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PURSUANT TO UCC 9-406 A LENDER’S SECURITY INTEREST IN A DEBTOR’S ACCOUNTS-RECEIVABLES IS AN ASSIGNMENT SUCH THAT A THIRD-PARTY WHICH HAS NOTICE OF THE ASSIGNMENT MUST MAKE ANY PAYMENTS OWED TO THE DEBTOR DIRECTLY TO THE LENDER (CT APP). ​

​The Court of Appeals, reversing the appellate division, in a full-fledged opinion by Judge Wilson, determined that UCC 9-406 allowed the lender to collect the accounts-receivables owed to the debtor by third-parties. The lender (Worthy) had a security interest in payments made by a third-party (New Style) to the debtor (Checkmate) after the New Style received notice of the assignment:

We are called upon to determine whether, for purposes of New York’s Uniform Commercial Code § 9-406, an “assignee” includes the holder of a presently exercisable security interest in an assignor’s receivables. We hold that it does. Under UCC 9-406, a security interest is an assignment and the UCC is purposefully structured to permit a debtor to grant creditors security interests in a debtor’s receivables so that the secured creditor can direct account debtors to pay it directly. * * *

Worthy filed a UCC-1 Financing Statement against Checkmate with the Secretary of State of New Jersey, perfecting its secured position regarding Checkmate’s assets. … Worthy sent New Style a notice of its security interest and collateral assignment in the New Style accounts and directed New Style that “[a]ll remittances for Accounts shall be made payable only to Worthy.” … . * * *

An account debtor who receives a secured creditor’s notice asserting its right to receive payment directly can pay the secured creditor and receive a complete discharge (UCC 9-406 [a]) or, if in doubt, can seek proof from the secured creditor that it possesses a valid assignment and withhold payment in the interim (UCC 9-406 [c]). Worthy Lending LLC v New Style Contrs., Inc., 2022 NY Slip Op 06631, CtApp 11-22-22

Practice Point: Pursuant to UCC 9-406 a lender’s security interest in a debtor’s accounts-receivable is an assignment of the accounts-receivables to the lender such that, after notice of the assignment, a party owing payments to the debtor is obligated to make those payments directly to the lender.

 

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IN THIS FORECLOSURE ACTION DEFENDANT DEBTOR ENTERED A MORTGAGE MODIFICATION AGREEMENT WHICH CALLED FOR THREE PAYMENTS; DEFENDANT DEBTOR MADE FOUR ADDITIONAL PAYMENTS IN AMOUNTS HIGHER THAN CALLED FOR IN THE MORTGAGE; THE PAYMENTS AMOUNTED TO AN ACKNOWLEDGMENT OF THE MORTGAGE DEBT WHICH STARTED THE STATUTE OF LIMITATIONS FOR FORECLOSURE ON THE DATE OF THE LAST PAYMENT (CT APP). ​

The Court of Appeals, reversing the appellate division, determined the defendant debtor acknowledged the mortgage debt by paying more than was required by the Home Affordable Modification Trial Payment Plan. Therefore the statute of limitations for foreclosure started running when defendant debtor made the last payment:

In this mortgage foreclosure action, plaintiff contends that Supreme Court erred in concluding that the complaint was timely inasmuch as Maxi Jeanty (debtor) made four payments between August 2009 and March 2010 on account of the mortgage debt which were effective pursuant to General Obligations Law § 17-107 (1) to make the statute of limitations begin running anew on the date of the last such payment. We agree. Plaintiff met its prima facie burden on its motion … by submitting evidence that, after entering a Home Affordable Modification Trial Payment Plan (the Plan), the debtor made a total of seven payments from April 2009 through March 2010, each in an amount exceeding that of the regular installment payments required under the loan documents prior to the acceleration of the debt in August 2008. The first three payments were required pursuant to the Plan, but the remaining four were not. Those four payments established circumstances amounting to ‘an absolute and unqualified acknowledgment by the debtor of more being due, from which a promise may be inferred to pay the remainder’ (… see General Obligations Law § 17-107 [1]). Federal Natl. Mtge. Assn. v Jeanty, 2022 NY Slip Op 06539, CtApp 11-17-22

Practice Point: In this foreclosure action, payments by the debtor which exceeded what was called for in the modification payment plan amounted to an acknowledgment of the mortgage debt. Therefore the statute of limitations on foreclosure began to run on the date of the last of those payments.

