Standing at Issue in N.Y. Foreclosure Cases

Standing Won/Standing Lost
In Citibank N.A. v. Herman, homeowners were successful in appealing a decision by the state’s supreme court against them. In fighting foreclosure, Thomas and Barbara Herman successfully argued that the lender did not have standing.

In a mortgage foreclosure action, a plaintiff has standing when it is the holder or assignee of the mortgage and the holder or assignee of the underlying note at the time the foreclosure is commenced. A lender can demonstrate that it is the holder or assignee by showing either a written assignment or physical delivery of the mortgage documents.

The Hermans submitted, among other things, the complaint, which indicated that the plaintiff allegedly obtained its right to foreclose by way of an assignment of the mortgage and note from Mortgage Electronic Registration Systems Inc. However, the Hermans established that MERS was never the holder of the note and was without authority to assign the note to the plaintiff. Although the lender submitted a copy of the note, the lender failed to establish delivery of the note to MERS prior to the execution of the assignment. In addition, the lender failed to establish whether it was the holder of the note at the time the action was commenced. The Hermans demonstrated that Citibank lacked standing, the appellate court ruled.

Wells Fargo v. Burke also dealt with standing with the lender losing on appeal because it did not establish standing.

In a mortgage foreclosure action, where the plaintiff’s standing to commence the action is placed in issue by the defendant, the plaintiff must prove its standing in order to be entitled to relief, the court said. 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, the court said.

Here, the evidence submitted by the lender in support of its motion for summary judgment did not establish that the note was physically delivered to it prior to the commencement of the action. The affidavits of the plaintiff’s vice president of loan documentation did not give any factual details of a physical delivery and, thus, failed to establish that the plaintiff had physical possession of the note at the time the action was commenced. Further, although the lender’s vice president of loan documentation stated in her affidavits that the lender was the holder of the note, she never stated that the lender was the holder of the note at the time the action was commenced.

While the copy of the note submitted by the plaintiff in support of its motion includes an indorsement to the plaintiff by the original lender and a second indorsement to the plaintiff, both indorsements are undated and, thus, it was not clear whether the indorsements were effectuated prior to the commencement of this action, the appellate court said.

Regarding the purported assignment of the note and mortgage, the assignment of the mortgage from MERS to the plaintiff dated March 4, 2011, transferred only the mortgage and, thus, the plaintiff failed to demonstrate that the note had also been assigned at that time, the appellate court said. Under these circumstances, the lender failed to establish that it had standing to start the foreclosure. And, the court also noted that the homeowners had correctly contended that the lender failed to submit an affidavit of service showing that it properly served the defendants. As a result, the lender’s motion for summary judgment should have been denied, the appeals court said.

Another case that dealt with the question of standing was
CitiMortgage Inc. v. Tung, with the lender winning that one. CitiMortgage demonstrated its entitlement to judgment by submitting, among other things, a written assignment from the original lender, the note and an affidavit attesting to home owner’s failure to make the payments due under the mortgage, the appellate court said.

Did Not Lay the Proper Foundation in Getting Business Records Admitted
The lender lost in U.S. Bank v. Nadero because it failed to lay the proper evidential foundation in getting records admitted in its attempt to foreclose on a homeowner.

In support of its motion for summary judgment, the lender submitted a copy of the note and the mortgage. The lender also submitted an affidavit of its vice president of loan documentation, who provided a summary of events, including the execution of the mortgage and the note, the transfer of the mortgage and the note to Wells Fargo, as custodian for the trust for which the lender served as trustee, and the default in payments and amounts due.

However, documents in the possession of Wells Fargo and its servicing agent, America’s Servicing Co., were the basis for the vice president’s assertions that the note and the mortgage were physically transferred to Wells Fargo and that Wells Fargo was in physical possession of the note and the mortgage at the time the foreclosure action was started.

