US Bank Trust, NA v Morales

[*1] US Bank Trust, NA v Morales 2017 NY Slip Op 50218(U) Decided on February 14, 2017 Supreme Court, Orange County Vazquez-Doles, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on February 14, 2017
Supreme Court, Orange County

US Bank Trust, NA, Plaintiff,

against

Edwin Morales, Jr., et al, Defendants.



2183/2016



Counsel for P = Day Pitney, LLP, LLC

Counsel for D = R. Spencer Lauterbach, Esq.
Maria S. Vazquez-Doles, J.

The following papers numbered 1 - 23 were read on Plaintiff's motion for summary judgment, for appointment of a referee, for the caption to be amended to remove John Doe, and for a default judgment against all those non-appearing defendants;

Notice of Motion/Affirmation of Ryan S. Tougias, Esq., dated 10/20/16/Affidavit of Josh Cantu, dated 10/14/1/Exhibits A - O/Memorandum of Law 1 - 19

Affirmation in Opposition of R. Spencer Lauterbach, Esq. dated 12/6/16/Exhibits A -C 20 - 23

Procedural History

This action in foreclosure was commenced on April 4, 2016 by the filing of a Summons and Complaint and Notice of Pendency. Issue was joined on or about April 25, 2016, by the filing of an Answer on behalf of Defendants Edwin Morales, Jr, Maria E. Bayon and Edwin S. Morales, Sr.. The subject premises are located at 36 Lakes Road, Monroe, NY. The original balloon note and mortgage, dated July 26, 2006, was between Home Funds Direct and Edwin [*2]Morales, Jr., Edwin Morales, Sr., and Maria E. Bayon, in the principal amount of $403,000.00, with 8.675% interest for a period of 30 years. The monthly payments were to be made at the rate of $3,008.14, on the first day of every month. The bottom of the note does not bear any endorsement. However, there is an undated allonge attached to the note, containing the name and address of the Defendants, submitted with Exhibit B to Plaintiff's Motion for Summary Judgment.

The mortgage was recorded against the property in the Orange County Clerk's Office on August 4, 2006, securing this note. As part of that mortgage document, the lender bank, Home Funds Direct named MERS as nominee for the lender and lender's successor and assigns. On August 20, 2015, MERS, as nominee for the lender, Home Funds Direct, assigned the mortgage to US Bank Trust, N.A. as trustee for LSF9 Master Participation Trust. This document is captioned 'Assignment of Mortgage' and contains the following language: "Together with the Note described in said mortgage,...". The assignment was filed with the Orange County Clerk on October 27, 2015.

On or about June 1, 2013, the Defendants, Edwin Morales Jr, Maria Bayon and Edwin Morales Sr. allegedly defaulted and failed to make payments. They were sent notice of default from Caliber Home Loans. This case was subject to the foreclosure conference part and conferences were held on June 8, 2016 and September 28, 2016.

Plaintiff, US Bank Trust, now moves for summary judgment against the appearing Defendants, and default judgment against those who have failed to appear; to strike Defendant's affirmative defenses and dismiss any counterclaims; to appoint a referee to compute, and to amend the caption to substitute Sandra Morales for 'John Doe'.

Defendants Edwin Morales, Maria E. Baylon and Edwin S. Morales, Sr., oppose this motion on the grounds that Plaintiff does not have standing. Defendants allege that MERS was never authorized by the original lender to assign the note and mortgage to the current Plaintiff. Defendants also allege that Plaintiff does not have possession of the note as it is in the possession of a 'custodian', Wells Fargo Bank. Defendant points to the endorsement in blank as one which did not transfer the note to Plaintiff and that Plaintiff has not otherwise established physical possession.

