Tag Archives: NY

Show Me The Note, NY Style

Posted on by

Steiner, Goldstein & Sohn published a short article in the New York Law Journal, Clearing The Confusion:  Misplaced Notes and Allonges (Sept. 18, 2012) (behind a paywall). While intended to address commercial real estate finance, it relies on an interesting residential real estate finance case, Bank of N.Y. Mellon v. Deane, 2013 Slip Op. 23244 (Sup. Ct. Kings Country July 11, 2013). The authors write that

Mortgage assignments, when properly drafted, assign both the mortgage and the note. Assuming the chain of mortgage assignments is intact, lenders can gain comfort knowing that under New York case law they have standing to enforce the full amount of the debt evidenced by these assignments. Nevertheless, defendants in foreclosure proceedings often challenge the lenders’ standing to enforce the note, demanding that lenders demonstrate physical possession of the note to initiate a foreclosure despite the fact that physical possession is not required by the law.

They conclude:

New York courts in the cases described herein consistently follow well-established precedent permitting standing in a foreclosure action without the plaintiff having physical possession of the original notes. New York case law makes clear that physical possession of all notes in a chain of loan assignments and refinancings is unnecessary for standing in a foreclosure action and that proper execution of a [Consolidated Extension and Modification Agreement] is sufficient to confer standing when missing notes have been consolidated. Likewise, inclusion of an allonge or other endorsement for every note transfer is not required under New York law for standing in a foreclosure action when the note has been assigned by other means, such as through a properly drafted assignment of mortgage.

The article’s discussion of Deane is most interesting:

the court found physical possession of the note to be determinative regardless of whether a written assignment was executed. The court criticized the approach followed by case law in New York, stating that allowing an assignee to have standing without possession of the note “would be inconsistent with Revised Article 3, and put New York out-of-step with the 49 states that have adopted the revision[.]” Notably, however, New York has opted not to adopt those proposed revisions to Article 3. The court continued, “that misstep, however, if such it is, has apparently already been taken. The case law quoted and cited above clearly speaks, in the disjunctive, of standing obtained by ‘assignment’ or ‘physical delivery’ of the note[.]”

I will return to Deane in a later post.

Stalled Foreclosures in NY Not a Violation of Federal Law

Posted on by

Judge Townes (EDNY) dismissed a putative class action, Cole v, Baum, 11-cv-3779 (July 11, 2013), against notorious foreclosure mill Steven J. Baum, P.C. and its principal relating to their failure to submit filings that would have triggered mandatory settlement conferences for homeowners under a new New York law.  The plaintiffs alleged that the defendants violated the federal Fair Debt Collections Practices Act. Judge Townes found that the failure to comply with the NY law was not the equivalent of an unfair debt collection prohibited by the FDCPA.

In reaching its result, the Court stated that not “every violation of state or city law amounts to a violation of the FDCPA.” (16, quoting Nero v. Law Offices of Sam Streeter, P.L.L.C., 655 F. Supp. 2d 200, 209 (E.D.N.Y. 2009)). It further found that even “debt collection practices in violation of state law are not per se violations of the FDCPA.” (17) The Court concluded that in the present case,

the defendants’ debt collection practices did not violated the provisions of the FDCPA. Defendants allegedly violated 22 NYCRR § 202.12-a, a procedural rule promulgated by the Chief Administrator of the New York Courts to facilitate implementation of CPLR 340B. However, CPLR 340B is not a state analog of the FDCPA. That statute does not prohibit unfair, misleading or deceptive collection practices, but merely furthers a state interest  in  forestalling or preventing foreclosures. Although defendants may be debt collectors, and their alleged violation of Section 202.12-a may be characterized as unfair, defendants’ violation of this state procedural provision neither resulted in, nor contributed to, the sort of unfair debt collection practices prohibited by the FDCPA. (18)

I am not sure if I see the principled difference between the scope of the FDCPA and the NY law.  The Court acknowledges that the FDCPA, is meant “to protect consumers from deceptive or harassing actions taken by debt collectors with the purpose of limiting the suffering and anguish often inflicted by independent debt collectors.” (10, quoting Gabriele v. American Home Mortg. Servicing, Inc., No. 12-985-cv, 2012 WL 5908601 at *3 (2d Cir. Nov. 27, 2012)). The mere fact that the NY law was an amendment to the Civil Practice Law and Rules (CPLR) does not seem to undercut the fact that it was passed expressly to address the “mortgage foreclosure crisis.” (2) I would think that if procedural violations amounted to a substantive injustice, it could be sufficient to violate the FDCPA.