Opinion
Index No. 899/2014
09-08-2023
US Bank, AS TRUSTEE FOR THE STRUCTURED ASSET SECURITIES CORPORATION MORTGAGE LOAN TRUST 2006-BC1, Plaintiff, v. Claude Cadeumag, AS HEIR AND ADMINISTRATOR FOR THE ESTATE OF LORVANA CADEUMAG, WENDY CADEUMAG AS HEIR TO THE ESTATE OF LORVANA CADEUMAG, NANCY CADEUMAG AS HEIR TO THE ESTATE OF LORVANA CADEUMAG, NEW YORK CITY PARKING VIOLATIONS BUREAU, CRIMINAL COURT OF THE CITY OF NEW YORK, UNITED STATES OF AMERICA-INTERNAL REVENUE SERVICE, NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE, JEAN FIGARO, NEW YORK CITY ENVIRONMENTAL CONTROL BOARD, NEW YORK CITY TRANSIT ADJUDICATION BUREAU, LUCIENNE EXIL, SUNDIA EXIL TAMARA EXIL, ELAINE CONDO, ELDIU BOINER, MEUSIC ETIENNE, NASHI WOODHAM, AND RENE DOE, Defendants.
Attorneys for Plaintiff, Lisa J. Fried, Esq., Allison M. Funk, Esq., Hogan Lovells U.S. LLP. Attorney for Defendants, Christopher Villanti, Esq., Petroff Amshen LLP.
Attorneys for Plaintiff, Lisa J. Fried, Esq., Allison M. Funk, Esq., Hogan Lovells U.S. LLP.
Attorney for Defendants, Christopher Villanti, Esq., Petroff Amshen LLP.
KATHERINE A. LEVINE, J.
The issue presented at trial is whether plaintiff - an assignee at least two times removed from the holder of the original note - has standing to foreclose if the original note cannot be produced because it was lost or destroyed, and a previous court has already denied summary judgment to plaintiff on the grounds that the lost note affidavit prepared by the original owner of the loan is deficient. The subsidiary issue is whether either the servicer of, or a representative of the plaintiff can bolster the information contained in the deficient lost note affidavit when neither entity has any knowledge as to the actions taken by the original owner of the note who subsequently lost the note This court rules that neither the servicer of the loan nor the plaintiff assignee of the loan possessed any knowledge which could cure the infirmities of the lost note affidavit, thus precluding the admission into evidence of the lost note and mandating that the case be dismissed.
Plaintiff U.S. Bank National Association ("plaintiff" or "US Bank"), as Trustee for the Structured Asset Securities Corporation Mortgage Loan Trust 2006-BC1, commenced this action to foreclose a mortgage encumbering the investment property at 719 Bristol Street in Brooklyn ("subject property") against Claude Cadeumag, Wendy Cadeumag, and Nancy Cadeumag, as heirs to the Estate of Lorvana Cadeumag ("Cadeumag heirs" or "defendants"). The mortgage was executed by Lorvana Cadeumag on 10/17/2005 to secure a note in favor of Aegis Funding Corporation ("Aegis") in the amount of $420,000. The mortgage was recorded on 11/9/2005 in the name of Mortgage Electronic Registration Systems, Inc. ("MERS"), a clearinghouse firm, on behalf of Aegis, on 11/9/2005. The underlying note was never sent to MERS.
The MERS system was created by several large participants in the real estate mortgage industry to electronically track ownership interests in and transfers of residential mortgages. Merscorp, Inc. v. Romaine, 8 N.Y.3d 90, 96 (2006). Members contractually agree to appoint MERS to act as their common agent on all mortgages they register in the MERS system. Id. MERS was intended to "streamline the mortgage process by using electronic commerce to eliminate paper." Bank of N.Y. v. Silverberg, 86 A.D.3d 274, 282 (2d Dept. 2011).
