DEPARTMENT OF HOUSING PRESERVATION AND DEVELOPMENT OF THE CITY OF NEW YORK, Petitioner,
DEUTCHE BANK NATIONAL TRUST COMPANY as Trustee for Saxon Asset Securities Trust 2001-3, Respondent. No. HP# 115/13.
This decision has been referenced in a table in the New York Supplement.
Deborah Rand, Esq, Ronald M. Smith, of Counsel, Housing Litigation Division, New York, attorney for petitioner.
Houser & Allison, New York, attorney for respondents.
PHILIP S. STRANIERE, J.
Petitioner, Department of Housing Preservation and Development of the City of New York (HPD), commenced these two landlord-tenant actions by Order to Show Cause, against the respondent, Deutsche Bank National Trust Company as Trustee for Saxon Asset Securities Trust 2007-3 (Deutsche).
In action HP# 115/13, petitioner is seeking civil penalties against respondent for failure to maintain the premises 99 Wright Street, Staten Island, New York in accordance with the provisions of the New York City Administrative Code.
In action HPNo.116/133 petitioner is seeking an order directing respondent to correct violations at 99 Wright Street; assessing civil penalties for failing to correct the violations; requiring compliance with the rules in regard to the Alternative Enforcement Program Notice of Participation; and mandating the filing of a Property Registration Form.
In each proceeding, respondent filed a cross-motion seeking dismissal of petitioner's action, which the court is also accepting as submitted in opposition to the petitioner's application. Petitioner has filed opposition to the cross-motion and respondent a reply. Both sides are represented by counsel in each action.
This court has jurisdiction pursuant to New York City Civil Court Act § 110(a). Respondent is not challenging the authority of petitioner to seek these remedies under the New York City Administrative Code [NYCAC], respondent is asserting that the statutes and regulations in question do not apply to respondent under the facts and circumstances currently existing.
Based on a review of public records and the submission of the parties, the following can be determined.
The property in question, 99 Wright Street, in the Stapleton section of Staten Island is a four family-dwelling, which qualifies as a " multiple dwelling" under Multiple Dwelling Law [MDL] § 4(7). Presumably it is an " old building" built before 1938 as there is no filed certificate of occupancy for the premises and there are no violations against it for failing to have a proper certificate of occupancy.
The building was purchased on February 28, 2002 by Bernard Rivers for $285,000.00. At that time he executed a mortgage to First Franklin Financial Corp., in the amount of $213,750.00.
On February 16, 2005, Rivers refinanced the property with a loan in the amount of $288,000.00 and entered into a new mortgage with Delta Funding Corp. with the notation that this is a "MERS" transaction. MERS stands for Mortgage Electronic Registration Systems, Inc., which is " acting solely as a nominee for Lender and Lender's successors and assigns."
On April 27, 2006, Rivers again refinanced the property. This time for $420,000.00 from Encore Credit Corp. d/b/a ECC Encore Credit. This mortgage also contained the same reference to MERS.
On June 15, 2007, Rivers refinanced the property for the third time in less than 28 months. The lender was SMI Mortgage. A consolidation, extension and modification agreement (CEMA) was used to increase the amount of Rivers' indebtedness to $460,000.00. A CEMA is a transaction in which the lender takes the current existing mortgage by assignment and has a new note and mortgage executed only for " new monies" advanced. The loan included " new monies" of $42,958.38. The mortgagor was to pay " interest only" on this loan for five years. A CEMA is a popular lending tool in New York as it saves the borrower the expense of incurring new mortgage taxes on the entire amount of the loan because the old mortgage on which the tax was previously paid is assigned to the new lender and a credit is given for the previously paid mortgage tax.
Because this transaction involved a CEMA, the lender submitted an Affidavit Under Section 255 Tax Law so as to reduce the mortgage tax only to the amount of " new money." Analysis of this affidavit discloses an interesting fact. The ECC Mortgage and the SMI Mortgage were being assigned not to the plaintiff in the foreclosure action and the respondent herein but to what appears to be a different legal entity, " Deutsche Bank Trust Company Americas formerly known as Banker's Trust Company, as Trustee and Custodian for Saxon Mortgage Services, Inc. f/k/a Meritech Mortgage Services, Inc." It should be noted that there is no explanation in the foreclosure complaint if the entity designated in the Section 255 Affidavit is the same entity as the plaintiff named in the foreclosure action or if there was an assignment from one Deutsche Bank arm to another. This leads one to question whether this corporate structure is the mortgage financing world equivalent of " Sybil" and different " personalities" of the same entity or is there an unrecorded or undocumented assignment of the mortgage.
According to the 255 Affidavit, respondent acquired these mortgages by an assignment executed on June 13, 2007, two days before the actual closing took place. This is either a typographical error, or the underwriting department employed a soothsayer able to predict loans closing before they actually did.
This history tends to confirm that" ain't America great" as sophisticated institutional lenders determined that 99 Wright Street in Staten Island, had more than doubled in value between February 2002 and June 2007. When Rivers purchased the property the loan-to-value ratio was 75%, which at one time was the industry standard for mortgages on investment properties. If these " sophisticated institutional lenders" followed that 75% loan-to-value ratio, in June 2007 the fair market value of 99 Wright Street was about $614,000.00.
If these lenders abandoned that standard, and the market value was closer to the value the Department of Finance placed on the property, as set forth below, then these " sophisticated institutional lenders" were lending money at 100% or more than the market value of the property.
