| J & JT Holding Corp. v Deutsche Bank Natl. Trust Co. |
| Decided on June 5, 2019 |
| Appellate Division, Second Department |
| Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. |
| This opinion is uncorrected and subject to revision before publication in the Official Reports. |
Decided on June 5, 2019 SUPREME COURT OF THE STATE OF NEW YORK Appellate Division, Second Judicial Department
LEONARD B. AUSTIN, J.P.
SHERI S. ROMAN
JEFFREY A. COHEN
BETSY BARROS, JJ.
2016-05768
(Index No. 12296/14)
v
Deutsche Bank National Trust Company, etc., appellant.
Blank Rome LLP (Bryan Cave LLP, New York, NY [Suzanne M. Berger and Elizabeth J. Goldberg], of counsel), for appellant.
Chidi A. Eze, Brooklyn, NY, for respondent.
DECISION & ORDER
In an action, inter alia, pursuant to RPAPL article 15 to compel the determination of claims to real property, the defendant appeals from an order of the Supreme Court, Queens County (Rudolph E. Greco, Jr., J.), entered March 29, 2016. The order, insofar as appealed from, denied the defendant's motion pursuant to CPLR 3211(a)(1) and (7) to dismiss the complaint.
ORDERED that the order is reversed insofar as appealed from, on the law, with costs, and the defendant's motion pursuant to CPLR 3211(a)(1) and (7) to dismiss the complaint is granted.
In October 2006, nonparty Pradeep Lakhanlall obtained a loan in the amount of $480,000 from nonparty Impac Funding Corporation (hereinafter Impac) secured by a mortgage on real property located in South Ozone Park. The mortgage was recorded by Mortgage Electronic Registration Systems, Inc. (hereinafter MERS), the mortgagee of record, on behalf of Impac. In April 2007, after Lakhanlall defaulted on the payment due on January 1, 2007, and those due thereafter, the defendant, Deutsche Bank National Trust Company (hereinafter Deutsche Bank), commenced an action to foreclose the mortgage (hereinafter the foreclosure action). In an order dated October 1, 2008, the Supreme Court denied Deutsche Bank's ex parte motion for a judgment of foreclosure and sale because Deutsche Bank failed to annex a copy of the relevant assignment between it and MERS.
Deutsche Bank subsequently moved for leave to renew its motion for a judgment of foreclosure and sale, and included a copy of the assignment dated October 10, 2007, of the subject mortgage, together with the note, from MERS, as nominee for Impac, to it, referencеd by the court in the prior order. In an order entered October 21, 2009 (hereinafter the October 2009 order), the Supreme Court granted leave to renew, and thereupon, adhered to its original determination and, sua sponte, directed dismissal of the complaint in the foreclosure action for lack of standing since the foreclosure action was commenced on April 30, 2007, prior to the date of the subject assignment.
Thereafter, Deutsche Bank moved to discontinue the foreclosure action and to cancel the notice of pendency that was filed when the foreclosure action was commenced. The motion was unopposed. By order еntered June 12, 2013 (hereinafter the June 2013 order), the Supreme Court [*2]granted Deutsche Bank's motion, relieved the appointed referee, and directed that the Queens County Clerk cancel the notice of pendency.
By deed dated March 27, 2014, the plaintiff, J & JT Holding Corp., acquired title to the subject property from Lakhanlall. By summons and complaint dated August 6, 2014, the plaintiff commenced this action against Deutsche Bank pursuant to RPAPL article 15, seeking a declaration that it was the lawful owner of the subject property free and clear of any bond or mortgage, to bar Deutsche Bank from making any claim against the property, and to direct the Clerk to cancel and discharge of record the mоrtgage. The plaintiff alleged that the applicable six-year statute of limitations barred an action to foreclose upon the subject mortgage, relying on the date of the commencement of the foreclosure action on April 30, 2007, and the issuance of a default notice issued prior to April 30, 2007, to Lakhanlall.
Prior to answering, Deutsche Bank moved pursuant to CPLR 3211(a)(1) and (7) to dismiss the complaint. In an order entered March 29, 2016, the Supreme Court, among other things, denied Deutsche Bank's motion. Deutsche Bank appeals from so much of the order as denied its motion. We reverse the order insofar as appealed from.
