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​ IN THIS FORECLOSURE ACTION, THE BANK FAILED TO PROVE DEFENDANT’S DEFAULT (EVIDENCE SUBMITTED IN REPLY NOT CONSIDERED) AND THE BANK FAILED TO DEMONSTRATE IT NOTIFIED A TENANT OF THE FORECLOSURE AS REQUIRED BY RPAPL 1303 (SECOND DEPT). ​

The Second Department, reversing Supreme Court, determined plaintiff bank (Merrill Lynch) in this foreclosure action failed to prove defendant’s default and failed to notify a tenant on the property of the foreclosure. The bank’s attempt to prove the default in reply papers was rejected:

Merrill Lynch failed to submit admissible evidence establishing the defendant’s default. In support of its motion, Merrill Lynch submitted, inter alia, the affidavit of Theresia Ang, the vice president of its loan servicer and attorney-in-fact. However, Ang failed to attach the business records on which she relied, and thus, her averment to the defendant’s default was hearsay lacking in probative value … . Although Merrill Lynch attempted to submit evidence of the defendant’s default in reply, a moving party “cannot meet its prima facie burden by submitting evidence for the first time in reply” … .

… RPAPL 1303 requires, inter alia, the party foreclosing a mortgage on residential property to provide the notice prescribed by the statute to any tenant of the property by certified mail, if the identity of the tenant is known to the foreclosing party (see id. § 1303[1][b]; [4]). Proper service of an RPAPL 1303 notice is a condition precedent to commencing a foreclosure action, and the “‘foreclosing party has the burden of showing compliance therewith'” … .

Here, Merrill Lynch failed to submit any evidence that it served any tenant of the subject property with the notices required by RPAPL 1303 by certified mail, or that it was not aware of any tenant’s identity. In contrast, the defendant’s affidavit and the affidavit of Richard Nicholson, submitted in opposition to Merrill Lynch’s motion, established that Richard Nicholson resided at the subject property, that he paid rent, and that the mortgage loan servicer was aware that he resided at the subject property. Merrill Lynch Credit Corp. v Nicholson, 2022 NY Slip Op 06239, Second Dept 11-9-22

Practice Point: The bank in this foreclosure action failed to submit sufficient evidence of defendant’s default and was not allowed to cure the defect in reply papers.

Practice Point: The bank in this foreclosure action did not demonstrate it notified a tenant of the foreclosure as required by RPAPL 1303.

 

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THE BANK DID NOT DEMONSTRATE THE ALLONGE, A SEPARATE PAPER, WAS FIRMLY ATTACHED TO THE NOTE, AS REQUIRED BY THE UCC; THEREFORE THE BANK DID NOT DEMONSTRATE IT HAD STANDING TO BRING THE FORECLOSURE ACTION (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the bank did not demonstrate standing to bring the foreclosure action:

… [T]he plaintiff failed to establish, prima facie, that it had standing to commence the action based on its annexation of the note to the summons and complaint, since the plaintiff did not demonstrate that the purported allonge, which was on a piece of paper completely separate from the note, was “so firmly affixed thereto as to become a part thereof,” as required by UCC 3-202(2) … . Hudson City Sav. Bank v Ellia, 2022 NY Slip Op 06235, Second Dept 11-9-22

Practice Point: When a defendant contests the bank’s standing to bring a foreclosure action, the bank must prove the allonge (a separate paper) was “firmly attached” to the note as required by UCC 3-202(2).

 

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THE BANK INCLUDED OTHER NOTICES WITH THE NOTICE OF DEFAULT, A VIOLATION OF THE SEPARATE ENVELOPE RULE (RPAPL 1304) (SECOND DEPT). ​

The Second Department, reversing Supreme Court, determined plaintiff bank included other notice with the notice of default, a violation of RPAPL 1304 (the separate envelope rule):

“[P]roper service of RPAPL 1304 notice on the borrower or borrowers is a condition precedent to the commencement of a residential foreclosure action” … . Here, the defendants established, prima facie, that the plaintiff did not comply with RPAPL 1304, since additional notices were sent in the same envelope as the 90-day notice required by RPAPL 1304, and a single notice was jointly addressed to both of the defendants … . HSBC Bank USA, N.A. v Schneps, 2022 NY Slip Op 06234, Second Dept 11-9-22

Practice Point: The separate envelope rule (RPAPL 1304) which requires that nothing else be included with the notice of default is a condition precedent to a foreclosure action.

 

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A MOTION TO VACATE AN ORDER SHOULD BE TRANSFERRED TO THE JUDGE WHO MADE THE ORDER; THE JUDGE SHOULD NOT HAVE, SUA SPONTE, DISMISSED THE COMPLAINT IN THIS FORECLOSURE ACTION (SECOND DEPT).

