Opinion
600554/15
05-03-2017
Wilmington Savings Fund Society, FSB doing business as Christiana Trust, not in its individual capacity but solely as legal title trustee for Bronze Creek Title Trust 2013-NPL1, Plaintiff, v. Ardith DeCanio, LONG ISLAND REAL PROPERTY HOLDING, LTD., FM LANDSCAPING INC., INTERNAL REVENUE SERVICE/UNITED STATES OF AMERICA, NEW YORK STATE DEPARTMENT OF TAXATION & FINANCE and "JOHN DOE #1" through "JOHN DOE #12", the last twelve names being fictitious and unknown to plaintiff, the persons or parties intended being the tenants, occupants, persons or corporations, if any, having or claiming an interest in or lien upon the premises being foreclosed herein, Defendants.
KNUCKLES, KOMOSINSKI et al Attys. For Plaintiff 565 Taxter Rd. - Ste. 590 Elmsford, NY 10523 CHRISTOPHER THOMPSON, ESQ Atty. For Defendant LI Real Prop. 33 Davison Ln. East W. Islip, NY 11795
KNUCKLES, KOMOSINSKI et al Attys. For Plaintiff 565 Taxter Rd. - Ste. 590 Elmsford, NY 10523 CHRISTOPHER THOMPSON, ESQ Atty. For Defendant LI Real Prop. 33 Davison Ln. East W. Islip, NY 11795 Thomas F. Whelan, J.
Upon the following papers numbered 1 to 14read on this motionfor summary judgment, among other things and cross motion for dismissal; Notice of Motion/Order to Show Cause and supporting papers 1 - 9; Notice of Cross Motion and supporting papers:10-12; Opposing papers:13-14; Reply papers; Other; (and after hearing counsel in support and opposed to the motion) it is, ORDERED that this motion (#001) by the plaintiff for, among other things, summary judgment is granted in its entirety, and it is further
ORDERED that the cross motion (#002) by defendant, Long Island Real Property Holding, Ltd. (hereinafter "LI Holding"), for dismissal of the complaint on various grounds, is denied in its entirety, and it is further ORDERED that the proposed Order submitted by the plaintiff, as modified, is signed simultaneously herewith; and it is further
ORDERED that plaintiff is directed to file a notice of entry within five days of receipt of this Order pursuant to 22 NYCRR § 202.5-b(h)(3).
This foreclosure action was commenced by filing on January 20, 2015. The matter was reassigned to this Part pursuant to Administrative Order No. 43-17, dated April 12, 2017 and submitted for decision on April 14, 2017. In essence, on January 20, 2006, defendant, Ardith DeCanio, borrowed $253,750.00 from plaintiff's predecessor in interest and executed a promissory note and mortgage, for the purchase of the premises located at 97 Washington Drive, Kings Park, NY. Since April 1, 2009, the defendant borrower has failed to pay the monthly installments due and owing. The borrower and mortgagor, Ardith DeCanio, has failed to appear in this action or offer opposition to plaintiff's motion. Only defendant, LI Holding, a subsequent purchaser of the parcel, for just $5,000.00 (see Ex. D, annexed to plaintiff's moving papers, last attachment to the verified complaint), has sought to contest this action. In its answer, the defendant corporation alleges eighteen affirmative defenses and two counterclaims.
This is the second action before this Court in which defendant's counsel has represented a subsequent corporate purchaser of parcels in foreclosure, on behalf of Vincent Marzullo, of 23 South Lane, Huntington, NY, and where many of the same legal arguments are raised (see GMAT Title Trust 2013-1 v Real Estate Defects Specialists , Ltd., Index No. 068959/14 , Short Form Order dated May 1, 2017 [Whelan, J.]).
From the record before the Court, as reflected in the deed dated December 14, 2012, prepared by and returned to the cross moving counsel, the defaulting borrower, defendant, Ardith DeCanio, no longer occupied the residence, but instead resided at 3 Everit Place, Smithtown, NY. In fact, that is the address at which she was served on January 29, 2015, with the summons and complaint and other initiating papers for commencement of this action.
The subsequent owner corporation has cross moved (#002), on various grounds, to dismiss the complaint. Plaintiff has opposed the cross motion. The Court will address this cross motion first, since the outcome may undermine plaintiff's moving papers.
The Court rejects the argument concerning certificates of conformity (see CPLR 2309[c]). Appellate determinations have uniformly held that even if such is missing, it is not fatal to the action (see Deutsche Bank Natl . Trust Co. v Naughton , 137 AD3d 1199, 28 NYS3d 444 [2d Dept 2016]; Bank of New York Mellon v Vytalingam , 144 AD3d 1070, 42 NYS3d 274 [2d Dept 2016]; Midfirst Bank v Agho , 121 AD3d 343, 991 NYS2d 623 [2d Dept 2014]; Todd v Green , 122 AD3d 831, 997 NYS2d 155 [2d Dept 2014]; Gonzalez v Perkan Concrete Corp ., 110 AD3d 955, 975 NYS2d 65 [2d Dept 2013]; Matos v Salem Truck Leasing , 105 AD3d 916, 963 NYS2d 366 [2d Dept 2013]; Betz v Daniel Conti , Inc ., 69 AD3d 545, 892 NYS2d 477 [2d Dept 2010]).
Contrary to the claim of counsel, Christopher Thompson Esq., a proper Certificate of Merit, pursuant to CPLR § 3012-b, was filed with the summons and complaint as NYSCEF Doc. No. 2. Counsel seeks to engraft new and additional language upon the State Legislature's list of items to be attached to such a certificate. There is simply no requirement that a power of attorney must be included or that the State Legislature sought to impose such a requirement. This Court rejects counsel's suggestion to legislate from the bench. In any event, in opposition to the cross motion, plaintiff has appropriately submitted the limited power of attorney for the servicer, Rushmore Loan Management Services LLC, the servicer and attorney in fact for this loan (see Ex. 3, Aff. of Crystal S. Pannell, Esq., dated April 4, 2016).
Moreover, said statute only applies to residential foreclosure actions, "in which the defendant is a resident of the property which is subject to foreclosure" (CPLR 3012-b[a]). Since both the defendant borrower and certainly the defendant corporation were not residents of the property at the time of the commencement of the action, CPLR §3012-b is not applicable.
