Foreclosure – Page 82 – New York Appellate Digest

RULES OF THE CHIEF ADMINISTRATIVE JUDGE CONCERNING THE CONTENTS OF AFFIDAVITS SUBMITTED BY BANK ATTORNEYS IN FORECLOSURE ACTIONS DID NOT EXCEED RULEMAKING POWERS AND MUST BE FOLLOWED.

The Second Department, reversing Supreme Court, determined that the rules promulgated by the Chief Administrative Judge, concerning the affidavits submitted by bank attorneys in foreclosure actions, did not exceed the rule-making powers of the Chief Administrative Judge and must be complied with in actions commenced before August 30, 2013 (when a new CPLR statute went into effect):

Contrary to the Supreme Court’s determination, the Chief Administrative Judge was not acting ultra vires in issuing Administrative Orders 548/10 and 431/11 (hereinafter together the Administrative Orders), but pursuant to authority delegated by the Legislature to adopt rules and orders regulating practice in the courts after consulting with the administrative board … . Moreover, the attorney affirmation itself is not substantive … and, thus, is within the authority of the Chief Administrative Judge to promulgate rules of procedure.

In addition, that the Legislature manifested a clear intent to apply the certificate of merit requirement of CPLR 3012-b only to those actions commenced on or after August 30, 2013, does not manifest an intent by the Legislature to relieve a plaintiff’s counsel of the affirmation requirement in actions commenced prior to August 30, 2013. Bank of N.Y. Mellon v Izmirligil, 2016 NY Slip Op 08033, 2nd Dept 11-30-16

FORECLOSURE (RULES OF THE CHIEF ADMINISTRATIVE JUDGE CONCERNING THE CONTENTS OF AFFIDAVITS SUBMITTED BY BANK ATTORNEYS IN FORECLOSURE ACTIONS DID NOT EXCEED RULEMAKING POWERS AND MUST BE FOLLOWED)/ATTORNEYS (FORECLOSURE, RULES OF THE CHIEF ADMINISTRATIVE JUDGE CONCERNING THE CONTENTS OF AFFIDAVITS SUBMITTED BY BANK ATTORNEYS IN FORECLOSURE ACTIONS DID NOT EXCEED RULEMAKING POWERS AND MUST BE FOLLOWED)/EVIDENCE (FORECLOSURE, RULES OF THE CHIEF ADMINISTRATIVE JUDGE CONCERNING THE CONTENTS OF AFFIDAVITS SUBMITTED BY BANK ATTORNEYS IN FORECLOSURE ACTIONS DID NOT EXCEED RULEMAKING POWERS AND MUST BE FOLLOWED)

November 30, 2016

Foreclosure

LOAN WHICH INCLUDED A SET AMOUNT DESIGNATED AS INTEREST WAS NOT USURIOUS, CRITERIA EXPLAINED.

The Fourth Department determined the loan secured by a mortgage was not usurious. The $170,000 loan included $43,000 designated as interest. Whether the interest was usurious should have been determined based upon the term of loan, not when the foreclosure action was commenced:

In determining whether the interest charged exceeded the usury limit, courts must apply the traditional method for calculating the effective interest rate as set forth in Band Realty Co. v North Brewster, Inc. (37 NY2d 460, 462 …). According to that method, “[s]o long as all payments on account of interest did not aggregate a sum greater than the aggregate of interest that could lawfully have been earned had the debt continued to the earliest maturity date, there would be no usury” … . In applying the traditional formula, “[t]he discount, divided by the number of years in the term of the mortgage, should be added to the amount of interest due in one year, and this sum is compared to the difference between the principal and the discount in order to determine the true interest rate” … .

