U.S. Bank Na ex rel. Holders of the J.P. Morgan Mortg. Trust 2007-S3 Mortg. Pass-Through Certificates v. Cannella

• Court: New York Supreme Court
• Writing for the Court: Paul I. Marx, J.
• Citation: U.S. Bank Na ex rel. Holders of the J.P. Morgan Mortg. Trust 2007-S3 Mortg. Pass-Through Certificates v. Cannella, 64 Misc.3d 410, 99 N.Y.S.3d 579 (N.Y. Sup. Ct. 2019)
• Decision Date: 15 April 2019
• Docket Number: 034916/2017
• Parties: U.S. BANK NA, AS TRUSTEE, on Behalf OF the HOLDERS OF THE J.P. MORGAN MORTGAGE TRUST 2007-S3 MORTGAGE PASS-THROUGH CERTIFICATES, Plaintiff, v. Rocco CANNELLA, Citibank (South Dakota), N.A., HSBC Bank Nevada, N.A., John Doe (Those unknown tenants, occupants, persons or corporations or their heirs, distributes, executors, administrators, trustees, guardians, assignees, creditors or successors claiming an interest in the mortgaged premises.), Defendants.

64 Misc.3d 410

99 N.Y.S.3d 579

U.S. BANK NA, AS TRUSTEE, on Behalf OF the HOLDERS OF THE J.P. MORGAN MORTGAGE TRUST 2007-S3 MORTGAGE PASS-THROUGH CERTIFICATES, Plaintiff,

v.Rocco CANNELLA, Citibank (South Dakota), N.A., HSBC Bank Nevada, N.A., John Doe (Those unknown tenants, occupants, persons or corporations or their heirs, distributes, executors, administrators, trustees, guardians, assignees, creditors or successors claiming an interest in the mortgaged premises.), Defendants.

034916/2017

Supreme Court, Rockland County, New York.

Decided April 15, 2019

Peter R. Bonchonsky, Esq.

Bonchonsky & Zaino, LLP

Counsel for Plaintiff

226 Seventh Street

Garden City, NY 11530

R. Spencer Lauterbach, Esq.

The Lauterbach Law Firm

Counsel for Defendant Rocco Cannella

151 North Main Street - 4th Floor

New City, NY 10956

Paul I. Marx, J.

BACKGROUND

On October 9, 2017, Plaintiff commenced this residential mortgage foreclosure action by filing a Summons and Complaint against Defendant borrower, Rocco Cannella ("Defendant"), Defendant lienholders, Citibank (South Dakota), N.A. ("Citibank") and HSBC Bank Nevada, N.A. ("HSBC"), and "John Doe".

On May 22, 2007, Defendant executed a note in the amount of $ 488,000 ("Note") payable to JPMorgan Chase Bank, N.A. ("Chase"). Defendant secured the Note by executing a mortgage against real property located at 15 Spruce Court, Nanuet, New York 10954 ("Mortgage").

On November 11, 2011, Defendant entered into a Loan Modification Agreement with Chase ("Agreement").¹ Affidavit of Patrick Riquelme, Document Control Officer of Select Portfolio Servicing, Inc. ("SPS"), at ¶ 7 (NYSCEF Doc. 36). The "Agreement created a single lien of $ 506,676.03." Id.

The Agreement also "changed the interest rate to 3.125% per annum for the first five years and then increased to 4.000% in the sixth through the twenty-fifth year." Affirmation of Peter R. Bonchonsky, Esq. in Support of Motion at ¶ 6 (referencing Agreement at ¶ 7, attached to Riquelme Affidavit as Exhibit C). As Riquelme attests, "[t]he Note [dated May 22, 2007], Mortgage, and Modification Agreement are the ‘Loan Documents’ referenced herein that memorialize the ‘Loan’."² Affidavit of Patrick Riquelme at ¶ 9.