A related defense asserted in the defendant's cross moving papers is that the RPAPL §1304 notice, which is dated July 16, 2014, fails to comply with the requirements of RPAPL. The Court rejects the claim as frivolous. As noted above and as reflected in the deed dated December 14, 2012, prepared and returned to the cross moving counsel, the defaulting borrower, defendant, Ardith DeCanio, no longer occupied the residence, but instead resided in Smithtown, NY. This is prior to the commencement of the instant action and as such, RPAPL §1304, and the requirement of a 90-day pre-action notice, is statutorily inapplicable (see RPAPL §1304[3]).
Additionally, defendant corporation does not possess standing to challenge any claimed defects in the RPAPL §1304 notice, since the benefit is intended to help keep the obligor mortgagor in her dwelling. Since defendant corporation is not a borrower (see RPAPL 1304[5][ii]; [iii]; [iv]), it lacks standing to assert such a defense. This defendant was joined as a party defendant only because it purchased the property from the original borrower and obligor for $5,000.00, by deed dated December 14, 2012. Its title is subject to extinguishment upon the public sale of the premises.
Defendant, LI Holding, has failed to demonstrate that it is a bona fide purchaser for value (see Real Property Law §266). "'[W]here a purchaser has knowledge of any facts, sufficient to put him on inquiry as to the existence of some right or title in conflict with [what] he is about to purchase, he is presumed either to have made the inquiry, and ascertained the extent of such prior right, or to have been guilty of a degree of negligence equally fatal to his claim, to be considered as a bona fide purchaser'" ( Lucas v J & W Realty & Constr . Mgt., Inc ., 97 AD3d 642, 643, 949 NYS2d 391 [2d Dept 2012], quoting Williamson v Brown , 15 NY 354, 362, 1 E. P. Smith 354 [1857]). As such, the defendant corporation cannot cut off the prior lien, the previously filed mortgage instrument and stands bound by all proceedings in this foreclosure action.
Here, LI Holding did not execute the promissory note or the mortgage. It is a stranger to the transaction and has no standing to challenge matters that are personal to the defendant, Ardith DeCanio. Only the defendant borrower, who has defaulted in this action, possess standing to raise the many issues the defendant corporation seeks to raise. LI Holding, a stranger to the mortgage loan transaction at issue, is certainly not entitled to raise any statutory protection which are designed to help assist a homeowner in retaining his or her home.
Similarly, RPAPL §1302 is inapplicable, since the obligor and mortgagor does not reside at the premises. LI Holding cannot raise claims under Banking Law §§ 6-m and 6-l since it is not the borrower. Defendant counsel even admits to the fact that under Banking Law § 6-m(4), "the lender is supposed to evaluate the borrower's ability to repay" (see Thompson aff., par.71, dated February 5, 2016). Moreover, Banking Law § 6-l applies to "a natural person" (Banking Law § 6-l[1][c][ii]), so LI Holding has no standing. Additionally, this loan issued on April 20, 2006 and does not fall under the preview of Banking Law § 6-m(4), which applies only to subprime and high-cost loans issued on or after September 1, 2008 (see Banking Law § 6-m[4], as added by L. 2008, ch. 472; see also Emigrant Mtge . Co. v Fitzpatrick , 95 AD3d 1169, 945 NYS2d 697 [2d Dept 2012]).Finally, contrary to defendant's counsel's claim, the complaint does state that the plaintiff is the owner and holder of the subject note and mortgage. Other than speculation, no proof is offered as to any claimed violations of the Banking Law provisions.
The Court must further reject the long discussion set forth in th cross motion concerning compliance with Department of Housing and Urban Development (HUD) servicing requirements and HUD regulations concerning a Federal Housing Administration (FHA) loan. Once again, the LI Holding cannot raise any claimed deficiencies because it does not posses the requisite standing to do so. The property is no longer titled in the name of the intended beneficiary of such regulations. The time has long passed for any discussion of this issue.
The Court must remark upon defendant's counsel's reference to the legislative purpose "to assist in providing a decent home and a suitable living environment for every American family" (Thompson aff., par. 59, dated February 5, 2016), or that "notice requirements insure that financially strapped homeowners will have every opportunity to take informed steps to retain their homes" (id., at par. 61), while he and his client were instrumental in dispatching the defendant borrower from her home, with the loss of all the above-described statutory homeowner protections, for the modest sum of $5,000.00, in December of 2012.
Moreover, LI Holding does not possess standing to challenge the plaintiff's compliance with any contractual notice provisions set forth in the mortgage indenture as such provision, if any, inures to the benefit of the defendant mortgagor, which leaves her as the only party who may insist on compliance therewith (see VAC Serv . Corp. v Technology Ins. Co., Inc ., 49 AD3d 524, 853 NYS2d 577 [2d Dept 2008]; see also BDG Oceanside , LLC v RAD Terminal Corp ., 14 AD3d 472, 787 NYS2d 388 [2d Dept 2005]; Pile Found. Constr. Co., Inc. v Berger , Lehman Assoc., P.C., 253 AD2d 484, 676 NYS2d 664 [2d Dept 1998]).
LI Holding claims that this action is time-barred. The Court must disagree. The contention is that the plaintiff's predecessor-in-interest accelerated the Note and Mortgage on April 5, 2007, when it commenced a prior, but subsequently discontinued action (see CitiMortgage , Inc. v Ardith Decanio , et. al., Suffolk County Index No. 9882/2007).
Initially, LI Holding has failed to establish, prima facie, that this action is time-barred (see Nationstar Mtge ., LLC v Weisblum , 143 AD3d 866, 39 NYS3d 491 [2d Dept 2016]). The only evidence submitted is a single-page computer printout of the Suffolk County Clerk Minutes of a pre-E-filing case, without pleadings or affidavits. Such is insufficient.
