Opinion
875 CA 20-01319
03-11-2022
JOHN HUMMEL, INDIVIDUALLY AND AS ADMINISTRATOR OF THE ESTATE OF ELEANOR HUMMEL, DECEASED, PLAINTIFF-APPELLANT, v. CILICI, LLC, DEFENDANT-RESPONDENT.
DAVID M. KAPLAN, HORSEHEADS, FOR PLAINTIFF-APPELLANT. KNUCKLES, KOMOSINSKI & MANFRO, LLP, ELMSFORD (JOHN E. BRIGANDI OF COUNSEL), FOR DEFENDANT-RESPONDENT.
DAVID M. KAPLAN, HORSEHEADS, FOR PLAINTIFF-APPELLANT.
KNUCKLES, KOMOSINSKI & MANFRO, LLP, ELMSFORD (JOHN E. BRIGANDI OF COUNSEL), FOR DEFENDANT-RESPONDENT.
PRESENT: CENTRA, J.P., PERADOTTO, LINDLEY, NEMOYER, AND CURRAN, JJ.
Appeal from an order of the Supreme Court, Livingston County (Thomas E. Moran, J.), entered September 14, 2020. The order granted the motion of defendant to dismiss the amended complaint.
It is hereby ORDERED that the order so appealed from is unanimously modified on the law by denying the motion in part and reinstating the first cause of action in the amended complaint insofar as it seeks a declaration pursuant to RPAPL article 15 concerning defendant's interest in and right to foreclose upon the property at issue and granting judgment in favor of plaintiff as follows:
It is ADJUDGED and DECLARED that defendant has no enforceable interest in the property known as 5489 Federal Road, Conesus, New York 14435, and that defendant and every person claiming under defendant, by title accruing after the filing of the judgment roll, is forever barred from asserting such a claim, and as modified the order is affirmed without costs.
Memorandum: Defendant claims to hold a mortgage on certain real property owned by the estate of plaintiff's decedent. It is undisputed that the underlying promissory note was lost at some point between October 2011 and June 2015 while in the custody of its holder, nonparty Omat I Reo Holdings, LLC (Omat). It is also undisputed that defendant is not now, and has never been, in physical possession of the original promissory note.
Plaintiff commenced the instant action against defendant following the dismissal, without prejudice, of two successive foreclosure actions against plaintiff. In his first cause of action, plaintiff sought to quiet title to the subject property-i.e., to "compel the determination of any claim [to real property] adverse to that of... plaintiff which... defendant makes, or... might make" (RPAPL 1501 [1]; see RPAPL 1501 [5])-by means of, inter alia, a declaration under RPAPL 1521 (1) that defendant does not own the note underlying the mortgage on the subject property and thus has no enforceable interest in the subject property, i.e., that defendant lacks standing to foreclose. Plaintiff's second cause of action sought, inter alia, a similar declaration under CPLR 3001.
Defendant moved to dismiss the amended complaint under CPLR 3211 (a) (1) and (7). Supreme Court granted the motion, and plaintiff now appeals.
Preliminarily, we reject defendant's contention that the order appealed from was entered on default and hence is not appealable. The order does not purport to have been entered on plaintiff's default, and there is no reason to infer that the order was entered on default by virtue of its passing reference to the fact that plaintiff's lawyer did not appear at oral argument. Moreover, plaintiff timely opposed defendant's motion on the merits, and his lawyer's failure to appear for oral argument on a fully briefed motion would not constitute a default in the absence of unusual circumstances not present here (see All State Flooring Distribs., L.P. v MD Floors, LLC, 131 A.D.3d 834, 835 [1st Dept 2015]; cf. Britt v Buffalo Mun. Hous. Auth., 109 A.D.3d 1195, 1196 [4th Dept 2013]).
On the merits, we agree with plaintiff that defendant's evidentiary submissions do not warrant the dismissal of the amended complaint under either CPLR 3211 (a) (1) or (7) (see generally Lots 4 Less Stores, Inc. v Integrated Props., Inc., 152 A.D.3d 1181, 1182-1183 [4th Dept 2017]). Indeed, defendant's evidentiary submissions actually establish conclusively that defendant lacks standing to foreclose, i.e., lacks an enforceable interest in the subject property. We therefore modify the order accordingly, and we issue a declaration in plaintiff's favor (see generally Matter of Kerri W.S. v Zucker, 202 A.D.3d 143, 153-155 [4th Dept 2021]). Our reasoning is as follows.
