Eastern Savings Bank, FSB v. Aufiero et al

Filing 95

ORDER granting 79 Motion for Summary Judgment; granting 94 Motion to Compel For the reasons set forth herein, the Court grants plaintiff's motion for summary judgment, plaintiff's request for reformation of the property description, and plaintiff's motion for default judgment against the Non-Responding Defendants. SO ORDERED. Ordered by Judge Joseph F. Bianco on 3/14/2016. (Shea, Zoe)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
_____________________
No 14-CV-0256 (JFB)(AYS)
_____________________

EASTERN SAVINGS BANK, FSB,
Plaintiff,
VERSUS

SALVATORE AUFIERO, ET AL.
Defendant.
___________________
MEMORANDUM AND ORDER
March 14, 2016
___________________

JOSEPH F. BIANCO, District Judge:
Plaintiff Eastern Savings Bank, FSB
(“Eastern Savings Bank” or “plaintiff”)
brings this diversity action1 against
defendants Salvatore Aufiero, Denise
Aufiero a/k/a Denise Auriero, Gladys
Sevillon, Keyspan Gas East Corp., Denora
1

Plaintiff, a federally chartered savings bank, is a
citizen of Maryland, the state in which it has its
principal place of business. (See Docket Entry No. 20
(“Amended Complaint” or “Am. Compl.”) ¶ 2);
Wachovia Bank v. Schmidt, 546 U.S. 303, 307 (2006)
(“[A] national bank. . . is a citizen of the State in
which its main office, as set forth in its articles of
association, is located.”). Defendants Salvatore
Aufiero, Denise Aufiero, and Keyspan Gas East
Corporation are residents of New York, (Am. Compl.
¶¶ 3-5), and defendants Gladys Sevillon, Denora
Chavez, Oliver Chavez, Elder Posada, Jeanette
Posada, and Aufiero Landscaping Design, Inc. are
tenants at the Subject Property. (Id. ¶ 6-11.) This
Court has jurisdiction over this action pursuant to 28
U.S.C. § 1332.

Chavez, Oliver Chavez, Elder Posada,
Jeanette Posada, and Aufiero Landscaping
Design, Inc. pursuant to New York Real
Property Actions and Proceedings Law,
Section 1301, et seq., to foreclose on a
mortgage encumbering the property
commonly known as 272 Lawrence Avenue,
Lawrence, New York 11559 (the “Subject
Property”). Plaintiff moves for summary
judgment pursuant to Federal Rule of Civil
Procedure 56(a), requests reformation of the
property description in the mortgage
executed on May 23, 2008, and moves for
default judgment against certain defendants
who have not responded to this action (the
“Non-Responding Defendants”).2 Defendant
Salvatore
Aufiero
(“defendant”
or
“Borrower”) opposes plaintiff’s motion for
2

These defendants are Gladys Sevillon, Keyspan Gas
East Corp., Denora Chavez, Oliver Chavez, Elder
Posada, Jeanette Posada, and Aufiero Landscaping
Design, Inc.

summary judgment. For the reasons set forth
below, the Court grants plaintiff’s motion
for summary judgment, plaintiff’s request
for reformation of the property description,
and plaintiff’s motion for default judgment
against the Non-Responding Defendants.

Plaintiff brings this action against
Salvatore Aufiero, Denise Aufiero, and the
Non-Responding Defendants pursuant to
New York Real Property Actions and
Proceedings Law, Section 1301, et seq., to
foreclose upon the Subject Property
pursuant to the terms of a Note and
Mortgage (collectively, the “Loan”)
executed on May 23, 2008. The Note was
executed by Borrower in favor of Eastern
Savings Bank in the principal sum of
$325,000.00. (Pl.’s 56.1 ¶ 2.) The Mortgage
securing the indebtedness, which was
executed by both Borrower and Denise
Aufiero, formed a single, first mortgage lien
on the Subject Property and was recorded in
the Nassau County Clerk’s Office on June
18, 2008. (Id. ¶¶ 2-4.) Plaintiff is the owner
and holder of the Note, Mortgage, and Loan
Documents. (Id. ¶ 5.)

I. BACKGROUND
A.

Factual Background

The Court takes the following facts from
the parties’ affidavits and exhibits, and from
the plaintiff’s Rule 56.1 Statement of Fact.3
The Court construes the facts in the light
most favorable to the defendant, the
nonmoving party. See Capobianco v. City of
New York, 422 F.3d 47, 50 n.1 (2d Cir.
2005). Although the Rule 56.1 statement
contains specific citations to the record, the
Court cites to the statements rather than to
the underlying citations. Unless otherwise
noted, where a Rule 56.1 statement is cited,
that fact is undisputed or the opposing party
has not pointed to any contradictory
evidence in the record.