Applying that formula to the case at bar, which involves a five-year mortgage of $170,000 with a $43,000 “discount” with no additional interest, we add $8,600, which is one-fifth of the discount, to the interest over the first year (0%), arriving at a sum of $8,600. Comparing the $8,600 figure to the difference between the principal and the discount retained by plaintiff, i.e., $127,000, the interest rate was 6.77% per annum. That interest rate is well below the civil usury rate of 16% per annum … . Canal v Munassar, 2016 NY Slip Op 07793, 4th Dept 11-18-16

FORECLOSURE (LOAN WHICH INCLUDED A SET AMOUNT DESIGNATED AS INTEREST WAS NOT USURIOUS, CRITERIA EXPLAINED)/MORTGAGES (LOAN WHICH INCLUDED A SET AMOUNT DESIGNATED AS INTEREST WAS NOT USURIOUS, CRITERIA EXPLAINED)/USURY (LOAN WHICH INCLUDED A SET AMOUNT DESIGNATED AS INTEREST WAS NOT USURIOUS, CRITERIA EXPLAINED)

November 18, 2016

Civil Procedure, Evidence, Foreclosure

PLAINTIFF’S ATTEMPT TO DEMONSTRATE STANDING FAILED BECAUSE THE SUBMITTED AFFIDAVIT DID NOT MEET THE REQUIREMENTS OF THE BUSINESS RECORDS EXCEPTION TO THE HEARSAY RULE; AFFIDAVIT SUBMITTED IN REPLY PAPERS CANNOT BE CONSIDERED.

The Second Department determined plaintiff loan service did not demonstrate standing to bring this foreclosure action. The affidavit submitted by the plaintiff did not meet the requirements of the business records exception to the hearsay rule. In addition, an affidavit submitted with the reply papers could not be considered:

…[T]he plaintiff relied on the affidavit of Jaclyn Holloway, an assistant secretary of Nationstar Mortgage, LLC (hereinafter Nationstar). Holloway alleged that, after the action was commenced, the plaintiff delivered the note to NationStar. She alleged that, “pursuant to the business records of [the plaintiff],” the plaintiff had physical possession of the note when it commenced the action. However, the plaintiff failed to demonstrate the admissibility of the records relied upon by Holloway under the business records exception to the hearsay rule (see CPLR 4518[a]) since Holloway did not attest that she was personally familiar with the record-keeping practices and procedures of the plaintiff … . Consequently, Holloway’s allegations based on those records were inadmissible … , and, therefore, insufficient to meet the plaintiff’s prima facie burden to establish its standing … .

The plaintiff could not rely on the affidavit of its vice president to meet its prima facie burden since the affidavit was improperly submitted for the first time in its reply papers … . Aurora Loan Servs., LLC v Baritz, 2016 NY Slip Op 07154, 2nd Dept 11-2-16

FORECLOSURE (PLAINTIFF’S ATTEMPT TO DEMONSTRATE STANDING FAILED BECAUSE THE SUBMITTED AFFIDAVIT DID NOT MEET THE REQUIREMENTS OF THE BUSINESS RECORDS EXCEPTION TO THE HEARSAY RULE; AFFIDAVIT SUBMITTED IN REPLY PAPERS CANNOT BE CONSIDERED)/EVIDENCE (FORECLOSURE, PLAINTIFF’S ATTEMPT TO DEMONSTRATE STANDING FAILED BECAUSE THE SUBMITTED AFFIDAVIT DID NOT MEET THE REQUIREMENTS OF THE BUSINESS RECORDS EXCEPTION TO THE HEARSAY RULE; AFFIDAVIT SUBMITTED IN REPLY PAPERS CANNOT BE CONSIDERED)/BUSINESS RECORDS EXCEPTION TO HEARSAY RULE (FORECLOSURE, PLAINTIFF’S ATTEMPT TO DEMONSTRATE STANDING FAILED BECAUSE THE SUBMITTED AFFIDAVIT DID NOT MEET THE REQUIREMENTS OF THE BUSINESS RECORDS EXCEPTION TO THE HEARSAY RULE; AFFIDAVIT SUBMITTED IN REPLY PAPERS CANNOT BE CONSIDERED)/CIVIL PROCEDURE (REPLY PAPERS, PLAINTIFF’S ATTEMPT TO DEMONSTRATE STANDING FAILED BECAUSE THE SUBMITTED AFFIDAVIT DID NOT MEET THE REQUIREMENTS OF THE BUSINESS RECORDS EXCEPTION TO THE HEARSAY RULE; AFFIDAVIT SUBMITTED IN REPLY PAPERS CANNOT BE CONSIDERED)/REPLY PAPERS (PLAINTIFF’S ATTEMPT TO DEMONSTRATE STANDING FAILED BECAUSE THE SUBMITTED AFFIDAVIT DID NOT MEET THE REQUIREMENTS OF THE BUSINESS RECORDS EXCEPTION TO THE HEARSAY RULE; AFFIDAVIT SUBMITTED IN REPLY PAPERS CANNOT BE CONSIDERED)/

