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THE BANK DID NOT DEMONSTRATE IT HAD STANDING TO FORECLOSE; THERE WAS INSUFFICIENT PROOF THE ALLONGE WAS FIRMLY AFFIXED TO THE NOTE AS REQUIRED BY UCC 3-202 (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the bank in this foreclosure action did not prove it had standing to bring the action:

A plaintiff has standing to commence a mortgage foreclosure action when 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 to the note, the plaintiff must establish that the allonge was “so firmly affixed to the note so as to become a part thereof” pursuant to 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’s submissions failed to eliminate triable issues of fact as to whether the allonges were so firmly affixed to the note as to become a part thereof … . [The bank vice president’s] affidavit did not clarify whether the allonges were firmly affixed to the note … . U.S. Bank N.A. v Duvivier, 2023 NY Slip Op 03496, Second Dept 6-28-23

Practice Point: If the endorsement is on an allonge to the note, the allonge must be firmly affixed to the note (UCC 3-202). If the bank does not prove the endorsed allonge is firmly affixed to the note, it has not proved standing to foreclose.

 

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THE BANK’S SECOND MOTION IN THIS FORECLOSURE ACTION DID NOT MEET THE CRITERIA FOR A MOTION TO RENEW AND VIOLATED THE “SUCCESSIVE SUMMARY JUDGMENT MOTION” RULE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the second motion for summary judgment made by the bank in this foreclosure action was not a valid motion to renew and violated the “successive summary judgment rule:”

“While a court has discretion to entertain renewal based on facts known to the movant at the time of the original motion, the movant must set forth a reasonable justification for the failure to submit the information in the first instance. When no reasonable justification is given for failing to present new facts on the prior motion, the Supreme Court lacks discretion to grant renewal” … . … [P]laintiff failed to provide any justification for its failure to present the new evidence supporting the second motion as part of its prior motion.

“Even considered as a successive motion for summary judgment, such a motion ‘should not be entertained in the absence of good cause, such as a showing of newly discovered evidence'” … . Here, the plaintiff failed to present good cause.

The second motion also did not fit within the “narrow exception” to the successive summary judgment rule … . This narrow exception permits entertainment of a successive motion when it is “substantively valid and the granting of the motion will further the ends of justice and eliminate an unnecessary burden on the resources of the courts” … . Here, entertaining a second summary judgment motion involved review of multiple disputed issues, including whether the plaintiff established the defendants’ default, the plaintiff’s compliance with the contractual condition precedent, and the plaintiff’s compliance with RPAPL 1304. Thus, rather than eliminating a burden on the Supreme Court, the court’s consideration of the second motion actually imposed an additional burden on the court. “‘Successive motions for the same relief burden the courts and contribute to the delay and cost of litigation. A party seeking summary judgment should anticipate having to lay bare its proof and should not expect that it will readily be granted a second or third chance'” … . Wells Fargo Bank, N.A. v Gittens, 2023 NY Slip Op 03373, Second Dept 6-21-23

Practice Point: The failure to explain why available evidence was not submitted in the first summary judgment motion will result in denial of a motion to renew.

Practice Point: The second motion here violated the “successive summary judgment motion” rule. The criteria are explained.

 

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THE BANK DID NOT DEMONSTRATE COMPLIANCE WITH THE NOTICE REQUIREMENTS OF RPAPL 1304 IN THIS FORECLOSURE ACTION (SECOND DEPT). ​

The Second Department, reversing Supreme Court, determined the bank in this foreclosure action did not present sufficient proof of compliance with the notice requirements of RPAPL 1304:

… [A]lthough the affidavit of the servicing agent stated that the 90-day notice was mailed to the defendant by certified mail and regular first-class mail, the affiant did not attest to having personally mailed the notices, nor that she was familiar with the mailing procedures of the entity that mailed the notices and that such procedures were designed to ensure that the notices were properly addressed and mailed …  The plaintiff also failed to submit documentation from the United States Postal Service proving the first-class mailing of the 90-day notice to the defendant … . U.S. Bank Trust, N.A. v Smith, 2023 NY Slip Op 03372, Second Dept 6-21-23

Practice Point: Once again, failure to demonstrate the RPAPL 1304 notice of foreclosure was properly mailed results in reversal of summary judgment.

