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THE BANK DID NOT DEMONSTRATE STRICT COMPLIANCE WITH RPAPL 1304 IN THIS FORECLOSURE ACTION; SUMMARY JUDGMENT SHOULD HAVE BEEN AWARDED TO DEFENDANT (FIRST DEPT).

The First Department, reversing Supreme Court, determined the plaintiff bank’s motion for summary judgment should not have been granted and, upon a search of the record, summary judgment should have been granted to defendant in this foreclosure action. The proof of mailing of the notice required by RPAPL 1304 was not sufficient:

Plaintiff failed to establish prima facie its strict compliance with RPAPL 1304 … . The copy of the certified mail receipt it submitted is undated and blank in other parts, and shows the signature of someone other than defendant. The copy of the pre-paid first-class mail envelope has no recipient’s name or address on it. Further, the affidavits plaintiff submitted do not demonstrate the loan servicer’s employees’ familiarity with the mailing practices and procedures of the servicer that had mailed the 90-day notices and the notice of default. U.S. Bank, N.A. v Calhoun, 2021 NY Slip Op 00398, First Dept 1-26-21

 

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THE DEBT WAS ACCELERATED WHEN THE BANKRUPTCY STAY WAS LIFTED; THE FORECLOSURE ACTION WAS THEREFORE TIME-BARRED; DISAGREEING WITH THE 2ND DEPARTMENT, THE DEFENDANTS DID NOT NEED TO INTERPOSE A COUNTERCLAIM TO CANCEL THE MORTGAGE PURSUANT TO RPAPL 1501 (THIRD DEPT).

The Third Department, in a full-fledged opinion by Justice Clark, determined the debt was accelerated when the automatic bankruptcy stay was lifted. Therefore the foreclosure action was untimely and the mortgage was properly cancelled pursuant to RPAP 1501:

… [T]he mortgage was accelerated on December 8, 2011, the date on which the bankruptcy court issued the order lifting the automatic bankruptcy stay as to plaintiff’s predecessor in interest and its assignees and/or successors in interest … . By filing a proof of claim in the bankruptcy proceeding and shortly thereafter seeking affirmative relief from the automatic bankruptcy stay, plaintiff’s predecessor in interest communicated a clear and unequivocal intent to accelerate the entire mortgage debt … . …

Supreme Court did not err in discharging and canceling the mortgage. RPAPL 1501 (4) states, as relevant here, that, where the statute of limitations period for the commencement of a mortgage foreclosure action has expired, “any person having an estate or interest in the real property subject to such encumbrance may maintain an action . . . to secure the cancellation and discharge of record of such encumbrance, and to adjudge the estate or interest of the plaintiff in such real property to be free therefrom” … . Contrary to the Second Department, we do not read RPAPL 1501 (4) as stating that the cancellation and discharge of a mortgage can only be obtained by commencing an action or interposing a counterclaim for such relief … .

… [D]efendants did not interpose a counterclaim seeking to discharge and cancel the mortgage. However, defendants requested, in their answer, dismissal of the complaint and such “other and further relief as [Supreme Court] deem[ed] just and equitable” and thereafter specifically requested in their cross motion that the mortgage be discharged and canceled. MTGLQ Invs., L.P. v Wentworth, 2021 NY Slip Op 00064, Third Dept 1-7-21

 

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THE REFEREE’S REPORT IN THIS FORECLOSURE ACTION WAS BASED ON HEARSAY; THE SECOND MORTGAGE WAS NOT DEMONSTRATED TO MEET THE REQUIRMENTS OF RPAPL 1351 (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the referee’s report was based upon hearsay and should not have been confirmed. In addition, the proof a second mortgage met the requirements of RPAPL 1351 and 1354 was insufficient:

“The report of a referee should be confirmed whenever the findings are substantially supported by the record, and the referee has clearly defined the issues and resolved matters of credibility” … . Here, the affidavit executed by an employee of the plaintiff’s loan servicer, which was submitted by the plaintiff for the purpose of establishing the amount due and owing under the mortgage loan, constituted inadmissible hearsay and lacked probative value because the affiant failed to produce any of the business records upon which she purportedly relied in making her calculations … . Consequently, the referee’s findings with respect to the total amount due upon the mortgage were not substantially supported by the record … .

