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DISMISSAL OF THE COMPLAINT IN THIS FORECLOSURE ACTION WAS NOT IN COMPLIANCE WITH CPLR 3216 OR 22 NYCRR 202.7, AND THERE WAS INSUFFICIENT JUSTIFICATION FOR A “SUA SPONTE” DISMISSAL (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the prerequisites for the dismissal of the complaint in this foreclosure action were not met:

… [T]he Supreme Court failed to serve a written demand upon the plaintiff to resume prosecution of the action and to serve and file a note of issue within 90 days of receipt of the demand (see CPLR 3216[b][3]). Since at least one precondition set forth in CPLR 3216 was not met here, the court was without power to direct dismissal of the complaint pursuant to that statute … .

Pursuant to 22 NYCRR 202.27, a court has discretion to dismiss an action where a plaintiff fails to appear “[a]t any scheduled call of a calendar or at any conference” … . In this case, however, the court attorney referee did not recommend dismissal of the complaint based upon a failure to appear at a conference, but rather for failure to move for an order of reference by a date certain without good cause shown. Thus, the dismissal order, which confirmed the report of the court attorney referee, did not direct dismissal of the complaint based upon a default in appearing at a scheduled conference or calendar call, and 22 NYCRR 202.27 could not have provided the basis for dismissal of the complaint … .

Moreover, “‘[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 plaintiff’s failure to comply with a court conference order directing the plaintiff to move for an order of reference was not a sufficient ground upon which to direct dismissal of the complaint … . Bank of Am., N.A. v Banu, 2024 NY Slip Op 04940, Second Dept 10-9-24

Practice Point: The appellate courts will not affirm dismissals of complaints when the statutory and regulatory requirements for dismissal have not been met.

 

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ONCE AGAIN THE FAILURE TO PROVE COMPLIANCE WITH THE NOTICE REQUIREMENTS OF RPAPL 1304 REQUIRED REVERSAL IN A FORECLOSURE ACTION; THE SECOND DEPARTMENT CAREFULLY EXPLAINED ALL THE FLAWS IN THE PROOF (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the proof requirements for sending the RPAPL 1304 notice of foreclosure to the defendants were not met. This frequently recurring error was carefully explained by the Second Department, perhaps in an effort to instruct the bar:

… [T]he plaintiff submitted an affidavit of Kimberly Dutchess, an authorized representative of M & T Bank (hereinafter M & T), the plaintiff’s loan servicer and attorney-in-fact, along with a power of attorney authorizing M & T to act on the plaintiff’s behalf … . Although Dutchess laid a proper foundation for the admission of various business records annexed to her affidavit, inter alia, by attesting to her “familiar[ity] with business records maintained by M & T for the purpose of servicing mortgage loans,” she “failed . . . to attest that [s]he personally mailed the subject notices or that [s]he was familiar with the mailing practices and procedures of [M & T]” at the time the notices were sent … . Nor was Dutchess’s assertion that she “acquired personal knowledge of the matters stated in [her] affidavit by examining the [relevant] business records” sufficient to demonstrate her personal knowledge of M & T’s mailing procedures, since “a review of records maintained in the normal course of business does not vest an affiant with personal knowledge” … . Therefore, Dutchess “failed to establish proof of a standard office practice and procedure designed to ensure that items are properly addressed and mailed” … .

Moreover, although Dutchess’s affidavit laid a proper foundation for the admission of the business records annexed thereto, the content of those records did not demonstrate, prima facie, the plaintiff’s strict compliance with RPAPL 1304 … . The only purported proof of first-class mailing attached to Dutchess’s affidavit was a letter log, which “failed to establish that the 90-day notice was actually mailed to both of the defendants . . . by first-class mail” … . Among other issues, the letter log did not contain any information regarding the method of mailing for any of the documents contained therein. It also contained only one entry for the 90-day notice allegedly mailed to both of the defendants in February 2018, notwithstanding that a “plaintiff must separately mail a 90-day notice to each borrower as a condition precedent to commencing the foreclosure action” … . Furthermore, although the letter log listed Alexander W. Swanson III as the borrower, it did not mention Nancy L. Swanson’s name, and the plaintiff did not provide any records showing that the 90-day notice was mailed to Nancy L. Swanson by first-class mail … . Notably, “[i]t is the business record itself, not the foundational affidavit, that serves as proof of the matter asserted” … . In any event, even if Dutchess had established that she had personal knowledge of M & T’s mailing procedures, her affidavit did not sufficiently clarify any of these issues … . Since the plaintiff did not demonstrate that it mailed the 90-day notices to both of the defendants by first-class mail, it failed to establish, prima facie, its strict compliance with RPAPL 1304 … . Lakeview Loan Servicing, LLC v Swanson, 2024 NY Slip Op 04952, Second Dept 10-9-24

