Decided on July 24, 2012
FTBK Investor II LLC, as Trustee for NY Brooklyn Investor II Trust 3, Plaintiff,
Mercy Holding LLC, Tiffany Holding LLC, Leah Holding LLC, New York State Department of Taxation and Finance, New York City Department of Finance, New York City Environmental Control Board, New York City Department of Housing Preservation and Development, Defendants.
Attorney for plaintiff:
Jerold C. Feuerstein, Esq.
Kriss & Feuerstein LLP
360 Lexington Avenue, Suite 1200
New York, NY 10017
Attorneys for defendants:
Jay B. Solomon, Esq.
Maurice I. Rosenberg, Esq.
Klein & Solomon, LLP
275 Madison Avenue, 11th Floor
New York, NY 10016
Carolyn E. Demarest, J.
The following papers numbered 1 to 7 read on this motion:Papers Numbered
Notice of Motion / Attorney Affirmation / Memorandum of Law / Schatz Affidavit / Exhibits (Mot. Seq. No. 3) [*2]
Affirmation in Opposition (Mot. Seq. # 3)
Reply Affirmation / Reply Affidavit / Exhibits (Mot. Seq. # 3)
Order to Show Cause / Attorney Affirmation / Schatz Affidavit / Exhibits (Mot. Seq. #4)
Affirmation in Opposition (Mot. Seq. # 4)
Affidavit in Opposition (Mot. Seq. # 4)
Reply Affirmation / Exhibits (Mot. Seq. # 4)
In this action, plaintiff FTBK Investor II, LLC, as Trustee for NY Brooklyn Investor II Trust 3 (“Plaintiff”) seeks to foreclose upon a mortgage secured by three apartment buildings owned by Mercy Holding LLC, Tiffany Holding LLC, and Leah Holding LLC (collectively, the “MTL Defendants”) originally granted to Washington Mutual Bank, F.A. (“WaMu”). Plaintiff moves for an order granting summary judgment, striking the MTL Defendants’ answer, appointing a referee to compute the sums due and owing to Plaintiff, modifying a prior order of the Court amending the caption to include an additional tenant as defendant, and entering a default judgment against non-appearing defendants New York State Department of Taxation and Finance and New York City Environmental Control Board. Plaintiff also moves, by order to show cause, for the appointment of a temporary receiver. The MTL Defendants contend that Plaintiff lacks standing to foreclose upon the mortgage and to appoint a temporary receiver because there is no assignment affixed to the underlying promissory note between WaMu and JP Morgan Chase Bank, National Association (“Chase”), from which Plaintiff ultimately received the mortgage and note.
On October 7, 2004, the MTL defendants signed a promissory note and mortgage agreement in favor of WaMu for a loan in the amount of $1,275,000 secured by three apartment buildings located at 1408 Bushwick Avenue, 414 Melrose Street, and 145 Montrose Avenue in Brooklyn, New York. The mortgage was registered with the Office of the City Register on January 4, 2005. Plaintiff claims that WaMu held the note and mortgage until it was closed down and the Federal Deposit Insurance Corporation (“FDIC”), appointed receiver pursuant to § 11 (c) (2) (A) (ii) of the Federal Deposit Insurance Act (12 USC § 1821 [c]  [A] [ii]), transferred all of its loans to Chase through a Purchase of Assumption Agreement (the “PAA”) dated September 25, 2008. Under 12 USC § 1821 (d) (2) (G) (i) (II), the FDIC, as receiver of a failed bank, is authorized to “transfer any asset or liability of the institution in default . . . without any approval, assignment, or consent with respect to such transfer.” To prove that the instant note and mortgage were transferred to Chase, Plaintiff relies on an affidavit signed by Robert C. Schoppe, an authorized representative of the FDIC, confirming that “Chase acquired certain of the assets, including all loans and all loan commitments,” of WaMu (the “Schoppe Affidavit”).