Sometime between October 17, 2005 and February 7, 2006, Aegis or Lehman Brothers ("Lehman") allegedly lost the original note. By affidavit of lost note dated February 7, 2006, Jose Guevara, Assistant Secretary to Aegis, averred that the subject note "cannot be produced because it has been lost or destroyed," and that the note is not in possession of any person having any lawful claim to the same. It also stated that Cadeumag would be indemnified and held harmless from any loss, liability or damages resulting from the unavailability of the original paper note. The electronic copy of the subject note bears Guevara 's endorsement to Aegis
The chain of custody of the note and date of assignments are in dispute. However, at some point Aegis sold the mortgage to the now defunct Lehman Brothers, which in turn assigned the mortgage to Structured Asset Securities Corporation ("SASC"). Pursuant to a Trust Agreement dated 4/1/2006 (the "Trust Agreement"), SASC, as depositor, transferred and assigned a pool of mortgage loans to U.S. Bank National Association, as Trustee for Structured Asset Securities Corporation Mortgage Loan Trust Mortgage Pass-Through Certificates Series 2006-BC1. The Mortgage Loan Schedule to the Trust Agreement indicates that Cadeumag's mortgage loan was among the about 6500 mortgage loans sold and assigned to the Trust pursuant to the Trust Agreement. The Trust Agreement lists Lehman Brothers Holdings, Inc. as Seller and declares "the Depositor has acquired the Mortgage Loans from the Seller, and at the Closing Date is the owner of the Mortgage Loans and the other property being conveyed by it to the Trustee" (Pl. Exh. 7, at 7).
US Bank's business records indicate the collateral file received on February 9, 2006, contained a lost note affidavit and a copy of the note which Guevara alleged endorsed over to U.S. Bank wherein U.S. Bank agreed to pay $420,000.00 to Aegis for the property's mortgage note. Although plaintiff alleges that U.S. Bank became the assignee of the lost note in 2006. The record is also unclear whether the note passed from Aegis to the various intermediate assignees listed above. Aegis also serviced the mortgage loan until the servicing was transferred to Wells Fargo Bank, N.A. ("Wells Fargo") in April 2006. Cadeumag made payments to Wells Fargo, as servicer of the Trust, until she defaulted by failing to make the payment due on 10/1/2008 and all payments thereafter due afterward. Ms. Cadeumag passed away soon thereafter in March 2009.
But see the trial testimony of Decaro and Wang, both of whom testified that the collateral file arrived at U.S. Bank on or about January 31, 2006 without the lost note affidavit or copy of the lost note.
The parties also aver that by assignment dated March 27, 2009 and recorded April 20, 2009, the mortgage was assigned from MERS, as nominee for Aegis, to plaintiff However, any involvement of MERS is irrelevant to the instant matter since the underlying note was never sent to MERS.
Plaintiff commenced the instant action against defendants (the administrator for and heirs of Lavorna's estate) on January 17, 2014. In its amended complaint, plaintiff alleges that it has standing to bring the lawsuit as it is in possession of the note with a proper endorsement and/or allonge and is therefore the holder of both the note and mortgage, which passes as incident to the note. It avers that the Trust Agreement and related documents prove ownership of the note and establish the chain of assignments and that the transfers from MERS to U.S. Bank establish standing. Defendants contend that plaintiff lacks standing because it failed to conclusively prove the full chain of assignments from Aegis to U.S. Bank or the full chain of assignments to MERs. They also contend that plaintiff failed to establish a prima facie case under UCC §3-804 because Guevara's lost note affidavit is insufficient as a matter of law. Plaintiff moved for summary judgment and defendants cross-moved for summary judgment and to dismiss the complaint pursuant to CPLR § 3211(a)(3), and for an order directing plaintiff to provide an undertaking pursuant to General Business Law § 394-a(2) and Uniform Commercial Code ("UCC ") § 3-804.
By a lengthy decision and order dated March 20, 2018, the Hon. Mark I. Partnow, J.S.C., denied plaintiff's motion on the grounds that it failed to demonstrate its standing, and questioned the sufficiency of the lost note affidavit. Citing liberally from Justice Partnow's decision, the court first cited the well established precedent that to establish prima facie entitlement to summary judgment in a foreclosure action, a plaintiff must produce the mortgage, the unpaid note, and evidence of default. Id. at 3 citing to Deutsche Bank Trust Co. Ams. v. Garrison, 147 A.D.3d 725, 726 (2d Dept 2017); Deutsche Bank Natl. Trust Co. v. Abdan, 131 A.D.3d 1001, 1002 (2d Dept 2015); Plaza Equities, LLC v. Lamberti, 118 A.D.3d 688, 689 (2d Dept 2014).