Analysis

"A plaintiff in a mortgage foreclosure action establishes its prima facie entitlement to judgment as a matter of law by producing the mortgage, the unpaid note, and evidence of the defendant's default (see Loancare v Firshing, 130 AD3d 787, 788 [2015]; Wells Fargo Bank, N.A. v Erobobo, 127 AD3d 1176, 1177 [2015]; Wells Fargo Bank, N.A. v DeSouza, 126 AD3d 965 [2015]; Citimortgage, Inc. v Chow Ming Tung, 126 AD3d 841, 842 [2015]; US Bank N.A. v Weinman, 123 AD3d 1108, 1109 [2014]). Where, as here, a defendant challenges the plaintiff's standing to maintain the action, the plaintiff must also prove its standing as part of its prima facie showing (see HSBC Bank USA, N.A. v Roumiantseva, 130 AD3d 983 [2015]; HSBC Bank USA, N.A. v Baptiste, 128 AD3d 773, 774 [2015]; Plaza Equities, LLC v Lamberti, 118 AD3d 688, 689 [2014])." LNV Corp. v Francois, 134 AD3d 1071, 1071—72 [2d Dept 2015].

"[A] plaintiff has standing where 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. (Bank of NY v. Silverberg, 86 AD3d 274, 279 [2nd Dept. 2011], U.S. Bank N.A. v. Cange, 96 AD3d 825, [*3]826[2d Dept. 2012]; U.S. Bank, N.A. v. Collymore, 68 AD3d 752-754 [2d 2009]; Countrywide Home Loans, Inc. v. Gress, 68 AD3d 709[2d Dpt. 2009].) Either a written assignment of the underlying note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation, and the mortgage passes with the debt as an inseparable incident (citations omitted). However, a transfer or assignment of only the mortgage without the debt is a nullity and no interest is acquired by it, since a mortgage is merely security for a debt and cannot exist independently of it (citations omitted). Where...the issue of standing is raised by a defendant, a plaintiff must prove its standing in order to be entitled to relief (citations omitted)." Homecomings Fin., LLC v Guldi, 108 AD3d 506-508[2d Dept. 2013].

In this case, Plaintiff has failed to meet its burden of proof as to standing. Plaintiff attaches an Affidavit of Josh Cantu, who claims to be an employee of Caliber Home Loans, Inc.. He avers that Caliber is a servicer and attorney-in-fact for Plaintiff, U.S. Bank Trust. Mr Cantu alleges he has personally reviewed the business records of Caliber Home Loans, Inc. that relate to this mortgage, and that he has the authority and the capacity to authenticate each and every document from the loan records in Calibers possession. In paragraph 13 of his Affidavit Mr. Cantu swears that the loan records he reviewed, contain the original Note and allonge. However, he then alleges that the original Note was physically delivered on November 18, 2014 to Wells Fargo Bank, NA, as custodian, located at 751 Kasota Avenue, Suite MDC, Minneapolis, Minnesota, 55414. He avers that Wells Fargo Bank, NA, continues to possess the original Note and that the Note can be produced upon request. There is no affidavit from Wells Fargo as to the nature of this 'custodial' relationship, or a date when the Plaintiff originally obtained possession of the note. As such, Plaintiff has not established, prima facie, that they are in possession of the Note.

Plaintiff may also establish standing by showing that the Note has been assigned to them. However, again Plaintiff fails to succeed. Plaintiff includes an assignment of the mortgage from MERS to US Bank Trust, NA which states that it hereby "...assigns a mortgage dated July 26, 2006...together with the Note described in said mortgage...". While at first blush it appears this may be a proper assignment, this fact pattern was considered by the Second Department in 2013 and found to be insufficient when the Court noted,

" Although the mortgage instrument identified MERS as the nominee, and purported to grant MERS the authority to foreclose on the subject property, the mere presence of such language in the mortgage instrument itself cannot overcome the requirement that the foreclosing party be both the holder or assignee of the subject mortgage, and the holder of the underlying note, at the time the action is commenced (citations omitted)." Homecomings Fin., LLC v Guldi, 108 AD3d 506, 508-509 [2d Dept 2013].

Like the facts in Guili, the adjustable rate note in this case specifically identified Home Funds Direct as the Lender and Note Holder. There is no endorsement to MERS on the Note, which would give MERS the authority to assign, nor any information on the Allonge indicating that MERS received an assignment of the Note. Similar to the Homecomings case, Plaintiff has failed to submit any evidence demonstrating that the note was physically delivered to MERS prior to the commencement of the action, or that Home Funds Direct assigned the note to MERS prior to the commencement of the action. In essence there is no evidence indicating that MERS had any right to assign the Note in the mortgage document, "...since MERS could not transfer [*4]that which it did not hold." Homecomings Fin., LLC v Guldi, 108 AD3d 506, 508-509 [2d Dept 2013], (citing UCC 3-201; Matter of International Ribbon Mills [Arjan Ribbons ], 36 NY2d 121, 126, 365 N.Y.S.2d 808, 325 N.E.2d 137; Bank of NY v. Silverberg, 86 AD3d at 282, 926 N.Y.S.2d 532).

