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FORECLOSURE COULD PROCEED DESPITE ERRONEOUS SATISFACTION OF MORTGAGE.

The Second Department determined foreclosure proceedings could proceed despite an erroneous, recorded satisfaction of mortgage:

“A mortgagee may have an erroneous discharge of mortgage, without concomitant satisfaction of the underlying mortgage debt, set aside, and have the mortgage reinstated where there has not been detrimental reliance on the erroneous recording” … . “Only bona fide purchasers and lenders for value are entitled to protection from an erroneous discharge of a mortgage based upon their detrimental reliance thereon” … . …

… [T]he complaint's factual allegations, i.e., that the plaintiff was the holder and owner of the subject note and mortgage, that the satisfaction of mortgage was erroneously executed and recorded, that the mortgage had not been satisfied, that the original mortgagor defaulted on the note and mortgage, and that the balance due under the note remained outstanding, were sufficient to set forth viable causes of action to foreclose the mortgage and to cancel and vacate the satisfaction of mortgage … . Wells Fargo Bank N.A. v E & G Dev. Corp., 2016 NY Slip Op 02988, 2nd Dept 4-20-16


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THE FLAWS IN PLAINTIFF’S PROOF OF STANDING TO BRING THE FORECLOSURE ACTION DID NOT ENTITLE DEFENDANT TO SUMMARY JUDGMENT ON THE CROSS MOTION; SUMMARY JUDGMENT CANNOT BE GRANTED TO A MOVING PARTY BASED UPON FLAWS IN THE OPPOSING PAPERS.

The Second Department, modifying Supreme Court’s order, determined defendant was not entitled to summary judgment in a foreclosure proceeding. Defendant alleged plaintiff, Aurora Loan Services, did not have standing to bring the action (i.e., did not have possession of the note at the time the action was commenced). Aurora Loan Services was unable to demonstrate standing because the evidence submitted did not meet the requirements of the business records exception to the hearsay rule. Aurora’s summary judgment motion was therefore properly denied. However, the flaws in Aurora’s proof of standing did not entitle defendant to summary judgment on defendant’s cross motion. In the summary judgment context, the court first looks only at the moving party’s papers to determine whether the moving party has made a prima facie showing justifying summary judgment. Here the defendant’s papers did not demonstrate Aurora lacked standing. Therefore the cross motion should have been denied, notwithstanding the flaws in the plaintiff’s opposing papers.

… Supreme Court erred in granting the defendant’s cross motion for summary judgment dismissing the complaint insofar as asserted against him for lack of standing and to cancel the notice of pendency filed against the subject property. “[T]he burden is on the moving defendant to establish, prima facie, the plaintiff’s lack of standing, rather than on the plaintiff to affirmatively establish its standing in order for the motion to be denied. To defeat a defendant’s motion, the plaintiff has no burden of establishing its standing as a matter of law” … . Here, the defendant, as the moving party, failed to make a prima facie showing that the plaintiff lacked standing … . Aurora Loan Servs., LLC v Mercius, 2016 NY Slip Op 02599, 2nd Dept 4-6-16

FORECLOSURE FLAWS IN PLAINTIFF’S PROOF OF STANDING TO BRING THE FORECLOSURE ACTION DID NOT ENTITLE DEFENDANT TO SUMMARY JUDGMENT ON THE CROSS MOTION; SUMMARY JUDGMENT CANNOT BE GRANTED TO THE MOVING PARTY BASED UPON FLAWS IN THE OPPOSING PAPERS)/EVIDENCE (SUMMARY JUDGMENT MOTIONS, FORECLOSURE, FLAWS IN PLAINTIFF’S PROOF OF STANDING TO BRING THE FORECLOSURE ACTION DID NOT ENTITLE DEFENDANT TO SUMMARY JUDGMENT ON THE CROSS MOTION; SUMMARY JUDGMENT CANNOT BE GRANTED TO THE MOVING PARTY BASED UPON FLAWS IN THE OPPOSING PAPERS)/SUMMARY JUDGMENT MOTIONS (SUMMARY JUDGMENT CANNOT BE GRANTED TO THE MOVING PARTY BASED UPON FLAWS IN THE OPPOSING PAPERS)/CIVIL PROCEDURE (SUMMARY JUDGMENT MOTIONS, FORECLOSURE, FLAWS IN PLAINTIFF’S PROOF OF STANDING TO BRING THE FORECLOSURE ACTION DID NOT ENTITLE DEFENDANT TO SUMMARY JUDGMENT ON THE CROSS MOTION; SUMMARY JUDGMENT CANNOT BE GRANTED TO THE MOVING PARTY BASED UPON FLAWS IN THE OPPOSING PAPERS)

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ONCE PLAINTIFF RELEASED THE MORTGAGE UPON PAYMENT OF LESS THAN THE VALUE OF THE NOTE, PLAINTIFF COULD PROCEED AGAINST THE NOTE AND GUARANTY BY AMENDING THE FORECLOSURE COMPLAINT.

