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THE REFEREE’S REPORT IN THIS FORECLOSURE ACTION SHOULD NOT HAVE BEEN CONFIRMED BECAUSE IT WAS BASED UPON BUSINESS RECORDS WHICH WERE NOT PRODUCED (HEARSAY) (SECOND DEPT). ​

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

… “[T]he referee’s findings with respect to the total amount due upon the mortgage were not substantially supported by the record inasmuch as the computation was premised upon unproduced business records” … . We therefore reverse the order and judgment of foreclosure and sale and remit the matter to the Supreme Court … for a new report computing the amount due, to be followed by further proceedings in accordance with CPLR 4403 and the entry of an appropriate amended judgment thereafter … . Wells Fargo Bank, N.A. v Dhanani, 2022 NY Slip Op 00460, Second Dept 1-26-22

 

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DEFENDANTS RAISED A QUESTION OF FACT WHETHER THE BANK POSSESSED THE CORRECT VERSION OF THE NOTE, AND, THEREFORE, WHETHER THE BANK HAD STANDING TO BRING THE FORECLOSURE ACTION (SECOND DEPT). ​

The Second Department, reversing Supreme Court, determined defendants in this foreclosure action raised a question of fact whether the bank possessed the relevant note, and therefore had standing, when the action was commenced:

“Pursuant to article 3 of the Uniform Commercial Code, a note can be endorsed, or signed over, to a new owner” … . A note can also be endorsed in blank, naming no specific payee, which makes it a bearer instrument, so that any party that possesses it has the legal authority to enforce it (see UCC 3-202[1]; 3-204[2] …). …

The version of the note that contained the special endorsement by GreenPoint to GMAC …, which was submitted in the 2008 foreclosure action, was not consistent with the endorsement in blank by GreenPoint. If the note was specially endorsed to GMAC, it would subsequently had to have been specially endorsed to the plaintiff or endorsed in blank by GMAC in order for the plaintiff to enforce it (see UCC 3-202[1]; 3-204[1] … ). Thus, the defendants raised a triable issue of fact as to whether the plaintiff possessed the legal authority to enforce the note at the time this action was commenced … . U.S. Bank N.A. v Rozo-Castellanos, 2022 NY Slip Op 00457, Second Dept 1-26-22

 

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THE BANK DID NOT DEMONSTRATE THE ALLONGE WAS FIRMLY AFFIXED TO THE NOTE AND THEREFORE DID NOT DEMONSTRATE 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 actions:

Where, as here, the plaintiff’s standing has been placed in issue by the defendant’s answer, the plaintiff must prove its standing as part of its prima facie showing … . “[A] plaintiff may demonstrate its standing in a foreclosure action through proof that it was in possession of the subject note endorsed in blank, or the subject note and a firmly affixed allonge endorsed in blank, at the time of commencement of the action” … .

Here, the Supreme Court should have denied those branches of the plaintiff’s motion which were for summary judgment on the complaint insofar as asserted against the defendant and for an order of reference, as the plaintiff failed to establish, prima facie, that it had standing to commence this action. Although the plaintiff attached to the complaint copies of the note and an undated purported allonge endorsed in blank, 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) … . The affidavit of the plaintiff’s employee and the copy of the note attached thereto which were submitted in support of the plaintiff’s motion for summary judgment did not clarify whether the allonge was firmly affixed to the note … . Nationstar Mtge., LLC v Calomarde, 2022 NY Slip Op 00428, Second Dept 1-26-22

 

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IN THIS FORECLOSURE ACTION, THE ACCRUAL OF INTEREST SHOULD HAVE BEEN TOLLED DURING THE BANK’S UNEXPLAINED DELAYS IN PROCURING AND ENTERING AN ORDER OF REFERENCE (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined the accrual of interest should have been tolled during the bank’s unexplained delays in procuring and entering an order or reference:

Supreme Court properly found that the nearly 17-month delay in the plaintiff’s service of the notice of entry of the order of reference entered April 30, 2014, was excessive … . However, it improvidently exercised its discretion in tolling the accrual of interest for only one year, as it should have been tolled for the entire period from April 30, 2014, through September 9, 2015. In addition, the court should have also tolled the accrual of interest for the time periods in which the plaintiff made two motions for an order of reference after its initial motion for an order of reference was denied for administrative reasons … . The tolling of the accrual of interest during these time periods is not … penalizing the plaintiff for losing its motions, but is instead a response to the plaintiff’s unexplained delay in prosecuting the action by failing to promptly move for relief after the denial of its first and second motions. … [A]fter the plaintiff’s first motion for an order of reference was denied in August 2011, it failed to move again until February 2013. After the second motion was denied in September 2013, the plaintiff did not make its third motion until February 2014. Deutsche Bank Natl. Trust Co. v Ould-Khattri, 2022 NY Slip Op 00167, Second Dept 1-12-22

 