 

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PLAINTIFF-BANK’S MOTION TO EXTEND THE TIME TO SERVE THE SUMMONS AND COMPLAINT IN THE INTEREST OF JUSTICE SHOULD HAVE BEEN GRANTED, CRITERIA EXPLAINED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined it was an abuse of discretion to deny plaintiff-bank’s CPLR 306-b motion to extend the time for the service of the summons and complaint:

CPLR 306-b provides, in pertinent part, that “[s]ervice of the summons and complaint . . . shall be made within one hundred twenty days after the commencement of the action . . . . If service is not made upon a defendant within the time provided in this section, the court, upon motion, shall dismiss the action without prejudice as to that defendant, or upon good cause shown or in the interest of justice, extend the time for service.”

“The interest of justice standard requires a careful judicial analysis of the factual setting of the case and a balancing of the competing interests presented by the parties. Unlike an extension request premised on good cause, a plaintiff need not establish reasonably diligent efforts at service as a threshold matter. However, the court may consider diligence, or lack thereof, along with any other relevant factor in making its determination, including expiration of the Statute 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” … . CPLR 306-b “empowers a court faced with the dismissal of a viable claim to consider any factor relevant to the exercise of its discretion. No one factor is determinative—the calculus of the court’s decision is dependent on the competing interests of the litigants and a clearly expressed desire by the Legislature that the interests of justice be served” … .

Here, the Supreme Court improvidently exercised its discretion in denying the plaintiff’s motion pursuant to CPLR 306-b to extend the time to serve Cruz with the summons and complaint in the interest of justice, considering, inter alia, the expiration of the statute of limitations, the meritorious nature of the plaintiff’s cause of action, the plaintiff’s prompt request for the extension, and the lack of demonstrable prejudice to [defendant]. Deutsche Bank Trust Co. Ams. v Lottihall, 2023 NY Slip Op 02999, Second Dept 6-7-23

Practice Point: The criteria for an “interest of justice,” versus a “good cause shown,” extension of time to serve the summons and complaint pursuant to CPLR 306-b explained.

 

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SENDING THE 90-DAY FORECLOSURE NOTICE TO THE TWO BORROWERS IN THE SAME ENVELOPE VIOLATED RPAPL 1304 (SECOND DEPT).

The Second Department, reversing Supreme Court, determined sending the notice of foreclosure to the two borrowers in the same envelope violated RAPL 1304 which must be strictly complied with:

RPAPL 1304(1) provides that, “at least ninety days before a lender, an assignee or a mortgage loan servicer commences legal action against the borrower, . . . including mortgage foreclosure, such lender, assignee or mortgage loan servicer shall give notice to the borrower.” “The statute further provides the required content for the notice and provides that the notice must be sent by registered or certified mail and also by first-class mail to the last known address of the borrower” … . Strict compliance with RPAPL 1304 notice to the borrower is a condition precedent to the commencement of a foreclosure action … .

Here, the defendants established, prima facie, that the plaintiff did not comply with RPAPL 1304, since the 90-day notice was jointly addressed to both of the defendants … . Moreover, while the plaintiff contends that two identical copies of the notice were included in the mailing, one for each of the defendants, the plaintiff concedes that they were mailed in the same envelope, which was also improper … . HSBC Bank USA, N.A. v Schneider, 2023 NY Slip Op 02869, Second Dept 5-31-23

Practice Point: To warrant summary judgment in a foreclosure action the bank must demonstrate strict compliance with RPAPL 1304. Here the statute was violated by sending the 90-day foreclosure notice to both borrowers in the same envelope.