The Note provides that the Borrower
will make monthly principal and interest
payments to Eastern Savings Bank on the
first day of each month beginning on July 1,
2008. (Id. ¶ 6.) Interest on the principal
amount of the Note accrued at the initial rate
of 10.99% through and including May 31,
2009, and thereafter, the “Step Down”
interest rate declined on a yearly basis in
accordance with the schedule set forth in the
Addendum to Note. (Id. ¶ 7.) The Note also
provides that, if the Borrower does not pay
the full amount of each monthly payment
fifteen calendar days after the date it is due,
the Borrower will pay a late charge of 5% of
the overdue payment of principal and
interest to Eastern Savings Bank, and if the
Borrower does not pay the full amount of
each monthly payment on the date it is due,
the Borrower will be in default. (Id. ¶¶ 8-9.)
The Note states that, if the Borrower is in
default, Eastern Savings Bank may send a
written notice requiring the overdue amount
to be paid by a certain date, and that Eastern
Savings Bank may require the full amount
of the unpaid principal to be paid

3
The Court notes that defendant failed to submit a
Counter-Statement of Material Facts in violation of
Local Civil Rule 56.1. Generally, a party’s “‘failure
to respond or contest the facts set forth by the
[moving party] in [its] Rule 56.1 statement as being
undisputed constitutes an admission of those facts,
and those facts are accepted as being undisputed.’”
Jessamy v. City of New Rochelle, 292 F. Supp. 2d
498, 504 (S.D.N.Y. 2003) (quoting NAS Elecs., Inc.
v. Transtech Elecs. PTE Ltd., 262 F. Supp. 2d 134,
139 (S.D.N.Y. 2003)). However, “[a] district court
has broad discretion to determine whether to
overlook a party’s failure to comply with local court
rules.” Holtz v. Rockefeller & Co., 258 F.3d 62, 73
(2d Cir. 2001) (citations omitted); see also Giliani v.
GNOC Corp., No. 04-CV-2935 (ILG), 2006 WL
1120602, at *1–2 (E.D.N.Y. Apr. 25, 2006)
(exercising court’s discretion to overlook the parties’
failure to submit statements pursuant to Local Civil
Rule 56.1). Accordingly, in the exercise of its broad
discretion, the Court will overlook this defect and, in
the instant case, the Court has carefully reviewed the
evidence submitted in both parties’ moving papers.

2

immediately along with the interest. (Id. ¶
10.) The Note also contains a provision
requiring the Borrower to pay for costs and
expenses associated with enforcing the Note.
(Id. ¶ 11.) The Mortgage provides that
Eastern Savings Bank may require the
Borrower to pay the entire unpaid amount if:
(a) defendant fails to make a payment when
due; (b) Eastern Savings Bank sends to
defendant a thirty (30) day notice of default;
and (c) defendant fails to correct his default.
(Id. ¶ 13.)

While preparing to commence the
foreclosure action, Eastern Savings Bank
discovered upon a title search that the
Mortgage did not contain the full name of
the Subject Property as stated in the deed, in
that it failed to include the following in the
fourth line of the first paragraph:
“Lawrence, Long Island, November 1907,
John S. Newman, C.E. & Surveyor,
Woodmere, Long Island.” (Id. ¶ 21.)

Plaintiff alleges that defendant and
Denise Aufiero breached their obligations
under the Loan by failing to make the
monthly payment due on October 1, 2008.
(Id. ¶ 14.) As a result, Eastern Savings Bank
commenced a foreclosure action in the
Supreme Court of the State of New York
County of Nassau on March 19, 2009 [Index
No. 005199/2009]. (Id.) After entering into a
forbearance agreement, under which
defendant and Denise Aufiero made all
payments, plaintiff voluntarily dismissed
that action on July 29, 2010. (Id.) Defendant
and Denise Aufiero again failed to make
monthly payments beginning in November
2012, and, on June 6, 2013 and August 30,
2013, plaintiff sent them Notices of Default
with notification that the Loan would be
accelerated if the Default was not cured. (Id.
¶¶ 15-16.) Plaintiff sent ninety (90) day
notices (“1304 notices”) to defendant,
Denise Aufiero, and the Non-Responding
Defendants on June 6, 2013 pursuant to New
York State Real Property Actions and
Proceedings Law (“RPAPL”) § 1304(1). (Id.
¶ 17.) Plaintiff also sent a thirty (30) day
notice to cure upon defendant, Denise
Aufiero, and the
Non-Responding
Defendants (“30 Day Notices”) on August
30, 2013, and notified the New York State
Department of Banking pursuant to RPAPL
§ 1306. (Id. ¶¶ 17-18.)

