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ALTHOUGH PLAINTIFF BANK IN THIS FORECLOSURE ACTION DID NOT HAVE A JUSTIFIABLE EXCUSE FOR FAILING TO COMPLY WITH THE 90-DAY DEMAND TO FILE A NOTE OF ISSUE PURSUANT TO CPLR 3216, THE COMPLAINT SHOULD NOT HAVE BEEN DISMISSED (THIRD DEPT).

The Third Department, reversing Supreme Court, determined the complaint in this foreclosure action should not have been dismissed pursuant to CPLR 3216, even though plaintiff’s excuse for failure to comply with the 90-day demand to file a note of issue was not justifiable:

Because there was no compliance with the 90-day demand, the party seeking to avoid dismissal had to demonstrate a “justifiable excuse for the delay and a good and meritorious cause of action” … . The opposition to defendant’s motion advanced only a conclusory and unsubstantiated claim of law office failure by plaintiff’s prior counsel as the justifiable excuse. Although the failure to detail and substantiate a claim of law office failure would justify dismissal of the complaint … , even when presented with an unjustifiable excuse, a court still retains some residual discretion to refuse dismissal of a complaint as a penalty under CPLR 3216 … .

… [S]ome of the delay in this case was not attributable to plaintiff. Taking into account that CPLR 3216 is “extremely forgiving of litigation delay” … , as well as the public policy of resolving disputes on the merits … , defendant’s motion, under the particular circumstances of this case, should have been denied to the extent that it sought dismissal of the complaint, and plaintiff’s cross motion should have been granted to the extent that it sought an extension of time to file the note of issue … . Chase Home Fin., LLC v Shoumatoff, 2021 NY Slip Op 01537, Third Dept 3-18-21

 

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THE DEFAULT LETTER, WHICH INDICATED THE MORTGAGE DEBT WOULD BE ACCELERATED AT A SPECIFIC FUTURE DATE IF THE DEFAULT WERE NOT CURED, DID NOT ACCELERATE THE DEBT; THEREFORE THE STATUTE OF LIMITATIONS DID NOT START RUNNING AND THE FORECLOSURE ACTION WAS TIMELY (THIRD DEPT).

The Third Department, reversing Supreme Court, determined the mortgage debt was not accelerated by a letter indicating the debt would be accelerated on a specific future date if the arears were not paid:

… [T]he issue is whether the May 2008 default letter was an acceleration event that triggered the statute of limitations. We hold that is was not. Thus, the second action, commenced in October 2014, was timely. To that end, the May 2008 letter provided that, if the default was not cured “on or before June 10, 2008, the mortgage payments will be accelerated with the full amount remaining accelerated and becoming due and payable in full, and foreclosure proceedings will be initiated at that time.” Since this letter was “‘merely an expression of future intent that fell short of an actual acceleration,’ which could ‘be changed in the interim'” … , it did not accelerate the debt … . “[T]he letter did not seek immediate payment of the entire, outstanding loan, but referred to acceleration only as a future event, indicating the debt was not accelerated at the time the letter was written” … . Further, the May 2008 letter specifically discussed other non-acceleration options for defendant, including a repayment plan or loan modification, which plaintiff, as the holder of the note, should be able to do “without running the risk of being deemed to have taken the drastic step of accelerating the loan” … . Thus, the statute of limitations was not triggered until the debt was accelerated by the commencement of the first action in February 2009 … , rendering the commencement of the second action, in October 2014, timely as it was within the six-year statute of limitations …  . GMAT Legal Tit. Trust 2014-1, Us Bank Natl. Assn. v Wood, 2021 NY Slip Op 01455, Third Dept 3-11-21

 

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THE BANK’S FAILURE TO REJECT THE LATE ANSWER WITHIN 15 DAYS WAIVED THE LATE SERVICE AND DEFAULT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the bank waived its objection to a late answer by not timely rejecting it within 15 days. Therefore the default was also waived:

The defendant failed to timely appear or answer the complaint. … On April 30, 2018, the defendant served an answer with counterclaims. Seventeen days later, on May 17, 2018, the plaintiff served a notice of rejection in which it rejected the answer as untimely. …

Pursuant to CPLR 2101(f), “[t]he party on whom a paper is served shall be deemed to have waived objection to any defect in form unless, within fifteen days after the receipt thereof, the party on whom the paper is served returns the paper to the party serving it with a statement of particular objections” … . Here, the plaintiff’s undisputed failure to reject the defendant’s answer within the fifteen-day statutory time frame constituted a waiver of the late service and the default … . U.S. Bank N.A. v Lopez, 2021 NY Slip Op 01440, Second Dept 3-10-21

 

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THE BORROWER’S APPLICATION FOR A LOAN MODIFICATION DID NOT RELIEVE THE BANK OF THE RPAPL 1304 NOTICE REQUIREMENTS IN THIS FORECLOSURE ACTION; THE BANK DID NOT PROVIDE SUFFICIENT PROOF OF THE MAILING OF THE NOTICE (SECOND DEPT).