 

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A MOTION FOR JUDGMENT AS A MATTER OF LAW MUST BE DENIED IF IT IS BROUGHT BEFORE THE CLOSE OF THE OPPOSING PARTY’S CASE, EVEN IF THE MOTION HAS MERIT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the defendant’s motion pursuant to CPLR 4401 for judgment as a matter of law in this foreclosure action was premature because it was made before the close of plaintiff’s case:

During the trial, the defendant objected to the admission of a copy of the underlying note. The Supreme Court declined to admit the note into evidence, and the defendant moved pursuant to CPLR 4401 for judgment as a matter of law dismissing the complaint insofar as asserted against it, arguing that the plaintiff was unable to establish a prima facie case. … [T]he court granted the defendant’s motion, dismissed the complaint insofar as asserted against him, and directed the County Clerk to cancel and discharge the notice of pendency. …

“A motion for judgment as a matter of law is to be made at the close of an opposing party’s case or at any time on the basis of admissions (see CPLR 4401), and the grant of such a motion prior to the close of the opposing party’s case generally will be reversed as premature even if the ultimate success of the opposing party in the action is improbable” … . Here, the defendant’s motion for judgment as a matter of law dismissing the complaint insofar as asserted against him was made before the close of the plaintiff’s case, and was not based upon an admission by the plaintiff. Accordingly, the defendant’s motion should have been denied as premature … . Bank of N.Y. Mellon v Waheed, 2023 NY Slip Op 02774, Second Dept 5-24-23

Practice Point: A motion for judgment as a matter of law pursuant to CPLR 4401 must be denied as premature if it is brought before the opposing party closes its case, even in the motion has merit.

 

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ALTHOUGH THERE IS MERIT TO THE DEFENDANTS’ ARGUMENT THEY WERE DEPRIVED OF THEIR PROPERTY WITHOUT JUST COMPENSATION IN THESE TAX FORECLOSURE PROCEEDINGS WHERE THEIR PROPERTIES WERE TRANSFERRED TO NEIGHBORHOOD RESTORE UNDER NYC’S THIRD PARTY TRANSFER PROGRAM, THE DEFENDANTS’ FAILURE TO ANSWER IN THE TAX FORECLOSURE ACTIONS AND THEIR FAILURE TO REDEEM WITHIN FOUR MONTHS PRECLUDED ANY RECOVERY (SECOND DEPT).

The Second Department, in a full-fledged opinion by Justice Wooten, determined the tax foreclosures on defendants’ properties were valid and the transfer of the properties under New York City’s Third Party Transfer Program (TPT program) was proper. The court noted that, under the current procedure, property worth $2 million could be lost for nonpayment of a small water bill and the owner would receive no compensation. Here the city demonstrated it fulfilled the tax-foreclosure notification requirements and defendants did not answer and did not attempt to redeem the property within the four-month redemption period:

… [T]he defendants’ motions were time-barred due to their failure to move to vacate the judgment of foreclosure or to take any action to redeem the subject properties within the four-month redemption period … . In light of the presumption of regularity created by the entry of the judgment of foreclosure against the subject properties (see Administrative Code § 11-411), which became conclusive four months after the entry of the judgment …, there is no basis to consider the defendants’ contentions that the subject properties were not distressed … . Further, this Court has held that where, as here, the defendant property owners failed to interpose a timely answer or to redeem the property during the four-month period following the entry of the judgment of foreclosure, they are not entitled to “compensation” for any “surplus money as a result of the foreclosure and transfer of the property” under the TPT program … . Thus, while we emphasize that there is potential merit to the defendants’ contentions that they were deprived of their properties without just compensation, and that the transfer of a property which was not distressed under the TPT program was improper, we are constrained to conclude that those issues are not reviewable by this Court under the circumstances presented. Matter of Tax Foreclosure Action No. 53, 2023 NY Slip Op 02711, Second Dept 5-17-23

Practice Point: The court acknowledged that the city’s transfer of defendants’ properties to Neighborhood Restore under NYC’s Third Party Transfer program may have deprived defendants of just compensation for the taking of their properties, the fact that defendants did not answer in the tax foreclosure proceedings and did not attempt to redeem the properties within the four-month redemption period precluded any recovery.

