The state of foreclosures in 2012 & 2013 cover

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March 12, 2013 © Adam Leitman Bailey, P.C.

Appellate Judges are Enforcing Contracts
As Written With Few Exceptions
Lenders beat borrowers 2:1 but does not tell
entire story as 2012 appellate decisions showed
a strict application of the laws.

One trend continuing in 2012 is that the Second
Department has the lion’s share of the reported
cases and is therefore the most fruitful source of
stare decisis.

Where is the Note Defense?
The 2012 cases adhered to the principle that mere
servicers who cannot account for the whereabouts
of the promissory note lack standing to bring a
foreclosure action.
In the Second Department: U.S. Bank Nat. Ass’n v.
Dellarmo, 94 A.D.3d 746, 942 N.Y.S.2d 122; Citibank, N.A. v.
Van Brunt Properties, LLC, 95 A.D.3d 1158, 945 N.Y.S.2d
330; US Bank Nat. Ass’n v. Cange, 96 A.D.3d 825, 947
N.Y.S.2d 522; Wells Fargo Bank, N.A. v. Hudson, 98 A.D.3d
576, 949 N.Y.S.2d 703.

What to do When Losing the Note
a. Producing a valid written assignment of the
note or
b. Demonstrating that the note was physically
delivered to the lender.
a. “the physical delivery of the note proper to the
commencement of the foreclosure action is
sufficient to transfer the obligation and the
mortgage passes with the debt as an inseparable
incident” U.S. Bank v. Collymore, 68 A.D.3d 752.

After the lender demonstrates that it owns
the note, it must explain to the court the
circumstances upon which the note was
lost.
Loss of negotiable instruments such as promissory notes
are addressed by the Uniform Commercial Code UCC 3-804
(Lost Destroyed or Stolen Instruments).
a. Affidavit sufficient on what happened to the note.
b. Affidavit must state more than the note was lost.
c. Confirm that the note has not been sold or transferred.
d. Must prove the terms of the written instrument.
e. Affidavit must be based on personal knowledge

If standing was defective at the time of
the commencement of the action, it
appears that the standing cannot be
corrected and the case must be started
over.
U.S. Bank v. Dellarmo, 94 A.D.3d 746, 942 N.Y.S.2d
122 (2d Dept.).

No need to substitute plaintiff when
selling note in foreclosure action.
Citibank, N.A. v. Van Brunt Properties, LLC, 95
A.D.3d 1158, 945 N.Y.S.2d 330 (Second Dept.);
GRP Loan, LLC v. Taylor, 95 A.D.3d 1172, 945
N.Y.S.2d 336 (Second Dept. 2012)

Although it is proper to amend the caption to
reflect the new parties, the substitution in the
action (and amendment of the caption) is not
mandatory, but rather the original action can
proceed as is after the assignment.
Citibank, N.A. v. Van Brunt Properties, LLC, 95 A.D.3d 1158,
945 N.Y.S.2d 330 (Second Dept.); GRP Loan, LLC v. Taylor,
95 A.D.3d 1172, 945 N.Y.S.2d 336 (Second Dept. 2012)
IndyMac Bank F.S.B. v. Thompson, --- N.Y.S.2d ----, 2012 WL
4513052, 2012 N.Y. Slip Op. 06582 (AD Second Dept. 2012).

A purchaser of a failed bank’s assets has
standing to commence a foreclosure action,
even if it is immune from whatever
counterclaims the borrower may have asserted
against the failed bank.
JP Morgan Chase Bank Nat. Ass’n v. Miodownik, 91
A.D.3d 546, 937 N.Y.S.2d 192 (First Dept.).

Where the proceeding is brought
against a dead person, there is no
fixing it.
One must start the proceeding against the
personal representative of the Estate.
US Bank Nat. Ass’n v. Lieberman, 98 A.D.3d 422,
950 N.Y.S.2d 127 (First Dept.).

Merger Clauses Are Not Always
Enforceable
Mortgages routinely contain Merger Clauses indicating
that they are the complete understanding of the
parties and that there are no oral representations or
that any such oral representations are “merged” into
the mortgage. However, a so-called “merger clause” in
a mortgage will not necessarily bar claims of fraudulent
representations, at least not where the clause is “bare
bones.” Thus, the mortgage itself is vulnerable to
attack through oral testimony claiming fraudulent
inducement. (LibertyPointe Bank v. 75 East 125th
Street, LLC).