The Second Department, reversing Supreme Court, determined, once plaintiff agreed to release a mortgage in return for sale proceeds which were less than the value of the note, plaintiff could then commence a proceeding on the note and the guaranty. The court further held that the action on the note and guaranty could be accomplished by amending the original foreclosure complaint:

“RPAPL 1301(3) . . . prohibits a party from commencing an action at law to recover any part of the mortgage debt while the foreclosure proceeding is pending or has not reached final judgment, without leave of the court in which the foreclosure action was brought'” … . Conversely, “where a foreclosure action is no longer pending and did not result in a judgment in the plaintiff's favor, the plaintiff is not precluded from commencing a separate action' without leave of the court” … .

Here, since, pursuant to the parties' stipulation, the plaintiff agreed to accept the net proceeds of the sale in exchange for releasing the property from the mortgage and there was no judgment in the plaintiff's favor, the plaintiff was not precluded from seeking to recover on the note and guaranty by RPAPL 1301(3), “a statute which must be strictly construed” … .

Furthermore, there is no reason the plaintiff could not seek such relief by seeking leave to amend its complaint, rather than by commencing a new action … . TD Bank, N.A. v 250 Jackson Ave., LLC, 2016 NY Slip Op 01828, 2nd Dept 3-16-16

FORECLOSURE (PLAINTIFF COULD PROCEED AGAINST NOTE AND GUARANTY AFTER RELEASING MORTGAGE)/NOTE (FORECLOSURE, PLAINTIFF COULD PROCEED AGAINST NOTE AND GUARANTY AFTER RELEASING MORTGAGE)/MORTGAGES (FORECLOSURE, PLAINTIFF COULD PROCEED AGAINST NOTE AND GUARANTY AFTER RELEASING MORTGAGE)/DEBTOR-CREDITOR  (FORECLOSURE, PLAINTIFF COULD PROCEED AGAINST NOTE AND GUARANTY AFTER RELEASING MORTGAGE)/CIVIL PROCEDURE (AMENDING COMPLAINT, AFTER RELEASING MORTGAGE, PLAINTIFF COULD PROCEED AGAINST THE NOTE AND GUARANTEE BY AMENDING THE ORIGINAL FORECLOSURE COMPLAINT)

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SUA SPONTE DISMISSAL FOR LACK OF STANDING REVERSED, LACK OF STANDING DEFENSE WAS WAIVED AND IS NOT A JURISDICTIONAL DEFECT.

The Second Department reversed Supreme Court's sua sponte dismissal of a foreclosure complaint for lack of standing. Because the defendants did not answer the complaint or make a pre-answer motion to dismiss, the defense of lack of standing was waived. The matter was sent back to be heard by a different judge:

The Supreme Court erred in, sua sponte, directing the dismissal of the plaintiff's complaint and discharge of the notice of pendency against the subject property for lack of standing. “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, the Supreme Court was not presented with any extraordinary circumstances warranting sua sponte dismissal of the complaint and discharge of the notice of pendency. Since the defendants did not answer the complaint and did not make pre-answer motions to dismiss the complaint, they waived the defense of lack of standing … . Furthermore, a party's lack of standing does not constitute a jurisdictional defect and does not warrant sua sponte dismissal of a complaint by the court … . Consumer Solutions, LLC v Charles, 2016 NY Slip Op 01794, 2nd Dept 3-16-16

FORECLOSURE (SUA SPONTE DISMISSAL OF COMPLAINT FOR LACK OF STANDING REVERSED)/STANDING (FORECLOSURE, SUA SPONTE DISMISSAL OF COMPLAINT FOR LACK OF STANDING REVERSED, DEFENSE WAS WAIVED AND IS NOT A JURISDICTION DEFECT)

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COURT SHOULD HAVE ALLOWED SUBSTITUTION OF AN AFFIDAVIT OF MERIT PURSUANT TO CPLR 2001; SUA SPONTE DISMISSAL OF COMPLAINT NOT WARRANTED.

