Opinion
Index No. 204439/2022
01-05-2024
U.S. Bank Trust, N.A., Plaintiff(s), v. Celia Durao a/k/a Celia R. Durao, et al., Defendant(s).
Unpublished Opinion
Aletha V. Fields, J.
Upon e-filed documents 56-92 and any document cited therein or herein, considered on plaintiff's motion to confirm the referee's report and to issue and cause to be entered a judgment of foreclosure and sale (sequence 2) and defendant Celia Durao's cross-motion to dismiss the action against such defendant (sequence 3), it is hereby
ORDERED that plaintiff's motion be, and it hereby is, DENIED; and it is further
ORDERED that defendant's motion be, and it hereby is, GRANTED to the extent that this Court will conduct the hearing ordered below regarding service of process and service of the real property actions and proceedings law section 1303 notice, and is otherwise DENIED in its entirety; and it is further
ORDERED that plaintiff be, and hereby is, directed to file a note of issue on or before March 15, 2024; and it is further
ORDERED that upon a failure to so file the note of issue in accordance with this order, this Court may impose sanctions attendant with defaults, including dismissal pursuant to CPLR 3216, if applicable; and it is further
ORDERED that the time period set forth in CPLR 3212 (a) is thirty days from the filing of the note of issue; and it is further
ORDERED that each of the parties be, and hereby is, directed to appear for a traverse hearing and hearing on service of the real property actions and proceedings law section 1303 notice, with such combined (i.e., single) hearing to be IN PERSON at the Courthouse, 210 Center Drive, fourth floor, courtroom 5 at the following date and time certain: April 15, 2024 at 9:30 a.m. and continuing day to day thereafter, subject to a day to day ready and passed marking if on any such this Court is on trial or otherwise unable to proceed; and it is further
ORDERED that if defendant's motion to dismiss for lack of service is denied, then each of the parties be, and hereby is, directed to appear for trial IN PERSON at the Courthouse, 210 Center Drive, fourth floor, courtroom 5 at the following date and time certain: May 6, 2024 at 9:30 a.m. and continuing day to day thereafter, subject to a day to day ready and passed marking if on any such this Court is on trial or otherwise unable to proceed; and it is further
ORDERED that each of the parties be, and hereby is, reminded that this Court's part rules set forth specific obligations in respect of trials, including those rules set forth at section II (B) (1), and each of the parties be, and hereby is, directed to comply with section II (B) (I) of this Court's part rules, with the failure to do so to be binding upon that party at trial, meaning that a party could be precluded from entering any documents as evidence.
This is a residential mortgage foreclosure action in which plaintiff seeks to foreclose on a mortgage that Celia Durao (borrower) executed and delivered to Freemont Investment & Loan (Freemont) on May 17, 2044 to secure borrower's obligations (Mortgage [Dkt. 68]) under a promissory note in the initial principal amount of one hundred seventy-five thousand dollars ($175,000.00) that borrower executed and delivered to Freemont on the same day (Promissory Note [Dkt. 59]). Undisputed is that borrower never appeared, answered, or moved in response to the summons (21 Mtge. Corp. v Raghu, 197 A.D.3d 1212 [2d Dept 2021]). Plaintiff moved for and obtained an order granting leave to enter a default judgment and appointing a referee that was served with notice of entry (Order [Dkt. 73 on this motion record; Dkt. 53 originally]).
Upon the order of reference's authority, the referee prepared a report (Report and Exhibits [Dkt. 56-65, referred to in Affirmation [Dkt. 67]; see also, Dkt. 74) that relied on a "Second Loan Modification Agreement received in evidence" (Dkt. 74 at Sch. B, ¶ 8). The second loan modification agreement establishes a new principal balance of one hundred eighty-six thousand three hundred thirty-one dollars and fifty-one cents ($186,331.51), meaning, as set forth in the agreement," NEW MONEY BEING ADVANCED IN THE AMOUNT OF $55,261.22" (Loan Modification Agreement [Dkt. 64] at 1 [capitalization and emphasis in original]). Plaintiff offered no proof in the complaint, motion for the order of reference, in the evidence before the referee, or in this motion that the tax law article eleven tax was paid in respect of the second loan modification. Likewise, plaintiff offers no proof that such modification was recorded, leaving open that question about whether any lienors whose liens became perfected after the modification might outrank plaintiff's claims to the extent that the claims tie to the modification.
