Opinion
VAC 17-00108
01-03-2019
CITY OF ALBANY, Plaintiff, v. BAYVIEW LOAN SERVICING CENTER, LLC, Defendant.
Robert Magee, Esq., Deputy Corporation Counsel, City Hall, Room 106, Albany, NY 12207 Tara Trifton, Esq., Locke Lord, LLP, 20 Church Street, Harford, CT 06103
Robert Magee, Esq., Deputy Corporation Counsel, City Hall, Room 106, Albany, NY 12207
Tara Trifton, Esq., Locke Lord, LLP, 20 Church Street, Harford, CT 06103
Helena Heath, J.By Attorney Affidavit dated September 19, 2018, defendant moves to vacate the Court's March 29, 2018 Decision and Order issued in this case after a default trial was held on March 21, 2018, whereby the Court found defendant guilty of the subject charge and imposed a fine against defendant in the amount of $63,000.00. Defendant argues that it was not properly served with notice of trial and that the Housing and Recovery Act of 2008 (HERA) exempts defendant from enforcement of state and municipal laws relative to the imposition of fines. The City of Albany opposes defendant's motion.
The Court agrees with the City of Albany's position that defendant was properly served with the subject Trial Summons through service on the New York Secretary of State, requiring defendant to appear for trial on March 21, 2018. Criminal Procedure Law § 600.10(1), in relevant part, provides that commencement of a criminal prosecution against a corporation may be "accomplished by the issuance or service of a summons" by delivery of the summons on an "officer, director, managing or general agent, or cashier or assistant cashier of such corporation" or "to any other agent of such corporation authorized by appointment or by law to receive service of process". Moreover, Section 301(a) of the Limited Liability Company Law provides that the New York Secretary of State shall be the agent of every domestic limited liability company authorized to do business in New York State "upon which process may be served."
Defendant claims service was untimely, alleging that it did not receive the subject Trial Summons until March 16, 2018 for a trial commencing on March 21, 2018. However, the City of Albany's Affidavit of Service filed in this case indicates that defendant was served on March 1, 2018 by LaDonna Singh via service upon the New York Secretary of State, in accordance with CPL § 600.10 and Limited Liability Company Law § 301(a). Defendant's motion to vacate the Decision and Order herein on the grounds of untimely service of the Trial Summons is therefore denied.
It is undisputed that defendant is the assignee of a mortgage between Bank of America and Olakunle Ladipo. The underlying mortgage was originated by Bank of America on June 27, 2007. Subsequently, Ladipo defaulted on the loan. The mortgage was assigned from Bank of America to defendant on August 7, 2015. Defendant subsequently initiated foreclosure proceedings for the subject property and, based on information provided by the City of Albany in its opposition papers, that foreclosure case is still pending in Albany County before the New York State Supreme Court under the Index Number 907714-16.
As set forth in the Court's March 29, 2018 Decision and Order, by Information dated November 16, 2017, defendant was charged by the City of Albany Department of Buildings and Regulatory Compliance (the "Codes Department") with Failure to Take Reasonable and Necessary Actions to Maintain Real Property, a violation of Section 1308, subsections (2) and (7), of the New York Real Property Actions and Proceedings Law ("RPAPL"). After service of the Trial Summons, requiring defendant to appear for trial on March 21, 2018, and upon defendant failing to appear for trial, the trial was held in defendant's absence on that date. Based upon the testimony of the City of Albany's Code Enforcement Officer and the documentary evidence presented at trial, the Court found defendant guilty of the subject charge and fined defendant for the period of its non-compliance from the date of November 16, 2017 through to and including March 21, 2018 at $500 a day for each of these 126 days of violation. The total fine imposed was $63,000.00. In the Court's March 29, 2018 Decision and Order, defendant was given until April 26, 2018 to pay the fine. The fine was not paid by the due date, and thereafter the instant motion to vacate the subject Decision and Order was filed.
Defendant contends that the Court should vacate the subject Decision and Order and underlying judgment of conviction on the ground that defendant is exempt under HERA from any fines imposed pursuant to state and municipal laws. Defendant's argument is premised on the assertion that the exemption under HERA applicable to the Federal Housing Finance Agency (FHFA), and by extension applicable to the Federal Home Loan Mortgage Corporation (Freddie Mac), also applies to defendant since Freddie Mac is an "investor" in the subject property.
