First Nat. Bank of Chicago v. Silver

• Decision Date: 23 March 2010
• Citation: 899 N.Y.S.2d 256,73 A.D.3d 162
• Parties: FIRST NATIONAL BANK OF CHICAGO, etc, respondent, v. Alvin SILVER, et al., appellants, et al., defendant.
• Court: New York Supreme Court — Appellate Division

899 N.Y.S.2d 256

73 A.D.3d 162

FIRST NATIONAL BANK OF CHICAGO, etc, respondent,

v.Alvin SILVER, et al., appellants, et al., defendant.

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

March 23, 2010.

Smith, Buss & Jacobs, LLP, Yonkers, N.Y. (Jeffrey D. Buss of counsel), for appellants.

Zavatsky Mendelsohn & Levy, LLP, Syosset, N.Y. (John Tangel of counsel), for respondent.

MARK C. DILLON, J.P., ANITA R. FLORIO, RUTH C. BALKIN, and JOHN M. LEVENTHAL, JJ.

FLORIO, J.

In this matter we are asked to determine an issue of first impression at the appellate level, that is, whether the failure to comply with notice requirements of the Home Equity Theft Prevention Act (Real Property Law § 265-a; hereinafter HETPA) must be raised as an affirmative defense or whether it can be raised at any time during an action. We hold that it can be raised at any time and, therefore, reverse, insofar as appealed from, the order of the Supreme Court granting the plaintiff's motion, inter alia, for summary judgment on the complaint and to appoint a referee to compute and, in effect, denying the cross motion of the appellants, Alvin Silver and Pearl Silver ¹, among other things, for summary judgment dismissing the complaint insofar as asserted against them.

The Factual Background

On April 9, 1999, the appellants borrowed $324,000 from M.L. Moskowitz & Co., Inc. They executed and delivered a promissory note to M.L. Moskowitz & Co., Inc., agreeing to repay that amount over 30 years. They also executed and delivered a mortgage on their home, as collateral security for the loan. The mortgage indicates that the premises is a one or two family dwelling, to be occupied by the borrowers (i.e., the appellants) as their principal residence. On April 14, 1999, the mortgage and note were assigned by M.L. Moskowitz & Co., Inc., to the plaintiff, First National Bank of Chicago, as trustee. On April 28, 1999, this mortgage was recorded in the County of Nassau and, on February 1, 2000, the assignment also was recorded there. There are no further assignments of this mortgage and note contained in the record.

Eventually, on October 17, 2007, the plaintiff filed a summons, unverified complaint, and notice of pendency to commence this foreclosure action, alleging thatsince July 1, 2007, the appellants had failed to make the required payments due pursuant to the promissory note and mortgage. The plaintiff does not allege, nor does the record reflect, that the required HETPA notice was delivered with the summons and complaint. In response, the appellants filed an answer, dated December 12, 2007. Significantly, their answer did not allege a failure to comply with HETPA.

By notice of motion dated March 12, 2008, the plaintiff moved, inter alia, for summary judgment on the complaint, to strike the appellants' answer, and to appoint a referee to compute the total amount due with respect to the subject loan. The plaintiff contended that it had established prima facie proof of its entitlement to judgment as a matter of law by submitting the mortgage, the unpaid note, and evidence of default. Thus, it contended that the burden shifted to the appellants to raise a triable issue of fact that payment was made.

In response, by notice of cross motion dated March 27, 2008, the appellants cross-moved, inter alia, for summary judgment dismissing the complaint insofar as asserted against them. In his affirmation, the appellants' counsel, among other things, citing HETPA, asserted that New York's public policy is to protect homeowners from foreclosure and, therefore, the Supreme Court should not look lightly upon the plaintiff's failure to meet its burden of proof. Counsel expanded upon this argument in a memorandum of law, which outlined the mandatory notice provisionsrequired by HETPA.² Counsel asserted that since the plaintiff failed to comply with said provisions, the action must be dismissed as a matter of law.

The plaintiff opposed the cross motion, arguing, inter alia, that HETPA is not relevant to the instant matter and is a red herring. The plaintiff did not contend that it was improperly raised.

On October 7, 2008, the Supreme Court issued an order granting the plaintiff's motion, and, in effect, denying the appellants' cross motion. On appeal, the appellants contend, inter alia, that the Supreme Court erred in granting the motion and, in effect, denying the cross motion because the plaintiff failed to comply with the notice requirements in HETPA. We agree.

Discussion

HETPA was enacted in July 2006. It consisted of amendments to the Banking Law, Real Property Law, and Real Property Actions and Proceedings Law (hereinafter the RPAPL). At issue here are the requirements added to foreclosure proceedings by RPAPL 1303, which deal with the required statutory notice. The underlying purpose of HETPA was to afford greater protections to homeowners confronted with foreclosure ( see Senate Introducer Mem. in Support, Bill Jacket, L. 2006, ch. 308, at 7-9; Countrywide Home Loans, Inc. v. Taylor, 17 Misc.3d 595, 843 N.Y.S.2d 495).