In any event, the instant action was commenced on January 20, 2015, less then six years from LI Holding's execution of the deed of title, dated December 14, 2012. Prior thereto and even to this day, LI Holding has no interest in the promissory note or mortgage. As expressed above, LI Holding is a stranger to the mortgage transaction, which it is now trying to bootstrap into a defense that is personal to the defaulting defendant, Ardith Decanio. While not subject to rights and obligations of the mortgage documents, LI Holding is seeking to advance a defense, as if it was subject thereto. Yet, even as noted in the caselaw relied upon by LI Holding, "[o]nce the mortgage debt was accelerated, the borrowers' right and obligation to make monthly installments ceased and all sums became immediately due and payable" ( Federal Natl . Mtge. Assn. v Mebane , 208 AD2d 892, 894, 618 NYS2d 88 [2d Dept 1994] [emphasis added]). As such, it is a contractual right and obligation that does not inure to the benefit of LI Holding.
Moreover, the cross moving defendant is incorrect in stating that there was no showing of a "deceleration." LI Holding fails to acknowledge that the predecessor's action was affirmatively discontinued by court order on May 14, 2008, at the prior plaintiff's request. Such occurred years before LI Holding acquired an interest in the mortgaged parcel. When there is a validly filed stipulation of discontinuance resolving a case, it is as if the case "had never been begun" ( Yonkers Fur Dressing Co . Inc. v Royal Ins. Co. Ltd ., 247 NY 435, 444, 160 N.E. 778 [1928]).
As noted by then Justice Daniel F. Luciano in Housberg v Blake , 146 Misc 2d 960, 962, 553 NYS2d 280 (Sup Ct, Suffolk County 1990), quoting treatise on New York law:
When an action is discontinued, it is as if the action had never been; all prior orders in the case are nullified. Once an action has been discontinued, there can be no judgment or appeal, and no objection to another action for the same relief on the ground that a prior action is pending (citation omitted) ... once an action has been discontinued by consent or stipulation, it is [as though] the action never existed; ...
Even in the ancient case of Loeb v Willis , 100 NY 231, 235, 55 Sickels 231 (1885) the Court of Appeals stated:
The foreclosure action was discontinued and all the proceedings therein thus annulled. There was no longer any record or adjudication in that action which bound any one. By the discontinuance of an action the further proceedings in the action are arrested not only, but what has ben done therein is also annulled, so that the action is as if it never had been.
The Second Department has adhered to that rule. In Newman v Newman , 245 AD2d 353, 665 NYS2d 423 (2d Dept 1997) the court held "[w]hen an action is discontinued, it is as if it had never been; everything done in the action is annulled and all prior orders in the case are nullified." Therefore, as noted by Justice Robert J. McDonald in U .S. Bank Natl. Assn. v Wongsonadi , 55 Misc 3d 1207(A), (Sup Ct, Queens County April 5, 2017) "the election to accelerate contained in the complaint was nullified when plaintiff voluntarily discontinued the prior action. Accordingly, this Court finds that discontinuing the prior foreclosure action was an affirmative act of revocation." This Court agrees. Here, the complaint alleges that the defendant borrower has failed to pay the monthly installments due and owing since April 1, 2009. The statute of limitations has not run and plaintiff's action is timely.
Even the case relied upon by LI Holding acknowledges that "[t]he prior foreclosure action was never withdrawn by the lender" ( Federal Natl . Mtge. Assn. v Mebane , 208 AD2d at 894, supra).
Finally, LI Holding relies upon an outdated rule of law. Said defendant stresses that "once a mortgage debt is accelerated, 'the borrower's right and obligation to make monthly installments ceased and all sums [become] immediately due and payable,' and the six-year Statute of Limitations begins to run on the entire mortgage debt" ( EMC Mtge. Corp. v Patella , 279 AD2d at 605, supra, citing Federal Natl . Mtge. Assn. v Mebane , 208 AD2d 892, supra). Caselaw has also held that the commencement of a prior foreclosure action starts the running of the statute of limitations (see Clayton Natl ., Inc. v Guldi , 307 AD2d 982, 763 NYS2d 493 [2d Dept 2003]). Yet, other holdings state that notice to the borrower to accelerate the entire amount of the mortgage debt must be "clear and unequivocal" ( Sarva v Chakravoty , 34 AD3d 438, 439, 826 NYS2d 74 [2d Dept 2006]).
The rules stated above emanate from the seminal mortgage acceleration case of Albertina Realty Co . v Rosbro Realty Corp ., 258 NY472, 180 N.E. 176 (1932). Therein, the lender filed a foreclosure action after the borrower failed to make a timely installment payment. The borrower tendered the late payment three days after the action was filed but prior to service of the pleadings. The lender refused payment arguing that the complaint had accelerated the entire debt. The mortgage contained a strict statutory acceleration clause found in Real Property Law § 258, Schedule M (id., at 474). The Court of Appeals agreed and held that the lender had elected to exercise its right to accelerate. The court described the acceleration clause as "a fair and legal contract which the parties to the mortgage had a right to enter into" (id., at 475). Importantly, the court noted that "[t]he agreement does not provide what the holder of the mortgage must do to evidence its election to declare the whole amount due. Such a provision could have been embodied in the contract if the parties had so desired" (id., at 475-6). Since that time, numerous cases have relied upon the holding in Albertina , supra, that the commencement of a prior foreclosure action starts the running of the statute of limitations (see Clayton Natl ., Inc. v Guldi , 307 AD2d 982, supra; Federal Natl . Mtge. Assn. v Mebane , 208 AD2d 892, supra; see also U .S. Bank Natl. Assn. v Martin , 144 AD3d 891, 41 NYS3d 550 [2d Dept 2016]; PSP-NC , LLC v Raudkivi , 138 AD3d 709, 29 NYS3d 51 [2d Dept 2016]).
However, as noted in Albertina , supra "[t]he parties to the mortgage in question were not limited to the use of the form of acceleration clause contained in the mortgage in question" (id., at 476). In the instant case, the parties did not chose to use the statutory form of acceleration set forth in Real Property Law §258, Schedule M or N (compare Charter One Bank FSB v Leone , 45 AD3d 958, 845 NYS2d 513 [3d Dept 2007]). In the instant case, the relevant acceleration clauses, in pertinent part, are set forth below.