Plaintiff filed its complaint in this action
on January 13, 2014, and an amended
complaint on February 13, 2014. On March
30, 2015, plaintiff moved for summary
judgment. Defendant opposed on May 21,
2015. Plaintiff replied on June 4, 2015. The
Court held oral argument on August 7, 2015.
The Court has fully considered the
submissions of the parties.

B.

II.

Procedural Background

STANDARD OF REVIEW

Pursuant to Federal Rule of Civil
Procedure 56(a), a court may grant a motion
for summary judgment only if “the movant
shows that there is no genuine dispute as to
any material fact and the movant is entitled
to judgment as a matter of law.” Fed. R. Civ.
P. 56(a); see Gonzalez v. City of
Schenectady, 728 F.3d 149, 154 (2d Cir.
2013). The moving party bears the burden of
showing that he or she is entitled to
summary judgment. See Huminski v.
Corsones, 396 F.3d 53, 69 (2d Cir. 2005).
The Court “‘is not to weigh the evidence but
is instead required to view the evidence in
the light most favorable to the party
opposing summary judgment, to draw all
reasonable inferences in favor of that party,
and to eschew credibility assessments.’”
Amnesty Am. v. Town of W. Hartford, 361
F.3d 113, 122 (2d Cir. 2004) (quoting
Weyant v. Okst, 101 F.3d 845, 854 (2d Cir.
1996)); see Anderson v. Liberty Lobby, Inc.,
3

III.

477 U.S. 242, 248 (1986) (summary
judgment is unwarranted if “the evidence is
such that a reasonable jury could return a
verdict for the nonmoving party”).

DISCUSSION

A. Default Judgment
Federal Rule of Civil Procedure 55(a)
establishes the two-step process for entry of
default judgment. First, “[w]hen a party
against whom a judgment for affirmative
relief is sought has failed to plead or
otherwise defend and that failure is shown
by affidavit or otherwise, the clerk must
enter the party’s default.” Fed. R. Civ. P.
55(a). Second, after the Clerk of the Court
enters default against a party, if that party
fails to appear or otherwise move to set
aside the default pursuant to Rule 55(c), the
Court may, on plaintiff’s motion, enter a
default judgment. See Fed. R. Civ. P.
55(b)(2).

Once the moving party has met its
burden, the opposing party “‘must do more
than simply show that there is some
metaphysical doubt as to the material
facts . . . . [T]he nonmoving party must
come forward with specific facts showing
that there is a genuine issue for trial.’”
Caldarola v. Calabrese, 298 F.3d 156, 160
(2d Cir. 2002) (alteration and emphasis in
original) (quoting Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574,
586-87 (1986)). As the Supreme Court
stated in Anderson, “[i]f the evidence is
merely colorable, or is not significantly
probative, summary judgment may be
granted.” 477 U.S. at 249-50 (citations
omitted). Indeed, “the mere existence of
some alleged factual dispute between the
parties will not defeat an otherwise properly
supported motion for summary judgment.”
Id. at 247-48 (emphasis in original). Thus,
the nonmoving party may not rest upon
mere conclusory allegations or denials, but
must set forth “‘concrete particulars’”
showing that a trial is needed. R.G. Grp.,
Inc. v. Horn & Hardart Co., 751 F.2d 69, 77
(2d Cir. 1984) (quoting SEC v. Research
Automation Corp., 585 F.2d 31, 33 (2d Cir.
1978)). Accordingly, it is insufficient for a
party opposing summary judgment “‘merely
to assert a conclusion without supplying
supporting arguments or facts.’” BellSouth
Telecomms., Inc. v. W.R. Grace & Co., 77
F.3d 603, 615 (2d Cir. 1996) (quoting
Research Automation Corp., 585 F.2d at
33).

