131 A.D.3d 52
N.Y. App. Div.2015Background
- 2002: Stefanos Vitellas executed a $560,000 promissory note (Lyons) secured by a mortgage on Queens property; wife Maria co-signed the mortgage.
- May 1, 2004: Stefanos filed Chapter 7 bankruptcy and received a discharge Oct. 14, 2004; mortgage listed as a secured claim.
- Plaintiff Deutsche Bank filed a foreclosure action July 16, 2012, alleging mortgage assignments in 2011 and 2012 and asserting holder/assignee status of the note and mortgage.
- Defendants moved to dismiss for lack of standing, arguing the bankruptcy discharge extinguished the note so a post-discharge assignment could not convey standing.
- Deutsche Bank submitted an affidavit (Sperbeck) and the note with an allonge, asserting physical delivery/possession of the note on March 25, 2004 (pre-bankruptcy).
- Supreme Court granted dismissal initially, then on reargument found Deutsche Bank raised a question of fact as to pre-discharge possession and denied the motion; Appellate Division affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a plaintiff may have standing to foreclose if the underlying note was discharged in debtor's bankruptcy | Deutsche Bank: discharge removes personal liability but does not destroy the note or mortgage; if it held/received the note pre-discharge (or was valid assignee), it may foreclose in rem | Vitellas: bankruptcy discharge extinguished the debt so a post-discharge assignment cannot transfer a valid note or confer standing | Court: Discharge removes in personam liability but not the mortgage lien; assignee who holds the note and mortgage has standing to foreclose in rem; here plaintiff raised a question of fact about pre-discharge possession, defeating the dismissal motion |
| Standard of proof on a pre-answer motion to dismiss for lack of standing | Deutsche Bank: once movant (defendant) fails to show plaintiff lacks standing, plaintiff need only raise a question of fact | Vitellas: plaintiff must prove assignment/possession showing standing | Court: On pre-answer CPLR 3211(a) motion, burden is on defendants to make prima facie showing; plaintiff defeats motion by raising a triable issue of fact |
| Effect of a subsequent assignment of a note that had been discharged in bankruptcy | Deutsche Bank: assignment of note (even if after discharge) can transfer the right to foreclose because the mortgage survives in rem | Vitellas: a discharged note is extinguished and thus not assignable; assignment of mortgage alone is a nullity | Court: A post-discharge assignment does not eliminate defenses but discharge does not prevent transfer of the note or the mortgage's in rem enforceability; assignment can convey standing if it transfers the note |
| Whether complaint/affidavit contradictions regarding assignment timing negate standing proof | Deutsche Bank: affidavit showing physical delivery pre-discharge is admissible to raise an issue of fact | Vitellas: Sperbeck affidavit lacked foundation and contradicted complaint; thus insufficient | Court: Affidavit was sufficient to create a factual question; timing variance in complaint did not defeat affidavit's showing |
Key Cases Cited
- Johnson v. Home State Bank, 501 U.S. 78 (U.S. 1991) (bankruptcy discharge eliminates personal liability but mortgage lien survives permitting in rem foreclosure)
- Merritt v. Bartholick, 36 N.Y. 44 (N.Y. 1867) (assignment of mortgage without the debt is a nullity; mortgage is accessory to debt)
- Bank of N.Y. v. Silverberg, 86 A.D.3d 274 (2d Dep't 2011) (standing requires holder/assignee of both note and mortgage; assignment of mortgage alone insufficient)
- Aurora Loan Servs., LLC v. Taylor, 114 A.D.3d 627 (2d Dep't 2014) (note is dispositive instrument; transfer of debt carries mortgage as incident)
- U.S. Bank, N.A. v. Collymore, 68 A.D.3d 752 (2d Dep't 2009) (physical delivery of the note or written assignment of the note is evidence of standing)
- Deutsche Bank Natl. Trust Co. v. Barnett, 88 A.D.3d 636 (2d Dep't 2011) (reiterating that assignment of mortgage alone does not confer the right to enforce the debt)