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ONCE PLAINTIFF’S FORECLOSURE ACTION WAS DISCONTINUED BY STIPULATION, THE FORECLOSURE COMPLAINT COULD BE AMENDED TO SEEK RECOVERY ON THE NOTE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the plaintiff, after its foreclosure action was discontinued, could amend the foreclosure complaint to seek recovery on the note:

“‘RPAPL 1301(3) . . . prohibits a party from commencing an action at law to recover any part of the mortgage debt while the foreclosure proceeding is pending or has not reached final judgment, without leave of the court in which the foreclosure action was brought'” ( … see RPAPL 1301[3]). Conversely, “‘where a foreclosure action is no longer pending and did not result in a judgment in the plaintiff’s favor, the plaintiff is not precluded from commencing a separate action without leave of the court'” … .

Here, pursuant to the so-ordered stipulation and the plaintiff’s release of the mortgage, the cause of action to foreclose the mortgage was, in effect, discontinued, without the entry of any judgment in the plaintiff’s favor … . Since the cause of action to foreclose the mortgage was no longer pending, the plaintiff was not precluded from seeking to recover on the note by RPAPL 1301(3), “‘a statute which must be strictly construed'” … .

Furthermore, “there is no reason the plaintiff could not seek such relief by seeking leave to amend its complaint, rather than by commencing a new action” … . Stewart Tit. Ins. Co. v Zaltsman, 2022 NY Slip Op 05107, Second Dept 8-31-22

Practice Point: Here the foreclosure action was discontinued and plaintiff was allowed to amend the foreclosure complaint to seek recovery on the note.

 

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DEFENDANT SHOULD HAVE BEEN ESTOPPED FROM CLAIMING THE ADDRESS IN THE AFFIDAVIT OF SERVICE WAS NOT HIS DWELLING PLACE; DEFENDANT TOOK AFFIRMATIVE STEPS TO MISLEAD THE PARTY ATTEMPTING TO SERVE HIM (SECOND DEPT). ​

The Second Department, reversing Supreme Court, determined defendant should have been estopped from claiming the address in the affidavit of service was not his “dwelling plaice” because defendant misled the party attempting to serve him:

Estoppel, in this context, may preclude a defendant “from challenging the location and propriety of service of process if that defendant has engaged in affirmative conduct which misleads a party into serving process at an incorrect address” … . For example, “where a defendant willfully misrepresented his address or violated a statutory notification requirement … , or where he ‘engaged in conduct calculated to prevent the plaintiff from learning his actual place of residence’ … , he may be estopped from asserting the defense of defective service” … .

Here, the record established that the defendant engaged in “affirmative conduct which misl[ed] a party into serving process at an incorrect address” … . Hudson Val. Bank, N.A. v Eagle Trading, 2022 NY Slip Op 04956, Second Dept 8-17-22

Practice Point: A party who affirmatively takes steps to mislead the party attempting to serve him will be estopped from claiming the address in the the affidavit of service is not his dwelling place.

 

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THE LETTER SENT TO THE BORROWER BY THE BANK IN THIS FORECLOSURE ACTION DID NOT EXPLICITLY INDICATE THE DEBT WAS BEING IMMEDIATELY ACCELERATED; THEREFORE THE DEBT HAD NOT BEEN ACCELERATED AND THE FORECLOSURE ACTION WAS NOT TIME-BARRED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the letter sent by the bank to the borrower in this foreclosure action did not accelerate the debt and therefore did not trigger the six-year statute of limitations:

… [A] ” ‘letter discussing acceleration as a possible future event, . . . does not constitute an exercise of the mortgage’s optional acceleration clause'” …  “The determinative question is not what the noteholder intended or the borrower perceived, but whether the contractual election was effectively invoked” … . Here, a letter sent to the defendants … , did not effectively accelerate the mortgage debt, as this letter merely discussed acceleration as a possible future event … . HSBC Bank USA v Pantel, 2022 NY Slip Op 04954, Second Dept 8-17-22

Practice Point: A letter from the bank to the borrower which discussed the acceleration of the mortgage debt but did not indicate the debt was in fact accelerated did not trigger the six-year statute of limitations on the foreclosure action. The foreclosure action was not, therefore, time-barred.

