Source: http://www.wallstreetmainstreet.com/2010/06/
Timestamp: 2019-04-26 16:03:49+00:00

Document:
By: Kate Cavallaro and Nicholas M. Moccia, Esq.
Law Offices of Robert E. Brown P.C.
Just over a year ago, Section 282 was added to an act amending the Real Property Law. This amendment is also known as enacting the “access to justice in lending act.” Section 282 gives borrowers the right to recover attorney’s fees in actions or proceedings arising out of foreclosure of residential property. The purpose of this bill is to allow borrowers in a foreclosure proceeding access to legal representation by providing that mortgage agreements which allow a prevailing lender to recover attorneys fees in a foreclosure proceeding shall be read to allow prevailing borrowers to recover attorneys fees as well, thereby enabling borrowers with meritorious defenses to foreclosure to obtain the legal representation necessary to assert those defenses, similar to the reciprocal attorneys fees rights given tenants by Real Property Law Section 234.
The notes on this section of the act provide that “any waiver of this section shall be void as against public policy. For the purposes of the act, “residential real property” is real property improved by a one to four family residence, a condominium that is occupied b the mortgagor or a cooperative unit that is occupied by the mortgagor.
In Federal Natl. Mtge. Assn. v. Rogers Realty & Mgt. Corp., 2010 NY Slip Op 51072(U)(Kings County 2010), the Supreme Court, Kings County, denied plaintiff’s motion for a default judgment insofar against defendants, Rogers Realty & Management Corp., in a foreclosure action. The defendants’ cross motions to dismiss plaintiff’s complaint pursuant to CPLR 3211(a)(8) and vacate their default pursuant to CPLR 317 or CPLR 5015 (a) (1) was granted to the extent that the complaint against individual defendant Abraham Hoffman is dismissed and denied. According to the plaintiff’s affidavits of service, service was purportedly made on Rogers Realty via the Secretary of State and upon individual defendant Hoffman by affixation and mailing. The Court notes that while CPLR 308(4) authorizes nail and mail service as to defendant Hoffman, it may only be utilized where personal service under CPLR 308(4) cannot be made with due diligence. The question in the instant matter revolves around the issue of what constituted due diligence, the existence of due diligence and whether the plaintiffs exercised it in attempting personal service. The court notes the “due diligence” is determined on a case by case basis, “focusing not on the quantity of the attempts at personal delivery, but on their quality.” Gurevitch v. Goodman, 269 AD2d 355 (2000). In the instant matter the affidavits cite six attempts to serve defendant Hoffman but that four of the six attempts were made at a time and date when it would be reasonable to assume that the defendant would be at work or traveling to and from work, and therefore not present at the residence where service was attempted. The Court further notes, (while there was discussion about the reporting of changes in business addresses were reported) that there “is no indication that the process server made any ‘effort to determine [Mr. Hoffman’s] business address in order to attempt personal service thereat pursuant to CPLR 308(2) before resorting to nail and mail service’.” Based on these affidavits of service and relevant case law the Court determined that Defendant Hoffman made a prima facie showing that there was a lack of “due diligence,” ineffective service, and a lack of jurisdiction over him. The Court found that “due diligence” on the part of the plaintiff to be insufficient as a matter of law, and therefore denied plaintiff’s request for a default judgment with respect to individual defendant Hoffman.
Justice Maltese currently serves as a Supreme Court Justice for Richmond County, appointed in 1996. In 2002, he was appointed by Chief Administrative Judge, Jonathon Lipman, to serve as Associate Justice for the New York Litigation Coordinating Panel. Previous to these current positions, Justice Maltese served as a judge in the New York City Criminal Court, appointed by the Chief Administrative Judge from 1992 through 1995. He was also elected Judge for the New York City Civil Court for Richmond County from 1992 through 1996. Justice Maltese most recently received a Masters of Judicial Studies in 1995 from the University of Nevada. Justice Maltese also holds a Master of Arts and Master of Science, obtained from New York University in 1991 and Touro College in 2002, respectively. Justice Maltese earned a Bachelor of Arts degree in 1970 and a Juris Doctor in 1973 from New York Law School. In addition to holding several teaching and educational positions Justice Maltese is the author of Expert Testimony: Technical, Scientific & Other Specialized Evidence, NYS Bar Association, Torts, Insurance & Compensation Law Journal, Vol. 30, No. 2, Fall, 2001. Additionally, Joseph Maltese retired from the U.S. Army Reserve after more than 30 years of service in the active and reserve components where he served as an Armor Officer, an Intelligence Officer and as a member of the Judge Advocate General’s Corps. During his last seven years in JAG, he served as a military judge for the U.S. Army Trial Judiciary where he presided over active duty courts-martials in Germany, Panama and at several posts in the U.S. He is a graduate of the U.S. Air Force Air War College, the U.S. Army Command and General Staff College, as well as numerous courses at The Judge Advocate General’s School and The Armor School. After retiring from the U.S. Army Reserve he joined the New York Guard as a Colonel where he served as Staff Judge Advocate to the Commanding General. Joseph Maltese is currently a Brigadier General and the Commander of the 54th Civil Affairs Brigade, which has assisted with the mobilization of thousands of soldiers, sailors and marines who participated in Operation Enduring Freedom and Operation Iraqi Freedom.
