Onewest Bank, FSB v Galli | NYSC "ASMT between WMC & WAMU a nullity and therefore the plaintiff must establish how it procured the notes and mortgages"

SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF RICHMOND

ONEWEST BANK, FSB, as successor in interest to
INDYMAC BANK, FSB,

Plaintiff

against

JOHN A. GALLI,
GEORGANN GALLI, and
“JOHN DOE #1″ through “JOHN DOE #10″,
inclusive the last ten names being fictitious and unknown
to the plaintiff, the persons or parties intended being the persons,
tenants, occupants, or corporations, if any, having or claiming
an interest in or lien upon the mortgaged premises described
in the complaint

Defendants

The plaintiff moves for partial summary judgment dismissing the defendants’ third,
fourth, sixth, seventh, eighth, tenth, eleventh, twelfth, thirteenth, fifteenth and sixteenth
affirmative defenses. In opposition, the defendants cross-move for summary judgment arguing
that the plaintiff lacks standing; lacks capacity to commence and maintain this action; failed to
elect remedies pursuant to RPAPL § 1301; and failed to provide each defendant with the
requisite acceleration notices. The plaintiff’s motion is denied, and the defendants’ motion is
granted.

Facts

This is an action to foreclose real property known as 231 Douglas Road, Staten Island,
New York. On August 26, 2003 John A. Galli and Georgann Galli executed a promissory note
and mortgage in favor of WMC Mortgage Corp. (“WMC”) in the amount of $550,000. The
mortgage contained the following language concerning the business entity known as Mortgage
Electronic Registration Systems, Inc. (“MERS”):

I understand and agree that MERS holds legal title to the rights
granted by me in this Security Instrument, but, if necessary to
comply with law or custom, MERS (as nominee for Lender and
Lender’s successor and assigns) has the right:
(A) to exercise any or all of those rights, including, but not
limited to, the right to foreclose and sell the Property; and
(B) to take any action required of Lender including, but not
limited to, releasing and canceling this Security Instrument.

In addition the Promissory Note submitted in connection with these motions contain an
undated Allonge to Promissory Note stating: “Pay to the Order of INDYMAC BANK, FSB
Without Recourse WASHINGTON MUTUAL BANK”. On October 22, 2004, MERS
purportedly assigned this mortgage as nominee for WMC to Washington Mutual Bank, FA.

On November 16, 2004 the defendants executed a promissory note and mortgage in favor
of Washington Mutual Bank, F.A. in the amount of $457,050.77. Once again, the Promissory
Note submitted for consideration in connection with these motions contains an undated Allonge
to Promissory Note that states “Pay to the Order of IndyMac Bank, FSB Without Recourse
Washington Mutual Bank”. Simultaneously, the defendants executed a Consolidation, Extension
and Modification Agreement (“CEMA”) with Washington Mutual Bank, F.A. on the same day.
Exhibit A of the CEMA lists the 2003 WMC mortgage executed by the defendants as well as the
concurrently executed Washington Mutual Bank, FA mortgage as being consolidated, extended
and modified by this agreement. However, WMC was not a signatory to the November 16, 2004
CEMA.

Two years later on April 5, 2006, MERS as nominee for Washington Mutual Bank, FA
purportedly assigned the 2003 WMC mortgage and the 2004 Washington Mutual Bank, FA
mortgage to Washington Mutual Bank. A second assignment on the same day had Washington
Mutual Bank, F/K/A Washington Mutual Bank, FA purportedly made the following assignments
to MERS as nomminee for Indymac Bank, FSB:

Mortgage dated 08/26/2003 made by John A. Galli and Georgeann
Galli, Husband and Wife to Mortgage Electronic Registration
Systems, Inc. as nominee for WMC Mortgage Corporation in the
principal sum of $550,000.00 and recorded on 01/28/2004, in the
office of the CLERK of the County of RICHMOND, in Book
17109 of Mortgages, page 242.

ASSIGNMENT FROM: Mortgage Electronic Registration
Systems, Inc. as nominee for WMC Mortgage Corporation to
Mortgage Electronic Registration Systems, Inc. as nominee for
Washington Mutual Bank, FA dated 10/22/2004 recorded
6/2/2005.

ASSIGNMENT FROM: Mortgage Electronic Registration
Systems, Inc. As nominee for Washington Mutual Bank FA to
Washington Mutual Bank dated 4/4/2006 to be recorded
concurrently.