Furthermore, the affidavit from the Plaintiff's servicing agent, which stated that the note was delivered to Wells Fargo, as custodian of records for the plaintiff, is insufficient to demonstrate that the Plaintiff commencing the action, had standing, by possession, to do so at the time of the filing of the summons and complaint. (see Wells Fargo Bank, N.A. v. Marchione, 69 AD3d 204 [2d Dept. 2009]). The affidavit did not give factual details as to the physical delivery of the note and thus, is insufficient to establish that the plaintiff had physical possession of the note at any time. The Court also notes that the note is endorsed in blank so there should be a contract or affidavit describing the relationship between Wells Fargo and Plaintiff describing who owns the note. "[A] promissory note [is] a negotiable instrument within the meaning of the Uniform Commercial Code" (Mortgage Elec. Registration Sys., Inc. v. Coakley, 41 AD3d 674, 674, 838 N.Y.S.2d 622; see UCC 3—104[2][d] ). A "holder" is "the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession" (UCC 1—201[b][21]; see UCC 3—301 ["The holder of an instrument whether or not he is the owner may ... enforce payment in his own name"] )." Deutsche Bank Nat. Trust Co. v Brewton, 142 AD3d 683, 684—85 [2d Dept 2016]. Therefore the instrument(note), which is endorsed in blank, may be negotiated by delivery and Wells Fargo Bank, NA now has possession.

As noted above, to be successful on its motion for summary judgment, Plaintiff must show that they have standing as the holder or assignee of the note. Federal Natl. Mtge. Assn. V. Yakaputz II, Inc., 141 AD3d 506 (2nd Dept. 2016). If Plaintiff is establishing standing based upon an affidavit, this document must be in admissible form, (see Midfirst Bank v Agho, 121 AD3d 343, 347 [2d Dept 2014]), and sworn to by someone with actual knowledge. In this case, the affidavit of Mr. Cantu does not indicate that the Plaintiff, US Bank Trust had possession of the note at the commencement of the action. In fact, the affidavit indicates that the note was physically in the possession of Wells Fargo as custodian since November 18, 2014. Moreover, Mr. Cantu is not an employee of Plaintiff or Wells Fargo and therefore can not attest to what is in the possession of the Plaintiff or Wells Fargo. As noted above, the copy of the Note and allonge does not contain any endorsement or date which would support that the Plaintiff had possession when the action was commenced. The affidavits of Caliber's Default Service Officer did not give any factual details of a physical delivery and, thus, failed to establish that the plaintiff had physical possession of the note at the time the action was commenced, and as such Plaintiff is not entitled to summary judgment. (see Wells Fargo Bank, NA v Burke, 125 AD3d 765, 766 [2d Dept 2015]; US Bank N.A. v Faruque, 120 AD3d 575, 577 [2014]; Bank of NY Mellon v Gales, 116 AD3d 723 [2014]). Accordingly, it is hereby

ORDERED that Plaintiff's motion is denied, and it is further

ORDERED that this case is dismissed without prejudice, pursuant to CPLR §3212(b). The Court has reviewed the papers submitted and finds that upon these papers, Plaintiff has not demonstrated standing to bring this action. There was no evidence to establish that the original lender, Home Funds Direct assigned, or physically delivered, the note to US Bank Trust prior to [*5]the commencement of the action, which would create a triable issue of fact. (See generally Homecomings Fin., LLC v Guldi, 108 AD3d 506, 509 [2d Dept 2013].)

The foregoing constitutes the Decision and Order of this Court.

In light of the above, Plaintiff's other requests for relief are denied as well.

Dated: February 14, 2017

Goshen, New York

ENTER:

_____________________________________

HON. MARIA S. VAZQUEZ-DOLES, J.S.C.