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RPAPL 1301(3) PROHIBITS MORE THAN ONE FORECLOSURE AT A TIME; THE VIOLATION OF THAT STATUTE HERE WAS A MERE IRREGULARITY WHICH SHOULD HAVE BEEN DISREGARDED; THE PRIOR ACTION WAS DISMISSED AFTER THE INSTANT ACTION WAS COMMENCED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the fact that RPAPL 1301(3), which prohibits more than one foreclosure at a time, was technically violated did not warrant dismissing the second action:

Here, the plaintiff failed to seek leave of court to commence this action while the 2010 action was still pending. However, the 2010 action had previously been marked disposed, and no further action occurred in the 2010 action until the administrative dismissal on April 9, 2018. Additionally, by the time the defendants cross-moved in this action for summary judgment dismissing the complaint insofar as asserted against them, the 2010 action had already been dismissed for nearly six months. Thus, the defendants were not prejudiced by having to defend against more than one action, and the plaintiff’s failure to strictly comply with RPAPL 1301(3) should have been disregarded as a mere irregularity … . HSBC Bank USA, N.A. v Kading, 2022 NY Slip Op 02255, Second Dept 4-6-22

Practice Point: Although RPAPL 1301(3) prohibits more than one foreclosure action at a time, if there is no prejudice to the borrowers a violation of that statute will be disregarded as a mere irregularity. Here the inactive first action was dismissed before the borrowers moved for summary judgment in the second.

 

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ALTHOUGH DEFENDANTS WERE NOT PROPERLY SERVED IN THIS FORECLOSURE ACTION AND THEIR MOTION TO VACATE THE JUDGMENT WAS GRANTED ON THAT GROUND, THE DEFENDANTS’ ATTORNEY’S “LIMITED APPEARANCE” AT A SETTLEMENT CONFERENCE PROVIDED THE COURT WITH JURISDICTION OVER THE MATTER; THE MOTION TO VACATE SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined an attorneys “limited appearance” at a foreclosure settlement conference provided the court with jurisdiction over matter despite the fact defendants demonstrated they were not properly served with the summons and complaint:

… [A]n attorney appeared in the action on behalf of the defendants by filing notices of appearance that represented that counsel was making “a limited appearance for the settlement conference pursuant to CPLR Rule 3408.” However, neither the defendants nor counsel for the defendants raised any objection to personal jurisdiction at that time by either a timely motion to dismiss on that ground or by interposing a timely answer asserting lack of personal jurisdiction … . Although the notices of appearance purported to limit counsel’s appearance to the foreclosure settlement conferences, “such language ‘is not a talisman to protect the defendant[s] from [their] failure to take timely and appropriate action to preserve [their] defense of lack of personal jurisdiction'” … . Since the defendants had waived the defense of lack of personal jurisdiction by failing to timely assert it, that defense was not a proper basis on which to vacate the order and judgment of foreclosure and sale … . US Bank N.A. v Chkifati, 2022 NY Slip Op 02151, Second Dept 3-30-22

Practice Point: Here defendants proved they were not properly served with the summons and complaint in this foreclosure action and Supreme Court granted their motion to vacate the judgment. However the appellate court reversed because the defendants’ attorney’s “limited appearance” for the settlement conferenced provided the court with jurisdiction (just as if defendants had been properly served).

 

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THE BANK IN THIS FORECLOSURE ACTION DID NOT SEND DEFENDANT THE NOTICE OF DEFAULT IN A SEPARATE ENVELOPE AS REQUIRED BY RPAPL 1304; DEFENDANT’S MOTION TO DISMISS THE COMPLAINT SHOULD HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendant in this foreclosure action was entitled to summary judgment because the bank did not send the notice of default in a separate envelope as required by RPAPL 1304:

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.” “Strict compliance with RPAPL 1304 notice to the borrower or borrowers is a condition precedent to the commencement of a foreclosure action” … . RPAPL 1304(2) states that “[t]he notices required by this section shall be sent by the lender, assignee or mortgage loan servicer in a separate envelope from any other mailing or notice.”