The Second Department, reversing Supreme Court, determined: (1) a motion to vacate an order should be transferred to the judge who made the order; and (2) the judge should not have, sua sponte, dismissed the foreclosure complaint:

A motion to vacate an order “shall be made, on notice, to the judge who signed the order, unless he or she is for any reason unable to hear it” (CPLR 2221[a]). “A motion made to other than a proper judge . . . shall be transferred to the proper judge” (CPLR 2221[c]). Here, instead of denying the first motion with leave to renew before Justice Schulman, the Supreme Court should have transferred the first motion to Justice Schulman … . …

“‘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 directives of the order … was not a sufficient ground upon which to direct dismissal of the complaint in the first action … . Citimortgage, Inc. v Dedalto, 2022 NY Slip Op 06105, Second Dept 11-2-22

Practice Point: A motion to vacate an order should be transferred to the judge who made the order.

Practice Point: A judge’s power to, sua sponte, dismiss a complaint is limited and should only be exercised in extraordinary circumstances (not present in this case).

 

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IN THIS FORECLOSURE ACTION, THE WRONG TYPEFACE IN THE RPAPL 1303 NOTICE REQUIRED DENIAL OF PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the plaintiff in this foreclosure action did not demonstrate compliance with the typeface requirements for the RPAPL 1303 notice. Therefore plaintiff’s motion for summary judgment should have been denied:

RPAPL 1303 “requires the foreclosing party to deliver, along with the summons and complaint, a notice titled ‘Help for Homeowners in Foreclosure’ in residential foreclosure actions involving owner-occupied, one-to-four family dwellings. The statute mandates that the notice include specific language relating to the summons and complaint, sources of information and assistance, rights and obligations, and foreclosure rescue scams. It also mandates that the notice be in bold, 14-point type and printed on colored paper that is other than the color of the summons and complaint, and that the title of the notice be in bold, 20-point type” … . “Proper service of the notice required by RPAPL 1303 . . . is a condition precedent to the commencement of a foreclosure action, and it is the plaintiff’s burden to show compliance with that statute” … .

Here, the plaintiff failed to meet its prima facie burden since it is not apparent upon review of the copy of the RPAPL 1303 notice served upon the defendant that the correct typeface was utilized. In addition, the process server’s affidavit of service did not indicate that the notice served upon the defendant complied with all of the requirements of RPAPL 1303, including the proper typeface … . MTGLQ Invs., L.P. v Assim, 2022 NY Slip Op 06000, Second Dept 10-26-22

Practice Point: In a foreclosure action, the plaintiff must strictly comply with the notice requirements in RPAPL 1303, including the size of the typeface. The use of the wrong typeface precludes the commencement of the action.

 

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PLAINTIFF BANK IN THIS FORECLOSURE ACTION DID NOT DEMONSTRATE THE FIVE HOUSING COUNSELING AGENCIES LISTED IN THE RPAPL 1304 WERE DESIGNATED BY THE NYS DIVISION OF HOUSING AND COMMUNITY RENEWAL (DHCR) AND THEREFORE DID NOT DEMONSTRATE STRICT COMPLIANCE WITH RPAPL 1304 (SECOND DEPT).

The Second Department, reversing Supreme Court in this foreclosure action, determined the five housing counseling agencies listed on the 90-day notice were designated by the NYS Division of Housing and Community Renewal (DHCR) at the time the notice was sent:

“It is the plaintiff’s burden, on its motion for summary judgment, to demonstrate its strict compliance with the applicable provisions of RPAPL 1304” … . As relevant here, RPAPL 1304(2) … required that the 90-day notice sent to the borrower “contain a list of at least five housing counseling agencies as designated by the division of housing and community renewal, that serve the region where the borrower resides,” and that the lists of designated agencies published on the websites of the New York State Department of Financial Services (hereinafter DFS) and the DHCR be used by the lender, assignee, or mortgage loan servicer to meet these requirements … .

… [P]laintiff failed to establish … its strict compliance with RPAPL 1304(2), as it failed to demonstrate that the five entities listed on the 90-day notices sent to the defendant were designated by the DHCR as of when the notices were sent … . Bank of N.Y. Mellon v Maldonado, 2022 NY Slip Op 05974, Second Dept 10-26-22

Practice Point: If the bank in a foreclosure action does not demonstrate strict compliance with the notice requirements in RPAPL 1304 it is not entitled to summary judgment. At time of this action, RPAPL 1304 required that five housing counseling agencies be listed in the RPAPL 1304 notice and that the agencies be designated by the Division of Housing and Community Renewal (DHCR). Here the bank didn’t demonstrate the five agencies were so designated so its motion for summary judgment shouldn’t have been granted.

 

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THE BUSINESS RECORDS UPON WHICH THE CALCULATIONS IN THE REFEREE’S REPORT WERE BASED WERE NOT SUBMITTED; THE REPORT SHOULD NOT HAVE BEEN CONFIRMED (SECOND DEPT).

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

Supreme Court erred in granting the plaintiff’s motion 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” … . Although the plaintiff contends that the referee’s report was supported by the affidavit of an employee of its loan servicer, the plaintiff did not submit the business records upon which that employee purportedly relied in computing the total amount due on the mortgage. Consequently, the referee’s findings in that regard were not substantially supported by the record … . Bank of N.Y. Mellon v Conforti, 2022 NY Slip Op 05973, Second Dept 10-26-22

Practice Point: Here the calculations in the referee’s report were based upon business records which were not submitted. Therefore the report was not supported by the record and should not have been confirmed.

