21st Mortg. Corp. v. Rudman

• Decision Date: 05 January 2022
• Docket Number: 2018–14789,Index No. 514754/15
• Citation: 201 A.D.3d 618,161 N.Y.S.3d 257
• Parties: 21ST MORTGAGE CORPORATION, etc., respondent, v. Mannes RUDMAN, et al., defendants, BP Hatzlucha Management Corp., appellant.
• Court: New York Supreme Court — Appellate Division

201 A.D.3d 618

161 N.Y.S.3d 257

21ST MORTGAGE CORPORATION, etc., respondent,

v.Mannes RUDMAN, et al., defendants,BP Hatzlucha Management Corp., appellant.

2018–14789

Index No. 514754/15

Supreme Court, Appellate Division, Second Department, New York.

Submitted—December 15, 2020

January 5, 2022

Avi Rosenfeld, Lawrence, NY, for appellant.

Carter, Conboy, Case, Blackmore, Maloney & Laird, P.C., Albany, NY (Michael J. Catalfimo of counsel), for respondent.

LEONARD B. AUSTIN, J.P., BETSY BARROS, FRANCESCA E. CONNOLLY, ANGELA G. IANNACCI, JJ.

DECISION & ORDER

In an action to foreclose a mortgage, the defendant BP Hatzlucha Management Corp. appeals from an order and judgment of foreclosure and sale (one paper) of the Supreme Court, Kings County (Noach Dear, J.), dated October 31, 2018. The order and judgment of foreclosure and sale, upon an order of the same court dated June 5, 2017, inter alia, granting those branches of the plaintiff's motion which were for summary judgment on the complaint insofar as asserted against that defendant and to appoint a referee to compute the amount due to the plaintiff, granted the plaintiff's motion to confirm the referee's report and for a judgment of foreclosure and sale, and directed the sale of the subject property.

ORDERED that the order and judgment of foreclosure and sale is affirmed, with costs.

On April 5, 2006, the defendant Mannes Rudman executed a note in favor of Option One Mortgage Corporation (hereinafter Option One) in the sum of $598,500. The note was secured by a mortgage encumbering certain real property located in Brooklyn. Option One executed an assignment dated April 13, 2006, but effective October 23, 2006 (hereinafter the 2006 assignment), in which it transferred the note and the mortgage to Residential Funding Company, LLC (hereinafter Residential). In the 2006 assignment, Option One acknowledged having endorsed the note.

By summons and complaint filed October 24, 2006, by Steven J. Baum, P.C., Option One commenced an action to foreclose the mortgage (hereinafter the 2006 action). In the complaint, verified by counsel, Option One alleged that it was the holder of the mortgage. Significantly, Option One neither alleged nor claimed that it was the holder of the note in any paragraph of the complaint or its ad damnum clause.

In March 2012, Rudman transferred the subject property to the defendant BP Hatzlucha Management Corp. (hereinafter BP Hatzlucha), for which BP Hatzlucha paid a New York State real estate transfer tax in the sum of $100. By order dated March 28, 2013, the Supreme Court granted Option One's motion, inter alia, to voluntarily discontinue the 2006 action.

By assignment dated October 15, 2015, Residential assigned the subject note and mortgage to the plaintiff herein. In December 2015, the plaintiff commenced this action against, among others, BP Hatzlucha to foreclose the mortgage, alleging, inter alia, that Rudman had defaulted on his mortgage by failing to make the payment due January 1, 2010, and all payments due thereafter. BP Hatzlucha interposed an answer asserting, among other things, an affirmative defense that the action was time-barred and a counterclaim pursuant to RPAPL 1501(4) to cancel and discharge the subject mortgage.

In August 2016, the plaintiff moved, inter alia, for summary judgment on the complaint insofar as asserted against BP Hatzlucha, to dismiss the affirmative defenses and counterclaims, and to appoint a referee to compute the amount due to the plaintiff. With regard to the statute of limitations affirmative defense raised in BP Hatzlucha's answer, the plaintiff contended that the 2006 action did not accelerate the debt because Option One lacked standing to commence that action. Consequently, the plaintiff argued that the statute of limitations did not begin to run upon the filing of the 2006 action.

In opposition, BP Hatzlucha argued, inter alia, that the documentation submitted by the plaintiff, including the 2006 assignment, the note with allonges, and the complaint filed in the 2006 action, raised triable issues of fact regarding whether Option One physically delivered or endorsed the note to Residential prior to commencing the 2006 action. Moreover, BP Hatzlucha noted that a subsequent "Corporate Assignment of Mortgage" was executed by Sand Canyon Corp., formerly known as Option One, on August 7, 2012, which purported to transfer the subject mortgage to Residential as of that date.

In an order dated June 5, 2017, the Supreme Court, inter alia, granted the plaintiff's motion, among other things, for summary judgment on the complaint insofar as asserted against BP Hatzlucha and to appoint a referee to compute the amount due to the plaintiff. Following a hearing, the referee issued a report setting forth his findings regarding the amount due and owing on the note. The plaintiff moved to confirm the referee's report and for a judgment of foreclosure and sale. In an order and judgment of foreclosure and sale dated October 31, 2018, the court granted the plaintiff's motion to confirm the referee's report and for a judgment of foreclosure and sale, and directed the sale of the subject property. BP Hatzlucha appeals.