A specific rule of law governs a court's authority to accept evidence of a mortgage. "No mortgage of real property which is subject to the taxes imposed by this article shall be... received in evidence in any action or proceeding, nor shall any assignment of or agreement extending any such mortgage be recorded unless the taxes imposed thereon by this article shall have been paid as provided in this article" (Tax Law § 258 [1]). This record has no proof that the mortgage tax has been paid in respect of the loan modification, so this Court may not accept evidence of the mortgage, as modified. In addition, "[n]o judgment or final order in any action or proceeding shall be made for the foreclosure or the enforcement of any mortgage which is subject to any tax imposed by this article or of any debt or obligation secured by any such mortgage, unless the taxes imposed by this article shall have been paid as provided in this article" (id.).
Because this Court interprets tax law section 258 not as a rule of evidence that a party may waive, such as a party allowing hearsay testimony into a record despite hearsay's incompetence, but as an enactment restricting the authority and power of the Court to act, this Court may and must act on its own motion (Matter of Fry v Village of Tarrytown, 89 N.Y.2d 714 [1997]).
We begin any statutory interpretation question with the statute's plain language (Matter of Avella v City of New York, 29 N.Y.3d 425 [2017]). The plain words are that the mortgage "shall not be received in evidence in any action or proceeding." Despite the passive voice construction, at a minimum, this language enacts the other two branches of government's check and balances power over the judiciary to deny the courts the authority to accept a mortgage into evidence unless the required recording tax was paid. "Lest the inducement to record offered by the Real Property Law should in some cases be nullified by reluctance to pay a recording tax, the Legislature, in section 258 of the Tax Law, has provided an effective form of economic compulsion to supplement the inducement by restricting, if not, indeed, prohibiting, the use of an unrecorded mortgage for any practical purposes" (Franklin Soc. for Home Bldg. & Sav. v. Bennett, 282 NY 79, 83 [1939]). Section 258 speaks in evidentiary terms, but it is a restriction on the power and authority of the Court to act. The reason for the restriction is revenue based, a matter within the purview of the other two branches of government. The judiciary has respected must continue to respect their authority on this point.
The law of evidence (i.e., waivable matters) is first framed in terms of what is admissible into evidence (Guide to NY Evid rule 4.01 [2], Relevant Evidence ["All relevant evidence is admissible except as otherwise provided or required by the Constitution of the United States of the Constitution, statutes, or common law of New York State"]). When the Legislature enacts a rule that does not speak in terms of something being "inadmissible" or "not admissible" but, instead speaks in terms of a court not receiving it into evidence, the statute's plain language and intent are to bar the evidence no matter what (contrast, e.g., Guide to NY Evid rule 8.01 [1] [a] Admissibility of Hearsay ["Hearsay is not admissible unless... ] and Guide to NY Evid rule 4.07.1 [1] Character Evidence ["Evidence of a person's character is not admissible... "] with Tax Law § 258 ["shall not be received in evidence"]).
The distinction between "provided" and "required" is that where a rule of inadmissibility is waivable, "provided" applies, but where a rule of inadmissibility is not waivable, "required" applies.
The implementing executive branch agency is the Department of Taxation and Finance. Executive branch regulations track the statutory, "shall not be received in evidence in any action or proceeding in any court of this State" language (22 NYCRR § 652.1 [a] [4]). Whether the Department of Taxation and Finance has unilateral authority to control the judiciary's behavior needs no discussed because its implementing regulation is identical to the statute and underscores the compulsion to collect the tax purpose of tax law section 258.
A referee's authority cannot exceed that of the appointing court. Therefore, neither this court nor the referee may take into evidence the loan modification agreements (Tax Law § 258; Glenville & 110 Corp. v Tortora, 122 A.D.2d 107 [2d Dept 1986]). "The report of a referee should be confirmed whenever the findings are substantially supported by the record, and the referee has clearly defined the issues and resolved matters of credibility. The referee's findings and recommendations are advisory only and have no binding effect on the court, which remains the ultimate arbiter of the dispute" (HSBC Bank USA, N.A. v Cherestal, 178 A.D.3d 680, 682-683, 113 N.Y.S.3d 206, 208-209 [2d Dept 2019] [internal quotation marks and citations omitted]). Here, because the law precludes the court (and the referee) from taking the modification agreement in evidence, the referee's report is not substantially supported by the record. Even if the report is properly supported, tax law section 258 (1) also limits the power and authority to issue a judgment of foreclosure and sale when the judgment is to foreclose on a mortgage for which article eleven tax is due and unpaid. Therefore, plaintiff's motion is denied.
