the state of foreclosures in 2012 & 2013 cover

By Adam Leitman BaileyBy Adam Leitman Bailey

Association of Arbitrators (Small Claims)Association of Arbitrators (Small Claims)Civil Court of the City of New YorkCivil Court of the City of New York

March 12, 2013March 12, 2013

March 12, 2013 © Adam Leitman Bailey, P.C.

Appellate Judges are Enforcing Contracts As Written With Few Exceptions

Lenders beat borrowers 2:1 but does not tell entire story as 2012 appellate decisions showed a strict application of the laws.


One trend continuing in 2012 is that the Second Department has the lion’s share of the reported cases and is therefore the most fruitful source of stare decisis.


Where is the Note Defense?

The 2012 cases adhered to the principle that mere servicers who cannot account for the whereabouts of the promissory note lack standing to bring a foreclosure action.

In the Second Department: U.S. Bank Nat. Ass’n v. Dellarmo, 94 A.D.3d 746, 942 N.Y.S.2d 122; Citibank, N.A. v. Van Brunt Properties, LLC, 95 A.D.3d 1158, 945 N.Y.S.2d 330; US Bank Nat. Ass’n v. Cange, 96 A.D.3d 825, 947 N.Y.S.2d 522; Wells Fargo Bank, N.A. v. Hudson, 98 A.D.3d 576, 949 N.Y.S.2d 703.


What to do When Losing the Note

a. Producing a valid written assignment of the note or

b. Demonstrating that the note was physically delivered to the lender.

a. “the physical delivery of the note proper to the commencement of the foreclosure action is sufficient to transfer the obligation and the mortgage passes with the debt as an inseparable incident” U.S. Bank v. Collymore, 68 A.D.3d 752.


After the lender demonstrates that it owns the note, it must explain to the court the circumstances upon which the note was

lost.

Loss of negotiable instruments such as promissory notes are addressed by the Uniform Commercial Code UCC 3-804 (Lost Destroyed or Stolen Instruments).

a. Affidavit sufficient on what happened to the note.

b. Affidavit must state more than the note was lost.

c. Confirm that the note has not been sold or transferred.

d. Must prove the terms of the written instrument.

e. Affidavit must be based on personal knowledge


If standing was defective at the time of the commencement of the action, it appears that the standing cannot be corrected and the case must be started over.

U.S. Bank v. Dellarmo, 94 A.D.3d 746, 942 N.Y.S.2d 122 (2d Dept.).


No need to substitute plaintiff when selling note in foreclosure action.

Citibank, N.A. v. Van Brunt Properties, LLC, 95 A.D.3d 1158, 945 N.Y.S.2d 330 (Second Dept.); GRP Loan, LLC v. Taylor, 95 A.D.3d 1172, 945 N.Y.S.2d 336 (Second Dept. 2012)


Although it is proper to amend the caption to reflect the new parties, the substitution in the action (and amendment of the caption) is not mandatory, but rather the original action can proceed as is after the assignment.

Citibank, N.A. v. Van Brunt Properties, LLC, 95 A.D.3d 1158, 945 N.Y.S.2d 330 (Second Dept.); GRP Loan, LLC v. Taylor, 95 A.D.3d 1172, 945 N.Y.S.2d 336 (Second Dept. 2012)

IndyMac Bank F.S.B. v. Thompson, --- N.Y.S.2d ----, 2012 WL 4513052, 2012 N.Y. Slip Op. 06582 (AD Second Dept. 2012).


A purchaser of a failed bank’s assets has standing to commence a foreclosure action, even if it is immune from whatever counterclaims the borrower may have asserted against the failed bank.

JP Morgan Chase Bank Nat. Ass’n v. Miodownik, 91 A.D.3d 546, 937 N.Y.S.2d 192 (First Dept.).


Where the proceeding is brought against a dead person, there is no

fixing it.

One must start the proceeding against the personal representative of the Estate.

US Bank Nat. Ass’n v. Lieberman, 98 A.D.3d 422, 950 N.Y.S.2d 127 (First Dept.).


Merger Clauses Are Not Always Enforceable

Mortgages routinely contain Merger Clauses indicating that they are the complete understanding of the parties and that there are no oral representations or that any such oral representations are “merged” into the mortgage. However, a so-called “merger clause” in a mortgage will not necessarily bar claims of fraudulent representations, at least not where the clause is “bare bones.” Thus, the mortgage itself is vulnerable to attack through oral testimony claiming fraudulent inducement. (LibertyPointe Bank v. 75 East 125th Street, LLC). March 12, 2013 © Adam Leitman Bailey, P.C.