Justice Partnow first ruled that a plaintiff establishes its standing in a mortgage foreclosure action by demonstrating that, when the action was commenced, it was either the holder of, or the assignee of the underlying original note. Id. at 5 citing to Aurora Loan Servs., LLC v. Taylor, 25 N.Y.3d 355, 361-362 (2015); LGF Holdings, LLC v. Skydel, 139 A.D.3d 814 , supra, (2d Dept. 2016); Wells Fargo Bank, N.A. v. Jones, 139 A.D.3d 520, 523 (1st Dept 2016); Wells Fargo Bank, N.A. v. Rooney, 132 A.D.3d 980, 981 (2d Dept 2015). A written assignment of the note or physical delivery of the note is sufficient to establish standing. U.S. Bank N.A. v. Madero, 80 A.D.3d 751, 753 (2d Dept 2011).
A plaintiff will establish holder status where it 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. Wells Fargo Bank, NA v. Ostiguy, 127 A.D.3d 1375, 1376 (3d Dept 2015); U.S. Bank, N.A. v. Zwisler, 147 A.D.3d 804 (2d Dept 2017). It is the note, and not the mortgage, that is the dispositive instrument that conveys standing to foreclose. U.S. Bank v. Richards, 155 A.D.3d 522 (1st Dept. 2017). See, Aurora Loan Servs., LLC v. Taylor, supra, 25 N.Y.3d at 361. "Conclusory boilerplate statements, such as a bald assertion that the plaintiff is the holder of the note, will not suffice." Richards, supra, 155 A.D.3d at 523 citing to Wells Fargo Bank, N.A. v. Jones, supra, 139 A.D.3d at 523.
Justice Partnow then found that either a written assignment, or the physical delivery of the underlying original note prior to the commencement of the foreclosure action is sufficient to transfer the obligation, and the mortgage passes with the debt as an inseparable incident. Id. at 4. See, U.S. Bank Trust N.A. v. Rose, 176 A.D.3d 1012, 1014 (2d Dept. 2019); Richards, supra, 155 A.D.3d at 523 ; U.S. Bank NA. v. Collymore, 68 A.D.3d 752, 754 (2009); Security Lending, Ltd. v. New Realty Corp., supra, 142 A.D.3d at 987. Since defendant raised the issue of standing, the plaintiff must also establish its standing as part of its prima facie case. Id. at 4 citing to Deutsche Bank Trust v. Garrison, supra, 147 A.D.3d at 726; Security Lending, Ltd. v. New Realty Corp., 142 A.D.3d 986, 987 (2d Dept 2016); LGF Holdings, supra, 139 A.D.3d 814.
Justice Partnow denied plaintiff's motion because the lost note affidavit attested to by Jose Guevara, Assistant Secretary for Aegis, was not legally sufficient. Guevara merely stated that the subject note could not be located because it had been lost or destroyed. Annexed to the affidavit was a copy of the subject note bearing an indorsement from Aegis to the order of Aegis Mortgage Corporation and an indorsement from Aegis Mortgage Corporation to plaintiff. On a motion for summary judgment, a plaintiff seeking to recover upon a lost note must provide "due proof" of his ownership of the note, "the facts which prevent production of the note, and the note's terms." Rose, supra, 176 A.D.3d at 1014 citing to UCC §804 ; Deutsche Bank Natl. Trust Co. v. Anderson, 161 A.D.3d 1043,1044 (2d Dept. 2018). Justice Partnow found that the lost note affidavit was deficient under §3-804 since it did not state when the search was made or by whom or when the note was lost. Id. at 6 citing to Richards, supra, 155 A.D.3d 522.
UCC §3-804 provides in part that "The owner of an instrument which is lost, whether by destruction, theft, or otherwise, may maintain an action in his own name and recover from any party liable thereupon upon due proof of his ownership, the facts which prevent his production of the instrument and its terms..."
