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THE FAILURE TO RAISE THE LACK OF STANDING DEFENSE IN A FORECLOSURE ACTION CAN BE REMEDIED BY A MOTION TO AMEND THE ANSWER AND BY RAISING THE DEFENSE IN OPPOSITION TO A MOTION FOR SUMMARY JUDGMENT (SECOND DEPT).

The Second Department, in a comprehensive opinion by Justice Miller, explained the relationship between the waiver provisions in  CPLR 3211 (e) and Real Property Actions and Proceedings Law (RPAPL) 1302-a in foreclosure proceedings. The opinion includes a detailed discussion of when defenses are waived by the failure to include them in the answer and when and how such omissions can be remedied by a motion to amend or in a summary judgment motion. The opinion is much too detailed to be summarized here and should be consulted as authoritative on these issues. The narrow issue addressed by the opinion is the effect of failing to raise the defense of a lack of standing in the answer to a foreclosure complaint:

… [W]e now reaffirm that a waiver of the defense of standing pursuant to CPLR 3211(e) should be given the same force and effect as a waiver of the affirmative defenses specifically enumerated in CPLR 3211(a)(3) and (5) … . Accordingly, a waiver of the affirmative defense of standing pursuant to CPLR 3211(e) may be retracted through the amendment of a pleading pursuant to CPLR 3025 … . Case law from this Court should not be read to hold otherwise … . * * *

Where applicable, RPAPL 1302-a places the defense of standing on a footing comparable with the other defenses that are exempt from the waiver provisions of CPLR 3211(e), to wit, those defenses listed in subdivisions CPLR 3211(a)(2), (7), and (10), which may be raised by motion “at any time” … , or by amendment to a pleading, “if one is permitted” (CPLR 3211[e]; see CPL 3025[b]). Even where the defense of standing is omitted from a defendant’s answer in violation of CPLR 3018(b), the defense may be raised for the first time in opposition to a plaintiff’s motion for summary judgment … . GMAC Mtge., LLC v Coombs, 2020 NY Slip Op 07039, Second Dept 11-25-20

 

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SUPREME COURT PROPERLY DENIED PLAINTIFF BANK’S MOTION TO EXTEND THE TIME TO SERVE DEFENDANT IN THIS FORECLOSURE ACTION, TWO-JUSTICE DISSENT (THIRD DEPT).

The Third Department, over a two-justice dissent, determined Supreme Court properly denied plaintiff bank’s motion to extend the time to serve defendant in the interest of justice:

… [A] court may, in the interest of justice, extend the time in which a plaintiff may effectuate proper service upon a defendant (see CPLR 306-b) … . Whether to grant an extension of time for service in the interest of justice is a discretionary determination, requiring the trial court to engage in “a careful judicial analysis of the factual setting of the case” and balance competing interests … . The trial court’s determination is guided by various factors and circumstances that may be taken into consideration, including the plaintiff’s diligence (or lack thereof), the expiration of the statute of limitations, whether the underlying cause of action is meritorious, the length in delay of service, whether the plaintiff promptly sought the extension of time and any prejudice that may be borne by the defendant … . This Court should not disturb the trial court’s discretionary determination unless such determination constitutes an abuse of discretion … . …

The statute of limitations had expired prior to plaintiff making its extension motion — a factor that weighs in favor of granting the extension motion. However, plaintiff engaged in a pattern of dilatory conduct throughout the action’s pendency over nearly a decade. Indeed, it took plaintiff roughly three years after commencing the action to file a request for judicial intervention and the case was administratively closed by Supreme Court on at least one occasion. Additionally, despite having been made aware of the service issue in April 2016, plaintiff did not ultimately move for an extension to serve the complaint until November 2018, roughly 2½ years later. Further, as Supreme Court recognized, the mortgage contains a significant error, which raises real concerns as to plaintiff’s ability to prevail upon the merits. In our view, Supreme Court weighed the appropriate factors and reasonably concluded that they did not militate in favor of plaintiff … . JPMorgan Chase Bank N.A. v Kelleher, 2020 NY Slip Op 06990, Third Dept 11-25-20

 