9. Grounds for Acceleration of Debt.* * *
(a) Default. Lender may, except as limited by regulations issued by the Secretary, in the case of payment defaults, require immediate payment in full of all sums secured by this Security Instrument if:
(I) Borrower defaults by failing to pay in full any monthly payment required by this Security Instrument prior to or on the due date of the next monthly payment, or
* * * (d) Regulations of HUD Secretary. In many circumstances regulations issued by the Secretary will limit Lender's rights in the case of payment defaults to require immediate payment in full and foreclose if not paid. This Security Instrument does not authorize acceleration or foreclosure if not permitted by regulation of the Secretary.
10. Reinstatement. Borrower has a right to be reinstated if Lender has required immediate payment in full because of Borrower's failure to pay an amount due under this Note or this Security Instrument. This right applies even after foreclosure proceedings are instituted. To reinstate the Security Instrument, Borrower shall tender in a lump sum all amounts required to bring Borrower's account current including, to the extent they are obligations of Borrower under this Security Instrument, foreclosure costs and reasonable and customary attorneys' fees and expenses properly associated with the foreclosure proceeding. Upon reinstatement by Borrower, this Security Instrument and the obligations that it secures shall remain in effect as if Lender had not required immediate payment in full. However, Lender is not required to permit reinstatement if (i) Lender has accepted reinstatement after the commencement of foreclosure proceedings within two years immediately preceding the commencement of a current foreclosures proceeding, (ii) reinstatement will preclude foreclosure on different grounds in the future, or (iii) reinstatement will adversely affect the priority of the lien created by this Security Instrument.
Here, the lender bargained away its right to demand payment in full simply upon a default in an installment payment or the commencement of an action and has afforded the borrower greater protections than that set forth in the statutory form of an acceleration clause under Real Property Law § 258 or under the holding in Albertina , supra. As set forth by the Court of Appeals in W .W.W. Assocs. v Giancontieri , 77 NY2d 157, 71 NYS2d 157 (1990), "[a] familiar and eminently sensible proposition of law, is that, when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms." As with any other contractual option, the holder of an option may be required to exercise an option to accelerate the maturity of a loan in accordance with the terms of the mortgage ( Wells Fargo Bank , N.A. v Burke , 94 AD3d at 983, supra). "A party who executes a contract is presumed to know its contents and to assent to them" ( Nerey v Greenpoint Mtge . Funding , Inc ., 144 AD3d 646, 648, 40 NYS3d 510 [2d Dept 2016] [internal quotation marks omitted]).
Under the express wording of the mortgage document, plaintiff has no right to reject the borrower's payment of arrears in order to reinstate the mortgage, even after institution of a foreclosure action. Pursuant to paragraph 10, set forth above, the lender cannot reject a payment that would reinstate the Mortgage and arrest the acceleration of the maturity of the debt. Under the contract terms at issue, plaintiff does not have a legal right to require payment in full with the simple filing of a foreclosure action. The borrower could pay the unpaid installments and the payment of same would destroy the option to accelerate. Until this mortgage, the borrower has the right to tender the payments then due and make good on his or her defaults. Here, only a foreclosure judgment triggers the acceleration in full of the entire mortgage debt. The instant case is similar to the facts in Wells Fargo Bank , N.A. v Cohen , 80 AD3d 753, 754, 915 NYS2d 569 (2d Dept 2011) where "the mortgage and note do not provide that the entire debt represented by the mortgage was to be automatically accelerated upon the borrower's default in an installment payment..."
Section 9(b) of the mortgage, which requires immediate payment in full, only occurs when the mortgaged premises has been sold or transferred or if the property is not occupied by the purchaser, which are not the reasons offered for the default notice and is therefore, inapplicable to the facts as presented. In any event, such grounds occurred within six years of the commencement of the action.
It is the terms of the mortgage and not the commencement of a foreclosure action that determines when the maturity of a loan is accelerated. Therefore, the general caselaw set forth above is not controlling, since pursuant to the contract that governs this action, the mortgage remains, in essence, an installment contract until a foreclosure judgment and sale is entered. Since the mortgage debt has not been irrevocably accelerated, the borrower's right and obligation to make monthly installments has not ceased. In fact, the September 15, 2014 default letter sent by the loan servicer and attorney in fact, Rushmore Loan Management Services LLC (hereinafter "Rushmore"), to defendant (see Ex. C of the moving papers) expressly notes the defendant's right to reinstate the mortgage loan. All sums have not, as of yet, become irrevocably and immediately due and payable.
Contrary to the Fifteenth Affirmative Defense, the instant foreclosure action is not time-barred (see CPLR 213[4]). That affirmative defense does not demonstrate that the exercise of the option to accelerate caused the maturity of the loan in accordance with the terms of the mortgage, prior to the commencement of this action. However, the plaintiff's recovery is limited to only those unpaid installments which accrued after January 20, 2009, that is, the six-year period immediately preceding the commencement of this action (see EMC Mtge . Corp. v Cielo , 49 AD3d 592, 852 NYS2d 791 [2d Dept 2008]; see also Wells Fargo Bank , N.A. v Cohen , 80 AD3d at 754, supra; Loiacono v Goldberg , 240 AD2d 476, 477, 658 NYS2d 138[2d Dept 1997]; Sce v Ach , 56 AD3d 457, 867 NYS2d 140 [2d Dept 2008]). Since the complaint states the defendant borrower has failed to pay the monthly installments due and owing commencing April 1, 2009, the action is timely.
Here, standing is one of the few defenses that LI Holding can raise as the subsequent title owner. One of the various ways standing may be established is by due proof that the plaintiff or its custodial agent was in possession of the note prior to the commencement of the action. The production of such proof is sufficient to establish, prima facie, the plaintiff's possession of the requisite standing to prosecute its claims for foreclosure and sale (see Aurora Loan Servs ., LLC v Taylor , 25 NY3d 355, 12 NYS3d 612 [2015]; U .S. Bank v Ehrenfeld , 144 AD3d 893, 41 NYS3d 269 [2d Dept 2016]; JPMorgan Chase Bank , Natl. Assn. v Weinberger , 142 AD3d 643, 37 NYS3d 286 [2d Dept 2016]; Citimortgage , Inc. v Klein , 140 AD3d 913, 33 NYS3d 432 [2d Dept 2016]; U .S. Bank Natl. Assn. v Godwin , 137 AD3d 1260, 28 NYS3d 450 [2d Dept 2016]; Wells Fargo Bank , N.A. v Joseph , 137 AD3d 896, 26 NYS3d 583 [2d Dept 2016]; Emigrant Bank v Larizza , 129 AD3d 904, 13 NYS3d 129 [2d Dept 2015]; Deutsche Bank Natl . Trust Co. v Whalen , 107 AD3d 931, 969 NYS2d 82 [2d Dept 2013]).
