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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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THE BANK IN THIS FORECLOSURE ACTION DID NOT HAVE A REASONABLE EXCUSE FOR FAILING TO MOVE FOR A DEFAULT JUDGMENT WITHIN THE ONE-YEAR ALLOWED BY STATUTE; IT WAS AN ABUSE OF DISCRETION TO GRANT THE MOTION (SECOND DEPT).

The Second Department, reversing Supreme Court in this foreclosure action, determined plaintiff did not have a reasonable excuse for failing to move for a default judgment within and year and the motion should not have been granted:

… [T]he one-year period within which the plaintiff had to take proceedings for the entry of a default judgment expired in March 2016 (see CPLR 3215[c]). The plaintiff moved, inter alia, for leave to enter a default judgment against the defendant and for an order of reference in September 2016, 18 months after this matter was released from the foreclosure settlement conference part. Thus, the plaintiff’s motion … for leave to enter a default judgment against the defendant was made beyond the one-year deadline imposed by CPLR 3215(c).

One exception to the mandatory language of CPLR 3215(c) is when “sufficient cause is shown why the complaint should not be dismissed.” “This requires a showing of a reasonable excuse for the delay in moving for leave to enter a default judgment, and a showing that the cause of action is potentially meritorious” … . The determination as to whether an excuse is reasonable is committed to the sound discretion of the court, but reversal is warranted if that discretion is improvidently exercised … .

… [T]he plaintiff’s vague, conclusory, and unsubstantiated assertions that the delay in making its motion was attributable to the time spent in the mandatory foreclosure settlement conference part, and its need to comply with certain administrative orders, were insufficient to excuse the lengthy 18-month delay in moving for leave to enter a default judgment … .

“Since the plaintiff failed to proffer a reasonable excuse, this Court need not consider whether the plaintiff had a potentially meritorious cause of action” … . Bank of N.Y. Mellon v Toscano, 2023 NY Slip Op 02294, Second Dept 5-3-23

Practice Point: If plaintiff does not have a reasonable excuse for failing to move for a default judgment within the one year allowed by statute, it is an abuse of discretion to grant the motion and whether there is a meritorious cause of action is irrelevant.

 

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THE JUDGE DID NOT HAVE THE AUTHORITY TO, SUA SPONTE, DISMISS THE FORECLOSURE COMPLAINT FOR PLAINTIFF’S ALLEGED FAILURE TO APPEAR AT A STATUS CONFERENCE AND COMPLY WITH THE DIRECTIVE TO MOVE FOR AN ORDER OF REFERENCE BY A SPECIFIED DATE; PRECEDENT TO THE CONTRARY SHOULD NO LONGER BE FOLLOWED (SECOND DEPT).

The Second Department, rejecting its own precedent in this foreclosure action, determined the judge did not have the authority to, sua sponte, dismiss the complaint for plaintiff’s failure to comply with the directive to appear at a status conference and move for an order of reference by a specified date:

“A court’s power to dismiss a complaint, sua sponte, is to be used sparingly and only when extraordinary circumstances exist to warrant dismissal” … . The plaintiff’s failure to comply with the directive in the order dated September 13, 2017, was not a sufficient ground upon which to direct dismissal of the complaint … . Moreover, the court was without authority to, sua sponte, direct dismissal of the complaint based upon the plaintiff’s failure to comply with its directive to proceed by motion where, as here, the plaintiff was entitled to proceed either by motion or trial … . …

… 22 NYCRR 202.27 was not a proper basis for directing dismissal of the complaint … . Where a party appears as scheduled, 22 NYCRR 202.27 “provides no basis for the court to summarily dismiss the action for failure to prosecute” … . Nothing in the record establishes that the plaintiff did not appear or was not ready to proceed at the final status conference … . To the extent our cases have held that a failure to comply with a directive in a prior status conference order amounts to a nonappearance at the status conference or a failure to announce readiness to proceed “immediately or subject to the engagement of counsel” within the meaning of 22 NYCRR 202.27 … , such cases should no longer be followed … . “In general, [t]he procedural device of dismissing a complaint for undue delay is a legislative creation, and courts do not possess the inherent power to dismiss an action for general delay” … where, as here, the statutory preconditions to dismissal under CPLR 3216, which is the statutory provision addressing “[w]ant of prosecution,” have not been met…. . U.S. Bank N.A. v Bhagwandeen, 2023 NY Slip Op 02349, Second Dept 5-3-23

Practice Point: A judge’s authority to dismiss a complaint in the absence of the statutory conditions in CPLR 3216 (failure to prosecute) is extremely limited. Here in this foreclosure action the Second Department rejected its own precedent and held plaintiff’s alleged failure to appear at a status conference and comply with the directive to move for an order of reference by a specified date did not justify the sua-sponte dismissal of the complaint.

 

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IN THIS TAX FORECLOSURE PROCEEDING, THE COUNTY MUST PROVE IT COMPLIED WITH THE NOTICE REQUIREMENTS OF RPAPL 1125; EVEN THOUGH THE COUNTY PROVED IT MAILED THE NOTICE AND THE LETTERS WERE NOT RETURNED, PLAINTIFFS RAISED A QUESTION OF FACT ABOUT WHETHER THE COUNTY COMPLIED WITH RPAPL 1125 BY OTHER PROOF INDICATING NOTICE WAS NOT RECEIVED (THIRD DEPT).

