Case ID: ny3d_25/html/0355-01.html
Source: Caselaw Access Project
Author: {"author": "Chief Judge Lippman.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

[34 NE3d 363, 12 NYS3d 612]
    Aurora Loan Services, LLC, Respondent, v Monique Taylor, Also Known as Monique Pujol Taylor, et al., Appellants, et al., Defendants.
    Argued April 30, 2015;
    decided June 11, 2015
    
      POINTS OF COUNSEL
    
      Zinker & Herzberg, LLP, Hauppauge (Jeffrey Herzberg of counsel), for appellants.
    I. Aurora Loan Services, LLC did not possess a valid and enforceable mortgage as of the commencement of the mortgage foreclosure action. (Homecomings Fin., LLC v Guldi, 108 AD3d 506; Merritt v Bartholick, 36 NY 44; Kluge v Fugazy, 145 AD2d 537; Beak v Walts, 266 App Div 900; Flyer v Sullivan, 284 App Div 697; Corey v Collins, 10 AD3d 341; Bank of N.Y. Mellon v Gales, 116 AD3d 723; Barbarito v Zahavi, 107 AD3d 416; Deutsche Bank Natl. Trust Co. v Spa-nos, 102 AD3d 909, 21 NY3d 1068; MLCFC 2007-9 Mixed Astoria, LLC v 36-02 35th Ave. Dev., LLC, 116 AD3d 745.) II. Mortgage Electronic Registration Systems, Inc. never possessed a valid and enforceable mortgage lien. (Matter of MERSCORP, Inc. v Romaine, 8 NY3d 90; Bank of N.Y. v Silverberg, 86 AD3d 274; HSH Nordbank AG v Barclays Bank PLC, 42 Misc 3d 1231[A], 2014 NY Slip Op 50290[U]; Deutsche Bank Natl. Trust Co. v Pietranico, 33 Misc 3d 528, 102 AD3d 724.) III. An affidavit cannot substitute for the production and inspection of the original mortgage note or the assignment of the original mortgage note. (Schozer v William Penn Life Ins. Co. of N.Y., 84 NY2d 639; Kiamovich v Kiamovich, 85 AD3d 867; Posson v 
      
      Przestrzelski, 111 AD3d 1235; US Bank N.A. v Eaddy, 109 AD3d 908; Wilson v Toussie, 260 F Supp 2d 530; Mortgage Elec. Registration Sys., Inc. v Coakley, 41 AD3d 674; Wells Fargo Bank, N.A. v Eisler, 118 AD3d 982.)
    
      Ballard Spahr LLP (Martin C. Bryce, Jr., of the Pennsylvania bar, admitted pro hac vice, of counsel), and Knuckles, Komosinski & Elliott, LLP, Elmsford (Michael Lee of counsel), for respondent.
    I. The Second Judicial Department correctly held that, as a matter of New York law, Aurora Loan Services, LLC possessed standing to commence this foreclosure action. (Baron Assoc., LLC v Garcia Group Enters., Inc., 96 AD3d 793; Barclay’s Bank of N.Y. v Smitty’s Ranch, 122 AD2d 323; Deutsche Bank Natl. Trust Co. v Pietranico, 33 Misc 3d 528; Mortgage Elec. Registration Sys., Inc. v Coakley, 41 AD3d 674; Slutsky v Blooming Grove Inn, 147 AD2d 208; Bank of N.Y. Mellon v Deane, 41 Misc 3d 494; State Bank v Central Mercantile Bank, 248 NY 428; Carlin v Jemal, 68 AD3d 655; Bank of N.Y. v Silverberg, 86 AD3d 274; Bank of N.Y. Mellon Trust Co. NA v Sachar, 95 AD3d 695.) II. Under New York law, Aurora Loan Services, LLC was not required to produce the original note to establish standing; rather, uncontroverted affidavit testimony demonstrating Aurora’s possession of the note prior to commencement of the foreclosure proceedings was sufficient to establish standing. (Barclay’s Bank of N.Y. v Smitty’s Ranch, 122 AD2d 323; Sam v Town of Rotterdam, 248 AD2d 850.) III. Although assignment of the mortgage was not required to confer standing to foreclose under New York law, Mortgage Electronic Registration Systems, Inc. had authority to, and did, effect a valid assignment of the mortgage to Aurora Loan Services, LLC. (Bank of N.Y. Mellon Trust Co. NA v Sachar, 95 AD3d 695; Bank of N.Y. v Silverberg, 86 AD3d 274; Shultis v Woodstock Land Dev. Assoc., 195 AD2d 677; Federal Deposit Ins. Corp. v 65 Lenox Rd. Owners Corp., 270 AD2d 303; Adelman v Fremd, 234 AD2d 488; Stein v American Mtge. Banking, 216 AD2d 458.)
    