To obtain damages related to a default
judgment, “a plaintiff must present
admissible evidentiary proof of his alleged
damages, unless the claimed amount is
liquidated or susceptible to mathematical
calculation.” In re Suprema Specialties, Inc.,
330 B.R. 40, 54-55 (S.D.N.Y. 2005) (citing
SEC v. Mgmt. Dynamics, 515 F.2d 801, 814
(2d Cir. 1975) (“[U]nless the amount of
damages are absolutely certain, the court is
required to make an independent
determination of the sum to be awarded.”)).
Rule 55(b)(2) permits a court to conduct a
hearing “as it deems necessary and proper”
to calculate damages, “vesting considerable
discretion in the court to establish the
procedures appropriate to the particular
case.” Id. at 55. However, a hearing is not
necessary “as long as [the court] ensure[s]
that there [is] a basis for the damages
specified in a default judgment.” Fustok v.
ContiCommodity Servs., Inc., 873 F.2d 38,
40 (2d Cir. 1989).
Plaintiff moved for entry of default
against the Non-Responding Defendants,
which the Clerk of the Court noted on July
4

C. Summary Judgment

30, 2014. The Non-Responding Defendants
have not responded or otherwise appeared in
this action. Accordingly, the Court grants
plaintiff’s motion for default judgment
against the Non-Responding Defendants.

1. Mortgage Foreclosure
Under New York law, a mortgage is
“‘merely security for a debt or other
obligation.’” United States v. Freidus, 769
F. Supp. 1266, 1276 (S.D.N.Y. 1991)
(quoting 77 N.Y. Jur. 2d, Mortgages § 2 at
374); see also Rivera v. Blum, 420 N.Y.S.2d
304, 308 (N.Y. Sup. Ct. 1978) (holding that
a mortgage is the security for a debt that
represents a lien on the mortgaged property).
The “‘mortgagor is bound by the terms of
his contract as made’” and, in the event of a
default, cannot be relieved from the default
unless waived by the mortgagee, or where
there is “‘estoppel, or bad faith, fraud,
oppressive or unconscionable conduct’” on
the part of the mortgagee. United States v.
Freidus, 769 F. Supp. at 1276 (quoting
Nassau Trust Co. v. Montrose Concrete
Products Corp., 56 N.Y. 2d 175, 183, 436
N.E.2d 1265, 451 N.Y.S.2d 663 (N.Y.
1982)).

B. Reformation
Reformation of a contract is an equitable
remedy that “allows courts to align
erroneous legal instruments with the
executing parties’ intent by transposing,
rejecting, or supplying terms to correct or
clarify the document.” OneWest Bank, N.A.
v. Denham, No. 14-CV-5529 (DRH)(AKT),
2015 WL 5562980, at *6 (E.D.N.Y. Aug.
31, 2015) (internal quotation marks and
citations omitted). Mistakes made in the
description, quantity, or condition of land
may provide a basis for deed reformation.
Hadley v. Clabeau, 532 N.Y.S.2d 221, 225
(N.Y. Sup. Ct. 1988) (“It is a well-accepted
principle of law that an instrument may be
reformed for a mutual mistake of fact. The
general principle of law has been held to be
particularly applicable to the reformation of
a deed.”) (citation omitted). See also SDF9
COBK LLC v. AF & NR LLC, No. 12-CV3078 (ENV)(RML), 2014 WL 4244296, at
*11-12 (E.D.N.Y. Aug. 20, 2014) (adopting
Report & Recommendation granting
plaintiff’s motion to reform the mortgage to
correct an erroneous property description
arising out of a mutual mistake). Defendant
does not contest plaintiff’s claim for
reformation, and the Court concludes that
reformation to add to the fourth line of the
first paragraph, “Lawrence, Long Island,
November 1907, John S. Newman, C.E. &
Surveyor, Woodmere, Long Island,” is
warranted.

To establish a prima facie case in an
action to foreclose upon a mortgage, “the
plaintiff must establish the existence of the
mortgage and mortgage note, ownership of
the mortgage, and the defendant’s default in
payment.” Campaign v. Barba, 805
N.Y.S.2d 86 (2d Dep’t 2005); see also
United States v. Freidus, 769 F. Supp. at
1277 (holding that foreclosure actions
require “proof of the existence of an
obligation secured by a mortgage, and a
default on that obligation”).
Once the plaintiff submits the mortgage,
the unpaid note, and evidence of the default,
it has satisfied its prima facie entitlement to
judgment and has a presumptive right to
foreclose. See Fleet Nat’l Bank v. Olasov,
793 N.Y.S.2d 52 (2d Dep’t 2005) (citing
cases). The burden then shifts to the
defendant to demonstrate that there is a
5

triable issue of fact with respect to the merits
of any defenses or counterclaims. Id.; see
also U.S. Bank Trust Nat’l Ass’n Tr. v. Butti,
792 N.Y.S.2d 505 (2d Dep’t 2005);
Republic Nat’l Bank of N.Y. v. O’Kane, 764
N.Y.S.2d 635, 635 (2d Dep’t 2003).