Briefly, Freddie Mac and the Federal National Mortgage Association (Fannie Mae) are federally chartered, privately owned corporations, created by Congress to bolster the housing market by establishing a secondary mortgage market. Federal National Mortgage Assn. v. City of Chicago, 874 F.3d 959 (7th Cir. 2017). In response to the housing crisis of 2008, Congress enacted HERA resulting in Freddie Mac and Fannie Mae being placed into conservatorship and the FHFA being appointed as conservator. Id. HERA provides that, while acting as conservator, the FHFA is exempted from all taxation ( 12 U.S.C.A. § 4617 [j][2] ), and the FHFA shall not be liable for "any amounts in the nature of penalties or fines, including those arising from the failure of any person to pay any real property, personal property, probate, or recording tax or any recording or filing fees when due." ( 12 U.S.C.A. § 4617 [j][4] ); " Section 4617 [j][4] exemption"). While there have been numerous court decisions analyzing the applicability of HERA's exemption pertaining to taxes, there seems to be a dearth of court decisions analyzing the HERA Section 4617(j)(4) exemption which pertains to fines. Federal courts examining the impact of the HERA tax exemption provision have held that this exemption is applicable to the FHFA as well as to Freddie Mac and Fannie Mae, but that the scope of the tax exemption does not extend to individuals or entities who purchase property from these protected federal entities. Federal courts have determined that "transactions" are not assets or property of the subject federal entities and that the HERA exemptions are "entity specific" and do not serve to exempt those doing business with the protected entities. See, e.g., DeKalb County v. Federal Housing and Finance Agency, 741 F.3d 795 (7th Cir., 2013).In Federal National Mortgage Association v. City of Chicago , supra , plaintiff on appeal argued that the Chicago Real Property Transfer Tax conflicts with the HERA tax exemption provisions governing the FHFA, Fannie Mae, and Freddie Mac, and the tax at issue was thus without effect. The defendant argued that the plain language of the HERA exemption provision limits the tax exemption to the federal entities and that Congress has not clearly expressed an intent to the contrary. The court agreed with defendant's position and determined that the HERA tax exemption is specific to the subject federal entity and its assets and that nothing in the language of the exemption provision addresses parties that transact with the exempt entity. In support of its determination, the Court cited decisions of other court of appeals wherein the HERA exemption was described as "entity-specific" (e.g. Board of Cty. Comm'rs v. Federal Housing Finance Agency , 754 F.3d 1025, at 1029 [D.C. Cir. 2014] ; "The statute at issue in this case exempts specific entities."). The Seventh Circuit provided the following analysis:
"Transactions are not assets or property. See Black's Law Dictionary (8th ed. 2004) (defining ‘transaction’ as ‘the act or an instance of conducting business or other dealings, esp., the formation, performance, or discharge of a contract’). Therefore, an exemption for transactions cannot be read into the plain language of the statutes.... Transferring property is not an element of the entities' franchise, capital, reserves, surplus, loans, or income. The Fannie Mae provision also exempts the corporation's mortgages. Buying property often involves a mortgage, but the sale of property here was not an element of any mortgage held by Fannie Mae. The Freddie Mac provision exempts the corporation, ‘including its activities’ from all taxation. Transferring property can logically be understood as an activity. However, given the transfer tax is owed by the transferee upon delivery or recording of the instrument of transfer, the tax is better understood as one imposed on the transferee's
receipt of property rather than a tax imposed on the act of selling property by Freddie Mac. Thus, there is nothing in the plain language of the exemptions that indicates that the ‘clear and manifest purpose of Congress’ was to exempt from taxation entities that transact with Fannie Mae, Freddie Mac, and FHFA."
This analysis is applicable in the instant case and supports this Court's conclusion that Freddie Mac's status as an "investor" in the subject property does not confer upon defendant the "entity specific" exemption protection provided by HERA to qualifying federal entities. The federal entities entitled to the protection of the Section 4617(j)(4) exemption are the FHFA, Freddie Mac, and Fannie Mae. Consistent with the Seventh Circuit's holding, this Court finds that the plain language of the HERA exemption at issue does not apply to defendant, and defendant is not exempt from the imposition of the subject fine based on the fact that defendant transacts business on behalf of Freddie Mac.
