FORECLOSURE - STANDING AND REVERSE MORTGAGES

OneWest Bank, N.A. v FMCDH Realty, Inc,  2018 NY Slip Op 06101, Decided on September 19, 2018, Appellate Division, Second Department:

"Generally, in the context of a motion for summary judgment in an action to foreclose a mortgage, " a plaintiff establishes its prima facie case through the production of the mortgage, the unpaid note, and evidence of default'" (Deutsche Bank Natl. Trust Co. v Brewton, 142 AD3d 683, 684, quoting Plaza Equities, LLC v Lamberti, 118 AD3d 688, 689; see U.S. Bank N.A. v Cruz, 147 AD3d 1103, 1103). When standing is at issue, the plaintiff must also prove its standing in order to be entitled to relief (see Deutsche Bank Natl. Trust Co. v Brewton, 142 AD3d at 684; Aurora Loan Servs., LLC v Taylor, 114 AD3d 627, 628, affd 25 NY3d 355; Wells Fargo Bank Minn., N.A. v Mastropaolo, 42 AD3d 239, 242). A plaintiff has standing in a mortgage foreclosure action when it is the holder or assignee of the underlying note at the time the action is commenced (see Aurora Loan Servs., LLC v Taylor, 25 NY3d at 361; Deutsche Bank Natl. Trust Co. v Brewton, 142 AD3d at 684). "A holder' is the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession'" (Deutsche Bank Natl. Trust Co. v Brewton, 142 AD3d at 684, quoting UCC 1-201[b][21]; see Deutsche Bank Natl. Trust Co. v Webster, 142 AD3d 636, 638; Wells Fargo Bank, NA v Ostiguy, 127 AD3d 1375, 1376). Where the note has been indorsed in blank, the holder must establish its standing by demonstrating that the original note was physically in its possession at the time of the commencement of the action (see Deutsche Bank Natl. Trust Co. v Brewton, 142 AD3d at 685; U.S. Bank, N.A. v Collymore, 68 AD3d 752, 754).

Here, the document referred to by the plaintiff as the note is in fact the 14-page Cash Account Agreement. In support of its motion, the plaintiff, seeking to establish its standing, submitted the affidavit of its assistant secretary, who averred, based upon his review of the plaintiff's business records, that the plaintiff received the original Cash Account Agreement, indorsed in blank, on May 5, 2011, and had it in its possession at the time of the commencement of this action. The plaintiff also submitted proof of the borrower's death, and the default of her estate in repaying the underlying debt (see JPMorgan Chase Bank, N.A. v Weinberger, 142 AD3d 643, 645; Deutsche Bank Natl. Trust Co. v Naughton, 137 AD3d 1199, 1200; HSBC Bank USA, N.A. v Spitzer, 131 AD3d 1206, 1206-1207; Emigrant Mtge. Co., Inc. v Beckerman, 105 AD3d 895, 895).

In opposition, the defendant argued that, in a prior foreclosure action commenced in the Supreme Court, Nassau County, by Financial Freedom Acquisition, LLC, the lender had attempted to establish its standing based on the physical delivery of the Cash Account Agreement, to which an undated allonge, indorsed in blank by an unidentified representative of Freedom Financial and referring specifically to the borrower and the address of the subject premises, was affixed. In support of the instant motion, by contrast, the Cash Account Agreement submitted by the plaintiff did not include the previous allonge, but instead bore a different, undated indorsement in blank signed by Judith Clements, a vice president of Freedom Financial, which referred neither to the subject premises nor to the name of the borrower.

The Supreme Court accepted the prima facie showing made by the plaintiff, disregarding the absence of the prior allonge relied upon by the plaintiff's predecessor in interest in the prior action, and accepting the new indorsement in blank by Judith Clements. Because the plaintiff is seeking to establish standing on the basis that it is a valid holder in due course of the Cash Account Agreement, this Court requested a postargument submission on the threshold question of whether the Cash Account Agreement falls within the definition of a negotiable instrument as [*2]contemplated by section 3-104 of the Uniform Commercial Code.

Upon our review of the record, including the additional postargument submissions received from both sides, we conclude that the Cash Account Agreement does not constitute a negotiable instrument within the meaning of UCC 3-104. Therefore, the plaintiff cannot establish its standing merely by demonstrating that it was in possession of the original Cash Account Agreement, indorsed in blank, at the time the instant action was commenced."