New York Law Journal

Court Decisions

October 7, 2009

Kings-Real Property

Aurora Loan Services LLC v. Arauz, 14044/09, Decided 09//22/09, Supreme Court, Justice Schmidt

Defendant Humbert Arauz (Arauz) moves, by way of order to show cause, for a preliminary injunction 1)enjoining plaintiff Aurora Loan Services, LLC and its servicing company from making “any derogatory reports” regarding Arauz to all the various credit reporting agencies, 2) ordering plaintiff to accept the funds to pay off the underlying mortgage in accordance with plaintiff’s payoff letter, 3) directing plaintiff to issue a satisfaction of mortgage and 4) restraining and enjoining plaintiff from foreclosing on the subject property.

Plaintiff commenced this action to foreclose a mortgage executed by Arauz on June 1, 2007 and which encumbers the subject premised a 1285 Jefferson Avenue in Brooklyn.  The mortgage was executed in favor of Mortgage Electronic Registration Systems(MERS), as nominee for Lehman Brothers Bank (Lehman), to secure a loan from Lehman to Arauz in the amount of $500,000.00.  Arauz further executed a second mortgage on June 1, 2007 in the amount of $93,750.00.  According to the complaint, Arauz defaulted under the first mortgage by failing to make the payment due on June 1, 2008.  The first mortgage and note were subsequently assigned to plaintiff on November 3, 2008.

At some point following Arauz’s alleged default, Arauz entered into negotiations with plaintiff to be relieved of the mortgage debt pursuant to a “short sale” of the property to a prospective buyer.  Auauz first submitted to plaintiff a proposed contract to sell the property to Viviana Moncayo for $325,000.00.  Plaintiff states that it rejected this price as inadequate.  Arauz thereafter submitted a revised contract of sale to Moncayo for the sum of $360,000.00.  Plaintiff asserts that on or about March 20, 2009 it “internally approved” the proposed short sale to Moncayo for this higher purchase price.  However, in the payoff letter faxed to Arauz’s counsel on March 21, 2009, plaintiff stated that it “has approved the sale of [the subject] property….based on the contract of sale between Viviana Noncayo (sic) and Humberto Arauz….for the purchase price of $196,850.00” and that the “required minimum payoff amount is $171,964.28.”  As evidenced by a facsimile dated May 7, 2009, the contract of sale was amended to the extent that Hugo Vaccaris was substituted as purchaser for Moncayo and that “[a]ll other terms and conditions in the contract of sale shall remain in full force and effect.”  On May 11, 2009, plaintiff sent another facsimile approving the sale of the property to Vaccaris “based on the contract of sale….for the purchase price of $196,850.00” and again stating that the “required minimum payoff amount is $171,964.28.”  Plaintiff sent another facsimile on May 11, 2009 stating that the minimum required payoff amount for ht second mortgage (in the amount of $93,750.00) was $3,000.00.

On May 27, 2009, Arauz and Vaccaris closed on the sale of the property for the price of $196,850.00, the approved price according to the payoff statements.  Plaintiff subsequently received two checks from the title company totaling $174,964.68, the amount listed in the payoff statements as the minimum sum required to pay off the two mortgages.  By letter dated June 4, 2009, plaintiff’s counsel notified the title company that it did not agree to accept the sum of $174,964.00 as sufficient to complete the short sale and that the checks provided were insufficient to clear the liens on the property.  Plaintiff’s counsel returned the two checks along with its June 4, 2009 letter.  Plaintiff filed a notice of pendency against the subject property and commenced the instant foreclosure action on June 8, 2009.  It is plaintiff’s position that it agreed to a short sale amount of no less than $360,000.00, and the closing of the property for the sale price of $196,850.00, based on the minimum sale price figure stated in the two payoff facsimiles, was a mistake entitling plaintiff to rescind the short sale offer.

To establish entitlement to a preliminary injunction, a movant must establish (1) a likelihood or probability of success on the merits, (2) irreparable harm in the absence of an injunction, and (3) a balance of the equities in favor of granting the injunction (see Aetna Ins. Co. v. Capasso, 75 NY2d 860, 862[1990]; Doe v. Axelrod, 73 NY2d 748, 750 [1988]; W.T. Grant Co. v. Srogi, 52 NY2d 496, 517 [1981]).  The purpose of a preliminary injunction is to maintain the status quo, not to determine the ultimate rights of the parties (Wheaton/TMW Fourth Ave., LP v. New York City Dept. of Buildings, ___AD3d___,___; 2009 NY Slip Op 06440, * 1 [2^nd Dept 2009]; Matter of 35 New York Police Officers v. City of New York, 34 AD3d 392, 393-394).  Moreover, “a mandatory preliminary injunction (one mandating specific conduct), by which the movant would receive some form of the ultimate relief sought as final judgment, is granted only in ‘unusual’ situations, “where the granting of the relief is essential to maintain the status quo pending trial of the action””(Second on Second Café, Inc. v. Hing Sing Trading, Inc.,___AD3d___,___; 2009 NY Slip Op 05913, *6[1^st Dept 2009] quoting Pizer v. Trade Union Serv., Inc., 276 App Div 1071 [1950]; see SHS Baisley, LLC v. Res Land, Inc., 18 AD3d 727, 728 [2005]; Rosa Hair Stylists v. Jaber Food Corp., 218 AD2d 793, 794 [1995]).

