United States Bankruptcy Court Northern District Of New York ...
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF NEW YORK
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IN RE:
RICHARD HALL
CASE NO. 00-60886
MARYBETH HALL
Debtors
Chapter 13
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RICHARD HALL
MARYBETH HALL
Plaintiffs
vs.
ADV. PRO. NO. 00-80157A
FIRST UNION HOME EQUITY BANK and
FLEET NATIONAL BANK f/k/a FLEET BANK
OF NEW YORK
Defendants
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APPEARANCES:
WAYNE R. BODOW, ESQ.
Attorney for Plaintiffs
1925 Park Street
Syracuse, New York 13208
RICHARD J. SPATARI, ESQ.
Attorney for Defendant Fleet National Bank
201 Second Street
Liverpool, New York 13088
BARTLETT, PONTIFF, STEWART & RHODES, P.C.
EILEEN M. HAYNES, ESQ.
Attorneys for Defendant First Union Home Equity Bank
Of Counsel
P.O. Box 2168
One Washington Street
Glens Falls, New York 12801-2168
Hon. Stephen D. Gerling, Chief U.S. Bankruptcy Judge
MEMORANDUM-DECISION, FINDINGS OF FACT,
CONCLUSIONS OF LAW AND ORDER
Presently before the Court for consideration is a motion filed by Richard Hall and
Marybeth Hall (“M. Hall”) (hereinafter jointly referred to as “Debtors” or “Plaintiffs”) on April
4, 2002, following a trial conducted on March 7, 2002, in the adversary proceeding commenced
by the Debtors on July 31, 2000. Debtors seek to amend their complaint to conform to the
evidence presented at trial pursuant to Rule 15(b) of the Federal Rules of Civil Procedure
(“Fed.R.Civ.P.”), incorporated by reference in Rule 7015 of the Federal Rules of Bankruptcy
Procedure (“Fed.R.Bankr.P.”). Opposition to the Debtors’ motion was filed on behalf of
defendant Fleet National Bank, f/k/a Fleet Bank of New York (“Fleet”) and defendant First Union
Home Equity Bank (“First Union”) on April 19, 2002 and April 22, 2002, respectively.1
JURISDICTIONAL STATEMENT
The Court has core jurisdiction over the parties and subject matter of this adversary
proceeding pursuant to 28 U.S.C. §§ 1334(b), 157(a), (b)(1) and (b)(2)(A), (K) and (O).
FACTS
1 Pursuant to the Court’s ruling following the trial, the parties were to delay their
submission of memoranda of law in connection with the trial until the Court had the opportunity
to rule on the Debtors’ motion pursuant to Fed.R.Bankr.P. 7015.
3
The Debtors filed a voluntary petition (“Petition”) pursuant to chapter 13 of the
Bankruptcy Code, 11 U.S.C. §§ 101-1330 (“Code”), on March 2, 2000. According to the
Debtors’ Schedules, First Union was listed as a secured creditor with a claim of $87,200 based
on a second mortgage on the Debtors’ residence at 111 Beechwood Drive, Groton, New York
(“Residence”), and Fleet was listed as a secured creditor with a claim of $63,945.06 with respect
to a first mortgage on the Residence. The Debtors estimated the value of the Residence to be
$74,000. Under the terms of the Debtors' Plan, Fleet was to be paid $550 per month at an interest
rate of 10.50% over the term of the Plan (40 months) on its claim. According to the Plan, the
Debtors indicated that “First Union has a second mortgage lien on debtor’s residence. This
mortgage is treated as unsecured in this plan.” The Debtors allege in their Plan that “First Union
in this transaction practiced unscrupulous lending in that they relied on a bank appraisal rather
than a professional appraisal. A recent professional appraisal indicates the fair market value is
$74,000.00. The First Union new mortgage was intended to pay off a higher rate mortgage. . .
. unfortunately this Fleet Mortgage was not discharged and remains as the first mortgage of
record. * * * The debtor’s [sic] herein offer the following solution to settle First Unions’ [sic]
secured claim: this plan will be amended upon request to pay First Union $9000.00 as a secured
claim [at] 8% interest. . . .” The Plan was signed by the Debtors on February 29, 2000.