To have standing to commence a foreclosure action, a plaintiff must have been the holder or assignee of the note at the time the action was commenced (see Aurora Loan Servs., LLC v. Taylor, 25 N.Y.3d 355, 361–362, 12 N.Y.S.3d 612, 34 N.E.3d 363 ), and "the note ... is the dispositive instrument that conveys standing to foreclose under New York law" ( id. at 361, 12 N.Y.S.3d 612, 34 N.E.3d 363 ). "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 mortgage passes with the debt as an inseparable incident" ( U.S. Bank, N.A. v. Collymore, 68 A.D.3d 752, 754, 890 N.Y.S.2d 578 ; see Aurora Loan Servs., LLC v. Taylor, 25 N.Y.3d at 361–362, 12 N.Y.S.3d 612, 34 N.E.3d 363 ; Federal Natl. Mtge. Assn. v. Onuoha, 172 A.D.3d 1170, 1172, 102 N.Y.S.3d 214 ; Marchai Props., L.P. v. Fu, 171 A.D.3d 722, 724, 98 N.Y.S.3d 92 ). Although our dissenting colleague suggests that the concept that standing arises from either the possession of the note or the assignment of it is of recent and misguided jurisprudence, that premise is incorrect. Indeed, the standing of the assignee of a note has long been recognized in both New York (see Merritt v. Bartholick, 36 N.Y. 44, 45 [1867] ) and federal (see Carpenter v. Longan, 83 U.S. 271, 275, 16 Wall. 271, 21 L.Ed. 313 [1872] ) jurisprudence. The dissent's reliance on the law of our 49 sister states as applied in New York trial court decisions is of no moment in this case. Further, it is disconcerting that our dissenting colleague relies upon trial court criticism of our long-standing jurisprudence with regard to standing.

An action to foreclose a mortgage is subject to a six-year statute of limitations (see CPLR 213[4] ; Kashipour v. Wilmington Sav. Fund Socy., FSB, 144 A.D.3d 985, 986, 41 N.Y.S.3d 738 ; Nationstar Mtge., LLC v. Weisblum, 143 A.D.3d 866, 867, 39 N.Y.S.3d 491 ). " ‘[E]ven if a mortgage is payable in installments, once a mortgage debt is accelerated, the entire amount is due and the Statute of Limitations begins to run on the entire debt’ " ( Nationstar Mtge., LLC v. Weisblum, 143 A.D.3d at 867, 39 N.Y.S.3d 491, quoting EMC Mtge. Corp. v. Patella, 279 A.D.2d 604, 605, 720 N.Y.S.2d 161 ).

"An acceleration of a mortgage debt can occur when a creditor commences an action to foreclose upon a note and mortgage and seeks, in the complaint, payment of the full balance due" ( Wells Fargo Bank, N.A. v. Lefkowitz, 171 A.D.3d 843, 844, 97 N.Y.S.3d 696 [internal quotation marks omitted]). "However, service of a complaint is ineffective to constitute a valid exercise of the option to accelerate a debt where the plaintiff does not ‘have the authority to accelerate the debt or to sue to foreclose at that time’ " ( MLB Sub I, LLC v. Grimes, 170 A.D.3d 992, 993, 96 N.Y.S.3d 594, quoting Wells Fargo Bank, N.A. v. Burke, 94 A.D.3d 980, 983, 943 N.Y.S.2d 540 ; see J & JT Holding Corp. v. Deutsche Bank Natl. Trust Co., 173 A.D.3d 704, 707, 104 N.Y.S.3d 112 ).

Here, the plaintiff established, prima facie, that Option One lacked standing to commence the 2006 action and, as a result, it did not have authority to validly exercise the option to accelerate the debt (see J & JT Holding Corp. v. Deutsche Bank Natl. Trust Co., 173 A.D.3d at 707, 104 N.Y.S.3d 112 ; U.S. Bank N.A. v. Gordon, 158 A.D.3d 832, 836, 72 N.Y.S.3d 156 ). The 2006 assignment executed by Option One assigned both the note and the mortgage to Residential prior to Option One's commencement of the 2006 action on October 24, 2006. Moreover, according to the 2006 assignment, Option One had endorsed the note to Residential by assigning "all right, title and interest in said note and all rights accrued under said Mortgage and all indebtedness secured thereunder" "[e]ffective as of 10–23–06" (emphasis added). The assignment was duly recorded in the office of the City Register on June 15, 2007, affording notice to Rudman and BP Hatzlucha prior to the transfer of the subject property in March 2012. Thus, the plaintiff's evidence showed that when Option One commenced the 2006 action, Residential was the lawful assignee of the note and the mortgage (see J & JT Holding Corp. v. Deutsche Bank Natl. Trust Co., 173 A.D.3d at 707, 104 N.Y.S.3d 112 ; 21st Mtge. Corp. v. Adames, 153 A.D.3d 474, 475, 60 N.Y.S.3d 198 ).

Option One acknowledged as much in its complaint wherein it alleged being the holder of only the mortgage, not the note. Our dissenting colleague's reliance upon the verification or certification of Option One's attorney does not in any way support the conclusion that Option One was the holder of the note at the time the 2006 action was commenced. An attorney inspecting a note for the purpose of drafting a...