The direct privity between lenders and debtors is rarely seen in residential mortgage foreclosure litigations, given the nature of the home lending business where financial instruments are routinely sold, assigned, or "bundled" from one institution to another between the time funds are initially dispersed by a lender and the commencement of a later foreclosure action. The second basis for standing is where the plaintiff is a holder in physical possession of the note prior to the commencement of the action, with an allonge or indorsement in blank (see UCC 1–201[b][21][A], 3–204[2] ; Ocwen Loan Servicing, LLC v. Schacker, 185 A.D.3d 1041, 1043, 129 N.Y.S.3d 91 ; Bank of N.Y. Mellon Trust Co., NA v. Obadia, 176 A.D.3d 1020, 1022, 111 N.Y.S.3d 59 ; Deutsche Bank Natl. Trust Co. v. Brewton, 142 A.D.3d 683, 684, 37 N.Y.S.3d 25 ). The third is when the note underlying an action was assigned to the plaintiff prior to the date of commencement of the action (seeAurora Loan Servs., LLC v. Taylor, 25 N.Y.3d 355, 361–362, 12 N.Y.S.3d 612, 34 N.E.3d 363 ; US Bank Trust, N.A. v. Loring, 193 AD3d 1101 ; Nationstar Mtge., LLC v. Tabick, 193 A.D.3d 950, 142 N.Y.S.3d 848 ).

The direct privity between lenders and debtors is rarely seen in residential mortgage foreclosure litigations, given the nature of the home lending business where financial instruments are routinely sold, assigned, or "bundled" from one institution to another between the time funds are initially dispersed by a lender and the commencement of a later foreclosure action. The second basis for standing is where the plaintiff is a holder in physical possession of the note prior to the commencement of the action, with an allonge or indorsement in blank (see UCC 1-201[b][21][A], 3-204[2]; Ocwen Loan Servicing, LLC v Schacker, 185 A.D.3d 1041, 1043; Bank of N.Y. Mellon Trust Co., NA v Obadia, 176 A.D.3d 1020, 1022; Deutsche Bank Natl. Trust Co. v Brewton, 142 A.D.3d 683, 684). The third is when the note underlying an action was assigned to the plaintiff prior to the date of commencement of the action (see Aurora Loan Servs., LLC v Taylor, 25 N.Y.3d 355, 361-362; US Bank Trust, N.A. v Loring, 193 A.D.3d 1101; Nationstar Mtge., LLC v Tabick, 193 A.D.3d 950).

As U.S. Bank correctly contends, however, the LLC lacked standing to raise, as defenses to the action, compliance with RPAPL 1304 and 1306 and with the notice of default requirements in the mortgage agreement. Noncompliance with RPAPL 1304 and with the notice of default provisions in a mortgage agreement are personal defenses that may not be raised by parties who are strangers to the subject note and mortgage (see Wells Fargo Bank, N.A. v Stephen, 205 A.D.3d 1066; Deutsche Bank Natl. Trust Co. v Gendelman, 195 A.D.3d 792, 793; HSBC Bank USA, N.A. v Tigani, 185 A.D.3d 796, 799; Bank of N.Y. Mellon Trust Co., NA v Obadia, 176 A.D.3d 1020, 1024; Citimortgage, Inc. v Etienne, 172 A.D.3d 808, 809-810). Although the LLC, as the owner of the premises, is a proper party to this mortgage foreclosure action, failure to comply with RPAPL 1304 is a personal defense that cannot be asserted by the LLC, a stranger to the consolidated note and mortgage (see Deutsche Bank Natl. Trust Co. v Gendelman, 195 A.D.3d at 793; HSBC Bank USA, N.A. v Tigani, 185 A.D.3d at 799; Bank of N.Y. Mellon Trust Co., N.A. v Obadia, 176 A.D.3d at 1024).

Marine U.S. Bank N.A. v. Moulton, supra, 179 A.D.3d at 737, 116 N.Y.S.3d 86 ; McCormack v. Maloney, supra, 160 A.D.3d at 1099-1100, 75 N.Y.S.3d 294. In contravention of the foregoing authority, the Second Department in Bank of New York Mellon Trust Co., NA v. Obadia, 176 A.D.3d 1020, 111 N.Y.S.3d 59 (2d Dept. 2019), held that a plaintiff in possession of a note indorsed — not in blank or to the plaintiff himself — but instead to the order of a nonparty might nevertheless be deemed a "holder" thereof in the absence of proof that the specially indorsed note had ever been delivered to the special indorsee. Id., at 1022-23, 111 N.Y.S.3d 59

As the Supreme Court properly found, the statutory defense created by RPAPL 1302(2) for noncompliance with RPAPL 1304 is a "personal defense" that could not be raised by the defendant, a stranger to the note and underlying mortgage (Bank of N.Y. Mellon Trust Co., NA v Obadia, 176 A.D.3d 1020, 1024 [internal quotation marks omitted]; see Citimortgage, Inc. v Etienne, 172 A.D.3d 808, 810). Similarly, the defendant, who "is not a party to either the note or mortgage, lacks standing to raise as a defense to this action the plaintiff's alleged failure to serve a notice of default in accordance with the terms of the note and mortgage" (Bank of N.Y. Mellon Trust Co., NA v Obadia, 176 A.D.3d at 1024).