… In an action to foreclose a mortgage commenced by a first mortgagee, a second mortgagee may move for a provision in the judgment of foreclosure and sale that any surplus moneys from the foreclosure sale be applied to satisfy the debt owed by the defendant to the second mortgagee (see RPAPL 1351[3]). Such a motion may be granted if “it appears to the satisfaction of the court” that there exists no more than one other mortgage on the subject premises which is “then due” and subordinate only to the plaintiff’s mortgage but is entitled to priority over all other liens and encumbrances other than those described RPAPL 1354(2), and if the motion of the second mortgagee is “made without valid objection of any other party” (RPAPL 1351[3]).

Here, [the] motion papers insufficient, prima facie, to meet the requisite standard (see RPAPL 1351[3]) … . U.S. Rof III Legal Tit. Trust 2015-1 v John, 2020 NY Slip Op 08099, Second Dept 12-30-20

 

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THE BANK’S COMPLIANCE WITH THE NOTICE REQUIREMENTS OF RPAPL 1304 WAS NOT DEMONSTRATED WITH ADMISSIBLE EVIDENCE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined compliance with the notice requirements of RPAPL 1304 was not demonstrated with admissible evidence. Therefore the bank’s motion for summary judgment in this foreclosure action should not have been granted:

… [T]he affidavit of an employee of its loan servicer was insufficient to establish that the notice was sent to the defendant in the manner required by RPAPL 1304. The affiant did not aver that he had personal knowledge of the purported mailings, or that he was familiar with the mailing practices and procedures of the plaintiff, which allegedly sent the notice … . In addition, the plaintiff’s submission of an affidavit of its own employee was similarly insufficient to establish the plaintiff’s strict compliance with RPAPL 1304, since the employee had no personal knowledge of the purported mailings and he did not attest to a standard office mailing procedure designed to ensure that items are properly addressed and mailed … . Further, the plaintiff failed to submit sufficient proof of the actual mailings of the notices by first-class mail … . Ridgewood Sav. Bank v Van Amerongen, 2020 NY Slip Op 08095, Second Dept 12-30-20

 

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CPLR 204(A) IN CONJUNCTION WITH RPAPL 1301(3) TOLLED THE STATUTE OF LIMITATIONS WHILE THE FIRST FORECLOSURE ACTION WAS PENDING, FROM 2010 TO 2013, RENDERING THE SECOND FORECLOSURE ACTION IN 2017 TIMELY (THIRD DEPT).

The Third Department, in a full-fledged opinion by Justice Mulvey, reversing Supreme Court, determined the instant foreclosure action was not time barred because CPLR 204(a) in conjunction with Real Property Actions and Proceedings Law (RPAPL) 1301(3) prohibited bringing the instant action while the first action was pending:

In September 2003, defendant, in exchange for a loan to purchase a residence, executed a note secured by a mortgage on that real property. The note and mortgage were later assigned to plaintiff. After defendant failed to make some payments, on May 5, 2010 plaintiff commenced a foreclosure action against defendant, which Supreme Court (Drago, J.) dismissed on October 30, 2013 for failure to prosecute. In April 2015, Supreme Court (Buchannan, J.) denied plaintiff’s motion to vacate the dismissal. In 2017, plaintiff commenced a second foreclosure action. * * *

CPLR 204 (a) provides that, “[w]here the commencement of an action has been stayed by a court or by statutory prohibition, the duration of the stay is not a part of the time within which the action must be commenced.” * * *