On May 4, 2000, First Union filed an objection to the Plan’s confirmation. On May 5,
2000, First Union filed a proof of claim in the amount of $92,220.81 in which it included $6,331
in arrears on its mortgage for the period from September 1999 through February 2000.
On July 31, 2000, the Debtors commenced an adversary proceeding naming both Fleet
and First Union as defendants. On July 6, 2001, the Debtors filed a motion to amend their
4
complaint to add certain new causes of action and to effect proper service on both defendants.2
By Order dated September 13, 2001, the Court granted the Debtors’ motion. The Amended
Complaint was filed on September 27, 2001, and the Summons and Complaint were served on
both Defendants on October 2, 2001. First Union filed an Answer to the Amended Complaint
on October 30, 2001, and asserted a cross-claim against Fleet, seeking a declaration that First
Union held a valid first lien on the Residence. On November 13, 2001, an Answer was filed to
the Amended Complaint on behalf of Fleet and a cross-claim was asserted against First Union
also requesting a determination that its mortgage lien had first priority with respect to the
Debtors’ Residence.
As noted previously, a trial of the adversary proceeding was conducted on March 7, 2002,
in Utica, New York. The following facts were elicited by way of testimony and exhibits:
According to M. Hall, she and her husband purchased the Residence in 1988. On October
28, 1988, they entered into a Homeloan Line of Credit Agreement with Fleet in the amount of
$39,000, payable in full in 15 years and secured by the Debtors’ Residence. See Debtors’ Exhibit
1. The monies were accessed by the Debtors writing checks provided by Fleet. M. Hall testified
that on November 20, 1992, she and her husband entered into another credit line agreement with
Fleet in the amount of $71,200 using a portion of the funds to pay off the earlier line of credit.
See Debtor’s Exhibit 2.
On January 16, 1996, the Debtors executed a mortgage to secure a loan with First Union
in the amount of $89,600 based on an estimated market value for the Residence of $112,000. See
2 Fleet had been apprized by Debtors’ counsel that it had decided not to name Fleet as
a defendant. However, the summons and complaint served on First Union named both entities
as defendants and First Union crossclaimed against Fleet.
5
Defendant's Exhibits E and F. According to M. Hall, the proceeds of the loan were to be used
to pay off the loan with Fleet, as well as certain other credit card accounts. Mary Hendel
(“Hendel”), an employee of the law firm of Granito & Sondej who handled the mortgage closing
for First Union, testified that with respect to the Debtors’ loan, First Union had forwarded an
initial packet of documents to her on or about January 10, 1996, which included a deed, as well
as the Debtors’ application. See Debtors’ Exhibit 14. Listed on the application was a mortgage
held by Fleet against the Debtors’ Residence in the approximate amount of $70,000, as well as
several other obligations. According to the First Union Settlement Statement, signed by the
Debtors on or about January 16, 1996, disbursements of $85,072.70, including $71,224.73 to
Fleet Bank, were to be made. See Defendants’ Exhibit D. It was Hendel’s testimony that First
Union did not have a representative present at the closing, other than herself. According to the
closing instruction letter from First Union, dated January 11, 1996, and addressed to Granito &
Sondej, $87,474.20 was to be deposited into Granito & Sondej’s escrow account “with
disbursement to be made after the expiration of any rescission period.” See Debtors’ Exhibit 18.
First Union instructed Granito & Sondej to obtain execution of a first mortgage. By check dated
January 22, 1996, written on the account of Granito and Sondej, Fleet was paid $71,224.73 from
the closing proceeds. See Defendants’ Exhibit A.