Defendant's reliance on the Federal Housing Financing Authority v. City of Chicago decision (962 F.Supp.2d 1044 [N.D. Ill. 2013] ) in support of its argument that a private mortgage holder such as defendant is entitled to the protection of the HERA fines exemption provision is misplaced and the argument is unsustainable. The plaintiff in that case was the FHFA who commenced the lawsuit on its own behalf and on behalf of Freddie Mac and Fannie Mae against the City of Chicago. The FHFA asserted that a City of Chicago local ordinance unlawfully regulated the FHFA, Freddie Mac, and Fannie Mae in their capacity as mortgage investors and mortgagee. The local ordinance at issue pertained to the City of Chicago Building Department's vacant building registration requirement. The court held that the ordinance as applied to the FHFA is preempted by HERA, and the court went on to state that its "holding is sufficient to grant FHFA's motion for summary judgment, [n]onetheless, for purposes of completeness, the Court will address FHFA's allegations that the registration fee and the fines and penalties imposed by the Ordinance violates FHFA's immunity for such charges." Id. at 1061-1062. The court therefore examined the Section 4617(j)(4) exemption provision noting that the City of Chicago did not dispute that this provision exempts FHFA from fines and penalties, but the court concluded that "[t]he City contends that any fines and penalties are actually assessed against "Fannie and Freddie,"; R. 25-1 at 22 n. 26, or "the servicers," R. 37 at 25 n. 34, and, thus are not barred by § 4617(j)(4). As explained earlier, these contentions are meritless. FHFA, as conservator, stepped into the shoes of Fannie Mae and Freddie Mac." Id. at 1064.
Defendant quoted this exact language from the decision purportedly as support for its argument that as a "servicer" the Section 4617(j)(4) exemption provision applies to it. While defendant, in its own words, "services a mortgage loan securing the Subject Property" (Affd of defendant's Vice President & Corporate Counsel, at 1), defendant is not a "servicer" within the meaning and context of the court decision defendant relies upon. Clearly Freddie Mac and Fannie Mae are the "servicers" referred to in the court's language cited above. These are the federal entities entitled to the protections of the HERA exemptions, not defendant. Similarly, this Court finds defendant's reliance upon Nationstar Mortgage, LLC v. SFR Investments Pool 1, ––– Nev. ––––, 396 P.3d 754 [2017] and Saticoy Bay, LLC, Series 2714 Snapdragon v. Flagstar Bank, FSB , 699 Fed. Appx. 658 [9th Cir. 2017] to be equally unpersuasive as these cases are inapplicable to the issue presented for decision on the instant motion. Each of those cases addressed a preemption issue involving a Nevada State law and HERA. In the Nationstar Mortgage case the court held that HERA does not prohibit a servicer of a loan owned by a regulated entity from arguing that the Federal Foreclosure Bar preempts the Nevada State law at issue, and in the Saticoy Bay case the court held that the loan servicer (Flagstar) acts as Fannie Mae's agent and has standing to assert a claim of federal preemption. The holdings of these cases were limited to issues of preemption and standing. The cases are in no way dispositive of the question of whether defendant, as a loan servicer, is entitled to the protections of a federal exemption.
Albany, like many municipalities, continues to suffer neighborhood blight as a result of the foreclosure crisis of 2007-2008 where bank owned homes have been allowed to fall into states of disrepair, causing harm to neighbors, communities and local governments. These adverse effects have prompted an array of policy initiatives and legislation designed to combat the problem of poorly maintained bank owned properties. RPAPL § 1307(1) provides a mechanism by which liability for the maintenance of a foreclosed and abandoned property may be imposed on the mortgagee of the property. People v. Greentree Servicing, LLC, 52 Misc. 3d 332, 28 N.Y.S.3d 798 (Middleton City Ct. 2016). After there has been a foreclosure sale of abandoned property, the mortgagee becomes liable for the maintenance of the property. ( RPAPL § 1307[1] ). Importantly, however, this section does not preempt, reduce or limit any rights or obligations imposed by any local laws with respect to property maintenance and the locality's ability to enforce those laws. ( RPAPL § 1307[8] ). The City of Albany, as do all municipalities, has a compelling interest in seeing that the public is protected through enforcement of building and maintenance code regulations and has broad authority to enact legislation to that end. People v. Greentree Servicing, supra (citing N.Y. Const. IX § 2; Municipal Home Rule Law § 10[1] ).
Here, after defendant ignored the Codes Department's order to abate the dangerous condition at the subject property and upon defendant's failure to appear at trial where sufficient evidence of liability was presented by the City of Albany, the Court found defendant guilty of the subject charge. Based on the reasons set forth above, defendant has failed to establish grounds for vacatur of the subject Decision and Order. In analyzing the grounds upon which a defendant may challenge a judgment of conviction pursuant to Criminal Procedure Law ("CPL")§ 440.10, the Court finds that defendant has not demonstrated a lack of personal jurisdiction or that the judgment of conviction was obtained in violation of defendant's constitutional rights, nor has defendant established any of the other enumerated grounds set forth in that statute. The Court additionally notes that a CPL § 440 motion is not to be utilized as a substitute for a direct appeal of a court's decision. Accordingly, defendant's motion is hereby denied in all respects.
The City of Albany may submit judgment for defendant's unpaid fine.
SO ORDERED