| Mortgage Elec. Registration Sys., Inc. v Maniscalco |
| 2007 NY Slip Op 10440 [46 AD3d 1279] |
| December 27, 2007 |
| Appellate Division, Third Department |
| Mortgage Electronic Registration Systems, Inc., Respondent, v SamManiscalco, Appellant, et al., Defendants. |
—[*1] Steven J. Baum, P.C., Buffalo (Adam L. Gross of counsel), for respondent.
Cardona, P.J. Appeal from an order of the Supreme Court (Lalor, J.), entered April 4, 2006 inGreene County, which, among other things, granted plaintiff's motion for summary judgmentseeking foreclosure of a mortgage.
In early 2004, defendant Sam Maniscalco (hereinafter defendant) decided to refinance hishome mortgage loan. In the course of the loan application process, he allegedly informedMichael Lederman, the president of Mortgage Source, a mortgage brokerage, of an outstandingjudgment taken against him by his former counsel in the amount of $17,000. According todefendant, Lederman told him that Mortgage Source could establish an escrow account of$35,000 from the mortgage proceeds without satisfying the judgment, using its title insurancecompany as depositary, and that those funds could then be used to retain a lawyer to negotiate thejudgment to a reduced amount. Defendant was allegedly also assured that, even if negotiationswere unsuccessful, the escrow account could still be used to pay the judgment.
Thereafter, on June 22, 2004, the mortgage closing was scheduled at defendant's home with anotary public appearing to assist with the mortgage documents. Defendant asserts that at theclosing he was surprised to find no mention of the escrow agreement in the closing papers andwas assured by both the notary public and Lederman, by telephone, that "everything was [*2]proper and the escrow agreement and its implementation would becarried out by [the law firm retained by Mortgage Source]." Defendant then executed a mortgagenote with WMC Mortgage Corporation, the original lender and plaintiff's predecessor in interest,and also signed, among other things, notices regarding his right to cancel.
Subsequently, on July 2, 2004, defendant received checks and information relating to theclosing that made it clear that WMC's counsel had paid the judgment in full rather thanestablishing an escrow account. Defendant left a message with the office of WMC's counselindicating that he was "cancelling the mortgage." On July 8, 2004, defendant tried to rescind themortgage by sending a letter to WMC's law firm and returning all the checks. WMC's counselsent the checks back to defendant, advising him that his attempt to cancel the mortgage wasuntimely, he still owed money on the mortgage and the firm had no knowledge of the allegedescrow agreement. In August 2004, defendant failed to make his first payment on the mortgageand defaulted.
In January 2005, plaintiff commenced this mortgage foreclosure action. Defendant's amendedverified answer asserted several affirmative defenses and a counterclaim requesting the rescissionand cancellation of the promissory note and mortgage. Plaintiff moved for summary judgmentforeclosing the mortgage and sought the appointment of a referee. Defendant cross-moved forsummary judgment on his counterclaim. Supreme Court granted plaintiff's motion for summaryjudgment and denied defendant's cross motion, prompting this appeal.
Initially, defendant contends that Supreme Court erroneously granted plaintiff's motion forsummary judgment. A plaintiff seeking to enforce an instrument for the payment of money hasthe initial burden of proving that the defendant executed the note and failed to make payments incompliance with its terms (see Moezinia v Baroukhian, 247 AD2d 452, 453 [1998];Gateway State Bank v Shangri-La Private Club for Women, 113 AD2d 791 [1985],affd 67 NY2d 627 [1986]). Once a plaintiff has made this showing, the defendant mustdemonstrate the existence of a bona fide defense sufficient to defeat a motion for summaryjudgment (see Lavelle v Urbach, Kahn & Werlin, 198 AD2d 751, 751 [1993]; AbacusReal Estate Fin. Co. v P.A.R. Constr. & Maintenance Corp., 115 AD2d 576, 576 [1985]).