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PLAINTIFFS SOUGHT TO FORECLOSE ON LOANS TO THE BORROWERS WHO THEN STARTED BANKRUPTCY PROCEEDINGS; PLAINTIFFS THEN SUED DEFENDANTS, WHO ARE NOT PARTIES TO THE FORECLOSURE/BANKRUPTCY ACTIONS, FOR TORTIOUS INTERFERENCE WITH THE LOAN AGREEMENTS; THE TORTIOUS INTERFERENCE WITH CONTRACT ACTIONS ARE NOT PREEMPTED BY FEDERAL BANKRUPTCY LAW (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Stein, over a three-judge dissent, determined the tortious interference with contract claims, against defendants who are not parties in the foreclosure/bankruptcy proceedings, were not preempted by federal law. Plaintiff sought to foreclose on a loan and the borrowers commenced bankruptcy proceedings. Plaintiff then sued defendants, who are not parties to the foreclosure, alleging tortious interference with the loan agreements. The opinion focuses on the law of preemption:

It is not disputed that valid contracts existed between plaintiff and the borrowers. Plaintiff’s claims arising out of the borrowers’ breach of those contracts as asserted against the borrowers were resolved by the bankruptcy proceeding. Here, plaintiff alleges that defendants knew of the relevant contractual terms and deliberately induced the borrowers’ violations of those terms prior to the bankruptcy proceedings. In other words, plaintiff’s allegations state a claim for tortious interference with contract, and the remedy for that tort will not affect the debtor’s estate. As such, these claims will not encroach upon the province of the bankruptcy court. Stated simply, plaintiff’s claims “do[] not require the adjudication of rights and duties of creditors and debtors under the Bankruptcy Code” … . Sutton 58 Assoc. LLC v Pilevsky, 2020 NY Slip Op 06939, Ct App 11-24-20

 

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PROOF OF COMPLIANCE WITH THE NOTICE REQUIREMENTS OF RPAPL 1304 WAS INSUFFICIENT; THE BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS FORECLOSURE ACTION SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the Bank’s motion for summary judgment in this foreclosure action should not have been granted. The proof of the notice required by RPAPL 1304 was insufficient:

Notice must be sent both “by registered or certified mail and also by first-class mail” (RPAPL 1304[2]). “‘[P]roper service of RPAPL 1304 notice on the borrower or borrowers is a condition precedent to the commencement of a foreclosure action, and the plaintiff has the burden of establishing satisfaction of this condition” … . “Proof of the requisite mailing is established with proof of the actual mailings, such as affidavits of mailing or domestic return receipts with attendant signatures, or proof of a standard office mailing procedure designed to ensure that items are properly addressed and mailed, sworn to by someone with personal knowledge of the procedure” … .

… [The plaintiff failed to submit an affidavit from a witness who attested to having personal knowledge of either the actual mailing or “a standard office mailing procedure designed to ensure that items are properly addressed and mailed” … . Moreover, the records submitted with the plaintiff’s motion did not establish as a matter of law that the requisite RPAPL 1304 mailings were completed. A copy of a letter and envelope addressed to the defendant, each bearing a 20-digit number, was insufficient to eliminate all triable issues of fact as to whether the certified mailing actually occurred … . Moreover, the plaintiff failed to submit any evidence substantiating the assertions that a second copy of the notice was mailed to the defendant by regular first-class mail, as required by the statute … . Deutsche Bank Natl. Trust Co. v Feeney, 2020 NY Slip Op 06753, Second Dept 11-18-20

Similar issues and result in JPMorgan Chase Bank, N.A. v Gold, 2020 NY Slip Op 06765, Second Dept 11-18-20

 

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THE DISCONTINUANCE OF THE 2008 FORECLOSURE ACTION DID NOT DE-ACCELERATE THE DEBT SO THE STATUTE OF LIMITATIONS KEPT RUNNING, RENDERING THE INSTANT ACTION UNTIMELY (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the foreclosure action should have been dismissed as untimely. The debt was accelerated with the first foreclosure action was commenced in 2008, starting the running of the six-year statute of limitations. The discontinuing of the that action did not revoke the acceleration:

“[A] lender’s mere act of discontinuing an action, without more, does not constitute, in and of itself, an affirmative act revoking an earlier acceleration of the debt” … .