November 2, 2016

Foreclosure, Judges

FALSE INFORMATION IN ATTORNEY AFFIDAVIT JUSTIFIED DENIAL OF MOTION FOR JUDGMENT OF FORECLOSURE BUT NOT DISMISSAL.

The Second Department determined false information in the attorney affidavit submitted by the plaintiff bank warranted denial of the motion for a judgment of foreclosure, but did not warrant dismissal of the complaint with prejudice and cancellation of the notice of pendency:

The Administrative Order requires the attorney to attest that the papers “contain no false statements of fact or law” (Administrative Order 548/10). A plaintiff’s failure to file the mandatory attorney affirmation in compliance with the Administrative Order warrants denial of a motion for a judgment of foreclosure and sale … . Here, since the subject affirmation contained an apparently false statement of fact, the Supreme Court providently exercised its discretion in denying the motion for a judgment of foreclosure and sale without prejudice to renew (see CPLR 2001).

However, the Supreme Court erred in, sua sponte, directing the dismissal of the complaint with prejudice and in directing the cancellation of the notice of pendency. “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, there were no extraordinary circumstances … . Downey Sav. & Loan Assn., F.A. v Trujillo, 2016 NY Slip Op 06058, 2nd Dept 9-21-16

FORECLOSURE (FALSE INFORMATION IN ATTORNEY AFFIDAVIT JUSTIFIED DENIAL OF MOTION FOR JUDGMENT OF FORECLOSURE BUT NOT DISMISSAL)/ATTORNEYS (FALSE INFORMATION IN ATTORNEY AFFIDAVIT JUSTIFIED DENIAL OF MOTION FOR JUDGMENT OF FORECLOSURE BUT NOT DISMISSAL)

September 21, 2016

Evidence, Foreclosure

FOUNDATION REQUIREMENTS FOR BUSINESS RECORDS EXCEPTION TO THE HEARSAY RULE NOT MET. BANK’S SUMMARY JUDGMENT MOTION SHOULD NOT HAVE BEEN GRANTED.

The Second Department determined the plaintiff bank failed to satisfy the foundation for the business records exception to the hearsay rule. The bank’s motion for summary judgment should have been denied. Although the affiant (Roesner) stated he was familiar with the successor-in-interest’s record keeping system, he did not allege he was familiar with the plaintiff bank’s record keeping practices and procedures:

Roesner averred, inter alia, that his knowledge of the relevant facts was based on his “examination of the financial books and business records made in the ordinary course of business maintained by or on behalf of the successor in interest to the Plaintiff,” and that he was “familiar with the record keeping systems that [the] successor in interest to the Plaintiff and/or its loan servicer use[d] to record and create information related to the residential mortgage loans that it services.” …

* * * On its motion for summary judgment, a plaintiff has the burden of establishing, by proof in admissible form, its prima facie entitlement to judgment as a matter of law … .

