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Lenders’ Counsel in Residential Mortgage Foreclosure Actions Should be Mindful of the Abandonment Provisions of CPLR 3215(c)

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  • Posted on: Jul 16 2018

Several recent residential mortgage foreclosure actions are a good reminder of the importance of promptly moving for default judgments against non-appearing defendants.

Rule 3215(c) of the New York Civil Practice Law and Rules provides, in pertinent part, that:

If the plaintiff fails to take proceedings for the entry of judgment within one year after the default, the court shall not enter judgment but shall dismiss the complaint as abandoned, without costs, upon its own initiative or on motion, unless sufficient cause is shown why the complaint should not be dismissed….

Courts have noted that the language of CPLR 3215(c) is mandatory in the first instance unless plaintiff demonstrates “sufficient cause” for the failure to timely “take proceedings for the entry of [a default] judgment]”.  (See, e.g., US Bank v. Onuoha (2nd Dep’t June 27, 2018); Wells Fargo Bank v. Cafasso  (2nd Dep’t February 28, 2018).  The Cafasso Court (quoting Giglio v. NTIMP, Inc., 86 A.D.3d 301 (2nd Dep’t 2011)), noted that “sufficient cause” “’requir[es] both a reasonable excuse for the delay in timely moving for a default judgment, plus a demonstration that the cause of action is potentially meritorious.’”  The “reasonableness” of an excuse is within the sound discretion of the motion court. (See, e.g., Onuoha and Cafasso.)  Finally, a default judgment need not be obtained within one year, as long as proceedings to obtain a default judgment have been initiated.  (See Bank of America v. Lucido (2nd Dep’t July 11, 2018).)  In mortgage foreclosure actions, the preliminary step of moving for an order of reference is deemed to be a sufficient “proceeding” toward the entry of judgment to satisfy the one-year time frame of CPLR 3215(c).  (See, e.g., Deutsche Bank v. Delisser (2nd Dep’t May 16, 2018); Lucido.)

The facts of the relevant cases are important to the Court’s analysis.

Onuoha

In February of 2008 one and one-half years after executing her note and mortgage, the plaintiff in Onuoha defaulted in making her installment payments.  A default notice was sent to Onuoha in May of 2008.  US Bank commenced its mortgage foreclosure action in July of 2008 and Onuoha served a pro se answer by mail on September 15, 2008.  Claiming it was due on or before September 10, 2008, US Bank rejected the answer as untimely.  In July of 2011, Onuoha’s pro se notice of appearance was also rejected as untimely.

In May of 2013, US Bank moved for an order of reference and for a default judgment against Onuoha.  Onuoha opposed the motion because, inter alia, the motion was made more than a year after her default.  In its reply papers US Bank argued that: (1) “upon information and belief” the matter was put “on hold” while Onuoha was being reviewed for “loss mitigation” and while loan modification possibilities were being considered; (2) for a little more than a year thereafter, US Bank was in litigation with a co-defendant that claimed the subject property was fraudulently conveyed to Onuoha; (3) US Bank’s original law firm closed and the matter was transferred to a new firm; and, (4) the matter was again put on hold because the property was in a Hurricane Sandy federal disaster area.

The motion court granted US Bank’s motion for an order of reference.  The Second Department reversed, however, holding that:

…the allegations of the plaintiff were conclusory and unsubstantiated.  The allegations with respect to why the plaintiff’s former attorney did not seek a default judgment against [Onuoha] were not supported with evidence in admissible form by a person with personal knowledge of the facts.  Further, there is no explanation as to why the litigation with the codefendant was a ground to delay seeking a default judgment against [Onuoha], whose liability was based not only upon her alleged interest in the property, but also her obligation under the note, which did not involve the codefendant.

Thus, the Second Department concluded that supreme court should have “dismissed the complaint as abandoned pursuant to CPLR 3215(c) insofar as asserted against [Onuoha].”