Merger Clauses Are Not Always Enforceable

Contrast this with Emigrant Mortg. Co., Inc. v. Fitzpatrick, supra, that refuses to allow an attack on the mortgage based on a predatory lending claim where the mortgage transaction included boilerplate disclosures.

95 A.D.3d 1169, 945 N.Y.S.2d 697 (2d Dept. 2012).


Counterclaims

A waiver in a mortgage of defenses or counterclaims does not preclude a counterclaim based on fraud, if properly asserted.

Archer Capital Fund, L.P. v. GEL, LLC, 95 A.D.3d 800, 944 N.Y.S.2d 179 (Second Dept. 2012).


Lender will only be reimbursed for monies spent during foreclosure action if

authorized in the mortgage instrument.A mortgagee in possession after an order of reference can safely expect reimbursement for the items spent after the appointment of a referee only if they are actually specified in the mortgage instrument allowed to be advanced, but nothing else–reimbursement should only be approved for expenditures that are necessary to maintain the premises.

The court noted that the referee the court appointed, not the plaintiff, is charged with running the property.

While the plaintiff in that case was simply out of luck in expending other funds for which reimbursement was refused, the Third Department precisely states what the plaintiff could have done to ensure that it would not be expending funds not subject to reimbursement.


Lender should seek court approval before taking any actions beyond what mortgage

authorizesThe court wrote, “The prudent course for plaintiff would have been to seek court approval in advance of undertaking any actions that might be deemed ultra vires and obtaining permission to act and add the expenditure to the amount of its judgment, or move to expand the receiver’s powers and have the court authorize him to undertake those actions or make those expenditures.” (emphasis supplied)

Bank of America, N.A. v. Oneonta, L.P., 97 A.D.3d 1023, 949 N.Y.S.2d 794 (Third Dept. 2012).


Lender should seek court approval before taking any actions beyond what mortgage

authorizesIn other words, rather than spending the funds and hoping for the best, the plaintiff could have sought court permission to spend the money itself or empower the receiver to do so. Consistent with our theme of strict enforcement, we find the court looking to the mortgage instrument itself and allowing only those expenses expressly specified in it – absent the prior permission. The Appellate Decision does not rule out the idea that Trial Term could have gone beyond the four corners of the mortgage in the sound exercise of discretion, given adequately persuasive reasons to do so prior to the making of the expenditure.

Bank of America, N.A. v. Oneonta, L.P., 97 A.D.3d 1023, 949 N.Y.S.2d 794 (Third Dept. 2012).March 12, 2013 © Adam Leitman Bailey, P.C.

Foreclosure Shall Not be Set Aside for Auctioning Less Than Contracted Price

The price is set for the parcel regardless of the size of the parcel but when sold on a per acre basis and found to be less acreage than contracted for, foreclosure stands but the amount foreclosed upon will be reduced downward.

Shufelt v. Bulfamante, 92 A.D.3d 936, 940 N.Y.S.2d 108 (Second Dept. 2012).Thompson v. Naish 93 A.D.3d 1203, 940 N.Y.S.2d 714 (Fourth Dept. 2012).


Foreclosure Shall Not be Set Aside for Auctioning Less Than Contracted PriceWhere the premises were supposed to be sold on a price per acre basis and there was less acreage than actually contracted for and the borrower defaults, the smaller size of the property is not a complete defense to the foreclosure. The foreclosure can proceed, but the amount foreclosed upon will be reduced downward.

Shufelt v. Bulfamante, 92 A.D.3d 936, 940 N.Y.S.2d 108 (Second Dept. 2012).Thompson v. Naish 93 A.D.3d 1203, 940 N.Y.S.2d 714 (Fourth Dept. 2012).


Foreclosure Shall Not be Set Aside for Auctioning Less Than Contracted Price

In Thompson v. Naish, the Fourth Department held that where the borrower pays the full amount demanded, but pays it late, the borrower is still in default of the mortgage and foreclosure is appropriately ordered. That is not as harsh a rule as it appears, given RPAPL §1341, permitting the defendant to pay off the remaining sums (the late fees and such) owed in order to prevent the sale of the property.

Shufelt v. Bulfamante, 92 A.D.3d 936, 940 N.Y.S.2d 108 (Second Dept. 2012).Thompson v. Naish 93 A.D.3d 1203, 940 N.Y.S.2d 714 (Fourth Dept. 2012).March 12, 2013 © Adam Leitman Bailey, P.C.

Quality of Title

Constant unsuccessful efforts by the mortgagor to defeat the foreclosure proceeding are insufficient to make the title unmarketable enough to relieve a successful bidder at the foreclosure sale from going forth with the sale.