 

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THE BANK DID NOT PRESENT SUFFICIENT EVIDENCE OF STANDING TO FORECLOSE; THE EVIDENCE DID NOT DEMONSTRATE THE ALLONGE WAS FIRMLY ATTACHED TO THE NOTE; EVIDENCE FIRST OFFERED IN REPLY SHOULD NOT HAVE BEEN CONSIDERED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the bank did not demonstrate it had standing to foreclose because the evidence the allonge was firmly attached to the note was insufficient. The court noted Supreme Court should not have considered evidence first submitted in reply:

Although the vice president of loan documentation attested in her affidavit, based on her review of the plaintiff’s business records, that an allonge containing an endorsement in blank by “Federal Deposit Insurance Corporation As Receiver of AmTrust Bank fka Ohio Savings Bank” was attached to the consolidated note, she did not aver that the allonge was “firmly affixed” to the consolidated note within the meaning of UCC 3-202(2). “Although the foundation for the admission of a business record may be provided by the testimony of the custodian, it is the business record itself, not the foundational affidavit, that serves as proof of the matter asserted” … . Moreover, the affidavit was sworn to on January 9, 2020, subsequent to the commencement of this action, and the affiant did not state when she reviewed the copy of the note and the allonge. Thus, her affidavit was insufficient to establish, prima facie, that the allonge was “so firmly affixed [to the consolidated note] as to become a part thereof” (UCC 3-202[2]) at the time of commencement of either the 2014 action or the 2015 action … . Nor did the affidavit of the employee of the plaintiff’s attorneys establish compliance with the requirements of UCC 3-202(2), as it made no reference to an allonge to the consolidated note.

Affidavits submitted by the plaintiff with its reply papers, asserting that the allonge was attached to the consolidated note at the time of commencement of the 2015 action, should not have been considered by the Supreme Court, since a party moving for summary judgment “cannot meet its prima facie burden by submitting evidence for the first time in reply” … . Wells Fargo Bank, N.A. v Mitselmakher, 2023 NY Slip Op 02709, Second Dept 5-17-23

Practice Point: To demonstrate standing to foreclose the bank must show the allonge was “firmly attached” to the note within the meaning of UCC 3-303(2). The bank’s evidence here was insufficient.

Practice Point: Evidence first submitted in reply should not be considered in support of the prima facie burden for summary judgment.

 

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THE ESTATE WAS A NECESSARY PARTY IN THE FORECLOSURE ACTION; THE COURT SHOULD DETERMINE WHETHER THE NECESSARY PARTY CAN BE SUMMONED AND, IF NOT, WHETHER THE ACTION CAN CONTINUE IN THE PARTY’S ABSENCE; THE FACT THAT THE STATUTE OF LIMITATIONS HAS RUN DOES NOT PRECLUDE SUMMONING THE NECESSARY PARTY (SECOND DEPT).

The Second Department, modifying Supreme Court, explained the proper procedure where it is alleged the complaint should be dismissed for failure to include a necessary party, here the failure to include an estate in a foreclosure action. First the court should determine whether the party can be summoned, noting that the expiration of the statute of limitations is does not bar summoning the party. Second, if the party cannot be summoned the court should determine whether the action can continue in the party’s absence:

“Pursuant to RPAPL 1311 (1), ‘necessary defendants’ in a mortgage foreclosure action include, among others, ‘[e]very person having an estate or interest in possession, or otherwise, in the property as tenant in fee, for life, by the courtesy, or for years, and every person entitled to the reversion, remainder, or inheritance of the real property, or of any interest therein or undivided share thereof, after the determination of a particular estate therein'” … . “Particularly where, as here, the plaintiff seeks a deficiency judgment, and alleges a default in payment subsequent to the death of the deceased mortgagor, the estate of the mortgagor is a necessary party to the foreclosure action” … .