Pursuant to the note, the MTL Defendants were to make monthly payments of $6,953.98 from December 1, 2004 to the initial adjustment date of December 1, 2011. The mortgage [*3]agreement provides that the mortgagors are in default if they “shall fail to pay when due any indebtedness secured hereby,” entitling the mortgagee, “without notice or demand,” to declare “all sums secured hereby . . . immediately due and payable” and to foreclose upon the Property. Plaintiff claims that the MTL Defendants failed to tender monthly payments on the note on and after December 1, 2010. By letter dated April 21, 2011, counsel for Chase informed the MTL Defendants that Chase was exercising its option to “declare [in default] the entire principal amount of the Loan currently outstanding, together with all accrued and unpaid interest” and would soon commence a foreclosure proceeding against them.
On May 18, 2011, Chase initiated this action to foreclose upon the Property and filed a notice of pendency with the County Clerk. On July 12, 2011, the MTL Defendants interposed an answer, which, Plaintiff claims, “consisted of bare denials and raised seven (7) factually and legally baseless Affirmative Defenses.” Plaintiff also included as defendants John Doe No. II through John Doe No. XXX, as potential tenants of or unknown lienors on the Property.[FN1] While not initially named as a defendant, Chase served El Brillante Restaurant, a tenant of the Property, with the summons and complaint on May 24, 2011, as evidenced by an affidavit of service filed on June 6, 2011 that Plaintiff annexed to its motion papers. El Brillante Restaurant has not appeared in this action.
On July 12, 2011, the MTL Defendants interposed an answer, in which it denies having sufficient knowledge or information to respond to each and every allegation in Plaintiff’s complaint. Additionally, the answer raised seven “affirmative defenses”: (1) failure to state a cause of action; (2) unclean hands, as plaintiff purportedly “induced Defendant not to worry about payment on the loan while discussing a potential modification”; (3) denial of default and, alternatively, that default was “wrongfully induced by the Plaintiff”; (4) denial of a current non-monetary default; (5) failure to provide notice and a cure period; (6) reservation of the right to amend the answer to include new affirmative defenses; and (7) denial of waiver of affirmative defenses.
The mortgage was assigned and the note indorsed to NY Brooklyn Investor II, LLC (“NY Brooklyn”) on August 19, 2011 and further to Plaintiff on September 12, 2011; both assignments were registered on October 11, 2011. Plaintiff provides copies of the mortgage assignments and an allonge for each indorsement annexed to the note. However, plaintiff fails to provide any documentation evidencing the transfer of either the note or the mortgage from WaMu to Chase other than the Schoppe Affidavit. Upon motion by Plaintiff, on November 9, 2011, the Court amended the caption in the instant action, substituting Plaintiff for Chase and deleting the John Doe defendants. Plaintiff claims that this deletion, which was effected by an order that it submitted to the Court, was purely inadvertent.
On November 29, 2011, Plaintiff filed a motion seeking an order granting summary judgment, striking the MTL Defendants’ answer, and appointing a referee to compute the sums due and owing to Plaintiff (“Motion Sequence No. 3”), asserting that it is the holder of the note and mortgage, signed by the MTL Defendants, that the MTL Defendants failed to make payments pursuant to the note, and that, accordingly, it has made a prima facie case that it is entitled to foreclosure of the Property. Plaintiff also argues that the MTL Defendants did not raise any defense, [*4]in their answer, sufficient to prevent the Court from granting summary judgment. In addition to producing the indorsed note, the mortgage agreement, and the two mortgage assignments, Plaintiff provides the affidavit of Brian Schatz (“Schatz”), the managing member of the plaintiff trustee, stating that the affiant possesses personal knowledge of the facts of the case “by virtue of [his] review of the files maintained by Plaintiff, in the ordinary course of business of Plaintiff, and Plaintiff’s predecessors-in-interest . . . with respect to the loan that is the subject of this action.”
