Bunnell et al v. Haghighi
MEMORANDUM AND ORDERED: The Clerk is directed to enter judgment in favor ofHaghighi and against the Bunnells in the amount of $125,000, representingHaghighis down payment on the Bunnells Home. In addition, Haghighi is entitled to any interest accrued on the down payment and to post-judgment interest pursuant to 28 U.S.C. § 1961. Ordered by Judge Frederic Block on 7/27/2015. (Innelli, Michael)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
KATHLEEN BUNNELL and
MEMORANDUM AND ORDER
12-CV-6412 (FB) (SMG)
For the Plaintiff:
DEAN T. CHO, ESQ.
233 Broadway, Suite 2200
New York, NY 10279
For the Defendant:
DANIEL ALLIANCE, ESQ.
159-13 Hillside Avenue
Jamaica, NY 11432
BLOCK, Senior District Judge:
Plaintiffs Kathleen and Dennis Bunnell (“the Bunnells”) bring this diversity
action against Farzad Haghighi (“Haghighi”) for breach of a contract to purchase real
property in Queens, New York. The Bunnells allege that they are entitled to retain
Haghighi’s $125,000 down payment – which is currently being held by the Bunnells’
lawyer in an interest-bearing escrow account – because he violated the contract’s
mortgage contingency clause by failing to make a good-faith attempt to secure a
mortgage loan. Haghighi counterclaims that he complied with the terms of the
mortgage contingency clause and is therefore entitled to the return of his money.
The Court held a bench trial on February 3, February 17, April 3, May 11, and
June 1, 2015. Based on the following findings of fact and conclusions of law, set forth
in accordance with Rule 52(a) of the Federal Rules of Civil Procedure, the Court
concludes that Haghighi applied for a mortgage loan in good faith and that his $125,000
down payment should be returned to him forthwith.
At the trial, the Court accepted into evidence copies of the relevant contracts,
mortgage loan applications, and letters, and heard testimony from witnesses. The Court
will first recount the documentary evidence, which is undisputed, before detailing the
testimonial evidence, which is not.
On July 27, 2012, Haghighi entered into a contract to purchase the Bunnells’
house (“Bunnells’ Home”) in Forest Hills, New York, for $1.25 million. Per the terms
of the contract, Haghighi tendered a $125,000 deposit upon signing as a 10% down
payment on the property. The contract contained a mortgage contingency clause
This sale is conditioned upon Purchasers obtaining a conventional
mortgage in the amount of $750,000 . . . . Purchasers hereby agree to
immediately make diligent, truthful and proper application for said
mortgage and to furnish all information and records that may be required
for said application to the lending institution to whom application is
made. . . . If, without fault on their part, Purchasers are unable to obtain
a mortgage commitment as provided for herein by the aforementioned
date, either party may elect to cancel this contract by written notice being
give, the deposit paid hereunder shall be returned to Purchasers and
thereupon the contract shall cease and terminate . . . .
Pls.’ Ex. 1 at 12.
On August 12, 2012, Haghighi entered into a contract to purchase another
property (the “Alternate Property”) in Forest Hills for $805,000. On the same day, he
tendered an $80,500 deposit as a 10% down payment on the Alternate Property.
On August 20, 2012, Landmark Funding Group (“Landmark”), a mortgage
brokerage firm based in Brooklyn, completed two Uniform Residential Loan
Applications on Haghighi’s behalf. In the first application, Haghighi sought a
$750,000 loan to purchase the Bunnells’ Home. In the second application, Haghighi
requested a $400,000 loan to purchase the Alternate Property. Both applications were
supported by tax returns, asset statements, and credit reports, which collectively
demonstrated that Haghighi owned approximately $800,000 in liquid assets and had
a credit score in the high 700s. Except for the property names and loan amounts, the
applications were identical.
Landmark submitted the $750,000 loan application to Flagstar Bank
(“Flagstar”), which denied the application on August 27, 2012. Flagstar explained that
it denied the application for four reasons, namely that Haghighi “has not owned a
primary residence for the last 3 years,” that he had an “[i]nsufficient credit file,” that
Flagstar had received “[i]nformation from [a] consumer reporting agency,” and that
“[w]e do not grant credit to any applicant on the terms and conditions you requested.”
Pls. Ex. 14 at 1. On August 28, 2012, Haghighi informed the Bunnells that his loan
application had been denied and requested that they cancel the contract and refund his
At approximately the same time, Landmark submitted the $400,000 loan
application to an unknown bank, which approved the application. On September 14,
2012, Haghighi completed the purchase of the Alternate Property.