The Third Department, reversing its prior decision after a reversal by the Court of Appeals, over a two-justice dissent, determined that the plaintiff had raised questions of fact about whether it was notified of the tax foreclosure proceeding by defendant county. The Court of Appeals had ruled that, although the county proved the notice was mailed the letters were not returned, plaintiffs could prove the notice was not received by other evidence:

… “[A]lthough the statute contains no requirement of actual notice and evidence of the failure to receive notice is,by itself, insufficient to demonstrate noncompliance, an interested party may create a factual issue as to whether the taxing authority has complied with the requirements of RPTL 1125 (1) (b) by other relevant proof, despite the taxing authority’s submission of the ‘affidavit[s] of mailing’ mandated by section 1125 (3) (a) and evidence that no mailings were returned” … . …

Although we are aware that, on its own, failure to receive notice is insufficient to defeat summary judgment … , such failure, when combined with other evidence, can support a reasonable inference that defendants failed to comply with the mailing requirements of RPTL 1125 (1) (b) (i). … [I]f the notices were not received, there are only two real possibilities — either the procedure used by defendant County … failed to comply with RPTL 1125 (1) (b) (i) inasmuch as the wrong address was affixed, or the United States Postal Service made an error. When viewed in conjunction with the further facts that the certified mail tracking history indicated an unknown address and that the return receipt was unstamped, it is reasonable to infer, together with the additional evidence of nonreceipt, that the notices were not correctly mailed and that the County failed to comply with the requirements of RPTL 1125 (1) (b) (i). James B. Nutter & Co. v County of Saratoga, 2023 NY Slip Op 02148, Third Dept 4-27-23

Practice Point: In this tax foreclosure proceeding, the county submitted prima facie proof it complied with the notice requirements of RPAPL 1125 by submitting proof the letters were mailed and not returned. However, the plaintiffs submitted evidence that the notice was not received, which raised a question of fact about whether the county in fact complied with RPAPL 1125.

 

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ALTHOUGH DEFENDANT DID NOT SIGN THE NOTE, HE WAS A TITLE-HOLDER AND WAS LISTED AS A BORROWER ON THE MORTGAGE; THEREFORE DEFENDANT WAS ENTITLED TO THE NOTICE OF FORECLOSURE IN ACCORDANCE WITH RPAPL 1304 (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendant Kalenborn was entitled to the RPAL 1304 notice of foreclosure even though he did not sign the note. Kalenborn held title to the property and was listed as a “borrower” on the mortgage:

… [D]efendants established that the plaintiff failed to serve Douglas Kalenborn with notice pursuant to RPAPL 1304, and, contrary to the plaintiff’s contention, Douglas Kalenborn was entitled to such notice as a “borrower” within the meaning of that statute. Although Douglas Kalenborn did not sign the note, the plaintiff conceded that both of the defendants were title owners of the subject property and both executed the mortgage as a “borrower.” “Where, as here, a homeowner defendant is referred to as a ‘borrower’ in the mortgage instrument and, in that capacity, agrees to pay amounts due under the note, that defendant is a ‘borrower’ for the purposes of RPAPL 1304, notwithstanding . . . any ambiguity created by a provision in the mortgage instrument to the effect that parties who did not sign the underlying note are not personally obligated to pay the sums secured” … . Since Douglas Kalenborn “signed the mortgage as a ‘borrower’ and, in that capacity, agreed to pay the amounts due under the note, [he] was entitled to notice pursuant to RPAPL 1304” … . HSBC Bank USA, N.A. v Kalenborn, 2023 NY Slip Op 02109, Second Dept 4-26-23

Practice Point: Here defendant did not sign he note but he was a title-holder and was listed as a borrower on the mortgage. Therefore defendant was entitled to notice of the foreclosure which met the requirements of RPAPL 1304.

 

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​ PLAINTIFF IN THIS FORECLOSURE ACTION DID NOT DEMONSTRATE THE NOTICE OF FORECLOSURE WAS MAILED TO DEFENDANT IN ACCORDANCE WITH THE REQUIREMENTS OF RPAPL 1304 (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff in this foreclosure action did not demonstrate the notice of foreclosure was mailed to defendant in accordance with the requirements of RPAPL 1304:

… [T]he plaintiff failed to establish, prima facie, that it strictly complied with RPAPL 1304 … . The plaintiff did not submit proof of actual mailings, such as affidavits of mailing or domestic return receipts with attendant signatures. Further, the plaintiff failed to present sufficient proof of a standard office mailing procedure designed to ensure that items are properly addressed and mailed, including “how the mail was transmitted to the postal service” … . Freedom Mtge. Corp. v King, 2023 NY Slip Op 02105, Second Dept 4-26-23

Practice Point: The plaintiff in this foreclosure action did not prove how the notice of foreclosure was transmitted to the postal service. Therefore compliance with the requirements of RPAPL 1304 was not proven and plaintiff’s motion for summary judgment should not have been granted.

 

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