Cafasso

In Cafasso, Wells Fargo moved for an order of reference and to hold Cafasso in default more than four years after Cafasso failed to serve an answer and to appear at a settlement conference.  Notwithstanding Cafasso’s opposition based on CPLR 3215(c), supreme court granted Wells Fargo’s motion.  In reversing supreme court “on the law and in the exercise of discretion,” the Second Department dismissed Wells Fargo’s complaint and stated:

Under the circumstances at bar, the Supreme Court improvidently exercised its discretion in finding that the plaintiff proffered a reasonable excuse for the delay, since the plaintiff’s conclusory and unsubstantiated assertions that unspecified periods of delay were attributable to the effects of Hurricane Sandy, compliance with a then newly enacted administrative order, and changes in loan servicers and counsel were insufficient for this purpose.”

Seidner

Similarly, in HSBC Bank v. Seidner (2nd Dep’t March 28, 2018), Seidner was served with process in November of 2011 and failed to respond to the complaint.  In April of 2014, HSBC moved for an order of reference and Seidner cross-moved to dismiss the complaint as abandoned pursuant to CPLR 3215(c). Supreme court granted the motion and denied the cross-motion, reasoning that “the matter had been on the calendar of the settlement conference part until August 2014, and that ‘time on the calendar of the conference part should be considered sufficient cause within the meaning of CPLR 3215(c)’” (some internal quotation marks and brackets omitted).

The Second Department in Seidner reversed, recognizing that HSBC failed to take steps to initiate proceedings for a default judgment for over two years after the default and failed to offer an excuse for its delay “other than the conclusory and unsubstantiated claims that ‘a significant portion’ of the delay was caused by ‘Hurricane Sandy.’” Such excuses were deemed to be insufficient.  In rejecting supreme court’s reliance on the matter’s pendency on the settlement conference calendar as the basis for “sufficient cause,” the Second Department reasoned that, while “the time to move for a default judgment is tolled while settlement conferences are pending  (see 22 NYCRR 202.12-a[c][7]…,” “it is undisputed that this action was not subject to mandatory settlement conferences and…the matter was not transferred to the settlement conference part until well after the deadline of CPLR 3215(c) had passed.”

Hasis

The Second Department found a reasonable excuse for delay in HSBC Bank USA v. Hasis (Nov. 29, 2017).  There, the foreclosure action was commenced in January of 2011.  On July 1, 2011, supreme court advised plaintiff of a settlement conference in August, but the defendant failed to appear.  Therefore, HSBC was directed to proceed by motion for an order of reference.  In December of 2011 plaintiff’s then counsel “ceased operations” and new counsel was substituted.  On September 10, 2012, defendant filed for bankruptcy and, in November of 2014, plaintiff moved for an order of reference after defendant received a discharge in bankruptcy.

The Hasis supreme court granted HSBC’s motion for an order of reference and denied Hasis’ motion to dismiss the complaint pursuant to CPLR 3215(c).  The Second Department affirmed.  While approximately 13 months elapsed from the time the case was released from the residential foreclosure part until Hasis’ bankruptcy filing with no steps being taken in that time toward the entry of default, the Hasis Appellate Court found that the closure of HSBC’s initial law firm and the Chapter 7 bankruptcy filing were sufficient bases for the delay.

TAKEAWAY

It is good practice for foreclosing lenders to promptly take steps to enter default judgments against non-appearing defendants.  It is ill-advised for lenders to rely on the “sufficient cause” exception of CPLR 3211(c) because it is far from guaranteed that the complaint will be sustained.  It should be noted, however, that dismissals under CPLR 3215(c) are not “with prejudice” unless the court so rules.  (See, e.g., EMC Mortgage Corp. v. Smith, 18 A.D.3d 602, 796 N.Y.S.2d 364 (2nd Dep’t 2005); Shepard v.  St. Agnes Hosp., 86 A.D.2d 628, 446 N.Y.S.2d 350 (2nd Dep’t 1982).)  Nonetheless, it makes eminent sense to timely move for a default judgment to avoid the uncertainty, time and costs of related motion practice and potential appeals.

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