The Second Department, reversing Supreme Court in this foreclosure action, determined (1) the bank was still required to provide the RPAPL1304 notice despite the application for a loan modification, and (2) the proof of mailing the notice was insufficient. The court noted that proof of mailing submitted for the first time in reply cannot be considered as part of the bank’s prima facie case:

When the instant action was commenced, RPAPL 1304(3) provided: “The ninety day period specified in the notice[ ] contained in [RPAPL 1304(1)] shall not apply, or shall cease to apply, if the borrower has filed [an application for the adjustment of debts of the borrower or an order for relief from the payment of debts], or if the borrower no longer occupies the residence as the borrower’s principal dwelling” … . A loan modification was not an adjustment of debts within the meaning of the version of RPAPL 1304(3) then in effect and, in any event, a lender was relieved only from the requirement to provide notice within the “ninety day period” (RPAPL 1304[3]), not from the requirement to provide the notice specified in RPAPL 1304(1) … . …

US Bank failed to establish, prima facie, that it complied with RPAPL 1304. Although Ubinas stated in her affidavit that the RPAPL 1304 notices were mailed by certified and regular first-class mail, and attached copies of those notices, of an envelope addressed to the defendant bearing a certified mail 20-digit barcode, and of an envelope bearing a first-class mail postage stamp, US Bank failed to attach, as exhibits to the motion, any documents to prove that the mailing actually occurred. There is no copy of any United States Post Office document indicating that the notice was sent by registered or certified mail as required by the statute. Further, while Ubinas attested that she had personal knowledge of the record-making practices of Ocwen, and that the 90-day notice was sent in compliance with RPAPL 1304, she did not attest to knowledge of the mailing practices of the Law Offices of McCabe, Weisberg, and Conway, P.C., the entity that allegedly sent the notices to the defendant on behalf of Ocwen. On appeal, US Bank relies upon the signed certified mail return receipt submitted in reply. The moving party, however, cannot meet its prima facie burden by submitting evidence for the first time in reply … . U.S. Bank N.A. v Hammer, 2021 NY Slip Op 01439, Second Dept 3-10-21

 

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IN THIS FORECLOSURE ACTION, THE JUDGE SHOULD HAVE FIRST DETERMINED WHETHER ANY DISTRIBUTEES OF THE DECEASED MORTGAGORS WERE NECESSARY PARTIES [RPAPL 1311 (1)] AND, IF SO, SUMMON THEM PURSUANT TO CPLR 1001 [b]; THE MOTION TO DISMISS FOR FAILURE TO JOIN NECESSARY PARTIES SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined there were questions of fact whether any distributees of the deceased mortgagors were necessary parties in this foreclosure action. The motion to dismiss for failure to join necessary parties should not have been granted. The court should have determined whether joinder of any parties was required and then summon them pursuant to CPLR 1001 [b]:

Pursuant to RPAPL 1311(1), “necessary defendants” in a mortgage foreclosure action include, among others, “[e]very person having an estate or interest in possession, or otherwise, in the property as tenant in fee, for life, by the curtesy, or for years, and every person entitled to the reversion, remainder, or inheritance of the real property, or of any interest therein or undivided share thereof, after the determination of a particular estate therein.”

“In certain circumstances, the estate of the mortgagor is not a necessary party to a mortgage foreclosure action” … . In particular, “where a mortgagor/property owner dies intestate and the mortgagee does not seek a deficiency judgment, generally a foreclosure action may be commenced directly against the distributees,” in whom title to the real property automatically vests … .

