McDowell v HSBC Bank, USA, N.A.  2016 NY Slip Op 32493(U)  December 20, 2016  Supreme Court, New York County  Docket Number: 154900/13  Judge: Shlomo S. Hagler is a footnote to “The Big Short” and illustrates how the sub-prime mortgage market operated at a retail level.

“McDowell was an “elderly person of color” who owned premises located at 530 West 142nd Street, in Harlem, New York City (the “Property”) (Second Amended Verified Complaint, ~ 3). The Property was registered as a single room occupancy dwelling, but was used primarily for McDowell’s residence and that of her daughter, Nicholas, and her grandson, Gordon Gardner (“Gardner”). At the relevant times, McDowell suffered from recurrent eye problems that interfered with her ability to read. Gardner was primarily a resident at Syracuse University from 2002 to 2006. Before that time, McDowell frequently asked him to read documents to her (Id., ¶3, 4). Gardner advanced funds to his grandmother to make monthly mortgage payments, -and began to investigate the circumstances leading his grandmother to incur debt. McDowell passed away on October 13, 2007 (Id., § 15, 19). ”

“Plaintiff alleges that Ocwen solicited McDowell for new financing on behalf of Delta when McDowell was in default on her existing mortgage payments. McDowell entered into the following mortgage transactions, which plaintiff alleges, were consummated “through the instrumentality of Perri Funding”: a. June 1, 2001: Mortgage from Delta securing a loan in the amount of $170,000. Ocweri was the servicing agent. b. April 24, 2002: Mortgage from Delta securing a loan in the amount of $260,000. Ocwen was the servicing agent~ c. September 19, 2003: Mortgage from MERS, as nominee for Delta, securing a loan in the amount of $330,000. Ocwen was the servicing agent. d. June 11, 2004: Mortgage from MERS, as nominee of Accredited Home Lenders, Inc., securing a loan in the amount of $440,000 (“2004 Mortgage”) . 6 e. March 21, 2005: Mortgage from MERS, as nominee of Delta, securing a loan in the amount of $540,000. Ocwen was the servicing agent. f. April 28, 2006: Mortgage from MERS, as nominee of Delta, securing a loan in the amount of $116,365. Ocwen was the servicing agent. g. 4/28/2006: Consolidation Agreement with MERS, as nominee of Delta, securing a loan in the amount of $650,000. Ocwen was the servicing agent (Id., ~ 67). The last three transactions are at issue in this litigation: the March 21, 2005 note and mortgage for $540,000 (“2005 Mortgage”); the April 28 2006 note and mortgage for $116,365 (“2006 Mortgage”); and the April 28, 2006 consolidated mortgage in the amount of $650,000 (“Consolidated Mortgage”) pursuant to the “Mortgage Consolidation and Extension Agreement” (“CEMA”) (Id., ~ 68). Plaintiff alleges that “when Ms. McDowell inevitably defaulted on her monthly payments, Perri Funding on behalf of Delta [r]eadily obtained new mortgage financing by flipping her old mortgage into a new one that allowed her to payoff the defaulted mortgage. ”

“The Shapiro Firm represented HSBC in the prior Foreclosure Action. There is no allegation,~hat it was ever involved in the application, origination and/or closings of the underlying mortgage loan transactions. Plaintiff has failed to plead the required elements of a fraud cause of action against the Shapiro Firm. The Second Amended Verified Complaint specifically refers to the Shapiro Firm only six times (Second Amended Verified Complaint, ¶ 30, 93, 98, 99, 104, 108). Plaintiff alleges that the assignment of the note submitted by the Shapiro Firm in the Foreclosure Action was executed while McDowell was in default, the Shapiro Firm submitted a note in the Foreclosure Action which differed from other copies of the notes, the Shapiro Firm submitted a loan application form which demonstrated that McDowell was in good financial condition when she was already in default, and in an unrelated case, the Shapiro Firm was found to have submitted false notes. Such allegations do not constitute a viable action for fraud. Plaintiff has failed to plead with particularity the necessary elements of a cause of action sounding in fraud as against the Shapiro Firm. Accordingly, the motion by the Shapiro Firm to dismiss the Second Amended Verified Complaint as to it is granted.”