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The Appellate Division, Second Department Holds That A Foreclosing Mortgagee Waived Its Right To Argue That Mortgagor Waived Its Standing Defense

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  • Posted on: Feb 11 2019

Like the iconic scene when a cruise ship is leaving the dock, the New York Supreme Court, Appellate Division, Second Department, in BAC Home Loans Servicing, LP v. Alvarado (January 30, 2019), has everyone waiving.

CPLR 3018(b) requires that “[a] party plead all matters which if not pleaded would be likely to take the adverse party by surprise or would raise issues of fact not appearing on the face of a prior pleading….”  Generally, affirmative defenses are waived by the defendant if not raised in the answer or made the subject of a pre-answer motion to dismiss. 23/23 Communications Corp. v. General Motors Corp., 257 A.D. 367 (1st Dep’t 1999); see also, CPLR 3211(e) (“Any objection or defense based upon a ground set forth in paragraph one, three, four, five and six of subdivision (a) is waived unless raised either by such motion or in the responsive pleading.”)  The defense of lack of standing is an affirmative defense that is subject to this waiver rule.   HSBC Mortgage Corp. v. Johnston, 145 A.D.3d 1240 (3rd Dep’t 2016); see also, US Bank Nat. Assoc. v. Nelson (2nd Dep’t June 23, 2019) (same and indicating that the “mere denial of factual allegations [of standing] will not suffice for this purpose”).  It should be noted that, under appropriate circumstances, the court may grant leave to a defendant to amend an answer to assert an affirmative defense omitted from the party’s original answer.  Marks v. Macchiarola, 221 A.D.2d 217 (1st Dep’t 1995).

The issue of a foreclosing Mortgagee’s standing to bring a mortgage foreclosure action has been discussed in this Blog. SeeThe Second Department Determines That A Line Of Credit Agreement Is Not A Negotiable Instrument Under The UCC When Addressing Plaintiff’s Standing To Commence A Mortgage Foreclosure Action” and  ”The Second Department Denies Summary Judgment To Another Foreclosing Mortgagee Due To The Insufficiency Of Evidence Presented On The Motion.”  The First Department in BAC adds a new twist to this recurring issue.

As expected, the plaintiff in BAC is a mortgagee that commenced an action to foreclose a $490,000.00 mortgage.  In its complaint, BAC alleged, inter alia, that it is that holder and owner of the subject note.  The BAC defendant answered the complaint, pro se, by making general denials only.  The defendant neither asserted an affirmative defense of lack of standing nor did he make a pre-answer motion to dismiss the complaint based on lack of standing.  The plaintiff moved for summary judgment and for an order of reference.  In response, the defendant opposed the motion and cross-moved to dismiss the complaint based on plaintiff’s lack of standing.  In reply to its motion and in opposition to defendant’s cross-motion, the plaintiff addressed the standing issue on the merits by introducing evidence of its standing to commence the foreclosure action.  Significantly, however, the BAC plaintiff “never contended in the Supreme Court that the defendants had waived the issue of standing.”  The Supreme Court granted the plaintiff’s motion “and, in effect, denied the … cross-motion.”

On the appeal, now with retained counsel, the defendant urged that the plaintiff’s motion for summary judgment should have been denied and the complaint should have been dismissed due to the plaintiff’s lack of standing.  In response, the plaintiff improperly argued for the first time on appeal, that defendant waived the issue of standing by not raising standing as an affirmative defense or in a pre-answer motion to dismiss and that it, nonetheless, established its standing to commence the foreclosure action.

The Second Department “modified” the Supreme Court’s order by substituting the provision granting the plaintiff summary judgment and issuing an order of reference with a provision denying the motion.  In so doing, the Second Department noted that instead of arguing waiver below, the plaintiff “sought to establish that it had standing to commence the action … [and] having litigated the standing defense on the merits in the Supreme Court – both on the original motion and in opposition to reargument – the plaintiff argues on appeal that the issue of standing is waived.”  In this regard, the Second Department held that “[h]aving neglected to raise that dispositive issue [of standing] in the Supreme Court, the plaintiff may not raise it for the first time on this appeal.”

In any event, the Second Department also found that the plaintiff failed to establish on the merits that it had standing to commence the action because of the “conclusory” nature of the loan servicer’s affidavit attempting to establish that the plaintiff “was in possession of the Note at the time of commencement of this action.”

TAKEAWAY

The BAC plaintiff may have been better served by arguing waiver and not addressing the merits of the standing issue.

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