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IN THIS FORECLOSURE ACTION, THE BANKRUPTCY STAY DID NOT TERMINATE WHEN DEFENDANT BOUGHT THE SUBJECT PROPERTY FROM THE BANKRUPTCY ESTATE; THE STAY TERMINATED LATER WHEN DEFENDANT RECEIVED A DISCHARGE FROM THE BANKRUPTCY COURT; THE FORECLOSURE ACTION WAS THEREFORE TIMELY (SECOND DEPT).

The Second Department, in a full-fledged opinion by Justice Dowling, in a matter of first impression, determined the foreclosure action, which had been stayed when defendant twice filed for bankruptcy, was timely brought. If the stay ceased when defendant bought the subject property from the bankruptcy estate, the foreclosure would have been untimely. But the Second Department held that the stay did not cease until the subsequent discharge order, rendering the action timely:

… [D]efendant’s purchase of the Middle Pond Road property from the bankruptcy estate pursuant to the November 26, 2013 order did not terminate the automatic bankruptcy stay barring commencement of the instant foreclosure action, but rather, under the circumstances of this case, the automatic bankruptcy stay terminated when the defendant received a discharge from the Bankruptcy Court on November 3, 2014.

Pursuant to the plain language of 11 USC § 362(c)(1), the discharge of the … property from the bankruptcy estate pursuant to the November 26, 2013 order terminated the stays of an act against “property of the estate,” which stays are established by 11 USC § 362(a)(3) and (4). Here, however, upon the defendant’s purchase of the … property from the bankruptcy estate pursuant to November 26, 2013 order, ownership of the … property returned to the defendant, as debtor in the bankruptcy proceeding … . Consequently, the termination of the stay of an act against “property of the estate” provided for by 11 USC § 362(c)(1) has no bearing on the stays established by 11 USC § 362(a)(1) and (5), which expressly apply to acts taken against “the debtor” or “property of the debtor,” and which continued in effect. Deutsche Bank Natl. Trust Co. v Lubonty, 2022 NY Slip Op 04288, Second Dept 7-6-22

Practice Point: Here whether the foreclosure action was timely depended on when the bankruptcy stay terminated. The defendant in the foreclosure action was the “debtor” in the bankruptcy proceeding. The defendant bought the property which was the subject of the foreclosure action from the bankruptcy estate. Based on the applicable bankruptcy statute, the bankruptcy stay did not terminate when defendant bought the property. It terminated later when defendant received a discharge from the Bankruptcy Court. Because the stay terminated on the later date, the foreclosure action was timely.

 

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THE NOTICE OF FORECLOSURE WAS SENT TO DEFENDANT IN AN ENVELOPE WHICH INCLUDED OTHER NOTICES, A VIOLATION OF RPAPL 1304 (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the bank violated the “separate envelope” rule (RPAPL 1304) in that the foreclosure notice sent to defendant included notices in addition to the foreclosure notice:

… [T]he plaintiff failed to establish, prima facie, that it complied with the “separate envelope” requirement of RPAPL 1304(2). “[I]nclusion of any material in the separate envelope sent to the borrower under RPAPL 1304 that is not expressly delineated in these provisions constitutes a violation of the separate envelope requirement of RPAPL 1304(2)” … . The envelope containing the requisite notice under RPAPL 1304 included notices pertaining to the Federal Fair Debt Collection Practices Act (15 USC et seq.) and bankruptcy, and, therefore, the plaintiff failed to establish, prima facie, its strict compliance with RPAPL 1304 … . US Bank N.A. v Lanzetta, 2022 NY Slip Op 04322, Second Dept 7-6-22

Practice Point: Here the notice of foreclosure was sent to defendant in an envelope with other notices, a violation of RPAPL 1304, which must be strictly complied with.

 

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THE PROOF OF THE AMOUNT DUE PURSUANT TO THE MORTGAGE WAS NOT SUPPORTED BY THE RELEVANT BUSINESS RECORDS; THEREFORE THE REFEREE’S REPORT SHOULD NOT HAVE BEEN CONFIRMED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the referee’s report in this foreclosure action was based on hearsay and should not have been confirmed:

“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” … . “The referee’s findings and recommendations are advisory only and have no binding effect on the court, which remains the ultimate arbiter of the dispute” … .

Here, as the defendant correctly contends, the affidavit of the plaintiff’s servicing agent, submitted for the purpose of establishing the amount due and owing under the subject mortgage loan, “constituted inadmissible hearsay and lacked probative value because the affiant did not produce any of the business records [s]he purportedly relied upon in making [her] calculations” … . Thus, the referee’s findings with respect to the total amount due upon the mortgage were not substantially supported by the record … . U.S. Bank N.A. v Barton, 2022 NY Slip Op 04319, Second Dept 7-6-22

Practice Point: In foreclosure actions where the proof is presented by affidavit, if the affidavit relies on business records which are not attached, the affidavit is inadmissible hearsay.