Additionally, as was accomplished here, the plaintiff's attachment of a duly indorsed mortgage note to its complaint or to the certificate of merit required by CPLR 3012-b, coupled with an affidavit in which it alleges that it had possession of the note prior to the commencement of the action, has been held to constitute due proof of the plaintiff's possession of the note prior to the commencement of the action and thus its standing to prosecute its claim for foreclosure and sale (see JPMorgan Chase Bank , N.A. v Venture , 148 AD3d 1269, 48 NYS3d 824 [3d Dept 2017]; Deutsche Bank Trust Co . v Garrison , 146 AD3d 185, 46 NYS3d 185 [2d Dept 2017]; U.S. Bank Natl. v Saravanan , 146 AD3d 1010, 45 NYS3d 547 [2d Dept 2017]; Deutsche Bank Natl. Trust Co. v Logan , 142 AD3d 861, 45 NYS3d 189 [2d Dept 2017]; Deutsche Bank Natl . Trust Co. v Umeh , 145 AD3d 497, 41 NYS3d 882 [1st Dept 2016]; Nationstar Mtge ., LLC v Weisblum , 143 AD3d 866, 39 NYS3d 491, 494 [2d Dept 2016]; Deutsche Bank Natl. Trust Co. v Webster , 142 AD3d 636, 37 NYS3d 283 [2d Dept 2016]; JPMorgan Chase Bank , Natl. Ass'n v Weinberger , 142 AD3d 643, supra; Federal Natl . Mtge. Assn. v Yakaputz II , Inc ., 141 AD3d 506, 507, 35 NYS3d 236, 237 [2d Dept 2016]; JPMorgan Chase Bank , Natl. Assn. v Kobee , 140 D3d 1622, 32 NY3d 767 [2d Dept 2016]; JPMorgan Chase Bank , N.A. v Roseman , 137 AD3d 1222, 29 NYS3d 380 [2d Dept 2016]; Deutsche Bank Natl. Trust Co. v Leigh , 137 AD3d 841, 28 NYS3d 86 [2d Dept 2016]; Nationstar Mtge ., LLC v Catizone , 127 AD3d 1151, 9 NYS3d 315 [2015]).
Appellate case authorities have repeatedly held that in determining the standing of a foreclosing plaintiff, it is the mortgage note that is the dispositive instrument, not the mortgage indenture (see Aurora Loan Servs ., LLC v Mandel , 148 AD3d 965, — NYS3d __ [2d Dept 2017]; Everhome Mtge . Co. v Pettit , 235 AD3d 1054, 23 NYS3d 408 [2d Dept 2016]). This result is mandated by the long standing principal incident rule which provides that because a mortgage is merely the security for the debt, the obligations of the mortgage pass as an incident to the passage of the note (see Aurora Loan Servs ., LLC v Taylor , 25 NY3d 355, supra; Wells Fargo Bank , N.A. v Charlaff , 134 AD3d 1099, 24 NYS3d 317 [2d Dept 2015]; Emigrant Bank v Larizza , 129 AD3d 904, supra). A foreclosing plaintiff has standing if it is either the holder or the assignee of the underlying note at the time that the action is commenced (see Aurora Loan Servs ., LLC v Taylor , 25 NY3d 355, supra; Loancare v Firshing , 130 AD3d 787, 14 NYS3d 410 [2d Dept 2015]; Emigrant Bank v Larizza , 129 AD3d 904, supra). "Either a written assignment of the underlying note or the physical delivery of it to the plaintiff prior to the commencement of the action is sufficient to transfer the obligation" (see id., Wells Fargo Bank , NA v Parker , 125 AD3d 8485 NYS3d 130 [2d Dept 2015]; U.S. Bank NA v Guy , 125 AD3d 845, 5 NYS3d 116 [2015]).
The plaintiff may also establish its standing by demonstrating that it is the holder of the mortgage note within the contemplation of the Uniform Commercial Code. Holder status is established where the plaintiff possesses a note that, on its face or by allonge, contains an endorsement in blank or bears a special endorsement payable to the order of the plaintiff (see UCC 1—201 ; 3—202; 3—204; Hartford Acc. & Indem. Co. v American Express Co., 74 NY2d 153, 159 [1989]). 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]). Notably, the holder of an instrument whether or not he is the owner may ... enforce payment in his own name (see UCC 3—301 ; Wells Fargo Bank , N.A. v Ostiguy , 127 AD3d 1375, 8 NYS3d 669 [3d Dept 2015]). "'Bearer' means ... a person in possession of a negotiable instrument" (UCC 1—201 [b][5]), and where the note is endorsed in blank, it may be negotiated by delivery alone (see UCC 3—202 [1], 3—204[2]). "An endorsement in blank specifies no particular endorsee and may consist of a mere signature" and "[a]n instrument payable to order and endorsed in blank becomes payable to bearer and may be negotiated by delivery alone until specially endorsed (UCC 3—204 [2])" ( JPMorgan Chase Bank , Natl. Assn. v Weinberger , 142 AD3d 643, supra).