The defendant established that the plaintiff failed to strictly comply with RPAPL 1304, on the ground that additional material was sent in the same envelope as the 90-day notice required by RPAPL 1304 … . U.S. Bank N.A. v Hinds, 2022 NY Slip Op 02150, Second Dept 3-30-22

Practice Point: Here the borrower’s motion to dismiss the foreclosure complaint was granted because the bank sent the notice of default required by RPAPL 1304 in an envelope along with other materials, violating the “separate envelope” rule.

 

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AT THE TIME THIS FORECLOSURE ACTION WAS COMMENCED, RPAPL 1304 REQUIRED THAT THE NOTICE OF DEFAULT INCLUDE THE NUMBER OF DAYS THE BORROWER HAD BEEN IN DEFAULT; A DISCREPENCY BETWEEN THE DATE OF THE DEFAULT IN THE 90-DAY NOTICE (JULY 2009) AND THE DATE IN THE NOTICE REQUIRED BY THE MORTGAGE AND IN THE COMPLAINT (MAY 2011) CREATED A QUESTION OF FACT WHETHER THE NOTICE WAS DEFECTIVE ON ITS FACE (SECOND DEPT). ​

The Second Department, reversing Supreme Court, determined the bank in this foreclosure action was not entitled to summary judgment because it failed to demonstrate compliance with the notice requirements of RPAPL 1304. At the time the action was commenced, RPAPL 1304 required the notice to state the number of days the borrower had been in default. The 90-day notice stated defendant had been in default 2330 days, which put the default in July 2009. But the notice required by the mortgage and the complaint stated defendant was in default since May 2011:

The 90-day notice sent to the defendant stated that, as of November 18, 2015, her loan was 2330 days in default—indicating a default date in July 2009. However, both the notice of default required by the mortgage agreement and the complaint alleged that the plaintiff had defaulted on the loan in May 2011. At least one of these three documents, then, contained an error concerning information that was required under RPAPL 1304. Notably, the plaintiff’s response to the defendant’s cross motion for summary judgment did not attempt to clarify this discrepancy; it only addressed the service of the 90-day notice. The plaintiff’s appellate brief likewise does not address this issue. Accordingly, the plaintiff did not eliminate the existence of a triable issue of fact as to whether the RPAPL 1304 notice was defective on its face … . U.S. Bank N.A. v Cox, 2022 NY Slip Op 02149, Second Dept 3-30-22

Practice Point: In this foreclosure action, the 90-day notice put the defendant’s default in July 2009, but the notice required by the mortgage and the complaint put the default in May 2011. This raised a question of fact whether the notice required by RPAPL 1304 was defective on its face.

 

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A NOTE EXECUTED BY ONE TENANT BY ENTIRETY AND SECURED BY REAL PROPERTY OWNED BY BOTH TENANTS BY THE ENTIRETY, DONE WITHOUT THE OTHER TENANT BY THE ENTIRETY’S CONSENT, DOES NOT ENCUMBER THE OTHER TENANT BY THE ENTIRETY’S INTEREST IN THE REAL PROPERTY (SECOND DEPT).

The Second Department determined the note executed by Gladys Pajuelo and secured by a mortgage on property owned by Gladys and Celso Pajuelo as tenants by the entirety, done without Celso’s consent, did not encumber Celso’s interest in the property. Therefore the bank in this foreclosure action did not have an equitable mortgage on Celso’s interest:

Supreme Court properly denied that branch of the plaintiff’s motion which was for leave to enter a default judgment against Celso F. Pajuelo, declaring that the plaintiff has an equitable mortgage on Celso F. Pajuelo’s interest in the property. Where spouses own property as tenants by the entirety, a conveyance by one spouse, to which the other has not consented, cannot bind the entire fee … . Here, the mortgage executed by Gladys F. Pajuelo did not encumber Celso F. Pajuelo’s interest in the property, and the plaintiff failed to submit evidence to demonstrate its entitlement to an equitable mortgage against Celso F. Pajuelo’s interest in the property … . Nationstar Mtge., LLC v Pajuelo, 2022 NY Slip Op 02006, Second Dept 3-23-22

Practice Point: Where real property is owned by tenants by the entirety, and one of the tenants by the entirety, without the consent of the other, executes a note secured by the real property, the other tenant by the entirety’s interest is not encumbered.

