See Deutsche Bank Natl. Trust Co. v Bills (2012 NY Slip Op 51943(U))(Essex County October 15, 2012)

The above-captioned matter is a foreclosure action pertaining to an investment property located in Essex County, New York.  This case is of interest to would-be real estate investors and joint venturers, and speaks to the issue of what sort of liability, if any, one investor bears for the actions of another in the event of a foreclosure on an investment property.

By law, joint ventures are essentially partnerships and are governed by partnership law.  A joint venture is a “special combination of two or more persons where in some specific venture a profit is jointly sought.” Forman v Lumm, 214 A.D. 579, 583 (1st  Dep’t 1925). It is in a sense a partnership for a limited purpose, and it has long been recognized that the legal consequences of a joint venture are equivalent to those of a partnership.  Pedersen v Manitowoc Co., 25 N.Y.2d 412, 419 (1969); Gramercy Equities Corp. v. Dumont, 72 N.Y.2d 560, 565 (1988).

Joint venture agreements do not necessarily need to be in writing, even when the joint venture pertains to the purchase, management or disposition of real property.  Indeed, it is long-established that any real property acquired and dealt with by co-venturers takes on the character of personal property as between the co-venturers, and hence is not governed by the statute of frauds.  Mattikow v. Sudarsky, supra; Traphagen v. Burt, supra; Fairchild v. Fairchild, 64 N.Y. 471 (1876).

 Most importantly, a joint venturer is vicariously liable for the obligations incurred by his or her co-venturer.  This includes mortgages or loan obligations, even where only one of the co-venturers is a signatory to the loan.  Both of the co-venturers are agents of the other with regard to joint venture activity.  They can act on the others behalf and subject each other to vicarious liable.

In the Deutsche Bank v. Bill, the court found the absence of one co-venturer at the closing of the mortgage or lack of knowledge of said closing insufficient to relieve her of liability.  It should also be noted that if one of the partners of the venture is deceased, the percentage of “liability” of the venture of the deceased, falls upon the surviving spouse or heirs of the deceased partner.

The factual scenario set forth in Deustche Bank v. Bills is not uncommon.  All-too-often, inexperienced investors pool their resources to purchase real estate investment properties, and eventually find themselves to be on the hook for the missteps or outright wrongdoing of their partner or co-venturer.    Such arrangements can expose partners or co-venturers to costly and unexpected liability.

March 12, 2012

SECOND DEPARTMENT REDUCES THE SCOPE OF SILVERBERG DECISION TO CURB JUDICIAL ACTIVISM IN FORECLOSURE CONTEXT
 

By:   Nicholas M. Moccia
        Staten Island, New York

BROOKLYN JUDGE ARTHUR SCHACK DISMISSES WITH PREJUDICE FORECLOSURE ACTION DUE TO BANK’S FAILURE TO COMPLY WITH COURT ORDERED DEADLINES

December 19, 2011

Nicholas M. Moccia, Esq.
Law Office of Nicholas M. Moccia, P.C.

Judge Arthur Schack of the Supreme Court of the State of New York, Kings County, issued a biting decision whereby he dismissed with prejudice a foreclosure action.  See, U.S. Bank, N.A. v Ramjit, 2011 NY Slip Op 52215(U)(Sup. Ct. Kings County Dec. 2011). 

Judge Schack dismissed the foreclosure due to the bank attorney’s “failure to comply with court ordered time frames.”  Judge Schack faults Rosicki, Rosicki & Associates, P.C. for a one hundred thirty-seven (137) day delay in complying with his July 28, 2011 order and four hundred eighteen (418) day in complying with the Administrative Order of Chief Administrative Judge Ann T. Fau.   The Administrative Order referred to by Judge Schack requires bank attorneys to file an affirmation that the summons, complaint and other papers filed or submitted to the Court in connection with a foreclosure action contain no false statements of fact or law.  While one would think that complying with such a requirement would be a simple matter, bank attorneys often meet with great difficulty finding a bank representative who is willing to substantiate the contents of this apparently straightforward affirmation.

Judge Schack noted that Kim Stewart of U.S. Bank, a known robo-signer, had executed a mortgage assignment and an affidavit of merit in connection with this case.  In this regard Judge Schack writes, “Perhaps, plaintiff U.S. BANK and its counsel, Rosicki, Rosicki & Associates, P.C., do not want the Court to confront the conflicted Ms. Stewart?”

BANK OF NEW YORK v. SILVERBERG INCREASINGLY CITED BY COURTS



December 2, 2011
 

Nicholas M. Moccia, Esq.

Law Office of Nicholas M. Moccia, P.C.

Linked to this blog post is a good article by Yuliya Viola regarding Bank of New York v. Silverberg, 2011 N.Y. Slip Op 05002.  This article is of interest to attorneys who practice in the foreclosure defense area or to homeowners in foreclosure.  

http://www.scribd.com/fullscreen/74551445?access_key=key-1imv4cuvtzx1wf909bi
 

As I’ve noted in previous blog posts, the Second Department in Bank of New York v. Silverberg, rendered a landmark decision regarding the ability of Mortgage Electronic Registration Systems ("MERS") to effect valid mortgage assignments.  The reason why this decision is so significant is that MERS purportedly holds approximately 60 million mortgage loans, and is involved in the origination of 60% of all mortgages in the United States.   Accordingly, a fair majority of all foreclosures in the state of New York will be directly affected by the Second Department's holding in this case.

