Stewart Title Ins. Co. v. Bank of N.Y. Mellon, Formerly Known Y., for the Certificateholders Cwalt, Inc.

• Citation: 154 A.D.3d 656,61 N.Y.S.3d 634
• Parties: STEWART TITLE INSURANCE COMPANY, suing in its own right and as assignee and subrogee of Community Preservation Corporation, appellant, v. BANK OF NEW YORK MELLON, formerly known as Bank of New York, as trustee for the Certificateholders CWALT, Inc., Alternative Loan Trust 2005–J11, Mortgage Pass–Through Certificates, Series 2005–J11, respondent, et al., defendants.
• Decision Date: 04 October 2017
• Court: New York Supreme Court Appellate Division

154 A.D.3d 656
61 N.Y.S.3d 634

STEWART TITLE INSURANCE COMPANY, suing in its own right and as assignee and subrogee of Community Preservation Corporation, appellant,
v.
BANK OF NEW YORK MELLON, formerly known as Bank of New York, as trustee for the Certificateholders CWALT, Inc., Alternative Loan Trust 2005–J11, Mortgage Pass–Through Certificates, Series 2005–J11, respondent, et al., defendants.

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

Oct. 4, 2017.

61 N.Y.S.3d 635

Thomas G. Sherwood, LLC, Garden City, NY (James P. Truitt III and Amy E. Abbandondelo of counsel), for appellant.

61 N.Y.S.3d 636

Blank Rome, LLP, New York, NY (Jonathan M. Robbin of counsel), for respondent.

RUTH C. BALKIN, J.P., L. PRISCILLA HALL, SYLVIA O. HINDS–RADIX, and FRANCESCA E. CONNOLLY, JJ.

154 A.D.3d 656

In an action pursuant to RPAPL 1501(4) to cancel and discharge of record certain mortgages, the plaintiff appeals from an order of the Supreme Court, Queens County (Brathwaite Nelson, J.), entered March 10, 2015, which (1) denied its motion for leave to enter a default judgment against the defendants upon their failure to appear or answer the complaint, (2) granted those branches of the cross motion of the defendant Bank of New York Mellon, formerly known as Bank of New York, as trustee for the Certificateholders CWALT, Inc., Alternative Loan Trust 2005–J11, Mortgage Pass–Through Certificates, Series 2005–J11, which were to vacate its default in appearing or answering the complaint, to compel the plaintiff to accept a late answer, and to dismiss the complaint insofar as asserted against it pursuant to CPLR 3211(a)(7), and (3), sua sponte, directed dismissal of the complaint insofar as asserted against the defendants Credit Suisse AG, successor by merger to Credit Suisse First Boston Financial Corporation, and Brookhaven Development, LLC.

ORDERED that the notice of appeal from so much of the order as, sua sponte, directed dismissal of the complaint insofar as asserted against the defendants Credit Suisse AG, successor by merger to Credit Suisse First Boston Financial Corporation, and Brookhaven Development, LLC, is deemed to be an application for leave to appeal from that portion of the order, and leave to appeal is granted (see CPLR 5701[c] ); and it is further,

ORDERED that the order is modified, on the law, by deleting the provision thereof, sua sponte, directing dismissal of the complaint insofar as asserted against the defendants Credit Suisse AG, successor by merger to Credit Suisse First Boston Financial Corporation, and Brookhaven Development, LLC; as so modified, the order is affirmed; and it is further,

ORDERED that one bill of costs is awarded to the defendant Bank of New York Mellon, formerly known as Bank of New

154 A.D.3d 657

York, as trustee for the Certificateholders CWALT, Inc., Alternative Loan Trust 2005–J11, Mortgage Pass–Through Certificates, Series 2005–J11.

In February 2005, Gitit Graffi purchased property on Gateway Boulevard in Far Rockaway. Graffi financed the purchase with two loans, both from Credit Suisse First Boston (hereinafter CSFB). A note in the principal sum of $372,000 was secured by a senior mortgage (hereinafter the senior mortgage), and a note in the principal sum of $74,400 was secured by a junior mortgage (hereinafter the junior mortgage). Graffi defaulted under the terms of the senior mortgage, and the loan servicer of that mortgage sent him notices of default. The second notice, which was dated December 18, 2006, stated, as relevant here: "[i]f the default is not cured on or before January 22, 2007, the mortgage payments will be accelerated with the full amount remaining accelerated and becoming due and payable in full, and foreclosure proceedings will be initiated at that time" (emphasis in original). The default was not cured, and a foreclosure action with respect to the senior mortgage was commenced in February 2007 (hereinafter the 2007 foreclosure action). On the complaint in the 2007 foreclosure action, the plaintiff was listed as "BANK OF NEW YORK AS TRUSTEE FOR THE CERTIFICATE HOLDER SCWALT, INC. ALTERNATIVE

61 N.Y.S.3d 637

LOAN TRUST 2005–J11 MORTGAGE PASS–THROUGH CERTIFICATES, SERIES 2005–J11" (hereinafter BoNY). In that complaint, BoNY purportedly accelerated the senior mortgage. BoNY, however, was not yet the holder or assignee of the note secured by the senior mortgage when it commenced the 2007 foreclosure action.