HETPA became effective on February 1, 2007. It requires the foreclosing party in a residential mortgage foreclosure action to deliver statutory-specific notice to the homeowner, together with the summons and complaint ( see RPAPL 1303[1] ). Specifically, RPAPL 1303(2) as enacted, stated:

"the notice required by this section shall be delivered with the summons and complaint to commence a foreclosure action. The notice required by this section shall be in bold, fourteen-point type and shall be printed on colored paper that is other than the color of the summons and complaint, and the title of the notice shall be in bold, twenty-point type. The notice shall be on its own page."

While there is no appellate authority directly on point, the courts that have considered the character of the notice haveconsistently interpreted HETPA's notice requirement as a mandatory condition or condition precedent. That is, the foreclosing party has the burden of showing compliance therewith and, if it fails to demonstrate such compliance, the foreclosure action will be dismissed ( see e.g., Butler Capital Corp. v. Cannistra, 26 Misc.3d 598, 891 N.Y.S.2d 238; Deutsche Bank Trust Ams. v. Eisenberg, 24 Misc.3d 1205[A], 2009 WL 1789407; Citimortgage, Inc. v. Villatoro-Guzman, --- Misc.3d ----, 2009 Slip Op. 30983[U], 2009 WL 1269441 [Sup. Ct. Suffolk County 2009]; HSBC Bank USA, N.A. v. Boucher, --- Misc.3d ----, 2009 Slip Op. 31617[U], 2009 WL 2355630 [Sup. Ct. Suffolk County 2009]; WMC Mtge. Corp. v. Thompson, 24 Misc.3d 738, 877 N.Y.S.2d 885; Countrywide Home Loans, Inc. v. Taylor, 17 Misc.3d at 599, 843 N.Y.S.2d 495).

In WMC Mtge. Corp. v. Thompson, 24 Misc.3d 738, 877 N.Y.S.2d 885, the plaintiff commenced a foreclosure action and, after the mortgagor defaulted, it moved for leave to amend the summons and complaint nunc pro tunc to include the required notice provision under RPAPL 1303, and to appoint a referee to compute the amount owed. The Supreme Court, in effect, denied the motion, implicitly concluding that the foreclosing party had failed to meet its burden under the statute. It then found that the only way to cure the failure to comply with the "explicit statutory requirements of RPAPL 1303" was by the proper service of the summons and complaint, along with the notice required by RPAPL 1303 ( id. at 739, 877 N.Y.S.2d 885).³

Similarly, in Countrywide Home Loans, Inc. v. Taylor, 17 Misc.3d at 599, 843 N.Y.S.2d 495, the Supreme Court dismissed a foreclosure action, finding that "[g]iven the explicit statutory requirements regarding the content, type size and paper color of the notice, the plaintiff must submit proper evidentiary proof to establish full compliance with the substantive and procedural requirements of RPAPL § 1303." The Supreme Court went on to state that "[m]erely annexing a copy of a purportedly compliant notice does not provide a sufficient basis upon which the court may conclude as a matter of law that the plaintiff [foreclosing party] has complied" ( id.). The Supreme Court placed the burden on the plaintiff to demonstrate compliance with the statute and, since it failed to do so, that court denied the defendant's application for an order of reference and dismissed the action ( id.).

There is only one case, to date, where the court did not dismiss a foreclosure action for failure to strictly comply with HETPA's notice requirement. In that case, Trustco Bank v. Alexander, 23 Misc.3d 1129 [A], 2009 WL 1425247, on September 3, 2008, the plaintiff served and filed with the County Clerk a summons and complaint, notice of pendency, and statutory notice as required by the originalenactment of HETPA in 2006 ( id.). However, HETPA was amended on August 1, 2008, to require additional inclusions in notices sent after September 1, 2008 ( id.). The Supreme Court found that the mistake was nonprejudicial pursuant to CPLR 2001, concluding, in effect, that the deficiencies in the outdated (by only two days) notice were only minor. Thus, the Supreme Court held that the deficiencies should be disregarded, as the defendant was a sophisticated mortgagor having owned and operated a mortgage brokerage business and, therefore, was well aware that he was in danger of losing his home and should have been wary of rescue scams ( id.). This case is clearly distinguishable because, in the instant matter, no notice was served.

Thus, it appears that the various lower court decisions dealing with this issue have treated the notice required by HETPA as a mandatory condition or condition precedent to the proper commencement of a foreclosure action, that is, the foreclosing party has the burden of showing compliance therewith.

This treatment of statutory notice as a condition precedent appears to be similar to the manner in which courts have treated other statutory notice requirements, that is, the courts place the burden of showing compliance on the party having the...