The statute that plaintiff relies on, in conjunction with CPLR 204 (a), is RPAPL 1301 (3), which provides that, while an action for a mortgage debt “is pending or after final judgment for the plaintiff therein, no other action shall be commenced or maintained to recover any part of the mortgage debt, without leave of the court in which the former action was brought.” The purpose of RPAPL 1301 (3) is “to shield the mortgagor from the expense and annoyance of two independent actions at the same time with reference to the same debt … . … [P]laintiff established that the statute was tolled during the pendency of the first foreclosure action, from May 2010 to October 2013. Citimortgage, Inc. v Ramirez, 2020 NY Slip Op 07970, Third Dept 12-24-20

 

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THE MOTION TO AMEND THE ANSWER TO ASSERT THE LACK OF STANDING DEFENSE IN THIS FORECLOSURE ACTION SHOULD HAVE BEEN GRANTED; PLAIINTIFF FAILED TO DEMONSTRATE STANDING WITH ADMISSIBLE EVIDENCE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendant should have been allowed to amend the answer to assert the lack-of-standing defense and plaintiff bank did not demonstrate standing with admissible evidence:

“In the absence of prejudice or surprise resulting directly from the delay in seeking leave, applications to amend or supplement a pleading are to be freely granted unless the proposed amendment is palpably insufficient or patently devoid of merit” ( …see CPLR 3025[b]). The burden of demonstrating prejudice or surprise, or that a proposed amendment is palpably insufficient or patently devoid of merit, falls upon the party opposing the motion … . “‘Mere lateness is not a barrier to the amendment. It must be lateness coupled with significant prejudice to the other side, the very elements of the laches doctrine'”… . Here, BAC Home failed to show that any surprise or prejudice would result from the proposed amendments and did not demonstrate that the proposed amendments were palpably insufficient or patently devoid of merit … .

The defendant did not waive the defense of lack of standing by failing to interpose the defense in his original answer or in a pre-answer motion to dismiss (see RPAPL 1302-a).

Here, in order to establish its standing, BAC Home [plaintiff’s predecessor] submitted affidavits from two document execution representatives of Ditech [plaintiff], each of whom stated that review of Ditech’s business records relating to the subject mortgage loan had confirmed that BAC Home was in possession of the note at the time the action was commenced. However, neither affiant identified any particular document reviewed, nor did they attach to their respective affidavits any admissible document to show that BAC Home possessed the note prior to the commencement of this action. The affidavits also failed to show that either affiant possessed personal knowledge of whether BAC Home possessed the note prior to the commencement of the action. Under these circumstances, the affidavits constituted inadmissible hearsay and lacked any probative value (see CPLR 4518[a] …). Ditech Fin., LLC v Khan, 2020 NY Slip Op 07865, Second Dept 12-23-20

 

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THE BANKS’ COMPLIANCE WITH THE NOTICE REQUIREMENTS OF RPAPL 1304 WAS NOT DEMONSTRATED; THE BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS FORECLOSURE ACTION SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff bank’s motion for summary judgment in this foreclosure action should not have been granted because compliance with the notice requirements of RPAP 1304 was not demonstrated with admissible evidence:

… [T]he plaintiff submitted, inter alia, an affidavit of a business operations analyst employed by the plaintiff, together with copies of 90-day notices sent to the defendants and proof of filing statements from the New York State Department of Financial Services. Although some of the copies of the 90-day notices contain what appear to be bar codes with 22-digit numbers that include the words “USPS CERTIFIED MAIL,” the plaintiff failed to submit any evidence that the mailings were sent by first-class mail in addition to certified mail … . The plaintiff also failed to submit evidence of a standard office mailing procedure or an affidavit of the individual(s) who effected the service … . The submission by the plaintiff of evidence that it filed statements with the New York State Department of Financial Services, without more, is insufficient to establish that the mailing was accomplished pursuant to RPAPL 1304 … . CitiMortgage, Inc. v McGregor, 2020 NY Slip Op 07855, Second Dept 12-23-20

 

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THE DEFENDANTS DEFAULTED IN THIS FORECLOSURE ACTION; THE JUDGE SHOULD NOT HAVE, SUA SPONTE, DISMISSED THE COMPLAINT BASED ON THE BANK’S ALLEGED FAILURE TO COMPLY WITH THE NOTICE REQUIREMENTS OF RPAPL 1304, WHICH IS NOT A JURISDICTIONAL DEFECT AND THEREFORE MUST BE RAISED AS A DEFENSE (SECOND DEPT).