In January 2008, while the 2007 foreclosure action still was pending, Brookhaven Development, LLC (hereinafter Brookhaven), purchased the property. Brookhaven borrowed money from the Community Preservation Corporation (hereinafter CPC) to purchase the property and finance construction on it. Brookhaven's loans from CPC (hereinafter the CPC loans) were secured by two mortgages (hereinafter the CPC mortgages). Before the closing, CPC obtained a lender's policy of title insurance (hereinafter the lender's title insurance policy) from Stewart Title Insurance Company (hereinafter Stewart).

The senior mortgage and the junior mortgage were supposed to be satisfied at the closing of Brookhaven's purchase, but "imposters" allegedly appeared at the closing and absconded with the funds that were earmarked for that purpose. Thus, the senior mortgage and the junior mortgage were not satisfied, and Brookhaven took title to the property subject to the

154 A.D.3d 658

senior mortgage, the junior mortgage, and the CPC mortgages. CPC filed a claim with Stewart under the lender's title insurance policy, seeking indemnification for any losses suffered as "a result of the apparent senior record status" of the senior mortgage.

In May 2009, the Supreme Court dismissed BoNY's 2007 foreclosure action on the ground that BoNY lacked standing to foreclose the senior mortgage when it commenced the action.

In October 2009, BoNY commenced a second foreclosure action with respect to the senior mortgage (hereinafter the 2009 foreclosure action). In the 2009 foreclosure action, BoNY named as defendants, among others, Brookhaven and CPC. CPC appeared in the action, but Brookhaven and other defendants apparently did not. BoNY, however, failed to move for a default judgment against the defaulting defendants within one year. In February 2013, CPC assigned its rights under the CPC loans and CPC mortgages to Stewart, but remained the party of record in the 2009 foreclosure action.

In May 2013, CPC moved for dismissal of the 2009 foreclosure action. CPC sought dismissal as against Brookhaven and the other defaulting defendants on the ground that BoNY had failed to seek a default judgment against them within one year of their failure to timely appear (see CPLR 3215[c] ). CPC sought dismissal insofar as the action was asserted against it on the ground that, in the absence of Brookhaven—a necessary party under RPAPL 1311(1) —BoNY could not proceed against CPC either. The Supreme Court granted CPC's motion in an order dated May 22, 2013. In that order, the court first stated that it was dismissing the complaint insofar as asserted against the defaulting defendants pursuant to CPLR 3215(c). With respect to CPC, the court noted that BoNY had opposed dismissal. BoNY had argued that the action need not be dismissed as against CPC, because the court could make a determination "as to the status of CPC as a junior lien holder." Rejecting this argument, the court pointed out that, "when given the opportunity, [BoNY] did not submit evidence to determine the priority of liens; rather, [BoNY] presented evidence in an attempt to make a prima facie showing of its entitlement to foreclose its mortgage and sell the property." The court concluded that any claim

61 N.Y.S.3d 638

that BoNY may have had against CPC was merely incidental to BoNY's right to sell the property to satisfy the senior mortgage. The court found that, in the absence of the fee owner (Brookhaven), BoNY could not proceed against CPC either.

In June 2014, Stewart commenced this action pursuant to

154 A.D.3d 659

RPAPL 1501(4) against BoNY and CSFB (and against Brookhaven, nominally), seeking to cancel and discharge of record the senior mortgage and the junior mortgage. BoNY and CSFB failed to timely appear in the action, and, in August 2014, Stewart moved for leave to enter a default judgment against the defendants. In October 2014, BoNY cross-moved pursuant to CPLR 3012(d) to vacate its default, or, in the alternative, to compel Stewart to accept a late answer or, pursuant to CPLR 3211(a)(1) and (7), to dismiss the complaint insofar as asserted against it. The Supreme Court denied Stewart's motion for leave to enter a default judgment against the defendants, granted BoNY's cross motion to vacate its default, and, sua sponte, directed dismissal of the complaint insofar as asserted against the remaining defendants. Stewart appeals. We modify.

Mortgages, generally, are payable in installments, but, upon...