Foreclosure – Page 19 – New York Appellate Digest

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.

April 26, 2023

Evidence, Foreclosure, Real Property Actions and Proceedings Law (RPAPL)

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.

April 26, 2023

Evidence, Foreclosure

IN THIS FORECLOSURE ACTION, THE BUSINESS RECORDS UPON WHICH THE REFEREE’S CALCULATIONS WERE BASED WERE NOT ATTACHED TO THE REFEREE’S AFFIDAVIT, RENDERING THE AFFIDAVIT HEARSAY (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the referee’s report in this foreclosure action should not have been accepted because the business records upon which the calculations were based were not attached to the affidavit:

… [A] referee’s computations based on the “review of unidentified and unproduced business records . . . constitute[ ] inadmissible hearsay and lack[ ] probative value” … . Here, the referee based his calculations upon documentary evidence submitted by the plaintiff, including the note and mortgage, as well as an affidavit of amount due and owing, submitted in support of the motion to confirm the referee’s report. However, the affidavit of amount due and owing does not identify the business records upon which the affiant relied in order to compute the total amount due on the mortgage, and there are no such records annexed thereto. Consequently, the referee’s findings in that regard were not substantially supported by the record … . M&T Bank v Bonilla, 2023 NY Slip Op 01989, Second Dept 4-19-23

Practice Point: To the extent an affidavit refers to business records which are not attached the affidavit is hearsay.

April 19, 2023

Civil Procedure, Foreclosure, Judges

PLAINTIFF’S FAILURE TO FILE AN APPLICATION FOR AN ORDER OF REFERENCE IN THIS FORECLOSURE ACTION WAS NOT A GROUND FOR DISMISSAL OF THE COMPLAINT SUA SPONTE (SECOND DEPT).

The Second Department, reversing Supreme Court in this foreclosure action, determined the plaintiff’s failure to comply with a directive to apply for an order of reference was not an appropriate ground for dismissing the complaint sua sponte:

“A court’s power to dismiss a complaint, sua sponte, is to be used sparingly and only when extraordinary circumstances exist to warrant dismissal” … . Here, the plaintiff’s failure to comply with the directive to file an application for an order of reference was not a sufficient ground upon which to direct dismissal of the complaint … . Accordingly, the Supreme Court should have granted the plaintiff’s motion to vacate order … and to restore the action to the active calendar. U.S. Bank N.A. v Turner, 2023 NY Slip Op 02023, Second Dept 4-19-23

Practice Point: Sua sponte dismissals of complaints should be rare. Here the failure to file an application for an order of reference in a foreclosure action was not an adequate justification for a sua sponte dismissal.

April 19, 2023

Evidence, Foreclosure

THE PLAINTIFF IN THIS FORECLOSURE ACTION DID NOT SUBMIT THE BUSINESS RECORDS DEMONSTRATING DEFENDANT’S DEFAULT; PLAINTIFF’S SUMMARY JUDGMENT MOTION SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the plaintiff in this foreclosure proceeding did not demonstrate defendant’s default because the relevant business documents were not submitted:

… [P]laintiff submitted an affidavit of an employee of its loan servicer who averred … that based upon his review of certain business records maintained by the loan servicer and the plaintiff, he was familiar with the underlying mortgage loan and payment history of Hernandez [defendant]. However, the affiant, and the plaintiff, failed to submit any business records substantiating the alleged default … . “‘Conclusory affidavits lacking a factual basis are without evidentiary value'” … . “Even assuming that the subject affidavit established a sufficient foundation for the records relied upon, ‘it is the business record itself, not the foundational affidavit, that serves as proof of the matter asserted'” … . Federal Natl. Mtge. Assn. v Hernandez, 2023 NY Slip Op 01888, Second Dept 4-12-23

Practice Point: An affidavit describing business records is hearsay if the records themselves are not attached.

April 12, 2023

Civil Procedure, Evidence, Foreclosure

THE BANK DID NOT DEMONSTATE IT HAD STANDING TO FORECLOSE BECAUSE IT DID NOT ADEQUATELY EXPLAIN HOW IT CAME INTO POSSESSION OF THE NOTE (THIRD DEPT).

