MORTGAGE FORECLOSURE - A BANK RAISING LACK OF STANDING?

An interesting argument that failed: Bank's "predecessor in interest" could not have accelerated the debt more than 6 years ago because the "predecessor in interest" lacked standing.

HSBC Bank USA, N.A. v Islam, 2019 NY Slip Op 29085, Decided on March 29, 2019, Supreme Court, Queens County Caloras, J:

"Defendant MD A. Islam now moves to dismiss plaintiff's cause of action for foreclosure and sale of the subject property as being barred by the applicable statute of limitations, pursuant to CPLR §3211 (a) (5). He claims that MERS, commenced its prior action on or about May 9, 2008, at which time MERS accelerated the debt and demanded payment in its entirety. As such, the six year statute of limitations began to run not later than May 9, 2008 and the expiration date of the statute of limitations could occur not later than May 9, 2014. Therefore, any subsequent action to recover on the mortgage after May 9, 2014 would be barred by the statute of limitations pursuant to CPLR §213(4). Since MERS moved to voluntarily discontinue its action, dated May 8, 2014, and entered by the Queens County Clerk on May 15, 2014, this was after the expiration of the statute of limitations. 

Consequently, MERS' attempt to revoke its right to elect acceleration occurred beyond the expiration of the 6-year statute of limitations. Defendant MD Islam also argues that MERS' act of voluntarily discontinuing the prior action was not a sufficiently affirmative act to constitute a revocation of its acceleration of debt. As such, there was no tolling of the statute of limitations clock, and the current action was filed more than three years after the expiration of the six year statute of limitations.

Plaintiff opposes the motion and states that the Summons and Complaint in the 2008 Action was discontinued because it incorrectly recited that MERS is a party to the Note and provides that MERS commenced the 2008 Action as the owner and holder of the Note and Mortgage. Rather, the Note was executed in favor of MortgageIt, Inc., and MERS had no standing to commence or maintain the 2008 foreclosure. Subsequent to discovering this error, plaintiff claims that, by Notice of Motion dated May 8, 2014, Plaintiff in the 2008 Action moved for an Order discontinuing the 2008 Action without prejudice, vacating the judgment and dismissing any counterclaims and crossclaims due to title insurability issues. Thereafter, on July 18, 2017, plaintiff commenced the instant action and in its affirmation in opposition states that, "insofar as Plaintiff is time-barred from collecting arrears aged more than six years prior to the commencement of the foreclosure, Plaintiff has waived the arrears from November 1, 2007 through July 1, 2011 and seeks to foreclose upon Defendant's default in making the August 1, 2011 payment and all subsequent mortgage payments.

Plaintiff claims that the purported acceleration by the 2008 Action was a nullity since MERS had no standing to commence this Action. This being due to MERS having never been assigned the Note and Mortgage nor having possession of the Note at the time of the [*3]commencement of the 2008 Action. Plaintiff claims that since the acceleration of the note was a nullity, the statute of limitations did not begin to run and the current action is not time barred. Plaintiff also claims since the 2008 action resulted in a voluntary discontinuance pursuant to MERS motion, that was granted in an Order of the Court, entered on August 27, 2014, the 2008 acceleration was rescinded. This affirmative act of rescission was within six years of the instant action, thus rendering the instant action timely filed.

Here, the defendant established that the six-year statute of limitations began to run on the entire debt on May 9, 2008, the date the MERS accelerated the mortgage debt by commencing the prior action. See, Freedom Mtge. Corp. v Engel, 163 AD3d 631, 632-633 ( 2d Dept. 2018.) Since the plaintiff did not commence this action until July 18, 2017, more than six years later, the defendant sustained his initial burden of demonstrating, prima facie, that this action was untimely. U.S. Bank N.A. v Martin, 144 AD3d 891, 892 (2d Dept 2016.) The burden then shifted to the plaintiff to present admissible evidence establishing that the action was timely or to raise a question of fact as to whether the action was timely. Id. at 892.

The plaintiff failed to meet its burden. Contrary to its contention, the plaintiff failed to raise a question of fact as to whether it affirmatively revoked its election to accelerate the mortgage within the six-year limitations period. Its filing of the motion and the Court's Order discontinuing the action, did not, by themselves, constitute an affirmative act to revoke MERS' election to accelerate, since the motion and Order were silent on the issue of the election to accelerate, and did not otherwise indicate that the plaintiff would accept installment payments from the defendant MD A. Islam. See, Bank of NY Mellon v Craig, 2019 NY App. Div. NY Slip Op 00846, (2d Dept. February 6, 2019). See, also, Deutsche Bank Trust Co. Ams. v Smith , 2019 NY App. Div., 2019 NY Slip Op 01562 (2d Dept. March 6, 2019.)

Furthermore, the plaintiff's argument that the acceleration of the note was a nullity is without merit. First, the Court Order of discontinuance of the action does not state standing was a basis or consideration in reaching the decision. Second, the motion by Mers did not mention it was based upon any epiphany regarding standing. Rather, it sought vacatur of the Judgment of Foreclosure and Sale and discontinuance of the action "due to title insurability issues." Therefore, plaintiff's claims to the contrary are belied by MERS' motion.

Third, a facially adequate cause of action to foreclose a mortgage requires allegations regarding the existence of the mortgage, the unpaid note, and the defendant's default thereunder, which, if subsequently proven, will establish a prima facie case for relief. US Bank N.A. v Nelson, 2019 NY App. Div., 2019 NY Slip Op 00494 (2d Dept. January 23, 2019.) (Citations omitted.) In order to place in issue any of these essential elements of the cause of action, a defendant need only deny them in the answer. However, as a general matter, a plaintiff need not establish its standing (i.e., that it held and/or owned the note at the time the action was commenced) as an essential element of the cause of action. Id. (Citations omitted.) Rather, it is only where the plaintiff's standing is placed in issue by the defendant that the plaintiff must shoulder the additional burden of establishing its standing to commence the action, a burden satisfied by evidence that it was the holder or assignee of the underlying note at the time the action was commenced. Id. (Citations omitted.) Consequently, where, as here, standing is not an essential element of the cause of action, under CPLR 3018(b) a defendant must affirmatively plead lack of standing as an affirmative defense in the answer in order to properly raise the issue [*4]in its responsive pleading. Id. (Citations omitted.) This was not done in the 2008 action by defendant MD A. Islam, nor any other defendant. Since CPLR 3211 (subd [e]) provides that such a defense is waived if not raised either by motion or in the responsive pleading, any objection to MERS standing was deemed waived. Clearly, if defendants waived such objections, plaintiff in the instant matter cannot raise an objection to MERS standing and seek to use lack of standing to its advantage. Moreover, in the 2008 action, there was the 2009 Order that granted MERS' motion for a Judgment of Foreclosure and Sale. Thereby, finding MERS made out a sufficient cause of action and, in essence, making a finding of standing based upon there being no objection. To adopt plaintiff's argument regarding standing would twist the well established rules into a means to avoid statute of limitations bars to actions. This Court has not been given any basis to do so."