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A CASH ACCOUNT AGREEMENT WHICH MEMORIALIZED A REVERSE MORTGAGE WAS NOT A NEGOTIABLE INSTRUMENT WITHIN THE MEANING OF THE UNIFORM COMMERCIAL CODE, THEREFORE THE HOLDER OF THE CASH ACCOUNT AGREEMENT DID NOT HAVE STANDING TO FORECLOSE (SECOND DEPT).

The Second Department, in a full-fledged opinion by Justice Chambers, reversing Supreme Court, determined that a Cash Account Agreement memorializing a reverse mortgage was not a negotiable instrument within the meaning of the Uniform Commercial Code and plaintiff, therefore, did not have standing to foreclose after the borrower’s death:

… [T]o qualify as a negotiable instrument under the UCC, a document must “(a) be signed by the maker or drawer; and (b) contain an unconditional promise or order to pay a sum certain in money and no other promise, order, obligation or power given by the maker or drawer except as authorized by this Article; and (c) be payable on demand or at a definite time; and (d) be payable to order or to bearer” (UCC 3-104[1] …). * * *

… [T]he Cash Account Agreement is signed by the borrower and contains an unconditional promise to pay. In addition to this … the Cash Account Agreement also contains provisions that go well beyond what is permitted under the UCC. Most significantly, the Cash Account Agreement creates an open-end (i.e., revolving) line of credit upon which the borrower could draw a maximum of $806,152. Since the initial advance in this case was only $366,152, the borrower potentially could have drawn down as much as $440,000 more from the lender. Consistent with these terms, the borrower promised to pay when due “all amounts advanced” under the Cash Account Agreement. Although the plaintiff contends that such an agreement constitutes a negotiable instrument, we have found no New York case …directly on point. In other jurisdictions, however, similar line of credit agreements have been held to be distinct from an agreement to pay a sum certain … . …

Beyond this … the Cash Account Agreement also provides for the periodic adjustment of the advance limit, and allows the lender, inter alia, to suspend, terminate, or reduce the borrower’s right to obtain future advances under certain circumstances. …

On its face, the Cash Account Agreement does much more than memorialize the borrower’s unconditional promise to pay a sum of money. It creates a banking relationship between the lender and the borrower, provides terms and conditions under which the borrower may, from time to time, obtain additional cash advances from the lender, and even contains an arbitration clause. Although the Cash Account Agreement appears to have been signed only by the borrower, section 17.2 specifically acknowledges that it imposes obligations on both the borrower and the lender. The specific language of several provisions of the Cash Account Agreement, read in context of the agreement as a whole, provides compelling evidence that the Cash Account Agreement is not, and was never intended to be, a negotiable instrument … .

Therefore, the plaintiff cannot establish its standing merely by showing that it possessed the original Cash Account Agreement, indorsed in blank, on the date this action was commenced, and the plaintiff’s motion for summary judgment on the complaint should have been denied. OneWest Bank, N.A. v FMCDH Realty, Inc., 2018 NY Slip Op 06101, Second Dept 9-19-18

FORECLOSURE (REVERSE MORTGAGE, A CASH ACCOUNT AGREEMENT WHICH MEMORIALIZED A REVERSE MORTGAGE WAS NOT A NEGOTIABLE INSTRUMENT WITHIN THE MEANING OF THE UNIFORM COMMERCIAL CODE, THEREFORE THE HOLDER OF THE CASH ACCOUNT AGREEMENT DID NOT HAVE STANDING TO FORECLOSE (SECOND DEPT))/REVERSE MORTGAGE (A CASH ACCOUNT AGREEMENT WHICH MEMORIALIZED A REVERSE MORTGAGE WAS NOT A NEGOTIABLE INSTRUMENT WITHIN THE MEANING OF THE UNIFORM COMMERCIAL CODE, THEREFORE THE HOLDER OF THE CASH ACCOUNT AGREEMENT DID NOT HAVE STANDING TO FORECLOSE (SECOND DEPT))/STANDING (FORECLOSURE, REVERSE MORTGAGE, A CASH ACCOUNT AGREEMENT WHICH MEMORIALIZED A REVERSE MORTGAGE WAS NOT A NEGOTIABLE INSTRUMENT WITHIN THE MEANING OF THE UNIFORM COMMERCIAL CODE, THEREFORE THE HOLDER OF THE CASH ACCOUNT AGREEMENT DID NOT HAVE STANDING TO FORECLOSE (SECOND DEPT))/UNIFORM COMMERCIAL CODE (FORECLOSURE, REVERSE MORTGAGE, A CASH ACCOUNT AGREEMENT WHICH MEMORIALIZED A REVERSE MORTGAGE WAS NOT A NEGOTIABLE INSTRUMENT WITHIN THE MEANING OF THE UNIFORM COMMERCIAL CODE, THEREFORE THE HOLDER OF THE CASH ACCOUNT AGREEMENT DID NOT HAVE STANDING TO FORECLOSE (SECOND DEPT))/NEGOTIABLE INSTRUMENT (FORECLOSURE, REVERSE MORTGAGE, A CASH ACCOUNT AGREEMENT WHICH MEMORIALIZED A REVERSE MORTGAGE WAS NOT A NEGOTIABLE INSTRUMENT WITHIN THE MEANING OF THE UNIFORM COMMERCIAL CODE, THEREFORE THE HOLDER OF THE CASH ACCOUNT AGREEMENT DID NOT HAVE STANDING TO FORECLOSE (SECOND DEPT))

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