None of the other facts relied upon by the plaintiff establish that the 2008 acceleration of the loan balance was affirmatively revoked. “[D]e-acceleration notices must . . . be clear and unambiguous to be valid and enforceable” … . While the plaintiff points to the fact that the defendant purportedly received billing statements after the first action was discontinued and that the second complaint alleged a different date of default, these facts do not establish that a clear and unambiguous notice of revocation of the acceleration was given to the defendant. Wells Fargo Bank, N.A. v Islam, 2020 NY Slip Op 06823, Second Dept 11-18-20

 

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THE BANK’S EVIDENCE OF STANDING TO BRING THE FORECLOSURE ACTION WAS NOT SUPPORTED BY THE RECORDS ALLEGEDLY REVIEWED BY THE AFFIANT; THEREFORE THE EVIDENCE WAS HEARSAY AND THE BANK’S MOTION FOR SUMMARY JUDGMENT SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff bank’s motion for summary judgment in this foreclosure action should not have been granted because the evidence of standing to bring the action was deficient:

… [T]he plaintiff failed to meet its prima facie burden of establishing that it had standing to commence the action. In support of its motion, the plaintiff relied on the affidavit of Elizabeth Gonzales, an employee of the loan servicer. Gonzales averred that the plaintiff had been in possession of the note, which was endorsed in blank, since July 1, 2007, prior to the commencement of the action. Gonzales indicated that she had personal knowledge of the assertions set forth in her affidavit based upon, inter alia, her review of various business records. However, since the plaintiff failed to attach the business records upon which Gonzales relied in her affidavit, her assertions based upon those records constituted inadmissible hearsay … . Moreover, the plaintiff did not attach a copy of the note to the complaint when commencing the action … . Deutsche Bank Natl. Trust Co. v Gulati, 2020 NY Slip Op 06754, Second Dept 11-18-20

Similar issues and result in JPMorgan Chase Bank, N.A. v Tumelty, 2020 NY Slip Op 06766, Second Dept 11-18-20

 

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PLAINTIFF’S MOTION TO EXTEND THE TIME TO SERVE THE DEFENDANT PURSUANT TO CPLR 306-B SHOULD HAVE BEEN GRANTED IN THE INTEREST OF JUSTICE; IF A PLAINTIFF IS NOT ENTITLED TO EXTEND TIME FOR GOOD CAUSE, THE COURT SHOULD GO ON TO CONSIDER WHETHER THE MOTION SHOULD BE GRANTED IN THE INTEREST OF JUSTICE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff’s motion to extend the time to serve defendant should have been granted in the interest of justice. The court described the difference between the “good cause” and “interest of justice” analyses and indicated that if a court finds relief is not warranted for good cause, the interest of justice analysis should then be considered:

Pursuant to CPLR 306-b, a court may, in the exercise of discretion, grant a motion for an extension of time within which to effect service of the summons and complaint for good cause shown or in the interest of justice … . “‘Good cause’ and ‘interest of justice’ are two separate and independent statutory standards” … . “To establish good cause, a plaintiff must demonstrate reasonable diligence in attempting service” … . If good cause for an extension is not established, the court must consider the broader interest of justice standard of CPLR 306-b … . In considering the interest of justice standard, ‘the court may consider diligence, or lack thereof, along with any other relevant factor in making its determination, including expiration of the Statutes of Limitations, the meritorious nature of the cause of action, the length of delay in service, the promptness of a plaintiff’s request for the extension of time, and prejudice to defendant'” … .

Although the plaintiff failed to establish good cause for an extension of time to serve the defendant under CPLR 306-b, it established that an extension of time to serve the defendant was warranted in the interest of justice. The plaintiff established, among other things, that it has a potentially meritorious cause of action, that it promptly moved for an extension of time to serve the summons and complaint after the defendant challenged service on the ground that it was defective, and that there was no demonstrable prejudice to the defendant as a consequence of the delay in service … . Wells Fargo Bank, N.A. v Ciafone, 2020 NY Slip Op 06580, Second Dept 11-12-20

 

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THE ORDER DISMISSING THE COMPLAINT FOR FAILURE TO PROSECUTE DID NOT DESCRIBE THE SPECIFIC CONDUCT CONSTITUTING NEGLECT BY THE PLAINTIFF AS REQUIRED BY CPLR 3216; PLAINTIFF’S MOTION TO VACATE THE ORDER SHOULD HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the plaintiff’s motion to vacate the order dismissing the complaint for failure to prosecute should have been granted because the conditions required by CPLR 3216 were not met:

A court may not dismiss a complaint for want of prosecution pursuant to CPLR 3216 on its own initiative unless certain conditions precedent have been complied with, including the requirement that “where a written demand to resume prosecution of the action is made by the court . . . ‘the demand shall set forth the specific conduct constituting the neglect, which conduct shall demonstrate a general pattern of delay in proceeding with the litigation'” … .