When a necessary party has not been made a party and is “subject to the jurisdiction” of the court, the proper remedy is not dismissal of the complaint, but rather for the court to order that the necessary party be summoned (see CPLR 1001[b] …). Contrary to the intervenors’ contention, the Supreme Court’s ability to direct joinder of a representative of [the] estate at this juncture is not affected by the purported running of the statute of limitations, because the expiration of a statute of limitations is not a jurisdictional defect … .  … [W]hen jurisdiction over an absent necessary party “can be obtained only by [that party’s] consent or appearance, the court, when justice requires, may allow the action to proceed without [that party],” upon consideration of various enumerated factors (CPLR 1001[b] …). U.S. Bank Trust N.A. v Germoso, 2023 NY Slip Op 02704, Second Dept 5-17-23

Practice Point: Here an estate was a necessary party in the foreclosure action. The proper procedure is for the court to determine if the party can be summoned, and, if not, whether the action can continue in the party’s absence. The fact that the statute of limitations had run did not preclude summoning the estate.

 

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UNDER THE 2022 AMENDMENT TO CPLR 213, A BANK WHICH HAS STARTED A FORECLOSURE ACTION CANNOT STOP THE RUNNING OF THE STATUTE OF LIMITATIONS BY A VOLUNTARY DISCONTINUANCE; THE BANK DID NOT DEMONSTRATE COMPLIANCE WITH THE MAILING REQUIREMENTS OF RPAPL 1304 (SECOND DEPT).

The Second Department, reversing Supreme Court, noted that the 2022 amendment to CPLR 213 (the Foreclosure Abuse Prevention Act [FAPA]) overruled the recent Court of Appeals case which held a voluntary discontinuance of a foreclosure action stopped the running of the statute of limitations. In addition, the Second Department ruled the plaintiff bank did not demonstrate compliance with the notice requirements of RPAPL 1304:

FAPA amended CPLR 3217, governing the voluntary discontinuance of an action, by adding a new paragraph (e), which provides that “[i]n any action on an instrument described under [CPLR 213(4)], the voluntary discontinuance of such action, whether on motion, order, stipulation or by notice, shall not, in form or effect, waive, postpone, cancel, toll, extend, revive or reset the limitations period to commence an action and to interpose a claim, unless expressly prescribed by statute.” * * *

Here, the plaintiff failed to establish … it complied with the requirements of RPAPL 1304. The affidavit of Cynthia Wallace, an officer of Specialized Loan Servicing, LLC (hereinafter SLS), the plaintiff’s loan servicer, was insufficient to establish that the plaintiff complied with RPAPL 1304. Wallace attested that she was familiar with the types of records maintained by SLS in connection with the loan, that she had personal knowledge of the procedures for creating the records, and that the plaintiff mailed the notices, but she failed to attest that she personally mailed the notices or that she was familiar with the mailing practices and procedures of the plaintiff or SLS. Therefore, Wallace failed to establish proof of a standard office practice and procedure designed to ensure that items are properly addressed and mailed (see id.). The plaintiff also failed to submit any domestic return receipts or other documentation proving the certified and first-class mailings … . Bank of N.Y. Mellon v Stewart, 2023 NY Slip Op 02487, Second Dept 5-10-23

Practice Point: A recent amendment CPLR 213 prohibits a bank which has started a foreclosure action from stopping the running of the statute of limitations by voluntarily discontinuing the action.

Practice Point: If the bank doesn’t prove strict compliance with the mailing requirements of RPAPL 1304, its summary judgment motion in a foreclosure action must be denied.

 

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