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Federal Deposit Insurance Corporation, In Its Capacity As Receiver of v. Avraham Glattman

August 7, 2012

FEDERAL DEPOSIT INSURANCE CORPORATION, IN ITS CAPACITY AS RECEIVER OF INDYMAC BANK, F.S.B., PLAINTIFF,
v.
AVRAHAM GLATTMAN, PETER MARCHELOS AND GROVER & FENSTERSTOCK, P.C., DEFENDANTS.



The opinion of the court was delivered by: E. Thomas Boyle United States Magistrate Judge

MEMORANDUM OPINION AND ORDER

Before the Court is defendant Grover & Fensterstock, P.C.'s motion for summary judgment, pursuant to Federal Rule of Civil Procedure 56, seeking to dismiss plaintiff's First Amended Complaint in its entirety. Plaintiff opposes the motion on the ground that material issues of fact exist, necessitating a trial by jury. For the following reasons, defendant's motion is granted in part and denied in part.

FACTS

The plaintiff, the Federal Deposit Insurance Corporation ("FDIC"), in its capacity as Receiver, commenced this action alleging that IndyMac Bank, F.S.B. ("IndyMac") was the victim of a purported fraudulent scheme involving mortgage loans issued in connection with the sale of ten residential properties. (Def. R. 56.1 Statement ("Def. 56.1") ¶ 1; Pl. R. 56.1 Statement ("Pl. 56.1" ¶ 1.) Former defendant Avraham Glattman*fn1 ("Glattman"), who is alleged to have orchestrated the fraudulent scheme, acted as a real estate broker in each of the ten transactions, through his real estate agency, 2000 Homes. (Def. 56.1 ¶ 2; Pl. 56.1 ¶ 2.) Defendant Grover & Fensterstock, P.C. ("G&F") were engaged by IndyMac to serve as its settlement agent in connection with four of the ten transactions alleged to be fraudulent, identified as Property Nos. 5, 6, 9 and 10, all of which were consummated between May and August of 2007.*fn2 (Def. 56.1 3; Pl. 56.1 ¶ 3.)

In connection with G&F's role as settlement agent, IndyMac provided G&F a standard form eight-page document entitled "Closing Instructions," which G&F signed and agreed to abide by. (Def. 56.1 ¶¶ 17, 54; Pl. 56.1 ¶¶ 17, 54.) The Closing Instructions directed settlement agents to, inter alia, review all loan documents for accuracy and completeness, obtain the correct signatures of the mortgagors as required on all documentation, ensure accurate payoff information, that hazard, title and flood insurance was procured by the buyer and that all property taxes had been paid. (Def. 56.1 ¶ 18; Pl. 56.1 ¶ 18.) A settlement agent was expected to follow the Closing Instructions for each particular closing and to notify IndyMac of any inconsistencies that he or she may become aware of during a closing. (Gomez Dep. 23.)

During the course of a closing, the settlement agent would communicate with an IndyMac funder, who would make the final determination as to whether to fund a mortgage loan.*fn3 (Def. 56.1 ¶ 23; Pl. 56.1 ¶ 23.) The Closing Instructions instructed the settlement agent to fax a copy of the completed final HUD-1 Settlement Statement ("HUD-1") to an IndyMac funder for review prior to the disbursement of funds. (Def. 56.1 ¶ 19; Pl. 56.1 ¶ 19.) G&F prepared and signed the HUD-1's for each of the loans at issue herein, representing that the HUD-1 was an accurate account of the loan transaction. (Def. 56.1 ¶¶ 55-56; Pl. 56.1 ¶¶ 55-56.)

In determining whether or not to fund a mortgage loan, the IndyMac funder reviewed the HUD-1 transmitted by G&F. (Def. 56.1 ¶ 24; Pl. 56.1 ¶ 24.) If changes needed to be made to a HUD-1 on the day of the closing, the settlement agent was expected to contact the funder. (Gomez Dep. 29.) If there was a discrepancy between the purchase price of a property and the information contained in the HUD-1, the IndyMac funder would not authorize the funding of the loan. (Wiley Dep. 19.)

An IndyMac funder would not verify whether the borrower remitted the correct down payment prior to funding the loan. (Wiley Dep. 20; Fensterstock Dep. 61.) Nor was the settlement agent required to send a copy of the borrower's down payment or any documentation establishing that a borrower had brought cash to the closing to the IndyMac funder. (Wiley Dep. 20-21; Trucksess Dep. 29-30; Gomez Dep. 111.) However, the Closing Instructions required the settlement agent to notify IndyMac "in writing[] if there [were] indications that funds to close or the earnest money deposit did not come from [the] [b]orrower." (Gomez Dep. 111; Def. Ex. J, No. 24; Def. Ex. K, No. 24.)