Since the note was lost and plaintiff obviously could not have physical possession of the original note, Justice Partnow found that plaintiff had to establish the chain of custody of the copy of the lost note from Aegis through the various entities before it was assigned to plaintiff U.S. Bank. Based upon the Official Commentary to UCC § 3-804, Justice Partnow found that"(a)s there is a gap in the chain of written assignments of the note from Aegis to plaintiff, plaintiff could not rely on the Trust Agreement as proof of its standing." Id. at 7. The Trust Agreement only demonstrated that plaintiff was assigned certain notes held by Structured Asset Securities Corporation ("SASC") and there was no written assignment of the note from Aegis to SASC prior to the date of the Trust Agreement. Justice Partnow also found that plaintiff failed to establish standing based upon an assignment of the note and mortgage from MERS to plaintiff prior to commencement of the action, as there was no proof the note was delivered or assigned from Aegis to MERS prior to the execution of the assignment to plaintiff. Id. at 6-7 citing to Aurora Loan Servs., LLC v. Mercius, 138 A.D.3d 652, 652 (2d Dept 2016); HSBC Bank USA, N.A. v. Roumiantseva, 130 A.D.3d 983, 984 (2d Dept 2015).
The Official Commentary to UCC §804 provides that:
The plaintiff who claims to be the owner of such an instrument is not a holder as that term is defined in this Act, since he is not in possession of the paper, and he does not have the holders prima facie right to recover under the section on the burden of establishing signatures. He must prove his case. He must establish the terms of the instrument and his ownership, and must account for its absence."
The court also denied defendants' cross-motion on the grounds that they dId. not demonstrate that plaintiff lacked standing. The court granted that part of defendants' cross motion seeking an undertaking pursuant to UCC § 3-804, and directed plaintiff to post an undertaking of at least $823,392.10 since it found that "an undertaking to protect defendants from the risk of double liability should the lost instrument[s] reappear" was warranted.
Justice Partnow's ruling that on its face, the lost note affidavit was insufficient to confer standing and that there was a break in the chain of written assignments of the copy of the note from Aegis to plaintiff, is law of the case. In both state and federal court, a judicial decision concerning an issue of law made at one stage of the litigation becomes the "law of the case," i.e., "binding precedent, to be followed in subsequent stages of the same litigation." Firestone v. Berrios, 42 F.Supp.3d 403, 411 [ED NY 2013], citing Scottish Air Intl., Inc. v. British Caledonian Group, PLC., 152 FRD 18, 24 [SD NY 1993]. See, Collins v. Indart-Etienne, 59 Misc.3d 1026, 1033-1034 (Sup. Ct., Kings Co. 2018). As compared to res judicata (claim preclusion) and collateral estoppel (issue preclusion), which generally deal with preclusion after judgment, the law of the case addresses the potentially preclusive effect of judicial decisions made in the course of single litigation "before final judgment." People v. Evans, 94 N.Y.2d 499, 502 (2000). See, Collins, supra, 59 Misc.3d at1043. Thus at trial in order to establish standing, plaintiff had to provide testimony to bolster and cure the inadequacies of the lost note affidavit as well as due proof of his ownership.
Legal Analysis
A "holder" is the person in possession of the note that is payable either to the bearer or an identified person that is the person in possession." Wells Fargo v. Bank N.A. v. Meisels, 177 A.D.3d 812, 814 (2d Dept. 2019) Deutsche Bank Nat'l Trust Co. V. Brewton 142 A.D.3d 683, 684 (2d Dept. 2016). Thus the plaintiff who seeks to enforce the note must show that the original note was physically delivered to it and either endorsed to it or endorsed in blank. Windward Bora LLC v. Armstrong, 2021 U.S. Dist. LEXIS 29284 at 18-19 (E.D.N.Y. 2021). Where the note has been indorsed in blank, the holder must establish its standing by demonstrating that the original note was physically in its possession at the time of the commencement of the action." Bank of America v. Sebrow, 180 A.D.3d 982, 985 (2d Dept 2020) citing OneWest Bank N.A. v. FMCDH Realty, Inc. 165 A.D.3d 128, 131 (2d Dept. 2018).
UCC 3-804 expressly bestows only upon an "owner of an instrument which is lost" the right to maintain an action in his own name. Sebrow, supra, at 985; Anderson, supra, 61 A.D.3d at 1044. Both UCC §3-804 and its commentary appear to place the onus of establishing why the original note could not be produced upon the owner of the note under whose watch the note was lost. Any different interpretation would place the final assignee, who might be seven degrees removed from the original owner, in the impossible situation of conjuring up facts totally outside of his knowledge concerning the loss of the note. In U.S. Bank Trust, N.A. v. Rose, supra, 176 A.D.3d at1014-1015, the court found that it would be impossible for a plaintiff assignee to ever be in possession of the original note when its predecessor in interest submitted a lost note affidavit stating that the the note was deemed lost prior to the transfer. Therefore, the plaintiff assignee could only prove ownership of the subject note by written assignment and by showing that the predecessor in interest was in possession of the original.
