Plaintiff, in this mortgage foreclosure action, moves, pursuant to CPLR Rule 3212 (a), for summary judgment and an order of reference to compute the amount due to plaintiff and related relief, for the property located at 191 Patchen Avenue, Brooklyn, New York (Block 1663, Lot 5, County of Kings). The Court cannot grant summary judgment because, as will be explained, issue has not been joined with an answer from any party. Instead of summary judgment, the Court grants plaintiff a default judgment for an order of reference and related relief, pursuant to CPLR § 3215.

Defendant mortgagor Real Property Solutions Corporation (RPSC) defaulted.

Defendant Wells Fargo Bank, N.A. as Indenture Trustee under the Indenture relating to the IMH Assets Corp., Collateralized Asset-Backed Bonds, Series 2005-6 (WF), the holder of another mortgage on the subject premises, opposes the motion. WF's opposition is based solely upon the priority of mortgage liens on the property

WF, despite its objections, failed to answer the instant summons and complaint, by improperly relying upon its mortgage servicer, Impac Funding Corporation (Impac), to file and serve an "answer" on WF's behalf. Impac had no power of attorney from WF. Nonparty Impac's "answer" is a nullity. Thus, WF defaulted by failing to serve an answer. CPLR Rule 320 (a) requires that "[t]he defendant appears by serving an answer." WF then attempted to correct its mistake of not filing and serving an answer by securing a stipulation from plaintiff's attorney and Impac's attorney for leave to amend Impac's "answer," pursuant to CPLR Rule 3025 (b), by substituting WF for Impac. However, amending a nonparty's "answer" is a nullity. It's not a proper amendment of a party's pleadings. Therefore, it is clear that WF never filed and served an answer.

Further, the Perla mortgage, though executed subsequent to the WF mortgage, was recorded thirteen months prior to the WF mortgage. Pursuant to Real Property Law (RPL) § 291, the Perla mortgage is senior to the Wells Fargo mortgage, because it was recorded first. The Perla mortgage won the proverbial race to the courthouse.

WF blames Impac for its default and Richmond Abstract Company for failing to promptly record the earlier mortgage, which resulted in their junior position to the Perla mortgage. The Court reminds WF of Cassius advice to Brutus, in Act I, Scene 2 of William Shakespeare's Julius Caesar:

The fault, dear Brutus, is not in our stars,

But in ourselves.

WF's counsel, in ¶ 2 of his affidavit in opposition, states that "[i]f Wells Fargo is not afforded its day in Court and the opportunity to protect its substantial interest in the real property [*2]in question, the plaintiff in this action will be unjustly enriched, at Wells Fargo's expense." Meanwhile, the "Sunday Business" section of the April 6, 2008 New York Times, at pages 10 - 11, contained a table with the 2007 compensation of the Chief Executive Officers (C.E.O.'s) of 200 large public companies. According to this table, John G. Stumpf, WF's C.E.O., received total compensation in 2007 of $11,447,960.00 (base salary of $749,615.00 + cash bonuses of $4,200,000.00 + other perks valued at $436,857.00 + stock option awards of $6,061,488.00). Maybe WF's counsel should wonder, like the Court, if Mr. Stumpf was unjustly enriched at the expense of WF's stockholders, since the company's total return in 2007 decreased 12% from 2006.

My search of the Automated City Register Information System (ACRIS) of the New York City Department of Finance, and reading the motion papers of the parties, demonstrates that defendant RPSC purchased the subject premises at 131 Patchen Avenue, Brooklyn, New York, on December 23, 2003, for $400,000.00. The deed was recorded in the Office of the City Register, on July 4, 2004, at City Register File Number (CRFN) 2004000390408 [exhibit 1 of affidavit in opposition]. RPSC borrowed $300,000.00, at the December 23, 2004 closing, from Linda Funding, LLC for the purchase of the property. The mortgage to secure this loan was recorded in the Office of the City Register, on July 4, 2004, at CRFN 2004000390409 [exhibit 2 of affidavit in opposition].