Court finds that defendant’s affirmative
defenses fail to raise any triable issues of
fact, and concludes that Eastern Savings
Bank is entitled to summary judgment.
2. Consumer Credit Requirements
Under 12 C.F.R. § 535.11

Plaintiff alleges, and defendant does not
dispute, that plaintiff has established a prima
facie entitlement to judgment pursuant to the
terms of the Note and Mortgage for: (a) the
entire unpaid principal amount due under the
Note, and all accrued and unpaid interest,
advances, and late charges which as of
December 13, 2013, amounted to
$434,479.56; (b) attorneys’ fees and other
costs and disbursements, payable to Eastern
Savings Bank under the terms of the Note
and Mortgage, which will accrue until the
amount due and payable under the Note and
Mortgage is paid in full; and (c) any and all
additional fees including, but not limited to,
protective advances that are due or may
become due and payable as provided under
the terms and conditions of the Note and
Mortgage.

Defendant argues that it would be
“unfair and inequitable for plaintiff to be
able to proceed or for the Court to aid in the
plaintiff’s continuance of the foreclosure”
because
plaintiff’s
Loan
allegedly
disregarded
the
“consumer
credit”
requirements contained in 12 C.F.R. §
535.11 of the Home Owners’ Loan Act
(“HOLA”).5 (Def.’s Opp. at 8-9.) Defendant
argues that the definition of “consumer
credit” required plaintiff to rely substantially
on factors other than the Subject Property as
the primary security for the Loan, and that
because defendant’s loan application lists no
assets other than his home as collateral,
plaintiff disregarded the rule.
However, 12 C.F.R. § 535.11 was not
enacted until July 1, 2010, over two years
after the Note and Mortgage were effected,
and is therefore inapplicable to the Loan.
Moreover, the requirements of HOLA are

The defendant argues that there are
triable issues of fact with respect to the
merits of several defenses.4 However, the

Lee, 93 F. Supp. 3d 223, 230 (S.D.N.Y. 2015) (citing
Curry v. City of Syracuse, 316 F.3d 324, 330-31 (2d
Cir. 2003)).

4

Defendant appears to have abandoned the
affirmative defenses raised in his answer (with the
exception of the Seventh Affirmative Defense, which
reserves the right to assert additional affirmative
defenses) by not raising them in his opposition to
plaintiff’s motion for summary judgment. Instead,
defendant argues in favor of what plaintiff asserts are
previously unpled affirmative defenses. It is
plaintiff’s position that these affirmative defenses are
waived under Fed. R. Civ. P 8(c)(1) and that
plaintiff’s Seventh Affirmative Defense should be
stricken in violation of the fair notice requirements
under the Federal Rules of Civil Procedure. In its
discretion, the Court excuses defendant’s failure to
include the affirmative defenses for which he now
argues in his answer because “the purposes of the
rule requiring pleading of an affirmative defense—to
give notice to the plaintiff and to give her an
opportunity to respond—have been met.” Foster v.

5
“Consumer credit means credit extended to a natural
person for personal, family, or household purposes. It
includes consumer loans; educational loans;
unsecured loans for real property alteration, repair or
improvement, or for the equipping of real property;
overdraft loans; and credit cards. It also includes
loans secured by liens on real estate and chattel liens
secured by mobile homes and leases of personal
property to consumers that may be considered the
functional equivalent of loans on personal security
but only if you rely substantially upon other factors,
such as the general credit standing of the borrower,
guaranties, or security other than the real estate or
mobile home, as the primary security for the loan.”
12 C.F.R. § 535.11(b).

6

on the debt, the level of equity in the
property, and the overall credit worthiness
of the borrower.” 65 FR 17811, Vol. 65, No.
66 (April 5, 2000). Director Seidman’s
testimony also included a description of
common features of a predatory loan.6
Defendant argues that plaintiff acted in bad
faith and issued a Loan that was “likely
‘predatory’ according to the testimony given
by the OTS Director because defendant’s
note rate was 10.99%, which was six percent
above the prime lending rate for MarchApril 2008,” contained a prepayment
penalty and a loan “call” provision, the
plaintiff did not seek income verification,
and there were no guaranties given for the
Loan with the sole collateral security being
defendant’s residential home. (Def.’s Opp.
at 11.)