Practice Point: It is not easy to prove compliance with the foreclosure notice requirements in RPAPL 1304 by affidavit. The same flaws in the proof have been the basis for foreclosure reversals for a decade now.​

 

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THE FACT THAT A MORTGAGE IS MERELY INSURED BY HUD OR THE FHA DOES NOT MAKE THE BANK WHICH HOLDS THE MORTGAGE AN ASSIGNEE OF A FEDERAL AGENCY SUCH THAT NEW YORK’S STATUTE OF LIMITATIONS DOES NOT APPLY; A BANK IS NOT AN ASSIGNEE OF HUD OR THE FHA IF IT WAS NOT ASSIGNED THE AUTHORITY TO FORECLOSE THE INSURED MORTGAGE (SECOND DEPT).

The Second Department, affirming Supreme Court, in a full-fledged opinion by Justice Maltese, determined New York’s six-year statute of limitations applied to the foreclosure of a mortgage insured by the US Department of Housing and Urban Development (HUD). The bank argued that, as an assignee of a federal agency, it is immune from New York’s statute of limitations:

“‘There is no federal statute of limitations applicable to mortgage foreclosure actions brought by the United States or its federal agencies'” … . “That rule applies equally to an assignee of a federal agency, including a commercial lender, and includes the benefit of immunity from a state limitations period” … . * * *

The relevant distinction in this case is that between a loan that was merely insured by a federal agency and a loan that was held by a federal agency, such that the federal agency had a right to foreclose the mortgage, and then assigned to the plaintiff. A plaintiff seeking to foreclose a mortgage that was merely insured by a federal agency is not entitled to immunity. Allowing immunity in such instances would inappropriately expand its application and would be inconsistent with the purpose of “allow[ing] the government to maintain belated actions to enforce public rights,” where the government never had the ability to maintain such an action … . * * *

Although [the] evidence demonstrated that the loan at issue was insured by HUD and/or the FHA, the plaintiff failed to establish that either of those agencies ever had the right to foreclose the mortgage “unfettered by [the] statute of limitations” or that such a right was ever assigned to the plaintiff … . … [T]he plaintiff was not an assignee of a federal agency merely because the loan was insured by federal agencies. Bank of Am., N.A. v Reid, 2024 NY Slip Op 04942, Second Dept 10-9-24

Practice Point: An assignee of a federal agency is immune from New York’s statute of limitations. Here the bank which held the mortgage which was insured by HUD was not an assignee of the federal agency (HUD) because it was not assigned the authority to foreclose the insured mortgage.​

 

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THE MOTION TO INTERVENE BY A PARTY WHICH PURCHASED THE PROPERTY IN FORECLOSURE SHOULD HAVE BEEN GRANTED; THE BANK DID NOT PROVE THE BORROWER’S DEFAULT BECAUSE THE RELEVANT BUSINESS RECORDS WERE NOT ATTACHED TO THE VICE PRESIDENT’S AFFIDAVIT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined (1) the motion to intervene by a party (the LLC) which had purchased the property subject to foreclosure should have been granted, (2) noncompliance with the notice requirement of RPAPL 1304 and 1306 and the mortgage agreement cannot be raised by the intervenor, a stranger to the note and mortgage, and (3) the bank did not prove the borrower’s default because the relevant business records were not attached to the bank’s affidavit:

…. [T]he LLC established that the representation of its interest by the parties would be inadequate, that the action involved the disposition of title to real property, and that it would be bound and adversely affected by a judgment of foreclosure and sale (see CPLR 1012[a][2], [3]; 6501 …). …[T]he fact that the LLC obtained its interest in the premises after the action was commenced and the notice of pendency was filed does not definitively bar intervention … . * * *