The Fourth Department determined Supreme Court should have granted plaintiff’s motion to substitute nunc pro tunc an affidavit of merit and amount due in a foreclosure proceeding. Plaintiff could not confirm the proper execution of the original affidavit (a requirement of an administrative order of the chief administrative judge) and sought to substitute the original with an identical affidavit, the proper execution of which could be confirmed. Supreme Court denied the motion and dismissed the complaint sua sponte. The Fourth Department held that the dismissal was not warranted and CPLR 2001 permitted the substitution:

 

” 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, we conclude that “[t]he fact that . . . plaintiff’s [new] attorney[s] attempted to comply, in good faith, with an Administrative Order of the Chief Administrative Judge that did not exist at the time that the action was commenced, or at the time [the judgment of foreclosure and sale was granted], does not qualify as such an extraordinary circumstance’ ” that would support a sua sponte dismissal … . Indeed, “[n]othing in the Administrative Order[] requires the dismissal of an action merely because the plaintiff’s attorney[s] discover[] that there was some irregularity or defect in a prior submission” … . Thus, contrary to the court’s determination, we conclude that plaintiff is not “effectively required to commence an entirely new action” … .

We further conclude that the court erred in denying that part of plaintiff’s motion seeking to substitute the affidavit of merit and amount due. “CPLR 2001 permits a court, at any stage of an action, to disregard a party’s mistake, omission, defect, or irregularity if a substantial right of a party is not prejudiced” … . In addition, “[p]ursuant to CPLR 5019 (a), a trial court has the discretion to correct an order or judgment which contains a mistake, defect, or irregularity not affecting a substantial right of a party” … . Here, we conclude that the substitution of the original affidavit of merit and amount due with a new, substantively identical affidavit of merit and amount due was a ministerial amendment permitted by CPLR 2001 and CPLR 5019 (a) inasmuch as the change affected only plaintiff’s ability to comply with the Administrative Order, and “[t]he attorney affirmation is not itself substantive evidence” … . We further conclude that “[n]o substantial right of [defendant .. .would] be affected by the court’s substitution” … . Indeed, that defendant did not reside in the subject property when plaintiff commenced the mortgage foreclosure action and the property was vacant at that time, and he never joined this action nor made any effort to contest the foreclosure. Wells Fargo Bank, N.A. v Watanabe, 2016 NY Slip Op 01096, 4th Dept 2-11-16

 

CIVIL PROCEDURE (SUA SPONTE DISMISSAL OF FORECLOSURE COMPLAINT NOT WARRANTED, SUBSTITUTE AFFIDAVIT OF MERIT ALLOWED BY CPLR 2001)/FORECLOSURE (SUA SPONTE DISMISSAL OF FORECLOSURE COMPLAINT NOT WARRANTED, SUBSTITUTE AFFIDAVIT OF MERIT ALLOWED BY CPLR 2001)/AFFIDAVIT OF MERIT AND AMOUNT DUE (SUA SPONTE DISMISSAL OF FORECLOSURE COMPLAINT NOT WARRANTED, SUBSTITUTE AFFIDAVIT OF MERIT ALLOWED BY CPLR 2001)

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HOLDER OF SECOND MORTGAGE COULD PROPERLY SUE ONLY ON THE UNDERLYING DEBT WITHOUT BRINGING FORECLOSURE PROCEEDINGS.

The Second Department determined plaintiff bank, the holder of a second mortgage on defendant’s residence to secure an equity loan, could sue to recover on the underlying debt, without bringing foreclosure proceedings. Because defendant’s ownership and possession of his residence was not at risk in the lawsuit, the protections afforded a homeowner by the foreclosure procedure were not applicable:

 

Where a creditor holds both a debt instrument and a mortgage which is given to secure the debt, the creditor may elect either to sue at law to recover on the debt, or to sue in equity to foreclose on the mortgage (… see generally RPAPL 1301). Here, contrary to the Supreme Court’s determination, the clear and unequivocal language of the parties’ agreement did not limit the plaintiff’s options to recover in the event of a default, and did not require that the plaintiff commence only a foreclosure action … . …

Accordingly, the plaintiff was free to commence the instant action to recover damages, and the protections afforded to homeowners under the foreclosure laws are inapplicable to this action, since the defendant’s ownership and possession of his residence are not at risk in this lawsuit. Wells Fargo Bank, N.A. v Goans, 2016 NY Slip Op 00710, 2nd Dept 2-3-16

