The frustration endured by lenders simply proceeding to enforce a defaulted mortgage knows no bounds, as a new case vividly confirms. [Confidential Lending, LLC v. Nurse, 120 A.D.3d 739, 992 N.Y.S.2d 77 (2d Dept. 2014).]
This is not an example of a single legal point lenders and servicers should know, although a number of issues are raised and discussed. Rather, it is an example of how rocky is the road to enlightening the perils of the path.
First, the case is a litigated matter which immediately demonstrates the time-consuming and expensive pitfalls of the New York mortgage foreclosure action. There was no issue about the borrower being in default, but when the action was begun, she interposed an answer which, of course, relegated the foreclosing plaintiff to the task of a motion for summary judgment. But it went further. The defendant decided that she needed to amend her answer to add a host of wild defenses (most of them typical, however) and the trial court granted that permission. At the same time, it denied summary judgment to the plaintiff. Now the lender was yet deeper in the mess.
The view of the foreclosing party was that the answer should not be allowed to be amended, the defenses to be asserted were baseless and it should have been entitled to the requested summary judgment. Accordingly, the plaintiff appealed. Before even mentioning the result of that appeal, it must be observed that the borrower’s tenacity (again, recall that she had defaulted on the mortgage) now assured that the plaintiff would be stuck in the appeals procedures for at least a year (perhaps a year-and-a-half) and incur considerable legal fees as part of the appeals process.
In observing, in essence, that the court giveth and the court taketh away, one assault by the defaulting borrower was the usual claim of lack of standing. Here, though, the appeals court agreed that the lender had not adequately demonstrated that it had standing so that lender was going to be stuck back in the trial court to prove that aspect. This is a lesson, yet again, that lenders and servicers need to be very careful with their assignment documents and the facts supporting assignments. It is a consistent quagmire and is well worthy of attention.
On the thought that the current holder of the mortgage will ultimately succeed on the standing argument, we turn to the balance of the case where the mortgage holder did succeed – the appeals court reversed the trial court finding that the defenses the defaulting mortgagor wanted to add to her answer should not have been allowed; they were without merit. So what were these fanciful, yet so often encountered defenses?
The first claim to amend was the charge that the original lender had defrauded her. Of course, she had made payments without protest, fully aware of the circumstances forming the basis of her claimed defense, which, nonetheless, she wanted to use as a counterclaim in the action. The law here is that the borrower ratified the note and mortgage for the very reason that she knowingly made those payments. So that counterclaim couldn’t stand.
Another thrust was an oft-used tactic of borrowers charging that the lender violated General Business Law §349, which addresses bad business practices deceiving the public. But the mortgage transaction was private in nature and the alleged deceptive acts were not aimed at the public at large; therefore, there cannot be a claim for a violation of this statute. Such a favorable ruling for lenders is typical, although it never seems to discourage borrowers from making the claim.
The next assertion was truly bizarre, a claim that some brokers involved with the mortgage transaction were not licensed as the Real Property Law (Section 440-a) required. While that may have been so, that such brokers were unlicensed had nothing to do with enforcement of the plaintiff’s mortgage and so that defense (which the trial court thought certainly should be in the case) was thrown out as well.
As to the overall subject of amending the answer, the appeals court confirmed that this should be liberally allowed, except where the defenses and counterclaims are palpably insufficient and patently devoid of merit. That was found to be so here, in which event everything (except standing) should never have been allowed in the case.
There were even some purely technical assaults made by the borrower (she lost on those) but that level of minutia need not be pursued here.
The message, though, is that there are eight million defenses in the naked city and defaulting borrowers are delighted to employ as many of them as they can. This means that when a lender or servicer encounters a dedicated borrower opponent, they will be in for the long haul. It is just part of the foreclosure game in New York 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.