Hendel testified that it was the practice of the law firm handling the closing for such
entities as First Union to forward a cover letter to each creditor to whom payment was being
made with reference to the account for which payment was being made, a copy of the statement,
along with the check paying off the account. See Plaintiffs’ Exhibit 19 and 20 In this case, the
letter, dated January 22, 1996, was addressed to “Fleet Services Corporation, P.O. Box 5058,
6
Hartford, CT 06102-5058" and referenced the account of Richard H. Hall and Marybeth Hall,
#7767999915416000443. See id. The letter requests that the account be closed and references
an authorization signed by the Debtors. Id. It also requested that a satisfaction of the Fleet
mortgage be sent to the office of Granito & Sondej. Id. Hendel testified that a copy of a
statement of the account to be closed normally would have been stapled to the letter, along with
the signed authorization. It was the procedure to paperclip the check to the cover letter. She
further testified that their office never received or recorded a satisfaction of the Fleet mortgage
securing the 1992 credit line with Fleet.3 She admitted that she had made no further inquiry or
follow-up with regard to the satisfaction and explained that the file simply remains in their office
until a discharge or satisfaction is received.
According to the testimony of James Spalone, Manager of Consumer Loans for Fleet, he
reviewed the records of the Debtors’ transactions with Fleet and found that Fleet had received
and cashed the check from Granito & Sondej in the amount of $71,224.73. He testified that the
post office box in Hartford, Connecticut, was a lockbox location for payments. He had no
knowledge whether the people in Hartford had complied with Fleet’s procedures in connection
with the Fleet Line Paid Loan Processing Procedures, which required that documentation
received be sent to the Paid Loan Department if notification to close was included with the
payment. See Plaintiffs’ Exhibit 26. His review of Fleet’s records in connection with the
Debtors’ account did not reveal a copy of the letter from Granito & Sondej or the authorization
3 Hendel testified that she received a Discharge of Mortgage from Fleet, dated January
25, 1996, with respect to the prior credit line obtained by the Debtors in 1988, which allegedly
had been closed by Fleet in February 1993 using the monies from the credit line obtained in
November 1992. See Debtors’ Exhibit 11.
7
to close the account signed by the Debtors. Spalone testified that Fleet’s records did not reflect
any request for a payoff or for a discharge or satisfaction of the mortgage. According to Fleet’s
processing procedures, without notification accompanying the payment, the people in Hartford
were simply to process the payment. See id.
M. Hall testified that she was surprised when she received a statement from Fleet
subsequent to the closing with First Union indicating that she owed a balance of $82.51. See
Debtors' Exhibit 4. She acknowledged that the statement for the period from January 27, 1996
to February 26, 1996 still showed available credit of $71,200. It was her understanding that the
account could not be closed out until the balance of $82.51 was paid. She testified that when she
called and spoke to a representative of Fleet, she was told that the $82.51 represented interest
from a late payment. She sent Fleet a check in the amount of $82.51, along with the payment
stub from the statement.4 See Debtors’ Exhibit 6.
According to a “Speed Memo” completed by an employee of Fleet on February 16, 1996,
a call had been received from M. Hall. See Plaintiffs’ Exhibit 22. The box indicating whether
the account was open or closed, was checked “Open.” The employee noted that “Customer feels
she should not owe a balance of $82.51. Cust. was very persistent. Please send to the cust. a
breakdown showing this (CMNT 5does not show payoff).”
By letter dated February 27, 1996, Fleet provided a response to M. Hall’s telephone
inquiry explaining the “paydown as of 1/26/96,” indicating an ending balance of $70,730.65 on
4 The check does not contain any notation or reference in the “Memo” portion.
5 Spalone testified that “CMNT” refers to the comment screen on the computer accessed
by the representative in checking the account.
8
the 12/28/95 statement and a finance charge of $576.59 for the period 12/29/95 - 1/25/96. See
Debtors’ Exhibit 7. The letter indicated the receipt of $71,224.73 and a balance due of $82.51
as of 1/26/96. See id. The statement sent to the Debtors the following month for the period
February 27, 1996 through March 28, 1996, showed a new balance of $0.00 and available credit
of $71,200. See Debtors’ Exhibit 8.
Hendel testified that the Debtors had not contacted her after the closing about the
additional $82.51 owed on the account. It was also her testimony that no correspondence was
received from Fleet indicating a shortfall, despite the fact that it had cashed the check.
According to Fleet’s records, the Debtors’ account was paid down to zero on March 5,
1996.6 See Debtors’ Exhibit 24. On May 7, 1996, there was a draw of $34,000 made and on
September 23, 1996, another was made in the amount of $2,500. See id. On October 23, 1997,
there was an additional draw of $21,000 made by the Debtors.