… [The bank] failed to provide evidence in admissible form of the borrower’s default in payment of the note … . In his affidavit submitted in support of U.S. Bank’s motion, Bennett [vice president of the bank’s servicer] averred that he was personally familiar with Rushmore’s record-keeping practices and that, based on his review of Rushmore’s business records, the borrower “defaulted under the terms of the loan documents by failing to make the monthly installment due on January 1, 2015 and has remained in default to the present date.” However, Bennett’s assertion regarding the borrower’s alleged default constituted inadmissible hearsay, as he failed to annex to his affidavit the business records on which he relied … . U.S. Bank N.A. v Medina, 2024 NY Slip Op 04588, Second Dept 9-25-24

Practice Point: Here the party which purchased the property in foreclosure should have been allowed to intervene.

Practice Point: In foreclosure proceedings affidavits which purport to describe the contents of business records which are not attached constitute inadmissible hearsay.

 

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HERE DEFENDANT’S FAILURE TO UPDATE HIS ADDRESS WITH THE DMV OR USPS WAS NOT “AFFIRMATIVE CONDUCT” DESIGNED TO AVOID SERVICE OF PROCESS; THEREFORE DEFENDANT SHOULD HAVE BEEN AFFORDED A HEARING ON WHETHER HE WAS PROPERLY SERVED (SECOND DEPT).

The Second Department, reversing Supreme Court, over a partial dissent, determined the fact that defendant did not update his address with the Department of Motor Vehicles or the United States Postal Service did not demonstrate “affirmative conduct” designed to mislead a party into serving process at an incorrect address. Here the service was by “nail and mail” and defendant contended he no longer resided at that address. Defendant was entitled to a hearing:

“A defendant may be estopped from contesting the propriety of an address where service was attempted when the defendant has engaged in ‘affirmative conduct which misleads a party into serving process at an incorrect address'” … . However, as the Court of Appeals has recognized, “potential defendants ordinarily have no affirmative duty to keep those who might sue them abreast of their whereabouts” … . Thus, a defendant’s mere inaction—such as failing to update his or her address with the plaintiff, the Department of Motor Vehicles (hereinafter DMV), or the United States Postal Service (hereinafter USPS)—without more, may not be equated with affirmative or deliberate conduct designed to avoid service … . Here, the defendant’s failure to update his address with the plaintiff, DMV, or USPS, or to update his voting records with a new address, did not constitute “affirmative conduct” … , and such failure was insufficient to establish, without a hearing, that the defendant should be estopped from contesting service as a matter of law … . Citimortgage, Inc. v Goldstein, 2024 NY Slip Op 04453, Second Dept 9-18-24

Practice Point: Failure to update one’s address with the DMV or USPS is not affirmative conduct designed to avoid service of process, therefore defendant was not estopped from contesting service.

 

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IN THIS FORECLOSURE ACTION, PLAINTIFF’S AFFIANT DID NOT HAVE FIRST-HAND KNOWLEDGE OF THE MAILING PRACTICES OF THE PARTY RESPONSIBLE FOR MAILING THE RPAPL 1304 NOTICE OF FORECLOSURE TO THE DEFENDANT; JUDGMENT OF FORECLOSURE REVERSED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the plaintiff in this foreclosure action did not prove the 90-day notice of foreclosure required by RPAPL 1304 was mailed to the defendant, a failure of proof which has been the ground for hundreds of reversals spanning many years:

… [P]laintiff proffered the affidavit of Trey Cook, a document execution specialist employed by the plaintiff’s loan servicer, Nationstar Mortgage, LLC (hereinafter Nationstar), which was insufficient to establish compliance with RPAPL 1304. While Cook averred that he had personal knowledge of Nationstar’s business records and further averred that according to the business records he reviewed, 90-day notices were served via certified and first class mail at the mortgaged premises and last known address of the borrower, he did not attest that he was familiar with the standard office mailing procedures of Walz Group, Inc. (hereinafter Walz), the third-party vendor that apparently sent the RPAPL 1304 notices on behalf of the plaintiff. Thus, Cook’s affidavit did not establish proof of a standard office mailing procedure designed to ensure that items are properly addressed and mailed … . Further, Cook’s affidavit failed to address the nature of Nationstar’s relationship with Walz and whether Walz’s records were incorporated into Nationstar’s own records or routinely relied upon in its business … . Thus, Cook’s affidavit failed to lay a foundation for the admission of a transaction report generated by Walz (see CPLR 4518 [a] …). Finally, the tracking numbers on the copies of the 90-day notices submitted by the plaintiff, standing alone, did not suffice to establish, prima facie, proper mailing under RPAPL 1304 … . Deutsche Bank Natl. Trust Co. v Palomaria, 2024 NY Slip Op 04374, Second Dept 9-11-24

Practice Point: In yet another reversal on this ground, plaintiff in this foreclosure action did not produce an affiant with first-hand knowledge of the mailing practices of the party responsible for mailing the RPAPL 1304 ninety-day notice of foreclosure to the defendant. Therefore the judgment of foreclosure was reversed.

 

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IN THIS FORECLOSURE ACTION, PLAINTIFF’S COUNSEL’S AFFIDAVIT, WHICH WAS BASED SOLELY UPON READING THE COMPLAINT, DID NOT DEMONSTRATE DEFENDANT’S DEFAULT (SECOND DEPT).

he Second Department, reversing Supreme Court, determined the affidavit by plaintiff’s counsel in this foreclosure action did not demonstrate defendant’s default:

Generally, in moving for summary judgment in an action to foreclose a mortgage, a plaintiff establishes its prima facie entitlement to judgment as a matter of law through the production of the mortgage, the unpaid note, and evidence of default … . “A plaintiff may establish a payment default by an admission made in response to a notice to admit (see CPLR 3212[b]; 3123), by an affidavit from ‘a person having [personal] knowledge of the facts’ (CPLR 3212[b]), or by other evidence ‘in admissible form'” … .

Here, in support of its motion, the plaintiff submitted the affirmation of its counsel, Jennie Shnayder, who attested to the borrower’s default in payment. However, Shnayder stated that the basis of her knowledge was her review of the complaint, and she did not attest that she had personal knowledge of the defendants’ alleged default in payment or annex to her affirmation any other evidence thereof in admissible form. Wilmington Sav. Fund Socy., FSB v E39 St., LLC, 2024 NY Slip Op 04417, Second Dept 9-11-24

Practice Point: A recurring evidentiary issue in foreclosure proceedings where the bank is seeking summary judgment is the sufficiency of evidence presented in the supporting affidavits. Unless the plaintiff’s affiant’s assertions are based on first-hand knowledge, or on business records that are attached, summary judgment is not supported.

 

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EVIDENCE THAT PLAINTIFF DID NOT HAVE STANDING TO FORECLOSE, SUBMITTED AFTER A JURY TRIAL AND JUDGMENT FOR THE PLAINTIFF, WARRANTED REVERSAL AND A NEW TRIAL (SECOND DEPT).

The Second Department, reversing Supreme Court in this foreclosure action, determined defendant’s evidence that plaintiff did not have standing to foreclose, submitted after a jury trial and a judgment of foreclosure, raised a question of fact requiring a new trial:

The defendant cross-moved … pursuant to CPLR 4404(b) … for judgment … dismissing the complaint insofar as asserted against him, submitting evidence that Fannie Mae purchased the note subsequent to the assignment of the note to the plaintiff and prior to the commencement of this action. …

“A plaintiff establishes its standing in a mortgage foreclosure action by demonstrating that, when the action was commenced, it was either the holder or assignee of the underlying note. Either a written assignment of the underlying note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation, and the mortgage passes with the debt as an inseparable incident” … . …

The evidence submitted by the defendant raised issues of fact warranting a new trial on the issue of standing, and the plaintiff does not contend that it was improper for the defendant to submit this evidence for the first time after the conclusion of the original trial … . Wendover Fin. Servs. Corp. v Steinman, 2024 NY Slip Op 04416, Second Dept 9-11-24

Practice Point: Here evidence submitted by defendant, after a jury trial and judgment for the plaintiff, raised a question of fact about whether plaintiff had standing to foreclose requiring a new trial. Plaintiff did not object to the post-trial submission.