 

MORTGAGES (SECOND MORTGAGE TO SECURE HOME EQUITY LOAN, BANK CAN SUE ON DEBT WITHOUT BRINGING FORECLOSURE PROCEEDINGS)/FORECLOSURE (SECOND MORTGAGE TO SECURE HOME EQUITY LOAN, BANK CAN SUE ON DEBT WITHOUT BRINGING FORECLOSURE PROCEEDINGS)/HOME EQUITY LOAN (SECOND MORTGAGE TO SECURE HOME EQUITY LOAN, BANK CAN SUE ON DEBT WITHOUT BRINGING FORECLOSURE PROCEEDINGS)/DEBTOR-CREDITOR (SECOND MORTGAGE TO SECURE HOME EQUITY LOAN, BANK CAN SUE ON DEBT WITHOUT BRINGING FORECLOSURE PROCEEDINGS)

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BANK DID NOT NEGOTIATE IN GOOD FAITH IN THE CPLR 3408 MANDATORY FORECLOSURE SETTLEMENT CONFERENCE, CERTAIN SANCTIONS PROPERLY IMPOSED.

The Second Department determined Supreme Court properly found the bank did not negotiate in a mortgage foreclosure settlement conference (CPLR 3408(f)) in good faith and properly imposed certain sanctions on the bank:

 

Pursuant to CPLR 3408(f), the parties at a mandatory foreclosure settlement conference are required to negotiate in good faith to reach a mutually agreeable resolution (see CPLR 3408[f]…). ” The purpose of the good faith requirement [in CPLR 3408] is to ensure that both plaintiff and defendant are prepared to participate in a meaningful effort at the settlement conference to reach resolution'” … . To conclude that a party failed to negotiate in good faith pursuant to CPLR 3408(f), a court must determine that “the totality of the circumstances demonstrates that the party’s conduct did not constitute a meaningful effort at reaching a resolution” … .

Here, contrary to the Bank’s contention, the totality of the circumstances support the Supreme Court’s conclusion that it failed to negotiate in good faith. The homeowner’s submissions demonstrated that the Bank, among other things, engaged in dilatory conduct by “making piecemeal document requests, providing contradictory information, and repeatedly requesting documents which had already been provided” … . The Bank failed to offer any evidence in opposition to the homeowner’s motion and did not controvert the homeowner’s account of the mandatory settlement negotiations. Accordingly, under the circumstances, the Supreme Court properly concluded that the Bank violated CPLR 3408(f) by failing to negotiate in good faith … . LaSalle Bank, N.A. v Dono, 2016 NY Slip Op 00340, 2nd Dept 1-20-16

 

FORECLOSURE (BANK DID NOT NEGOTIATE IN GOOD FAITH RE: MANDATORY FORECLOSURE SETTLEMENT CONFERENCE)/CIVIL PROCEDURE (BANK DID NOT NEGOTIATE IN GOOD FAITH IN MANDATORY FORECLOSURE SETTLEMENT CONFERENCE)

FORECLOSURE OF A REVERSE MORTGAGE CAN BE BASED UPON HOMEOWNER’S FAILURE TO MAKE HAZARD INSURANCE PAYMENTS.

The Third Department determined summary judgment should not have been granted to defendant homeowner in a reverse-mortgage foreclosure action. Foreclosure proceedings were started because defendant did not make hazard insurance payments. Plaintiff bank made those payments on her behalf. The Third Department held that the relevant regulations allowed plaintiff bank to make the hazard insurance payments, but did not require it to do so. Foreclosure, therefore, can be based upon defendant’s failure to make the payments:

 