The next recorded transaction for 131 Patchen Avenue, relevant to this case, took place on July 23, 2004, when plaintiff loaned $225,000.00 to RPSC. The mortgage to secure this loan was recorded in the Office of the City Register, on September 14, 2004, at City Register File Number CRFN 2004000570349 [exhibit A of motion]. ¶ 18 of this mortgage states that "[t]his mortgage is subject and subordinate to an existing first mortgage in the approximate sum of $300.000." The note [exhibit B of motion] was for interest only payments of 24% per annum or 2% per month ($4,500.00). Plaintiff alleges that RPSC defaulted in June 2006.

Apparently unknown to plaintiff, RPSC conveyed the premises to Joseph Derima, RPSC's President, in a deed dated March 30, 2004, for $460,000. However, this deed was not recorded in the Office of the City Register, until October 14, 2005, at CRFN 2005000574534 [exhibit 3 of affidavit in opposition]. Also, on March 30, 2004, American Brokers Conduit loaned $368,000.00 to Mr. Derima for his purchase of the premises from RPSC. The mortgage to secure this $368,000.00 loan, with Mortgage Electronic Registrations Systems, Inc. (MERS) as the nominee of the lender and mortgagee of record, was also recorded on October 14, 2005, in the Office of the City Register, at CRFN 2005000574535 [exhibit 4 of affidavit in opposition]. According to the lender's settlement statement [exhibit 5 of affidavit in opposition - HUD-1 form], $308,512.50 of the American Brokers Conduit loan went to "Payoff of first mortgage loan." The lawyer who acted as the settlement agent for American Brokers Conduit made a check for that amount to Linda Funding, LLC [exhibit 6 of affidavit in opposition]. However, Linda Funding did not prepare a satisfaction of mortgage to RPSC until July 15, 2005, more than 15 months later. This satisfaction was also recorded on October 14, 2005, in the Office of the City Register, at CRFN 2005000574536 [exhibit 7 of affidavit in opposition], along with the recording of the RPSC to Derima deed and the MERS mortgage.

When plaintiff Perla gave her $225,000.00 loan and mortgage to RPSC, on July 24, 2004, [*3]as well as on September 14, 2004, when the Perla mortgage was recorded, there was no notice to anyone who would have checked the City Register of RPSC's March 30, 2004 sale to Joseph Derima, and the American Brokers Conduit/ MERS loan and mortgage. Not until a full thirteen months had elapsed after the recording of the Perla Mortgage, on October 14, 2005, were the RPSC to Derima deed, the MERS mortgage, and the satisfaction of the Linda Funding mortgage recorded. If the Court were to accept WF's opposition papers it would rely on hearsay. WF's counsel, in ¶ 11 of his affidavit in opposition, blames Richmond Abstract Corporation, the agent of Old Republic Title Insurance Company, as follows:

Unfortunately, unbeknowst to the lender, Richmond Abstract Corp.,

which is now defunct, was engaged in a scheme of failing to record

documents from hundreds of closings while converting the fees and

taxes which it had collected for that purpose. Your deponent's firm

was retained on behalf of one title insurer to pursue Richmond Abstract

Corp., and we were ultimately successful in obtaining access to hundreds

of files containing unrecorded documents which were later recorded by

various abstract companies and agents. The deed and mortgage in

question here was so recorded, belatedly, by Advance Abstract Corp.

For what it's worth, two of the principals of Richmond Abstract Corp.

are now serving criminal sentences courtesy of the Nassau County

District Attorney's office.

Subsequently, WF purchased the American Brokers Conduit/MERS mortgage. The MERS to WF assignment is dated January 9, 2007, effective December 16, 2006, and recorded on January 30, 2007 in the Office of the City Register, at CRFN 2007000055713 [exhibit 8 of affidavit in opposition]. However, WF's counsel never explains why WF failed to do a title search or even an ACRIS search, which would have demonstrated the senior position of the Perla mortgage to the MERS mortgage at the time of the MERS to WF assignment.