M. Hall testified that sometime in May 1996 her daughter had encountered financial
difficulties and M. Hall contacted Fleet to see about the possibility of borrowing additional funds.
She was told that she could borrow additional monies, and she did so by using the checks which
she had previously used when accessing the 1992 credit line.7 She testified that she knew it was
a loan, but believed it to be a new loan and “not from those funds [meaning the 1992 credit line].”
6 According to the terms of the Fleet Line Note and Agreement executed by the Debtors
on November 20, 1992, “This Note and Mortgage securing it will remain in full force and effect
even though your loan balance may be reduced to zero from time to time.” See Debtors’ Exhibit
2, Fleet Line Note and Agreement at ¶ 2.
7 According to the terms of the Fleet Line Note and Agreement, the Debtors could cancel
their account at any time “by notifying us in writing. If you do, you must return all unused
checks to us.” See Debtors’ Exhibit 2, Fleet Line Note and Agreement, at ¶ 2.
9
At the same time, she acknowledged that on the previous occasions when they had obtained loans
from Fleet, they had had to execute separate documents in connection with each line of credit and
had been given different checks each time. She admitted that in May 1996 they had not executed
any new documents and had not been provided with new checks. When questioned by the Court
about the need for some type of security when Fleet loaned the Debtors additional monies in May
1996, she acknowledged that prior lines of credit had always required that there be some form
of security for the loans. However, she testified that in May 1996 she understood that the monies
were being made available on an unsecured basis based on their past payment history with Fleet.
That it appeared to be a new loan was given further credence, according to M. Hall, when they
were sent different statement forms than they had received prior to the closing in 1996 with
respect to the 1992 line of credit.8 See Debtors’ Exhibit 9. When asked to examine the Fleet
statement with a closing date of June 27, 1996, she acknowledged that the credit line listed was
the same as that for the 1992 credit line, namely, $71,200. See id. When asked whether that
raised any questions in her mind about the source of the loan, she explained that she had not
examined the statements that had been sent to her and her husband at that time and had simply
turned them over to her daughter for payment. Later when the advances were made by her and
her husband, she testified that she had not made any inquiry about the account despite the fact
that the credit line was in the same amount and was identified by the same account number as that
account which she believed had been closed in early 1996.
On April 4, 2002, the Debtors filed a motion seeking to amend their Amended Complaint
8 She could not recall whether the statement format had changed between 1992 and 1996
when she previously accessed the credit line. She admitted that if it had changed, it had not
caused her to believe that the account had changed and that it was for a different loan.
10
to conform it to the evidence received at trial pursuant to Fed.R.Bankr.P. 7015. The “Conformed
Complaint,” filed with the motion, supplements the factual allegations in the Amended Complaint
with reference to some of the exhibits admitted into evidence at the trial. The Conformed
Complaint proposes to add four new causes of action. The first cause of action asserts a right of
recoupment under New York State law “for material breach of contract by Defendant First Union
in failing to supply a first mortgage as contracted for.” Debtors request damages
in the form of rescission by recoupment of the mortgage
obligation now existing to the defendant, First Union, for breach
of contract and return of all moneys or other valuable
consideration given by plaintiff as conditions precedent to
defendant’s performance and all monies paid to the defendant
during the life of the mortgage.
Plaintiffs’ second cause of action is new and is based on an assertion that First Union
breached New York General Business Law Article 22-A, §§ 349 and 350 “in failing to disclose
a material term of the mortgage as accepted by plaintiffs.” Plaintiffs allege that “had the
plaintiffs known prior to or at the time of contracting for a first mortgage with defendant First
Union that the mortgage was not as represented by the defendant in all communications, papers
and closing documents, the plaintiffs would not have accepted the mortgage or the terms.”
Plaintiffs allege that the “affirmative representations” by First Union were false or deceptive acts
or practices and Plaintiffs seek recoupment and/or actual damages and treble actual damages, as
well as reasonable attorney’s fees and costs.