"To succeed on a motion to dismiss bаsed upon documentary evidence pursuant to CPLR 3211(a)(1), the documentary evidence must utterly refute the plaintiff's factual allegations, conclusively establishing a defense as a matter of law" (Gould v Decolator,
"On a motion pursuant to CPLR 3211(a)(7) to dismiss fоr failure to state a cause of action, the court must accept the facts alleged in the complaint as true, accord the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory" (Shah v Exxis, Inc.,
"[A] person with an estate or interest in real property subject to an encumbrance may maintain an action to secure the cancellation and discharge of the encumbrance, and to adjudge the estate or interest free of it, if the applicable statute of limitations for commencing a foreclosure action has expired" (Milone v US Bank N.A.,
"Where the acceleration of the maturity of a mortgage debt on default is made optional with the holder of the note and mortgage, some affirmative action must be taken evidencing [*3]the holder's election to take advantage of the accelerating provision, and until such action has been taken the provision has no operation" (Wells Fargo Bank, N.A. v Burke,
Here, contrary to the plaintiff's contention and the opinion of our dissenting colleague, the commencement of the foreclosure action, which was dismissed on the ground that Deutsche Bank lacked standing, was ineffective to constitute a valid еxercise of the option to accelerate the debt since Deutsche Bank did not have the authority to accelerate the debt at that time (see U.S. Bank N.A. v Gordon,
Consequently, the allegations in the complaint that the debt was accelerated as of April 30, 2007, the date when Deutsche Bank commenced the underlying foreclosure action, or prior to April 30, 2007, when the notices of default were sent, are utterly refuted by the documentary evidence submitted by Deutsche Bank, which included the written assignment of the mortgage "together with the . . . note" and the October 2009 order, in support of that branch of its motion which was pursuant to CPLR 3211(a)(1) to dismiss the complaint (see Heaney v Purdy,
Our dissenting colleague suggests that we can reach and address the propriety of the October 2009 order, inter alia, directing dismissal of the complaint in the foreclosure action and the June 2013 order, inter alia, granting the discontinuance of the foreclosure action. We cannot and should not. No appeal was taken or motion filed addressing those orders, which were rendered prior tо the commencement of this action in August 2014.
The parties' remaining contentions either are without merit or need not be reached in light of our determination.
Accordingly, the Supreme Court should have granted Deutsche Bank's motion pursuant to CPLR 3211(a) to dismiss the complaint.
AUSTIN, J.P., ROMAN and COHEN, JJ., concur.
BARROS, J., dissents, and votes to affirm the order insofar as appealed from, with the following memorandum:
I. Introduction
On April 30, 2007, Deutsche Bank National Trust Company (hereinafter Deutsche Bank) commenced a foreclosure action against the plaintiff's predecessor, Pradeep Lakhanlall. Deutsche Bank's complaint alleged, inter alia, that it was the note holder, and that it was exercising its option to accelerаte the mortgage debt under the terms of the note and mortgage. Lakhanlall did not answer or appear in the action. By order entered October 21, 2009, the Supreme Court, inter alia, sua sponte directed dismissal of Deutsche Bank's complaint in the foreclosure action based upon lack of standing (hereinafter the October 2009 order). By order entered June 12, 2013, the court granted Deutsche Bank's motion, inter alia, to voluntarily discontinue its foreclosure action (hereinafter the June 2013 order).
By deed dated March 27, 2014, the plaintiff acquired title to the subject property from Lakhanlall. By summons and complaint dated August 6, 2014, the plaintiff commenced this action against Deutsche Bank pursuant to RPAPL 1501(4), inter alia, to declare that the plaintiff's title to the property was free and clear of any mortgage held by Deutsche Bank since any foreclosure action would be time-barred. Prior to answering, Deutsche Bank moved pursuant to CPLR 3211(a)(1) and (7) to dismiss the complaint on the basis, among others, that documentary evidence established that the mortgage debt was not validly accelerated, and therefore the statute of limitations for commencement of a foreclosure action was never triggered. In the order appealed from, the Supreme Court, inter alia, denied Deutsche Bank's pre-answer motion to dismiss. Deutsche Bank appeals from that determination.
