The Second Amended Complaint, filed and served on January 10, 2011, was predicated on representations of Bayview Defendants' counsel as to the proper necessary party defendant and substituted as a Rule 19 party "U.S. Bank and Trust Co., N.A." for "Wachovia Bank, N.A." as "trustee of the trust into which [the Lodge] mortgage was sold." (ECF No. 537, Plaintiff Mary Lodge's Rule 56.1 Statement of Facts ("Pl. 56.1 Stmt.") ¶¶ 30, 32; ECF No. 488, Second Amended Complaint ("Second Am. Compl.") ¶ 17.) Plaintiff also added as defendant Bayview Asset Management, LLC, f/k/a Bayview Financial Trading Group, L.P., as the original purchaser of the Lodge mortgage from the originating lender prior to securitization. (Id. ¶ 18.) In or about this same time, long after discovery had closed, a discovery dispute arose between plaintiff and the Bayview Defendants regarding inter alia the Bayview Defendants' failure to produce documents reflecting the current ownership of the Lodge mortgage. Magistrate Judge Mann held a telephone conference on January 20, 2011 and ordered that counsel for the Bayview Defendants produce proof of current ownership of the Lodge mortgage and proof of chain of title from 2006. (ECF No. 497, Minute Order dated 1/20/11.) The Bayview Defendants produced the documents on January 28, 2011. (Pl. 56.1 Stmt. ¶ 37.) Upon review of these documents, and after learning that U.S. Bank and Trust was a non-existent entity, plaintiff filed a Third Amended Complaint, dated February 28, 2011, substituting "U.S. Bank, N.A. as trustee for Bayview Asset-Backed Securities Trust Series 2007-30" for "U.S. Bank and Trust Co., N.A." as a Rule 19 necessary party as the current trustee of the trust into which the Lodge mortgage had been sold. (ECF No. 529, Third Amended Complaint ("Third Am. Compl.") ¶ 17.)

Throughout the nearly six year course of the instant litigation, the Bayview Defendants have made many conflicting and incorrect factual assertions, but consistently have asserted that they took the Lodge mortgage free of any claims pursuant to the holder-in-due-course defense as it pertained to and originated with Wachovia. Specifically, the Bayview Defendants have made the following representations relating to their holder-in-due-course defense:

* ". . . Wachovia is a holder in due course as it took the subject Note and Mortgage, negotiable instruments, for value, in good faith, and without notice or actual knowledge of any defense thereto." (ECF No. 34, Answer of Bayview Defendants Bayview Loan Servicing, LLC and Wachovia Bank, N.A. dated July 13, 2005, ¶ 100.)

* "On June 25, 2003, for value received, Olympia assigned its interest in the Loan, including the Note and Mortgage . . . to Wachovia by virtue of an Assignment of Mortgage, which was duly recorded in the Kings County Clerk's Office." (ECF No. 135, Rule 56.1 Statement of Defendants Wachovia Bank, N.A. and Bayview Loan Services dated Feb. 28, 2006, ¶ 3.)

* "The first mortgage in the amount of $335,200.00 was assigned by Olympia to Wachovia . . . ." (ECF No. 136, Memorandum of Law in Support of Defendant Wachovia Bank, N.A. and Bayview Loan Services Motion for Dismissal of Plaintiff's Amended Complaint, Pursuant to Fed. R. Civ. P. 12(b)(1) and Fed. R. Civ. P. 12(b)(6), and/or For Summary Judgment, Pursuant to Fed. R. Civ. P. 56(b) dated Feb. 28, 2006, at 2.)

* ". . . Wachovia is an assignee for value of the Wachovia Mortgage." (Id. at 4.)

* "Wachovia is a holder in due course of a negotiable instrument and, as such, takes the instrument free from all claims to it . . . ." (Id. at 4 (internal quotation marks omitted).)

* "Clearly, Wachovia had neither constructive nor actual notice of any potential claims that the Plaintiff may have had against any party." (Id. at 5.)

* "It is settled that by holding the note and mortgage in issue, Wachovia qualifies as a holder in due course of the Wachovia Mortgage." (Id. at 5.)

* ". . . Olympia assigned its interest in the Note and Lodge Mortgage . . . to Wachovia Bank N.A. as Trustee." (ECF No. 138-4, Affidavit of Christopher Campbell dated May 19, 2006, ¶ 3.)

* "Wachovia purchased the Note and Lodge Mortgage within the secondary mortgage market in reliance upon the representations contained within documents presented to it for review from the closing." (Id. ¶ 4.)

* ". . . Wachovia possessed no knowledge of, nor did it participate in, any alleged fraud which Lodge alleged. Additionally, Wachovia was not aware of, nor did it have any notice of, any claim or defense to the validity of the Note and Lodge Mortgage." (Id. ¶ 8.)

* "Wachovia took an assignment of the Lien Instruments, for value, in good faith, and without notice of any defense against it and as such, is a holder in due course." (Id. ¶ 9.)

* ". . . Wachovia Bank was clearly justified in relying upon the representations made by the Answering Defendants and as such is an innocent holder in due course." (Id. ¶ 11.)

* "Wachovia is an assignee for value of the Wachovia Mortgage." (ECF No. 140, Defendant Wachovia Bank N.A. and Bayview Loan Services Reply Memorandum of Law in Further Support of Motion to Dismiss and/or Summary Judgment dated May 19, 2006, at 2.)

* "Wachovia is an innocent holder in due course of a negotiable instrument and, as such, takes the instrument free from all claims to it." (Id. at 3 (internal quotation marks omitted).)

* "[I]t is clear that neither Wachovia nor Bayview [Loan Servicing] had any notice or knowledge of any alleged fraudulent activity in connection with the origination of the Wachovia Mortgage." (Id. at 3.)

* "Wachovia justifiably relied on the documents executed by Lodge to its detriment in purchasing the loan at a premium." (Id. at 4.)

* "As shown below, Wachovia's holder in due course status is beyond reproach . . . ." (Id. at 6.)

* "There can be no controversy that Wachovia is the holder of the note, and Plaintiff's counsel's attempts to create such controversy must fail. Wachovia is the assignee of the note which is indorsed to the lender." (Id.)

* ". . . Wachovia clearly provided value for the assignment." (Id. at 7.)

* ". . . Wachovia did not have any knowledge whatsoever of the allegedly fraudulent nature of the underlying transaction." (Id.)

* "Wachovia had no such knowledge here precisely because it was not the originating lender, but rather, an ...


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