Those records are hearsay, the court said. Because the lender failed to lay a proper foundation for the admission of the records under the business records exception to the hearsay rule, the vice president’s assertions that were based on the records were inadmissible. Since the motion was based on evidence that was not admissible, the lender failed to establish its entitlement to judgment, the court said.

Standing Waived
The appeals court reinstated a Bronx County sale and foreclosure in U.S. Bank v. Hernabel. The lender established its standing by showing that it was both the holder and assignee of the mortgage and the underlying note at the time of the foreclosure.

“That the note was indorsed in blank is no impediment to plaintiff’s enforcement of the note as the holder,” the appeals court wrote.

The court said the lender established its right to foreclose by producing the mortgage and note and affidavits from its servicing agent showing that defendants failed to make a monthly payment, thereby causing the entire loan to accelerate. And, the court said, by defaulting, the defendants waived any argument that the lender lacked standing to foreclose.

In HSBC Bank v. Simmons, the defense of standing was again waived when the defendants failed to file an answer to the complaint, allowing the lender to win.

The appellate court ruled that the state supreme court had no authority to vacate an order which granted the lender’s motion to hold the defendants in default for failure to appear or answer. The appellate court said the lower court also abused its discretion when it, acting on its own, directed the dismissal of the complaint and the cancellation of the notice of pendency filed against the property, based on its conclusion that the lender lacked standing. The appeals court said a court’s power to dismiss a complaint when acting on its own, i.e., without prompting by the participants in the law suit, is to be used sparingly and only when extraordinary circumstances exist. Here, the supreme court was not presented with the extraordinary circumstances necessary for it to act on its own.

Judge Ignores Legal Precedent
The appellate court in HSBC Bank v. Simmons reversed the state supreme court explaining that the lower court had no authority to vacate an order which granted the lender’s motion to hold the defendants in default for failure to appear or answer. The appellate court sent the case back to one of the lower courts, but to a different judge, explaining that “since Justice Arthur Schack continues to ignore this court’s precedent, as articulated in Wells Fargo Bank Minn., N.A. v Mastropaolo (42 A.D.3d 239), holding that the defense of lack of standing is waived if not raised by the defendant in an answer or pre-answer motion to dismiss we deem it appropriate to remit the matter to the Supreme Court, Kings County, for further proceedings on the complaint before a different Justice.”

EMC Mortgage v. Lamb dealt with an appeal by a defendant seeking to vacate a default judgment. Interestingly, the state supreme court ruled in favor of the defendant but the appellate court reversed in favor of the lender, explaining that the Brooklyn property owner seeking to vacate the default had to demonstrate a reasonable excuse for the default and a “potentially meritorious defense to the action.”

Law Not in Effect
In Nationstar Mortgage v. Silveri, the appellate court said the lower court made a mistake when it dismissed on the ground that the plaintiff failed to comply with state law. The court said the foreclosure occurred before the law went into effect. Moreover, the court said, the lender had established its entitlement to judgment as a matter of law by producing the mortgage, unpaid note and evidence of default.

Foreclosure proceedings were reinstated n U.S. Bank v. Polanco, and the case sent back to the state supreme court.

The state supreme court, acting on its own, directed that the complaint for foreclosure be dismissed, unless within 60 days, the lender filed an attorney’s affirmation attesting to the accuracy of the lender’s documents in accord with an administrative order. The lender failed to comply and a judgment was entered dismissing the complaint with prejudice.

The lender appealed.

Where an action was pending on the effective date of the administrative order and no judgment of foreclosure was entered, the administrative order provided that the affirmation must be filed “at the time of filing either the proposed order of reference or the proposed judgment of foreclosure,” the appellate court noted. Here, the action was pending on the effective date of the administrative order and the lender filed its proposed order more than one year before the administrative order was issued. Under those circumstances, the lender was not required to file the attorney’s affirmation until it filed the proposed judgment of foreclosure, the appellate court said.

Therefore, the lower court made a mistake.