On appeal, Deutsche Bank advances two principal arguments in furtherance of its contention that the mortgage debt was never validly accelerated, and, therefore, the statute of limitations was never triggered. First, Deutsche Bank contends that its commencement of the foreclosure action against Lakhanlall in April 2007 did not validly accelerate the mortgage debt since the Supreme Court issued the October 2009 order directing dismissal upon its determination that Deutsche Bank lacked standing to prosecute that action, and that such determination is entitled to res judicata/collateral estoppel effect in the instant action. In this regard, Deutsche Bank relies upon caselaw to the effect that commencement of a foreclosure action by a plaintiff who lacks standing does not validly accelerate the mortgage debt (see Wells Fargo Bank, N.A. v Burke,
My colleagues in the majority fail to address the res judicata/collateral estoppel issue that was raised as Deutsche Bank's first argument, and was addressed as Point 1 in the respondent's brief. Without stating so, the majority gives collateral estopрel effect to the October 2009 order. Contrary to the majority's determination, that order is not entitled to collateral estoppel effect because it was nullified when the Supreme Court subsequently granted Deutsche Bank's motion to voluntarily discontinue the foreclosure action in the June 2013 order. Moreover, as a general rule, orders that are issued sua sponte and on default are not entitled to collateral estoppel effect. Also, the issue as to whether Deutsche Bank's documents established its standing in the foreclosure action, which was decided in the October 2009 order, is not identical to the issue of whether Deutsche Bank exercised its optiоn to accelerate the mortgage debt under the terms of the note and mortgage. For those reasons and as further set forth herein, the October 2009 order should not be given collateral estoppel effect in this action.
As to Deutsche Bank's second argument, I agree with my colleagues in the majority that the precommencement notice of default letters did not constitute an exercise of the mortgage's optional acceleration clause (see 21st Mtge. Corp. v Adames,
In addition to relying upon the nullified October 2009 order, the majority searches the record and relies upon an assignment of mortgage dated October 10, 2007, from Mortgage Electronic Registration Systems, Inc. (hereinafter MERS), to Deutsche Bank. However, Deutsche Bank never asserted that its own business records established its lack of standing. Even considering that assignment of mortgage, it does not conclusively establish when Deutsche Bank acquired the note because there is no evidence as to when, if ever, MERS acquired the note. A transfer by MERS of the mortgage without the note is a nullity, and no interest can be acquired by it (see Bank of N.Y. v Silverberg,
In alleging that the mortgage debt was accelerated on April 30, 2007, when Deutsche Bank commenced the foreclosure action, the plaintiff properly relied upon Deutsche Bank's complaint, which alleged that it was the holder of the note and that it was exerсising its option to accelerate the mortgage debt. Under similar circumstances, we have held that such proof is sufficient to meet the homeowner's prima facie burden on a motion seeking dismissal of a foreclosure action as time-barred (see Ventures Trust 2013-I-H-R v Chitbahal,
An allegation in a complaint cannot be utterly refuted, or a defense conclusively established, if there are questions of fact regarding such allegation or defense (see CPLR 3211[a][1]; Goshen v Mutual Life Ins. Co. of N.Y.,
II. The October 2009 Order Is a Nullity
"When an action is discontinued, it is as if it had never been; everything done in the action is annulled and all prior orders in the case are nullified" (Newman v Newman,
Contrary to Deutsche Bank's alternate contention, the June 2013 order was "insufficient, in itself, to evidence an affirmative act to revoke the election to accelerate the mortgage debt" (U.S. Bank Trust, N.A. v Aorta,
III. In Any Event, the October 2009 Order Is Not Entitled to Res Judicata or Collateral Estoppel Effect
Even assuming that the October 2009 order was not nullified by the June 2013 order, it would still not be entitled to res judicata оr collateral estoppel effect in this action. The majority erroneously gives the October 2009 order "documentary evidence" treatment without considering whether it was entitled to res judicata or collateral estoppel effect. A defense based upon res judicata or collateral estoppel is governed by CPLR 3211(a)(5), not CPLR 3211(a)(1). Although a judicial order may qualify as "documentary evidence" for purposes of admissibility under CPLR 3211(a)(1) (see Fontanetta v John Doe 1,
"The doctrine of res judicatа operates to preclude the reconsideration of claims actually litigated and resolved in a prior proceeding, as well as claims for different relief against the same party which arise out of the same factual grouping or transaction, and which should have or could have been resolved in the prior proceeding" (Schwarz v Schwarz,
