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Second Department Once Again Finds that Evidentiary Failures Regarding Lender’s Standing in Mortgage Foreclosure Action Warrant Reversal of Judgment of Foreclosure and Sale 

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  • Posted on: Mar 25 2022

By Jonathan H. Freiberger

This Blog has frequently written about numerous different issues regarding residential mortgage foreclosure.  One recurring issue relates to the evidentiary proof necessary for the lender to satisfy its prima facie foreclosure case and/or to demonstrate its standing to commence its foreclosure action (when the borrower raises standing as a defense).  [Eds. Note: such issues have been discussed in this Blog, inter alia, [here] and [here].]

In order to “establish prima facie entitlement to judgment as a matter of law in an action to foreclose a mortgage, a plaintiff must produce the mortgage, the unpaid note, and evidence of default.”  M&T Bank v. Barter, 186 A.D.3d 698, 700 (2nd Dep’t 2020) (citations omitted).  However, where “a plaintiff’s standing to commence a foreclosure action is placed in issue by the defendant, it is incumbent upon the plaintiff to prove its standing to be entitled to relief.”  Wells Fargo Bank, N.A. v. Arias, 121 A.D.3d 973, 973-74 (2nd Dep’t 2014) (citation and internal quotation marks omitted).  A lender establishes standing in a foreclosure action “by demonstrating that, when the action was commenced, it was either the holder or the assignee of the underlying note.”  U.S. Bank National Association v. Seeley, 177 A.D.3d 933, 935 (2nd Dep’t 2019) (citations omitted).  “Either a written assignment of the underlying note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation, and the underlying mortgage passes with the debt as an inseparable incident.”   Dyer Trust 2021-1 v. Global World Realty, Inc., 140 A.D.3d 827, 828 (2ND Dep’t 2016) (citations omitted).  As the Court of Appeals explained in Aurora Loan Services, LLC. V. Taylor, 25 N.Y.3d 355 (2015):

… it is not necessary to have possession of the mortgage at the time the action is commenced. This conclusion follows from the fact that the note, and not the mortgage, is the dispositive instrument that conveys standing to foreclose under New York law. In the current case, the note was transferred to Aurora before the commencement of the foreclosure action—that is what matters.

A transfer in full of the obligation automatically transfers the mortgage as well unless the parties agree that the transferor is to retain the mortgage 

Any disparity between the holder of the note and the mortgagee of record does not stand as a bar to a foreclosure action because the mortgage is not the dispositive document of title as to the mortgage loan; the holder of the note is deemed the owner of the underlying mortgage loan with standing to foreclose.

Aurora, 25 N.Y.3d at 361 – 362 (citations, internal quotation marks and brackets omitted).

Whether the lender satisfied the evidentiary requirements of proving standing was one of the issues decided on March 23, 2022, by the Appellate Division, Second Department, in Wells Fargo Bank, N.A. v. Farfan.  The borrower in Farfan borrowed $300,000 and secured his repayment obligation with a mortgage on property in Queens County.  In 2007, the lender commenced a foreclosure action upon the borrower’s default.  In his answer, borrower, among other things, asserted as a defense that the lender lacked standing to foreclose.  The lender’s motion for, inter alia, summary judgment on its complaint, striking the borrower’s answer and for an order of reference was granted by supreme court in 2018.  A judgment of foreclosure and sale was entered in 2020 (the “Judgment”).  On the borrower’s appeal, the Second Department reversed the Judgment and denied the lender’s motion for summary judgment on the complaint, to strike the borrower’s answer and for an order of reference.  

After discussing the legal issues discussed below, the Court addressed the sufficiency of the lender’s proof of standing and stated:

Here, in support of its motion, the [lender] submitted an affidavit of Teri L. Townsend, who averred that, in her position as vice president of loan documentation for the [lender], she had access to and was familiar with the business records related to the mortgage loan at issue. She averred that the records were maintained in the ordinary course of business, and were “made at or near the time of the occurrence of the matters recorded by persons with personal knowledge of the information in the business record, or from information transmitted by persons with personal knowledge.” Townsend further averred that, based on her review of the [lender]’s “correspondence with the custodian regarding this loan, LaSalle Bank National Association, as prior custodian, was in possession of the original Note on October 24, 2007, the date the Complaint was filed.” However, Townsend failed to specify which entity generated the subject correspondence, and, to the extent the correspondence was not generated by the [lender], failed to state that she was familiar with the record-keeping practices and procedures of the entity that generated the correspondence, or that the correspondence was incorporated into the [lender]’s own records and routinely relied upon by the [lender] in its own business.

The Court further found that the lender’s proof would have still been inadequate even if it laid a “proper foundation for the admissibility of the unspecified correspondence she relied on” because “Townsend failed to identify the records upon which she relied in making the statements, and the [lender] failed to submit copies of the records themselves” noting that “[i]t is the business record itself, not the foundational affidavit, that serves as proof of the matter asserted.”  (Citations, internal quotation marks and brackets omitted.)

Finally (as is relevant to this article), the Court found that the lender failed to establish two additional facts critical to the lender’s standing claim:

While the plaintiff’s submissions established a chain of assignments of mortgage ending with the plaintiff’s alleged predecessor in interest, Norwest Mortgage, Inc., the last assignment in the chain does not indicate that the subject note was assigned together with the subject mortgage. Further, the plaintiff failed to submit evidence to establish that its immediate predecessor by merger, Wells Fargo Home Mortgage, Inc., was formerly known as Norwest Mortgage, Inc., as indicated in the caption on the complaint in this action, or whether Wells Fargo Home Mortgage, Inc., merged with Norwest Mortgage, Inc., as Townsend averred. Thus, the plaintiff also failed to establish its standing as assignee of the note prior to commencement. 

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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