 

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IN THIS FORECLOSURE ACTION, A PARTY WHO DID NOT SIGN THE NOTE BUT DID SIGN THE MORTGAGE IS A “BORROWER” ENTITLED TO RPAPL 1304 NOTICE; PLAINTIFF BANK’S MOTION FOR SUMMARY JUDGMENT SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined that a borrower, Ellen Weininger, who signed the mortgage but not the note, was entitled to notice of foreclosure pursuant to RPAPL 1304:

… [I]t is undisputed that the plaintiff failed to serve Ellen Weininger with timely notice pursuant to RPAPL 1304, and, contrary to the plaintiff’s contention, Ellen Weininger was entitled to such notice as a “borrower” within the meaning of that statute. Although Ellen Weininger did not sign the underlying note, both of the defendants 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 the absence of a consolidation, extension, and modification agreement signed by that defendant or 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 Ellen Weininger signed the mortgage as a “borrower” and, in that capacity, agreed to pay the amounts due under the note, she was entitled to timely notice pursuant to RPAPL 1304 …  As the plaintiff conceded that it did not send the requisite notice pursuant to RPAPL 1304 to Ellen Weininger until 17 days before commencement of this action, it failed to meet its prima facie burden of establishing compliance with RPAPL 1304, and those branches of the plaintiff’s motion which were for summary judgment on the complaint insofar as asserted against the defendants, to strike their answer, and for an order of reference should have been denied. Deutsche Bank Natl. Trust Co. v Weininger, 2022 NY Slip Op 04008, Second Dept 6-22-22

Practice Point: In this foreclosure proceeding, a party who did not sign the note but did sign the mortgage is a “borrower” entitled to the notice required by RPAPL 1304.

 

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IN A FORECLOSURE ACTION, THE REFEREE’S FAILURE TO HOLD A HEARING DOES NOT REQUIRE REVERSAL OF THE JUDGMENT OF FORECLOSURE IF THE DEFENDANT HAD THE OPPORTUNITY TO CHALLENGE THE REFEREE’S REPORT BY SUBMITTING EVIDENCE DIRECTLY TO SUPREME COURT (THIRD DEPT).

The Third Department noted that the referee’s failure to hold a hearing in a foreclosure action does not require reversal of a judgment of foreclosure if the defendant had an opportunity the challenge the referee’s report by submitting evidence directly to Supreme Court:

“CPLR 4313 requires a referee to notify the parties of the date and place for a hearing. However, hearings may be performed either on paper or by the taking of in-court evidence” … . Generally, “‘[a]s long as a defendant is not prejudiced by the inability to submit evidence directly to the referee, a referee’s failure to notify a defendant and hold a hearing is not, by itself, a basis to reverse a judgment of foreclosure and sale and remit the matter for a hearing and a new determination of amounts owed'” … . This is because “the referee’s findings and recommendations are advisory only; they have no binding effect and the court remains the ultimate arbiter of the dispute [as] CPLR 4403 expressly authorizes a court not only to reject the report but to make its own findings, to take or retake testimony or to order a new trial or hearing” … .

Here, defendants were provided with “an opportunity to challenge the referee’s report by submitting evidence directly to Supreme Court” upon plaintiff’s motion to confirm the referee’s report — an opportunity of which they did not avail themselves … .Carrington Mtge. Servs., LLC v Fiore, 2022 NY Slip Op 03951, Third Dept 6-16-22

Practice Point: Although the CPLR requires the referee in a foreclosure action to hold a hearing, the failure to hold the hearing is not reversible error as long as the defendant had the opportunity to challenge the referee’s report by submitting evidence directly to Supreme Court.

 

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PLAINTIFF OFFERED NO EXPLANATION FOR THE SEVEN-YEAR DELAY BETWEEN THE ORDER OF REFERENCE AND THE MOTION FOR A JUDGMENT OF FORECLOSURE AND SALE; THE ACCRUAL OF INTEREST DURING THE DELAY SHOULD HAVE BEEN TOLLED (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined the defendant was prejudiced by the unexplained seven-year delay between the order of reference in 2009 and the motion for a judgment of foreclosure and sale in 2016, Therefore the accrual of interest during the delay should have been tolled:

… [A]pproximately seven years elapsed between the entry of the order of reference and the time the plaintiff moved for a judgment of foreclosure and sale. … [Plaintiff] failed to offer any explanation for this delay or establish that the defendant caused this delay, as the record demonstrates that the defendant’s motions and the stays due to the defendant’s bankruptcy petitions did not occur during the period for which the defendant sought to toll the accrual of interest. Since the defendant was prejudiced by the plaintiff’s unexplained delay of approximately seven years, during which time interest had been accruing, the interest on the loan should have been tolled from October 9, 2009, … until September 21, 2016 … . GMAC Mtge., LLC v Yun, 2022 NY Slip Op 03887, Second Dept 6-15-22

Practice Point: Here the plaintiff could not explain the seven-year delay between the order of reference and the motion for a judgment of foreclosure and sale. Interest should not have accrued during the delay.