The MTL Defendants contend that summary judgment should be denied because plaintiff has provided no proof that the instant mortgage and note were transferred from the FDIC, as receiver for WaMu, to Chase, making the eventual transfer to Plaintiff valid, and, therefore, Plaintiff has insufficiently demonstrated that it has standing to foreclose on the mortgage.[FN2] The MTL Defendants further claim that Plaintiff lacks standing because Plaintiff fails to provide an indorsement to Chase on the note itself or on an allonge affixed directly to the note. Moreover, the MTL Defendants claim that the Schatz Affidavit is insufficient proof of their default on the note because Schatz’s only involvement with the loan underlying this action began subsequent to the transfer of the note and mortgage from Chase to NY Brooklyn and later to Plaintiff, after the MTL Defendants had purportedly defaulted on the note and Chase had already begun the instant action. In reply, Plaintiff claims that a formal assignment of the mortgage and physical indorsement of the note are not necessary to effectuate a transfer and that Schatz has personal knowledge of this matter through “due diligence prior to acquiring the subject loan.”
In Motion Sequence No. 3, Plaintiff also requests that the Court modify the November 9, 2011 order to the extent that John Doe No. I is reinserted into the caption, replacing John Doe No. I with El Brillante Restaurant, and enter a default against defendants New York State Department of Taxation and Finance and New York City Environmental Control Board, both of which failed to answer the complaint or otherwise appear in this action. The MTL Defendants do not offer any opposition to the granting of such relief.
Plaintiff also moves, by order to show cause dated February 26, 2012, for the appointment of a temporary receiver for the Property (“Motion Sequence No. 4”). Section 5.3 (a) of the mortgage agreement specifies that, upon default:
Mortgagee may . . . [h]ave a reciver appointed as a matter of right on an ex parte basis without notice to Mortgagor and without regard to the sufficiency of the Property or any other security for the indebtedness secured hereby and, without the necessity of posting a bond or security, such receiver shall take possession and control of the Property and shall collect and receive all of the rents, issues, and profits thereof.
Plaintiff contends that this provision, read in light of Real Property Law § 254 (10), entitles it to have a receiver appointed for the Property regardless of the sufficiency of the current property management. Moreover, Plaintiff asserts that the MTL Defendants have failed to properly maintain the Property, resulting in building damage, liens, unpaid taxes, and violations with the Department of Buildings and the Department of Housing Preservation & Development. The MTL Defendants [*5]counter Plaintiff’s application by again arguing that Plaintiff provides insufficient proof that it is the holder of the note and mortgage and thus that it has standing. The MTL Defendants also claim that, despite past transgressions, the Property is currently well maintained; that the appointment of a receiver could disrupt its management, devaluing the property; and that Plaintiff is not at risk of losing its collateral, as the amount of debt owed is roughly equal to 30% of the current value of the Property.
A party moving for summary judgment pursuant to CPLR 3212 has the initial burden to “establish his cause of action or defense sufficiently to warrant the court as a matter of law in directing judgment’ in his favor” by providing “evidentiary proof in admissible form” (Friends of Animals, Inc. v Associated Fur Mfrs., Inc., 46 NY2d 1065, 1067 , quoting CPLR 3212 [b]; see Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 ). Once a party establishes that it is entitled to judgement as a matter of law, the burden shifts to the opposing party to “show facts sufficient to require a trial of any issue of fact” (CPLR 3212 [b]; see Friends of Animals, 46 NY2d at 1067).