There appears to be no case where a plaintiff assignee of a loan was able to rectify deficits found in the original lost note affidavit prepared by the predecessor in interest on either summary judgment or at trial. Furthermore, the Second Department has explicitly interpreted UCC §3-804, as requiring due proof of all three prongs of the test. It has explicitly held that the owner of a lost note can only maintain an action "upon due proof" of 1) his ownership, 2) the facts which prevent his production of the instrument and 3) its terms" Rose, supra, 176 A.D.3d at 1014 citing to UCC 3-§804. See, Trust v. Moneta, 186 A.D, 3d 1604, 1605 (2d Dept. 2020); U.S. Bank N.A. v. Cope, 175 A.D 3d 527, 529 (2d Dept 2016). "The party seeking to enforce the lost note must "account for its absence." Cope, supra at 529. See, Wells Fargo Bank, N.A. v. Zolotnitsky, 195 A.D.3d 659 (2d Dept. 2021) citing to Deutsche Bank v. Anderson, supra. 161 A.D.3d at 1044 (Under UCC 3-804 , which is intended to provide a method of recovery on instruments that are lost, destroyed, or stolen, "a plaintiff is required to submit 'due proof of [the plaintiff's] ownership, the facts which prevent [its] production of [the note,] and its terms'"). See also, Puryear v. Prokeen Mgt. Co. Inc., 2015 NY Slip Op. 51497U, 2015 N.Y. Misc. LEXIS 3650 (Kings CO. 2015) where the court held that a plaintiff must establish the elements of UCC 3 -804 under a standard higher than a preponderance of the evidence - such as "clear and satisfactory."
In innumerable cases, the courts have denied summary judgment to a plaintiff assignee of the lost note and mortgage where the lost note affidavit was insufficient. See, LaSalle Bank N.A. v. Carlton, 204 A.D.3d 985 (2d Dept 2022) (plaintiff failed to meet the requirements of UCC 3-804 , by failing to set forth the facts that prevented the production of the original note as it did not identify who conducted the search for the lost note or explain when or how the note was lost; Capital One, N.A. v. Gokhberg, 189 A.D.3d at 980; Deutsche Bank Nat'l Trust Co. V. Kreitzer, 203 A.D.3d 800, 802 (2d Dept. 2022). In Rose, supra, the Second Department imposed an exacting standard in assessing whether the plaintiff met the three prong test. It found that the plaintiff failed to demonstrate the facts that prevented production of the lost note as its affidavit only described approximately when the search was conducted and when the loss was discovered but "failed to identify who conducted the search for the lost note" or to explain "when or how the note was lost" Id. at 1015-16 citing to Anderson, supra, 161 A.D.3d at 1045 (lost note affidavit insufficient because it failed to provide sufficient fact as to when the search for the note occurred, who conducted the search, the steps taken in the search or how and when the note was lost).
In fact, even where a plaintiff can prove the proper assignment of a copy of the lost note, the courts have denied summary judgment based upon the other inadequacies in the lost note affidavit. In Cope, supra, . the Second Department found that even though the plaintiff established that a copy of the note was assigned to it and the note's terms, it could not prevail on its motion for summary judgment as it failed to establish the facts that prevented the production of the original note. Id. at 529. In Zolonitsky, supra, 195 A.D.3d at 662 the Second Department found that although the copy of the note annexed to the lost note affidavit provided sufficient evidence of its terms, the lost note affidavit failed to sufficiently establish Wells Fargo's ownership as it "failed to establish when the note was acquired and failed to provide sufficient facts as to when the search for the note occurred, who conducted the search, or how or when the note was lost." Similarly, in New York Community Bank v. Jennings, 2015 NY Slip Op 31591(U); 2015 N.Y. Misc. 3103 (Queens Co. 2015), the court found the lost note affidavits to be insufficient since the affidavits of the assignee's officers failed to demonstrate that they had personal knowledge about the loss of the note or to "discuss any procedures for the safekeeping and retrieval of original notes or lost note procedures for determining that an original note is lost. They do not include any indication as to where the original notes are likely to be kept, what efforts if any, were made to preserve them, whether notes were routinely or otherwise destroyed, who conducted the search in this instance and whether a search was conducted in every location where notes were likely to be found" Id. at 9-10.