Under this statutory framework, it is clear that to establish its standing as the holder of a duly endorsed note in blank, a plaintiff is only required to demonstrate that it had physical possession of the note prior to commencement of the action (see Deutsche Bank Natl . Trust Co. v Brewton , 142 AD3d 683, 37 NYS3d 25 [2d Dept 2016]; JPMorgan Chase Bank , Natl. Assn. v Weinberger , 142 AD3d 643, 645, supra). In such cases "'it is unnecessary to give factual details of the delivery in order to establish that possession was obtained prior to a particular date'" since a plaintiff in possession of a note endorsed in blank is thus without obligation to establish how it came into possession of the instrument in order to be able to enforce it (see UCC 3—204 [2]; Pennymac Corp. v Chavez , 144 AD3d 1006, 42 NYS3d 239 [2d Dept 2016], quoting JPMorgan Chase Bank , Natl. Assn. v Weinberger , 142 AD3d at 645, supra). In addition, because "a signature on a negotiable instrument 'is presumed to be genuine or authorized' (see UCC 3—307 [1][b]), the plaintiff is not required to submit proof that the person who endorsed the subject note to the plaintiff on behalf of the original lender was authorized to do so" ( CitiMortgage , Inc. v McKinney , 144 AD3d 1073, 42 NYS3d 302 [2d Dept 2016]).
Moreover, the apparent invalidity of any written assignments of mortgage are thereby rendered irrelevant to the issue of standing (see Aurora Loan Servs ., LLC v Taylor , 25 NY3d 355, supra). Defendant's challenge to the assignments of the mortgage, as set forth in the cross motion papers, is without merit since it is the note that is the controlling document for standing purposes (see Aurora Loan Servs ., LLC v Taylor , 25 NY3d 355, supra; Aurora Loan Servs ., LLC v Mandel , 148 AD3d 965, supra; see also Deutsche Bank Natl . Trust Co. v Pietranico , 32 Misc 3d 528, 928 NYS2d 818 [Sup. Ct. Suffolk County 2011], affd. 102 AD3d 724, 957 NYS2d 868 [2013]).
Indeed, the establishment of the plaintiff's actual possession of the mortgage note or its constructive possession through an agent on a date prior to the commencement of the action is so conclusive that it renders, unavailing, claims of content defects in allonges (see U .S. Bank v Askew , 138 AD3d 402, 27 NYS3d 856 [1st Dept 2016]). It further renders unavailing, all claims of content defects in the chain of mortgage assignments (see Aurora Loan Servs ., LLC v Taylor , 25 NY3d 355, supra; CitiMortgage , Inc. v McKinney , 144 AD3d 1073, supra; JPMorgan Chase Bank , Natl. Ass'n v Weinberger , 142 AD3d 643, supra; Deutsche Flagstar Bank , FSB v Mendoza , 139 AD3d 898, 32 NYS3d 278 [2d Dept 2016]; US Bank Natl . Trust v Naughton , 137 AD3d 1199, 28 NYS3d 444 [2d Dept 2016]; Deutsche Bank Natl . Trust v Whalen , 107 AD3d 931, supra).
The affidavit of Michael Bennett, dated November 3, 2015, an Assistant Secretary of Rushmore, the servicer and attorney in fact for the plaintiff, demonstrates that based upon his review of the records maintained by the servicer, with which he is personally familiar, and kept and relied upon as a regular business practice and in the ordinary course of loan servicing business, the plaintiff came into possession of the original note before the commencement of the action. Such proof, coupled with the attachment of the note to the complaint, was sufficient to establish the plaintiff's standing due to it status as the holder of the mortgage note prior to the commencement of this action.
As recently held by the Second Department, a plaintiff that has possession of the note has standing, even where the plaintiff is the servicer and not the owner of the mortgage loan (see Central Mtge . Co. v Davis , __ AD3d __, 2017 WL 1394282 [2d Dept 2017]). Here, plaintiff has demonstrated possession of the note prior to the commencement of the action (see OneWest Bank , FSB v Simpson , 148 AD3d 920, 49 NYS3d 523 [2d Dept 2017]; Hudson City Sav . Bank v Genuth , 148 AD3d 687, 48 NYS3d 687 [2d Dept 2017]; HSBC Bank USA v Espinal , 137 AD3d 1079, supra; LNV Corp . v Francois , 134 AD3d 1071, 22 NYS3d 543 [2d Dept 2015]). The affirmative defenses asserted in the answer of LI Holding to the extent they are premised upon a purported lack of standing are without merit.
The cross motion (#002) is denied in its entirety.
The moving papers demonstrated, prima facie, the plaintiff's entitlement to the relief requested including the dismissal of all affirmative defenses and counterclaims asserted in the answer of LI Holding.
The defendant does challenge the plaintiff's proof as procedurally defective by reason of its failure to comport with the requirements of the business records exception to the hearsay rule. The procedural challenge is rejected for the reasons outlined below. However, many of the issues that would arise in a foreclosure action where a defendant borrower or mortgagor answered the complaint and denied the allegations thereof, are not present with regard to LI Holding, who does not possess the standing to challenge claimed noncompliance with statutory or contractual notice provisions. As noted, plaintiff established the requisite standing to commence the action. In any event the challenge to the business records is unavailing.
A business record will be admissible if that record "was made in the regular course of any business and ... it was the regular course of such business to make it, at the time of the act, transaction, occurrence or event, or within a reasonable time thereafter" ( One Step Up , Ltd. v Webster Bus. Credit Corp ., 87 AD3d 1, 925 NYS2d 61 [1st Dept 2011]; CPLR 4518[a]). While "the mere filing of papers received from other entities is insufficient to qualify the documents as business records, such records may be admitted into evidence 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 by the recipient in its business" ( Deutsche Bank Natl . Trust Co. v Monica , 131 AD3d 737, 15 NYS3d 863 [3d Dept 2015]; quoting State v 158th St . & Riverside Dr. Hous. Co., Inc ., 100 AD3d 1293, 956 NYS2d 196 [3d Dept 2012] citing People v Cratsley , 86 NY2d 81, 90—91, 629 NYS2d 992 [1995]).