The fifth cause of action, as identified in the Conformed Complaint, is also new. In it the
Debtors assert a right of recoupment against Fleet under New York State law “as an equitable
defense against foreclosure proceedings.” Debtors rely on § 1635(g) of the Truth in Lending Act,
15 U.S.C. §§ 1601 et seq., which according to the Conformed Complaint, “allows a consumer
11
relief other than the right to rescind if the 3 year statute of limitations in the Truth in Lending Act
has expired by reference to § 1640 (e) wherein the Act allows the right of recoupment under State
Law.” See ¶ 114 of Conformed Complaint. In this regard, the Debtors request
[d]amages in the form of rescission by recoupment of the
mortgage obligation now existing to the defendant, Fleet, for
breach of fiduciary duty and return of all moneys or other valuable
consideration given by plaintiffs to defendant Fleet as well as all
monies paid to the defendant during the life of the mortgage.
The sixth cause of action is also new and asserts that Fleet violated “New York Real
Property Actions and Proceedings Law Article 19 - Discharge or Extinguishment of
Encumbrances, Claims and Interests, § 1921 Discharge of Mortgage.”9 It is the Debtors’ position
that they believed that their credit line account had been paid off and closed and that a
satisfaction of mortgage would be issued. Debtors assert that Fleet had an affirmative duty to
execute and deliver a satisfaction of mortgage upon written request by the Debtors. As a result
of its failure to execute a satisfaction of mortgage, Debtors contend that they have suffered
damages by having to commence the adversary proceeding herein and having to delay
confirmation of their chapter 13 plan. It is also the Debtors’ position that Fleet’s claim that it
holds a first mortgage claim as against the Debtors would have no basis in fact, law or equity but
for Fleet’s own negligence and malfeasance. Debtors request either rescission of the mortgage
with First Union and/or the mortgage with Fleet, or a bifurcation of the mortgage interest of First
Union “wherein the defendant First Union would be paid pro-rata with defendant Fleet up to the
secured value of the premises as established by an appraisal done for the purpose of establishing
9 A similar claim is identified as the third cause of action in the Conformed Complaint
and alleged against First Union.
12
the market value in the instant proceeding.”
Debtors have withdrawn the third, fifth and sixth causes of action identified in the original
Amended Complaint.
DISCUSSION
Initially, the Court notes that for the most part the factual allegations which Debtors have
added to the Conformed Complaint were known to them prior to trial. See, e.g., ¶¶ 1-3, 21, 28,
30, 39-40. The only new allegations included in the Conformed Complaint are based on the
evidence received at the time of trial and are found at ¶¶ 9-16. Those paragraphs set forth the
process followed by Hendel in connection with the closing on the First Union mortgage. The
Debtors conclude in their preliminary statement that “wherein the plaintiffs sought and paid fees
to procure a first mortgage through defendant First Union and payoff and closure of a pre-
existing first mortgage open end line of credit mortgage and lien held by the defendant Fleet. .
. . the facts in this case will show that the right of rescission by recoupment is applicable in this
case as the plaintiff’s [sic] did not receive the intended first mortgage with defendant First Union
through the negligence of both defendant First Union and defendant Fleet.”
Fed.R.Civ.P. 15(b) provides in pertinent part: “When issues not raised by the pleadings
are tried by express or implied consent of the parties, they shall be treated in all respects as if they
had been raised in the pleadings.” In determining whether to permit an amendment, the Court
must consider
whether the new issues were tried by the parties’ express or
implied consent and whether the defendant ‘would be prejudiced
13
by the implied amendment, i.e., whether he had a fair opportunity
to defend and whether he could offer any additional evidence if
the case were to be retried on a different theory.’”
Royal American Managers, Inc. v. IRC Holding Corp., 885 F.2d 1011, 1017 (2d Cir. 1989)
(quoting Browning Debenture Holders’ Committee v. DASA Corp., 560 F.2d 1078, 1086 (2d Cir.