The MERS system was created by several large participants in the real estate mortgage industry in order to track ownership interests in residential mortgages, and to streamline the mortgage process by incorporating the efficiencies of information technology.  Christopher L. Peterson, who has written authoritatively on the MERS system, noted that MERS' implementation followed the delays occasioned by local recording offices, which were at times slow in recording instruments because of complex local regulations and database systems that had become voluminous and increasingly difficult to search.  See Peterson, Foreclosure, Subprime Lending, and the Mortgage Electronic Registration System, 78 U Cin L Rev 1359 (2010);  see also my previous blog post on Peterson's article, Unmasking the Masked Executioner on Wall Street (January 1, 2010).  Peterson has also suggested that MERS was created in order to help financial institutions evade filing fees that are charged by local recording offices.

The question presented in this appeal was whether a bank has standing to commence a foreclosure action when that party's assignor--in this case (and in very many cases), MERS--was listed in the underlying mortgage instruments as a nominee and mortgagee for the purpose of recording, but was never the actual holder or assignee of the underlying notes.  The Second Department answered resoundingly in the negative.

In many cases, when a bank originates a loan, it immediately assigns it (i.e. sells it) to another financial institution.  Sometimes the loan is transferred very many times.  In order to assign a loan "correctly", the assignor must transfer both the note and the mortgage (two separate instruments) to the assignee.  MERS' plays a central role in the assignment process, and acts as the mortgagee of record from the origination of the loan to act on behalf of the originating bank and its successors-in-interest to facilitate the assignment process.  Unfortunately for the banks, MERS is hardly ever the actual "holder" of the note, and is never given any rights with respect to the note--it's only given rights with respect to the mortgage.  As mentioned above, MERS cannot transfer a mortgage without the note, and it cannot transfer the note unless its is the holder of the note, and MERS almost never is.  On this theory, the majority of mortgage assignments which MERS has had a hand in are void.  That means many financial institutions, which were assignees of a MERS assignment, do not own the mortgages they think they own, and, therefore, do not have the right to foreclose on the same.  This will wreak havoc among financial institutions and their attorneys, who are already struggling through an increasingly regulated residential foreclosure process.

Bank of New York v. Silverberg is increasingly cited by other courts.  Here are some examples:

In re Lippold, 457 B.R. 293 (Bankr. S.D.N.Y. 2011)(Bankruptcy Court for the Southern District of New York, cites Bank of New York v. Silverberg in denying bank’s motion for relief from a bankruptcy stay)

In re Escobar, 457 B.R. 229, 241 (Bankr. E.D.N.Y. 2011)(Bankruptcy Court for the Eastern District of New York, concludes that the level of proof necessary to commence a foreclosure action under New York law, as stated in Silverberg, is the appropriate level of proof necessary to confer standing to seek stay relief)

Citimortgage, Inc. v. Stosel, 2010-06292, 2011 WL 5588720(2d Dep’t 2011)(Second Department affirms Sup.Ct. Kings County holding that lender failed to demonstrate that it had standing to commence a foreclosure action, since it failed to establish how or when it became the lawful holder of the note either by delivery or valid assignment of the note to it)

HSBC

In Aurora Loan Services, LLC v. Paul Lopa, 2011 NY Slip Op 07595 (Sup. Ct. Richmond County October 25, 2011) the Appellate Division, Second Department, reversed the decision of Justice John Fusco of Richmond County regarding the “election of remedies” doctrine in the foreclosure context.  On a motion to dismiss, Justice Fusco dismissed a foreclosure action brought by Aurora Loan Services against a Staten Island homeowner purportedly because the Aurora failed to elect its remedies when it reserved its right to a deficiency judgment in its complaint.  In New York, it is long established that in order to enforce a mortgage debt, one may either sue on the note for money damages or seek to foreclosure on the mortgage and auction off the collateral.  One may not do both simultaneously.   "The holder of a note and mortgage may proceed at law to recover on the note or proceed in equity to foreclose on the mortgage, but must only elect one of these alternate remedies" (Gizzi v Hall, 309 AD2d 1140, 1141; see RPAPL 1301; Sabbatini v Galati, 14 AD3d 547, 548). RPAPL 1301(1) "is the embodiment of the equitable principle that once a remedy at law has been resorted to, it must be exercised to exhaustion before a remedy in equity, such as foreclosure, may be sought" (Valley Sav. Bank v Rose, 228 AD2d 666, 667). The purpose of the statute is to avoid multiple lawsuits to recover the same mortgage debt (id. at 667).  Justice Fusco held that seeking a deficiency judgment in a foreclosure complaint is akin to seeking a money judgment and to foreclosing on a mortgage simultaneously.  However, the Second Department disagreed with this interpretation and opined in pertinent part:

However, a prayer for a deficiency judgment in a foreclosure complaint does not constitute a separate action for a money judgment in violation of the election of remedies doctrine. Indeed, RPAPL 1371(2) permits a plaintiff in a foreclosure action to "make a motion in the action for leave to enter a deficiency judgment" (RPAPL 1371[2] [emphasis added]). Thus, a plaintiff in a foreclosure action may seek a deficiency judgment in the complaint, as incidental to the principal relief demanded (see Dudley v Congregation of Third Order of St. Francis, 138 NY 451, 458; cf. Barclays Bank of N.Y. v Strathmore Five Realty Co., 245 AD2d 406, 406-407).

Thus, Aurora Loan Services prevailed on appeal and succeeded in reversing the dismissal of foreclosure.  Appellant Aurora Loan Services was represented by Jordan Smith, Esq. of Akerman Senterfitt LLP.  The respondent homeowner was represented by Rae Koshetz, Esq., of counsel to the Law Offices of Robert E. Brown, P.C.