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APPELLANT, WHICH HAD PURCHASED THE PROPERTY WHILE THE FORECLOSURE ACTION WAS PENDING, SHOULD HAVE BEEN ALLOWED TO INTERVENE, CRITIERIA EXPLAINED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the motion to intervene in this foreclosure proceeding should have been granted. The foreclosure action was commenced by the plaintiff in 2007 and defendants never answered. When plaintiff moved for a default judgment, MAK (the appellant in this case), which had purchased the property while the foreclosure was pending, moved to intervene:

“Upon timely motion, any person shall be permitted to intervene in any action . . . 2. when the representation of the person’s interest by the parties is or may be inadequate and the person is or may be bound by the judgment; or 3. when the action involves the disposition or distribution of, or the title or a claim for damages for injury to, property and the person may be affected adversely by the judgment” ([CPLR] § 1012[a]). “‘[I]ntervention may occur at any time, provided that it does not unduly delay the action or prejudice existing parties'” … . “[N]either the fact that the appellant obtained its interest in the subject property after this action was commenced and the notice of pendency was filed, nor the fact that the defendants defaulted in answering or appearing, definitively bars intervention” … . “‘In examining the timeliness of the motion, courts do not engage in mere mechanical measurements of time, but consider whether the delay in seeking intervention would cause a delay in resolution of the action or otherwise prejudice a party'” … .

… MAK was entitled to intervene as of right “since it established that the representation of its interest by the parties would be inadequate, that the action involved the disposition of title to real property, and that it would be bound and adversely affected by a judgment of foreclosure and sale” … . Under the circumstances, MAK’s cross-motion … was timely. “Significantly, it was made in response to the plaintiff’s motion … for leave to enter a default judgment and for an order of reference, . . . [and] since it was made before an order of reference or a judgment of foreclosure and sale was issued, the plaintiff was not prejudiced by the timing of the cross motion” … . HSBC Bank USA, N.A. v Islam, 2023 NY Slip Op 06356, Second Dept 12-13-24

Practice Point: Here the party which purchased the property while the foreclosure on the property was pending should have been allowed to intervene when the plaintiff moved for a default judgment and an order of reference. The criteria for a successful motion to intervene in this context are explained.

 

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THE DOCUMENTS RELIED UPON FOR THE REFEREE’S REPORT WERE LISTED BUT NOT SUBMITTED, RENDERING THE REPORT INADMISSIBLE HEARSAY (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the referee’s report should not have been confirmed in this foreclosure action because, although the documents the referee relied on were listed, the documents were not submitted. Therefore the report was hearsay:

The Supreme Court erred in granting the plaintiff’s motion, inter alia, to confirm the referee’s report and for a judgment of foreclosure and sale. “The report of a referee should be confirmed whenever the findings are substantially supported by the record, and the referee has clearly defined the issues and resolved matters of credibility” … . “However, computations based on the review of unidentified and unproduced business records . . . constitute inadmissible hearsay and lack probative value” … . Ridgewood Sav. Bank v Kapoor, 2023 NY Slip Op 06396, Second Dept 12-13-23

Practice Point: In a foreclosure action the fact that the documents relied upon for the referee’s report were identified was not enough. Because the documents were not submitted, the report constituted inadmissible hearsay.

 

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PLAINTIFF DID NOT DEMONSTRATE STANDING TO BRING THE FORECLOSURE ACTION (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined plaintiff in this foreclosure action did not demonstrate she had standing to bring it:

“A plaintiff has standing to maintain a mortgage foreclosure action where it is the holder or assignee of the underlying note at the time the action is commenced” … . The plaintiff can establish standing by attaching a properly endorsed note to the complaint when commencing the action . However, where an endorsement is on an allonge and not on the note itself, the plaintiff must establish that the allonge was “so firmly affixed to the note so as to become a part thereof” as required by UCC 3-202(2) at the time the action was commenced … . “Where there is no allonge or note that is either endorsed in blank or specially endorsed to the plaintiff, mere physical possession of a note at the commencement of a foreclosure action is insufficient to confer standing or to make a plaintiff the lawful holder of a negotiable instrument for the purposes of enforcing the note” … .

Here, the plaintiff failed to establish her status as holder of the note at the time the action was commenced. Although the note was executed in favor of the decedent, the copy of the note attached to the complaint contains two purported endorsements in favor of nonparties, and the plaintiff failed to show that an allonge containing an additional endorsement back to the decedent was firmly affixed to the note … . Thompson v Seay, 2023 NY Slip Op 06072, Second Dept 11-22-23

Practice Point: Where the note and the endorsements do not comply with the requirements of UCC 3-202, plaintiff has not demonstrated standing to bring the foreclosure action.