“To establish a prima facie case in an action to foreclose a mortgage, the plaintiff must establish the existence of the mortgage and mortgage note, ownership of the mortgage, and the defendant’s default in payment” (Campaign v Barba, 23 AD3d 327, 327 [2d Dept 2005]; see Household Fin. Realty Corp. of NY v Winn, 19 AD3d 545, 546 [2d Dept 2005]). Where “standing is put into issue by the defendant, the plaintiff must prove its standing in order to be entitled to relief” by demonstrating that 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 Dept 2009] [internal citations omitted]; see Bank of New York v Silverberg, 86 AD3d 274, 279 [2d Dept 2011]; Citimortgage, Inc. v Stosel, 89 AD3d 887, 888 [2d Dept 2011]). Such assignment may be effectuated by “[e]ither a written assignment of the underlying note or the physical delivery of the note prior to the commencement of the foreclosure action” (Collymore, 68 AD3d at 754). In the case at bar, the MTL Defendants claim that Plaintiff has not demonstrated that it is the current holder of the mortgage and note. Plaintiff provides a written assignment of both the mortgage and the underlying note from Chase to NY Brooklyn and from NY Brooklyn to Plaintiff. However, plaintiff fails to provide proof of assignment from WaMu, or the FDIC as receiver, to Chase. Instead, plaintiff relies on the Schoppe Affidavit to demonstrate that all of WaMu’s loans were transferred to Chase upon WaMu’s closing. Plaintiff also states that its ownership of the note and mortgage is evidenced by its physical possession of the documents. However, Plaintiff provides no competent affidavit stating that these documents were delivered to Chase prior to the commencement of this action.
Plaintiff cites to JP Morgan Chase Bank, N.A. v 334 Marcus Garvey Boulevard Corp. (Sup Ct, Kings County, Dec. 5, 2011, Rosenberg, J., index No. 26152/09) and JP Morgan Chase Bank, N.A. v 1770 Realty Corp. (Sup Ct, Kings County, Jan. 29, 2010, Gerges, J., index No. 7655/09), where Chase, or its successor-in-interest, was able to demonstrate its ownership of notes and mortgages obtained from WaMu amidst challenges that the loan documents must be individually negotiated and assigned. Both decisions rested on the grounds that the FDIC had the authority to transfer any and all of WaMu’s loans with or without formal assignment pursuant to 12 USC § 1821 (d) (2) (G) (i) (II) and that federal law and regulations preempt state law requiring individual [*6]negotiation, which “would constitute an onerous burden not contemplated by federal law” (1770 Realty Corp. at 16-18; see 334 Marcus Garvey Blvd. Corp. at 7-8. Therefore, the MTL Defendants are incorrect in their assertion that the note had to have been individually negotiated and physically indorsed to Chase through an allonge pursuant to UCC 3-202. However, as the mortgage could have been transferred to another lender prior to Chase’s acquisition of WaMu’s assets, this Court finds that Plaintiff must provide proof of its ownership of the note and mortgage beyond the PAA alone.
Although Plaintiff is correct in its claim that its possession of the note and mortgage is evidence that the loan documents were physically transferred from WaMu to Chase, Plaintiff must also provide testimony from an individual with personal knowledge stating the circumstances in which the note and mortgage were delivered to Chase prior to the commencement of this action (see HSBC Bank USA v Hernandez, 92 AD3d 843, 844 [2d Dept 2012] [finding that plaintiff failed to sufficiently demonstrate its standing because the affidavit of its servicing agent “did not give any factual details of a physical delivery of the note and, thus, failed to establish that the plaintiff had physical possession of the note prior to commencing this action”]; Deutsche Bank Nat. Trust Co. v. Barnett, 88 AD3d 636, 638 [2d Dept 2011]; Collymore, 68 AD3d at 754). Plaintiff has not provided such proof and thus has not met its burden to demonstrate its standing to foreclose on the mortgage.