See Nick Timiraos’ article, “Mortgage Players Look to Soften Bill”, in today’s Wall Street Journal for more on this topic.
This post is the first of a series of many which will attempt to explore some of developments of in New York foreclosure jurisprudence in response to the foreclosure crisis. In this first post, we will attempt to make a modest start by reviewing the following three decision rendered by Justice Arthur Schack of Kings County in 2008.
The common theme in these three cases is the Court’s denial, sua sponte, of the foreclosure plaintiff’s application for an order of reference on default. In brief, a foreclosure plaintiff’s application for an order of reference is a preliminary step to obtaining a judgment of foreclosure and sale. Specifically, the plaintiff asks the court to appoint a “referee” for the purpose of, among other things, computing the exact among owed by the foreclosure defendant/borrower.
Specifically, it is the foreclosure plaintiff’s failure to comply with the second requirement that is here at issue. The second requirement, proof of the claim itself, is usually satisfied by the submission of an “affidavit of merit” from the plaintiff or a representative of the plaintiff with first-hand knowledge of the relevant information underlying the claim. The foreclosure complaint itself may also satisfy this requirement if the complaint was verified by an individual with the requisite knowledge. An affidavit from an attorney, or a complaint verified by an attorney is generally unacceptable for this purpose. In the foreclosure context, an affidavit is usually supplied by a “vice president”, “authorized signatory”, “foreclosure technician” or some other dubiously titled “officer” of the foreclosing plaintiff.
Justice Schack has rightfully made practice of denying applications for orders of reference in situations where, to put it simply, he needs “more answers.” Justice Schack has been asking the tough questions that like, for instance, “Why, in the midst of the country’s mortgage crisis is Deutsche Bank purchasing non performing loans? And who’s been signing these affidavits of merit?” Justice Schack notes that the affidavits of merit are scarcely ever by an actually officer of the plaintiff or someone with a valid power of attorney from the plaintiff. See, e.g., Deutsche Bank National v. Auguste. In Deutsche Bank National v. Harris, Schack denied Deutsche Bank’s application for an order of reference due to his suspicions about particular employee, who has claimed at various times to be the Vice President of Deutsche Bank and Vice President of IndyMac. In cases where supporting affidavits were executed by persons who appear to have possible conflict of interest, even assuming arguendo their positions are legitimate, Justice Schack has ordered affidavits outlining the employment history of certain individuals for the proceeding three years. Again, in Deutsche Bank National v. Harris, Schack was perplexed to discover that IndyMac, MERs and plaintiff Deutsche bank all appeared to share the same office space. In Countrywide Home Loans v. Persaud, Schack ordered an explanation as to why Countrywide would purchase a nonperforming loan from MERS. To be sure, it is not at all uncommon to have nonperforming loan assigned inexplicably to different financial institutions on the eve of foreclosure.
While it is true that these cases were denied without prejudice, the plaintiffs were still required to cure these procedural defects to the satisfaction of the Court. Bottom line: foreclosure defendants, and the practitioners representing them, should carefully scrutinize affidavits of merit in order to ensure that they do indeed have merit.
Bank of New York v. Bestbuydigital, Inc.