Bank of New York v. Segui, 91 A.D.3d 689, 937 N.Y.S.2d 95 (Second Dept. 2012) –8


Predatory and Fraudulent Practices

A consumer seeking to resist a foreclosure must show either substantively that she was taken advantage of in predatory practices or that the loan was issued after the law went into effect creating presumptions of predation. Emigrant Mortg. Co., Inc. v. Fitzpatrick, 95 A.D.3d 1169, 945 N.Y.S.2d 697 (Second Dept. 2012) –17 It should be noted that this decision holds the consumer responsible for the contents of the great mass of information presented at the time of loan applications and closings and does not take into account the well-known phenomenon that people simply do not read these materials.


Predatory and Fraudulent Practices

Where the one who is sitting as Plaintiff in the foreclosure proceeding actually maliciously caused the default, while the foreclosure proceeding itself may still lie, ancillary relief within the court’s discretion is properly denied the Plaintiff. Norwest Bank Minnesota, NA v. E.M.V. Realty Corp., 94 A.D.3d 835, 943 N.Y.S.2d 113 (Second Dept. 2012) –30. Norwest is unclear whether if the predatory practice had been committed by the initial plaintiff in the suit whether the foreclosure relief in chief would also have been denied.


Sources of Procedural Law

Impliedly, trial courts have the power to require additional paperwork beyond what would appear on the face of the statute in order to grant foreclosure on default.

Bank of America, Nat. Ass’n v. Bah, 95 A.D.3d 1150, 945 N.Y.S.2d 704 (Second Dept. 2012) —6; Compare, Brusco v. Braun, 84 NY2d 674, 645 NE2d 724, 621 NYS2d 291 (1994)—Additional Study Materials 1


Personal Jurisdiction

The general hostility to personal jurisdiction defenses throughout New York practice holds true in foreclosure actions as well.

Bank of New York v. Espejo, 92 A.D.3d 707, 939 N.Y.S.2d 105 (Second Dept. 2012)—7


Personal Jurisdiction

However, where there are specific denials of the propriety of service of process, a mortgagor can effect the vacatur of the foreclosure judgment. Deutsche Bank Nat. Trust Co. v. DaCosta, 97 A.D.3d 630, 949 N.Y.S.2d 393 (Second Dept. 2012)—14. However, DaCosta, while stating that the facts of its case showed a sufficiently specific denial, it sets no explicit standards for that explicitness.


Consolidation

Where there is a question about the validity of the mortgage, an action trying out that question should be consolidated with a foreclosure action. On the practical level, this means that while foreclosure actions typically move quickly through predictable stages, the foreclosure action will be slowed down to a crawl through the discovery process in the validity suit. American Home Mortg. Servicing, Inc. v. Sharrocks, 92 A.D.3d 620, 938 N.Y.S.2d 202 (Second Dept. 2012) –3


Deficiency Judgment

There is a 90 day period after the Referee’s conveyance of title, during which the Plaintiff may move for a deficiency judgment. Refusal of the deed did not stop the running of that limitations period. Thus, the Petitioner, by wasting time seeking to manipulate the deed, lost the ability to get the deficiency judgment.

M & T Real Estate Trust ex rel. M & T Real Estate, Inc. v. Doyle, 93 A.D.3d 1331, 941 N.Y.S.2d 422 (Fourth Dept. 2012) –28March 12, 2013 © Adam Leitman Bailey, P.C.

Deficiency Judgment

Where the purchaser at a foreclosure sale would have a claim against the mortgagor, but fails to move for a deficiency judgment within the 90 day period, that claim is wholly extinguished, both as to the main debt and ancillary charges.

Option One Mortg. Corp. v. J.P. Morgan Chase & Co., 93 A.D.3d 480, 940 N.Y.S.2d 225 (First Dept. 2012) –32


Technical Flaws

Minor technical flaws in every stage of the foreclosure proceeding are subject to the same kinds of forgiveness as in any other action under CPLR 2001.

NYCTL 2005–A Trust v. Rosenberger Boat Livery, Inc., 96 A.D.3d 425, 947 N.Y.S.2d 2 (First Dept. 2012) –31


Settlement Agreement


IT IS HEREBY AGREED AND CONSENTED TO by and between the parties hereto:

1.Unit Owner and the Board acknowledge and agree that the Deed in Lieu of Foreclosure, held in escrow, referenced in this Settlement Agreement is not intended to be a security for any debt owed by the Unit Owner to the Boards, such debt already being fully securitized by the lien filed on behalf of the Boards heretofore.