Here, the Supreme Court should have granted the plaintiff’s motion, among other things, to vacate the … order, as that order failed to set forth the specific conduct constituting neglect by the plaintiff … . Wells Fargo Bank, N.A. v Brown, 2020 NY Slip Op 06576, Second Dept 11-12-20

 

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THE BANK’S PROOF OF COMPLIANCE WITH THE NOTICE PROVISIONS OF RPAPL 1304 WAS SUFFICIENT, BUT THE BANK’S PROOF OF STANDING TO BRING THE FORECLOSURE ACTION WAS NOT SUFFICIENT; THE BANK’S MOTION FOR SUMMARY JUDGMENT SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the bank’s proof of compliance with Real Property Actions and Proceedings Law (RPAPL) 1304 was sufficient, but the bank’s proof of standing to bring the foreclosure action was insufficient:

… [T]he plaintiff demonstrated, prima facie, that it complied with RPAPL 1304 … . The plaintiff submitted the affidavit of a person employed by the plaintiff as a business operations analyst, who described the procedure by which mailings were documented in a correspondence log, and laid a foundation for consideration of business records he submitted. Annexed to the affidavit was a copy of excerpts of the correspondence log, which indicated that notices pursuant to RPAPL 1304 were sent to the defendant by certified and first-class mail. The plaintiff also submitted, inter alia, a copy of an envelope addressed to the defendant bearing a USPS certified mail barcode, and a copy of an envelope addressed to the defendant bearing a USPS first-class mail barcode, along with copies of the RPAPL 1304 notices sent to the defendant. …

… [T]he plaintiff submitted a copy of the note, along with a paper, which was labeled an allonge, containing an endorsement in blank. However, the plaintiff did not submit evidence to indicate that the purported allonge was so firmly affixed to the note so as to become a part thereof, as required under UCC 3-202(2) … . Moreover, at the time the action was commenced, the plaintiff appended a copy of the note to the complaint, but the plaintiff did not append a copy of the purported allonge … . The affidavits submitted by the plaintiff do not eliminate triable issues of fact as to whether the plaintiff was in possession of the note at the time the action was commenced. Therefore, the plaintiff failed to establish, prima facie, that it had standing to commence the action … .  Citimortgage, Inc. v Ustick, 2020 NY Slip Op 06489, Second Dept 11-12-20

 

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PLAINTIFF BANK MOVED FOR AN ORDER OF REFERENCE WITHIN ONE YEAR; DESPITE THE WITHDRAWAL OF THE MOTION, THE COMPLAINT SHOULD NOT HAVE BEEN DISMISSED, SUA SPONTE, PURSUANT TO CPLR 3215 (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the complaint in this foreclosure action should have been, sua sponte, dismissed for failure to take steps to procure a default judgment within one year. Plaintiff moved for an order of reference within one year. It doesn’t matter that the motion was withdrawn:

Pursuant to CPLR 3215(c), “[i]f the plaintiff fails to take proceedings for the entry of judgment within one year after [a] default, the court shall not enter judgment but shall dismiss the complaint as abandoned, without costs, upon its own initiative or on motion, unless sufficient cause is shown why the complaint should not be dismissed.” It is not necessary for a plaintiff to actually obtain a default judgment within one year of the default in order to avoid dismissal pursuant to CPLR 3215(c)  … . “Rather, it is enough that the plaintiff timely takes ‘the preliminary step toward obtaining a default judgment of foreclosure and sale by moving for an order of reference’ to establish that it ‘initiated proceedings for entry of a judgment within one year of the default,’ for the purposes of satisfying CPLR 3215(c)” … .

Here, the plaintiff took the preliminary step toward obtaining a default judgment of foreclosure and sale by moving for an order of reference in May 2010, within one year of the defendants’ default … . In such cases, the complaint should not be dismissed pursuant to CPLR 3215(c), even if, as here, the plaintiff’s motion is later withdrawn … . Deutsche Bank Natl. Trust Co. v Hasan, 2020 NY Slip Op 06243, 11-4-20

 

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