Plaintiff commenced the instant action with the filing of the notice of pendency, the summons, and the verified complaint, on February 1, 2007. According to the process server's affidavit of service, WF was served on February 8, 2007 [exhibit D of motion] at an office in San Francisco, California. WF, in a February 21, 2007-letter, from Kathleen Dean, "Legal Process Specialist," in WF"s Corporate Trust Services office in Columbia, Maryland [exhibit 12 of affidavit in opposition], to Stephen Weichmann, of Impac, at an Irvine, California office, forwarded to him the instant foreclosure action papers, noting that "[o]ur records indicate that you are the Servicer-in-Fact . . . we request you to respond in your capacity as Servicer. As Servicer, you have a contractual duty to indemnify Wells Fargo Bank, N.A., by providing an adequate and reasonable legal defense on our behalf as Trustee." It appears that Ms. Dean is not an attorney. Further, the Court doubts if Ms. Dean is cognizant of New York State's foreclosure procedures, the requirements of the CPLR, and the "race-notice" provision of RPL § 291.

Then, for reasons unknown to the Court, Impac, not WF, prepared a verified answer, dated March 29, 2007. The verified answer [exhibit 13 of affidavit in opposition] states in its introductory sentence, "Impac . . . as Servicer under the Indenture relating to the IMH Assets Corp. collateralized asset-backed bonds Series 2005-6 (the Trust'), by and through its attorneys, Thacher Proffitt & Wood LLP, does hereby answer the Complaint . . . filed by plaintiff Joy S. [*4]Perla in the captioned matter." The Court does not know if Thacher Proffitt & Wood LLP advised defendant WF to file an answer on its own behalf. Counsel for WF, in ¶ 20 of his affidavit in opposition, states that WF "relied upon the contractual obligation that existed [the Court has never seen this alleged contract] between it and Impac and reasonably expected Impac to defend this action on Wells Fargo's behalf." Counsel for WF admits that "the answer did not name Wells Fargo, per se. The answer, rather, was on behalf of Impac as servicer of the subject loan for Wells Fargo, despite the fact that Impac was not named as a party."

Subsequent to the execution of the Impac "answer," as noted previously, a stipulation was signed on November 7, 2007, by the attorneys for plaintiff, WF, and Impac [exhibit 15 of affidavit in opposition]. It stated in the first clause, "Wells Fargo is hereby given leave, pursuant to CPLR Rule 3025 (b), to amend the answer to the complaint previously interposed on behalf of the Trust by Impac to, inter alia, substitute Wells Fargo and its attorneys for Impac and its attorneys and assert affirmative defenses, with that amended answer to be served and filed on or before December 21, 2007." This stipulation was never presented to the Court to be "so-ordered." WF's counsel, in ¶ 21 of his affidavit in opposition, states that the stipulation was entered into "[r]ather than burden the Court with unnecessary motion practice." The Court would prefer to be burdened with motion practice to prevent the amendment of a nullity.

The proponent of a summary judgment motion must make a prima facie showing

of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case. (Alvarez v Prospect Hospital, 68 NY2d 320, 324 [1986]; Zuckerman v City of New York, 49 NY2d 557, 562 [1980]); Sillman v Twentieth Century-Fox Film Corp., 3 NY2d 395, 404 [1957]). Failure to make such a showing requires denial of the motion, regardless of the sufficiency of the opposing papers. (Matter of Redemption Church of Christ v Williams, 84 AD2d 648, 649 [3rd Dept 1981]; Greenberg v Manlon Realty, 43 AD2d 968, 969 [2nd Dept 1974]; Winegrad v New York University Medical Center, 64 NY2d 851 [1985]).

CPLR Rule 3212 (b) requires that for a court to grant summary judgment the court must determine if the movant's papers justify holding as a matter of law "that there is no defense to the cause of action or that the cause of action or defense has no merit." The evidence submitted in support of the movant must be viewed in the light most favorable to the non-movant. (Marine Midland Bank, N.A. v Dino & Artie's Automatic Transmission Co., 168 AD2d 610 [2d Dept 1990]). Summary judgment shall be granted only when there are no issues of material fact and the evidence requires the court to direct judgment in favor of the movant as a matter of law. (Friends of Animals, Inc., v Associated Fur Mfrs., 46 NY2d 1065 [1979]).