 

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HERE THE FORECLOSURE ABUSE PREVENTION ACT (CPLR 213(4)) ESTOPPED PLAINTIFF FROM ARGUING THE DEBT HAD NOT BEEN ACCELERATED ON A GROUND NOT RAISED AND ADJUDICATED PRIOR TO THE EXPIRATION OF THE STATUTE OF LIMITATIONS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the Foreclosure Abuse Prevention Act (FAPA) (CPLR 213(4)) prohibited plaintiff mortgage company from asserting a defense to dismissal of the foreclosure action on statute-of-limitations grounds which had not been timely raised and adjudicated. Plaintiff tried to argue the debt was not validly accelerated because of a prior dismissal based on reference to the wrong property address:

Contrary to the plaintiff’s contention, it failed to raise such a triable issue of fact on the asserted basis that the prior action did not constitute a valid acceleration of the debt in light of BOA’s [Bank of America’s] use of the improper property address and the resulting dismissal of the action. “[T]he recently enacted Foreclosure Abuse Prevention Act … amended CPLR 213(4) by adding paragraph (a), which provides that “‘[i]n any action on an instrument described under this subdivision, if the statute of limitations is raised as a defense, and if that defense is based on a claim that the instrument at issue was accelerated prior to, or by way of commencement of a prior action, a plaintiff shall be estopped from asserting that the instrument was not validly accelerated, unless the prior action was dismissed based on an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated'” … .

Here, the prior action was not dismissed “on an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated” … . Thus, under FAPA, the plaintiff is estopped from asserting that the debt was not validly accelerated by the commencement of the prior action … . Reverse Mtge. Solutions, Inc. v Gipson, 2024 NY Slip Op 04335, Second Dept 8-28-24

Practice Point: This decision illustrates the effect of the Foreclosure Abuse Prevention Act which prohibits attacking a statute-of-limitations defense to a foreclosure action on a ground not timely raised and adjudicated prior to the expiration of the statute of limitations.

 

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BECAUSE THE ALLONGE ENDORSED IN BLANK WAS NOT FIRMLY AFFIXED TO THE NOTE AS REQUIRED BY THE UCC, THE BANK IN THIS FORECLOSURE ACTION DID NOT DEMONSTRATE STANDING TO BRING THE ACTION (SECOND DEPT). ​

The Second Department, reversing Supreme Court, determined the bank in this foreclosure action did not demonstrate iT had standing to bring the action. The purported allonge endorsed in blank was not attached to the note:

 “A plaintiff may establish … its standing as the holder of the note by demonstrating that a copy of the note, including an endorsement in blank, was among the exhibits annexed to the complaint at the time the action was commenced” … . “A promissory note [is] a negotiable instrument within the meaning of the Uniform Commercial Code” ( … see UCC 3-104[2][d]). A “holder” is “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession” (UCC 1-201[b][21][A]; see 3-301 … ). Where an instrument is endorsed in blank, it may be negotiated by delivery (see UCC 3-202[1]; 3-204[2] …). “An indorsement must be . . . on the instrument or on a paper so firmly affixed thereto as to become a part thereof” (UCC 3-202[2]).

… [T]he plaintiff failed to make a prima facie showing that it had standing to commence the action. Although the plaintiff attached a copy of the note and a purported allonge endorsed in blank to the complaint, the plaintiff failed to demonstrate that the purported allonge “was so firmly affixed [to the note] as to become a part thereof, as required by UCC 3-202(2)” … . Moreover, an affidavit of an assistant secretary of the plaintiff’s servicer/attorney-in-fact, submitted in support of the plaintiff’s motion, inter alia, for summary judgment on the complaint insofar as asserted against the defendant, to strike his answer, and for an order of reference, was also insufficient to demonstrate the plaintiff’s compliance with UCC 3-302(2), as it was bereft of any reference to the purported allonge … . Lakeview Loan Servicing, LLC v Florio, 2024 NY Slip Op 04256, Second Dept 8-21-24

Practice Point: The UCC requires that an allonge endorsed in black be firmly affixed to the note.​

 

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