 

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THE BANK DID NOT PRESENT EVIDENCE IN ADMISSIBLE FORM TO SUPPORT ITS CLAIM THAT DEFENDANT ACKNOWLEDGED THE MORTGAGE DEBT, STARTING THE STATUTE OF LIMITATIONS ANEW; DEFENDANT’S MOTION TO DISMISS THE FORECLOSURE ACTION AS UNTIMELY SHOULD HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the foreclosure action was commenced after the statute of limitations had run. The bank claimed the defendant acknowledged the debt in a loan modification agreement, starting the statute of limitations anew. But the bank did not present evidence of the agreement in admissible form:

The plaintiff argues that the defendant entered into a loan modification agreement, which constituted an acknowledgment of the mortgage debt under General Obligations Law § 17-101 sufficient to reset the statute of limitations to commence a future foreclosure action on the mortgage. “General Obligations Law § 17-101 effectively revives a time-barred claim when the debtor has signed a writing which validly acknowledges the debt” … . “To constitute a valid acknowledgment, a ‘writing must be signed and recognize an existing debt and must contain nothing inconsistent with an intention on the part of the debtor to pay it'” … . “In order to demonstrate that the statute of limitations has been renewed by a partial payment, it must be shown that the payment was accompanied by circumstances amounting to an absolute and unqualified acknowledgment by the debtor of more being due, from which a promise may be inferred to pay the remainder” … . Bayview Loan Servicing, LLC v Paniagua, 2022 NY Slip Op 04708, Second Dept 7-27-22

Practice Point: Plaintiff bank did not demonstrate defendant acknowledged the mortgage debt in a loan modification agreement (thereby re-starting the statute of limitation for a foreclosure action). The evidence of the debt-acknowledgment presented by the bank did not meet the requirements of General Obligations Law 17-101. Therefore the statute of limitations was not revived. Defendant’s motion to dismiss the foreclosure complaint as untimely should have been granted.

 

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PETITIONERS SOUGHT FUNDS THE DECEDENT HAD TAKEN OUT OF THE CORPORATION AS CLAIMS ON DECEDENT’S ESTATE, ALLEGING THAT THE STATUTE OF LIMITATIONS STARTED ANEW WHEN THE DECEDENT ACKNOWELDGED THE DEBT IN A DEPOSITION; THE STATUTE-OF-LIMITATIONS TOLL IN THE GENERAL OBLIGATIONS LAW ONLY APPLIES TO AN ACKNOWLEDGMENT OF THE DEBT IN WRITING SIGNED BY THE PARTY TO BE CHARGED, NOT TO THE QUASI-CONTRACT ALLEGED BY PETITIONERS (FOURTH DEPT).

The Fourth Department, reversing Surrogate’s Court, determined decedent’s acknowledgement of a debt in a deposition did not start the statute of limitations anew because there was no written contract to which General Obligations Law 17-101 could apply:

In 2011, decedent removed funds from the corporate entity, and he later acknowledged that some of those funds belonged to petitioners. Decedent died in 2018 without returning the funds owed to petitioners. * * *

The tolling provision that the Surrogate relied on is General Obligations Law § 17—101. That provision states, in pertinent part, that “[a]n acknowledgment or promise contained in a writing signed by the party to be charged thereby is the only competent evidence of a new or continuing contract whereby to take an action out of the operation of the provisions of limitations of time for commencing actions under the civil practice law and rules.” Here, petitioners did not allege that they had a contract with decedent; rather, they alleged claims sounding in quasi-contract, which is “not [a] contract[] at all” … . Thus, General Obligations Law § 17—101, which applies only where there is “competent evidence of a new or existing contract,” does not apply here … . Matter of Reich, 2022 NY Slip Op 04446, Fourth Dept 7-8-22

Practice Point: In order to start the statute of limitations anew on a debt pursuant to General Obligations Law 17-101, the debt must be acknowledged in a writing signed by the party to be charged.