administered and enforced by the Director of
the Office of Thrift Supervision (“OTS”), 12
C.F.R. § 500.1, and not by individuals such
as defendant. See In re Ocwen Loan
Servicing, LLC Mortg. Servicing Litig., 491
F.3d 638, 643 (7th Cir. 2007) (“HOLA
creates no private right of action to sue to
enforce the provisions of the statute or the
OTS’s regulations.”); Taylor v. Citizens of
Fed. Sav. & Loan Ass’n, 846 F.2d 1320
(11th Cir. 1988) (holding that mortgagor had
no private right of action for alleged
violations of HOLA).
Even if defendant had standing to
enforce 12 C.F.R. § 535.11, and the
definition of “consumer credit” applied
retroactively, defendant has not shown that
the Loan disregarded the requirements of 12
C.F.R. § 535.11 since plaintiff relied on
factors other than the Subject Property in
issuing the Loan, including Borrower’s
stated income of $15,000 per month from
his landscaping company, three lease
agreements showing rental income totaling
$4,500.00, and the fact that Borrower was
taking out the Loan in order to refinance an
existing loan for which he had a strong
payment history verified by a credit report
run. (See Pl.’s Reply, Ex. A ¶¶ 4-6.)

6
In particular, Director Seidman testified as follows:
“[a] predatory loan typically combines several of the
following features: interest rates significantly higher
than justified by the relative risk profile of the
borrower; financing of high fees and points and of a
single-payment credit life insurance premium, often
called ‘packing’; a balloon payment; negative
amortization; and prepayment penalties. But the
presence of one or more of these features does not
necessarily make a loan predatory. Whether a loan is
predatory depends also on factors related to its
marketing, the choices available to the borrower, and
whether the borrower has sufficient non-housing
assets or income to pay off the loan. Thus, if you
couple a loan with one or more of the features listed
above with one or more of the following practices, a
predatory loan is the likely result: high pressure
marketing targeted to vulnerable populations, such as
the elderly, low- and moderate-income families, and
those with medical care or other debts; steering a
borrower who would qualify for a prime loan to a
high-cost loan, by taking advantage of the borrower's
lack of knowledge or inexperience; excessive
refinancing of little or no net benefit to the borrower,
often called ‘flipping’; underwriting the loan based
on the equity in the home without regard to whether
the income or other non-housing assets of the
borrower are sufficient to pay off the loan; making
disclosures in a rushed way so the borrower does not
understand the nature of the proposed loan; and
refusing to report complete loan payment experience
to credit reporting agencies.” Id.

3. Predatory Loan
Defendant also argues that the Loan was
“likely predatory” and that plaintiff’s
conduct in extending the Loan was in “bad
faith.” (Def.’s Opp. at 9, 14.) To support his
argument that the Loan was predatory,
defendant points to testimony given by OTS
Director Ellen Seidman before the U.S.
House of Representatives Committee on
Banking and Financial Services on May 24,
2000, in which Director Seidman
emphasized the importance of the prudent
underwriting of mortgage loans and urged
institutions to “carefully evaluate the
capacity of the borrower to make payments
7

(e) defendant was not told the loan relied on
defendant’s home as the primary collateral
security, (f) defendant was not represented
by an attorney at the closing, nor told he
could have one present, and (g) substantive
aspects of the loan included a 10.99%
interest rate, substantial penalty for paying
the loan within thirty-six months, and the
lender’s “call” provision available at ten
years and annually thereafter. (Def.’s Opp.
at 14-15.) Defendant argues that he did not
discover the prepayment penalty would cost
six months of interest to pay (10.99% of
principal of $325,000.00), which was too
costly to afford in addition to the cost of
refinancing, until he attempted to refinance
the loan several months after the May 2008
closing. (Def.’s Opp. at 15.) 7

Defendant relies solely on Congressional
testimony, rather than a statute or case law,
in arguing that the loan is predatory. In any
event, even taking Director Seidman’s
testimony into account, defendant has not
presented sufficient evidence to create a
disputed issue of material fact as to whether
the loan was “likely predatory.” The Note
rate of 10.99% and its “step down” feature
(decreasing each year until June 1, 2016
when the interest rate became fixed at
9.490% until the maturity of the Loan), does
not come close to the 16% per annum
maximum rate of interest for loans permitted
under New York’s civil usury law. See N.Y.
Gen. Oblig. Law § 5-501(1); N.Y. Banking
§ 14-a. Moreover, plaintiff argues, and
defendant does not dispute, that defendant’s
credit rating would have made him ineligible
for a lower interest rate. (Pl.’s Mem. of Law
at 6.) In addition, defendant has presented
no evidence that the prepayment premium,
the “call” provision, and the fact that the
sole collateral security of the Loan was
defendant’s home were coupled with the
practices described by Director Seidman; as
discussed, infra, plaintiff took into account
Borrower’s rental and business income, as
well as his prior loan history, when issuing
the Loan.

