FKB wins Rule 12(b) and Rule 9(b) motion to dismiss fraud-based claims against a Suffern, New York lawyer arising from a mortgage-rescue/sub-prime mortgage fraud scheme. 6/10/09

In 2006, the plaintiff, the owner of a home in Brentwood, New York, fell behind on her mortgage payments, and was approached by the representative of a mortgage broker, who allegedly offered to assist the plaintiff to maintain possession of her home and avoid foreclosure. Thereafter, the representative arranged a meeting – which turned out to be a closing. At the closing, the plaintiff was scheduled to sell her home to the representative, and lease it back from him for two years, with an option to re-purchase her home in two years. At the closing, which was attended by several lawyers, the mortgage broker, a lender and the mortgage broker's representative/"buyer," the plaintiff executed documents that transferred title to the mortgage broker's representative. FKB's client represented the mortgage lender as ‘settlement agent."

Thereafter, the plaintiff filed suit in the United States District Court for the Eastern District of New York (08-CV-0238 [JS]) against all parties, including FKB's client, claiming that she received nothing from the "sale" and that was fraudulently duped into surrendering title to her home in the "mortgage rescue" scam. As against FKB's client, the plaintiff alleged that he defrauded her from the equity in her home as well as the title by the preparation of a false HUD-1 Settlement Statement, which contained material misrepresentations as to the disbursements of the loan/sale proceeds.

While the other named defendants answered the pleadings, FKB moved under Rules 12(b) and 9(b) to dismiss the claims of RESPA (Real Estate Settlement Procedures Act) violations, common law fraud and violations of New York General Business Law § 349. In dismissing the claims against FKB's client, Hon. Joanna Seybert, U.S.D.J. found that while RESPA was enacted by Congress to protect consumers "from unnecessarily high settlement charges caused by certain abusive practices that have developed in some areas of the country," the plaintiff failed to show what statements in the HUD-1 were not disclosed, or how they were fraudulent. Judge Seybert also noted that the plaintiff failed to show what fees by FKB's client were not earned, or that FKB's client was involved in a federally-related loan.

As to the common law fraud claims, the Court agreed that the plaintiff failed to demonstrate what statements in the HUD-1 were "false," or how she relied on FKB's client in reliance on any misrepresentation. Finally, as to the GBL § 349 claims, Judge Seybert agreed that the plaintiff failed to meet the threshold element and prove that the allegedly misleading conduct was "aimed at the consuming public."

FKB's Melissa Manning drafted the winning papers before Judge Seybert.

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