 

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THERE WAS A SURPLUS AFTER THE FORECLOSURE SALE OF DEFENDANT’S PROPERTY; DEFENDANT HAD ENTERED A HOME EQUITY LINE OF CREDIT WITH CITIBANK; CITIBANK, NOT DEFENDANT, WAS ENTITLED TO THE SURPLUS FUNDS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the defendant, owner of the equity of redemption after a foreclosure sale of defendant’s property, was not entitled to the surplus funds after the sale. Defendant had entered a home equity line of credit with Citibank. Citibank was entitled to the surplus funds:

“‘[S]urplus money proceedings . . . are not collateral to the foreclosure, but are in the action itself[,] [a]nd the rights of lienors subsequent to the mortgage under foreclosure are before the court and must be protected as much as those of the owner of the property'” … . “‘Surplus money from a foreclosure sale is not a general asset of the owner of the equity of redemption, but stands in the place of the property for the purpose of distribution among those having vested interests in or liens on the property. The rights of the parties are fixed at the time of the foreclosure sale, and the rights of a second lienholder are transferred to any surplus'” … . “Under New York law, the lien of a junior mortgagee who is made a party to a foreclosure action brought by a senior mortgagee, although cut-off and extinguished as to the land, continues as a lien upon the surplus funds arising from the foreclosure” … . “‘[U]pon the foreclosure of the first mortgage, the lien of the second mortgage follow[s] the surplus into the hands of the [municipality’s] financial officer, and the remedy of the second mortgagee is to enforce his or her claim in the court by whose direction the foreclosure had taken place'” … . Maspeth Fed. Sav. & Loan Assn. v O’Connell, 2023 NY Slip Op 06037, Second Dept 11-22-23

Practice Point: In addition to the mortgage which was foreclosed, defendant property-owner had entered a home equity line of credit with Citibank. There were surplus funds after the foreclosure sale. Citibank, not defendant, was entitled to the surplus funds.

 

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THE 90-DAY TIME-LIMIT IN RPAPL 1371 FOR BRINGING A MOTION FOR A DEFICIENCY JUDGMENT AGAINST THE PURCHASER OF PROPERTY AT A FORECLOSURE SALE FUNCTIONS AS A STATUTE OF LIMITATIONS; THE MOTION HERE WAS UNTIMELY (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the mortgagor’s order to show cause seeking a deficiency judgment against defendant, the purchaser of the property at the foreclosure sale, should have been dismissed as untimely pursuant to RPAPL 1371:

RPAPL 1371(2) states that “[s]imultaneously with the making of a motion for an order confirming the sale, provided such motion is made within ninety days after the date of the consummation of the sale by the delivery of the proper deed of conveyance to the purchaser, the party to whom such residue shall be owing may make a motion in the action for leave to enter a deficiency judgment upon notice to the party against whom such judgment is sought or the attorney who shall have appeared for such party in such action.” “The courts have uniformly treated the 90-day period contained in RPAPL 1371(2) as a provision in the nature of a statute of limitations, so that the plaintiff’s failure to serve notice within the 90-day period is a complete bar to the entry of a deficiency judgment, and the proceeds of the sale will be deemed to be in full satisfaction of the mortgage debt” … . JDRMDBP-SM, LLC v Hossain, 2023 NY Slip Op 06033, Second Dept 11-22-23

Practice Point: The 90-day time-limit in RPAPL 1371 for bringing a motion for a deficiency judgment against the purchaser of property at a foreclosure sale functions as a statute of limitations. A late motion must be dismissed.

 

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THE AFFIDAVIT WHICH PURPORTED TO DEMONSTRATE PLAINTIFF BANK HAD STANDING TO BRING THE FORECLOSURE ACTION REFERRED TO BUSINESS RECORDS WHICH WERE NOT ATTACHED, RENDERING THE AFFIDAVIT INADMISSIBLE HEARSAY (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff bank did not demonstrate standing to bring the foreclosure action. The affidavit which purported to establish standing referred to business records which were not attached:

… [T]he plaintiff failed to attach the business records upon which Delpesche [an employee of the loan servicing company] relied upon in his affidavit. “Although the foundation for . . . admission of a business record [usually is] provided by the testimony of the custodian, [the author or some other witness familiar with the practices and procedures of the particular business,] ‘it is the business record itself, not the foundational affidavit, that serves as proof of the matter asserted'” … . “‘Without submission of the business records, a witness’s testimony as to the contents of the records is inadmissible hearsay'” … . Since the plaintiff failed to attach the business records upon which Delpesche relied in his affidavit, his assertions based upon those records constituted inadmissible hearsay … . Wells Fargo Bank, N.A. v Carrington, 2023 NY Slip Op 05632, Second Dept 11-8-23

Practice Point: Where an affidavit refers to and relies on business records which are not attached, the affidavit is inadmissible hearsay.

 

 

 

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SENDING THE NOTICE OF FORECLOSURE TO BOTH BORROWERS IN THE SAME ENVELOPE VIOLATED RPAPL 1304 (THIRD DEPT).

