Of the many plateaus to be achieved in a New York mortgage foreclosure action; one is the stage of the referee’s computation of the sum due. This is not so often considered an area of threat to the case, but a new ruling highlights that it can be – when the foreclosing party was found to have failed to produce proper business records to support the computation. [Hudson City Savings Bank v. DePasquale, 189 A.D.3d 1558, 139 N.Y.S.3d 645 (2d Dept. 2020)]
The issue of business records in a foreclosure action can be a complex and confusing one. Mere records are considered hearsay, unless a proper foundation is laid for the introduction of the records into evidence and there in much to this beyond our purposes here. Indeed, the subject arises most often when a lender’s pre-foreclosure ninety day notice is attacked and the plaintiff has difficulty proving from its records that the notice was sent properly. Another stage where it is encountered with some frequency is upon summary judgment when the foreclosing party’s records need to prove the default.
While this is less frequently involved at the referee computation stage (at least it is not so often attacked then), understanding the mechanics exposes the particular danger. Whether the computation is based upon papers submitted by the plaintiff to the referee, or whether there is a referee’s hearing, ultimately the referee issues a report. The next stage is the plaintiff’s application to the court for a judgment of foreclosure and sale which, among other things, confirms the referee’s computation. If the borrower appeals that judgment, however, a year or two will be consumed in deciding that and the Appellate Division could (as it did in this case) reject the confirmation and reverse the judgment. The time and expense involved in this is very meaningful and therefore the peril is clearly elevated.
In the cited case the calculations of the referee were based upon an affidavit of an assistant vice president of the plaintiff’s successor. That person swore that she had personal knowledge of the matter based upon her review of the relevant documents and she annexed (as was necessary) a breakdown of the amounts due. But, the documents produced included only agreements between the parties – not the payment history. Accordingly, the computation was found to be improperly premised upon unproduced business records. Therefore, the appeals court rejected confirmation of the referee’s report and remitted the case back to the trial court for a new report of computation.
The short lesson of this case is that upon computation, the plaintiff needs to present the actual records that show the sum, accompanied by an affidavit of a person with actual knowledge of the plaintiff’s record keeping process. Clearly, the plaintiff wasn’t even close to that here and concededly it is unusual situation because the error was rather obvious. Nonetheless, there is room for a plaintiff to stumble and this case serves to provide a path as to what must be avoided.
Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2022), 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.