2.Unit Owner acknowledges that Unit Owner owes $9,181.59 (plus legal fees as additional common charges) in outstanding Condominium Common Charges to the Board of Managers of XXX (the “Unit”) as of the date of this Agreement. Unit Owner further acknowledges that Unit Owner owes $18,317.58 in outstanding Association Common Charges to the Board of Directors of XXX.

3.Unit Owner agrees to pay $168.22 a month until such time as the balance of Condominium Common Charges is paid off in full. Of each $168.22 payment, the funds shall first be applied to then current Condominium Common Charges, and the remainder shall be applied to the outstanding balance above agreed upon.


4. Unit Owner further agrees to pay $821.30 a month until such time as the balance of Association Common Charges is paid off in full. Of each $821.30 payment, the funds shall first be applied to then current Association Common Charges, and the remainder shall be applied to the outstanding balance above agreed upon.

5. Any payment made under this agreement shall be deemed properly made if and only if paid by good check to “Adam Leitman Bailey, P.C.” at 120 Broadway, 17th Floor, New York, NY 10271. All payments due at any given moment may be aggregated into a single remittance by the check noted in this paragraph.


6. Deed in Lieu of Foreclosure:a. Simultaneously herewith, Unit Owner has executed a

Deed in Lieu of Foreclosure (“DILF”), to be held in escrow by Adam Leitman Bailey, Esq. (“Escrow Agent”).

b. Simultaneously herewith, Unit Owner has executed an assignment of the Lease between Unit Owner and the Board of Directors XXX (the “Board”). For all purposes of this Agreement, the person or entity having physical custody of the DILF shall at all times simultaneously have physical custody of such assignment of lease.

c. Unit Owner expressly acknowledges that she has a substantial obligation to execute a new and superseding DILF should there be any change in the liens of record against the property.


7. For purposes of this agreement, the following shall constitute the “Transfer Procedure:”

a. Escrow Agent shall release the DILF to the Board.

b. The first $1,000.00 of any payment the Unit Owner should have made but failed to make shall be deemed forgiven in consideration of the transfer of ownership of the Unit from the Unit Owner to the Board. The Board shall, at its option, effect the recording of the DILF. This paragraph shall remain valid regardless of whether the Unit Owner should have made but failed to make a payment greater than or less than $1,000.

c. The Notice to Quit annexed hereto as Exhibit 1 shall be deemed to have been duly and properly served upon the Unit Owner on the 15 th day succeeding the date of the recording of the DILF. The date for the Unit Owner to vacate the unit pursuant to the Notice to Quit shall be deemed to be the 27 th day after the date of the recording of the DILF.

d. The Unit Owner shall be deemed to have consented to the jurisdiction of the Civil Court of the City of New York, County of XXX for the purposes of the Board bringing an eviction proceeding pursuant to RPAPL §713(8) and to have waived all defenses thereto. In such proceeding, the Unit Owner shall be deemed to have consented to the entry of a judgment with the issuance and the execution of a warrant forthwith.

e. This Agreement may be filed in a proceeding to be commenced without further notice. The execution of the instant agreement shall be deemed an appearance in said proceeding. Unit Owner specifically waives service of any and all notices including, but not limited to, notice of petition, and petition.March 12, 2013 © Adam Leitman Bailey, P.C.

8. Should Unit Owner fail to timely meet such Unit Owner’s obligations under this agreement, the Board shall give the Unit Owner ten days notice to cure such default by mailing by ordinary first class mail and by certified mail, return receipt requested, addressed to the Unit Owner at the Unit. Should such default remain uncured after the expiration of the ten day cure period, the Board is authorized to invoke the Transfer Procedure and in addition to the Transfer Procedure and notwithstanding it, the Unit Owner shall forthwith vacate the subject premises.

9. The Board agrees that, in the event extenuating circumstances befall the Unit Owner and prevent such Unit Owner from complying with her obligations under this agreement, the Board will negotiate with the Unit Owner, in good faith, a resolution of such Unit Owner’s default without invoking the Transfer Procedure, prior to invoking such Transfer Procedure.

10. In the event the Unit Owner has fully complied with all of its obligations under this Agreement, the Escrow Agent shall release the DILF to the Unit Owner.


11. In the event the Unit Owner fails to timely meet such Unit Owner’s obligations under this agreement, and fails to cure such default, and the Escrow Agent releases the DILF to the Board, the Board shall make all efforts it determines to be reasonable, to re-sell the Unit for reasonable value, to be determined by the Board. The Board shall use the proceeds of such sale to satisfy any liens on the property, including, but not limited to, any mortgages on the property and the outstanding Condominium Charges and Association Common Charges, and all costs and fees associated with the re-sale of the Unit, including, but not limited to, attorneys fees and filing fees. In the event that surplus funds remain after said liens, costs and fees are satisfied, such surplus will be paid over to the Unit Owner within a reasonable amount of time after the Unit is transferred to a new owner.