The Second Circuit has stated that a
contract is considered unconscionable under
New York law8 when “it is so grossly
unreasonable or unconscionable in the light
of the mores and business practices of the
time and place as to be unenforceable. . .
according to its literal terms.’” Ragone v.
Atl. Video at Manhattan Ctr., 595 F.3d 115,
121 (2d Cir. 2010) (quoting Naval v. HIP
Network Servs. IPA, Inc., 620 F. Supp. 2d
566, 571 (S.D.N.Y. 2009) (internal
quotation marks and citations omitted)).

Accordingly,
the
uncontroverted
evidence demonstrates that this was not a
predatory loan or a loan extended in bad
faith.

7
In his opposition, defendant argues that the common
law defenses of unconscionability and bad faith are
not preempted by federal law. (Def.’s Opp. at 23.)
Because plaintiff does not meaningfully dispute the
validity of these defenses on the basis of preemption,
and the Court finds that there are no triable issues of
fact with respect to either defense, the Court need
not, and does not, reach the issue of preemption with
respect to these affirmative defenses.

4. Unconscionability and Bad Faith
Defendant also argues that the Loan was
unconscionable because defendant (a)
lacked meaningful choice in choosing a
lender due to his poor credit rating, (b) had a
high school education and was not a
sophisticated borrower, (c) Eastern Savings
Bank did not seek income verification, (d)
defendant was not informed about the
prepayment penalty or the “call” provision,

8
Because a federal court exercising diversity
jurisdiction must apply the choice-of-law rules of the
state in which the court sits, New York’s law of
unconscionability applies. Liberty Synergistics Inc. v.
Microflo Ltd., 718 F.3d 138, 153 (2d Cir. 2013) (“[A]
federal court exercising diversity jurisdiction must
apply the choice-of-law rules of the state in which
that court sits.”).

8

representation by counsel during the closing
process. (See Pl.’s Reply, Ex. A.) Moreover,
defendant presents no evidence that
deceptive or high-pressured tactics were
used; rather, defendant was given a threeday right of rescission, which he chose not
to exercise.

“Generally, there must be a showing that
such a contract is both procedurally and
substantially unconscionable. . . . The
procedural element of unconscionability
concerns the contract formation process and
the alleged lack of meaningful choice; the
substantive element looks to the content of
the contract[, per se ].” Id. at 121-22
(internal quotation marks and citations
omitted) (alteration in original). Courts
examining procedural unconscionability
focus on, for example, “(1) the size and
commercial setting of the transaction; (2)
whether there was a ‘lack of meaningful
choice’
by
the
party
claiming
unconscionability; (3) the ‘experience and
education
of
the
party
claiming
unconscionability’; and (4) whether there
was ‘disparity in bargaining power.’” Dallas
Aero., Inc. v. CIS Air Corp., 352 F.3d 775,
787 (2d Cir. 2003) (quoting Gillman v.
Chase Manhattan Bank, 534 N.E.2d 824,
828 (N.Y. 1988)).

With
respect
to
substantive
unconscionability, defendant points to the
interest rate of 10.99%, a prepayment
penalty, the “call” provision, and the fact
that the Borrower’s home was the sole
collateral of the Loan. The interest rate,
which declined over time as a “step down”
interest rate, is permitted by law and is not
unconscionable. The only case defendant
cites in support of his argument of
unconscionability actually favors plaintiff.
In Emigrant Mortgage Company, Inc. v.
Fitzpatrick, the Appellate Division, Second
Department found that the defendant, who
had received a loan from plaintiff, failed to
raise a triable issue of fact regarding
unconscionability of the subject loan. The
Second Department overturned the Supreme
Court’s determination that the plaintiff’s
possible violations of the restrictions and
limitations placed on subprime and highcost loans by Banking Law § 6-m created a
triable issue of fact with respect to
unconscionability because the loan, which
was executed on April 9, 2008, did not fall
within the purview of the law, which applied
only to certain loans issued on or after
September 1, 2008. See Emigrant Mortgage
Company, Inc. v. Fitzpatrick, 95 A.D. 3d
1169, 2012 N.Y. Slip Op. 03980 (2d Dep’t
2012).

In this case, defendant is unable to raise
a triable issue of fact as to procedural or
substantive unconscionability. With respect
to procedural unconscionability, defendant
argues that he lacked meaningful choice in
selecting a lender because he had a poor
credit rating, he was an unsophisticated
borrower, and he was not represented by
counsel at the closing. Defendant’s limited
choice of lenders due to his poor credit
rating is irrelevant for the purposes of
deciding
procedural
unconscionability
because it did not restrict his ability to
decide whether or not to enter into the
contract. Though defendant may have lacked
higher education, he has experience as the
owner of a business and as the landlord of
several lease agreements, as well as prior
experience in obtaining the underlying loan
he was seeking to refinance. Though
defendant was not represented by counsel at
the closing, he received and signed a
disclosure informing him of his right to

Accordingly, given the uncontroverted
facts, the defenses of unconscionability and
bad faith cannot survive summary judgment.