Appellate case authorities have thus held that a loan servicer may testify as to payment defaults and other matters relevant to a foreclosing plaintiff's prima facie case on records it maintains in the regular course of its business as servicer of the subject mortgage loan (see Central Mtge . Co. v Davis , __ AD3d __, 2017 WL 1394282[2d Dept 2017]; Pennymac Holdings , LLC v Tomanelli , 139 AD3d 688, 32 NYS3d 181 [2d Dept 2016]; Deutsche Bank Natl. Trust Co. v Naughton , 137 AD3d 1199, 28 NYS3d 444 [2d Dept 2016]; Deutsche Bank Natl . Trust Co. v Abdan , 131 AD3d 1001, 16 NYS2d 459 [2d Dept 2015]; Wells Fargo Bank , N.A. v Arias , 121 AD3d 973, 995 NYS2d 118 [2d Dept 2014]; see also Deutsche Bank Natl . Trust Co. v Monica , 131 AD3d 737, supra; HSBC Bank USA , Natl. Ass'n v Sage , 112 AD3d 1126, 977 NYS2d 446 [3d Dept 2013]; Aames Capital Corp. v Ford , 294 AD2d 134, 740 NYS2d 880 [1st Dept 2002]). It is also established law that an assignee or other transferee of the loan documents may rely upon the business records of the loan originator or other predecessors in interest to establish such transferee's claims for recovery of amounts due from the debtor so long as it establishes that it relied upon those records in the regular course of its business (see Landmark Capital Inv ., Inc. v Li-Shan Wang , 94 AD3d 418, 941 NYS2d 144 [1st Dept 2012]; see also Portfolio Recovery Assoc ., LLC v Lall , 127 AD3d 576, 8 NYS3d 101 [1st Dept 2015]).
That there is no requirement that the affiant have personal knowledge of every entry is clear, particularly where there is a business relationship between the entities entering and maintaining the records and those incorporating and relying upon them in the regular course of their business (see Citibank , NA v Abrams , 144 AD3d 1212, 1216, 40 NYS3d 653 [3d Dept 2016] ["Polk was entitled to rely on the loan records in addressing the issue of possession, as CPLR 4518[a] does not require a person to have personal knowledge, ..."]; Deutsche Bank Natl. Trust Co. v Monica , 131 AD3d 737, 739, supra; HSBC Bank USA , N.A. v Sage , 112 AD3d 1126, 1127, supra; see Landmark Capital Inv., Inc. v Li-Shan Wang , 94 ADd3d 418, supra ["Plaintiff established its entitlement to judgment as a matter of law by relying in part on the original loan file prepared by its assignor. Plaintiff relied on these records in its regular course of its business"]).
Here, as set forth in the affidavit of Michael Bennett, he is personally familiar with Rushmore's regular business practice, he describes the practice and swears that the regular practice was adhered to with respect to this loan in default. He explains that the records were created and maintained by Rushmore as the loan servicer. Therefore, Rushmore relied upon the records in its regular course of business and such reliability is key to its admissibility (see Corsi v Town of Bedford , 58 AD3d at 231—232, 868 NYS2d 258 [2d Dept 2008], lv. denied 12 NY3d 714, 883 NYS2d 797 [2009]; Matter of Carothers v GEICO Indem . Co., 79 AD3d at 865, 914 NYS2d 199 [2d Dept 2010]).
It is the Court which must determine the threshold requirement for admissibility (see People v Kennedy , 68 NY2d at 576, 510 NYS2d 853 [1986]). As held by the Second Department in People v Klein , 105 AD2d 805, 806, 481 NYS2d 743 [2d Dept 1984] affd 65 NY2d 613, 491 NYS2d 155 [1985]), "the foundational objections go to weight, rather than admissibility." The lack of personal knowledge, goes to the weight and not the admissibility of the records (see William Conover Inc. v Waldorf , 251 AD2d 727, 673 NYS2d 770 [3d Dept 1998]; Pencom Sys ., Inc. v Shapiro , 237 AD2d 144, 658 NYS2d 258 [1st Dept 1997]).
Where a recipient of records, who does not have personal knowledge of the maker's business practices, a proper foundation can still be established where the recipient either incorporated the records into its own records or relied upon the records in its day-to-day operations (see In the Matter of Andrew Carothers , M.D. v Geico Indem. Co., 79 AD3d 864, 914 NYS3d 199 [2d Dept 2010]; Plymouth Rock Fuel Corp . v Leucadia , Inc., 117 AD2d 727, 498 NYS2d 453 [2d Dept 19896]; see also West Val . Fire Dist. No. 1 v Village of Springville , 294 AD2d 949, 743 NYS2d 215 [4th Dept 2002).
The Court of Appeals in Bossuk v Steinberg , 58 NY2d 916, 919, 460 NYS2d 509 (1983) held that there was no need to produce the person who did the actual mailings since "[t]he proof of the Sheriff's regular course of business in this regard sufficed." In Hospital for Joint Diseases v Elrac , Inc., 11 AD3d 432, 433, 783 NYS2d 612 (2d Dept 2004), the Second Department held that an affidavit based upon records maintained by an insurer in the ordinary course of business did constitute admissible evidence ("Personal knowledge of such documents, their history, or specific content are not necessarily required of a document custodian"). Various cases, particularly in the Second Department, have held that such business records are admissible (see CitiMortgage , Inc. v Espinal , 134 AD3d 876, supra; Olympus America , Inc. v Beverly Hills Surgical Inst ., 110 AD3d 1048, 974 NYS2d 89 [2d Dept 2013]; Burrell v Barreiro , 83 AD3d 984, 922 NYS2d 465 [2d Dept 2011]; DeLeon v Port Auth . of NY & N.J., 306 AD2d 146, 761 NYS2d 54 [1st Dept 2003]; We're Assocs. Co. v Rodin Sportswear Ltd., 288 AD2d 465, 734 NYS2d 104 [2d Dept 2001]; Spangenberg v Chaloupka , 229 AD2d 482, 645 NYS2d 514 [2d Dept 1996]).
"As with other hearsay exceptions, the business records exception grew out of considerations of necessity and trustworthiness — the necessity for alternatives to permit large and small businesses to prove debts by their records of account, and the unusual degree of trustworthiness and reliability of such records owing to the fact that they were kept regularly, systematically, routinely and contemporaneously" ( People v Kennedy 68 NY2d 569, 579-580, 510 NYS2d 853 [1986]; citing 5 Wigmore, Evidence §§ 1421, 1422, 1546 [Chadbourn rev 1974] and Note, Business Records Rule: Repeated Target of Legal Reform, 36 Brooklyn L Rev 241). "The element of unusual reliability is supplied by systematic checking, by regularity and continuity which produce habits of precision, by actual experience of business in relying upon them, or by a duty to make an accurate record as part of a continuing job or occupation" (id., citing McCormick, Evidence § 306 [Cleary 3d ed]). "The essence of the business records exception to the hearsay rule is that records systematically made for the conduct of a business as a business are inherently highly trustworthy because they are routine reflections of day-to-day operations and because the entrant's obligation is to have them truthful and accurate for purposes of the conduct of the enterprise" (id., citing Williams v Alexander , 309 NY 283, 286).