 

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IN THIS FORECLOSURE ACTION, THE FAILURE TO ATTACH THE RELEVANT BUSINESS RECORDS, AS WELL AS THE FAILURE TO PROVIDE PROOF OF MAILING, RENDERED THE PROOF OF COMPLIANCE WITH THE NOTICE-OF-DEFAULT PROVISIONS OF THE MORTGAGE INSUFFICIENT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff bank did not demonstrate compliance with the notice-of-default provisions of the mortgage in this foreclosure action:

… [T]he plaintiff failed to establish … that it complied with the notice of default provisions of the mortgage, which … required the plaintiff to send the notice by first-class mail to the subject property and to provide a 30-day cure period. Copies of the notice without proof of mailing, along with the affidavit of a representative of the loan servicer averring, based upon her review of unspecified business records which were not attached to the affidavit, that such a notice of default was sent on an unspecified date, was insufficient to satisfy the plaintiff’s prima facie burden … .Bank of Am., N.A. v Shirazi, 2022 NY Slip Op 01984, Second Dept 3-23-22

Practice Point: Although most foreclosure-reversals are due to the bank’s failure to demonstrate compliance with the notice requirements of Real Property Actions and Proceedings Law (RPAPL) 1304, here the bank failed to demonstrate compliance with the notice-of-default provisions in the mortgage document.

 

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ALTHOUGH NONPARTY JP MORGAN DID NOT APPEAR IN THE UNDERLYING FORECLOSURE, IT COULD RECOVER SURPLUS FUNDS BASED UPON DEFENDANTS’ DEFAULT ON A CREDIT-LINE LOAN SECURED BY THE PROPERTY; JP MORGAN’S ACTION WAS NOT TIME-BARRED BECAUSE THE CREDIT-LINE DEBT WAS NEVER UNEQUIVOCALLY ACCELERATED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined nonparty JP Morgan was entitled to the surplus funds remaining after a foreclosure sale based upon the defendants’ (Breuers’) default on a credit-line loan secured by the property. The defendants’ argument that the credit-line action was time-barred was rejected because the debt was never accelerated. Pursuant to RPAPL 1361, JP Morgan did not have to appear in the underlying foreclosure action to preserve a claim to the surplus funds:

Where, as here, “the acceleration of the maturity of a mortgage debt on default is made optional with the holder of the note and mortgage, some affirmative action must be taken evidencing the holder’s election to take advantage of the accelerating provision, and until such action has been taken the provision has no operation” … .

… [T]he Breuers failed to demonstrate … that the statute of limitations began to run on JP Morgan’s entire claim at the time of the Breuers’ initial default in 2010. A letter introduced into evidence during the hearing, in which JP Morgan informed the Breuers of its intent to accelerate the maturity of the loan and to commence foreclosure proceedings if the Breuers’ default was not cured, was not sufficient to accelerate the debt, because it did not reflect a “clear and unequivocal” election to accelerate … . …

… [T]he applicable statute which governs proceedings to recover surplus funds from a foreclosure sale, RPAPL 1361, did not require JP Morgan to appear in the action to foreclose the primary mortgage prior to the entry of the judgment of foreclosure and sale, in order to preserve its claim to surplus funds … . Wells Fargo Bank, N.A. v Breuer, 2022 NY Slip Op 02037, Second Dept 3-23-22

Practice Point: Although nonparty JP Morgan did not appear in the underlying foreclosure proceedings, it was entitled to the surplus funds remaining after the foreclosure sale based upon defendants’ default on a credit-line loan secured by the property.

