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If I Only Had a Stapler, We could Have Gotten Allonge Better

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  • Posted on: Feb 3 2023

By Jonathan H. Freiberger

This Blog frequently addresses issues related to mortgage foreclosure actions, generally, and issues of standing, specifically.  Much of the background of this article was taken from a prior article: “Appellate Division, Second Department, Validates Mortgage Foreclosure Defendants’ Cries of ‘Leave me Allonge’”.  As to the issues relating to the standing of a lender to commence a foreclosure action, this Blog has noted that, in general, a foreclosing mortgagee makes out its prima facie case by producing the “mortgage, the unpaid note, and evidence of default.”  Deutsche Bank Nat. Trust Co. v. Abdan, 131 A.D.3d 1001, 1002 (2nd Dep’t 2015).  When standing is raised as a defense, the lender must also prove its standing to obtain relief from the court.  Nationstar Mortgage, LLC v. LaPorte, 162 A.D.3d 784, 785 (2nd Dep’t 2018).  The lender in a mortgage foreclosure action establishes its standing by demonstrating that it “is the holder or assignee of the underlying note at the time the action is commenced.”  Nationstar, 162 A.D.3d at 785.  A “holder” is “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.”  N.Y.U.C.C 1-201[b][21]; Deutsche Bank Nat. Trust Co. v. Brewton, 142 A.D.3d at 684 (2nd Dep’t 2016).  A written assignment of the note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation.  Brewton, 142 A.D.3d at 684 (citation omitted).  The mortgage, because it is merely security for the maker’s obligation to repay the underlying debt, passes with the debt as an inseparable incident when the note is assigned.  Brewton, 142 A.D.3d at 684 (citation omitted).  Where, however, a note is “neither indorsed in blank nor specifically indorsed” to the person in physical possession of the note, that person cannot be “the lawful holder thereof for purposes of enforcing it.”  McCormack v. Maloney, 160 A.D.3d 1098, 1100 (3rd Dep’t 2018) (citations omitted).  Therefore, such a person would not, inter alia, have standing to commence a mortgage foreclosure action.  McCormack, 160 A.D.3d at 1100 (citations omitted).

Section 3-202 of New York’s Uniform Commercial Code governs the “negotiation” of a negotiable instrument, which is the “transfer of an instrument in such form that the transferee becomes the holder.”  UCC § 3-202(1).  “If the instrument is payable to order it is negotiated by delivery with any necessary indorsement; if payable to bearer it is negotiated by delivery.” UCC § 3-202(1).    “Holder status is established where the plaintiff 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 (3rd Dep’t 2015) (citations omitted).  An allonge is an additional piece of paper “so firmly affixed [to the note] as to become a part thereof.”  NY UCC § 3-202(2); U.S. Bank National Assoc. v. Moulton, 179 A.D.3d 734 (2nd 2020).  An allonge may be needed where “there is insufficient space on the [note] itself for the endorsements; as long as the allonge remains firmly affixed to the note, it becomes part of the note.”  Id. (citation omitted). 

In “Leave Me Allonge,” we discussed Moulton, a case analyzing the sufficiency of an endorsement.  Today’s Blog involves US Bank National Ass’n. v. Okoye-Oyibo, decided on February 1, 2023, a case in which, inter alia, the affixation requirement of an allonge was the subject of the decision.  UCC § 3-202(2).  The lender in Okoye-Oyibo commenced a mortgage foreclosure action in which the borrower asserted a lack of standing defense, among others.  Supreme court denied the lender’s motion for, inter alia, summary judgment “on the complaint insofar as asserted against the [borrower] and dismissing her affirmative defenses and counterclaims.”  Lender appealed.  Among other things, the Second Department modified supreme court’s order by granting lender summary judgment dismissing borrower’s affirmative defenses except for standing and failure to comply with conditions precedent.  

As to standing, the Court held that it was not demonstrated by the lender that the allonge in question was “firmly affixed” to the note, and stated:

Here, the plaintiff failed to establish, prima facie, the defendant’s default or the plaintiff’s standing to commence the action. A plaintiff may demonstrate its standing in a foreclosure action through proof that it was in possession of the subject note endorsed in blank, or the subject note and a firmly affixed allonge endorsed in blank, at the time of commencement of the action. Although the plaintiff attached to the complaint copies of the note and a chain of purported allonges ending with an undated purported allonge endorsed in blank, the plaintiff did not demonstrate that the purported allonges, which were on pieces of paper completely separate from the note, were “so firmly affixed thereto as to become a part thereof,” as required by UCC 3-202(2) (see Raymond James Bank, NA v Guzzetti, 202 AD3d [841,] 843 [(2nd Dep’t 2022)]; Wells Fargo Bank, N.A. v Maleno-Fowler, 194 AD3d 1094, 1095 [(2nd Dep’t 2014)]; Citimortgage, Inc. v Ustick, 188 AD3d 793, 795 [(2nd Dep’t 2020)]). None of the pieces of paper in the record comprising the note or the allonges bore any markings of having ever been attached to one another.  [Some citations, internal quotation marks and brackets omitted.]

In addition, the Okoye-Oyibo Court found that lender failed to prove that it was in possession of the note prior to the commencement of the action and that borrower defaulted.  In support of its motion for summary judgment, the lender relied on an affidavit of a “foreclosure specialist” employed by its servicer in which the affiant “failed to identify the records upon which she relied in making the statements, and the [lender] failed to submit copies of the records themselves.”  (Citations and internal quotation marks omitted).  Similarly, the Court found that the lender failed to prove that it complied with the notice requirements of RPAPL 1304 because the affiant failed to attest that she was familiar with the standard office mailing procedures of … the third-party vendor that apparently sent the RPAPL 1304 notices on behalf of the [lender].”  [Eds. Note: this blog has frequently addressed issues relating to the evidentiary failures of lenders such as those addressed by the Okoye-Oyibo Court.]

Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

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