Recently in Foreclosure Category

Court Applies Pre-Suit Notice for Non-Foreclosure Action Based on Mortgage Note

December 10, 2013

A lender has two options in seeking repayment on a defaulted home loan. A lender has the option of commencing a foreclosure action, auctioning the property, and applying the sale proceeds against the loan amount due. Or, a lender can sue based on the promissory note underlying the loan and obtain a money judgment. A lender cannot do both. RPAPL § 1304 requires that a lender provide a 90-day notice before it commences a lawsuit based on a home loan, which is typically a foreclosure action. The question facing the court in this case was whether the 90-day notice is also required where the lender sues on the promissory note and foregoes seeking foreclosure.

Construing the statute broadly, the court found that RPAPL § 1304 is to be applied to any lawsuit commenced against a borrower that involves a home loan. The court seemed compelled to explain this outcome, because aside from finding this outcome to be consistent with the language of the statute, it grounded its decision on the fact that once a money judgment is obtained by the lender, the home owner will be "subject to levy upon his or her personal property, motor vehicle, savings account and/or other asset, such could result in the borrower being compelled to sell the property in order to protect these possessions." The court was also concerned that a money judgment "may complicate settlement negotiations" in the event the borrower also defaulted on a senior loan (this case involved a second loan). As a result, this borrower was entitled to the remedial provisions of this statute.

While the outcome here seems reasonable, it is clear that Judge Demarest felt the need to rationalize the outcome by making assumptions about what might occur in the future which could result in the sale of the property. Does that mean that for RPAPL § 1304 to apply in this setting there must be a possibility that the subject property will be at some point sold?

Cadelrock Joint Venture, LP v. Callender; Kings County, Judge Demarest

More on Judge Schack vs. HSBC

June 17, 2013

A while back, we wrote about Judge Shack's dismissal of a foreclosure case, something Judge Schack likes to do, but in a situation where he also ordered the CEO of HSBC Bank to appear for a hearing on possible sanctions. The Second Department reversed Judge Schack, again.

The appellate court noted that this was not the first time that Judge Schack dismissed a foreclosure action despite no party asking him to. The court reminded the Judge that he was obligated "to remain abreast of and be guided by binding precedent," namely, a prior appellate decision where he was reversed on the same issues. And because the Judge undertook his own research before dismissing the lawsuit, the appeals court "caution[ed] the Justice that his independent internet investigation of the plaintiff's standing that included newspaper articles and other materials fall short of what may be judicially noticed" and was done without notice to the bank's lawyer and "should not be repeated." The court reversed and directed that the case be assigned to a different judge.

Dismissal of Foreclosure Action Does Not Stay Statute of Limitations Period to Foreclose

April 8, 2013

In almost any setting, when a borrower fails to pay a mortgage, the lender will issue a letter accelerating the entire amount owed notwithstanding that the terms of the mortgage only require monthly payments. That letter informs the borrower of the default and demands full payment of the amount outstanding. That letter is typically a prerequisite for the lender's filing of a foreclosure action but on the flip side, the lender's six year statute of limitations period begins from the date of that letter.

On August 20, 1992, Dime Savings Bank issued an acceleration letter to the borrowers. In September 1992, Dime commenced a foreclosure action. That action was dismissed but not on the merits of the case. The lender commenced a second lawsuit in April 1999. The court granted the borrowers' motion to dismiss as more than six years had passed from the date of the 1992 acceleration letter. The lender appealed claiming that the dismissal of the first case suspended the running of the statute limitations period.

The Second Department affirmed that dismissal finding that to stop the statute of limitations the lender must affirmatively revoke the acceleration. Because the earlier dismissal was not an affirmative act of revocation, the lender could not now seek payment of that loan.

The court noted that the lender had an opportunity to seek court permission to continue the first action shortly after it was dismissed but never did so. One wonders whether that played any role in the court's decision, as including that fact should not have been relevant to the court's decision.

Bank Not Entitled to Recover Expenditures for Marketing a Foreclosed Property

February 25, 2013

After defendant defaulted on a $1.3 million mortgage and note, the bank foreclosed. Despite the appointment of a receiver, during the pendency of the foreclosure action, the bank incurred a host of expenses. One of those was $40,000 for marketing commissions to a real estate marketing company. After the auction, a surplus in excess of $250,000 remained. In reviewing the expenses submitted by the bank, the court initially rejected them all finding that the receiver should have addressed them, but later allowed the bank to recover taxes and insurance (without interest).

On appeal, the court agreed that the loan documents allowed the bank to pay the assorted expenses in maintaining the property throughout the foreclosure and to recover those costs when the property was sold. It disagreed, however, that the marketing costs were recoverable, notwithstanding that such marketing may have resulted in higher auction bids. As far as costs for appraisals and environmental assessments, the appellate court agreed with the trial judge in finding that once a receiver is in place, the receiver acts to maintain the property, including paying its expenses. Once the bank successfully installed the receiver, it no longer had any authority to pay for any expenses. Furthermore held the court, the receiver would in any event not have been permitted to pay these expenses as they were incurred not to maintain the property, but like the marketing costs, incurred to maximize the bids. This held true even if the bids were maximized, something that would benefit both the bank and the borrower.

It is important to remember that when banks foreclose, especially when the property is "above water" with equity, the property owner is entitled to recover that excess. Often, however, and unlike this case, if the owner does not object, the bank's demands are agreed to by the court. Vigilance is crucial at this point especially if there has been no meaningful opposition to the foreclosure action. Please contact us if this issue is relevant and you have any questions.