Chase subsequently endorsed the Note in blank on an undated allonge, which is "titled in bold, capital letters ‘ALLONGE TO MORTGAGE NOTE’ ". Reply Affirmation of Peter R. Bonchonsky, Esq. at ¶ 10 (NYSCEF Doc. 54). The allonge "contains very specific language stating that the Allonge pertains to the ROCCO CANNELLA $ 488,000 Note dated May 22, 2007, in favor of JPMorgan Chase Bank, N.A., with loan number [xxxxx] and relating to the property address of 15 Spruce Court, Nanuet, New York 10954. It is endorsed in blank by an authorized officer (vice president) of JPMorgan Chase Bank, N.A." Id.

Defendant defaulted on the Loan by failing to make the payment that was due November 1, 2016.³ Thereafter, the Note and Mortgage were transferred to Plaintiff.⁴ "On August 3, 2017, the Mortgage together with ‘all beneficial interest’ under the Mortgage was assigned to Plaintiff. The assignment was recorded on August 4, 2017 in Instrument Number 2017-0024861." Riquelme Affidavit at ¶ 8 (Assignment is annexed as Exhibit D).

SPS, Plaintiff's loan servicer and attorney-in-fact, is in possession of the original Note, Mortgage and Agreement (the Loan Documents) on Plaintiff's behalf. SPS sent the default notices required by the Mortgage and RPAPL § 1304 to Defendant prior to commencement of the action.

On November 20, 2017, Defendant filed an Answer, asserting five combined affirmative defenses and counterclaims arising under the Truth in Lending Act and Regulation "Z" for allegedly failing to inform him of his right to rescind the loans ( 15 USC §§ 1601 et seq ; 12 CFR § 226); deceptive business practices under General Business Law § 349 by extending credit based on collateral rather than capacity to repay; violations of Banking Law §§ 6-l and 6-m ; and Banking Law § 598. Defendant also alleged six additional affirmative defenses raising plaintiff's lack of standing; failure to provide notice of default; violations of RPAPL §§ 1304 and 1306 ; statute of limitations bar; and improper transfer of the Note and Mortgage after the closing date set forth in the pooling and servicing agreement ("PSA") pursuant to which Plaintiff acquired the Note (NYSCEF Doc. 16).

On December 22, 2017, Plaintiff replied to defendant's counterclaims, asserting general denials and affirmative defenses (NYSCEF Doc. 23).

Defendants Citibank and HSBC have not answered or appeared in the action.⁵

On July 30, 2018, Defendant served a Demand for Discovery and Inspection upon Plaintiff, requesting production of, among other items, the original Note and "any and all endorsements of the subject note and the back side of any allonge or endorsement page". Demand for Discovery and Inspection at ¶ h (NYSCEF Doc. 28). On September 7, 2018, the parties stipulated to extend the time to respond to Defendant's discovery request to September 28, 2018. Defense counsel states in the opposition papers that "[d]iscovery was exchanged." Affirmation of Jennifer L. Fredeman, Esq. at ¶ 10. However, counsel does not state whether the original Note and allonge were produced for inspection.

On September 28, 2018, Plaintiff filed the instant motion seeking summary judgment against Defendant and striking the Answer, affirmative defenses and counterclaims; amending the caption; granting default judgment against the remaining defendants; appointing a referee and other just and proper relief.

DISCUSSION

A plaintiff in an action to foreclose a mortgage "[g]enerally establishes its prima facie case through the production of the mortgage, the unpaid note, and evidence of default". U.S. Bank Nat. Ass'n v. Sabloff , 153 A.D.3d 879, 880, 60 N.Y.S.3d 343 [2nd Dept. 2017] (citing Plaza Equities, LLC v. Lamberti , 118 A.D.3d 688, 689, 986 N.Y.S.2d 843 ; see Deutsche Bank Natl. Trust Co. v. Brewton , 142 A.D.3d 683, 684, 37 N.Y.S.3d 25 ). However, where a defendant has affirmatively pleaded standing in the Answer,⁶ the plaintiff must prove standing in order to prevail. Bank of New York Mellon v. Gordon , 171 A.D.3d 197, 202, 97 N.Y.S.3d 286, 2019 N.Y. Slip Op. 02306, 2019 WL 1372075, at *3 [2nd Dept. March 27, 2019] (citing HSBC Bank USA, N.A. v. Roumiantseva , 130 A.D.3d 983, 983—984, 15 N.Y.S.3d 117 ; HSBC Bank USA, N.A. v. Calderon , 115 A.D.3d 708, 709, 981 N.Y.S.2d 598 ; Bank of NY v. Silverberg , 86 A.D.3d 274, 279, 926 N.Y.S.2d 532 ).