12. All parties agree that all obligations under this agreement are of the essence of this agreement, all defaults, no matter how minor, shall be considered material defaults, and that absolutely no deviation from any of those obligations shall be considered to be de minimis.


13. Unit Owner’s Representation:a. Unit Owner, represented by counsel, expressly agrees and

acknowledges that the instant agreement has been fully explained to Unit Owner, and that Unit Owner understands that the instant agreement may vitiate any and all of Unit Owner’s former rights to the premises, except as provided herein.

OR

b. Unit Owner having consulted with counsel expressly agrees and acknowledges that the instant agreement has been fully explained to such Unit Owner, and that such Unit Owner understands that the instant agreement may vitiate any and all of Unit Owner’s former rights to the premises, except as provided herein.

OR

c. Unit Owner having completely read this Agreement and the cover page hereto, acknowledges that Unit Owner fully understands this Agreement and the risks Unit Owner is taking by executing this Agreement and the DILF. Unit Owner explicitly understands that Unit Owner may lose Unit Owner’s home if Unit Owner does not fully comply with this Agreement.


14. The parties hereby release each other from any and all claims which they may have against each other through and including the date of this Agreement, with the exception of the contents of this agreement and the Board’s claim for monies due and owing pursuant to the terms of this agreement.

15. Unit Owner will not commit, nor will Unit Owner permit Unit Owner’s family members, agents, or employees to commit any waste to the premises.

16. Unit Owner represents that there is no one else residing in the premises, except ________________ and affirms that Unit Owner will allow no others to reside in the premises during the term of this agreement.


17. Unit Owner agrees that, in the event Unit Owner fails to meet Unit Owner’s payment obligations under this agreement and the Deed in Lieu of Foreclosure is turned over to the Board, the Unit Owner will return the keys to the premises upon Unit Owner vacating to the Board or its agents, and agrees to leave the premises in broom clean condition except for ordinary wear and tear.

18. Omitted Intentionally.

19. The Unit Owner consents to the jurisdiction of the Supreme Court of the State of New York, XXX County for the enforcement of any of her nonmonetary obligations under this agreement and specifically agrees that with respect to such nonmonetary obligations the Board has no adequate remedy at law, and that the Board shall be entitled to recover of the Unit Owner its reasonable attorneys’ fees in the bringing of any action under this Agreement.


20. In the event a petition in bankruptcy by or against the Unit Owner is filed, the Board shall thereupon be entitled and the Unit Owner irrevocably consents to immediate and unconditional relief from the automatic stay imposed by Section 362 of the Bankruptcy Code, or otherwise, on or against the exercise of the rights and remedies otherwise available to the Board, including the rights and remedies set forth herein, and the Unit Owner hereby irrevocably waives any right to object to such relief and will not contest any motion by the Board seeking relief from the automatic stay and the Unit Owner will cooperate with the Board, in any manner requested by the Board, in its efforts to obtain such relief from any such stay.

21. The instant agreement shall not be changed or modified in any manner of form whatsoever, except by a written document signed by all the parties hereto.

22. So long as the Unit Owner is in full compliance with all of Unit Owner’s obligations under this agreement, the Board waives further enforcement of its rights against the Unit Owner with respect to the arrears in common charges which are the subject of this agreement.


23. It is expressly agreed by and between the parties that this agreement is the full and complete agreement of the parties.

24. In the event that any clause of this agreement is held to be invalid for any reason by any court, the entire agreement shall become void and have no legal effect.

25. Facsimile signatures shall not be deemed originals herein. THIS AGREEMENT MUST BE SIGNED IN FULL BY BOTH THE BOARD AND THE UNIT OWNER AND BOTH THE BOARD AND THE UNIT OWNER MUST BE FURNISHED FULLY EXECUTED COUNTERPARTS OF THIS AGREEMENT, EACH OF WHICH SHALL BE DEEMED AN ORIGINAL.


26.The instant agreement shall not be construed against either party.

27.There are 27 numbered paragraphs of this agreement spread over 5 including a signature page.

WHEREFORE, the parties have hereunto set their hands.


Notice to Accompany DILF


Notice to Quit


Warranty Deed In Lieu of Foreclosure


the state of foreclosures in 2012 & 2013 cover

Documents

adam leitman bailey

note proper

note defense

promissory note lack

indymac bank

aforeclosure action

van brunt properties

original action