The plaintiff failed to demonstrate the admissibility of the records relied upon by Roesner under the business records exception to the hearsay rule (see CPLR 4518[a]), and, thus, failed to establish the appellant’s default in payment under the note. “A proper foundation for the admission of a business record must be provided by someone with personal knowledge of the maker’s business practices and procedures”… . Roesner, who was employed by the loan servicer …, did not allege that he was personally familiar with the plaintiff’s record keeping practices and procedures. Thus, Roesner failed to lay a proper foundation for the admission of records concerning the appellant’s payment history… . HSBC Mtge. Servs., Inc. v Royal, 2016 NY Slip Op 05973, 2nd Dept 9-14-16

FORECLOSURE (FOUNDATION REQUIREMENTS FOR BUSINESS RECORDS EXCEPTION TO THE HEARSAY RULE NOT MET. BANK’S SUMMARY JUDGMENT MOTION SHOULD NOT HAVE BEEN GRANTED)/EVIDENCE (FORECLOSURE. FOUNDATION REQUIREMENTS FOR BUSINESS RECORDS EXCEPTION TO THE HEARSAY RULE NOT MET. BANK’S SUMMARY JUDGMENT MOTION SHOULD NOT HAVE BEEN GRANTED)/BUSINESS RECORDS EXCEPTION TO HEARSAY RULE, (FORECLOSURE. FOUNDATION REQUIREMENTS FOR BUSINESS RECORDS EXCEPTION TO THE HEARSAY RULE NOT MET. BANK’S SUMMARY JUDGMENT MOTION SHOULD NOT HAVE BEEN GRANTED)

September 14, 2016

Evidence, Foreclosure

BANK’S PROOF OF STANDING DID NOT MEET THE REQUIREMENTS OF THE BUSINESS RECORDS EXCEPTION TO THE HEARSAY RULE.

The Second Department determined the bank’s motion for summary judgment was properly denied because the bank did not submit sufficient proof of possession of the note and mortgage at the time the foreclosure action was commenced. The proof did not meet the requirements of the business records exception to the hearsay rule. That affiant did not attest she was personally familiar with the plaintiff-bank’s record-keeping practices and procedures:

Here, the plaintiff attempted to establish its standing by submitting the affidavit of Angela Frye, Vice President of Loan Documentation for Wells Fargo Bank, N.A. (hereinafter Wells Fargo), the servicer of the defendant’s loan on behalf of the plaintiff. Frye averred, in relevant part, that she “reviewed the books and records regularly maintained by Wells Fargo in the ordinary course of its business as servicer of Defendant’s loan for and on behalf of the Trust,” and that “Wells Fargo’s regularly maintained records reflect that both the original Note … and the Mortgage were physically delivered to the Trust prior to the commencement of this action.” The plaintiff failed to demonstrate that the records relied upon by Frye were admissible under the business records exception to the hearsay rule (see CPLR 4518[a]) because Frye, an employee of Wells Fargo, did not attest that she was personally familiar with the plaintiff’s record-keeping practices and procedures … . Deutsche Bank Natl. Trust Co. v Brewton, 2016 NY Slip Op 05906, 2nd Dept 8-31-16

FORECLOSURE (BANK’S PROOF OF STANDING DID NOT MEET THE REQUIREMENTS OF THE BUSINESS RECORDS EXCEPTION TO THE HEARSAY RULE)/EVIDENCE (FORECLOSURE, BANK’S PROOF OF STANDING DID NOT MEET THE REQUIREMENTS OF THE BUSINESS RECORDS EXCEPTION TO THE HEARSAY RULE)/BUSINESS RECORDS (FORECLOSURE, BANK’S PROOF OF STANDING DID NOT MEET THE REQUIREMENTS OF THE BUSINESS RECORDS EXCEPTION TO THE HEARSAY RULE)

August 31, 2016

Foreclosure

REFEREE’S ALLEGED VIOLATION OF A LOCAL COURT RULE DID NOT WARRANT SETTING ASIDE THE FORECLOSURE SALE.