A plaintiff establishes its standing in a mortgage foreclosure action by showing that it was the holder of the underlying note at the time the action was commenced. Sabloff , supra at 880, 60 N.Y.S.3d 343 (citing Aurora Loan Servs., LLC v. Taylor , 25 N.Y.3d 355, 361, 12 N.Y.S.3d 612, 34 N.E.3d 363 ; U.S. Bank N.A. v. Handler , 140 A.D.3d 948, 949, 34 N.Y.S.3d 463 ). Where a plaintiff is not the original lender, it must show that the obligation was transferred to it either by a written assignment of the underlying note or the physical delivery of the note. Id. Because the mortgage automatically passes with the debt as an inseparable incident, a plaintiff must generally prove its standing to foreclose on the mortgage through either of these means, rather than by assignment of the mortgage. Id. (citing U.S. Bank, N.A. v. Zwisler , 147 A.D.3d 804, 805, 46 N.Y.S.3d 213 ; U.S. Bank, N.A. v. Collymore , 68 A.D.3d 752, 754, 890 N.Y.S.2d 578 ).

Here, Plaintiff demonstrated, prima facie, that it was the holder of the Note at issue when the action was commenced, by attaching the Note, endorsed in blank on an allonge, to the Summons and Complaint. Sabloff , supra at 880, 60 N.Y.S.3d 343 (citing U.S. Bank N.A. v. Saravanan , 146 A.D.3d 1010, 45 N.Y.S.3d 547 ; Deutsche Bank Natl. Trust Co. v. Logan , 146 A.D.3d 861, 45 N.Y.S.3d 189 ; Nationstar Mtge., LLC v. Weisblum , 143 A.D.3d 866, 39 N.Y.S.3d 491 ).

In opposition, Defendant raised the sole issue whether "Plaintiff has failed to establish standing because it has submitted an undated Allonge that does not appear to have been permanently affixed to the Note." Memorandum of Law in Opposition at 2 (emphasis added). Defendant cites UCC § 3-202(2), which provides that "an indorsement must be written by or on behalf of the holder and on the instrument or on a paper so firmly affixed thereto as to become a part thereof." Id. (emphasis added).

Defendant contends that a material question of fact is raised as to whether the allonge was properly affixed to the Note, because the Note contains two (2) hole punches at the top of each of its three pages, while there are no hole punches on the allonge. This circumstance, Defendant argues, demonstrates that the allonge is not "permanently affixed" to the Note. Memorandum of Law in Opposition at 2. Defendant relies on HSBC Bank USA, N.A. v. Roumiantseva , 130 A.D.3d 983, 15 N.Y.S.3d 117 [2nd Dept. 2015], which held that an allonge attached to a note by a paperclip did not constitute a valid transfer of the note to the plaintiff, because the allonge was not so firmly affixed to the note as to become a part thereof. Id. at 985, 15 N.Y.S.3d 117. Thus, the Second Department affirmed the Supreme Court's order dismissing the action for lack of plaintiff's standing.

Defendant asserts that the affidavit of Patrick Riquelme, SPS Document Control Officer, fails to establish that the allonge was permanently affixed to the Note. Defendant alleges that Riquelme's affidavit is deficient, because he "simply states that the Allonge is affixed but not that it is ‘permanently affixed’, which is the legal standard." Memorandum of Law in Opposition at 3 (citing Riquelme Affidavit at ¶ 5). Defendant states that Plaintiff's counsel, Peter R. Bonchonsky, Esq., also "does not state that the Allonge was permanently affixed, simply that it was affixed." Id. (citing Bonchonsky Affirmation at ¶ 4). Defendant continues, that "[t]here is no statement as to when the Allonge was...