The key to admissibility of a business record is thus that it carries the indicia of reliability ordinarily associated with business records (see People v Cratsley , 86 NY2d 81, 91, 629 NYS2d 992 [1995]; One Step Up , Ltd. v Webster Bus. Credit Corp ., 87 AD3d 1, 11, supra). As noted by the Second Department in Hochhauser v Electric Ins . Co., 46 AD3d 174, 844 NYS2d 374 (2d Dept 2007), "[t]he basis of the business records exception to the hearsay rule is the trustworthiness of the document."
Significantly, as to the separate issue of a predecessor loan servicer or owner, in People v Cratsley , 86 NY2d at 90, supra, the Court of Appeals explained that, "[w]hile not an ... employee, [the declarant] was also not a complete outsider" to the enterprise. The records of a predecessor loan servicer or owner cannot be deemed to be "a complete outsider" to the enterprise of loan servicing, of the very same loan. Mortgage loan services are licensed and regulated under New York State Banking Law §§ 590(1)(h); (I); and 5(d) ("Mortgage loan servicers shall engage in the business of servicing mortgage loans in conformity with the provisions of this chapter, such rules and regulations as may be promulgated by the superintendent thereunder and all applicable federal laws and the rules and regulations promulgated thereunder").
The state regulations put in place as part of the Mortgage Lending Reform Law of 2008 (Ch. 472, Laws of 2008), set forth at 3 NYCRR Part 419, addresses the business practices of a mortgage loan servicer, the obligations of servicers in their communications, transactions and general dealings with borrowers, and imposes certain record keeping and reporting requirements in order to enable the Superintendent of Financial Services to monitor servicer's conduct. In particular, section 419.13 describes the books and records that servicers are required to maintain as well as other reports the Superintendent may require for compliance purposes.
In the instant case, Rushmore's own records are reflected in the various mailings set forth in the moving papers. Here, plaintiff's servicer's employee, Michael Bennett, the recipient of the records, can establish personal knowledge of the maker's business practices and procedures, "and the records themselves actually evince the facts for which they are relied upon (citations omitted)" ( Citigroup v Kopelowitz , 147 AD3d 1014, 48 NYS3d 223 [2d Dept 2017]; see also Deutsche Bank Natl . Trust Co. v Naughton , 137 AD3d at 1200, supra). Therefore, this Court holds that the records relied upon, in the affidavit of Michael Bennett, are admissible pursuant to the business records rule. Rejected as unmeritorious is defendant's counsel's claim that the plaintiff's affidavit of merit is insufficient due to a lack of personal knowledge on the part of the affiant, who is an employee of the servicer of the loan at issue.
Once the plaintiff makes a prima facie showing, the burden shifts to the defendant to demonstrate "'the existence of a trial issue of fact as a bona fide defense to the action'" ( Baron Assocs ., LLC v Garcia Group Enters., Inc ., 96 AD3d 793, 793, 946 NYS2d 611[2d Dept 2012], quoting Mahopac Natl . Bank v Baisley , 244 AD2d 466, 467, 664 NYS2d 345 [2d Dept 1997]).
It was thus incumbent upon answering defendant, LI Holding, to raise a genuine question of fact with respect to its possession of some bona fide defense to the plaintiff's claims for foreclosure and sale. However, no questions of fact were raised in the cross motion and opposing papers from this answering defendant. The plaintiff's prima facie showing of its entitlement to the summary judgment demanded by it thus remains in tact and unrebutted (see Nationstar Mtge ., LLC v Wong , 132 AD3d, 825, 18 NYS3d 669 [2d Dept 2016]).
The court finds that the plaintiff is entitled to summary judgment dismissing the affirmative defenses and counterclaims set forth in the answer of LI Holding, and an award of summary judgment on its complaint against such defendant. Those portions of this motion wherein the plaintiff seeks such relief are thus granted. Also granted is the plaintiff's request for an order identifying the true names of certain unknown defendants pursuant to CPLR 1024 and the deletion of the remaining unknown defendants listed in the caption together with an amendment of the caption to reflect these changes.
The moving papers further established the default in answering on the part of all non-answering defendants served with process, including the obligor/borrower defendant, who failed to appear herein by answer. The moving papers also established the defaults in answering on the part of the remaining defendants, including those newly identified, none of whom served answers to the plaintiff's complaint and the plaintiff's entitlement to default judgments against them (see HSBC Bank USA , N.A. v Alexander , 124 AD3d 838, 4 NYS3d 47 [2d Dept 2015]; U .S. Bank , N.A. v Razon , 115 AD3d 739, 740, 981 NYS2d 571 [2d Dept 2014]). Accordingly, the defaults of all such defendants are hereby fixed and determined. Since the plaintiff has been awarded summary judgment against the sole answering defendant and has established a default in answering by the remaining defendants, the plaintiff is entitled to an order appointing a referee to compute amounts due under the subject note and mortgage (see RPAPL § 1321; Bank of East Asia , Ltd. v Smith , 201 AD2d 522, 607 NYS2d 431 [2d Dept 1994]; Vermont Fed . Bank v Chase , 226 AD2d 1034, 641 NYS2d 440 [3d Dept 1996]; LaSalle Bank , NA v Pace , 31 Misc 3d 627, 919 NYS2d 794 [Sup. Ct. Suffolk County 2011], aff'd, 100 AD3d 970, 955 NYS2d 161 [2d Dept 2012]).
Therefore, the Court grants plaintiff's motion (#001) in its entirety, denies defendant's cross motion (#002) in its entirety and simultaneously signs the proposed Order, as modified. DATED: May 3, 2017 THOMAS F. WHELAN, J.S.C.