Standing Waived By Borrower – But Problems of New York Foreclosures Highlighted

A new case, although won by the lender, highlights an aspect of frustration foreclosing lenders encounter in prosecuting New York mortgage foreclosure actions. [Wells Fargo Bank, N.A. v. Halberstam, 166 A.D.3d 710, 87 N.Y.S.3d 328 (2d Dept. 2018)].

Enough non-paying borrowers answer and litigate foreclosures so that when there is a default in the action, there is some relief for the lenders in being able to proceed to the next stage – appointment of the referee – without opposition. That happened in this case and the next step would be that order appointing the referee.  Did the judge grant it here?  No, even though the plaintiff was fully entitled to a default judgment upon submitting proof of service of the summons and complaint and proof of the facts constituting the claim.  Because the trial court declined to make the award to which the plaintiff was entitled, it necessitated an appeal and not surprisingly there was a reversal on this aspect.

But the appeal court needed to go further.  Again, even though there was neither an answer filed by the borrower, nor a motion to dismiss the complaint, the trial court decided on its own to raise the affirmative defense of standing!  The point then is that the foreclosing plaintiff had to deal with a court taking its own position, without the borrower being the one to assert the supposed defense.

Of course, as most lenders nowadays will typically be aware, the defense of standing is waived if it is not pleaded in an answer or if a motion has been made to dismiss on that ground.  The volume of case law on this point is exceptional and consequently there was absolutely no basis for the court to interpose this defense of its own volition.

This led the appeals court to strongly advise that the court’s precedent in this regard is well established, upon which basis it reversed on this aspect as well.

The appeals court was so disturbed by the events that when it remitted the case back to the trial court for the purpose of taking appropriate steps to appoint a referee, it required that the matter be referred to a different trial judge.  So in the end, correct law prevailed and in a sense, the foreclosing plaintiff was successful.  However, it lost all the time that the appeal consumed (on something that never should have been appealed) together with expending what had to be substantial legal fees for that appeal, sums which may or may not be recoverable.

Success?  Well, yes.  Frustration?  That too

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2019), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.