SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK – PART 57

PRESENT: Hon. Marcy S. Friedman, JSC

EMIGRANT MORTGAGE COMPANY, INC.,
Plainiff;

– against –

JACQUELINE T,. PATTON, et al.,
Defendants.

In this action to foreclose a $1,150,000 million mortgage, defendant mortgagor
Jacqueline Patton moves to amend her answer. Plaintiff/mortgagee Emigrant Mortgage
Company, Inc. (EMC) cross-moves to confirm a referee’s report, and for a judgment of
foreclosure and sale, and other relief. By prior order dated October 22, 201 0, this court granted
plaintiff partial summary judgment as to liability and directed the reference.

Defendant initially moved to amend her answer to add the affirmative defense that
plaintiff violated the Truth in Lending Act by failing to disclose the correct finance charges to
which defendant would be subject. (AK in Support of Motion to Amend, ll[a].) Defendant
claims, based on a forensic audit prepared at her request on May 23,201 0, that the finance
charges were understated by $1 8,388.21 of a total of $1,413,586.87, based on a disclosed annual
percentage rate (APR) of 6.583%, as opposed to an APR of 6.682% that was used by the auditor
in calculating the finance charges. (& Audit at 2 [annexed as Ex. B to Def.’s Motion].)
Defendant offers no explanation for her delay, in moving to assert the proposed defense, I
of approximately eight months after issuance of the prior order granting plaintiff partial summary
judgment. Moreover, she makes no showing of merit of the proposed defense, as there is no
explanation for the. auditor’s use of the 6.682% APR in calculating the finance charges. Absent
such a showing, the motion to amend to add this defense must be denied. (See generally, Non-
Linear Trading Co., Inc. v Braddis Assocs., Inc., 243 AD2d 107, 116 [1st Dept 19981.)

After service of its motion to confirm the reference report, plaintiff submitted the
affirmation of its attorney, Robert Holland, dated October 28, 201 1, in which he stated that he
had conferred with Milagros Rivera-Perez, plaintiffs Assistant Vice President and Foreclosure
Administrator, regarding the accuracy of the allegations of the complaint and the supporting
affirmations. He stated that she had confirmed the accuracy, with the exception that the
complaint (paragraph 15) and the supporting affidavit of James Raborn both mistakenly stated
that plaintiff-is the owner of the mortgage being foreclosed in this action. (Holland Aff., 711 4-5.)
He further represented that review of plaintiff’s records and files indicated that prior to
commencement or the action, plaintiff had assigned the mortgage and note io its affiliate
Emigrant Savings Rank- Manhattan (Emigrant Savings), and that simultaneous with the
execution of the assignment, Emigrant Savings endorsed the note in blank back to EMC. (a7,7
5-6.) He stated that he was advised that the assignment of the mortgage was never recorded, and
that at all times since the note and mortgagee were executed, EMC has “always had actual
physical control and physical possession” of these documents. (Id-, 7 7.)
As this affidavit was based solely 011 hearsay, the court directed plaintiff to submit an
affidavit on personal knowledge explaining these transfers, and their effect on plaintiffs standing
to bring the action at the time it was commenced by fling of the summons and complaint 011
November 7, 2008. The matter was adjourned for further argument. (Dec. 14, 201 1 Transcript
of Oral Argument at 1 1. j

In response, plaintiff submitted the affidavit of Filippo Ruggiero, a Vice President of
GMC. Mr. Ruggiero stated that plaintiffs attorney was mistaken when he stated that the allonge
was prepared and executed simultaneously with plaintiffs execution of the assignment of
mortgage. (Ruggiero Aff., 7 7.) He stated that although the mortgage was assigned from EMC
to Emigrant Savings in 2008, it was never recorded, and the original assignment “has at all times
remained in the loan file for this particular loan, which is in the vault where Plaintiffs loan files
arc maintained.” (u7, 5 . ) He further stated that the Emigrant entities were involved in a
borrowing agreement with thc Federal Home Loan Bank of New York (FHLR), and that as part
of this agreement, mortgage loans were pledged but not assigned by the various Emigrant entities
to FHLB as security lor loans given by FHLB to them. (Id, fl7 8-9.) In a change in policy,
FHLI3 advised that it would require the Emigrant entities to deliver the collateral to FHLB. AS a
result, between November 2009 and January 2010, the Emigrant entities prepared assignments
and allonges for all collateral which they intended to give as security for loans from FHLB. (u,
lfl 10-1 2.) Based on his review of his computer, Mr. Ruggiero attested that the allonge
transferring the note was created on December 10, 2009, that it contains his signature, and that it
was fully executed on behalf of Emigrant Savings within a day or days there after. (h7, 1 3.) He
concluded that EMC was the holder of the note until December 10, 2009, and that prior to that
time, it had only executed the assignment to Emigrant Savings of the mortgage on March 10,
2008. (&,ll 14.)

Further argument on plaintiff‘s motion was held on February 2, 2012. At the argument,
defendant, represented by counsel, made an oral application to vacate this court’s prior order
granting partial summary judgment, on the ground that plaintiff had no standing to commence
this action.