Defendant moves to vacate default due to excusable default/meritorious defense, lack of jurisdiction and meritorious defense and failure to receive notice in time to defend. The Court in this matter denied all motions and all stays were vacated and lifted. Additionally the defendant alleged that proof of service was not filed as required by CPLR § 308(2), but offered no proof in support of this contention. Defendant relied solely on his failure to receive process in order to argue his excusable default. The Court cites Maldonado v. County of Suffolk, 229 AD 2d 376 (2d Dept. 1996), stating that “an affidavit of service by a process server which specified the papers served, the person who was served, and the date, time, address and sets forth facts showing that service was made by an authorized person, and in an authorized manner, constituted prima facie evidence of proper service.” Further, the Court notes that “a conclusory denial of receipt … is insufficient to raise an issue of fact which would entitle defendant to a traverse hearing.” The Court states that the defendant did not meet his burden of showing a meritorious defense—i.e. some minimal showing of merit. Had the defendant offered any additional showing of proof or supplied his argument in the form of an affidavit, a sworn statement, then perhaps the Defendant would have rebutted the presumption created by the process server’s affidavit of service. Due to defendant’s failure to meet his burden of proof and his failure to supply any evidence beyond a conclusory denial, the Court denied defendant’s motion to vacate the foreclosure judgment and vacated all stays.
Flushing Sav. Bank v. Ataraxis Props. Ltd.
In Flushing Sav. Bank v. Ataraxis Props. Ltd., a foreclosure action was commenced on Oct. 5 2009 after Ataraxis defaulted on its loan payments due on May 1, 2009. The principal balance of the loan was $600,000.00. This opinion clearly articulates the plaintiff’s burden of proof and the burden shifting on the defendant that occurs in a motion for summary judgment in a foreclosure action. In this matter, the plaintiff moved for summary judgment and an order of reference appointing a referee in addition to other procedural claims. The court states that in order to establish prima facie entitlement to summary judgment in a foreclosure action, “ a plaintiff must submit the mortgage and unpaid note, along with evidence of default”, citing Capstone Business Credit, LLC v. Imperia Family Realty, LLC, 70 AD3d 882, 883, 895 NYS2d 199 [2d Dept 2010]). Once the plaintiff has supplied such proof, the burden then shifts to the defendant. At this juncture it is required that the defendant “demonstrate the existence of a triable issue of fact as to a bona fide defense to the action, such as waiver, estoppel, bad faith, fraud, or oppressive or unconscionable conduct n the part of the plaintiff” (id. quoting Mahopac Natl. Bank v. Bisley, 244 AD2d 466, 664 NS2d 345 [2d Dept 1997]). In this particular matter, Flushing Savings Bank has met its initial burden by supplying the required documents proving its prima facie entitlement to summary judgment. In attempting to meet its burden, the defendant argues that it is unable to fully and completely respond due to the plaintiff’s failure to comply with the defendant’s discovery demands. Defendant also cites the pendency of another action between itself and the real estate broker involved in the same transaction. Defendant contends that the motion for summary judgment on behalf of plaintiff in premature in light of the forgoing arguments. The Court states the plaintiffs motion for summary judgment is not premature “inasmuch as Atarxis and Biskup (Defendants) have failed to offer an evidentiary basis to suggest that discovery may lead to relevant evidence; their hope and speculation that evidence sufficient to defeat the motion might be uncovered during discovery is an insufficient basis for denying the motion.” Therefore, the court granted plaintiff’s motion for summary judgment.Bank of New York v. Bestbuydigital, Inc.
Defendant moves to vacate default due to excusable default/meritorious defense, lack of jurisdiction and meritorious defense and failure to receive notice in time to defend. The Court in this matter denied all motions and all stays were vacated and lifted. Additionally the defendant alleged that proof of service was not filed as required by CPLR § 308(2), but offered no proof in support of this contention. Defendant relied solely on his failure to receive process in order to argue his excusable default. The Court cites Maldonado v. County of Suffolk, 229 AD 2d 376 (2d Dept. 1996), stating that “an affidavit of service by a process server which specified the papers served, the person who was served, and the date, time, address and sets forth facts showing that service was made by an authorized person, and in an authorized manner, constituted prima facie evidence of proper service.” Further, the Court notes that “a conclusory denial of receipt … is insufficient to raise an issue of fact which would entitle defendant to a traverse hearing.” The Court states that the defendant did not meet his burden of showing a meritorious defense—i.e. some minimal showing of merit. Had the defendant offered any additional showing of proof or supplied his argument in the form of an affidavit, a sworn statement, then perhaps the Defendant would have rebutted the presumption created by the process server’s affidavit of service. Due to defendant’s failure to meet his burden of proof and his failure to supply any evidence beyond a conslusory denial, the Court denied defendant’s motion to vacate the foreclosure judgment and vacated all stays.