Defendant was obliged to “pay all property charges consisting of taxes, ground rents, flood and hazard insurance premiums, and special assessments” under the terms of the loan documents (24 CFR 206.205 [a]), and those documents contemplate that foreclosure is an available remedy for her failure to perform such an obligation (see 24 CFR 206.27 [b] [6]; [c] [2] [iii])[FN1]. Supreme Court nevertheless held that plaintiff was precluded from seeking foreclosure by 24 CFR 206.205 (c), which provides that “[i]f the mortgagor fails to pay the property charges in a timely manner, and has not elected to have the mortgagee make the payments, the mortgagee may make the payment for the mortgagor and charge the mortgagor’s account” (emphasis added). Language such as “may” should ordinarily be read as permissive, “and mandatory effect is given to [it] only when required by the context of the [regulation], the facts surrounding its [promulgation], or the purposes sought to be served thereby” (McKinney’s Cons Laws of NY, Book 1, Statutes § 177 [b]). The context of 24 CFR 206.205 gives no reason to believe that mandatory effect should be afforded to its discretionary language and, contrary to the conclusion of Supreme Court, neither does the purpose underlying the federal regulatory scheme. The scheme in question is intended to enable the Secretary to provide insurance for reverse mortgages that will facilitate the offering of such mortgages to elderly homeowners by lenders which, in turn, will allow the homeowners to monetize their accumulated home equity (see 12 USC § 1715z-20 [a]; 24 CFR 206.1). This actual goal runs against an interpretation of the regulation that would prevent a mortgagee from pursuing whatever permissible remedy it deems appropriate to recover unpaid carrying costs and, indeed, adopting that reading could well have a chilling effect on the willingness of lenders to offer reverse mortgages. We therefore read 24 CFR 206.205 (c) as allowing, but not requiring, plaintiff to pay carrying charges owed by defendant rather than resorting to foreclosure … . Onewest Bank, FSB v Smith, 2016 NY Slip Op 00092, 3rd Dept 1-7-16

 

FORECLOSURE (FORECLOSURE OF REVERSE MORTGAGE MAY BE BASED ON HOMEOWNER’S FAILURE TO MAKE HAZARD INSURANCE PAYMENTS)/MORTGAGES (FORECLOSURE OF REVERSE MORTGAGE MAY BE BASED ON HOMEOWNER’S FAILURE TO MAKE HAZARD INSURANCE PAYMENTS)/REVERSE MORTGAGES (FORECLOSURE OF REVERSE MORTGAGE MAY BE BASED ON HOMEOWNER’S FAILURE TO MAKE HAZARD INSURANCE PAYMENTS)/REVERSE MORTGAGES (FORECLOSURE OF REVERSE MORTGAGE MAY BE BASED ON HOMEOWNER’S FAILURE TO MAKE HAZARD INSURANCE PAYMENTS)

Plaintiff Did Not Demonstrate Standing to Bring the Foreclosure Action

The Third Department, over a two-justice dissent, determined plaintiff bank did not demonstrate standing to proceed with the foreclosure because the bank did not present evidence of the affiant’s first-hand examination of the original note and the bank did not explain how it came into possession of the original note:

To establish physical possession, plaintiff produced an affidavit by an assistant secretary, who stated that plaintiff’s “custodial system of record” showed that plaintiff “received the original [n]ote on February 16, 2007” and that plaintiff maintained “possession of the [n]ote at its storage facility” in Monroe, Louisiana. Noticeably absent is any representation by the assistant secretary that she examined the original note and, contrary to the dissent, the affidavit is devoid of any detail as to how plaintiff actually acquired possession of the original note … . JP Morgan Chase Bank, N.A. v Hill, 2015 NY Slip Op 08479, 3rd Dept 11-19-15

 

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Question Whether Loan At Issue Was a “Home Loan” Requiring a Settlement Conference, Hearing Ordered

The Second Department found that a hearing was required to determine whether the loan at issue was a “home loan” such that a settlement conference pursuant to CPLR 3408 was required. The court explained the analytical factors:

“CPLR 3408 does not apply to every residential foreclosure action” … . CPLR 3408 only mandates a settlement conference in a residential foreclosure action involving a “home loan” as that term is defined by RPAPL 1304, and when the “defendant is a resident of the property subject to foreclosure” (see CPLR 3408…).

RPAPL 1304(5)(a)(i)-(iv) defines a qualifying home loan as one in which, inter alia, the borrower is a natural person; the borrower incurs the debt primarily for personal, family, or household purposes; and the loan is secured by a mortgage on real property in this state “used or occupied, or intended to be used or occupied wholly or partly, as the home or [the] residence of one or more persons and which is or will be occupied by the borrower as the borrower’s principal dwelling” … .

Here, the conflicting affidavits submitted by the parties reveal a sharp factual dispute, inter alia, as to whether the subject loan was made for the defendant’s personal, family, or household use, and whether the mortgaged premises was to be occupied as the defendant’s principal dwelling. Richlew Real Estate Venture v Grant, 2015 NY Slip Op 07018, 2nd Dept 9-30-15

 

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