An entity has standing to foreclose a mortgage if "it [is] either the holder of, or the assignee of, the underlying note" (Deutsche Bank Natl. Trust Co. v Gulati, 188 A.D.3d 999, 1000 [2d Dept 2020] [internal quotation marks omitted]; see Aurora Loan Services, LLC v Taylor, 25 N.Y.3d 355, 361 [2015]; Wells Fargo Bank N.A. v Ho-Shing, 168 A.D.3d 126, 131 [1st Dept 2019]). Here, defendant lacks noteholder standing because the promissory note upon which defendant relies is neither endorsed in blank nor specially endorsed to defendant (see U.S. Bank N.A. v Moulton, 179 A.D.3d 734, 737 [2d Dept 2020]; McCormack v Maloney, 160 A.D.3d 1098, 1100 [3d Dept 2018], lv dismissed 32 N.Y.3d 1185 [2019]; see generally UCC 3-202 [1], [2]; 3-204). To the contrary, the version of the note upon which defendant relies is specially endorsed to Omat (see UCC 3-204 [3]). Moreover, even had the note been endorsed in blank or specially endorsed to defendant, defendant's admitted failure to physically possess the original note would independently preclude it from foreclosing as a noteholder (see U.S. Bank Trust, N.A. v Rose, 176 A.D.3d 1012, 1014-1015 [2d Dept 2019]; McCormack, 160 A.D.3d at 1099-1100; see generally Residential Credit Solutions, Inc. v Gould, 171 A.D.3d 638, 640 [1st Dept 2019]; Bank of N.Y. Mellon v Anderson, 151 A.D.3d 1926, 1928 [4th Dept 2017]).
Nor does defendant have assignee standing. The affidavits submitted on defendant's behalf do not aver that the subject note was ever assigned to defendant, and "there is not a scintilla of proof in the record that the note was []assigned to [defendant]" at any point (McCormack, 160 A.D.3d at 1099; see U.S. Bank Trust, N.A., 176 A.D.3d at 1015; cf. Capital One, N.A. v Gokhberg, 189 A.D.3d 978, 978 [2d Dept 2020]; Cenlar FSB v Glauber, 188 A.D.3d 1141, 1143 [2d Dept 2020]). In fact, defendant's evidentiary submissions-including the affidavit of Omat's attorney-demonstrate conclusively that the note was not "transferred" to anyone beyond Omat, much less to defendant. Contrary to defendant's contention, Omat's assignment of the mortgage -but not the note -in August 2015 was ineffective to transfer any interest in the underlying debt and thus did not confer standing to foreclose upon Omat's assignee or its subsequent assigns (see Merritt v Bartholick, 36 NY 44, 45 [1867]; Deutsche Bank Trust Co. Ams. v Vitellas, 131 A.D.3d 52, 59 [2d Dept 2015]; Bank of N.Y. v Silverberg, 86 A.D.3d 274, 280 [2d Dept 2011]; see generally Aurora Loan Services, LLC, 25 N.Y.3d at 361). Contrary to defendant's further contention, a 2020 asset purchase agreement between itself and an entity called Cerastes LLC did not transfer any interest in the underlying debt such that defendant thereby acquired assignee standing to foreclose. Indeed, the agreement does not even purport to transfer or assign the subject note to defendant (see McCormack, 160 A.D.3d at 1099-1100), and even if it did, the agreement would have been void to that extent as an ineffective assignment of something that Cerastes did not and could not have owned given Omat's retention of the subject note (see Matter of International Ribbon Mills [Arjan Ribbons], 36 N.Y.2d 121, 126 [1975]; Silverberg v Bank of N.Y. Mellon, 165 A.D.3d 1193, 1194-1195 [2d Dept 2018]).
Contrary to defendant's further contention, UCC 3-804 is inapplicable under these circumstances. UCC 3-804 is available only to the "owner" of a lost instrument, and because defendant's own submissions show conclusively that it was never the assignee or holder of the subject note, defendant is not and never has been the "owner" of that note for purposes of UCC 3-804 (see U.S. Bank N.A. v Kohanov, 189 A.D.3d 921, 924 [2d Dept 2020]; U.S. Bank Trust, N.A., 176 A.D.3d at 1014-1016; cf. Capital One, N.A., 189 A.D.3d at 978-979; Bank of N.Y. Mellon v Hardt, 173 A.D.3d 1125, 1126-1127 [2d Dept 2019]; see also Bank of Am., N.A. v Sebrow, 180 A.D.3d 982, 983-985 [2d Dept 2020]; Weiss v Phillips, 157 A.D.3d 1, 8 [1st Dept 2017]).
Finally, inasmuch as an action to quiet title pursuant to RPAPL article 15 is a proper procedural vehicle for determining defendant's standing to foreclose (see RPAPL 1501 [1], [5]; see e.g. Ditech Fin. LLC v Levine, 176 A.D.3d 1521, 1521-1523 [3d Dept 2019]; East Riv. Mtge. Corp. v OneWest Bank, N.A., 172 A.D.3d 515, 515-517 [1st Dept 2019]; but see Wood v Villanueva, 175 A.D.3d 1465, 1467 [2d Dept 2019]; see generally RPAPL 1515 [1] [b]; RPAPL 1521 [1]; RPAPL 1551), and given that a successful RPAPL article 15 action produces a declaration in the plaintiff's favor (see RPAPL 1521 [1]), we conclude that declaratory relief under CPLR 3001 is unnecessary for present purposes (see Bennett v Vonder Bosch, 26 A.D. 311, 313 [2d Dept 1898], appeal dismissed 155 NY 693 [1898]). Thus, on that basis alone, we reject plaintiff's challenge to the dismissal of the second cause of action (see generally Niagara Falls Water Bd. v City of Niagara Falls, 64 A.D.3d 1142, 1144 [4th Dept 2009]).