Merger Clauses Are Not Always
Enforceable
Contrast this with Emigrant Mortg. Co., Inc. v.
Fitzpatrick, supra, that refuses to allow an attack
on the mortgage based on a predatory lending
claim where the mortgage transaction included
boilerplate disclosures.
95 A.D.3d 1169, 945 N.Y.S.2d 697 (2d Dept. 2012).

Counterclaims
A waiver in a mortgage of defenses or
counterclaims does not preclude a counterclaim
based on fraud, if properly asserted.
Archer Capital Fund, L.P. v. GEL, LLC, 95 A.D.3d
800, 944 N.Y.S.2d 179 (Second Dept. 2012).

Lender will only be reimbursed for monies
spent during foreclosure action if
authorized in the mortgage instrument.
A mortgagee in possession after an order of reference can safely
expect reimbursement for the items spent after the appointment of a
referee only if they are actually specified in the mortgage instrument
allowed to be advanced, but nothing else–reimbursement should only
be approved for expenditures that are necessary to maintain the
premises.
The court noted that the referee the court appointed, not the plaintiff,
is charged with running the property.
While the plaintiff in that case was simply out of luck in expending
other funds for which reimbursement was refused, the Third
Department precisely states what the plaintiff could have done to
ensure that it would not be expending funds not subject to
reimbursement.

Lender should seek court approval before
taking any actions beyond what mortgage
authorizes
The court wrote, “The prudent course for plaintiff
would have been to seek court approval in advance of
undertaking any actions that might be deemed ultra
vires and obtaining permission to act and add the
expenditure to the amount of its judgment, or move to
expand the receiver’s powers and have the court
authorize him to undertake those actions or make
those expenditures.” (emphasis supplied)
Bank of America, N.A. v. Oneonta, L.P., 97 A.D.3d 1023, 949 N.Y.S.2d 794 (Third Dept.
2012).

Lender should seek court approval before
taking any actions beyond what mortgage
authorizes
In other words, rather than spending the funds and hoping for
the best, the plaintiff could have sought court permission to
spend the money itself or empower the receiver to do so.
Consistent with our theme of strict enforcement, we find the
court looking to the mortgage instrument itself and allowing
only those expenses expressly specified in it – absent the prior
permission. The Appellate Decision does not rule out the idea
that Trial Term could have gone beyond the four corners of the
mortgage in the sound exercise of discretion, given adequately
persuasive reasons to do so prior to the making of the
expenditure.
Bank of America, N.A. v. Oneonta, L.P., 97 A.D.3d 1023, 949 N.Y.S.2d 794 (Third Dept.
2012).

Foreclosure Shall Not be Set Aside for
Auctioning Less Than Contracted Price
The price is set for the parcel regardless of the size of
the parcel but when sold on a per acre basis and
found to be less acreage than contracted for,
foreclosure stands but the amount foreclosed upon
will be reduced downward.
Shufelt v. Bulfamante, 92 A.D.3d 936, 940 N.Y.S.2d 108 (Second Dept.
2012).
Thompson v. Naish 93 A.D.3d 1203, 940 N.Y.S.2d 714 (Fourth Dept.
2012).

Where the premises were supposed to be sold on a
price per acre basis and there was less acreage than
actually contracted for and the borrower defaults,
the smaller size of the property is not a complete
defense to the foreclosure. The foreclosure can
proceed, but the amount foreclosed upon will be
reduced downward.
2012).
2012).

In Thompson v. Naish, the Fourth Department held that
where the borrower pays the full amount demanded, but
pays it late, the borrower is still in default of the mortgage
and foreclosure is appropriately ordered. That is not as
harsh a rule as it appears, given RPAPL §1341, permitting
the defendant to pay off the remaining sums (the late fees
and such) owed in order to prevent the sale of the
property.
2012).
2012).

Quality of Title
Constant unsuccessful efforts by the mortgagor
to defeat the foreclosure proceeding are
insufficient to make the title unmarketable
enough to relieve a successful bidder at the
foreclosure sale from going forth with the sale.
Bank of New York v. Segui, 91 A.D.3d 689, 937
N.Y.S.2d 95 (Second Dept. 2012) –8

Predatory and Fraudulent Practices
A consumer seeking to resist a foreclosure must show
either substantively that she was taken advantage of in
predatory practices or that the loan was issued after the
law went into effect creating presumptions of predation.
Emigrant Mortg. Co., Inc. v. Fitzpatrick, 95 A.D.3d 1169, 945
N.Y.S.2d 697 (Second Dept. 2012) –17 It should be noted
that this decision holds the consumer responsible for the
contents of the great mass of information presented at the
time of loan applications and closings and does not take
into account the well-known phenomenon that people
simply do not read these materials.