The Second Department, reversing Supreme Court, determined the referee’s alleged setting of an “upset price” which violated Kings County Supreme Court Civil Term Rules did not warrant setting aside the foreclosure sale:

RPAPL 231 provides, in relevant part, that a court, within one year after a foreclosure sale, “may set the sale aside for failure to comply with the provisions of this section as to the notice, time or manner of such sale if a substantial right of a party was prejudiced by the defect” (RPAPL 231[6]). ” In the exercise of its equitable powers, a court has the discretion to set aside a foreclosure sale where there is evidence of fraud, collusion, mistake, or misconduct'” … . In order to provide a basis for setting aside a sale, the evidence of fraud, collusion, mistake, or misconduct must cast suspicion on the fairness of the sale … . Furthermore, evidence of a unilateral mistake at the foreclosure sale, without more, does not provide a basis to invalidate a sale that was otherwise lawfully conducted … , and belated and unsubstantiated claims are insufficient to establish the existence of fraud, collusion, mistake, or misconduct … . Moreover, mere irregularities by a referee may be disregarded if they do not affect a substantial right of a party … . Clinton Hill Holding 1, LLC v Kathy & Tania, Inc., 2016 NY Slip Op 05844, 1st Dept 8-24-16

FORECLOSURE (REFEREE’S ALLEGED VIOLATION OF A LOCAL COURT RULE DID NOT WARRANT SETTING ASIDE THE FORECLOSURE SALE)

August 24, 2016

Foreclosure, Real Property Law

DEED PROVIDED AS SECURITY FOR A DEBT CONSTITUTES A MORTGAGE TRIGGERING THE NEED FOR FORECLOSURE PROCEEDINGS UPON DEFAULT.

The First Department determined a deed which was security for a debt constituted a mortgage. Therefore, foreclosure proceedings under the Real Property Law were triggered by default on the debt:

Real Property Law § 320 codifies the common-law principle that the giving of a deed to secure a debt, in whatever form and however structured, creates nothing more than a mortgage … . “The courts are steadfast in holding that a conveyance, whatever its form, if in fact given to secure a debt, is neither an absolute nor a conditional sale, but a mortgage, and that the grantor and grantee have merely the rights and are subject only to the obligations of mortgagor and mortgagee” … . “Significantly, the statute does not require a conclusive showing that the transfer was intended as security; it is sufficient that the conveyance appears to be intended only as a security in the nature of a mortgage” … . “In determining whether a deed was intended as security, examination may be made not only of the deed and a written agreement executed at the same time, but also of oral testimony bearing on the intent of the parties and to a consideration of the surrounding circumstances and acts of the parties” … . Patmos Fifth Real Estate Inc. v Mazl Bldg., LLC, 2016 NY Slip Op 04804, 1st Dept 6-16-16

REAL PROPERTY LAW (DEED PROVIDED AS SECURITY FOR A DEBT CONSTITUTES A MORTGAGE TRIGGERING THE NEED FOR FORECLOSURE PROCEEDINGS UPON DEFAULT)/FORECLOSURE (DEED PROVIDED AS SECURITY FOR A DEBT CONSTITUTES A MORTGAGE TRIGGERING THE NEED FOR FORECLOSURE PROCEEDINGS UPON DEFAULT)/DEEDS (DEED PROVIDED AS SECURITY FOR A DEBT CONSTITUTES A MORTGAGE TRIGGERING THE NEED FOR FORECLOSURE PROCEEDINGS UPON DEFAULT)/MORTGAGES (DEED PROVIDED AS SECURITY FOR A DEBT CONSTITUTES A MORTGAGE TRIGGERING THE NEED FOR FORECLOSURE PROCEEDINGS UPON DEFAULT)

June 16, 2016

Civil Procedure, Foreclosure

TAKING TIMELY STEPS TO PROCEED TO JUDGMENT AFTER DEFAULT IN FORECLOSURE ACTION SUFFICIENT TO AVOID DISMISSAL OF COMPLAINT AS ABANDONED.