These " sophisticated institutional lenders" determined that Rivers could afford to make the PITI payments for the property (principal, interest, taxes and insurance), when Rivers in an affidavit he filed in the foreclosure action, swore that when the loan was made his gross income was only $47,000.00 a year.
What makes this even more amazing is that the Department of Finance of the City of New York in determining the taxes to be assessed against Wright Street found that the " estimated market value" for the property for 2006-2007 was $286,000.00 and for 2007-2008 it was estimated at $293,000.00. For some reason, New York City was either stupidly or deliberately undervaluing this property by 100% so that it could collect less tax revenue from property owners. In the past the City of New York's estimate of property value was unrelated to actual fair market value. However, in the last dozen-years or so there has been an effort to have the estimated market value reflected on tax bills be as close to the actual fair market value as possible, something that seems to be required by statute [Real Property Tax Law § 502; New York City Administrative Code § 11-207]. It is not credible that the Department of Finance market value would be so far off from the estimates prepared by the lenders' respective " expert appraisers," although such a conclusion may be challenged by appraisers.
Although the appraisal community may disregard the City's evaluation as not being accurate and not reflective of current changing market conditions, until the City's numbers, which are required to be set by statute, are proven to be inaccurate, they must be given deference. Especially because many private appraisals relied upon by lenders during this time period were apparently artificially inflated by such devices such as " seller's concession" agreements to permit loans to otherwise unqualified borrowers. If these lender market value appraisals were " accurate" and those of the City " inaccurate," why are so many mortgages not only " underwater" but closer to the bottom in the " Mariana Trench?"
In fact, because this is rental property the sales comparison approach for appraisals would generally not be used. The income capitalization approach more commonly called the " income approach" should have been used. This methodology takes into account items such as rental income and operating expenses. Although information as to the income being generated by this property is not available, significant expense items are. The monthly interest only payment for the first two years was to be $2,970.83, the property taxes were in excess of $3,000.00 a year or $250.00 a month. Added to this would be insurance which is not known but conservatively would be at least $100.00 a month. Adding these together would require a rent role of in excess of $3,200.00 a month just to cover these expenses. Is that credible for a four family building on Wright Street with numerous violations?
On or about August 28, 2008, Deutsche, as plaintiff, commenced a foreclosure action against Rivers in regard to this property in Supreme Court, Richmond County (Index # 103728/08). A review of the complaint in that action discloses that although Deutsche is listed in the caption as the plaintiff, there is no allegation as to who is Deutsche, what is its relationship to the property and how it acquired the mortgage and note on which it alleges Rivers was in default. Plaintiff in the foreclosure action has apparently adopted a cross between Harold Hill's " think system" and Mammy Yokum's " I has spoken" as a litigation technique or believes that when Rivers received the pleadings he would invite Madame Arcati over to figure out what was Deutsche's connection to the property and litigation.
It should be noted that in its cross-motion in this action Deutsche asserts that its correct name is " Deutsche Bank National Trust Company, as Trustee for Saxon Asset Securities Trust 2007-3, Mortgage Loan Asset Backed Certificates, Series 2007-3" and not the name petitioner placed in the caption. Which deserves the response " you've got to be kidding." Deutsche is not mentioned in the chain of title; it is listed in these HP proceedings with the same name as on the caption of the foreclosure action in which it is the plaintiff and which its counsel drafted; and its name is not in the body of foreclosure action pleadings. In the foreclosure proceeding Deutsche pleads that it " was and still is duly organized and existing under the laws of the UNITED STATES OF AMERICA." However, there is no reference to or pleading of the particular law of the USA under which it exists leaving the court to speculate whether it is some federal banking statute, or one that allows Volkswagens, BMW's and Mercedes-Benz's to be imported to the U.S. or one that permitted German scientists to come to the U.S. and develop our space program after World War II.
On November 8, 2012, Judge McMahon, of the Supreme Court, signed a Judgment of Foreclosure and Sale which appointed a referee and directed that the property be sold at auction.
On or about May 13, 2013, almost five years after the foreclosure action was commenced, Rivers filed an order to show cause seeking a stay of the sale of 99 Wright Street. The application was granted and the sale is currently stayed pursuant to that order.
Attached as an exhibit to the petition in Index # HP116/13 are thirty-eight pages of violations assessed by HPD against the premises. There are six violations per page. It should be noted that twenty-five of the thirty-eight pages list violations arising after 2007 when the mortgage respondent is allegedly holding was given to Rivers. The HPD record shows that eight pages of violations were incurred between the time Rivers purchased the property in 2002 and respondent's predecessor in interest issued the last mortgage in 2007. Why any entity would lend money secured by a property with such an extensive record of failing to be maintained in accordance with the housing maintenance code must be questioned.
It appears that respondent in this matter may have become involved with the real estate equivalent of a " pig in a poke." Apparently Maleficient, the evil fairy from " Sleeping Beauty" having realized Briar Rose had beaten her curse, and having been unsuccessful in screwing up the world's computers when 2000 began, decided to cast a spell over the mortgage industry in the United States. Mysteriously seemingly knowledgeable legislators passed statutes permitting government agencies to finance mortgage loans in amounts for more than the property is worth, to people who could not afford to pay, without the need to document things such as income, and then to allow the chopping up the loans into little pieces to sell to new investors, so that if a borrower defaulted in repayment of the loan, the lender would not have the ability to prove it actually ...