1977)). Critical to the Court’s consideration is a determination of whether the Defendants were
aware during the course of the trial that the issues had been introduced by the Plaintiffs. See
United States. v. Certain Real Property and Premises, Known as 890 Noyac Road, Noyac, N.Y.,
945 F.2d 1252, 1259 (2d Cir. 1991). “Where a party seeks to apply evidence presented on a
separate issue already in the case to a new claim added after conclusion of the trial, the opponent
may be unfairly prejudiced.” Grand Light & Supply Co., Inc. v. Honeywell, Inc., 771 F.2d 672,
680 (2d Cir. 1985).
In their first cause of action in the Conformed Complaint, the Debtors assert a right to
recoupment under New York State law, alleging that First Union breached a contract with the
Debtors by failing to supply them with a first mortgage. The Debtors do not specify what “New
York State law” they are relying on to support their position.10
Recoupment is defined as
1. The recovery or regaining of something, esp. expenses. 2. The withholding for
equitable reasons, of all or part of something that is due. . . . 3. Reduction of a
plaintiff’s damages because of a demand by the defendant arising out of the same
transaction. . . . 4. The right of a defendant to have the plaintiff’s claim reduced
or eliminated because of the plaintiff’s breach of contract or duty in the same
transaction. 5. An affirmative defense alleging such a breach.
10 In the index of McKinney’s Consolidated Laws of New York Annotated, “recoupment”
is identified as a remedy available in connection with Article 9 of the Uniform Commercial Code,
which has no application to the matter herein dealing with mortgages on real property.
14
BLACK’S LAW DICTIONARY 1280 (7th ed. 1999).
The Plaintiffs did not introduce into evidence a copy of the contract alleged to be dated
January 19, 1996, by which First Union was to provide them with a first mortgage. The mortgage
dated January 16, 1996, and signed by the Debtors indicates an obligation on the Debtors’ part
to see that any lien superior to that of First Union is satisfied and promptly paid by them. See
Defendants’ Exhibit F at ¶ 3 of “Uniform Promises.” The Debtors’ Affidavit, also signed January
16, 1996, states that they will not increase or refinance the balance of any prior mortgage. See
Defendants’ Exhibit B. The Court is at a loss to discern the legal basis for the relief sought in
the Debtors’ proposed first cause of action and, therefore, will deny the Debtors’ request in that
regard.
Debtors’ proposed second cause of action against First Union is based on §§ 349 and 350
of the New York General Business Law (“NYGBL”). Nothing in the record would indicate that
First Union was made aware of any such claim prior to or during the trial. Furthermore, based
on the evidence adduced at trial the second cause of action would have to be dismissed for failure
to state a claim.
In order to succeed on a claim based on NYGBL § 349 and 350, the Plaintiffs must have
alleged that First Union’s conduct or practices have a broad impact on consumers at large. See
Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 N.Y.2d 20, 25,
647 N.E.2d 741, 623 N.Y.S.2d 529 (N.Y. 1995). “Private contract disputes, unique to the parties,
for example, would not fall within the ambit of the statute.” Id. (citation omitted); see also
Dimovich v. OnBank & Trust Co., 242 A.D.2d 922, 923 (N.Y. Sup.Ct. 1997) (noting that the
plaintiff had failed to demonstrate “any facts to support a finding that the challenged conduct
15
consisted of ‘acts or practices [that] have a broader impact on consumers at large, rather than a
private contract dispute ‘unique to the parties.’”); Wall Street Transcript Corp. v. Cohn, 243
A.D.2d 341 (N.Y. Sup.Ct. 1997) (indicating that § 349 “is directed at wrongs that have an impact
upon consumers at large and does not encompass private contract disputes . . .”).
In this case, the evidence does not establish that the matter was anything but a private
dispute. Accordingly, because amendment of the complaint with respect to the second cause of
action fails to state a claim upon which relief could be granted, the Court will deny the Debtors’
request to add that particular cause of action. See generally id. at *5.
The proposed fifth cause of action is based on § 1635(g) of the Truth in Lending Act.