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THE DOCUMENTS UPON WHICH THE CALCULATIONS IN THE REFEREE’S REPORT WERE BASED WERE NOT PRODUCED RENDERING THE REPORT INADMISSIBLE HEARSAY (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the referee’s report was inadmissible hearsay because the documents upon which the calculations were based were not produced:

The defendant correctly contends, however, that the referee’s calculation was not substantially supported by the record. Modlin’s [the loan servicer’s] affidavit, which was submitted to the referee for the purpose of establishing the amount due on the mortgage loan, appeared to lay a proper foundation for the admission of the business records on which she relied, including the payment history for the loan, in making her calculations. Modlin averred that she was an authorized signatory of Caliber, U.S. Bank’s loan servicer and attorney-in-fact, that she had reviewed Caliber’s electronic records regarding the defendant’s account, and that she had “knowledge of how those electronic records [were] kept and maintained” … . Modlin further averred that the business records of any prior servicer had been “uploaded and boarded into [Caliber’s] computer records” and were “maintained in connection with the servicing of [the subject] loan”,,, , In addition, U.S. Bank Trust demonstrated Caliber’s authority to act on its behalf by submitting the limited power of attorney.

Nevertheless, computations based on the review of unproduced business records amount to inadmissible hearsay and lack probative value … . Here, U.S. Bank Trust did not submit to the referee copies of the business records upon which Modlin purportedly relied in computing the amount due on the mortgage loan. Consequently, the referee’s findings in that respect were not substantially supported by the record … . U.S. Bank Trust, N.A. v Bank of Am., N.A., 2022 NY Slip Op 00213, Second Dept 1-12-22

 

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THE BANK WHICH COMMENCED THE 2006 FORECLOSURE HAD ALREADY ASSIGNED THE NOTE AND MORTGAGE AND DID NOT HAVE STANDING TO FORECLOSE; THEREFORE THE STATUTE OF LIMITATIONS DID NOT START RUNNING IN 2006; THE DISSENT DISAGREED (SECOND DEPT).

The Second Department, over an extensive dissent, determined that the bank (Option One) which commenced foreclosure proceedings in 2006 did not have standing to do so because it had already assigned the note and mortgage (to Residential). Therefore the six-year statute of limitations did not start to run in 2006. The dissent argued Option One, as the original lender, did in fact have standing. Much of the majority’s decision was devoted to demonstrating the dissenting argument was not valid:

We disagree with our dissenting colleague’s assertion that Option One, after its assignment of the note and mortgage to Residential, continued to have standing to commence and prosecute the 2006 action. Our dissenting colleague misreads the holding in Wilmington Sav. Fund Socy., FSB v Matamoro (200 AD3d 79, 90-91), wherein we held that there are three bases to establish standing in residential foreclosure actions. There is no dispute with regard to the second two bases for finding standing; to wit: a plaintiff’s physical possession of the note prior to commencement of the foreclosure action with an allonge or endorsement in blank or to the plaintiff (second basis), or an assignment of the note to the plaintiff prior to the commencement of the foreclosure action (third basis). However, while the Matamoro Court described the first basis for standing as being “where the plaintiff is the original lender in direct privity with the defendant” … , the second part of the description explained that “[t]he direct privity is rarely seen in residential mortgage foreclosure litigations, given the nature of the home lending business where financial instruments are routinely sold, assigned, or ‘bundled’ from one institution to another between the time funds are initially dispersed by a lender and the commencement of a later foreclosure action” … .  The Matamoro Court’s holding and description of the nature of the market falls squarely into the facts of this case. Contrary to our dissenting colleague’s rationale that the original lender retains the right to sue on a note that it has fully assigned, we have held that”‘[a]n absolute assignment of a bond and mortgage transfers to the assignee all rights theretofore conferred upon the assignor-mortgagee to enforce the bond and mortgage'” … . 21st Mtge. Corp. v Rudman, 2022 NY Slip Op 00031, Second Dept 1-5-22

 

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ALTHOUGH THE BANK IN THIS FORECLOSURE ACTION INSPECTED THE VACANT PROPERTY AND MADE PERIODIC REPAIRS, IT WAS NOT A “MORTGAGEE IN POSSESSION” SUCH THAT THE STATUTE OF LIMITATIONS WAS TOLLED; IN ORDER TO BE DEEMED A “MORTGAGEE IN POSSESSION,” THE MORTGAGOR MUST CONSENT TO THE BANK’S POSSESSION OF THE PROPERTY (SECOND DEPT).

