More Craziness In New York Foreclosures, Standing Issue – With Rescue


1 July, 2013


Mortgage Lender and Servicer Alerts

One of the regular laments in these alerts is that foreclosing plaintiffs are subjected to erroneous decisions which, while vindicated on appeal, nonetheless subject the lender or servicer to both unwarranted expense and more extraordinary delay.  The latest example arose in a case where a court decided on its own not only to deny an order of reference (in the absence of any opposition no less) but to then dismiss the action with prejudice (meaning it could never be brought again) and to impose sanctions on the plaintiff of $10,000 and upon plaintiff’s counsel of $5,000!  [HSBC Bank USA, N.A. v. Taher, 104 A.D.3d 815, 962 N.Y.S.2d 301 (2d Dept. 2013).]

Servicers will recognize that after process service, the next stage of the case is application to appoint a referee to compute, which is what happened here.  But as noted, there was no answer – no opposition.  What impelled the court to nonetheless dismiss the complaint was an independent determination by the judge that the plaintiff and its law firm had relied upon a “robo-signer” employed by the plaintiff’s loan servicer.

Everything in the order was appealed and reversed by the Appellate Court – Appellate Division, Second Department.  Here in bullet-point fashion are the relevant and helpful rulings of the appellate court:

  • It was error to deny the order of reference. The plaintiff submitted documentary evidence showing the defendant’s default, that the plaintiff was the holder of the consolidated note and mortgage and that there was a default on that mortgage.
  • It was an abuse of discretion for the court, on its own, to direct dismissal of the complaint with prejudice and cancellation of the notice of pendency.[1] A court’s power to dismiss a complaint on its own is to be used only sparingly and then only when extraordinary circumstances exist to support such dismissal.[2]
  • In this matter the trial court was not presented with any extraordinary circumstances to support a dismissal of the complaint; indeed the defendants did not answer the complaint and made no motion against the complaint.
  • A party’s lack of standing does not constitute a jurisdictional defect and will not warrant dismissal of the complaint on the court’s own motion.[3]
  • The trial court abused its discretion in directing a hearing on sanctions and thereafter directing both the plaintiff and the law firm to pay those sanctions.
  • Lack of standing is not an extraordinary circumstance that warrants dismissal of a foreclosure complaint on the court’s own motion. Rather, lack of standing is an affirmative defense which is waived if not raised by the defendant in an answer or in a pre-answer motion to dismiss.[4]
  • A court’s independent internet investigation of a plaintiff’s standing, including newspaper articles and other materials, are not judicially noticeable and it cannot be pursued in any event without providing notice of an opportunity to be heard by a party.[5]

The foreclosing plaintiff was appropriately rescued in this case but, as mentioned, was forced to suffer the time and expense of an appeal.

[1] Bank of N.Y. v. Alderazi, 99 A.D.3d at 838, 951 N.Y.S.2d 900; Bank of Am., N.A. v. Bah, 95 A.D.3d 1150, 1151, 945 N.Y.S.2d 704; Aurora Loan Servs., LLC v. Shahmela Shah Sookoo, 92 A.D.3d 705, 941 N.Y.S.2d 503; U.S. Bank, N.A. v. Guichardo, 90 A.D.3d 1032, 935 N.Y.S.2d 335; U.S. Bank, N.A. v. Emmanuel, 83 A.D.3d 1047, 921 N.Y.S.2d 320; HSBC Bank USA, N.A. v. Valentin, 72 A.D.3d 1027, 900 N.Y.S.2d 350.

[2] U.S. Bank, N.A. v. Emmanuel, supra., see Aurora Loan Servs., LLC v. Sobanke, 101 A.D.3d 1065, 1066, 957 N.Y.S.2d 379; Rienzi v. Rienzi, 23 A.D.3d 450, 808 N.Y.S.2d 116.

[3] Bank of N.Y. v. Alderazi, supra.; U.S. Bank, N.A. v. Emmanuel, supra.

[4] Wells Fargo Bank Minn., N.A. v. Mastropaolo, 42 A.D.3d 239, 837 N.Y.S.2d 247.

[5] HSBC Bank USA, N.A. v. Taher, 32 Misc.3d 1208[A], 2011 N.Y. Slip Op. 51208[U], *4, 2011 WL 2610525 [Sup. Ct., Kings County].

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.