 

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IF THE 2008 FORECLOSURE ACTION COMMENCED BY AEGIS WAS VALID, THE INSTANT FORECLOSURE ACTION BY A DIFFERENT BANK WOULD BE TIME-BARRED; PLAINTIFF BANK RAISED A QUESTION OF FACT BY SUBMITTING EVIDENCE THAT AEGIS DID NOT POSSESS THE NOTE AND MORTGAGE AT THE TIME THE 2008 ACTION WAS COMMENCED AND THEREFORE DID NOT HAVE STANDING TO FORECLOSE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff raised a question of fact whether Aegis, the company which started a foreclosure action in 2008, had standing to commence that action. Therefore there was a question of fact whether the Aegis action accelerated the debt and started the running of the six-year statute of limitations:

… [P]laintiff proffered the affidavit of Sherry Benight, a document control officer for Select Portfolio Servicing, Inc. (hereinafter SPS), the servicer and attorney-in-fact for the plaintiff. Based upon her review of SPS’s business records, Benight averred that pursuant to a pooling and servicing agreement (hereinafter PSA), dated January 1, 2006, the original note was transferred to SPS, in its capacity as servicer and attorney-in-fact, on May 14, 2008, and SPS has remained in physical possession of the note since that date. Benight attached to her affidavit copies of the PSA, and a mortgage loan schedule listing the subject loan, note, and mortgage. This evidence was sufficient to raise triable issues of fact as to whether Aegis lacked standing to commence the prior action, and whether this action is time-barred … . U.S. Bank N..A. v Nail, 2022 NY Slip Op 02034, Second Dept 3-23-22

Practice Point: If a bank did not possess the note and mortgage at the time it commenced a foreclosure action, the action is a nullity.

 

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DEFENDANTS’ PARTICIPATION IN A SETTLEMENT CONFERENCE DID NOT WAIVE THEIR RIGHT TO MOVE TO DISMISS THE FORECLOSURE ACTION AS ABANDONED PURSUANT TO CPLR 3215 (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the foreclosure complaint should have been dismissed as abandoned because the plaintiff did not move for a default judgment within a year (CPLR 3215(c)). The fact that the defendants participated in a settlement conference did not waive their right to move to dismiss the complaint as abandoned:

… [T]he plaintiff failed to take steps to initiate proceedings for the entry of a default judgment against the defendants within one year after their default in the action, and has set forth no reasonable excuse for said failure … .

Contrary to the plaintiff’s contention, the defendants did not waive their right to seek dismissal pursuant to CPLR 3215(c). The defendants’ participation in a settlement conference did not result in a waiver of their right to seek dismissal pursuant to CPLR 3215(c) since they did not actively litigate the action before the Supreme Court or participate in the action on the merits … . Moreover, the defendants’ failure to move to vacate their default in answering the complaint or appearing in this action did not operate as a waiver of their right to seek dismissal of the complaint pursuant to CPLR 3215(c) … . PennyMac Corp. v Weinberg, 2022 NY Slip Op 02010, Second Dept 3-23-22

Practice Point: Participation in a settlement conference does not waive a defendant’s right to move to dismiss a foreclosure action as abandoned based on plaintiff bank’s failure to move for a default judgment within a year.

 

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

The Second Department, reversing Supreme Court, determined the affidavits submitted by the plaintiff bank to demonstrate compliance with the notice requirements of RPAPL 1304 were insufficient:

… [N]either counsel in her affirmation, nor a contract management coordinator for the plaintiff’s loan servicer in an affidavit submitted in support of the motion, averred that they had personal knowledge of the mailing, or that the mailing was sent by both certified mail and first-class mail. Moreover, neither counsel nor the loan servicer’s representative described any standard office procedure designed to ensure that the notices were mailed, and no domestic return receipts for the mailings were submitted in support of the motion … . Deutsche Bank Natl. Trust Co. v LoPresti, 2022 NY Slip Op 01767, Second Dept 3-16-22

​Practice Point: Proof of compliance with the notice requirements of RPAPL 1304 failed in this foreclosure action.

 

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