2nd Mortgage dated 11/16/2004 recorded 6/2/2005 in document
control 48484 between John A. Galli and Georgeann Galli, aka
Georgeann Galli husband and wife and Washington Mutual Bank,
FA in the amount of $457,050.77

Consolidation, Extension, and Modification Agreement made by
John A. Galli and Georgeann Galli, aka Georeann Galli husband
and wife and Washington mutual Bank, FA dated 11/16/2004
recorded 6/2/2005 in document number 48485 consolidated
mortgages 1 & 2 to form a single lien in the amount of
$1,000,000.00

On April 14, 2006 the defendants executed another Promissory Note and Mortgage this
time in favor of IndyMac Bank, FSB in the amount of $143,595.50. Concurrently with the third
mortgage, the defendants executed a Consolidation, Extension and Modification Agreement in
favor of IndyMac Bank, FSB. Once again, neither WMC, nor Washington Mutual Bank f/k/a
Washington Mutual Bank, FA were signatories to this second CEMA.

According to the affidavit of Brian Burnett, an Assistant Vice President of OneWest
Bank, FSB (“OneWest”) that on or about July 11, 2008, IndyMac Bank, FSB failed and went into
receivership. Upon entering receivership it changed its name to IndyMac Federal Bank, FSB and
on or about March 19, 2009 merged with OneWest. According to Mr. Burnett, OneWest
acquired all of IndyMac’s assets. However, notably absent from the record is a copy of the
purchase and assumption agreement between OneWest and IndyMac.

On or about September 1, 2008 the defendants allegedly defaulted on the notes and
mortgages.

The plaintiff moved for partial summary judgment dismissing the defendants third,
fourth, sixth, seventh, eighth, tenth, twelfth, thirteenth, fifteenth and sixteenth affirmative
defenses. The defendant cross moves to dismiss the plaintiff’s action arguing that the plaintiff:
1) lacks standing; 2) lacks capacity to commence and maintain this action; and 3) failed to elect
remedies pursuant to RPAPL § 1301. In opposition to the defendants’ cross motion, the plaintiff
submits attorney certified copies of the relevant notes and mortgages encumbering 231 Douglas
Road, Staten Island, New York.

Discussion

The court will address the defendants’ cross-motion to dismiss the complaint pursuant to
CPLR § 3211(a). The record in this case shows that MERS assigned the mortgage several times
before the original notes and mortgages found their way to the plaintiff in this action. Here the
court must determine whether the plaintiff in a foreclosure action must establish a clear chain of
title of the relevant notes and mortgages prior to commencing the foreclosure proceeding. This
court concludes that a foreclosing plaintiff must establish how it came to possess the relevant
notes and mortgages it wishes to foreclose.

On June 7, 2011 the Appellate Division, Second Department issued its decision in the
Bank of New York v. Silverberg case.1 In that case the court was called to resolve the issue of,
“. . . whether a party has standing to commence a foreclosure action when that party’s
assignor–in this case, Mortgage Electronic Registration Systems, Inc. . . . was listed as a nominee
and mortgagee for the purposes of recording, but was never the actual holder or assignee of the
underlying notes.”2 The Appellate Division, Second Department held that such a party did not
have standing to commence a foreclosure action.

In a mortgage foreclosure action, a plaintiff must be both the holder or assignee of the
mortgage and the underlying note at the time the action is commenced.3 Here, as was the case in
Silverberg, MERS purportedly transferred the WMC mortgage to Washington Mutual Bank, FA
in connection with a consolidation as nominee. In turn, MERS as the nominee of Washington
Mutual Bank, FA assigned the mortgage to Washington Mutual Bank. Subsequently,
Washington Mutual Bank assigned the mortgages, prior assignments and CEMAs to MERS as
nominee of IndyMac Bank, FSB. The Appellate Division, Second Department found in
Silverberg that “. . . as ‘nominee,’ MERS’s authority was limited to only those powers which
were specifically conferred to it and authorized by the lender.” Here, as was the case in
Silverberg, MERS lacked the authority to assign the underlying notes. Consequently, how the
plaintiff came into possession of the mortgages and notes in this case is suspect.

The plaintiff cites a multitude of cases purportedly holding that possession of the physical
notes establishes its standing to commence this action.4 But each of these cases predate the
Appellate Division, Second Department’s decision in Silverberg. Consequently, this court finds
that the initial transfer between WMC Mortgage and Washington Mutual Bank, F.A. is a nullity
and therefore the plaintiff must establish how it procured the notes and mortgages for 231
Douglas Road, Staten Island, New York.

Given this court’s decision on the cross-motion the plaintiff’s motion for summary
judgment is denied.

Accordingly, it is hereby:

ORDERED, that John A. Galli and Georgann Galli’s cross-motion dismissing the
plaintiff’s complaint is granted and the complaint is dismissed without prejudice; and it is further
ORDERED, that the plaintiff’s motion to foreclose is denied.

ENTER,
DATED: March 23, 2012

Joseph J. Maltese
Justice of the Supreme Court

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