In examining the evidence in the light most favorable to the nonmoving parties, plaintiff Perla has made out a prima facie case for summary judgment. However, due to WF"s default, the Court will grant plaintiff the relief requested in a default judgment, pursuant to CPLR § 3215. Plaintiff has presented its notice of pendency, summons, verified complaint and the affidavits of service on all parties. There is an affidavit of merit by plaintiff Joy S. Perla. With the default of the mortgagor, RPSC, and the failure of defendant WF to answer, plaintiff has met the requirements of CPLR § 3215 (f) for a default judgment, which states in relevant part, "[o]n any application for judgment by default, the applicant shall file proof of service of the summons, and [*5]complaint . . . and proof of the facts constituting the claim, the default and the amount due by affidavit made by the party."

Further, the Perla mortgage was recorded 13 months earlier that the WF mortgage, and pursuant to RPL § 291 won the race to the recorder's office. There is no proof presented that plaintiff was aware of the MERS mortgage, which was executed several months before the granting of the Perla mortgage. In fact, plaintiff appears to have assumed that the unrecorded satisfied Linda Funding mortgage was still in effect by making the Perla mortgage subordinate to the Linda Funding mortgage, in ¶ 18 of the Perla mortgage. "New York has a so-called race-notice' recording statutory scheme (Real Property Law § 291; . . . ) In other words, in order to cut off a prior lien, such as a mortgage, the purchaser must have no knowledge of the outstanding lien and win the race to the recording office." (Goldstein v Gold, 106 AD2d 100, 101-102 [2d Dept 1984]). (See Alliance Funding Co. v Taboada, 39 AD3d 784 [2d Dept 2007]; Jenkins v Stephenson, 293 AD2d 612, 614 [2d Dept 2002]; Roth v Porush, 281 AD2d 612, 614 [2d Dept 2001]). Less than two months ago, in Washington Mut. Bank, FA v Peak Health Club, Inc. (48 AD3d 793, 797-798 [2d Dept 2008]), the court held:

On their respective motions for summary judgment, A & N

and Merrill Lynch demonstrated their entitlement to judgment as a

matter of law (see Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]),

by establishing that their mortgages were valid, and moreover, superior

in priority to WaMu's [Washington Mutual Bank's] mortgage. Under

New York's Recording Act (Real Property Law § 291) a mortgage

loses its priority to a subsequent mortgage where the subsequent

mortgagee is a good-faith lender for value, and records its mortgage

first without actual or constructive knowledge of the prior mortgage

(see Household Fin. Realty Corp. of NY v Emanuel, 2 AD3d 192

[2003]). Here, A & N and Merrill Lynch provided evidence establishing

that they gave valuable consideration for their recorded mortgages,

and that they did not have actual knowledge of WaMu's unrecorded

mortgage, or knowledge of facts that would have put them on "inquiry

notice" of that mortgage (see Real Property Law § 291; cf. Fleet Mtge.

Corp. v Nieves, 272 AD2d 435 [2000]; see also Fidelity & Deposit Co.

of Md., v Queens County Trust Co., 226 NY 225, 232-33 [1919].

[Emphasis added]

WF, as detailed previously, never appeared in this case. It relied on nonparty Impac to serve an "answer." CPLR Rule 320 (a) is crystal clear that a "defendant appears by serving an answer." CPLR Rule 3025 (b) allows a pleading to be amended "at any time by leave of court or by stipulation of all parties." WF never applied to the Court for leave to amend the Impac "answer." With respect to the November 7, 2007 stipulation by counsel for plaintiff, WF and [*6]Impac to substitute WF for Impac in the "answer," the Court cannot allow a nullity to be amended. Amending a nullity by stipulation is a mistake. "Mistake" is defined as "an error, misconception, or misunderstanding; an erroneous belief." (Black's Law Dictionary 1017 [7th ed 1999]). It is error to believe that WF appeared by answer in the instant case.

