Articles Posted in Foreclosure

Plaintiff was induced to leave his current employment and start working at defendant’s agency. As part of the parties’ agreement, plaintiff was promised six months’ severance if terminated without cause. Plaintiff signed the agreement but, despite receiving an email from a board member welcoming him aboard, defendant did not sign the agreement. Plaintiff was terminated without cause but defendant refused to pay his severance.

The First Department reversed the lower court’s dismissal of plaintiff’s case, finding that although defendant did not sign the employment agreement, there was no question that plaintiff began working for defendant and performed as expected. Once fired, he was due the promised severance. The contract made no provision that required a signature for it to be binding, so that defendant’s failure to sign the fully-integrated agreement was no bar to its enforcement.


Lord v. Marilyn Model Management, Inc.

Licensor sued a licensee for breaching an agreement to pay certain fees. In responding, the licensee counterclaimed for breach of the parties’ agreement. In doing so, it lumped together multiple allegations of breach into one cause of action but without detailing the specific contract provisions that the licensor violated.

The court granted the licensor’s motion to dismiss the counterclaims, with leave to amend, as the counterclaims failed to specify the provisions breached or the dates that they were breached. Those dates were of particular note, as the claims raised addressed issues that may have been barred by the statute of limitations.  Instead of using the licensee’s affidavit to supplement the counterclaims, the court deemed it the “better practice” to replead.

Icon DE Holdings, LLC v. Mondani Handbags & Accessories, Inc.

In July 2000, Citibank extended a $54,000 loan to a condominium owner, with an additional $38,000 loan extended the next year. These two loans were consolidated into one loan for a total of $92,000. Some seven years later, the condominium board filed a common charges lien against the unit.

In 2010, the plaintiff bought the unit for $15,100 at a foreclosure auction, subject to the “first mortgage of record against the premises.” The new owner sued Citibank seeking to have the second loan of $38,000 declared subordinate to the common charges lien and thus discharged when the unit was bought at auction. The trial court found that the entire consolidated loan was valid and the purchaser at auction had purchased the unit subject to the consolidated loan. After the Second Department affirmed, the purchaser appealed to the Court of Appeals.

In affirming, the Court of Appeals noted that lien priority was normally determined by the “chronology of recording.” However, in a case that deals with a condominium board’s common charges lien, the law excludes the “‘first mortgage of record.’” While acknowledging that case law existed that could be read to take the exception of the first mortgage literally, it refused to accept the buyer’s argument.

In 2005, a property owner borrowed $452,000 with which to buy a residential property. After the borrower’s default, that lender assigned the loan to HSBC. HSBC commenced a foreclosure action which was dismissed in 2007 for failure to serve the borrower. HSBC waited until 2009 to file a second foreclosure action. That action was conditionally dismissed in 2012 because HSBC had not shown proof that a Notice of Default had been served upon the borrower, as required by the loan documents. The conditional dismissal allowed HSBC 60 days within which to provide the required proof, or the case would be dismissed automatically. In 2013, noting that no such proof had been filed with the court, the second foreclosure lawsuit was formally dismissed. In 2014, the borrower sold the property to plaintiff, Ellery Beaver, LLC. Fourteen months after the case was dismissed, HSBC sought its restoration against the borrower. The court denied HSBC’s request.

Thereafter, Ellery Beaver, LLC sought a court order discharging HSBC’s mortgage claiming that the statute of limitations for a foreclosure action to be commenced had expired and the property should not be encumbered by an unenforceable lien. HSBC argued in opposition that because the first lawsuit was dismissed for failure to serve the borrower the time period to sue could not have commenced when that first lawsuit was filed. The Court disagreed, finding that the date of service was not relevant to the statute of limitations consideration. What mattered was the date when HSBC accelerated the loan, which could not have been later than when HSBC commenced the first foreclosure action, in 2005. Thus, the six year limitation period expired in 2012, six years from 2005, and HSBC’s loan would be discharged and the mortgage canceled.

Ellery Beaver, LLC v. HSBC Bank USA, N.A.

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?

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.

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.

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.

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.
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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.

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