It is well settled that “[i]n a mortgage foreclosure action, a plaintiff has standing where it
is both the holder or assignee of the subject mortgage and the holder or assignee of the
underlying note at the time the action is commenced.” (U.S. Bank, N.A. v Collymore, 68 AD3d
752, 753 [2d 13ept 20091; see also Aurora Loan Svcs., LLC v Weisblum, 85 AD3d 95, 108 [2nd
Dept 201 11,) “Either a written assignment of the underlying note or the physical delivery of the
note prior to the commencement of the foreclosure action is sufficient to transfer the obligation.”
(Collymore, 68 AD3d at 754.) Thus, “an assignment of a note and mortgage need not be in
writing and can be effectuated by physical delivery.” (Bank of New York v Silverberg, 86 AD3d
274,280 [Znd Dept 201 1 I,)

Further, a transfer of a mortgage without assignment of the underlying note or bond is a
nullity. (Collymore, 68 AD3d at 754; Silverberg, 86 AD3d at 280.) Conversely, “[als a general
matter, once a promissory note is tendered to and accepted by an assignee, the mortgage passes as
an incident to the note.” (Id. at 280; Mortgage Electronic Registration Sys.. lac. v Coakley, 4 1
AD3d 674 [2”d Dept 20071.) A party does not have standing to bring a foreclosure action where
it is listed as the mortgagee but was never the actual holder OF assignee of the underlying note.
(Silverberg, 86 AD3d at 275.)

As can be seen from review of the plaintiffs attorney’s affirmation and the Ruggiero
affidavit, plaintiff’s attorney made statements, based on his discussion with Ms. Rivera-Perez, an
Assistant Vice President of plaintiff, which conflict with the statements of Mr. Ruggiero, a Vice
President, about the date on which the underlying note was transferred from EMC to Emigrant
Savings. 111 addition, Mr. Ruggiero does not explain why, according to his version of the events,
EMC assigned the mortgage to Emigrant Savings in March 2008, but did not assign the note until
December 2010, Put another way, he does not explain why the mortgage was assigned to
Emigrant Savings without the note. He also does not attach any support for his apparent claim
that the mortgage remained in the vault for EMC loans, notwithstanding the assignment to
Emigrant Savings. Nor does it attach the back-up documentation from his computer that
 assertively supports his contention that the allonge for the note was not executed until December
10, 2009, after the commencement of this action.

Reports of widespread inefficiencies in foreclosure filings, including failure to review
documents and files to establish standing, led to this Court’s landmark initiative requiring the
plaintiff’s attorney in a foreclosure action to file an affirmation certifying that he or she has
reviewed the plaintiffs documents for factual accuracy and confined the factual accuracy of the
complaint and any supporting affidavits or affirmations filed with the court. (See Administrative
Order [AO] 43 1/11, dated Mar. 2, 201 1 .) The October 28, 201 1 affirmation of plaintiffs counsel
is such an affirmation in the form prescribed by the Administrative Order. (See id., Form A.)
The conflict between this affirmation and the Ruggiero affidavit creates an issue of fact as
to whether plaintiff had standing to commence this action. (See Collymnore, 68 AD3d at 754.) It
also implicates the integrity of this Court in the foreclosure process. The court accordingly holds
that a hearing must be held on whether plaintiff had standing to commence this action as of the
time of its commencement.

In so holding, the court recognizes that standing is ordinarily waived unless raised as an
affirmative defense or by way of a motion to dismiss. (Sec e.E. Matter of Fossella v Dinkins, 66
NY2d 162, 167-168 [19X5]; Security Pacific Nat. Bank v Evans, 31 AD3d 278, 280-281 [lgt Dept
20061, appeal dismissed 8 NY3d 837 [2007]; Wells Fargo Bank Minnesota, Natl. Assn. v
Mastropaolo, 42 AD3d 239, 242 12″” Dept 20071.) Here, however, plaintiffs filing of its
attorney’s October 28, 201 1 A0 43 1/11 affirmation, acknowledging an error in the pleadings and
requesting correction, is tantamount to a request for leave to amend the complaint, in response to
which defendant was entitled to an opportunity to assert new defenses. The court accordingly
holds that The objection to standing has not been waived.

It is accordingly hereby ORDERED that defendant’s motion for leave to amend is denied
as to the defense based on the Truth In Lending Act; and it is further

ORDERED that the issue of whether plaintiff had standing to commence this foreclosure
action as of the date of its filing is referred to a Special Referee to hear and report with
recommendations, except that, in the event of and upon the filing of a stipulation of the parties,
as permitted by CPLR 43 17, the Special Referee, or another person designated by the parties to
serve as referee, shall determine the aforesaid issue; and it is further

ORDERED that a copy of this order with notice of entry shall be served by plaintiff
forthwith on the Clerk of the Special Referee’s Office (Room 1 19) to arrange a date for the
reference to a Special Referee; and is further

ORDERED that a motion to confirm or reject the report of the Special Referee shall be
made within 15 days of the filing of the report; and it further

ORDERED that in the event it is determined that plaintiff had standing to commence this
foreclosure action as of the date of its tiling, plaintiff may re-serve its motion for confirmation of
the Referee’s report and for a final judgment of foreclosure and sale.

This constitutes the decision and order of the court.
Dated: New York, New York
June 25,2012

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