While courts favor stipulations, and they are "not lightly cast aside," the Court may cast aside a stipulation if there is a "mistake." (Hallock v State, 64 NY2d 224, 230 [1984]). The Court, in Hallock, cited In re Fruitiger's Estate, 29 NY2d 143, 149-150 [1971], which quoted Campbell v Bussing, 274 AD 893 [2d Dept 1948]. The Campbell Court stated, "[t]he court has control over stipulations and power to relieve from the terms thereof when the parties can be placed in statu quo. But the stipulation will not be destroyed without a showing of good cause therefor, such as fraud, collusion, mistake, accident, or some other ground of the same nature [Emphasis added]." More recently, the Court of Appeals instructed that, "As with a contract, courts should not disturb a valid stipulation absent a showing of good cause such as fraud, collusion, mistake or duress (see e.g. Hallock, 64 NY2d at 230; Matter of Fruitiger, 29 NY2d 143)." (McCoy v Feinman, 99 NY2d 295, 302 [2002]). (See Nigro v Nigro, 44 AD3d 831 [2d Dept 2007]; Trama v Eugene & Shirley Rach Realty Corp., 37 AD3d 454 [2d Dept 2007]; Matthews v Castro, 35 AD3d 403 [2d Dept 2006]; Borghoff v Borghoff, 8 AD3d 519 [2d Dept 2004].

Assuming the Court would allow WF to appear, with plaintiff making a prima facie case for summary judgment, the burden shifts to defendant WF to demonstrate triable issues of fact. (Friends of Animals, Inc., v Associated Fur Mfrs., 46 NY2d 1065 [1979]).

WF, in its opposition papers, presents nothing to indicate that plaintiff had or should have had any knowledge of WF's unrecorded mortgage at the time plaintiff gave RPSC its mortgage loan.

Additionally, WF argues that it is entitled to invoke the doctrine of "equitable subrogation" to give it priority over the Perla mortgage. "Equitable subrogation" applies "where the funds of a mortgagee are used to satisfy the lien of an existing, known incumbrance when, unbeknown to the mortgagee, another lien on the property exists which is senior to his but junior to the one satisfied with his funds. In order to avoid the unjust enrichment of the intervening, unknown lienor, the mortgagee is entitled to be subrogated to the rights of the senior incumbrance." (King v Pelkofski, 20 NY2d 326, 333-334 [1967]). (See Bank One v Mui, 38 AD3d 809 [2d Dept 2007]; Zeidel v Dunne, 215 AD2d 472 [2d Dept 1995]; Roth v Porush, supra at 614).

WF only submitted, in support of its equitable subrogation argument, copies of the HUD-1 [exhibit 5 of affidavit in opposition], the Linda Funding payoff letter [exhibit 6 of affidavit in opposition], and an unnegotiated check to Linda Funding for $308,512.50 [exhibit 6 of affidavit in opposition]. This is fatal to WF's argument for equitable subrogation. WF failed to meet its burden to subrogate its position and/or rights to that of Linda Funding, and move the priority of its mortgage ahead of the Perla mortgage. WF failed to present the cancelled check showing that such funds were actually received and applied by Linda Funding to the satisfaction of its mortgage at any time near March 30, 2004, or prior to July 23, 2004, the date the Perla mortgage was executed. WF and its counsel have no personal knowledge of the March 30, 2004 origination of the WF mortgage. MERS assigned the mortgage to WF on January 9, 2007, almost three years later. Further, the Linda Funding satisfaction of mortgage [exhibit 7 of affidavit in opposition] was not executed until July 18, 2005, after the Linda Funding mortgage [*7]was purportedly paid off. WF never presented an affidavit from anyone with personal knowledge of the facts of the March 30, 2004 closing and mortgage origination, and why Linda Funding waited more than 15 months to execute a satisfaction of mortgage. This

cannot be blamed on Richmond Abstract Corp.