Predatory and Fraudulent Practices
Where the one who is sitting as Plaintiff in the
foreclosure proceeding actually maliciously caused the
default, while the foreclosure proceeding itself may still
lie, ancillary relief within the court’s discretion is
properly denied the Plaintiff. Norwest Bank Minnesota,
NA v. E.M.V. Realty Corp., 94 A.D.3d 835, 943 N.Y.S.2d
113 (Second Dept. 2012) –30. Norwest is unclear
whether if the predatory practice had been committed
by the initial plaintiff in the suit whether the
foreclosure relief in chief would also have been denied.

Sources of Procedural Law
Impliedly, trial courts have the power to
require additional paperwork beyond what
would appear on the face of the statute in
order to grant foreclosure on default.
Bank of America, Nat. Ass’n v. Bah, 95 A.D.3d 1150, 945 N.Y.S.2d
704 (Second Dept. 2012) —6; Compare, Brusco v. Braun, 84
NY2d 674, 645 NE2d 724, 621 NYS2d 291 (1994)—Additional
Study Materials 1

Personal Jurisdiction
The general hostility to personal
jurisdiction defenses throughout New York
practice holds true in foreclosure actions
as well.
Bank of New York v. Espejo, 92 A.D.3d 707, 939
N.Y.S.2d 105 (Second Dept. 2012)—7

Personal Jurisdiction
However, where there are specific denials of the
propriety of service of process, a mortgagor can effect
the vacatur of the foreclosure judgment. Deutsche
Bank Nat. Trust Co. v. DaCosta, 97 A.D.3d 630, 949
N.Y.S.2d 393 (Second Dept. 2012)—14. However,
DaCosta, while stating that the facts of its case showed
a sufficiently specific denial, it sets no explicit standards
for that explicitness.

Consolidation
Where there is a question about the validity of the
mortgage, an action trying out that question should be
consolidated with a foreclosure action. On the
practical level, this means that while foreclosure
actions typically move quickly through predictable
stages, the foreclosure action will be slowed down to a
crawl through the discovery process in the validity suit.
American Home Mortg. Servicing, Inc. v. Sharrocks, 92
A.D.3d 620, 938 N.Y.S.2d 202 (Second Dept. 2012) –3

Deficiency Judgment
There is a 90 day period after the Referee’s
conveyance of title, during which the Plaintiff
may move for a deficiency judgment. Refusal of
the deed did not stop the running of that
limitations period. Thus, the Petitioner, by
wasting time seeking to manipulate the deed,
lost the ability to get the deficiency judgment.
M & T Real Estate Trust ex rel. M & T Real Estate, Inc. v. Doyle,
93 A.D.3d 1331, 941 N.Y.S.2d 422 (Fourth Dept. 2012) –28

Deficiency Judgment
Where the purchaser at a foreclosure sale would
have a claim against the mortgagor, but fails to
move for a deficiency judgment within the 90
day period, that claim is wholly extinguished,
both as to the main debt and ancillary charges.
Option One Mortg. Corp. v. J.P. Morgan Chase & Co., 93
A.D.3d 480, 940 N.Y.S.2d 225 (First Dept. 2012) –32

Technical Flaws
Minor technical flaws in every stage of the
foreclosure proceeding are subject to the same
kinds of forgiveness as in any other action under
CPLR 2001.
NYCTL 2005–A Trust v. Rosenberger Boat Livery, Inc., 96
A.D.3d 425, 947 N.Y.S.2d 2 (First Dept. 2012) –31

Settlement Agreement

IT IS HEREBY AGREED AND CONSENTED TO by and between the parties
hereto:
1.Unit Owner and the Board acknowledge and agree that the Deed in Lieu of
Foreclosure, held in escrow, referenced in this Settlement Agreement is not
intended to be a security for any debt owed by the Unit Owner to the
Boards, such debt already being fully securitized by the lien filed on behalf
of the Boards heretofore.
2.Unit Owner acknowledges that Unit Owner owes $9,181.59 (plus legal fees
as additional common charges) in outstanding Condominium Common
Charges to the Board of Managers of XXX (the “Unit”) as of the date of this
Agreement. Unit Owner further acknowledges that Unit Owner owes
$18,317.58 in outstanding Association Common Charges to the Board of
Directors of XXX.
3.Unit Owner agrees to pay $168.22 a month until such time as the balance
of Condominium Common Charges is paid off in full. Of each $168.22
payment, the funds shall first be applied to then current Condominium
Common Charges, and the remainder shall be applied to the outstanding
balance above agreed upon.