Here, the record establishes that plaintiff met its initial burden by demonstrating thatdefendant executed the note and mortgage agreement in June 2004 and, thereafter, defaulted byfailing to make the first payment in August 2004. In response, defendant contends that he raised atriable issue of fact as to the bona fide defense of rescission of the loan. Upon review of therecord, we cannot agree. The Federal Truth in Lending Act gives obligors, such as defendant,only until midnight of the third day after consummation of the loan to rescind (see 15USC § 1635 [a]). Since defendant executed the subject note and mortgage agreement onJune 22, 2004, but did not attempt to rescind until July 8, 2004, any attempt to rescind pursuantto federal law was untimely.
As for the issue of rescission under New York common law, a party to a contract is entitledto rescind where the other party has made a "substantial and fundamental" breach, but not wherethere has been merely a "slight, casual or technical breach" (O'Herron v Southern TierStores, 9 AD2d 568, 568 [1959] [internal quotation marks and citation omitted]; see RR Chester, LLC v Arlington Bldg.Corp., 22 AD3d 652, 654 [2005]). Thus, defendant herein was required to demonstratenot only the existence of an escrow agreement, which plaintiff denies, but also that plaintiffbreached such an agreement.[*3]
To prove the existence of an escrow agreement, it mustbe shown that there is " '(a) an agreement regarding the subject matter and delivery of the [funds],(b) a third-party depositary, (c) delivery of the [funds] to a third party conditioned upon theperformance of some act or the occurrence of some event, and (d) relinquishment by [the grantoror depositor]' " (Rock Oak Estates v Katahdin Corp., 280 AD2d 960, 962 [2001], quotingLennar Northeast Partners Ltd. Partnership v Gifaldi, 258 AD2d 240, 243 [1999], lvdenied 94 NY2d 754 [1999]; see Calcagno v Drew, 263 AD2d 939, 940 [1999]).Here, Supreme Court properly found no triable issues as to the existence of a valid escrowagreement based upon defendant's failure to proffer admissible evidence indicating that all of theelements were established.
For example, defendant's claim that there was an agreement that the original lender wouldhold $35,000 in escrow so that defendant could retain an attorney to negotiate the judgment lienheld by his former attorneys is substantiated only by his own affidavit and a single line on aHUD-1 form from the closing, which states: "Escrow for two Judgments" next to a listed amountof $36,000. There is no other documentary proof or affidavit in the record showing, in admissibleform, any of the terms or conditions of the alleged escrow agreement or corroborating defendant's"general and unsubstantiated" claim that Mortgage Source's title company agreed to act as thedepositary for the alleged escrow account (Friends Lbr. v Cornell Dev. Corp., 243 AD2d886, 887 [1997]). Significantly, in order to satisfy the third element of an escrow agreement,there must be some specific act or event which triggers the depositary's duty to deliver funds to athird party (see Calcagno v Drew, 263 AD2d at 940). Here, there is only defendant'sallegation that, first, some of this money would be used to retain an attorney for the negotiationsand, then, at some unspecified time, depending on how negotiations went, the lien would beremoved by a reduced settlement or by payment in full out of the escrow account. Not only is thisallegation uncorroborated by admissible evidence, it does not establish a clear duty for adepositary to deliver funds to the third party, in this case defendant's former law firm.
In any event, even assuming arguendo that defendant sufficiently proved both the existenceof the escrow agreement and plaintiff's breach of the agreement by paying the full amount of thejudgment immediately, his failure to raise an arguable issue that the breach was substantialenough to defeat the purpose of the entire contract would serve as a sufficient basis to affirmSupreme Court's order (see O'Herron v Southern Tier Stores, 9 AD2d at 568).Defendant's own affidavit states that his motivation for obtaining the mortgage was to refinancehis home mortgage loan and, despite plaintiff's alleged breach, this primary purpose wassuccessfully accomplished, even if he was frustrated in his hope of possibly paying less than thefull amount of the judgment entered against him.
Defendant's remaining arguments, including his contention that Supreme Court erred indenying his cross motion for summary judgment, have been examined and found to beunpersuasive.
Crew III, Mugglin, Rose and Kane, JJ., concur. Ordered that the order is affirmed, with costs.