Here, the plaintiff did not seek a deficiency judgment. However, questions of fact existed, which should have been resolved by the Supreme Court, as to whether any distributees of the deceased mortgagors, other than the defendants herein, retained an interest in the property such that they were necessary parties to the foreclosure action. Further, to the extent that there were such necessary parties to the action, dismissal of the complaint was not the proper remedy; rather, the property remedy in such instance is to direct the joinder of those parties (see CPLR 1001[b] … . NRZ Pass-Through Trust IV v Tarantola, 2021 NY Slip Op 01423, Second Dept 3-10-21

 

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THE DEFAULT NOTIFICATION LETTER DID NOT ACCELERATE THE DEBT BECAUSE IT DID NOT STATE THE DEBT WAS DUE AND PAYABLE IMMEDIATELY; THE BANK DID NOT DEMONSTRATE THE PROPER MAILING OF THE RPAPL 1304 NOTICE (THIRD DEPT)

The Third Department, reversing Supreme Court, determined plaintiff bank was not entitled to summary judgment in this foreclosure action. The court held the action had never been dismissed pursuant to CPLR 3216 because no 90-day notice requiring the filing of a note of issue had been given. The foreclosure action was timely because the letter which defendants argued had accelerated the debt did not unambiguously state that the full mortgage debt had become due and payable immediately. However proof of the mailing of the the RPAPL 1304 notice was not sufficient:

The December 28, 2009 letter advised Mausler [defendant] that he was in default and that he could cure this default by making a payment “within thirty days from the date of this letter.” The letter further stated that “[i]f you do not cure this default within the specified time period, your obligation for payment of the entire unpaid balance of the loan will be accelerated and become due and payable immediately” … . Additionally, the letter provided that if the amount due was not paid, “foreclosure proceedings may commence to acquire the [p]roperty by foreclosure and sale” … . The Court of Appeals, however, recently explained that such language does not evince an intent by the noteholder to “seek immediate payment of the entire, outstanding loan, but referred to acceleration only as a future event”… . Accordingly, contrary to defendants’ contention, the December 2009 letter did not constitute a valid acceleration of the debt so as to trigger the applicable statute of limitations. …

Plaintiff relies on the affidavit from the loan servicing associate to demonstrate compliance with RPAPL 1304. The associate, however, “did not attest to familiarity with or provide any proof of the mailing procedures utilized by the party that allegedly mailed the RPAPL 1304 notice” … . Wilmington Trust, Natl. Assn. v Mausler, 2021 NY Slip Op 01296, Third Dept 3-4-21

 

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BECAUSE THE ORDER DISMISSING THE INITIAL COMPLAINT DID NOT SPECIFY CONDUCT CONSTITUTING NEGLECT TO PROSECUTE, THE SIX-MONTH TOLL OF THE STATUTE OF LIMITATIONS PURSUANT TO CPLR 205 (a) APPLIED AND THE ACTION WAS TIMELY; THE DISSENT DISAGREED (SECOND DEPT).

The Second Department, over a strong dissent, determined that the foreclosure was timely commenced pursuant to CPLR 205 (a) within six months of the dismissal of the initial complaint. The six-month toll of the statute of limitations pursuant to CPLR 205 (a) does not apply to a dismissal for neglect to prosecute. However, the order dismissing the action for neglect to prosecute must specify the conduct constituting neglect. The majority concluded the order did not include any specific findings of neglect. The dissent disagreed:

Contrary to the defendant’s contention and the finding of our dissenting colleague, the 2010 action was not dismissed for neglect to prosecute, a category of dismissal that renders CPLR 205(a) inapplicable. “Where a dismissal is one for neglect to prosecute the action . . . , the judge shall set forth on the record the specific conduct constituting the neglect, which conduct shall demonstrate a general pattern of delay in proceeding with the litigation” (CPLR 205[a]). Here, the order dated April 6, 2017, “did not include any findings of specific conduct demonstrating ‘a general pattern of delay in proceeding'” … . Moreover, by dismissing the 2010 action without prejudice, the Supreme Court “permitted the plaintiff to avail itself of CPLR 205(a) to recommence the foreclosure action” … . Deutsche Bank Natl. Trust Co. v Baquero, 2021 NY Slip Op 01246, Second Dept 3-3-21

 