      Hiscock & Barclay, LLP, Buffalo (Charles C. Martorana and Kimberly A. Colaiacovo of counsel), for MERSCORP Holdings, Inc. and another, amici curiae.
    I. Appellants lack standing to challenge Mortgage Electronic Registration Systems, Inc.’s assignment of their mortgage. (Matter of Holden, 271 NY 212; Jennings v Foremost Dairies, 37 Misc 2d 328; Mandarin Trading Ltd. v Wildenstein, 16 NY3d 173; Strauss v Belle Realty Co., 98 AD2d 424.) II. The Mortgage Electronic Registration Systems, Inc.® system. (Horvath v Bank of N.Y., N.A., 641 F3d 617; In re Security Capital Assur. Ltd. Sec. Litig., 729 F Supp 2d 569; Matter of MERSCORP, Inc. v Romaine, 8 NY3d 90; Deerman v Federal Home Loan Mtge. Corp., 955 F Supp 1393.) III. Aurora Loan Services, LLC possessed standing to commence the foreclosure action. (Mortgage Elec. Registration Sys., Inc. v Coakley, 41 AD3d 674; Slutsky v Blooming Grove Inn, 147 AD2d 208; GRP Loan, LLC v Taylor, 95 AD3d 1172; Kondaur Capital Corp. v McCary, 115 AD3d 649; First Trust Natl. Assn. v Meisels, 234 AD2d 414; Weaver Hardware Co. v Solomovitz, 235 NY 321; Fryer v Rockefeller, 63 NY 268; Matter of Falls, 31 Misc 658, 66 App Div 616; Becker v Wells, 297 NY 275; Flyer v Sullivan, 284 App Div 697.) IV. Mortgage Electronic Registration Systems, Inc., as nominee, has authority to assign the mortgage. (Matter of Doniger v Rye Psychiatric Hosp. Ctr., 122 AD2d 873; Red Hook Cold Stor. Co. v Department of Labor of State of N.Y., 295 NY 1; Matter of Johnsen v ACP Distrib., Inc., 31 AD3d 172; Matter of El-Roh Realty Corp., 48 AD3d 1190; Zurich Am. Ins. Co. v ABM Indus., Inc., 397 F3d 158; Standard Bldrs. Supplies v Gush, 206 AD2d 720; Matter of Stralem, 303 AD2d 120; Allhusen v Caristo Constr. Corp., 303 NY 446; Sullivan v International Fid. Ins. Co., 96 AD2d 555; US Bank N.A. v Flynn, 27 Misc 3d 802.) V. The Taylor mortgage is valid. (Gibson v Thomas, 180 NY 483; Finn v Wells, 135 Misc 53; W.L. Dev. Corp. v Trifort Realty, 44 NY2d 489; People v Prince, 110 Misc 2d 55; Williams v Wisner Bldg. Co., Inc., 121 Miscc 32, 208 App Div 783; Munoz v Wilson, 111 NY 295; Wood v Travis, 231 App Div 331; In re Cushman Bakery, 526 F2d 23; Deutsche Bank Natl. Trust Co. v Pietranico, 33 Mise 3d 528; Wechsler v Hunt Health Sys., Ltd., 216 F Supp 2d 347.)
   OPINION OF THE COURT

Chief Judge Lippman.

The issue presented by this appeal is whether plaintiff Aurora Loan Services, LLC had standing to commence this mortgage foreclosure action. We now affirm that part of the Appellate Division order (114 AD3d 627 [2d Dept 2014]) upholding Supreme Court’s grant of summary judgment in favor of plaintiff, and hold that Aurora did have standing.

