NEW YORK COURT GIVES HOMEOWNERS MORE ARSENAL TO DEFEND AGAINST FORECLOSURE ACTIONS

New York Court Gives Homeowners More Arsenal To Defend Against Foreclosure Actions

In the past decade, New York City homeowners have continued to face the effects of the housing bubble bursting. Although the number of foreclosures have declined since 2007, the amount of foreclosure actions being pursued by banks are still relatively high.[1] As such, homeowners have continued to fight legal battles against foreclosure actions in hopes of maintaining their homes.

On May 3, 2017, the Appellate Division, Second Department issued two decisions regarding whether a plaintiff-lender has a legal interest in the property to bring a foreclosure action, commonly known as standing in the legal community. In both cases, the Court  held that the banks failed to prove standing to commence foreclosure actions against the homeowners. As a result, homeowners now have another lifeline in their attempts to preserve their homes.

In New York, a bank may establish standing in a foreclosure action by demonstrating either a written assignment of the promissory note or physical possession of the note prior to the commencement of the foreclosure action.[2] While there is no one way to correctly demonstrate physical possession of the promissory note prior to the commencement of the action, courts have permitted homeowners to attack the sufficiency of a bank’s affidavit to challenge the bank’s alleged physical possession of the note prior to the commencement of the litigation.

In Bank of N.Y. v. Willis, the homeowner asserted a defense of the bank’s lack of standing in response to the bank’s commencement of a foreclosure action.[3] The bank then moved for summary judgment on its complaint against the homeowner. The Supreme Court granted the bank’s summary judgment and the homeowner appealed.

The bank attempted to establish its standing by providing an affidavit from an Assistant V.P., at Bank of America, N.A., (“BANA”), the servicer of the homeowner’s loan.[4]  The affidavit stated that based on her review of the bank’s business records, the note was physically transferred to the bank “in or about March 2007.”[5] However, the Court held that the affidavit was inadmissible because the Assistant V.P. was not personally knowledgeable of the bank’s recordkeeping practices and procedures.[6] As a result, the Court held that the bank failed to establish a prima facie case entitling it to foreclosure of the property.[7]

Similarly, in Aurora Loan Services, LLC v. Ang, the bank commenced a foreclosure action against the homeowners for defaulting on their mortgage payments.[8] Subsequently, the homeowners answered the complaint and asserted as an affirmative defense that the bank lack standing to bring the within action.[9] Soon after, the bank moved for summary judgment on the complaint as asserted against the homeowners and to strike the homeowners’ affirmative defense.[10]  TheSupreme Court then granted the bank’s motion. As a result, the homeowners appealed.[11]

The Appellate Division, Second Department analyzed the bank’s attempt to establish its standing by submitting an affidavit from an Assistant Secretary of Nationstar Mortgage LLC alleging the bank’s physical possession of the note.[12] The affidavit stated that after the commencement of the action, the bank delivered the underlying note to Nationstar Mortgage LLC.[13] Moreover, the affidavit stated that based upon her review of the business records maintained by Nationstar Mortgage LLC, the bank was in continuous possession of the note and mortgage since prior to commencement of the action.[14] Nonetheless, the Court ruled that the affidavit was not admissible due to the Assistant Secretary’s failure to attest that she was personally familiar with the bank’s recordkeeping procedures and practices.[15] Therefore, the Court once again held in favor of the homeowners and found that the bank failed to establish its prima facie entitlement to foreclosure.[16]

These latest decisions from the Appellate Division, Second Department, demonstrate the court’s stringent scrutiny of a bank’s claim of physical possession of the note in a foreclosure action.    As illustrated by Willis, supra, and Ang, supra, the Court requires the bank to produce specific details regarding how and when the bank received the note prior to the commencement of the foreclosure action.  Therefore, if a bank attempts to demonstrate its physical possession of the note by use of an affidavit, the affiant must be able to attest to his or her personal knowledge of the bank’s recordkeeping procedures and business practices. Although this will not dismiss the action entirely against the homeowners, it affords the homeowners the opportunity to continue to fight to maintain their home.

[1]Queens is the King of New York City Foreclosures, HABITAT, January 17, 2017, https://www.habitatmag.com/Publication-Content/Legal-Financial/2017/2017-January/Rising-Foreclosures.

[2]Deutsche Bank Natl. Trust Co. v. Weiss, 133 A.D.3d 704, 706, 21 N.Y.S.3d 126 (2d Dep’t 2016).

[3]Bank of N.Y. v. Willis, 2017 N.Y. App. Div. LEXIS 3402, *1, 2017 NY Slip Op 03468 (2d Dep’t 2017).

[4]Id. at 2.

[5]Id.

[6]Id. at 2-3.

[7]Id. at 3.

[8]Aurora Loan Services, LLC v. Ang, 2017 N.Y. App. Div. LEXIS 3405, *2, 2017 NY Slip Op 03466 (2d Dep’t 2017).

[9]Id. at 2.

[10]Id.

[11]Id.

[12]Id. at *3

[13]Ang, 2017 N.Y. App. Div. LEXIS 3405, at *3.

[14]Id.

[15]Id.

[16]Id. at *3-4.

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