9

overdraft situations resulted in an obligation
to approve the plaintiff’s applications in the
future, noting that such an argument was
“unsupported by New York case law, the
U.C.C., or common sense.” 961 F.2d at
1057.

5. Refusal to Modify or Forbear
Defendant asserts that plaintiff exercised
“bad faith” in failing to offer the defendant a
loan modification. Specifically, defendant
argues that Eastern Savings Bank denied
him a modification and he should receive
one because Eastern Savings Bank did not
verify his income when the Loan was
originated in 2008. (Def.’s Opp. at 15-16.)
As set forth below, this argument has no
merit.

Thus, because there was no binding loan
modification agreement or obligation to
provide plaintiff with a modification
agreement on his desired terms, defendant’s
claim of “bad faith” or for breach of duty of
good faith and fair dealing based on
plaintiff’s failure to provide defendant with
a loan modification fails as a matter of law.

Under New York law, plaintiff is under
no obligation to modify the terms of
defendant’s mortgage. Kilgore v. Ocwen
Loan Servicing, LLC, 89 F. Supp. 3d 526,
533; see also Miller v. HSBC Bank U.S.A.,
N.A., No. 13-CV-7500, 2015 WL 585589, at
*3 (S.D.N.Y. Feb. 11, 2015) (collecting
cases). Although defendant argues that his
case is unique due to economic hardship,
and that the defendant has a duty to help
him, the law is clear that a lender is entitled
to enforce an existing contract “regardless of
the difficult economic conditions facing” the
borrower. Gaia House Mezz LLC v. State St.
Bank & Trust Co., 720 F.3d 84, 93 (2d Cir.
2013); see also Barbara v. MarineMax, Inc.,
No. 12-CV-0368 (ARR)(RER), 2013 WL
4507068, at *19 (E.D.N.Y. Aug. 22, 2013),
aff’d, 577 F. App’x 49 (2d Cir. 2014)
(“[T]he covenant of good faith does not
require one party to be an altruist toward the
other.”).

6. Settlement Conference
Lastly, defendant argues that he is
entitled to a settlement conference under
New York C.P.L.R. § 3408, which states
that “the court shall hold a mandatory
conference within sixty days after the date
when proof of service is filed with the
county clerk, or on such adjourned date as
has been agreed to by the parties” in any
residential foreclosure action involving a
home loan. Courts in this Circuit have held
that, in this context, Rule 16 provides a
sufficient alternative mechanism for
facilitating settlement rendering C.P.L.R. §
3408’s mandatory settlement conference
requirement inapplicable. See, e.g., Kondaur
Capital Corp. v. Cajuste, 849 F. Supp. 2d
363 (E.D.N.Y. 2012) (finding that C.P.L.R.
§ 3408 is procedural in nature and Rule 16
provides a sufficient alternative mechanism
for facilitating settlement). This Court
agrees. In any event, the parties have already
engaged in settlement discussions on
multiple previous occasions to no avail, and
the Court does not believe a further
mandated conference would have a
meaningful impact on the parties’ ability to
reach a settlement agreement. Accordingly,
the Court finds this argument unpersuasive.

Additionally, engaging in discussions
about possible modifications of a loan
agreement or modifying the terms in the past
does not constitute a course of dealing
requiring the lender to provide an offer on
better terms sought by the borrower. See
Fasolino Foods Co. v. Banca Nazionale del
Lavoro, 961 F.2d 1052 (2d Cir. 1992). In
Fasolino, the Second Circuit rejected
plaintiff’s argument that the bank’s prior
approval of plaintiff’s letters of credit in
10

IV.

CONCLUSION

For the foregoing reasons, the Court
grants plaintiff’s motion for summary
judgment, plaintiff’s request for reformation
of the property description, and plaintiff’s
motion for default judgment against the
Non-Responding Defendants.
SO ORDERED.

_______________________
JOSEPH F. BIANCO
United States District Judge

Dated: March 14, 2016
Central Islip, NY
***
Plaintiff is represented by Jerold C.
Feuerstein, 360 Lexington Avenue, Suite
1200, New York, New York 10017.
Defendant is represented by William J.
Fielding, 79-37 Myrtle Avenue, Glendale,
New York 11385.

11