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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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Loan Secured by Shares in a Cooperative Apartment Was Not a “Home Loan” Subject to the Pre-Foreclosure Settlement Conference Required by CPLR 3408

The Second Department determined defendant was not entitled to a pre-foreclosure settlement conference under CPLR 3408. The underlying loan was secured by shares in the cooperative apartment where defendant resided. Such a loan was not a “home loan” within the meaning of Real Property Actions and Proceedings Law (RPAPL) 1304, and therefore was not subject to the mandatory settlement conference under the CPLR:

CPLR 3408 requires, in relevant part, that a court hold a mandatory settlement conference in “any residential foreclosure action involving a home loan as such term is defined in section thirteen hundred four of the real property actions and proceeding law” (CPLR 3408[a]). RPAPL 1304 does not include, in its definition of “home loan,” a loan secured by shares of stock and a proprietary lease from a corporation formed for the purpose of cooperative ownership in real estate (RPAPL 1304[5][a][iii]; cf. Banking Law §§ 6-l[1][e][iv]; 6-m[1][d][iv]). Accordingly, because the subject loan is not a home loan within the meaning of RPAPL 1304, the plaintiff is not entitled to a mandatory settlement conference pursuant to CPLR 3408. DaCosta-Harris v Aurora Bank, FSB, 2015 NY Slip Op 06879, 2nd Dept 9-23-15

 

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Lack of Standing Not a Jurisdictional Defect, Sua Sponte Dismissal of Complaint Not Warranted

The Second Department, in reversing Supreme Court’s sua sponte dismissal of a foreclosure action on “lack of standing” grounds, noted that the “lack of standing” defense was waived by the defendants (not raised in answer), sua sponte dismissal was an abuse of discretion, and “lack of standing” is not a jurisdictional defect. The court explained:

“The Supreme Court abused its discretion in, sua sponte, directing the dismissal of the complaint 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 extraordinary circumstances warranting the sua sponte dismissal of the complaint. Since the defendants … did not answer the complaint, and did not make a pre-answer motion 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 …”. FCDB FF1 2008-1 Trust v Videjus, 2015 NY Slip Op 06777, 2nd Dept 9-16-15

 

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“Lack of Standing” Defense Waived by Not Asserting It In the Answer—“Lack of Standing” Not a Jurisdictional Defect—Sua Sponte Dismissal for “Lack of Standing” Not Warranted

In reversing Supreme Court’s denial of plaintiff-bank’s unopposed motions in a foreclosure action, the Second Department noted that defendant homeowner had waived the “lack of standing” defense by not asserting it in her answer, and, in any event, “lack of standing” is not a jurisdictional defense for which the court’s sua sponte dismissal of the complaint was warranted:

The Supreme Court abused its discretion in, sua sponte, directing the dismissal of the complaint for the plaintiff’s 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 court was not presented with extraordinary circumstances warranting sua sponte dismissal of the complaint. [The homeowner] had waived the defense of lack of standing by failing to assert it in her amended answer, which she withdrew in any event, the State waived the defense by serving and filing a limited notice of appearance, and the remaining defendants waived the defense by failing to appear or answer… . Furthermore, a party’s lack of standing does not constitute a jurisdictional defect and does not warrant a sua sponte dismissal of the complaint by the court … . Mortgage Elec. Registration Sys., Inc. v Holmes, 2015 NY Slip Op 06662, 2nd Dept 8-26-15

 

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Business Records Exception to the Hearsay Rule Established Possession of Note at the Time Foreclosure Was Commenced

The Third Department determined plaintiff bank demonstrated it had standing to foreclose by sufficient proof it had possession of the underlying note at the time the foreclosure proceeding was commenced. Proof of possession of the note was by an affidavit invoking the business records exception to the hearsay rule. The court noted that evidence a document received from another entity was filed does not qualify the documents as business records. Here, however, the affidavit included sufficient additional information to demonstrate the applicability of the exception:

While “the mere filing of papers received from other entities, even if they are retained in the regular course of business, is insufficient to qualify the documents as business records” …, such records are nonetheless admissible “if the recipient can establish personal knowledge of the maker’s business practices and procedures, or that the records provided by the maker were incorporated into the recipient’s own records or routinely relied upon the recipient in its business” … . To be admissible, these documents should carry the indicia of reliability ordinarily associated with business records … . Deutsche Bank Natl. Trust Co. v Monica, 2015  Slip Op 06453, 3rd Dept 8-6-15

 

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Hearing Required to Determine Whether Plaintiff Bank Negotiated in Good Faith During the Settlement Conference

The Second Department determined defendant homeowner had raised questions of fact whether plaintiff bank negotiated in good faith in a settlement conference pursuant to CPLR 3408 (designed to find a way to avoid foreclosure). The determinative motions heard by Supreme Court were therefore premature. The matter was sent back for a hearing on the “good faith” question:

CPLR 3408 requires the parties to a residential foreclosure action to attend settlement conferences at an early stage of the litigation, at which they must “negotiate in good faith to reach a mutually agreeable resolution, including a loan modification, if possible” (CPLR 3408[f]). During settlement conferences, “[m]otions shall be held in abeyance” (22 NYCRR 202.12-a[c][7]). Here, the defendant submitted evidence that the plaintiff may have failed to exercise good faith during the settlement conference phase of this action with respect to her applications seeking a loan modification pursuant to the federal Home Affordable Modification Program (hereinafter HAMP). Specifically, she presented evidence that the plaintiff may have violated HAMP regulations and guidelines, which would constitute a failure to negotiate in good faith as required by CPLR 3408(f) … . She also presented evidence that the plaintiff engaged in dilatory conduct, such as making piecemeal document requests, providing contradictory information, and repeatedly requesting documents which had already been provided … . Since the defendant’s submissions raise a factual issue as to whether the plaintiff failed to negotiate in good faith, thus depriving her of a meaningful opportunity to resolve this action through loan modification or other potential workout options (see CPLR 3408[a]), the Supreme Court should have held a hearing to determine this issue prior to consideration of the plaintiff’s motion and the defendant’s cross motion. Onewest Bank, FSB v Colace, 2015 NY Slip Op 06321, 2nd Dept 7-29-15

 

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Defendant Not Entitled to Attorney’s Fees after Plaintiff’s Motion for a Voluntary Discontinuance in a Foreclosure Action Was Granted Without Prejudice—Defendant Was Not a “Prevailing Party” within the Meaning of Real Property Law 282—Denial of Attorney’s Fees Was Not an Abuse of Discretion Under CPLR 3217 (c)

After the grant of plaintiff’s motion for a voluntary discontinuance (without prejudice) of a foreclosure action defendant (Rivera) sought the award of attorney’s fees pursuant to Real Property Law 282 and CPLR 3217 (b). The Second Department determined Supreme Court properly denied the request for attorney’s fees. Under the Real Property Law, the prevailing party is entitled to attorney’s fees, but plaintiff’s voluntary discontinuance was not on the merits.  Therefore defendant was not the prevailing party within the meaning of the statute. The award of attorney’s fees under CPLR 3217 (b) is discretionary and Supreme Court did not abuse its discretion in denying the request:

In New York, “attorneys’ fees are deemed incidental to litigation and may not be recovered unless supported by statute, court rule or written agreement of the parties” … .

[Real Property Law 282] provides that “[w]henever a covenant contained in a mortgage on residential real property shall provide that . . . the mortgagee may recover attorneys’ fees and/or expenses incurred as the result of the failure of the mortgagor to perform any covenant or agreement contained in such mortgage . . . there shall be implied in such mortgage a covenant by the mortgagee to pay to the mortgagor the reasonable attorneys’ fees and/or expenses incurred by the mortgagor . . . in the successful defense of any action or proceeding commenced by the mortgagee against the mortgagor arising out of the contract” (Real Property Law § 282). * * *

Here, the voluntary discontinuance of this action pursuant to CPLR 3217(c) was without prejudice and there was no substantive determination on the merits of either the plaintiff’s cause of action or Rivera’s counterclaims and defenses. Accordingly, Rivera was not a prevailing party for the purposes of Real Property Law § 282 and was not entitled to an award of an attorney’s fee for a “successful defense” of this foreclosure action (Real Property Law § 282…).

* * * The determination of whether to award an attorney’s fee [pursuant to CPLR 3217 (c)] as a condition of granting a voluntary discontinuance is a matter left to the sound discretion of the court … . Here, under the circumstances, the Supreme Court providently exercised its discretion in denying that branch of Rivera’s motion which was for an award of an attorney’s fee pursuant to CPLR 3217(b) … . DKR Mtge. Asset Trust 1 v Rivera, 2015 NY Slip Op 06108, 2nd Dept 7-15-15

 

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Estate of Mortgage-Holder Is a Necessary Party In a Foreclosure Proceeding

The Third Department determined that the estate of one of the mortgage-holders was a necessary party in a foreclosure proceeding. The court explained the relevant law:

“In an action to foreclose a mortgage, all parties having an interest, including persons holding title to the subject premises, must be made a ‘party . . . to the action'” … . Although defendant did not specifically raise the argument that decedent’s estate was a necessary party to the instant action, “the absence of a necessary party may be raised at any stage of the proceedings, by any party or by the court on its own motion” … . …. [W]here two individuals are the co-holders of a mortgage and one dies, the plaintiffs in a related foreclosure action would be the living mortgagee — or, in this case, his assignee … — and the personal representative of the deceased mortgagee … .

Here, given the lack of evidence that the corpus and distribution of decedent’s estate have previously been determined, such determination for the first time could inequitably affect decedent’s estate … . We find that decedent’s estate is therefore a necessary party to this action, as “[t]he rights, interests and equities of all of the parties claiming an interest in the mortgaged premises . . . should be settled and determined before any judgment of foreclosure and sale is entered” … . Bayview Loan Servicing, LLC v Sulyman, 2015 NY Slip Op 05989, 3rd Dept 7-9-15

 

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Sua Sponte Dismissal for Lack of Standing Reversed—Defendants Did Not Raise the Defense and Therefore Waived It—Lack of Standing is Not a Jurisdictional Defect

The Second Department determined Supreme Court should not have, sua sponte, dismissed the foreclosure action for an alleged lack of standing. The defendants did not raise the standing defense and, therefore, waived it. Standing is not a jurisdictional defense warranting sua sponte action by the court:

The Supreme Court improperly, sua sponte, directed the dismissal of the complaint on the ground that the plaintiff lacked 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 extraordinary circumstances warranting the sua sponte dismissal of the complaint … . Since the defendants … did not raise the defense of lack of standing in their answers and did not make pre-answer motions to dismiss the complaint on that ground, they waived the issue … . Moreover, a party’s lack of standing does not constitute a jurisdictional defect and does not warrant a sua sponte dismissal of the complaint by the court … . Onewest Bank, FSB v Prince, 2015 NY Slip Op 05922, 2nd Dept 7-8-15

 

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