In sum, without a lost note affidavit or trial testimony which establish that the proponent had personal knowledge about the details of the original note and how it was kept, how it was lost and what searches were made to find the original, and by whom, the copy of the note simply cannot be authenticated as actually representing the original and the assignment of said copy cannot confer standing.
Trial Testimony
Counsel for Plaintiff pinpointed the crux of proving standing when the original note has been lost: "In normal cases when you have the original note" you can prove your standing because so long as you just possess the note at the time that the action was actually commenced, "you are good to go." (Tr. 4/19/19 at 42). Under the UCC if I possess an original note that is endorsed from a bank, then I can enforce it" (Tr. 12/19/2018 at 121) "However, when the note is lost you have to use other ways to show that the note was assigned and sold to the trust." (Tr. 4/19 at 42). See also (Tr. 12/19 at 121).
Hereinafter, the 7/24/18 transcript will be referred to as "A" followed by page #; the 12/19/2018 transcript will be referred as as "B" followed by page #; the 12/21/18 transcript will be referred to as "C" followed by page # and the 4/01/19 transcript the 12/will be referred to as "D" followed by page #.
It is self evident that if plaintiff presented a deficient lost note affidavit at the motion stage, plaintiff could not rectify such deficiencies unless it presented someone with personal knowledge about how, when and why the note was lost and what was done to find it. At trial U.S. Bank presented the testimony of Beverly Decaro, a Wells Fargo loan verification counselor, and Michael Wang, a U.S. Bank Research Manager and Vice President. Neither Decaro nor Wang had any knowledge about the circumstances that led to the original note's disappearance or either Aegis' or U.S. Bank's or any of the other assignees loan practices and procedures in obtaining or administering records (B at 65-66, 82-85; D at 113-14, 139-141). Both declared that Aegis no longer existed and that they could not present testimony from anyone from Aegis. In fact, both witnesses' trial testimony just bolstered the attenuated history of the lost note and made it clear that the lost note affidavit was vastly insufficient to either permit the copy of the note into evidence or to confer standing upon plaintiff.
Specifically, Decaro testified that her familiarity with the copy of the note and lost note affidavit came solely from reviewing records from the Wells Fargo imaging system and that the note has been lost prior to the formation of the trust agreement trust agreement (A at 24, B at 66). She was not involved in obtaining any of the records on the file (A at 24). Wells Fargo started servicing the loan in April 2006 after the loan was sold to and deposited into the trust. She did not even know how the certified copy of the lost note got into the file sent to U.S. Bank or how it was copied (B at 48). Decaro testified that Aegis sold the loan to Lehman Brothers who sold it to Structured Asset Securities Corp ("SASC") as depositor which put this and about 6500 other loans into a trust which appointed U.S. Bank as Trustee. DeCaro never worked at Aegis, Lehman Brothers or SASC and did not know whether Aegis transferred the note to Lehman upon its sale of the loan (A. At 107). On cross she indicated that she had never seen an assignment of the note from Aegis to Lehman Brothers or from Lehman Brothers to SASC (C at 119, 122). She also did not know when or how the note was lost or whether a search took place for the note since the lost note affidavit was silent as to any efforts taken by Aegis to find the note. In fact, she did not even know Aegis's protocol in making a photo copy of the original note at the closing (B at 82-83). Nor did she know where Aegis kept the original of the note (Id. at 84-85). In response to the Court's questions as to whether there was anything indicating how or why it was lost, De Caro responded that "No, just what it says here, it doesn't say why or how (Id. at 49).
Mr Wang first started working at U.S. Bank in 2013, some seven years after the issue of the lost note first arose, and became a research manager in 2018. His knowledge of the Cadeumag mortgage was based solely upon his review of the records (D at 6). U.S. Bank serves as trustee of a residential mortgage bank security trust ("SASCO") consisting of approximately 6500 notes; the trust owns the note. Aegis created the loan and then sold it to Lehman Brothers which aggregated the mortgage with many other mortgages into various securities and then sold the securities to various trusts which were then aggregated into the SASC trust. In 2006 U.S. Bank became the trustee and custodian of this trust and received physical and electronic copies of the notes and mortgages and reviewed and administered the loans on behalf of the investors to the trust.