Defendant Monique Taylor executed and delivered an adjustable rate note dated July 5, 2006 to First National Bank of Arizona, wherein she agreed to repay the bank $600,000, with interest. To secure the payment, Monique and Leonard Taylor (the Taylors) executed a mortgage with the bank, granting Mortgage Electronic Registration Systems, Inc. (MERS), as nominee, a mortgage lien on the property located in Fleetwood, New York. The note, however, was not transferred to MERS with the mortgage.

Subsequent to the note’s execution, pursuant to a March 2006 pooling and servicing agreement (PSA), the loan was made part of a residential mortgage-backed securitization trust. Deutsche Bank Trust Company Americas, as trustee, became the owner of the note through an allonge indorsing the note to Deutsche, as required under the PSA. The allonge shows the chain of ownership of the note through indorsements from First National Bank of Arizona, to First National Bank of Nevada, to Residential Funding Company, LLC, to Deutsche.

On April 1, 2008, Aurora assumed servicer obligations under the PSA pursuant to a March 10, 2008 master servicing assignment and assumption agreement (MSAAA). The mortgage was subsequently assigned by MERS to Aurora on August 13, 2009, and recorded with the County Clerk on October 29, 2009.

Thereafter, the Taylors defaulted under the note and mortgage by failing to make the payment due on January 1, 2010, and each month thereafter. The Taylors have never disputed their obligation to make the payments or their default. Multiple notices of default were mailed to the Taylors through May of 2010.

On May 14, 2010, Deutsche, by limited power of attorney, granted Aurora the right to perform certain acts in the trustee’s name, including the execution of documents related to loan modification and foreclosure. Aurora, through its agents, asserts it took physical custody of the original note on May 20, 2010. Aurora commenced this foreclosure action by filing a summons and complaint with the Westchester County Clerk on May 24, 2010. These were personally served upon the Taylors on May 29, 2010. The Taylors filed an answer on June 29, 2010.

The Taylors filed a motion for summary judgment, asserting that Aurora did not have standing to bring this foreclosure action. Aurora cross-moved for summary judgment. In support of its cross motion, Aurora submitted the affidavit of Sara Holland (Holland affidavit), Aurora’s legal liaison, who stated that based on her “personal knowledge” of the facts as well as her “review of the note, mortgage and other loan documents” and “related business records . . . kept in the ordinary course of the regularly conducted business activity,” the “original Note has been in the custody of Plaintiff Aurora Loan Services, LLC and in its present condition since May 20, 2010.” Holland also stated that, “prior to the commencement of the action, Aurora Loan Services, LLC, has been in exclusive possession of the original note and allonge affixed thereto, indorsed to Deutsche Bank Trust Company Americas as Trustee, and has not transferred same to any other person or entity.” A copy of the note and allonge were attached to the affidavit.

Supreme Court denied the Taylors’motion for summary judgment, granted Aurora’s cross motion for summary judgment, and appointed a referee to determine the amount due under the note. Aurora then filed a motion for summary judgment of foreclosure and sale, which the Taylors opposed. The court granted that motion on April 29, 2013, adopting the referee’s recommendation without a hearing. The Taylors appealed both orders.

The Appellate Division affirmed the first order, concluding that Aurora had proven its standing as a matter of law. The Court concluded that, under New York law, the Holland affidavit demonstrated that Aurora had obtained physical possession of the original note prior to commencement of this foreclosure action, and that such was legally sufficient to establish standing. The Court specifically noted that the Taylors “offered no evidence to contradict those factual averments and, therefore, failed to raise a triable issue of fact with respect to [Aurora’s] standing” (114 AD3d at 629). However, the Court reversed the judgment of foreclosure and sale and remitted the matter to Supreme Court for further proceedings, concluding that Supreme Court erred in confirming the referee’s report because the referee had computed the amount due to Aurora without holding a hearing on notice to the Taylors (see id. at 629-630). One Justice dissented, arguing that the Holland affidavit was insufficient to confer standing on Aurora because it did not give sufficient “factual details” regarding the physical delivery of the note to Aurora (id. at 631, citing HSBC Bank USA v Hernandez, 92 AD3d 843, 844 [2d Dept 2012]). Thereafter, the Appellate Division granted the Taylors’ motion for leave to appeal, certifying the following question: “Was the decision and order of this Court . . . properly made?” (2014 NY Slip Op 70548[U] [2d Dept 2014].)