The Court heard testimony from three witnesses: (1) Haghighi; (2) Douglas
Baum (“Baum”), a Citi home lending officer called by the Bunnells as an expert
witness; and (3) Leah Paskus (“Paskus”), the mortgage broker at Landmark who
prepared and submitted Haghighi’s loan applications. The Court will first recount the
testimonial evidence before making factual findings based on the Court’s assessment
of the witnesses’ credibility and persuasiveness.
Haghighi testified that he began looking for a house in early 2012 when he was
working as a doctor in a residency program. See Feb. 3 Tr. at 27:16-19. At the time
he signed the contract for the Bunnells’ Home, his then-lawyer told him that he would
qualify for a $750,000 mortgage loan. See Feb. 17 Tr. at 8:21-9:4. After signing the
contract, however, Haghighi contacted Landmark and spoke to Paskus, who gave him
“very dim” prospects for qualifying. Feb. 3 Tr. at 28:22-24. In particular, Haghighi
I told [Paskus] that I don’t understand why I wouldn’t qualify for a
$750,000 mortgage. I’m a doctor, I’m making a six-figure income, and
I have a good credit score. She said, doctor, . . . you have a good credit
score but you don’t have an effective credit history. You never owned
any property, you never leased a car. You were making minimum wage
in residency. You don’t have three years of consecutive income taxes to
show [a] six-figure income. And you are essentially on a 1099.
Id. at 29:12-21. Haghighi stated that, despite her negative assessment of his
application’s viability, Paskus was not absolutely sure whether or not he would be
denied and told him that, while unlikely, he may ultimately be approved for the
mortgage. See id. at 37:11-12.
Realizing that his loan application would probably be denied, Haghighi
“decided to go with the [Alternate Property] after shopping around extensively and
getting verbal denials.” Id. at 32:23-25. Haghighi thereafter “submitted both
[mortgage loan] applications on the same day because I understood the stipulations
and terms of the contract I had to fulfill. . . . So I did fulfill my requirements to apply
for a mortgage.” Id. at 33:6-12. Haghighi testified that, if he was approved for both
mortgages, he would have borrowed money from his mother and purchased both
properties. See id. at 68:16-20. Haghighi further testified that he still regrets being
unable to purchase the Bunnells’ Home, and that “[e]very time I walk by the house I
wish I could have bought it.” Id. at 35:16-20. Finally, Haghighi stated, and the
Bunnells did not dispute, that the Bunnells’ Home was ultimately sold to a third party
for the initial asking price of $1.25 million. See id. at 82:14-19.
Baum testified that he was “intimately familiar with [Flagstar’s] underwriting”
because he had submitted many loan applications to Flagstar in his capacity as
President of the New Amsterdam Mortgage Corporation, a position he held from 1993
Feb. 17 Tr. at 62:21-25. Based on this experience, Baum opined that
Haghighi should have qualified for the $750,000 loan because “his credit report was
sufficient, assets were sufficient, income was sufficient.
Those are the three
underwriting buckets.” Id. at 36:21-23. However, “discrepancies in the application”
led Baum to the conclusion that Haghighi “essentially destroyed his ability to procure
a mortgage for the [Bunnells’ Home]” in order to obtain a declination from Flagstar.
Id. at 33:24-25, 43:11-13.
First, Baum testified that Flagstar’s stated reasons for denying Haghighi’s
application – in particular that he “has not owned a primary residence for the last 3
years” and that “[w]e do not grant credit to any applicant on the terms and conditions
you requested” – were extremely unusual, and strongly implied that Haghighi had
intentionally sought out and applied for a mortgage loan he was not qualified to
receive. According to Baum, “it is common practice for a mortgage broker . . . to
assist their clients [to] obtain contract down payments where [the client] changes his
or her mind about purchasing property.” Id. at 80:7-12.
Second, Baum testified that the application’s statement of assets had been
completed jointly, which would trigger Flagstar Bank to “pull a joint credit report .
. . [and] carry forward the scores for both applicants.” Apr. 3 Tr. at 23:20-25.
According to Baum, the submission of two credit scores increased the chance of a
declination because “[t]he decision is based on the lower of the two [credit scores].”
Id. at 24:18. On questioning by the Court, Baum conceded that the application and
supporting documentation did not list a second applicant’s name, but maintained that
there is “no question . . . [that] the joint checkmark absolutely pulls two credit
reports.” Id. at 24:6-10.
Finally, the Court heard from Paskus, who first explained that the two loan
applications she submitted on behalf of Haghighi were subject to two different
guidelines. According to Paskus, the $400,000 loan was a Fannie Mae conforming
loan, which is subject to less stringent documentation requirements. See June 3 Tr.
at 7:15-8:22. In contrast, the $750,000 application was a “super jumbo loan,” which
had “way, way stricter” requirements for approval. Id. at 8:19, 9:23. Paskus
explained that, for Fannie Mae loans, “[w]e take the application . . . [and] run it
through our Fannie Mae automated system [and] get an online approval.” Id. at 8:7-9.