Wang's testimony as to how U.S. Bank received the loan and subsequently obtained the lost note affidavit could be incorporated into "Through the Looking Glass." Some unknown entity - Asset Mgmt- first deposited the trust into U.S. Bank on January 31, 2006, which was also the date that U.S. Bank received the collateral file which would typically include an original note (D.115). Wang explained that when U.S. Bank obtained the collateral file someone physically reviewed it and noted an "exception" which indicated that there was an irregularity (D. 75) because the note was missing (D. 76). A reviewer at US. Bank ascertained on or about February 2, 2006 that "there was no note and...no lost note affidavit" in the file and listed the file as an undeposit (D. 85-86, 116) which led U.S. Bank to reach out to Lehman Brothers (D. 116).
Even more confusing, the SAST trust was not even created until April 2006, so that U.S. Bank was basically acting as administrator for Lehman Brothers when, on January 31, 2006, it deposited an unfunded pool of loans that it had not even paid for yet (D. 118-19). This meant that Lehman Brothers did not even own the loans in the pool at the time it deposited them into the trust so that technically Aegis would still have owned the loan (Tr. 119). Yet on February 9 2006 some UNIDENTIFIED Entity made an addition to the file consisting of the lost note affidavit and copy of the note. The lost note affidavit is dated February 7, 2006, and thus post dates when the the originator of the loan - Aegis - turned the file over to Lehman Brothers. One can only conclude that when Aegis transferred the file over to Lehman Brothers the file did not contain the lost note affidavit or a copy of the note.
The court queried how Aegis even got involved in allegedly writing the lost note affidavit and providing a copy of the note since by January 31st or February 2d Aegis no longer owned the file and U.S. Bank did not receive the collateral file from Aegis (D. 91). Wang replied that when U.S. Bank discovered that the original note was missing it sent the file back for corrections to the client, who at the time was Lehman Brothers. Wang stated that it was Lehman Brothers' responsibility to correct or option the loan before U.S. Bank accepted it since Lehman Brothers was the seller, meaning that it had purchased all of the loans from the originators who were listed in the trust agreements.
The Court then noted that the file was silent as to whether U.S. Bank spoke to Lehman Brothers or how the latter obtained the lost note affidavit from Guevara. Nor did the lost note affidavit contain an endorsement from Aegis to Lehman Brothers. Wang reiterated that since the trust had not yet been created in January 2006, U.S. Bank would had to have sent the certification report to Lehman Brothers to fix the problem and if the problem had not been fixed, then U.S. Bank would not have been able to securitize the loan (D. 96-97). Wang then admitted that U.S. Bank never went to Aegis to obtain the documentation, but only to its client Lehman although he has no knowledge of, and there is nothing in the records as to what Lehman did when notified that the file lacked a note and a lost note affidavit! (D121).
The court noted that there was no proof that Lehman ever obtained the note from Aegis and no proof of who even made annotations on the copy of the note (Tr. 104-05). Counsel for defendant argued that the only submitted assignment was from SASC to U.S. Bank but that there was no evidence of assignment and/or endorsement from Aegis to Lehman or Lehman to SASC. Above and beyond this omission, counsel queried how Aegis could have endorsed the note directly to U.S. Bank and skip the previous assignments when at the time of the endorsement it was out of Aegis possession and already allegedly owned by U.S. Bank
On cross, Wang admitted that he had no knowledge of any of the record keeping practices and procedures of Aegis, Lehman Brothers, or SASC (D. 113). He also had no personal knowledge of what efforts if any Aegis, Lehman Brothers or SASC took to locate the note (Tr. 141). Based upon his review of the records, U.S. Bank never had a physical copy of the note (Tr 142). He could not explain how Aegis endorsed the copy of the note directly to U.S. Bank as Trustee for SASC although it no longer owned the note and why Guevara never first endorsed the note to Lehman Brothers. Nor did Wang have personal knowledge as to what Aegis did to try and find the original note or to prepare the lost note affidavit or how it sent the lost note affidavit to Lehman Brothers or who U.S. Bank even got the lost note affidavit or a copy of the note from (D at 121-22).