4. Unit Owner further agrees to pay $821.30 a month until
such time as the balance of Association Common
Charges is paid off in full. Of each $821.30 payment,
the funds shall first be applied to then current
Association Common Charges, and the remainder shall
be applied to the outstanding balance above agreed
upon.
5. Any payment made under this agreement shall be
deemed properly made if and only if paid by good check
to “Adam Leitman Bailey, P.C.” at 120 Broadway, 17th
Floor, New York, NY 10271. All payments due at any
given moment may be aggregated into a single
remittance by the check noted in this paragraph.

6. Deed in Lieu of Foreclosure:
a. Simultaneously herewith, Unit Owner has executed a
Deed in Lieu of Foreclosure (“DILF”), to be held in escrow
by Adam Leitman Bailey, Esq. (“Escrow Agent”).
b. Simultaneously herewith, Unit Owner has executed an
assignment of the Lease between Unit Owner and the
Board of Directors XXX (the “Board”). For all purposes of
this Agreement, the person or entity having physical
custody of the DILF shall at all times simultaneously have
physical custody of such assignment of lease.
c. Unit Owner expressly acknowledges that she has a
substantial obligation to execute a new and superseding
DILF should there be any change in the liens of record
against the property.

7. For purposes of this agreement, the following shall constitute the “Transfer
Procedure:”
a. Escrow Agent shall release the DILF to the Board.
b. The first $1,000.00 of any payment the Unit Owner should have made but failed
to make shall be deemed forgiven in consideration of the transfer of ownership of
the Unit from the Unit Owner to the Board. The Board shall, at its option, effect
the recording of the DILF. This paragraph shall remain valid regardless of whether
the Unit Owner should have made but failed to make a payment greater than or
less than $1,000.
c. The Notice to Quit annexed hereto as Exhibit 1 shall be deemed to have been duly
and properly served upon the Unit Owner on the 15th day succeeding the date of
the recording of the DILF. The date for the Unit Owner to vacate the unit
pursuant to the Notice to Quit shall be deemed to be the 27th day after the date of
the recording of the DILF.
d. The Unit Owner shall be deemed to have consented to the jurisdiction of the Civil
Court of the City of New York, County of XXX for the purposes of the Board
bringing an eviction proceeding pursuant to RPAPL §713(8) and to have waived all
defenses thereto. In such proceeding, the Unit Owner shall be deemed to have
consented to the entry of a judgment with the issuance and the execution of a
warrant forthwith.
e. This Agreement may be filed in a proceeding to be commenced without further
notice. The execution of the instant agreement shall be deemed an appearance
in said proceeding. Unit Owner specifically waives service of any and all notices
including, but not limited to, notice of March 12, 2013 © Adam Leitmanp Beaitleity,i oP.nC., and petition.

8. Should Unit Owner fail to timely meet such Unit Owner’s obligations
under this agreement, the Board shall give the Unit Owner ten days
notice to cure such default by mailing by ordinary first class mail and
by certified mail, return receipt requested, addressed to the Unit
Owner at the Unit. Should such default remain uncured after the
expiration of the ten day cure period, the Board is authorized to
invoke the Transfer Procedure and in addition to the Transfer
Procedure and notwithstanding it, the Unit Owner shall forthwith
vacate the subject premises.
9. The Board agrees that, in the event extenuating circumstances befall
the Unit Owner and prevent such Unit Owner from complying with
her obligations under this agreement, the Board will negotiate with
the Unit Owner, in good faith, a resolution of such Unit Owner’s
default without invoking the Transfer Procedure, prior to invoking
such Transfer Procedure.
10. In the event the Unit Owner has fully complied with all of its
obligations under this Agreement, the Escrow Agent shall release the
DILF to the Unit Owner.

11. In the event the Unit Owner fails to timely meet such Unit Owner’s
obligations under this agreement, and fails to cure such default, and
the Escrow Agent releases the DILF to the Board, the Board shall
make all efforts it determines to be reasonable, to re-sell the Unit for
reasonable value, to be determined by the Board. The Board shall
use the proceeds of such sale to satisfy any liens on the property,
including, but not limited to, any mortgages on the property and the
outstanding Condominium Charges and Association Common
Charges, and all costs and fees associated with the re-sale of the Unit,
including, but not limited to, attorneys fees and filing fees. In the
event that surplus funds remain after said liens, costs and fees are
satisfied, such surplus will be paid over to the Unit Owner within a
reasonable amount of time after the Unit is transferred to a new
owner.
12. All parties agree that all obligations under this agreement are of the
essence of this agreement, all defaults, no matter how minor, shall be
considered material defaults, and that absolutely no deviation from
any of those obligations shall be considered to be de minimis.