Kings County Judge Orders Bank CEO to Appear at Foreclosure Sanctions Hearing

August 26, 2011

Judge Arthur Schack is in the news again (some older news again and on video). In HSBC v. Taher, Judge Schack took issue with HSBC's foreclosure paperwork including finding that the affidavit submitted by HSBC's lawyers that the papers were in order and not "robo-signed" was false.

Initially, Judge Schack found that HSBC had no standing to commence the foreclosure action because the assignment by which HSBC claimed standing was defective. Judge Schack stated:

Mr. Cassara's affirmation, affirmed "under the penalties of perjury," that to the best of Mr. Cassara's "knowledge, information, and belief, the Summons and Complaint, and other papers filed or submitted to the Court in this matter contain no false statements of fact or law," is patently false. Moreover, the Court is troubled that: the alleged representative of plaintiff HSBC, Christina Carter, who according to Mr. Cassara, "confirmed the factual accuracy and allegations set forth in the Complaint and any supporting affirmations filed with the Court, as well as the accuracy of the notarizations contained in the supporting documents filed therewith, is not an employee of HSBC, but a robosigner employed by OCWEN LOAN SERVICING, LLC [OCWEN], whose signature on legal documents has at least three variations; the MERS to plaintiff HSBC assignment of the subject mortgage and note was executed by Scott W. Anderson, a known robosigner and OCWEN employee, whose signature is reported to have appeared in at least four different variations on mortgage assignments; and, the instant affidavit of merit was executed by Margery Rotundo, another robosigner, OCWEN employee and self-alleged employee of various other banking entities.

Finding that HSBC has been a repeat offender of this issue, Judge Schack set down a hearing to determine why HSBC and its counsel should not be sanctioned.

But all of this was in just the introduction to the Judge's decision; he was just warming up.

After navigating the background of the loan transaction and borrower's default, Judge Schack described how the Court searched the recorded documents for the loan being foreclosed by HSBC, and other courts' decisions, and determined that Scott W. Anderson, the individual signing for the loan processing company (that was to service the loan), Ocwen, had also signed on behalf of MERS, and had seemed to have some relationship with the lender, Delta Funding Corporation. Remarkably, Judge Schack's decision goes through a handwriting analysis of Mr. Anderson's signature, which appear only as his initials ("[t]he Court concludes that it must be a herculean task for Mr. Anderson to sign 'Scott Anderson' or 'Scott W. Anderson' in full"). After analyzing five samples, Judge Schack is not only unimpressed by the lack of consistency in the signatures, but is "perplexed that in response to my order for Mr. Anderson to submit an affidavit with respect to his employment, Mr. Anderson was unable to sign either 'Scott Anderson' or 'Scott W. Anderson.' Instead, there is a fifth variation of scrawled initials. There is a big loop for the cursive letter 'S,' which contains within it something that looks like the cursive letter 'M' going into lines that look like the cursive letter 'V, with a wiggly line going to the right of the page."

Judge Schack then reviewed the background of another signatory to documents related to this foreclosure, Margery Rotundo. Seemingly familiar with Ms. Rotundo from prior foreclosures, Judge Schack states that she has, "in prior foreclosure cases before me, a history of alleging to be the Senior Vice President of various entities, including plaintiff HSBC, Nomura Credit & Capital, Inc. and an unnamed servicing agent for HSBC. In the instant action she claims to be the Senior Vice President of Residential Loss Mitigation of OCWEN, HSBC's servicing agent." After dissecting these representations, Judge Schack turns to the purported positions of other officials which signed documents supporting the foreclosure, including further handwriting analysis. Needless to say, Judge Schack was not impressed with anyone involved.

Judge Schack then details his finding that HSBC's failure to provide an assignment document means that it has no standing to foreclose, and dismisses the action. Not satisfied with just dismissing the case but allowing HSBC to refile with the proper documents, Judge Schack dismiss the action with prejudice, precluding HSBC from refiling.

We then arrive at the part of the decision which really caught the public's attention, the setting of the sanctions hearing. If one thought Judge Schack was giving HSBC and its lawyers a hard time before, well, they were in for much more.

Continue reading "Kings County Judge Orders Bank CEO to Appear at Foreclosure Sanctions Hearing" »

Defective Default Notice Dooms Foreclosure Action

October 22, 2010

Wells Fargo sought to foreclose on a condominium after its owner defaulted on her mortgage. The court determined that the mortgage documents required that Wells Fargo send the borrower a notice that set forth certain information about the loan and default before finding the borrower to be in default. The notice was to be sent to the borrower's address. Wells Fargo sent the notice to the address, but failed to list the unit number. The notice was also unclear as to how much the borrower had to pay to bring the loan current. For these reasons, the judge found the notice defective and dismissed the foreclosure.

Court Dismisses Foreclosure Action Where Loan Could Not Be Described

October 6, 2010

Bank of America filed a foreclosure action, seeking the foreclosure of a "prime/traditional/conventional loan," but asserted that a pre-foreclosure notice was sent to the home-owner in compliance with the rules governing subprime loans. In other papers, the bank identified the loan as subprime, but that no notice was sent because it was not required. Finding the papers to be "replete with inconsistent and inaccurate proofs," the court dismissed the case.

Bank's Foreclosure Papers Were "Greatly Distressing" and Sanctions Could Be Assessed

October 1, 2010

Suffolk County Judge Arlen Spinner had another foreclosure case on his chopping block recently. Chase filed a foreclosure action claiming that the home-owner signed a mortgage, which was in default. One of Chase's allegations was that the home-owner signed the mortgage. Examining the mortgage and note, however, indicated that the mortgage and note were for different amounts, and signed by someone other than the home-owner. Judge Spinner found Chase's papers to be "grossly inaccurate and untrue" and scheduled a hearing to determine whether sanctions should be assessed.