At the same time, a person who has physical possession of a properly endorsed note, whether or not he or she is the owner of the note, also has standing to enforce the note in [his or her] own name by commencing a mortgage foreclosure action (see UCC 3-301; Bank of N.Y. Mellon Trust Co., NA v Obadia, 176 A.D.3d 1020, 1023). In my opinion, the Appellate Division jurisprudence on standing raises concerns because it fails to protect the maker of the note, i.e., the borrower, who has paid an assignee from a subsequent claim by a holder in due course (see UCC 3-305), against whom a defense of discharge upon payment is not available (see UCC 3-602; 3-603; Bank of N.Y. Mellon v Deane, 41 Misc.3d 494 [Sup Ct, Kings County 2013]). Notably, this jurisprudence puts New York out of step with 49 other states that require a physical delivery of the note to accompany an assignment (see Bank of N.Y. Mellon v Deane, 41 Misc.3d 494).

under the Appellant Division jurisprudence, it has been held that a person who has been assigned the note, but who does not have physical possession of it, has standing to enforce the note by commencing a mortgage foreclosure action (seeBeneficial Homeowner Serv. Corp. v. KeyBank N.A., 177 A.D.3d at 1255, 111 N.Y.S.3d 158 [where there is an "effective assignment of both the mortgage and the note, physical delivery of the note is not required for the assignee to lawfully take action on the mortgage"]; Goldman Sachs Mtge. Co. v. Mares, 166 A.D.3d at 1129, 87 N.Y.S.3d 665 [plaintiff established standing by proving that it had been assigned note before commencement even though precluded from submitting evidence of physical possession of note]). At the same time, a person who has physical possession of a properly endorsed note, whether or not he or she is the owner of the note, also has standing to enforce the note in [his or her] own name by commencing a mortgage foreclosure action (see UCC 3–301 ; Bank of N.Y. Mellon Trust Co., NA v. Obadia, 176 A.D.3d 1020, 1023, 111 N.Y.S.3d 59 ). In my opinion, the Appellate Division jurisprudence on standing raises concerns because it fails to protect the maker of the note, i.e., the borrower, who has paid an assignee from a subsequent claim by a holder in due course (see UCC 3–305 ), against whom a defense of discharge upon payment is not available (see UCC 3–602 ; 3–603; Bank of N.Y. Mellon v. Deane, 41 Misc.3d 494, 970 N.Y.S.2d 427 [Sup. Ct., Kings County 2013] ).

Laurel Avenue's contention that the Supreme Court erred in granting summary judgment because the plaintiff failed to comply with RPAPL 1304 is without merit. Although Laurel Avenue, as the alleged current owner of the subject property, is a proper party to this consolidated foreclosure action, failure to comply with RPAPL 1304 is a personal defense which cannot be asserted by Laurel Avenue, a stranger to the consolidated note and mortgage (see HSBC Bank USA, N.A. v Tigani, 185 A.D.3d 796, 799; Bank of N.Y. Mellon Trust Co., NA v Obadia, 176 A.D.3d 1020, 1024). Similarly, Laurel Avenue lacks standing to raise as a defense to this consolidated action the plaintiffs alleged failure to serve a notice of default in accordance with the terms of the consolidated mortgage (see Bank of N.Y. Mellon Trust Co., NA v Obadia, 176 A.D.3d at 1024).

Laurel Avenue's contention that the Supreme Court erred in granting summary judgment because the plaintiff failed to comply with RPAPL 1304 is without merit. Although Laurel Avenue, as the alleged current owner of the subject property, is a proper party to this consolidated foreclosure action, failure to comply with RPAPL 1304 is a personal defense which cannot be asserted by Laurel Avenue, a stranger to the consolidated note and mortgage (see HSBC Bank USA, N.A. v Tigani, 185 A.D.3d 796, 799; Bank of N.Y. Mellon Trust Co., NA v Obadia, 176 A.D.3d 1020, 1024). Similarly, Laurel Avenue lacks standing to raise as a defense to this consolidated action the plaintiff's alleged failure to serve a notice of default in accordance with the terms of the consolidated mortgage (see Bank of N.Y. Mellon Trust Co., NA v Obadia, 176 A.D.3d at 1024).

Laurel Avenue's contention that the Supreme Court erred in granting summary judgment because the plaintiff failed to comply with RPAPL 1304 is without merit. Although Laurel Avenue, as the alleged current owner of the subject property, is a proper party to this consolidated foreclosure action, failure to comply with RPAPL 1304 is a personal defense which cannot be asserted by Laurel Avenue, a stranger to the consolidated note and mortgage (see HSBC Bank USA, N.A. v Tigani, 185 AD3d 796, 799; Bank of N.Y. Mellon Trust Co., NA v Obadia, 176 AD3d 1020, 1024). Similarly, Laurel Avenue lacks standing to raise as a defense to this consolidated action the plaintiff's alleged failure to serve a notice of default in accordance with the terms of the consolidated mortgage (see Bank of N.Y. Mellon Trust Co., NA v Obadia, 176 AD3d at 1024).