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RPAPL 1304 AND 1302-a DO NOT APPLY WHERE THE LOAN SUBJECT TO FORECLOSURE IS NOT A “HOME LOAN;” COMPLIANCE WITH RPAPL 1303 IS A CONDITION PRECEDENT TO FORECLOSURE BUT FAILURE TO COMPLY CANNOT BE RAISED FOR THE FIRST TIME ON APPEAL; FAILURE TO PROVIDE NOTICE OF DEFAULT CANNOT BE RAISED FOR THE FIRST TIME ON APPEAL (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff’s motion for summary judgment in this foreclosure action should have been granted. The Second Department noted: (1) RPAPL 1304 (re: notice) and 1302-a (re: standing) do not apply where the subject loan is not a “home loan” because the property was not defendant’s principal dwelling;  (2) compliance with the notice requirements of RPAPL 1303 is a condition precedent to the commencement of a foreclosure action, but the issue cannot be raised for the first time on appeal; (3) the failure to provide notice of default as required by the mortgage cannot be raised for the first time on appeal. Nationstar Mtge., LLC v Gayle, 2021 NY Slip Op 08194, Second Dept 2-24-21

 

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A MORTGAGE DEBT CAN BE ACCELERATED ONLY BY AN UNEQUIVOCAL OVERT ACT, I.E., COMMENCING A FORECLOSURE ACTION OR A DOCUMENT MAKING IT CLEAR THE ENTIRE DEBT IS IMMEDIATELY DUE (NOT THAT IT WILL BE DUE IN THE FUTURE); A MORTGAGE DEBT CAN BE DE-ACCELERATED BY A VOLUNTARY DISCONTINUANCE, EVEN IF ITS PURPOSE IS TO STOP THE STATUTE OF LIMITATIONS FROM RUNNING (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge DiFiore, over a partial dissent and a concurrence, clarified how courts should handle two recurring issues in the sea of foreclosures which have inundated the courts: (1) how is the mortgage debt accelerated such that the entire amount becomes due and the six-year statute of limitations for a foreclosure action starts running; and (2) how is the debt de-accelerated such that the statute of limitations for a foreclosure action stops running and the borrower can resume monthly installment payments? The Court of Appeals held that acceleration of the debt must be done by an unequivocal overt act. In the Vargas case, the foreclosure action did not refer to the correct loan, which had been modified and did not therefore accelerate the debt. In the Wells Fargo case, the letter did not ask for immediate payment of the entire debt and therefore did not accelerate the debt. As for de-acceleration, that can be accomplished by voluntarily discontinuing the foreclosure action:

There are sound policy reasons to require that an acceleration be accomplished by an “unequivocal overt act.” * * *

[Re: Acceleration, the Vargas case] … [W]here the deficiencies in the [foreclosure] complaints were not merely technical or de minimis and rendered it unclear what debt was being accelerated—the commencement of these [foreclosure] actions did not validly accelerate the modified loan … . * * *

[Re: Acceleration, the Wells Fargo case] … [T]he letter did not seek immediate payment of the entire, outstanding loan, but referred to acceleration only as a future event, indicating the debt was not accelerated at the time the letter was written.  * * *

[Re: De-acceleration or Revocation of the Acceleration ] … [W]hen a bank effectuated an acceleration via the commencement of a foreclosure action, a voluntary discontinuance of that action—i.e., the withdrawal of the complaint—constitutes a revocation of that acceleration. In such a circumstance, the noteholder’s withdrawal of its only demand for immediate payment of the full outstanding debt, made by the “unequivocal overt act” of filing a foreclosure complaint, “destroy[s] the effect” of the election … . …

We reject the theory … that a lender should be barred from revoking acceleration if the motive of the revocation was to avoid the expiration of the statute of limitations on the accelerated debt. A noteholder’s motivation for exercising a contractual right is generally irrelevant. Freedom Mtge. Corp. v Engel, 2021 NY Slip Op 01090, CtApp 2-18-21

 

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THE ESTATE IS NOT A NECESSARY PARTY IN THIS FORECLOSURE ACTION; THE REFEREE’S FINDINGS WERE BASED UPON UNPRODUCED BUSINESS RECORDS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the estate was not a necessary party in this foreclosure action and the referee’s finding were based on unproduced business records:

“The rule is that a mortgagor who has made an absolute conveyance of all his [or her] interest in the mortgaged premises, including his [or her] equity of redemption, is not a necessary party to foreclosure, unless a deficiency judgment is sought on his [or her] bond” … . Here, [decedent] conveyed all of the interest in the subject property prior to his death, and prior to the commencement of the instant action. Moreover, the plaintiff moved to amend the complaint to remove any language seeking a deficiency, and the court granted that motion.

However, “the 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” … . Federal Natl. Mtge. Assn. v Home & Prop. Works, LLC, 2021 NY Slip Op 01031, Second Dept 2-17-21

 

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