The Second Department determined the judge should not have, sua sponte, dismissed the complaint in this foreclosure action on the ground the bank did not comply with the notice requirements of RPAL 1304. The defendants defaulted and failure to comply with RPAPL 1304 is not a jurisdictional defect. Therefore it must be raised as a defense before a judge can rule on it:

In this action to foreclose a mortgage, in which the defendants failed to appear or answer the complaint, the Supreme Court should have granted the plaintiff’s motion for leave to enter a default judgment and for an order of reference, and should not have, sua sponte, directed dismissal of the complaint based on its determination that the plaintiff failed to establish that it complied with RPAPL 1304 … . Therefore, a plaintiff is not required to disprove the defense unless it is raised by defendants, and in this case the defendants failed to appear in the action or answer the complaint … . Chase Home Fin., LLC v Guido, 2020 NY Slip Op 07854, Second Dept 12-23-20

 

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ALTHOUGH RPAPL 1320-a, ENACTED WHILE THIS APPEAL WAS PENDING, HAS CHANGED THINGS, THE DEFENDANTS’ LACK-OF-STANDING DEFENSE WAS WAIVED BECAUSE IT WAS NOT RAISED IN THEIR ANSWERS OR PRE-ANSWER MOTIONS; THE BANK’S MOTION FOR SUMMARY JUDGMENT WAS PROPERLY GRANTED (CT APP).

The Court of Appeals, in a brief memorandum with an extensive concurring opinion, determined the defendants in the foreclosure action had waived the lack-of-standing defense by not raising it in their answers or pre-answer motions. The court noted that Real Property Actions and Proceedings Law (RPAPL) 1320-a, which was enacted when this appeal was pending, may allow standing to be raised “at this stage of the litigation:”

… Supreme Court did not err in granting plaintiff’s motions for summary judgment and for a judgment of foreclosure and sale. Defendants failed to raise standing in their answers or in pre-answer motions as required by CPLR 3211 (e) and accordingly, under the law in effect at the time of the orders appealed from, the defense was waived … . Defendants’ argument that ownership is an essential element of a foreclosure action, raised for the first time in support of their motion for reargument at the Appellate Division, is unpreserved for our review. We do not reach the issue of whether RPAPL 1302-a, enacted while this appeal was pending, affords defendants an opportunity to raise standing at this stage of the litigation. Defendants are free to apply to the trial court for any relief that may be available to them under that statute. JPMorgan Chase Bank, N.A. v Caliguri, 2020 NY Slip Op 07660, CtApp 12-17-20

 

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THE PROPERTY TRANSFERRED TO THE DEFENDANT BY WILL UPON THE DEATH OF THE PROPERTY OWNER; THEREFORE THE ESTATE WAS NOT A NECESSARY PARTY IN THIS FORECLOSURE ACTION (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the estate was not a necessary party in this foreclosure action because the property transferred upon the property owner’s death by operation of the will:

Pursuant to a deed dated March 27, 1991, Marjorie Colwell became the owner of certain real property located in Brooklyn (hereinafter the subject property). Colwell died on November 8, 2004. Colwell’s will bequeathed the subject property to the defendant Sonia Gaines, and also named Gaines as the executrix of the estate. …

We disagree with the Supreme Court’s determination that the estate was a necessary party to this action, and that the failure to join the estate warranted vacatur of the order of reference and the judgment of foreclosure and sale and dismissal of the complaint insofar as asserted against Gaines … . 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.” Under the circumstances of this case, the estate was not a necessary party to this mortgage foreclosure action. “Generally, title to real property devised under the will of a decedent vests in the beneficiary at the moment of the testator’s death and not at the time of probate” … . US Bank Trust, N.A. v Gaines,2020 NY Slip Op 07623, Second Dept 12-16-20

 

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