In moving for a mandatory injunction directing that plaintiff accept the payoff amounts as stated in the facsimiles, issue a satisfaction of mortgage and cease the foreclosure action, Arauz is not seeking to maintain the status quo during the pendency of the action gut is in actuality seeking the ultimate relief to which he would be entitled in a final judgment against plaintiff.  Further, “[t]o sustain its burden of demonstrating a likelihood of success on the merits, the movant must demonstrate a clear right to relief which is plain from the undisputed fact” (Related Props., Inc. v. Town Bd. Of Town/Villages of Harrison, 22 3d 587, 590 [2005];  see Abinanti  v. Pascale, 41 AD3d 395, 396 [2007];  Gagnon Bus Co., Inc. v. Vallo Transp., Ltd., 13 AD3d 334, 335 [2004]).  In this action, which is in its nascent stage, there exist several factual issues as to whether plaintiff is entitled to reform or rescind the terms of the payoff statements.  It is not in dispute that the original contract of sale in the amount of $325,000.00 was deemed insufficient to complete a short payoff of the mortgage.  The payoff facsimiles at issue were sent following the submission by Arauz of a contract of sale for a higher amount, $360,000.00.  There is clearly an issue as to Arauz’s knowledge of a mistake in the payoff statements since the statements referred to a “contract of sale’ between Arauz and Moncayo (subsequently Vaccaris) but stated a sale price of nearly half the amount of the most recent contract submitted to plaintiff for approval.  ‘“Where there is no mistake about the agreement and the only mistake alleged is in the reduction of that agreement to writing, such mistake of the scrivener, or of either party, no matter how it occurred, may be corrected’”(Harris v. Uhlendorf, 24 NY2d 463, 467 [1969], quoting Born v. Schrenkeisen, 110 NY 55, 59 [1888]).  ‘”In such a case equity will conform the written instrument to the parol agreement which it was intended to embody”’ (Nash v. Kornblum, 12 NY2d 42, 47 [1962] quoting Pitcher v. Hennessey, 48 NY 415, 423[1872]).  Moreover, courts have determined that reformation of a written contract is appropriate where a mistake is made on the part of plaintiff in reducing the writing the parties’ agreement, “which plaintiff did not discover before submission to the defendant, and the latter, with knowledge of the mistake, tr[ies] to take advantage of the error” (Nash v. Kornblum, 12 NY2d 42, 47 [1962]; 257 Park Ave. Associates v. Music Sales Corp, 24 AD3d 371[2005]).  “It is universally recognized that there is a right of rescission for a unilateral mistake if the mistake was known to the other party at the time of the negotiating og the contract and was not corrected by it”(Sheridan Drive-In, Inc. v. State, 16 AD2d 400, 405 [1962][citations omitted]).

Further, Arauz has failed to establish that he would be irreparably harmed in the absence of an injunction and that any potential injury would not be adequately compensated through monetary damages.  Arauz’z counterclaims, including those claims for breach of contract and wrongful credit reporting, request monetary damages without any mention of injunctive relief and thus undercut Arauz’s claim of irreparable injury (see Matos v. City of New York, 21 AD3d 936, 937 [2005]).

Finally, the equities do not favor Arauz in this instance.  There is no dispute that Arauz received the benefits of a half million dollar loan but thereafter defaulted under the terms of the note and mortgage.  As an alternative to foreclosure, plaintiff agreed to accept a “short sale” of the property and issue a satisfaction of mortgage provided the purchase price was adequate.   After plaintiff rejected a contract of sale for the amount of $325,000.00, Arauz was able to enter into a contract of sale for the amount $360,000.00.  To now direct that plaintiff issue a satisfaction upon the remission of only $174,964.67, an amount considerably lower than that which was previously determined inadequate by plaintiff, may result in an unjust enrichment.

As a result, Arauz’s motion for a preliminary injunction is denied in all respects.