 

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BECAUSE THE PRIOR FORECLOSURE ACTION WAS DISMISSED FOR LACK OF STANDING, THE PRIOR ACTION DID NOT ACCELERATE THE DEBT; THEREFORE DEFENDANT DID NOT DEMONSTRATE THE INSTANT ACTION WAS TIME-BARRED (SECOND DEPT).

The Second Department noted that the defendant in this foreclosure action did not demonstrate the foreclosure action was time barred. The initial foreclosure action was dismissed for lack of standing. Therefore the debt was not accelerated by the prior action:

Since the prior action was dismissed for lack of standing, [defendant] failed to establish that the plaintiff had the authority to accelerate the debt through the complaint filed in the prior action … . Wells Fargo Bank, N.A. v Rutty, 2022 NY Slip Op 03926, Second Dept 6-15-22

Practice Point: If a prior foreclosure action was dismissed for lack of standing that action will not be deemed to have accelerated the debt. The prior action, therefore, will not have started the statute-of-limitations clock..

 

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ALTHOUGH THE LOAN SERVICER’S AFFIDAVIT MAY HAVE LAID A PROPER FOUNDATION FOR THE DOCUMENTS DEMONSTRATING DEFENDANTS’ DEFAULT IN THIS FORECLOSURE ACTION, THE DOCUMENTS THEMSELVES WERE NOT PRODUCED, RENDERING THE AFFIDAVIT INADMISSIBLE HEARSAY (SECOND DEPT). ​

The Second Department, reversing Supreme Court, determined the bank in this foreclosure action did not prove defendants’ default. The affidavit from the loan servicer may have laid a proper foundation for the relevant documents, but the business records themselves were not attached:

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” … . … [T]he affiant’s assertions regarding the defendants’ default, without the business records upon which he relied in making those assertions, constituted inadmissible hearsay … . U.S. Bank N.A. v Kahn Prop. Owner, LLC, 2022 NY Slip Op 03921, Second Dept 6-15-22

Practice Point: At the summary judgment stage, business records necessary to make out a prima facie case must be produced. An affidavit laying a proper foundation for the documents is inadmissible hearsay it the relevant business records themselves are not submitted.

 

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COMPLIANCE WITH THE NOTICE PROVISIONS OF RPAPL 1304, PARTICULARLY THE MAILING REQUIREMENTS, WAS NOT SHOWN IN THIS FORECLOSURE ACTION (SECOND DEPT). ​

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

… [A}lthough the plaintiff submitted a certified mail receipt, the receipt did not contain a postal stamp, indication that postage was paid, or an attendant signature, and the plaintiff did not submit any United States Postal Service tracking information … . The affidavit of Nancy Sczubleski, submitted by the plaintiff for the first time in opposition to the defendant’s cross motion, also failed to establish strict compliance with RPAPL 1304. Sczubleski did not have personal knowledge of the purported mailing … . Furthermore, while Sczubleski averred that she was familiar with the plaintiff’s mailing practices and procedures, the notices submitted by the plaintiff in support of its motion for summary judgment indicate that they were not mailed by the plaintiff, but rather were mailed by an entity known as MGC Mortgage, Inc. (hereinafter MGC). Sczubleski, who stated in her affidavit that she was employed by Dovenmuehle Mortgage, Inc., a sub-servicer of the loan, does not address this fact at all, let alone demonstrate that she was familiar with MGC’s mailing practices and procedures … . LNV Corp. v Allison, 2022 NY Slip Op 03716, Second Dept 6-8-22

Practice Point: Yet another example of the mortgagee’s failure to demonstrate the RPAPL 1304 notice was properly mailed in its foreclosure motion papers.

 

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AFTER THE FORECLOSURE SALE BUT BEFORE THE CLOSING, THE MORTGAGOR STARTED AN ACTION ALLEGING FRAUD IN THE FORECLOSURE PROCEEDINGS; THE FRAUD ACTION DID NOT RENDER THE TITLE UNMARKETABLE SUCH THAT THE PURCHASER COULD SET ASIDE THE FORECLOSURE SALE AND HAVE THE DOWN PAYMENT RETURNED (SECOND DEPT).

The Second Department determined the fact that the mortgagor, after the foreclosure sale but before the closing, started an action alleging fraud in the foreclosure proceeding did not render the title to the property unmarketable. Therefore the purchaser at the foreclosure auction did not have right to set aside the foreclosure sale and have the down payment returned:

“A marketable title is a title free from reasonable doubt, but not from every doubt” … . “[S]omething more than a mere assertion of a right is essential to create an unmarketable or doubtful title” … . Here, contrary to the purchaser’s contention, the mortgagor’s action did not render title unmarketable. Therefore, the Supreme Court properly denied those branches of the purchaser’s motion which were to set aside the foreclosure sale and to direct the plaintiff to return the down payment. DiTech Fin., LLC v Steplight, 2022 NY Slip Op 03710, Second Dept 6-8-22

Practice Point: The title to the property sold at the foreclosure auction was not rendered unmarketable by a subsequent action brought by the mortgagor alleging fraud in the foreclosure proceedings. Therefore the purchaser’s motion to set aside the foreclosure sale and return the down payment was properly denied.

 

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