Here, the doctrine of res judicata does not apply since the foreclosure action did not result in a valid final judgment. Moreover, any dismissal for lack of standing is without prejudice and is not "intended to have any determinative effect on the merits of the action" (Landau, P.C. v LaRossa, Mitchell & Ross,
"Collateral estoppel, or issue preclusion, is a component of the broader doctrine of res judicata which provides that, as to the parties in a litigation and those in privity with them, a judgment on the merits by a court of competent jurisdiction is conclusive of the issues of fact and questions of law necеssarily decided therein in any subsequent action" (Highlands Ctr., LLC v Home Depot U.S.A., Inc.,
Because the sua sponte dismissal of the foreclosure action was without prejudice, and not intended to have any determinative effect on the merits of the action (see Landau, P.C. v LaRossa, Mitchell & Ross,
Furthermore, the issue decided in the October 2009 order, which was whether Deutsche Bank's submissions established its standing to foreclose, is not identical to the pertinent issue in this case, which is whether Deutsche Bank accelerated the mortgage loan so as to render any foreclosure action time-barred. We must be careful to draw a distinction between a dismissal for lack of standing based upon information contained in the creditor's business records, and a dismissal for lack of standing based upon the creditor's failure to produce sufficient reсords establishing its standing. In the former scenario, documents affirmatively show that the creditor was not the note holder when it commenced the foreclosure action, and, therefore, the mortgage debt was not accelerated upon commencement of the foreclosure action. In the latter scenario, the records are [*5]inconclusive, and it is not clear whether the mortgage debt was accelerated upon commencement.
Here, although the October 2009 order states that "it is clear that [Deutsche Bank] did not have standing," it also states that Deutsche Bank failed to submit evidence "that any steps were taken on December 1, 2006 to effеctuate an assignment." Deutsche Bank failed to submit any evidence as to when, if ever, it became holder of the note, which "is the dispositive instrument that conveys standing to foreclose" (Aurora Loan Servs., LLC v Taylor,
This case is distinguishable from cases in which this Court has held that an acceleration of the mortgage debt by commencement of a foreclosure action was ineffective where the issue of the creditоr's standing had been fully litigated, and the creditor was determined to have lacked standing (see U.S. Bank N.A. v Gordon,
We must also be careful to distinguish between the concepts of standing to foreclose and authority to accelerate a mortgage debt. Standing to foreclose is determined as of the date the action is commenced (see U.S. Bank, N.A. v Collymore,
Here, in support of its pre-answer motion to dismiss, Deutsche Bank failed to show when, if ever, it became the holder of the note. If, for example, Deutsche Bank became the holder of the note after commencement of the foreclosure action, such as through the purported assignment from MERS in October 2007, but before it moved for a judgment of foreclosure and sale, the complaint would have properly been dismissed for lack of standing. But, upon belatedly becoming the note holder, Deutsche Bank may still have evidenced its elеction to accelerate the mortgage debt by having taken an affirmative step in furtherance of acceleration. Upon Deutsche Bank's election to accelerate the mortgage debt, the statute of limitations would have been triggered, regardless of the dismissal of the foreclosure action for lack of standing.
In sum, the application of the formal requirements of the doctrines of res judicata and collateral estoppel compels the conclusion that the plaintiff, who is in privity with Lakhanlall (see Buechel v Bain,
Notwithstanding its formal requirements, the application of the doctrine of collateral estoppel is "a flexible one," which requires analysis of "whether relitigation should be permitted in a particular case in light of . . . fairness to the parties, conservation of the resources of the court and [*6]the litigants, and the societal interests in consistent and accurate results" (Buechel v Bain,
Giving collateral estoppel effect tо the October 2009 order results in unfairness to the plaintiff since neither the plaintiff nor Lakhanlall ever opposed Deutsche Bank's attempt to obtain a judgment of foreclosure and sale within the limitations period. Lakhanlall never challenged Deutsche Bank's standing to foreclose at any time. Thus, any delay in timely prosecuting a mortgage foreclosure action is not attributable to any conduct of the plaintiff or its predecessor.