Once the IndyMac funder approved funding, the settlement agent was authorized to (Def. 56.1 ¶ 14; Pl. 56.1 ¶ 14; Wiley Dep. 14.) Once a loan reached a funder's review, the borrower's ability to repay the loan had already been verified by IndyMac's underwriters. (Wiley Dep. 14.) disburse the loan proceeds. (Def. 56.1 ¶ 20; Pl. 56.1 ¶ 20; Wiley Dep. 18; Fensterstock Dep. 27.) No funds would be disbursed without a final review and verification by the IndyMac funder that the information contained in the HUD-1 was correct. (Wiley Dep. 34-35.)

After the closing, the settlement agent would submit a package of closing documents back to the IndyMac funder for review. (Gomez Dep. 89-90.) With respect to each of the real estate transactions at issue herein, each of the IndyMac funders involved in those transactions completed and executed a "Funding Review Checklist," certifying that all necessary information and documents were reviewed and approved prior to the authorization to fund the loan. (Def. 56.1 ¶¶ 25-26; Pl. 56.1 ¶¶ 25-26.) IndyMac reserved the right to cancel its authorization to release the loan proceeds from G&F's attorney trust account. (Def. 56.1 ¶ 59; Pl. 56.1 ¶ 59.)

A. The Subject Transactions

The FDIC commenced this action on February 16, 2010, in its capacity as Receiver for IndyMac, and moved to amend its Complaint on November 24, 2010. The motion to amend was granted, both on the merits and as unopposed, on January 26, 2011. The FDIC alleges that G&F committed legal malpractice and breached its fiduciary duties by failing to advise IndyMac of material information concerning the loan transactions and disbursing the loan proceeds without authorization. (1st Am. Compl. ¶¶ 121-26.) The FDIC further alleges that G&F breached their contract with IndyMac by failing to comply with IndyMac's Closing Instructions. (1st Am. Compl. ¶¶ 127-33.) G&F now seeks summary judgment on all of the causes of action alleged in the First Amended Complaint.

To avoid repetition, the specific allegations of breach/malpractice by G&F are discussed infra at pages 11 to 16.

1. The Rivers Transaction

On August 29, 2007, IndyMac authorized the funding of a mortgage loan to non-parties Maggie and Anthony Rivers ("Rivers") in the amount of $365,000 for the purchase of real property located at 114-03 Inwood Street, Jamaica, New York (referred to as "Property No. 5" in the First Amended Complaint). (Def. 56.1 ¶ 27; Pl. 56.1 ¶ 27.) Pursuant to the terms of the parties' contract, the purchase price for Property No. 5 was $406,000. (Def. 56.1 ¶ 28; Pl. 56.1 ¶ 28.) G&F acted as IndyMac's settlement agent for the Rivers Transaction and received authorization from IndyMac funder Barbara Trucksess to disburse the loan proceeds. (Def. 56.1 ¶ 29; Pl. 56.1 ¶ 29.)

Subsequent to IndyMac's approval and funding of the loan, Rivers defaulted on the mortgage payments, afer making only three monthly payments. (Def. 56.1 ¶¶ 33, 69; Pl. 56.1 ¶¶ 33, 69.) Property No. 5 is currently the subject of a foreclosure proceeding and as of October 25, 2011 was valued at $200,000. (Def. 56.1 ¶¶ 69-70; Pl. 56.1 ¶¶ 69-70.) On May 29, 2009, the Rivers mortgage loan was assigned to OneWest Bank, FSB. (Def. 56.1 ¶ 35; Pl. 56.1 ¶ 35.)

2. The Goodwin Transaction

On May 25, 2007, IndyMac authorized the funding of a mortgage loan to non-parties Yolander and Bracey Goodwin ("Goodwin") in the amount of $446,500 for the purchase of real property located at 110-21 156th Street, Jamaica, New York (referred to as "Property No. 6" in the First Amended Complaint). (Def. 56.1 ¶ 36; Pl. 56.1 ¶ 36.) Pursuant to the terms of the parties' contract, the purchase price for Property No. 6 was $470,000. (Def. 56.1 ¶ 37; Pl. 56.1 ¶ 37.) G&F was retained to serve as IndyMac's settlement agent for the Goodwin transaction and received authorization from IndyMac funder Anthony Wiley to disburse the loan proceeds. (Def. 56.1 ¶ 38; Pl. 56.1 ¶ 38.)

Subsequent to IndyMac's approval and funding of the mortgage loan, Goodwin defaulted on the mortgage payments. (Def. 56.1 ¶ 39; Pl. 56.1 ¶ 39.) Beginning in September 2010, Goodwin entered into a loan modification agreement with the FDIC, reducing the interest rate and ...


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