Morever, Plaintiff does not provide any documentary evidence of the MTL Defendants’ default of the note, and the MTL Defendants claim that the Schatz Affidavit is not sufficient to demonstrate such default because Schatz had no involvement with the loan and mortgage at the time of the purported default and thus lacks personal knowledge. Schatz attests that he obtained personal knowledge of the facts by reviewing Chase’s file in due diligence in anticipation of acquiring the note and mortgage. On motion for summary judgment, the moving party must provide an affidavit from a “person having knowledge of the facts” (CPLR 3212 [b]).[FN3] Plaintiff cites to DeLeon v Port Auth. of NY & N.J. (306 AD2d 146 [1st Dept 2003]), arguing that a person lacking personal knowledge can obtain such knowledge from admissible business records. However, Plaintiff misinterprets DeLeon, which holds that a business entity may offer, for the purpose of authenticating a business record, the affidavit of a person lacking personal knowledge of a document itself but possessing knowledge of the business’s record-keeping procedures (see id. at 146); the DeLeon court does not proclaim, as plaintiff asserts, that authenticated business records can serve as the basis for personal knowledge. Furthermore, Plaintiff does not specify the exact business records upon which Schatz relies in his affidavit and does not attempt to lay a foundation for their admissibility (see BRT Repo, LLC v Roperts, 30 Misc 3d 1212[A], 2011 NY Slip Op 50048[U], *2 [Sup Ct, Kings County 2011]). An affidavit from Schatz regarding Plaintiff’s business records would not be sufficient, however, as he lacks personal knowledge of the record-keeping procedures of its predecessors-in-interest. Moreover, because Schatz lacks personal knowledge about the facts of the case prior to the transfer [*7]of the note and mortgage to NY Brooklyn, he cannot testify that Chase received the note and mortgage pursuant to the PAA or that WaMu was still the holder of the note at the time of the purported transfer to Chase. Therefore, Plaintiff fails to meet its burden to demonstrate the MTL Defendants’ default on the note, as well as its standing to foreclose on the mortgage. Accordingly, Plaintiff’s motion for summary judgment is denied without prejudice. The Court need not address Plaintiff’s request to strike the MTL Defendants’ answer.
Plaintiff also moves for the appointment of a temporary receiver pursuant to Section 5.3 (a) of the mortgage agreement and Real Property Law § 254 (10). While the language of the mortgage agreement, granting the holder the right, upon default, to have a receiver appointed “on an ex parte basis without notice to Mortgagor and without regard to the sufficiency of the Property” is unequivocal, Plaintiff has failed to carry its burden to demonstrate that it has standing to seek such relief. Therefore, Plaintiff’s application for the appointment of a temporary receiver is also denied, without prejudice.
Finally, Plaintiff’s requests that the Court modify the November 9, 2011 order and enter a default against non-appearing defendants New York State Department of Taxation and Finance and New York City Environmental Control Board are both granted without opposition. The caption is amended such that John Doe No. I is reinserted as a defendant and El Brillante Restaurant is substituted for John Doe No. I pursuant to CPLR 1024.
Accordingly, Motion Sequence No. 3 is denied, without prejudice, to the extent that Plaintiff is seeking summary judgment, to strike the MTL Defendants’ answer, and to appoint a referee to compute sums due and owing to Plaintiff. Motion Sequence No. 3 is granted to the extent that the caption shall be amended to include El Brillante Restaurant and a default shall be entered with the County Clerk against defendants New York State Department of Taxation and Finance and New York City Environmental Control Board. Motion Sequence No. 4 is denied in its entirety without prejudice.
This constitutes the decision and order of the Court.
E N T E R :
HON. CAROLYN E. DEMAREST, J.S.C.
Footnote 1: Plaintiff claims that it “served [the tenants of the Property] with the appropriate foreclosure notice pursuant to RPAPL §1303” and provides affidavits demonstrating that such notice was given to tenants at all three apartment buildings.
Footnote 2: While the MTL Defendants raise the issue of standing upon Plaintiff’s motion for summary judgment, they did not plead an affirmative defense, in their answer, asserting Chase’s lack of standing.
Footnote 3: Plaintiff cites Garrison Commercial Funding IV Reo LLC v NMP-Group LLC, 30 Misc 3d 1227[A], 2011 NY Slip Op 50238[U] [Sup Ct, NY County 2011]), claiming that the court found that “an affidavit relying on personal knowledge to support a motion for summary judgment in a foreclosure action brought by a subsequent loan holder was admissible evidence.” Whether such affidavit contained the testimony of an officer of the subsequent loan holder, rather than the original mortgagee, cannot be ascertained, as the Garrison court merely stated that the plaintiff “submitted affidavits by persons with personal knowledge of the transaction” (id. at *3).