Further, application of collateral estoppel does not serve the interests of conserving the resources of the court or the litigants. Deutsche Bank's position on this motion, which is that it lacked standing to foreclоse and, therefore, did not accelerate the mortgage debt, is inconsistent with the position it took in its foreclosure action, which was that it was the holder of the note and mortgage and that it elected to accelerate the mortgage debt. As a general rule, a litigant is not permitted "to lead a court to find a fact one way and then contend in another judicial proceeding that the same fact should be found otherwise" (Piedra v Vanover,
Finally, application of collateral estoppel does not serve the societal interest in consistent and accurate results. The sua sponte dismissal of the uncontested foreclosure action based upon "lack of standing" was pаtently erroneous (see U.S. Bank N.A. v Gulley,
IV. Deutsche Bank's Business Records Do Not Conclusively Establish its Lack of Standing
Unlike Deutsche Bank, the majority suggests that Deutsche Bank's business records establish that it lacked standing to prosecute the foreclosure action. The majority relies upon a document purporting to show that on October 10, 2007, approximately six months after commencement of the foreclosure action, MERS retroactively assigned the mortgage and note to Deutsche Bank "effective on or before December 1, 2006." The document purports, in boilerplate fashion, to assign the mortgage "together with the bond or note or obligation described in said mortgage."
The record, however, also shows that Lakhanlall borrowed money from nonparty Impac Funding Corporation (hereinafter Impac) to purchase the subject property, and that the loan was secured by a mortgage in favor of MERS, as nominee for Impac, encumbering the subject property. Although MERS was designated as mortgagee of record, there is no indication that MERS was assigned the note as well.
A plaintiff establishes its standing in a mortgage foreclosure action by demonstrating that it is the holder or assignee of the underlying note at the time the action is commenced (see Aurora Loan Servs., LLC v Taylor,
Although Deutsche Bank's business records indicate that Deutsche Bank was not assigned the mortgage until after commencement of the foreclosure action, they do not indicate when, if ever, Deutsche Bank became the holder of the note. Given that no evidence was presented as to when, if ever, MERS acquired the note, the October 2007 assignment from MERS to Deutsche Bank was insufficient to conclusively establish that Deutsche Bank first acquired the note after it commenced the foreclosure action.
In any event, Deutsche Bank's verified complaint alleges that it was the holder of the note and mortgage, and "hаs elected and hereby elects to declare immediately due and payable the entire unpaid balance of principal." It has long been recognized that the unequivocal overt act of filing a summons and verified complaint and notice of pendency in a foreclosure action evidences that the creditor has elected to accelerate a mortgage debt under an acceleration clause of the mortgage agreement (see Albertina Realty Co. v Rosbro Realty Corp.,
Moreover, in opposition to Deutsche Bank's motion, the plaintiff submitted excerpts of a pooling and servicing agreement dated November 1, 2006, showing that Lakhanlall's original lender, Impac, entered into, inter alia, a mortgage loan purchase agreement with Deutsche Bank with a closing date on November 16, 2006. Although the excerpt of the pooling and servicing agreement does not, itself, show when Deutsche Bank acquired the subject note, it suggests that Deutsche Bank was supposed to have acquired the note, along with other notes, months prior to commencement of the foreclosure action. At the very least, the excerpt of the pooling and servicing аgreement demonstrates that this action should not be dismissed before the parties have had an opportunity to conduct any disclosure.
V. Conclusion
The complaint states a cause of action to quiet title under RPAPL 1501(4) (see CPLR 3211[a][7]), and the documentary evidence submitted by Deutsche Bank in support of that branch of its motion which was to dismiss the complaint pursuant to CPLR 3211(a)(1) failed to conclusively establish a defense of collateral estoppel or res judicata, or utterly refute the plaintiff's factual allegation that the six-year statute of limitations for commencing a foreclosure action had expired (see CPLR 3211[a][1]). Accordingly, I vote to affirm the order insofar as appealed from.
ENTER:Aprilanne Agostino
Clerk of the Court