State of New York

Supreme Court, Appellate Division

Third Judicial Department

Decided and Entered: March 31, 2016 520544 

________________________________

U.S. BANK NATIONAL ASSOCIATION, 

as Trustee for RASC 

2005-EMX4,

Appellant,

v MEMORANDUM AND ORDER

KRISTINE H. McCRORY,

Respondent,

et al.,

Defendants.

________________________________

Calendar Date: February 9, 2016

Before: Peters, P.J., McCarthy, Egan Jr. and Lynch, JJ.

__________

Hogan Lovells US LLP, New York City (Chava Brandriss of

counsel), for appellant.

Legal Services of Central New York, Inc., Syracuse (Reta

Raymond of counsel), for respondent.

__________

Lynch, J.

Appeal from an order of the Supreme Court (Campbell, J.),

entered April 4, 2014 in Cortland County, which sua sponte

dismissed the complaint.

In 2005, defendants Kristine H. McCrory and Michael P.

McCrory (hereinafter collectively referred to as defendants)

executed a note in favor of M & T Mortgage Corporation, secured

by a mortgage on real property located in Cortland County. The

note included an allonge payable to the order of plaintiff. For

recording purposes, the mortgage names Mortgage Electronic
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Registration Systems, Inc. as nominee and mortgagee. 

Mortgage Electronic assigned the mortgage to plaintiff in

November 2008, and the parties entered into a loan modification

agreement at that time capitalizing arrears into the principal

balance. When defendants defaulted on the modified loan in 2010,

plaintiff commenced a foreclosure action. That action, however,

was dismissed without prejudice in April 2011, after Supreme

Court determined that plaintiff failed to act in good faith

through a series of eight settlement conferences (see CPLR 3408

[f]; 22 NYCRR 202.12-a [c] [4]). The court further directed

plaintiff to attach a copy of the dismissal order to the

pleadings in any subsequent foreclosure action. In November

2013, plaintiff commenced the instant foreclosure action, through

new counsel, but failed to reference and attach the previous

order as directed by Supreme Court. Kristine McCrory responded

with a letter to the court that she was pursuing a short sale. A

settlement conference was held on April 3, 2014, at which

plaintiff's counsel advised Supreme Court that he was unaware of

the court's previous order and that he was not authorized to

dispose of the case without consulting plaintiff. That same day,

the court sua sponte dismissed the complaint, with prejudice,

finding that plaintiff continued to act in bad faith. Plaintiff

appeals.1

We reverse. In a residential foreclosure action, the

parties are obligated to participate in good faith in the

settlement conference mandated under CPLR 3408 and 22 NYCRR

202.12-a, and the court is authorized to impose an appropriate

sanction for a party's failure to comply (see US Bank N.A. v

Sarmiento, 121 AD3d 187, 207 [2014]). Since the April 2011 order

was not appealed, Supreme Court's determination to dismiss the

initial foreclosure action is not at issue here, and the court

acted well within its equity powers in directing plaintiff to

attach the dismissal order to any new action – in this way

1 Plaintiff properly appealed the order as of right since

the court dismissed the complaint with prejudice, which

constitutes a final judgment of the action (see CPLR 5701 [a]

[1]). 
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assuring that any assigned judge would be informed of the case

history (see generally Norwest Bank Minn., NA v E.M.V Realty

Corp., 94 AD3d 835, 836 [2012], lv dismissed 19 NY3d 1085

[2012]). Given that background, it is understandable that

Supreme Court reacted to plaintiff's failure to comply with the

earlier directive. That said, a party must be placed on notice

and given an opportunity to be heard as a matter of due process

before the court imposes a sanction (see Bank of N.Y. v Castillo,

120 AD3d 598, 600-601 [2014]; Bank of Am., N.A. v Lucido, 114

AD3d 714, 715 [2014]; Wells Fargo Bank, N.A. v Meyers, 108 AD3d

9, 22 [2013]). There is no indication in this record that the

court provided such notice. Moreover, the circumstances

presented are not so extraordinary as to warrant the severe

penalty of a dismissal of the complaint with prejudice (see U.S.

Bank N.A. v Polanco, 126 AD3d 883, 885 [2015]; Bank of N.Y. v

Castillo, 120 AD3d at 601). This is particularly so since

plaintiff was represented by new counsel and had previously

entered into a loan modification agreement after defendants

missed certain payments in 2008. We also note that Supreme

Court's reliance on 22 NYCRR 202.26 (e) as authority for the

dismissal was misplaced, for that rule concerning settlement

authority applies to pretrial conferences after the filing of a

note of issue, not a CPLR 3408 settlement conference. 

Accordingly, the complaint is reinstated and the matter remitted

to Supreme Court for further proceedings.

Peters, P.J., McCarthy and Egan Jr., JJ., concur.

ORDERED that the order is reversed, on the law, with costs,

and complaint reinstated.

ENTER:

Robert D. Mayberger

Clerk of the Court