In an Orange County, New York, action to foreclose a mortgage on an unoccupied residential condominium unit, Judge Bartlett granted interlocutory relief to the defendant Board of Mangers of the condominium boars (“Board”). The relief sought by the Board was the appointment of a receiver of the unit in question with directions that the receiver rent the unit and apply the proceeds of the rental first to the payment of current common charges and then to the reduction of the mortgage. Plaintiff, U.S. Bank National Association (“Bank”) opposed the application claiming that the proceeds should first be applied to the mortgage and that any remaining funds should then be applied to common charges and junior liens. The court notes that CPLR § 6401 permits the appointment of a receiver to an applicant when the applicant has an apparent interest in the property at issue and the property is in danger of being lost, destroyed or materially injured. Further, the Court notes that as a junior lienor the Board, has an interest in the property and therefore has the necessary standing to apply for a receiver in a foreclosure action. The point at issue in this matter is whether the cost of the condominium common charges that are accruing while a foreclosure action is pending can be paid without first applying the rents to the reduction of the first mortgage. The Court states that in determining whether to provide for the payment of condominium common charges from rents while a mortgage foreclosure action is preceding it must consider two factors. First, the “prejudice, if any to be suffered by the holder of the first mortgage, and” secondly, “how to balance that against the harm being suffered by the Board which is being compelled to carry the cost of maintaining the unit during pendency of this action.” In weighing these considerations the Court concluded that payment of common charges is “consistent with the receiver’s obligation to preserve the premises under RPAPL § 125(2).” Due to the “inter-relationship a condominium unit has with the common areas of the building and the building structure as a whole” the payment of the common charges help sustain the individual unit and if these charges remain unpaid the market value of the unit would decline. “By seeking the appointment of a receiver the Board is preserving the asset by maintaining the building in which the unit is located. The consequences of the bank’s position would work an injustice and sanction economic waste.” The Court states that “it is in the interests of all parties that unnecessary unpaid common charges not accrue.” In granting the Boards application the Court did add that the Board is to settle on an order on notice that would specify the limitations on the receiver’s authority to collect rents and monies.
A Utah judge has ordered a preliminary injunction against all foreclosure sales in the State of Utah by Bank of America Corporation. The temporary injunction was granted based on claims that the bank is not properly registered to do business in the state. The order bars Bank of America and its subsidiaries, like Recon Trust, from engaging in foreclosure sales in Utah until it is determined if the institutions are legally registered with the Utah Division of Corporations. Bank of America has filed to have the injunction rescinded. An emergency motion has been filed in Federal court. A Bank of America spokesperson has said that since the companies are governed by federal law, not state law, the defendants in this action had no opportunity to make their argument before the Utah state order was issued. Bank of America has halted residential foreclosure sales in the Utah State in order to comply with the injunction. A local newspaper reported that the Utah Department of Commerce Corporation division has no record of Recon Trust being registered as a business entity in Utah.
WASHINGTON — The Federal Trade Commission announced Monday that two Countrywide mortgage servicing companies had agreed to pay $108 million to settle charges that they collected excessive fees from financially troubled homeowners.
The $108 million payment is one of the largest overall judgments in the commission’s history and resolves its largest mortgage servicing case. The money will go to more than 200,000 homeowners whose loans were serviced by Countrywide before July 2008, when it was acquired by Bank of America.
Jon Leibowitz, the chairman of the Federal Trade Commission, said that Countrywide’s loan servicing operation charged excessive fees to homeowners who were behind on their mortgage payments, in some cases asserting that customers were in default when they were not.
The fees, which were billed as the cost of services like property inspections and lawn mowing, were grossly inflated after Countrywide created subsidiaries to hire vendors to supply the services, increasing the cost several-fold in the process, the commission said.
In addition, the commission said that Countrywide at times imposed a new round of fees on homeowners who had recently emerged from bankruptcy protection, sometimes threatening the consumers with a new foreclosure.
“Countrywide profited from making risky loans to homeowners during the boom years, and then profited again when the loans failed,” Mr. Leibowitz said.
The $108 million settlement represents the agency’s estimate of consumer losses, but does not include a penalty, which the commission is not allowed to impose.
The settlement bars Countrywide from making false representations about amounts owed by homeowners, from charging fees for services that are not authorized by loan agreements, and from charging unreasonable amounts for work.
In addition, the settlement requires Countrywide to establish internal procedures and an independent third party to verify that bills and claims filed in bankruptcy court are valid.
“Now more than ever, companies that service consumers’ mortgages need to do so in an honest and fair way,” Mr. Leibowitz said.
The F.T.C. has not yet established how much will be paid to each consumer, in part, Mr. Leibowitz said, because Countrywide’s record keeping was “abysmal.” About $35 million of the $108 million total was charged to homeowners already in bankruptcy proceedings, with the remainder charged to customers whom Countrywide said were in default on their mortgages.

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