 

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THE STIPULATION ACKNOWLEDGING THE PRIOR DEBT DEMONSTRATED THAT THE DEED TRANSFERRING THE PROPERTY CREATED ONLY A SECURITY INTEREST AND DID NOT TRANSFER LEGAL TITLE (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined the transfer of property by deed did not transfer title, but rather was a security interest for a loan (a mortgage):

… [T]he … deed never conveyed legal title to the plaintiff, but merely created a security interest in the subject property. “A deed conveying real property, which, by any other written instrument, appears to be intended only as a security in the nature of a mortgage, although an absolute conveyance in terms, must be considered a mortgage; and the person for whose benefit such deed is made, derives no advantage from the recording thereof, unless every writing, operating as a defeasance of the same, or explanatory of its being desired to have the effect only of a mortgage, or conditional deed, is also recorded therewith, and at the same time” (Real Property Law § 320).

Here, the … stipulation clearly recited the existence of a prior debt, authorized the decedent to continue occupying the property subject to certain terms and conditions, obligated her to maintain the property, and, most importantly, expressly authorized her to “retain ownership of the subject [p]roperty” … upon full repayment of the debt. Contrary to the plaintiff’s contention, such characteristics bear all the hallmarks of a security interest—not an outright conveyance of legal title … . RTT Holdings, LLC v Nacht, 2022 NY Slip Op 03916, Second Dept 6-15-22

Practice Point: Here a deed transferring the property was deemed to have created a security interest for a prior debt which was acknowledged in a stipulation. Legal title, therefore, was not transferred by the deed.

 

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THE STATUTE OF LIMITATIONS IN THIS FORECLOSURE ACTION STARTED ANEW WHEN DEFENDANT MADE A PARTIAL PAYMENT; DEFENDANT WAIVED THE LACK OF STANDING DEFENSE (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined the statute of limitations in the foreclosure action had been restarted by partial payment and defendants had waived the argument that the plaintiff did not have standing:

The partial payment exception “requires proof that ‘there was a payment of a portion of an admitted debt, made and accepted as such, accompanied by circumstances amounting to an absolute and unqualified acknowledgment by the debtor of more being due, from which a promise may be inferred to pay the remainder’ “… . “If the exception is established, the statute of limitations begins to run anew from the date of the partial payment” … . * * *

“Having failed to interpose an answer which asserted the defense [of lack of standing] or to file a timely pre-answer motion raising that defense,” [defendant] waived his contention on his cross appeal that plaintiff lacked standing to commence the action … . Citibank, N.A. v Gifford, 2022 NY Slip Op 02650, Fourth Dept 4-22-22​

Practice Point: Partial payment of a debt after the statute of limitations has run may start the statute running anew. Failure to raise the lack of standing defense in the answer or a motion to dismiss waives it.

 

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IF PLAINTIFFS IN A FRAUDULENT-CONVEYANCE AND ENFORCEMENT-OF-MONEY JUDGMENT PROCEEDING CAN BE FULLY COMPENSATED BY MONEY DAMAGES, IT IS ERROR TO ISSUE A PRELIMINARY INJUNCTION (FIRST DEPT),

The Frist Department, reversing Supreme Court, determined plaintiffs in this fraudulent conveyance action can be fully compensated by money damages. Therefore the preliminary injunction was not available relief:

In this action to set aside alleged fraudulent conveyances and other relief in aid of enforcement of money judgments, plaintiffs can be fully compensated by a monetary award, and thus an injunction will not issue because no irreparable harm will be sustained in the absence of such relief … . Medallion Fin. Corp. v Tsitiridis, 2022 NY Slip Op 02090, First Dept 3-29-22

Practice Point: If a plaintiff can be fully compensated by money damages, an injunction is not an available remedy.