The Third Department, reversing Supreme Court, determined that plaintiff did not demonstrate it had standing to bring the foreclosure action and its summary judgment motion should not have been granted:

A plaintiff demonstrates standing in a mortgage foreclosure action by establishing that “it is both the holder or assignee of the subject mortgage and the holder or assignee of the underlying note at the time the action is commenced” … . “With respect to the note, either a written assignment of the underlying note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation” … . …

Other than alleging that he reviewed the electronic records that were kept in the normal course of business, [the affiant] failed to provide details with regard to how plaintiff came into possession of the note … . Wilmington Sav. Fund Socy., FSB v LaFrate, 2023 NY Slip Op 01824, Third Dept 4-6-23

Practice Point: When the defendant raises lack-of-standing as an affirmative defense in a foreclosure action, the bank must demonstrate it came into possession of the note before commencing the action. Here the proof of standing was conclusory and lacking in detail. The bank’s motion for summary judgment should not have been granted.

April 6, 2023

Attorneys, Civil Procedure, Evidence, Foreclosure

PLAINTIFF FAILED TO SHOW UP FOR THE SETTLEMENT CONFERENCE IN THIS FORECLOSURE ACTION AND A DEFAULT JUDGMENT WAS GRANTED; IN MOVING TO VACATE THE DEFAULT, PLAINTIFF DID NOT PRESENT SUFFICIENT PROOF OF LAW OFFICE FAILURE AND DID NOT EXPLAIN ITS DELAY IN SEEKING TO VACATE THE DEFAULT JUDGMENT (SECOND DEPT).

The Second Department, reversing Supreme Court in this foreclosure action, determined plaintiff did not demonstrate an adequate excuse (law office failure) for not attending the settlement conference and plaintiff’s motion to vacate the default judgment should not have been granted:

… [T]he plaintiff’s allegation of law office failure was conclusory and unsubstantiated. In an affirmation in support of the motion … to vacate the order of dismissal, the plaintiff’s counsel described her office’s standard practices and procedures for receiving and processing notices and orders, and posited that her office had not received notice of the scheduled conference because there were “no notes, scanned images, or calendar steps” in the files that she reviewed. The plaintiff … failed to provide an affidavit from anyone with personal knowledge of the purported law office failure, provide any details regarding such failure, or provide any other evidence of the system’s purported breakdown that led to counsel’s nonappearance at the conference … . Moreover, the plaintiff failed to provide a reasonable excuse for its delay in moving to vacate the order of dismissal … . Since the plaintiff failed to proffer a reasonable excuse its default, it is unnecessary to determine whether the plaintiff demonstrated the existence of a potentially meritorious cause of action (see CPLR 5015[a][1] …). HSBC Bank USA, N.A. v Hutchinson, 2023 NY Slip Op 01782, Second Dept 4-5-23

Practice Point: Here the claim that plaintiff missed the settlement conference due to law office failure was not supported by proof from a person with first hand knowledge. The motion to vacate the default judgment should not have been granted.

April 5, 2023

Civil Procedure, Foreclosure, Judges

THE JUDGE SHOULD NOT HAVE, SUA SPONTE, DISMISSED THE COMPLAINT IN THIS FORECLOSURE ACTION AFTER PLAINTIFF FAILED TO MEET A DEADLINE SET IN A STATUS CONFERENCE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the judge in this foreclosure proceeding should not have, sua sponte, dismissed the complaint when plaintiff did not move for a judgment of foreclosure and sale by the deadline set in a status conference order:

On March 22, 2017, the Supreme Court issued a status conference order … directing the plaintiff to “file an application for a [j]udgment of [f]oreclosure [and] sale” by June 7, 2017. The plaintiff failed to do so. In an order entered June 15, 2017 (hereinafter the dismissal order), the court, sua sponte, directed dismissal of the complaint and cancellation of the notice of pendency.

A court’s power to dismiss an action, sua sponte, is to be used sparingly and only when extraordinary circumstances exist to warrant dismissal … . Here, the plaintiff’s failure to move for a judgment of foreclosure and sale as directed by the … status conference order was not a sufficient ground upon which to sua sponte direct dismissal of the complaint and cancellation of the notice of pendency … . Deutsche Bank Trust Co. Ams. v Martinez, 2023 NY Slip Op 01179, Second Dept 3-8-23

Practice Point: Sua sponte dismissals of complaints are disfavored. Here the failure to meet a deadline set in a status conference did not justify a sua sponte dismissal of the complaint.