The Second Department, reversing Supreme Court, over a dissent, determined the statute of limitations had run on defendant bank’s foreclosure counterclaim. The bank argued that the statute of limitations had been tolled because it was a “mortgagee in possession,” in that it kept tabs on the property and made repairs. The majority held that, in order to be a “mortgagee in possession,” the mortgagor must consent to the possession. Such consent constitutes an acknowledgment of the debt. The mortgagor here did not consent to the mortgagee’s possession of the property:

We disagree with our dissenting colleague that determining whether a mortgagee qualifies as a mortgagee in possession for purposes of tolling the statute of limitations requires “an analysis of the actions taken by the mortgagee to secure the property financially and physically.” Rather, the determination only requires an analysis of whether the mortgagee took full possession of the property pursuant to an agreement with the mortgagor. Mardenborough v U.S. Bank N.A., 2022 NY Slip Op 00034, Second Dept 1-5-22

 

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ALTHOUGH THE MOTION TO DISMISS THE FORECLOSURE ACTION AS ABANDONED PURSUANT TO CPLR 3215 WAS DENIED ON A GROUND NOT RAISED BY THE PARTIES, THE ORDER WAS SELF-PRESERVED AND APPEALABLE; THE PRESENTATION OF AN ORDER OF REFERENCE WITHIN ONE YEAR OF DEFENDANT’S DEFAULT PRECLUDES A FINDING THAT THE ACTION WAS ABANDONED PURSUANT TO CPLR 3215, DESPITE THE MOTION COURT’S REJECTION OF THE ORDER AS INCOMPLETE (SECOND DEPT).

The Second Department, in a full-fledged opinion by Justice Dillon, over a concurrence and an extensive two-justice dissent, determined; (1) the dismissal of the foreclosure complaint as abandoned pursuant to CPLR 3215 was appealable, even though it was dismissed, sua sponte, on a ground not raised by the parties; and (2) the fact that the plaintiff submitted an order, albeit an order which was rejected for incompleteness, within one year of defendant’s default rendered  the dismissal pursuant to CPLR 3215 unavailable as a remedy:

The [motion] court employed CPLR 3215(c) reasoning, never argued by the parties, to decide a CPLR 3215(c) motion, just as in Rosenblatt [119 AD3d 45],  the court employed reasoning under CPLR 3212, which was never argued by the parties, to decide a CPLR 3212 summary judgment motion. Under the authority of either Rosenblatt or Tirado [175 AD3d 153], the analysis and reasoning of the court, in the order appealed from, although sua sponte, self-preserved the issues for appellate review because it was pursuant to the same CPLR section within which the plaintiff’s motion was based and was dispositive to the action. * * *

… [T]he plaintiff presented a proposed ex parte order of reference within the one-year statutory period. The fact that the Supreme Court rejected the order of reference as defective is beside the point, as the mere presentment of it established the plaintiff’s intent to proceed toward the entry of judgment and not to abandon the action … . Citibank, N.A. v Kerszko, 2022 NY Slip Op 00032, Second Dept 1-5-22

 

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THE INCLUSION OF OTHER MATERIAL IN THE ENVELOPE CONTAINING THE RPAPL 1304 NOTICE IN THIS FORECLOSURE ACTION IS A DEFENSE WHICH CAN BE RAISED AT ANY TIME AND WHICH WARRANTED SUMMARY JUDGMENT IN FAVOR OF THE DEFENDANTS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the plaintiff’s failure to comply with RPAPL 1304 is a defense to a foreclosure action which can be raised at any time. Here the inclusion of other material in the envelope containing the RPAPL 1304 warranted summary judgment in favor of defendants:

Although the defendants failed to oppose the plaintiff’s motion, inter alia, for summary judgment and for an order of reference on the ground that the plaintiff did not comply with RPAPL 1304, “failure to comply with RPAPL 1304 is a defense that may be raised at any time prior to the entry of judgment of foreclosure and sale” … . Here, the issue was raised before the entry of judgment of foreclosure and sale. Thus, the issue of compliance with RPAPL 1304 was properly before the Supreme Court.

The defendants 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 … . Citimortgage, Inc. v Dente, 2021 NY Slip Op 07538, Second Dept 12-29-21

Similar issue and result in Wells Fargo Bank, N.A. v DeFeo, 2021 NY Slip Op 07577, Second Dept 12-29-21

 

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THE JUDGE SHOULD HAVE HELD A HEARING BEFORE GRANTING THE BANK’S MOTION FOR AN ALTERNATIVE METHOD OF SERVICE IN THIS FORECLOSURE ACTION; DEFENDANT AVERRED THE ADDRESS LISTED ON THE MORTGAGE WAS CORRECT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined a hearing should have been held before allowing the bank to use an alternate method of court authorized service on defendant. Defendant’s correct address was on the mortgage:

… [T]he defendant’s submissions “raised a question of fact as to whether it was impracticable for the plaintiff to serve [him] with the summons and complaint pursuant to CPLR 308(1), (2), or (4), such that the plaintiff was entitled to an alternative method of court-authorized service pursuant to CPLR 308(5)” … . In particular, the mortgage listed an address for the defendant in Queens and the defendant averred that he lived at that Queens address at the time, and for several years after this action was commenced. Nothing in the plaintiff’s submissions established or even addressed whether or why it was impracticable to serve the defendant at the address listed on the mortgage. Under these circumstances, the Supreme Court should not have determined the defendant’s motion without holding a hearing … . U.S. Bank N.A. v Ming Kang Low, 2021 NY Slip Op 07572, Second Dept 12-29-21

 

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