Super jumbo loans, on the other hand, are “manual underwriting loans. That means
they dot their i’s, cross their t’s. . . . [J]umbos are much – you ask any mortgage
broker out there – much tougher to obtain. . . . A Fannie Mae loan and a jumbo loan
is not apples and oranges, it’s Mars and Earth.” Id. at 8:19-20, 10:6-7, 23:19-20.
Paskus next testified that she received a phone call from Haghighi after he
signed the contract for the Bunnells’ Home and that “[we] discussed his financing
needs.” Id. at 5:22-23. Based on that conversation, and on her review of his credit
score and supporting documentation, Paskus concluded that Haghighi’s application
for a $750,000 loan was “borderline.” Id. at 9:18. Paskus spoke to Haghighi again
after he had signed the contract for the Alternate Property, at which point Haghighi
informed her that he “definitely was going to buy both at the end of day if they were
both going to go through. I remember him telling me clearly that.” Id. at 6:24-7:1.
Paskus subsequently submitted the $750,000 application to Flagstar but “the
underwriter went and tore the file apart . . . [a]nd the reason they didn’t like it, the
credit wasn’t thick enough. I think they wanted a history of them owning properties
before.” Id. at 9:10. Paskus testified that she saw nothing unusual about submitting
two applications on the same day, stating that “I have people applying for four
mortgages at a time. I have no problems. . . . There’s a lot of rich people here in New
York, believe me.” Id. at 11:24-12:
The Court then questioned Paskus about the discrepancies noted by Baum.
Paskus emphatically denied sabotaging Haghighi’s application by applying for a
program he was not qualified for, stating that “I don’t get paid if loans do not close.
I have zero – zero – interest in sending out a loan and getting it denied. I don’t look
good to banks. I waste my time.” Id. at 7:2-5. When asked why the statement of
assets was completed “jointly,” Paskus stated that was a mistake: “[I]f you look at the
front page of the application, [at the] manner in which title will be held, it says single
man. [The statement of assets] should have changed [by] default in the system. Once
you pick single man, it should automatically go to not jointly.” Id. at 27:14-23.
Finally, Paskus disputed that an appraisal was required prior to submitting an
application, stating that “we cannot order an appraisal unless the application is
approved . . . . As a matter of fact, it’s illegal to order the appraisal prior to
submission. You have to wait a couple of days in order to order it.” Id. at 18:10-19.
The Court’s factual findings based on the trial testimony
While the Court found Baum to be a generally credible witness, the Court found
his testimony – which consisted wholly of speculative inferences drawn from the
documentary evidence – to be unpersuasive in light of Haghighi and Paskus’ credible
testimony based on direct first hand knowledge. In particular, the Court credits
Paskus’ testimony that she had no incentive to submit an application simply to get
denied, and credits Haghighi’s testimony that he honestly wanted to purchase the
Bunnells’ Home. Furthermore, Baum’s testimony regarding the “joint” submission
of the application is undermined by the Court’s independent inspection of the
documentary evidence, which revealed that (1) both mortgage applications contained
the same “joint” checkmark, and (2) no second applicant’s name or personal
information was contained in the file submitted by Landmark to Flagstar.
Accordingly, based on the trial testimony, the Court concludes that (1)
Haghighi initially entered into contract with the Bunnells under the honest but
mistaken belief that he would qualify for a $750,000 mortgage loan; (2) he
subsequently learned from Paskus that he would probably not qualify for such a loan;
(3) he submitted the application knowing that it would probably be denied, but
honestly hoping it would be approved; and (4) if the application was approved,
Haghighi would have purchased the Bunnells’ Home.