March 8, 2023

Evidence, Foreclosure, Real Property Actions and Proceedings Law (RPAPL)

IN A FORECLOSURE ACTION THE BANK MUST PROVE COMPLIANCE WITH RPAPL 1306 WHICH REQUIRES PROOF PAPERS WERE FILED WITHIN THREE BUSINESS DAYS OF MAILING THE RPAPL 1304 NOTICE OF DEFAULT; HERE THERE WAS NO PROOF WHEN THE RPAPL 1304 NOTICE WAS MAILED, SO THE PROOF OF COMPLIANCE WITH RPAPL 1306 WAS INSUFFICIENT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined summary judgment dismissing an affirmative defense (alleging failure to comply with RPAPL 1306) should not have been granted to the plaintiff in this foreclosure action. Because there was no proof of when the notice of default required by RPAPL 1304 was mailed, proof that plaintiff had filed papers with the superintendent of financial services pursuant to RPAPL 1306 was insufficient. RPAPL 1306 requires filing within three business days of mailing the RPAPL 1304 notice. But the date of mailing was not proven:

… [I]n the absence of evidence establishing when the plaintiff mailed the notices required by RPAPL 1304, the plaintiff could not establish, as a matter of law, that it complied with the requirement of RPAPL 1306 to file with the superintendent of financial services within three business days of the mailing of the notice required by RPAPL 1304. Thus, the court should have denied that branch of the plaintiff’s motion which was, in effect, for summary judgment dismissing so much of the defendant’s fifth affirmative defense as alleged a failure to comply with RPAPL 1306…. . PROF-2013-S3 Legal Title Trust V v Johnson, 2023 NY Slip Op 01204, Second Dept 3-8-23

Practice Point: In a foreclosure action, if there is no proof when the RPAPL 1304 notice of default was mailed, the bank can’t prove the papers filed pursuant to RPAPL 1306 were filed within three business days of mailing the RPAPL 1304 notice (which is a requirement of strict compliance with RPAPL 1306).

March 8, 2023

Contract Law, Debtor-Creditor, Foreclosure

THE PROCEEDS OF THE SALE OF COLLATERAL TO THE MAJORITY LENDERS WERE NOT DISTRIBUTED TO THE MINORITY LENDERS IN THE MANNER REQUIRED BY THE CREDIT AND SECURITY AGREEMENTS IN THIS PRIVATE FORECLOSURE; THE MINORITY LENDERS’ BREACH OF CONTRACT CAUSES OF ACTION SHOULD NOT HAVE BEEN DISMISSED (FIRST DEPT).

The First Department, reversing Supreme Court, in a full-fledged opinion by Justice Renwick, determined the breach of contract claims by the minority lenders against the majority lenders and a collateral agent should not have been dismissed. Collateral was sold to the majority lenders but the proceeds were not distributed to the minority lenders in the manner required by the credit and security agreements. The opinion is fact-specific and far too complex to fairly summarize here:

… [T]he pro rata sharing provisions required that all minority lenders receive pro rata treatment of their debt obligations, which meant that the proceeds of the sale of the collateral (notes and equity) should have been distributed to all secured lenders pro rata in accordance with the terms of the credit agreement. … While the Collateral Agent, as directed by the majority lenders, was authorized to define the terms, conditions, and limitations of how the restructuring sale should be carried out, the reorganization had to be for the pro rata benefit of all those holders of secured debt, including minority lenders. Thus, the minority lenders have the right to object to the restructure sale conducted through credit bidding based upon the failure to provide them adequate protection of their pro rata interest on the foreclosed collateral. AEA Middle Mkt. Debt Funding LLC v Marblegate Asset Mgt., LLC, 2023 NY Slip Op 01157, First Dept 3-7-23

Practice Point: This comprehensive opinion concerns a private foreclosure of collateral and the distribution of the proceeds to the majority and minority lenders pursuant to complex credit and security agreements.

March 7, 2023