Wang also admitted on cross that he did know whether it was actually Guevera who certified that the copy of the note was a true copy of the original, and did not know whether Guevera even saw the original so as to be able to certify that there was a true copy if the original note that was lost (D at 137). The Court commented that the issue is "we don't know how they were able to get a copy of it if the original was lost because the people who got the copy...are not here to tell us" (D. 138). Based upon the above testimony, the court did not allow the lost note affidavit and copy of the note into evidence due to the lack of personal knowledge of either Decaro or Wang as to how the lost note affidavit was even created and when it was created, much less how U.S. Bank even obtained the affidavit and from whom. (See A 60-61; D at 143-146).
The testimony of Ms. Decaro and Mr. Wang makes it abundantly clear that they had no clue as who lost the original note, how it was lost, or what the party who lost the note did to try and recover it. Their testimony is much more scant than the more detailed affidavits submitted in Rose, supra, and other cases cited above which the courts found were deficient to meet the three prong test under UCC §3-804. Therefore, U.S. Bank has not established a prima facie case for recovery against Ms. Cadeumag et al because it has failed to bolster the deficiencies found by Justice Partnow as to the circumstances that led to the note's disappearance. In fact, the testimony of its two witnesses at trial merely bolstered the attenuated nature of the assignments much less the authenticity of the lost note affidavit of the copy of the note.
Additionally, the terms of the original note are in dispute. Ms. Cadeumag argues that there are very little facts that speak to the authenticity of the copy. Ms. Decaro testified that she has very little knowledge about Aegis' protocol for photocopying notes or who made the certification. (B at 83) and Wang had no idea whether Guevara even saw the original note so as to be able to certify that there was a true copy if the original note that was lost (D at 137). Furthermore, Guevara allegedly certified the copy of the note in February 2006 after the loan was out of Aegis' possession leading to the question as to whether Guevara even had a copy of the original at the time he wrote the lost note affidavit. The last page of the note contain two boxes, one of which states pay to the order of Aegis mortgage in one box and pay to the order of ** on the other; underneath the second box is an explanation that ** refers to U.S. Bank as Trustee for the SASC Mortgage Loan Trust 2006-SCI with no evidence as whether these boxes were on the original note or affixed to the copy of the note. Nor is there any date in either of these boxes as to when the assignment occurred.
Te deficient lost note affidavit was executed on February 2006; the original note was executed in October 2005. Since the testimony from the two witnesses indicate that the Trust was not even created until April 2006, it begs credulity to argue that the original note could have contained the box on the last page assigning the loan from Aegis to U.S. Bank as Trustee for the SASC Mortgage Loan trust in February 2006 when the trust had not even been created as of that date. See, Windward Bora LLC v. Armstrong, 2021 U.S. Dist. LEXIS 29284 (E.D.N.Y. 2021) ("It confounds logic for an allonge to be affixed - not just once, but twice- to a note after it as been lost destroyed." If the last assignee plaintiff cannot "explain this paradox, it will lack standing to pursue foreclosure." Id. at 20.
Finally, there is no evidence that Aegis assigned the note to Lehman or whether it was Aegis or Lehman who lost the note. Nor is there any assignment of the note from Lehman to SASC or from SASC to U.S. Bank. Such a break in the chain of assignment is fatal to U.S. Banks standing. See, Wilmington Sav. Fund Soc'y v. Tamisi, 2023 U.S. Dis. LEXIS 45439 (E.D.N.Y. 2023) where the Eastern District held that the loss of the original note alongside the trajectory of multiple assignments was fatal to the final plaintiff assignee's claim of standing. There, the original owner of the note assigned it to DLJ, who somehow misplaced or lost the note yet transferred its rights and interests under the note to Plaintiff Wilmington. The court held that Wilmington was required to show that DLJ physically possessed the note such that it had a legal interest to assign it to Wilmington Id. at 11. Wilmington produced a lost note affidavit from a DLJ Vice President which contained the same boilerplate language contained in the Guevara affidavit. The Eastern District affirmed a Bankrupty court ruling that a "boilerplate lost note affidavit that is devoid of facts as to what actually happened to the note is insufficient to establish ownership."
In sum, plaintiff has failed to establish standing through assignment or through its lost note affidavit and its complaint seeking foreclosure on the mortgage encumbering the subject property against defendants is therefore denied.