Assigning The Mortgage – No Need To Substitute Plaintiff


1 January, 2013


Mortgage Lender and Servicer Alerts

So here is the crazy thing that happened in a new case [IndyMac Bank F.S.B. v. Thompson, 99 A.D.3d 669, 952 N.Y.S.2d 86, 2012 N.Y. Slip Op. 06582.

The plaintiff bank began a mortgage foreclosure action and then during the course of that action assigned its mortgage.  This is hardly unusual.  Because of that assignment, though, the trial court, on its own, directed dismissal of the complaint – which means dismissal of the whole case – founded upon the assignment of the note and mortgage to another entity during the pendency of the action.

As our regular readers would know, there is nothing wrong with assigning a mortgage during a foreclosure and there is no need to have changed the name of the plaintiff to the new owner of that mortgage.  The rule, repeatedly enunciated by the courts, is that substitution of a party is not required unless the court may direct it, which it didn’t do here.  [While for the purpose of these alerts we rarely cite cases that the court in its decisions list, there are a laundry list of prior cases making this point and the court cited them – and we will too here: CPLR 1018; CitiMortgage, Inc. v. Rosenthal, 88 A.D.3d 759, 931 N.Y.S.2d 638; Nations Credit Home Equity Servs. V. Anderson, 16 A.D.3d 563, 792 N.Y.S.2d 510; Lincoln Sav. Bank, FSB v. Wynn, 7 A.D.3d 760, 776 N.Y.S.2d 908; Central Fed. Sav. V. 405 W. 45th St., 242 A.D.2d 512, 662 N.Y.S.2d 489.]

Just to put this in further perspective, when the mortgage is assigned during a foreclosure, it is reasonable and appropriate to amend the caption to substitute a new plaintiff — at whatever the next stage of the case may be.  That avoids a special motion, which incurs fees and can cause delay.  Of course, if this occurs after the judgment has issued, there is no next stage and so no substitution is made.

The law on this point comes from the New York practice statute (the CPLR) and has often been affirmed by courts.  One would think it would be well understood and widely known in the courts.  Case law, however, advises to the contrary.  Trial courts on more than a few occasions have dismissed foreclosures for want of having substituted a new party after an assignment – even though that is absolutely not required.

Here, the lower court’s error was even more egregious because it dismissed the case on its own rather than upon someone’s request.  How the court decided this was necessary and appropriate is puzzling indeed.

Happily, the trial court’s error was reversed on appeal so the lender’s action was reinstated.  But as we are compelled too often to observe, the lender suffered dismissal of its action and then the time and cost of an appeal to have it reinstated.  It should not happen, but such are the not unusual vicissitudes of prosecuting a mortgage foreclosure action in the Empire State.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2017), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.