The critical issue we must resolve is whether the record demonstrates a basis for finding that Aurora had standing to commence this mortgage foreclosure action. The physical delivery of the note to the plaintiff from its owner prior to commencement of a foreclosure action may, in certain circumstances, be sufficient to transfer the mortgage obligation and create standing to foreclose (see e.g. Bank of N.Y. Mellon Trust Co. NA v Sachar, 95 AD3d 695 [1st Dept 2012]; Deutsche Bank Natl. Trust Co. v Pietranico, 33 Misc 3d 528, 535 [Sup Ct, Suffolk County 2011]; In re Escobar, 457 BR 229, 240 [ED NY 2011]).

Applying these principles of New York law, Aurora was vested with standing to foreclose. The evidence established that, as of 2006, Deutsche, as trustee under the PSA, became the lawful owner of the note. The Holland affidavit establishes that Aurora came into possession of the note on May 20, 2010, prior to the May 24, 2010 commencement of the foreclosure action. From these specific statements, together with proof of Aurora’s authority pursuant to the MSAAA and the limited power of attorney, the Appellate Division held, “[i]t can reasonably be inferred . . . that physical delivery of the note was made to the plaintiff” before the action was commenced (114 AD3d at 629).

Contrary to the Taylors’ assertions, to have standing, 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 (Restatement [Third] of Property [Mortgages] § 5.4, Reporter’s Note, Comment b). The Taylors misconstrue the legal principle that “an entity with a mortgage but no note lack[s] standing to foreclose” (Knox v Countrywide Bank, 4 F Supp 3d 499, 508 [ED NY 2014]) to also mean the opposite — that an entity with a note but no mortgage lacks standing. Once a note is transferred, however, “the mortgage passes as an incident to the note” (Bank of N.Y. v Silverberg, 86 AD3d 274, 280 [2d Dept 2011]).

“[A]ny 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” (14A Carmody-Wait 2d § 92:79 [2012] [citation omitted]).

Accordingly, the Taylors’ argument that Aurora lacked standing because it did not possess a valid and enforceable mortgage as of the commencement of this action is simply incorrect. The validity of the August 2009 assignment of the mortgage is irrelevant to Aurora’s standing.

The question that follows this analysis is whether Aurora adequately proved that it did, indeed, have possession of the note prior to commencement of this action. The Taylors argue that to demonstrate possession of the note Aurora had to produce the original mortgage note for examination, and that the Holland affidavit does not suffice. Additionally, the dissent at the Appellate Division concluded that the affidavit was lacking details regarding Aurora’s possession of the note.

As to production of the original note, there is no indication in the record that the Taylors ever requested such production in discovery or moved Supreme Court to compel such production. Although the Taylors assert that the best evidence rule should require production of the original, they fail to cite any authority holding that such is required in this context. Second, Ms. Holland asserts in her affidavit that she examined the original note herself, and the adjustable rate note attachments submitted with the moving papers clearly show the note’s chain of ownership through Deutsche.

Although the better practice would have been for Aurora to state how it came into possession of the note in its affidavit in order to clarify the situation completely, we conclude that, under the circumstances of this case, the court did not err in granting summary judgment to Aurora.

Insofar as Aurora argues that the Appellate Division erred in reversing the judgment of foreclosure, the issue is not properly before us because Aurora never obtained permission from the Appellate Division to appeal to this Court from the Appellate Division order (see 511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144, 151 n 3 [2002]).

Accordingly, the order of the Appellate Division, insofar as appealed from, should be affirmed, with costs, and the certified question answered in the affirmative.

Judges Read, Pigott, Rivera, Abdus-Salaam, Stein and Fa-hey concur.

Order, insofar as appealed from, affirmed, with costs, and certified question answered in the affirmative.