Mortgage holders in New York continue to battle delinquent borrowers, judges and challenges to standing based on, in one instance, “law office failure” and, in another, “clerical error.” Servicers have teamed up with the state government to cut down on “zombie properties.”
Banks, mortgage companies and credit unions — nearly 70 percent of the New York market — have agreed to adopt best practices to combat neighborhood blight and economic damage caused by abandoned properties, according to a news release issued by Gov. Andrew M. Cuomo’s office on May 18.
The lenders will conduct an exterior inspection of a property within 60 days of delinquency to determine vacancy and every 30 days thereafter. If the property is determined to be vacant, lenders will change the locks, board up windows and eliminate safety hazards. The lenders will also report abandoned properties to a state registry.
Some of the nation’s biggest lenders — including Wells Fargo & Co., Bank of America Corp. and CitiMortgage Inc. — have agreed to participate.
“Zombie properties can bring down the economic health and safety of entire neighborhoods — but by working together we are taking steps to help strengthen and repair local communities,” Gov. Cuomo said.
Vacant properties are a significant problem throughout New York state, according to the news release.
Litigation activity involving occupied properties includes American Home Mortgage Servicing, Inc. v. Gbede, where the Appellate Division of the Supreme Court determined that the trial court should have held a hearing to determine if the borrower was properly served rather than grant summary judgment for the lender. Azeez Gbede said service of process was defective because he was at work when he was allegedly served with the papers regarding his foreclosure.
In Emigrant Bank v. Wiseman, the appeals court found that O. Carl and Belinda Wiseman failed to establish a reasonable excuse for their failure to initially respond to court papers regarding their foreclosure. The Wisemans said they were trying to get the mortgage modified. Their claim that they believed that they did not need to answer or appear because they were going to modify their loan is not supported by the record, the court said, pointing out that the Wisemans did not dispute that the summons provided to them contained express warnings to answer the complaint and speak to an attorney.
Moreover, the court said, the Wisemans had failed to comply with court orders directing them to provide information and documents to the lender, did not appear at their last scheduled conference and never engaged in a loan modification negotiation with the plaintiff. Since the Wisemans failed to establish a reasonable excuse for their default, it was not necessary to determine whether they demonstrated a potentially meritorious defense, the court said.
The lender failed to appear at a conference in GMAC Mortgage v. Guccione, leading to the action being dismissed with prejudice. The appeals court dismissed the appeal, explaining that there is no appeal from an order stemming from the default of the appealing party.
In seeking to vacate a default in appearing, a plaintiff must establish both a reasonable excuse for its default and a potentially meritorious cause of action. Whether an excuse is reasonable is a determination within the sound discretion of the trial court. Where a party asserts law office failure, it must provide a detailed and credible explanation of the default. Law office failure should not be excused where a default results from repeated neglect.
Here, based upon the repeated failure of the plaintiff’s counsel to appear at court conferences, the Supreme Court rightly exercised its discretion in rejecting counsel’s claim of law office failure. However, since dismissal of an action for a default under state law does not constitute a determination on the merits, the dismissal should have been without prejudice, the appeals court said.
The appellate court in GMAC v. Bell said the trial court should have granted the homeowners’ motion for summary judgment because the homeowners established that the lender failed to provide them with a notice of default as required by the terms of the mortgage.
In Hometown Bank of Hudson Valley V. Colucci, the lender appealed the lower court’s granting of the defendant’s motion for summary judgment. Hometown Bank agreed to provide TJMR Developers LLC with financing in connection with the borrower’s development of a residential subdivision in Shawangunk, New York. The bank accepted a deed in lieu of foreclosure. Then, the bank filed a action against the defendant to recover on the guaranty he had signed. The defendant moved for summary judgment, asking for dismissal of the complaint.
The trial court granted the defendant’s motion, and the bank successfully appealed. The appellate court said the action was not barred by state law declaring that the holder of a note and mortgage may proceed to recover on the note or proceed to foreclosure on the mortgage but must only elect one remedy. Although the purpose of the statute is to avoid multiple lawsuits to recover the same mortgage debt, when a foreclosure is no longer pending and did not result in a judgment in the plaintiff’s favor, then the plaintiff is not precluded from starting a separate action.
Standing was at issue in HSBC v. Baptiste. But the lender scored the win.
Although the defendant questioned standing in its answer, HSBC established standing by submitting evidence demonstrating that the note, indorsed in blank by the lender, was physically delivered to it and that the mortgage was validly assigned to it before the start of the action. In addition, the appeals court said, the lender established its entitlement to judgment by producing the mortgage, unpaid note and evidence of the defendants’ default.
The appeals court reversed the trial court’s motion for summary judgment in favor of the lender in Nationstar Mortgage v. Dimura. The lender did not establish that it provided a notice of default before starting the foreclosure, the appeals court said.
In PHH Mortgage Corp. v. Hepburn, the appeals court said the trial court should not have determined that the plaintiff failed to negotiate in good faith as required by state law and directed it to offer a loan modification to Hepburn within 60 days allowing her to assume the mortgage.
Without an evidentiary hearing or notice to the parties, the court — acting on its own — determined that PHH had not acted in good faith in its negotiations with Hepburn and, as a result, denied the plaintiff’s motion. This did not allow the lender an opportunity to oppose the trial court’s finding that it had not met its obligation to negotiate in good faith as required by New York state law or to oppose the imposition of sanctions. As a result, the appeals court send the matter back to the lower court.
Wells Fargo v. Ostiguy dealt with standing. Pierre N. Ostiguy and Elaine R. Thomas were granted summary judgment on the issue, leading to dismissal of the complaint against them. The trial court found that the lender failed to prove that it physically possessed the note. The appeals court reversed, finding that holder status was established where the plaintiff possesses a note that on its face or by allonge contains an indorsement in blank or bears a special indorsement payable to the order of the plaintiff.
The borrower in Wells Fargo Bank v. Erobobo claimed that the lender lacked standing because a 2008 assignment of the note failed to comply with the pooling and servicing agreement. The lender responded that the homeowner waived his right to assert such a defense by not raising it in his answer or pre-answer to his motion to dismiss. The trial court ruled for the homeowner.
On appeal, the court reversed. Wells Fargo established its right to judgment as a matter of law by producing the mortgage, unpaid note and evidence of the homeowner’s default, the appellate court said.
In Wells Fargo v. Krauss and BAC, the appeals court found BAC’s excuse — that its default in appearing and answering the complaint was due to a clerical error — was “unsubstantiated, conclusory, and inadequately explained” and, therefore, did not constitute a reasonable excuse. In addition, the appeals court added, the record demonstrated that the alleged mistake was not an isolated error, but part of a pattern of “repeated neglect.”