Under New York law, which governs this diversity action, a mortgage
contingency clause in a contract is “construed to create a condition precedent.” Cone
v. Daus, 120 A.D.2d 788, 789, 501 N.Y.S.2d 523 (3rd Dep’t 1986). Where, as here,
the clause requires the purchaser to make “diligent, truthful and proper application”
for a mortgage loan commitment, “[a]s long as the purchasers exert a genuine effort
to secure the mortgage financing and act in good faith, they are entitled to rely on the
contract and may recover their down payment if the mortgage is not, in fact,
approved.” Id. The burden of establishing that a purchaser failed to act diligently is
with the seller. See Lindenbaum v. Royco Prop. Corp., 165 A.D.2d 254, 260, 567
N.Y.S.2d 218 (1st Dep’t 1991) (“[T]o enforce [a] purchase agreement in the absence
of the financing contemplated by [a] mortgage contingency clause, it is incumbent
upon [the seller] to establish that [the purchaser’s] failure to fulfill the condition
necessary to obtaining financing was a mere pretense to avoid their obligations under
The Court concludes that Haghighi made a genuine effort to comply with the
terms of the contract and is therefore entitled to the return of his $125,000 downpayment. First, the Bunnells offered no evidence that Haghighi entered into the
contract knowing that he was unable to obtain the loan. See Blask v. Miller, 186
A.D.2d 958, 960, 588 N.Y.S.2d 940 (3rd Dep’t 1992) (noting that mortgage
contingency clause may be breached where purchasers “contract to purchase
property they may not have been able to afford”). Rather, the evidence adduced at
trial revealed that Haghighi honestly but mistakenly relied on the advice of his thenattorney that he would qualify for the loan, and that this reliance was reasonable given
Haghighi’s high credit score and assets.
Second, the evidence at trial establishes that Haghighi made a diligent and
good-faith attempt to secure a mortgage loan commitment.
understood that his application would probably not be approved, he nonetheless timely
submitted the application and would have purchased the property if the application
was approved, thus satisfying his obligations under the contract. See Zheng v. Evans,
63 A.D.3d 791, 791, 881 N.Y.S.2d 461 (2nd Dep’t 2009) (affirming summary
judgment to purchasers who “demonstrated that, in accordance with the contract of
sale, they promptly submitted a mortgage application to an institutional lender, via a
mortgage broker, and that their mortgage application was denied”). Furthermore, the
Bunnells’ sole evidence to the contrary consisted of speculation drawn from the
documentary evidence and directly contradicted by credible first hand testimony. See
Cordova v. Vinueza, 20 A.D.3d 445, 446, 798 N.Y.S.2d 519 (2nd Dep’t 2005)
(summary judgment in favor of purchasers was warranted where seller’s sole evidence
that purchasers breached the mortgage contingency clause was speculation
unsupported by the evidence).
Accordingly, the Court concludes that Haghighi complied with the terms of the
mortgage contingency clause and that he is therefore entitled to the return of his
$125,000 down payment. In addition, pursuant to the contract, Haghighi is entitled
to all interest accrued in the escrow account from the time of deposit. See Pls. Ex. 1
Generally, under New York law, a prevailing party in a breach of contract
action is entitled to prejudgment interest at a rate of nine per cent per annum. See
N.Y. C.P.L.R. §§ 5001(a), 5004; Schipani v. McLeod, 541 F.3d 158, 164 (2d Cir.
2008) (“In a diversity case, state law governs the award of prejudgment interest.”).
However, parties may contract around the statutory prejudgment interest rate. See
J. D’Addario & Co. v. Embassy Indus., Inc., 20 N.Y.3d 113, 117, 980 N.E.2d 940
(2012) (“In breach of contract cases where parties do not specify the exclusive
remedy, CPLR 5001 (a) requires that statutory interest be paid.” (emphasis added)).
Finally, the Court notes that the Bunnells sought to introduce evidence at trial
that Haghighi’s lawyer committed sanctionable conduct during the course of this
litigation, which has been protracted and often contentious.
While the Court
prohibited the introduction of such evidence to focus on the merits of the case, the
Court hereby grants the Bunnells leave to file a motion for Rule 11 sanctions in
relation to the alleged objectionable conduct. In addition, the Court grants the
Bunnells leave to move for attorneys’ fees under New York Civil Practice Law and
Rules § 6514(c) in regards to the lis pendens filed by Haghighi during the pendency
of this action. Because the alleged sanctionable conduct in question occurred
primarily before Magistrate Judge Gold, the Bunnells shall address the motion to
Judge Gold for a Report and Recommendation.
For the foregoing reasons, the Clerk is directed to enter judgment in favor of
Haghighi and against the Bunnells in the amount of $125,000, representing
Haghighi’s down payment on the Bunnells’ Home. In addition, Haghighi is entitled
to any interest accrued on the down payment and to post-judgment interest pursuant
to 28 U.S.C. § 1961. See FCS Advisors, Inc. v. Fair Fin. Co., 605 F.3d 144, 147 (2d
Since the contract here specifies that interest on the down payment “shall be paid
to the party entitled to the Downpayment,” Pls. Ex. 1 at ¶ 6, prejudgment interest
pursuant to N.Y. C.P.L.R. § 5001 is not warranted in this case.
Cir. 2010) (“[T]he federal post-judgment interest rate provided for in 28 U.S.C. §
1961 applies in diversity cases.”).
/S/ Frederic Block____________
Senior United States District Judge
Brooklyn, New York
July 27, 2015
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