The Third Department, reversing Supreme Court, determined the bank in this foreclosure action failed to comply with RPAPL 1304 by sending the notice of foreclosure to both borrowers in the same envelope:

As the Second Department noted, the language of RPAPL 1304 (1) is careful to distinguish a borrower, singular, from borrowers, plural (see Wells Fargo Bank, N.A. v Yapkowitz, 199 AD3d at 134). However, RPAPL 1304 (2), which requires that notices be sent in separate envelopes, only discusses “borrower,” singular (see Wells Fargo Bank, N.A. v Yapkowitz, 199 AD3d at 134; RPAPL 1304 [2]). In that case, the Court also drew attention to the fact that, although it is possible that whichever borrower reads the notice would alert the other borrower of the mailing, this is not always what occurs (see Wells Fargo Bank, N.A. v Yapkowitz, 199 AD3d at 135). Accordingly, we now also adopt the holding of the Second Department in Wells Fargo Bank, N.A. Thus, given that the requisite 90-day notices were jointly addressed to both borrowers, plaintiff did not comply with RPAPL 1304 … . Deutsche Bank Natl. Trust Co. v Zatari, 2023 NY Slip Op 05436, Third Dept 10-26-23

Practice Point: Sending the notice of foreclosure to two borrowers in the same envelope is a violation RPAPL 1304.

 

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PRIOR FORECLOSURE ACTIONS DISMISSED FOR LACK OF STANDING DO NOT ACCELERATE THE DEBT AND THEREFORE DO NOT START THE RUNNING OF THE STATUTE OF LIMITATIONS (THIRD DEPT).

The Third Department, reversing Supreme Court, determined the prior foreclosure actions had been dismissed for lack of standing and therefore did not accelerate the debt and did not start the running of the statute of limitations. Here the plaintiffs sought discharge and cancellation of the mortgage on the ground the statute of limitations for a foreclosure action had expired:

Because the 2009 and the 2012 actions were dismissed due to lack of standing by defendant, the debt was not validly accelerated when those actions were commenced. As such, the statute of limitations to foreclose on the mortgage did not start to run. Stated differently, the statute of limitations has not expired. Caprotti v Deutsche Bank Natl. Trust Co., 2023 NY Slip Op 05428m Third Dept 10-26-23

Practice Point: Foreclosure actions dismissed for lack of standing do not accelerate the debt and do not start the running of the statute of limitations.

 

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THE BANK IN THIS FORECLOSURE ACTION DID NOT PROVE COMPLIANCE WITH THE MAILING REQUIREMENTS OF RPAPL 1304 AND THEREFORE WAS NOT ENTITLED TO SUMMARY JUDGMENT (SECOND DEPT). ​

The Second Department, reversing Supreme Court in this foreclosure action, determined the plaintiff bank failed to demonstrate compliance with the notice requirements of RPAPL 1304 and therefore was not entitled to summary judgment:

The plaintiff … failed to demonstrate, prima facie, its compliance with RPAPL 1304, in that it failed to establish proof of the requisite mailing. The affidavit of Sarah Stonehocker, a vice president of loan documentation for Wells Fargo, the plaintiff’s loan servicer, was insufficient to establish that the notice was sent to the borrowers in the manner required by RPAPL 1304. Stonehocker averred that she had personal knowledge of Wells Fargo’s record-keeping practices and procedures, but she did not attest to having personal knowledge of the record-keeping practices and standard office mailing procedures of Walz Facility (hereinafter Walz), the entity, that according to tracking information printouts, mailed the RPAPL 1304 notices … . Nor did she attest that Walz’s records were incorporated into Wells Fargo’s own records or routinely relied upon in its business … . Thus, Stonehocker’s affidavit failed to establish “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” … .

Moreover, the plaintiff failed to establish, prima facie, that it strictly complied with RPAPL 1304 since it failed to demonstrate that it sent an individually addressed RPAPL 1304 notice to each borrower, as required by the statute … . U.S. Bank N.A. v Reddy, 2023 NY Slip Op 05417, Second Dept 10-25-23

Practice Point: Once again the bank’s failure to prove compliance with the mailing requirements of RPAPL 1304 resulted in reversal of summary judgment in this foreclosure action.

 

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ALTHOUGH THE TEN-YEAR DELAY BETWEEN THE JUDGMENT OF FORECLOSURE AND THE SALE OF THE PROPERTY WAS NOT WRONGFUL, THE DEFENDANT SHOULD NOT BE REQUIRED TO PAY THE INTEREST ACCRUED DURING THE DELAY (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined plaintiff in this foreclosure action was not entitled to interest for the ten years between the judgment of foreclosure and the sale of the property:

… [T]he plaintiff explained that his delay in proceeding with the sale of the subject property was based upon his opinion that it was not worthwhile to pursue a foreclosure sale due to market conditions and his belief that there was “no significant equity in the property” beyond the amount of the first mortgage on the property, which had priority over that held by the plaintiff. While the plaintiff’s failure to conduct the sale based on a potential financial benefit to him was not wrongful conduct, per se, his inaction was the sole cause of the accrual of more than 10 years of postjudgment interest, which is roughly equivalent to the principal amount awarded in the order and judgment of foreclosure and sale in the first instance (see CPLR 5004). Under these circumstances, it would be inequitable to charge Romano [defendant] with such accrued interest … . Krupnick v Romano, 2023 NY Slip Op 05398, Second Dept 10-25-23

Practice Point: Here the plaintiff did not sell the property until ten years after the judgment of foreclosure due to market conditions. Although the delay was not wrongful, the defendant should not be required to the pay the interest on the judgment accrued during the ten-year delay.

 

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