WF also argues, in ¶ 26 of its affidavit in opposition, that the circumstances of the Perla mortgage are "unusual" and that the 24% annual interest "is hardly an everyday occurrence." WF's counsel raises the issues of usury and whether the Perla mortgage is enforceable. This is irrelevant and of no probative value. Any defenses regarding the enforceability of the Perla mortgage and the validity of its terms are personal to the mortgagor and cannot be raised by WF's counsel. WF as a "stranger" to the Perla mortgage, has no standing, even if it hadn't defaulted, to allege that the Perla loan is invalid or usurious. "[T]he ability to cancel a usurious transaction and keep the borrowed money is a peculiar privilege upon the actual borrower,' stemming in part from the notion that the borrower is a victim of the lender (Buckingham v Corning, 91 NY 525, 530; see also Halsey v Winant, 258 NY 512)." (Seidel v 17 East 17th Street Owners, Inc., 79 NY2d 735 [1992]). Further, the Perla mortgage was given to a RPSC, a corporation. General Obligations Law § 5 - 521 prohibits corporations from interposing usury as a defense.

It is disingenuous for WF's counsel to argue that the Perla mortgage is "unusual" when it appears that WF purchased the March 30, 2004-mortgage in early 2007, without performing due diligence to determine its priority as junior to the earlier recorded Perla mortgage. The WF mortgage, based upon the caption in this action, was collateralized into a package of bonds, so that the risk could be handed off to investors. In the instant case, with the loss of the race to record the mortgage, the bondholders are stuck with the loss, not WF. Paul Krugman, in his July 2, 2007 New York Times column, "Just Say AAA," in writing about the subprime mortgage crisis, could have been thinking about WF in the instant case:

What do you get when you cross a Mafia don with a bond

salesman? A dealer in collateralized debt obligations (C.D.O.'s) —

someone who makes you an offer you don't understand.

Seriously, it's starting to look as if C.D.O.'s were to this decade's

housing bubble what Enron-style accounting was to the stock bubble of

the 1990s. Both made investors think they were getting a much better

deal than they really were. . . .

Yet the banks making the loans weren't stupid: they passed the

buck to other people. Subprime mortgages and other risky loans were

securities — that is, banks issued bonds backed by home loans, in

effect handing off the risk to the bond buyers.

In principle, securitization should reduce risk: even if a particular

loan goes bad, the loss is spread among many investors, none of whom [*8]

takes a major hit. But with the collapse of the $800 billion market in

bonds backed by subprime mortgages — the price of a basket of these

bonds has lost almost 40 percent of its value since January [2007] —

it's now clear that many investors who bought these securities didn't

realize what they were getting into . . .

Now we're looking at huge losses to investors who thought they

were playing it safe . . .

But apparently not. And the housing bubble, like the stock bubble

before it, is claiming a growing number of innocent victims.

Plaintiff makes a prima facie case for default judgment, pursuant to CPLR § 3215 (f). WF's opposition, even if accepted by the Court, is highly speculative, conclusory, self-serving, and lacks probative value. The Court grants plaintiff a default judgment and by separate order will appoint a referee to compute and grant related relief. Summary judgment, pursuant to CPLR Rule 3212, cannot be granted because defendant WF has not answered and is in default. CPLR Rule 3212 (a) states that "[a]ny party may move for summary judgment in any action, after issue has been joined." WF never joined issue.

Accordingly, it is

ORDERED that the motion of plaintiff Joy S. Perla, pursuant to CPLR Rule 3212 (a), for summary judgment and an order of reference to compute the amount due to plaintiff for the property located at 191 Patchen Avenue, Brooklyn, New York (Block 1663, Lot 5, County of Kings) is granted to the extent that a default judgment, pursuant to CPLR § 3215, is granted to plaintiff for the relief requested in plaintiff's motion for summary judgment; and it is further

ORDERED that the order of reference and related relief will be granted in a separate order.

This constitutes the Decision and Order of the Court.

ENTER

___________________________

HON. ARTHUR M. SCHACKJ. S. C. [*9]