 

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DEFENDANT WAIVED THE LACK-OF-PERSONAL-JURISDICTION DEFENSE BY COUNSEL’S FILING A NOTICE OF APPEARANCE WITHOUT RAISING THE JURISDICTION OBJECTION (SECOND DEPT).

​The Second Department, reversing Supreme Court, determined the defendant waived a lack-of-personal-jurisdiction defense by counsel’s filing a notice of appearance without raising the jurisdictional objection:

“‘By statute, a party may appear in an action by attorney (CPLR 321), and such an appearance constitutes an appearance by the party for purposes of conferring jurisdiction'” … . Here, the defendant appeared in the action by its counsel’s filing of the notice of appearance … , and neither the defendant nor its attorney moved to dismiss the complaint for lack of personal jurisdiction at that time or asserted lack of personal jurisdiction in a responsive pleading. Thus, the defendant waived any objection based on lack of personal jurisdiction by failing to move to dismiss the complaint on this ground at the time its counsel filed a notice of appearance in the action or to serve an answer which raised this jurisdictional objection … . Capital One N.A. v Ezkor, 2022 NY Slip Op 05829, Second Dept 10-19-22

Similar issue and result in: HSBC Bank USA N.A. v Mohammed, 2022 NY Slip Op 05843, Second Dept 10-19-22

Practice Point: Counsel’s filing a notice of appearance without raising a lack-of-personal-jurisdiction objection waives the objection.

 

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PLAINTIFF IN THIS STRICT FORECLOSURE ACTION SHOULD HAVE BEEN ALLOWED TO AMEND THE COMPLAINT TO ADD A CAUSE OF ACTION FOR REFORECLOSURE UNDER RPAPL 1503; REFORECLOSURE IS AN OPTION WHEN THE ORIGINAL FORECLOSURE MAY BE VOID OR VOIDABLE AS AGAINST ANY PERSON (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff’s motion to amend the complaint in this strict foreclosure action to add a cause of action for reforeclosure under RPAPL 1503:

Section 1503 of the Real Property Actions and Proceedings Law establishes an action in reforeclosure where an original foreclosure judgment, sale, or conveyance may be void or voidable as against any person. The statute grants a purchaser the right to maintain an action “to determine the right of any person to set aside such judgment, sale or conveyance or to enforce an equity of redemption or to recover possession of the property, or the right of any junior mortgagee to foreclose a mortgage” (id.). “Such action may be maintained even though an action against the defendant to foreclose the mortgage under which the judgment, sale or conveyance was made, or to extinguish a right of redemption, would be barred by the statutes of limitation” … . Bank of N.Y. v Karistina Enters., LLC, 2022 NY Slip Op 05828, Second Dept 10-19-22

Practice Point: Reforeclosure under RPAPL 1503 may be available when the original mortgage is void or voidable as against any person.

 

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THE BANK IN THIS FORECLOSURE ACTION DID NOT DEMONSTRATE IT WAS THE HOLDER OF THE NOTE AND DID NOT DEMONSTRATE POSSESSION OF THE NOTE AT THE TIME THE ACTION WAS BROUGHT BECAUSE THE NOTE ITSELF WAS NOT ATTACHED TO THE LOAN SERVICER’S AFFIDAVIT; THE BANK’S MOTION FOR SUMMARY JUDGMENT SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the plaintiff bank should not have been awarded summary judgment in this foreclosure action because it did not demonstrate standing to foreclose:

… [T]here was no evidence that the plaintiff is the assignee of the note, and a triable issue of fact exists as to whether the plaintiff was the holder of the note at the time this action was commenced. A promissory note is a negotiable instrument within the meaning of the Uniform Commercial Code (see UCC 3-104[2][d] …) “holder” is “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession” (UCC 1-201[b] [21][A] …). In the present case, there is a triable issue of fact as to whether the note was properly specially endorsed by an allonge “so firmly affixed thereto as to become a part thereof” when it came into the possession of the plaintiff (UCC 3-202[2] …).

Further, the affidavit of Verdooren [loan servicer employee] and the accompanying business records were insufficient to establish the plaintiff’s standing … . 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” ( … see CPLR 4518[a]). Here, although Verdooren stated that Wells Fargo had possession of the note on the plaintiff’s behalf at the time the action was commenced, the documents attached to Verdooren’s affidavit failed to establish this fact. Bank of N.Y. Mellon Trust Co., N.A. v Andersen, 2022 NY Slip Op 05827, Second Dept 10-19-22

Practice Point: If the defendant raises the lack-of-standing defense in a foreclosure action, the bank must demonstrate the plaintiff was the assignee of the note and the note was in its possession when the action was brought. Here the plaintiff did not show the note was properly endorsed by an attached allonge when it came into plaintiff’s possession and the note was not attached to the loan servicer’s affidavit, rendering the affidavit hearsay.

 

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