13. Unit Owner’s Representation:
a. Unit Owner, represented by counsel, expressly agrees and
acknowledges that the instant agreement has been fully explained
to Unit Owner, and that Unit Owner understands that the instant
agreement may vitiate any and all of Unit Owner’s former rights to
the premises, except as provided herein.
OR
b. Unit Owner having consulted with counsel expressly agrees and
acknowledges that the instant agreement has been fully explained
to such Unit Owner, and that such Unit Owner understands that the
instant agreement may vitiate any and all of Unit Owner’s former
rights to the premises, except as provided herein.
OR
c. Unit Owner having completely read this Agreement and the cover
page hereto, acknowledges that Unit Owner fully understands this
Agreement and the risks Unit Owner is taking by executing this
Agreement and the DILF. Unit Owner explicitly understands that
Unit Owner may lose Unit Owner’s home if Unit Owner does not
fully comply with this Agreement.

14.The parties hereby release each other from any and all
claims which they may have against each other through
and including the date of this Agreement, with the
exception of the contents of this agreement and the
Board’s claim for monies due and owing pursuant to the
terms of this agreement.
15.Unit Owner will not commit, nor will Unit Owner permit
Unit Owner’s family members, agents, or employees to
commit any waste to the premises.
16.Unit Owner represents that there is no one else residing
in the premises, except ________________ and affirms
that Unit Owner will allow no others to reside in the
premises during the term of this agreement.

17. Unit Owner agrees that, in the event Unit Owner fails to
meet Unit Owner’s payment obligations under this
agreement and the Deed in Lieu of Foreclosure is turned
over to the Board, the Unit Owner will return the keys to the
premises upon Unit Owner vacating to the Board or its
agents, and agrees to leave the premises in broom clean
condition except for ordinary wear and tear.
18. Omitted Intentionally.
19. The Unit Owner consents to the jurisdiction of the Supreme
Court of the State of New York, XXX County for the
enforcement of any of her nonmonetary obligations under
this agreement and specifically agrees that with respect to
such nonmonetary obligations the Board has no adequate
remedy at law, and that the Board shall be entitled to
recover of the Unit Owner its reasonable attorneys’ fees in
the bringing of any action under this Agreement.

20. In the event a petition in bankruptcy by or against the Unit Owner is
filed, the Board shall thereupon be entitled and the Unit Owner
irrevocably consents to immediate and unconditional relief from the
automatic stay imposed by Section 362 of the Bankruptcy Code, or
otherwise, on or against the exercise of the rights and remedies
otherwise available to the Board, including the rights and remedies set
forth herein, and the Unit Owner hereby irrevocably waives any right to
object to such relief and will not contest any motion by the
Board seeking relief from the automatic stay and the Unit Owner will
cooperate with the Board, in any manner requested by the Board, in its
efforts to obtain such relief from any such stay.
21. The instant agreement shall not be changed or modified in any manner
of form whatsoever, except by a written document signed by all the
parties hereto.
22. So long as the Unit Owner is in full compliance with all of Unit Owner’s
obligations under this agreement, the Board waives further enforcement
of its rights against the Unit Owner with respect to the arrears in
common charges which are the subject of this agreement.

23. It is expressly agreed by and between the parties that
this agreement is the full and complete agreement of
the parties.
24. In the event that any clause of this agreement is held to
be invalid for any reason by any court, the entire
agreement shall become void and have no legal effect.
25. Facsimile signatures shall not be deemed originals
herein. THIS AGREEMENT MUST BE SIGNED IN FULL BY
BOTH THE BOARD AND THE UNIT OWNER AND BOTH
THE BOARD AND THE UNIT OWNER MUST BE
FURNISHED FULLY EXECUTED COUNTERPARTS OF THIS
AGREEMENT, EACH OF WHICH SHALL BE DEEMED AN
ORIGINAL.

26.The instant agreement shall not be construed
against either party.
27.There are 27 numbered paragraphs of this
agreement spread over 5 including a
signature page.
WHEREFORE, the parties have hereunto set
their hands.

Notice to Accompany DILF

Notice to Quit

Warranty Deed In Lieu of
Foreclosure

The state of foreclosures in 2012 & 2013 cover

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