This alert may yet be another that at first glance appears to be solely for lenders’ counsel, not lenders themselves. But it is not so, rather it is meaningful and offers a warning worthy of note – all the subject of a recent case: GMAC Mortgage, LLC v. Bisceglie, 109 A.D.3d 874, 973 N.Y.S.2d 225 (2d Dept. 2013).
The problem arises when a defendant argues against discontinuance and says he is being damaged. To be sure, discontinuances of foreclosure actions are typically pro forma, mechanical exercises. The mortgage is satisfied, or there is a short sale, or the matter is settled in some other fashion. Overwhelmingly, this means that the foreclosure needs to be withdrawn, more accurately, the action needs to be discontinued (and the lis pendens cancelled). This is accomplished (most often) by court order, based upon a stipulation signed by all parties who have appeared, or if that is unavailable, pursuant to motion.
Might a court refuse to discontinue an action? And if it does, why would it happen and what might be the danger? The cited case presents a troubling example.
There, the action proceeded to the lender’s motion for summary judgment. Such a motion requires certain pertinent facts to be presented by affidavit of a person on behalf of the plaintiff with personal knowledge of the facts, usually not an issue. The deponent in this instance was a “limited signing officer”. Summary judgment was granted and so far this was an unremarkable matter.
But then the lender moved to discontinue the action without prejudice (that is, reserving the right to begin anew if necessary). The stated ground for the discontinuance by the lender’s attorney was a direction from the client to discontinue and close the file “due to an issue with the default notification.”
To this point it still seems like an innocuous matter. The lender apparently made a mistake and wants to fix it – quite honorable it would appear.
In reciting the standard to apply to discontinuances, the court observed that leave should be granted unless there are reasons justifying its denial and that determination is within the court’s discretion, the relief to be awarded in the absence of special circumstances such as prejudice to a substantial right of a defendant or other improper consequences.
Those principles are reasonable enough and should not normally be an impediment to the usual discontinuance scenario. But here is where the glitch emerges. The borrower defendant opposed the discontinuance motion (even moved to discontinue the action with prejudice). The argument (significantly, unrefuted by the lender) was that the lender’s affidavit in support of the summary judgment motion was signed by a limited signing officer (read robosigner) who in actuality had no personal knowledge of the facts. Also unrefuted was the borrower’s assertion that the lender was the subject of an investigation into improper use of a limited signing officer who signed affidavits without the requisite knowledge.
The court therefore concluded that the real reason the lender pursued discontinuance without prejudice was to avoid the adverse consequences of its improper use of a limited signing officer.
In addition to the lender’s misstatement, and harkening back to the standards employed when contemplating discontinuance, the court found that the borrower did indeed suffer prejudice in expending costs and legal fees to defend the summary judgment motion.
The result of all this was that discontinuance was not permitted, the summary judgment order was vacated and the lender was prohibited from making another motion for summary judgment. It was thus banished to the time consuming pursuit of a trial – all for want of a proper affidavit.
Most lenders’ motions for discontinuance will be granted in the normal course. But if the discontinuance is a device to hide a defalcation, danger may be lurking.
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.