Line of Credit Agreement Is Not Considered A Promissory Note And, Therefore, Creates Standing Issues in Mortgage Foreclosure Action
Print Article- Posted on: Jan 10 2025
As readers of this BLOG know, we frequently address issues involved with mortgage foreclosure.[1] Because of, inter alia, the frequency with which mortgages are bought, sold, assigned and otherwise transferred, one issue that frequently arises in mortgage foreclosure actions is whether the plaintiff has standing[2] to commence its action. Briefly stated, “[s]tanding involves a determination of whether the party seeking relief has a sufficiently cognizable stake in the outcome so as to cast the dispute in a form traditionally capable of judicial resolution. Graziano,v. County of Albany, 3 N.Y.3d 475, 479 (2004) (citations, internal quotation marks and brackets omitted). Put another way, “[s]tanding to sue requires an interest in the claim at issue in the lawsuit that the law will recognize as a sufficient predicate for determining the issue at the litigant’s request.” Caprer v. Nussbaum, 36 A.D.3d 176, 182 (2nd Dep’t 2006). Accordingly, the question of whether a plaintiff has standing is “is a threshold determination, resting in part on policy considerations, that a person should be allowed access to the courts to adjudicate the merits of a particular dispute that satisfies the other justiciability criteria.” Caprer, 36 A.D.3d at 182 (citations omitted).
“A plaintiff has standing in a mortgage foreclosure action when it is the holder or assignee of the underlying note at the time the action is commenced.” Bayview Loan Servicing, LLC v. Ashkenazi, 2024 WL 5205093 (2nd Dep’t December 24, 2024). When standing is raised as a defense in a foreclosure action, the lender must prove, inter alia, its standing to obtain relief from the court. Nationstar Mortgage, LLC v. LaPorte, 162 A.D.3d 784, 785 (2nd Dep’t 2018); see also Fed. Nat. Mort Ass’n v. Krell, 231 A.D.3d 1334, 1335 (3rd Dep’t 2024); Citimortgage, Inc. v. Sultan, 230 A.D.3d 1292, 1293 (2nd Dep’t 2024). Standing is established by the plaintiff by demonstrating that it “is the holder or assignee of the underlying note at the time the action is commenced.” LaPorte, 162 A.D.3d at 785; see also Sultan, 230 A.D.3d at 1293-94. 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]. Where a note is indorsed in blank, the holder establishes standing to maintain an action by demonstrating that it “was in physical possession of the note endorsed in blank prior to commencement of the action.” Deutsche Bank Nat. Trust Co. v. Brewton, 142 A.D.3d 683, 685 (2nd Dep’t 2016); see also U.S. Bank N.A. v. Romano, 231 A.D.3d 1079, 1080 (2nd Dep’t 2024).
In order for the rules previously discussed to apply, the “note” must be a negotiable instrument as defined by the UCC. Pursuant to N.Y.U.C.C. 3-104, in order for a writing to be a negotiable instrument, it must “be signed by the maker or drawer,” “contain an unconditional promise or order to pay a sum certain in money and no other promise, order, obligation or power given by the maker or drawer except as authorized by this Article,” “be payable on demand or at a definite time,” and “be payable to order or to bearer.” In OneWest Bank, N.A. v. FMCDH Realty, Inc., 165 A.D.3d 128 (2018)[3], the Second Department determined, for a variety of reasons, that a reverse mortgage “Cash Account Agreement” was not a negotiable instrument and, therefore, “the plaintiff cannot establish its standing merely by showing that it possessed the original Cash Account Agreement, indorsed in blank, on the date this action was commenced”. OneWest, 165 A.D.3d at 135.
On December 23, 2024, the Supreme Court of the State of New York, Kings County, decided Wilmington Savings Fund Society v. Green, in which the court, relying on, inter alia, OneWest, determined that a lender failed to prove standing under the traditional holder in due course analysis because the subject “Bank of America Equity Maximizer Agreement and Disclosure Statement” for a line of credit was not a negotiable instrument under the UCC. Among other things, the subject agreement required the repayment of not a sum certain, but “the total of all credit advances and FINANCE CHARGES, together with all costs and expenses for which you are responsible under this Agreement….” Id. (emphasis in original). Accordingly, the lender was “not a valid ‘holder in due course’” and could not “establish its standing merely by showing that it possessed the original agreement, indorsed in blank, on the date [the]action was commenced. Id. Because the lender failed to “provide a proper note” it “failed to establish a prima facie case” for foreclosure, which requires the “production of the mortgage, the unpaid note, and evidence of default.” (Citation and internal quotation marks omitted.)
Further, the Green court, relying on Urban Equity Partners, LLC v. Aribisala, 143 A.D.3d 887 (2nd Dep’t 2016), also found that the lender “cannot make a prima facie case based solely on the line of credit agreement because, unlike a promissory note containing an unequivocal promise to pay a sum certain, the subject agreement merely shows that [the borrower] had a line of credit from which she could obtain cash advances and, thus, does not constitute proof of an obligation that can be foreclosed upon. Rather, [the lender] must also submit evidence that [the borrower] actually received cash advances from [the lender] under the agreement.” (Citation omitted.) In this regard, the Green court noted that because the lender proceeded as if the matter was governed by a promissory note “containing an unequivocal promise to pay a sum certain” no evidence of actual cash advances was submitted because proof of an outstanding balance “would be superfluous.”
Because the lender failed to meet its prima facie burden on its foreclosure cause of action, summary judgment was denied.
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.
[1] To find BLOG articles related to mortgage foreclosure, visit the “Blog” tile on our website and enter “mortgage foreclosure” (or any related topic of interest) in the “search” box.
[2] To find one of our numerous BLOG articles related to standing, visit the “Blog” tile on our website and enter “standing foreclosure” in the “search” box. However, [here] is one of our more recent and fulsome discussion of standing