Defendant Celia Durao has cross-moved to vacate the default and dismiss the complaint.
Defendant asserts that vacatur of the default is required because service of process never occurred. "The court which rendered a judgment or order may relieve a party from it upon such terms as may be just, on motion of any interested person with such notice as the court may direct, upon the ground of... (4) lack of jurisdiction to render the judgment or order" (CPLR 5015 [a] [4]).
In support of the motion to prove that the supreme court lacks jurisdiction to render the order of reference, defendant offers the process server's affidavit (Dkt. 90) in which the process server swears that service occurred under CPLR 308 (1). The affidavit sets forth the address of service which is within New York State and a physical description of the person served. As defendant correctly acknowledges, this affidavit creates a presumption of proper service (Fed. Nat. Mtge. Assn. v Castoldi, 187 A.D.3d 988 [2d Dept 2020]). "A sworn denial containing a detailed and specific contradiction of the allegations in the process server's affidavit will defeat the presumption of proper service. If the presumption is rebutted, a hearing is necessary, at which the plaintiff must establish jurisdiction by a preponderance of the evidence" (id., 187 A.D.3d at 989-990 [internal citations omitted]).
Defendant also submits an affidavit in which defendant explains defendant's familiarity with litigation and offering the explanation that the process server may have served a home health care aide who was caring for defendant's dad who lived at the mortgaged premises on the day that process was purportedly served. Absent from defendant's affidavit is any documentation to support the propositions that defendant's parent was unwell and that a home health care aide was working at the date and time of service. Moreover, defendant does not contest that the physical description set forth in the affidavit describes defendant. Moreover, defendant provides no sworn evidence that defendant was not at the house when service occurred. Nevertheless, defendant's sworn evidence provides a plausible explanation for why defendant was not properly served under CPLR 308 (1), so this Court directs that a traverse hearing be held, consistent with Castoldi 's controlling holding.
Defendant also seeks dismissal, regardless of whether vacatur of the default occurs. Defendant's position is that CPLR 1302-a allows a defendant in default to challenge standing. Assuming, but not deciding that to be true, defendant's argument is framed entirely on what plaintiff did not prove (e.g., Memorandum of Law [Dkt. 87] at 12, point heading A ["Plaintiff's Failure to Demonstrate Standing"] and last paragraph ["Plaintiff has failed to demonstrate standing']; at 13 ["Plaintiff failed to demonstrate that Plaintiff had standing']; at 13, point heading 1 ["Plaintiff Failed to Demonstrate That the Note Was Physically Delivered"]). On defendant's summary judgment motion, defendant must prove that plaintiff lacked standing, but may not and does not meet that burden of proof by pointing to gaps in plaintiff's proof (Citibank, N.A. v Conti-Scheurer, 172 A.D.3d 17 [2d Dept 2019]). Therefore, so much of defendant's summary judgment motion that relates to standing is denied.
Defendant cannot raise non-compliance with real property actions and proceedings law section 1304 while in default, so that branch of defendant's motion is unripe for review in light of the traverse hearing this Court has ordered. Had defendant not made a showing sufficient to trigger a traverse hearing, this branch of the motion would have been denied (JPMorgan Chase Bank v Bracco, 200 A.D.3d 765 [2d Dept 2021]). Here, however, the need to reach merits of the 1304 defense depends on whether defendant's default is vacated, so right now, the 1304 issue does not have an immediate and practical effect on the action; it is unripe (Falk v Chittenden, 11 N.Y.3d 73 [2008]).
Finally, defendant raises non-compliance with real property actions and proceedings law section 1303. If, plaintiff proves service occurred, then defendant's default precludes raising this defense (Newlands Asset Holding Trust v Vasquez, 218 A.D.3d 786 [2d Dept 2023]). The need to reach merits of the 1303 defense depends on whether defendant's default is vacated, so right now, the 1303 issue does not have an immediate and practical effect on the action; it is unripe (Falk v Chittenden, 11 N.Y.3d 73 [2008]). However, woodenly applying the ripeness doctrine to the 1303 defense is wasteful. The parties dispute whether the served papers included a proper 1303 notice. At least one plaintiff witness necessary to resolve that issue is the process server who will already a likely witness at the traverse hearing. Little reason exists to have two hearings, so this Court will hear plaintiff on the question of service of the 1303 notice during the hearing. If plaintiff does not prove service of the summons, then resolution of the 1303 notice issue bears on this Court's remedy under CPLR 5015 (a) (4) which permits this Court to relieve defendant from the default "upon such terms as may be just."