The Second Department, reversing Supreme Court, determined plaintiff-bank's taking timely steps to proceed to judgment after a default in this foreclosure action were sufficient to avoid dismissal of the complaint as abandoned:

CPLR 3215(c) provides that “[i]f the plaintiff fails to take proceedings for the entry of judgment within one year after [a] default, the court shall not enter judgment but shall dismiss the complaint as abandoned, without costs, upon its own initiative or on motion, unless sufficient cause is shown why the complaint should not be dismissed.” However, “[i]t is not necessary for a plaintiff to actually obtain a default judgment within one year of the default in order to avoid dismissal pursuant to CPLR 3215(c)” … . Rather, it is enough that the plaintiff timely takes “the preliminary step toward obtaining a default judgment of foreclosure and sale by moving for an order of reference” to establish that it “initiated proceedings for entry of a judgment within one year of the default” for the purposes of satisfying CPLR 3215(c) … . “[A]s long as proceedings are being taken, and these proceedings manifest an intent not to abandon the case but to seek a judgment, the case should not be subject to dismissal” … . This is so even where, as here, the timely motion for an order of reference was subsequently withdrawn … . HSBC Bank USA, N.A. v Traore, 2016 NY Slip Op 04022, 2nd Dept 5-25-16

CIVIL PROCEDURE (TAKING TIMELY STEPS TO PROCEED TO JUDGMENT AFTER DEFAULT IN FORECLOSURE ACTION SUFFICIENT TO AVOID DISMISSAL OF COMPLAINT AS ABANDONED)/FORECLOSURE (TAKING TIMELY STEPS TO PROCEED TO JUDGMENT AFTER DEFAULT IN FORECLOSURE ACTION SUFFICIENT TO AVOID DISMISSAL OF COMPLAINT AS ABANDONED)/ABANDONMENT OF ACTION (TAKING TIMELY STEPS TO PROCEED TO JUDGMENT AFTER DEFAULT IN FORECLOSURE ACTION SUFFICIENT TO AVOID DISMISSAL OF COMPLAINT AS ABANDONED)

May 25, 2016

Condominiums, Foreclosure, Real Property Law

CONSOLIDATED MORTGAGES CONSIDERED FIRST MORTGAGE OF RECORD WITH PRIORITY OVER COMMON CHARGES LIEN.

The Court of Appeals, in a full-fledged opinion by Judge DiFiore, determined a lien for unpaid (condominium) common charges did not take priority over the second of two Citibank mortgages which were consolidated. Plaintiff was the winning bidder in a foreclosure action commenced by the condominium board for unpaid common charges. Plaintiff took the property subject to the “first mortgage of record.” Years before the common charges lien two mortgages taken out by the previous condominium owner had been consolidated. Plaintiff argued the second of those two consolidated mortgages should be extinguished by the foreclosure action because, by statute, the lien for the common charges was subject only to the “first mortgage of record.” The Court of Appeals held the two consolidated mortgages should be considered the “first mortgage” in this context:

Given the practical realities of this case, … the agreement between Citibank and the previous unit owner to consolidate the mortgages “into a single mortgage lien,” recorded years before the common charges lien, qualifies as “the first mortgage of record.” To hold otherwise places form over substance. Indeed, the ease with which a formulaic application of the term “first mortgage of record” can be manipulated demonstrates that such holding would not promote the statutory purpose. Plotch v Citibank, N.A., 2016 NY Slip Op 03648, CtApp 5-10-16

FORECLOSURE (CONSOLIDATED MORTGAGES CONSIDERED FIRST MORTGAGE OF RECORD WITH PRIORITY OVER COMMON CHARGES LIEN)/REAL PROPERTY LAW (CONDOMINIUM COMMON CHARGES, CONSOLIDATED MORTGAGES CONSIDERED FIRST MORTGAGE OF RECORD WITH PRIORITY OVER COMMON CHARGES LIEN)/MORTGAGES (CONDOMINIUM COMMON CHARGES, CONSOLIDATED MORTGAGES CONSIDERED FIRST MORTGAGE OF RECORD WITH PRIORITY OVER COMMON CHARGES LIEN)/CONDOMINIUMS (COMMON CHARGES LIEN, CONSOLIDATED MORTGAGES CONSIDERED FIRST MORTGAGE OF RECORD WITH PRIORITY OVER COMMON CHARGES LIEN)

May 10, 2016