Debtors assert a right of recoupment against Fleet “as an equitable defense against foreclosure
proceedings.” The matter of Fleet’s foreclosure of its mortgage is a tangential matter for which
the Court has no jurisdiction. Any rights to recoupment pursuant to 11 U.S.C. § 1640 the Debtors
might have in that regard would more appropriately be asserted against Fleet in an action seeking
to foreclose on the Debtors’ Residence in the event that the Court were to grant relief from the
stay. To the extent that the Debtors seek to rescind the mortgage they have with Fleet, the Court
concludes that they are, indeed, barred by the three year statute of limitations set forth in 15
U.S.C § 1635. See Beach v. Ocwen Federal Bank, 523 U.S. 410, 118 S.Ct. 1408, 1410-1411,
140 L.Ed. 566 (1998) (addressing whether under federal law the statutory right of rescission
provided by § 1635 may be revived as an affirmative defense after its expiration under § 1635(f)
and concluding that there is no such federal right to rescind, defensively or otherwise, after the
3-year period of § 1635(f) has run.”). Furthermore, the case law indicates that any attempt to
seek to void the mortgagee’s security interest and to recover finance charges and attorney fees
16
is conditioned on the tender of payment of whatever principal remains on the outstanding
indebtedness. See In re Lynch, 170 B.R. 26, 30 (Bankr. D.N.H. 1994); In re Cox, 162 B.R. 191,
195 (Bankr. C.D.Ill. 1993) (noting that the purpose of 15 U.S.C. § 1635(b) is to restore the parties
as much as possible to the status quo ante.”). It does not appear that the Debtors are prepared to
pay the full amount of Fleet’s mortgage in exchange for rescission of the secured obligation as
the case law interpreting the statute requires.
The Court concludes that the fifth cause of action would prove futile and will deny the
Debtors’ motion to include it in their Conformed Complaint.
The Debtors’ sixth cause of action is based on § 1921 of the New York Real Property
Actions & Proceedings Law (“NYRPAPL”), which requires that a mortgagee
[a]fter payment of authorized principal, interest and any other
amounts due thereunder or otherwise owed by law has actually
been made, and in the case of a credit line mortgage as defined in
section two hundred eighty-one of the real property law on written
request, a mortgagee of real property situate in this state, unless
otherwise requested in writing by the mortgagor or the assignee of
such mortgage, must execute and acknowledge before a proper
officer, in like manner as to entitle a conveyance to be recorded,
a satisfaction of mortgage . . .
NYRPAPL § 1921(1) (McKinney Supp. 2002).
At the trial, the Court heard testimony from Hendel regarding the closing on First Union’s
mortgage and the procedures normally followed by Granito & Sondej in connection with making
disbursements following a closing. The Court also heard testimony from Fleet’s representative,
Spalone, concerning his review of Fleet’s records on the Debtors’ credit line account. Fleet is
under a statutory duty to comply with NYRPAPL § 1921. The Court finds that the issues
forming a basis for a cause of action against Fleet based on NYRPAPL § 1921 were tried with
17
Fleet’s implied consent and should not prejudice it by the Court granting the Debtors’ motion to
amend their complaint. However, the Court would note that NYRPAPL § 1921(4) limits the
Debtors’ recovery to the greater of $500 or their economic loss. See Glatter v. Chase Manhattan
Bank, 239 A.D.2d 68, 72-73 (N.Y. App. Div. 1998) (limiting homeowners’ recovery to $500 in
actual economic loss and denying recovery of punitive damages or attorney’s fees).
Based on the foregoing, it is hereby
ORDERED that the Debtors’ motion seeking to amend their Amended Complaint to add
the first, second and fifth causes of action as set forth in their Conformed Complaint is denied;
and it is further
ORDERED that the Debtors’ motion seeking to amend their Amended Complaint to add
the sixth cause of action based on NYRPAPL § 1921, as set forth in the Conformed Complaint,
is granted to the extent set forth in the Decision herein; and it is further
ORDERED that the Debtors’ third, fifth and sixth causes of action identified in the
Amended Complaint are withdrawn; and it is further
ORDERED that the Debtors file and serve a Second Amended Complaint within fifteen
(15) days of the date of this Order consistent with the Decision herein; and it is finally
ORDERED that the parties file and serve their post-trial memoranda of law within forty-
five (45) days of the date of this Order.
Dated at Utica, New York
18
this 8th day of July 2002
___________________________________
STEPHEN D. GERLING
Chief U.S. Bankruptcy Judge
