BANK OF AMERICA v. BARNETT (2025)

DECISION & ORDER

In an action to foreclose a mortgage, the defendants June Barnett and Donovan Whyte appeal from an order and judgment of foreclosure and sale (one paper) of the Supreme Court, Westchester County (Linda S. Jamieson, J.), dated May 31, 2018.  The order and judgment of foreclosure and sale, upon an order of the same court dated April 5, 2017, inter alia, granting those branches of the plaintiff's motion which were for summary judgment on the complaint insofar as asserted against the defendants June Barnett and Donovan Whyte and for an order of reference, granted the plaintiff's motion to confirm a referee's report and for a judgment of foreclosure and sale, confirmed the referee's report, and directed the sale of the subject property.

ORDERED that the order and judgment of foreclosure and sale is reversed, on the law, with costs, the plaintiff's motion to confirm the referee's report and for a judgment of foreclosure and sale is denied, the referee's report is rejected, and the matter is remitted to the Supreme Court, Westchester County, for a new report computing the amount due to the plaintiff, followed by further proceedings in accordance with CPLR 4403 and the entry of an appropriate amended judgment thereafter.

In April 2014, the plaintiff commenced this action against the defendants June Barnett and Donovan Whyte (hereinafter together the defendants), among others, to foreclose a mortgage on certain real property located in Mount Vernon.  The plaintiff moved, inter alia, for summary judgment on the complaint insofar as asserted against the defendants, to strike the defendants’ answers, and for an order of reference.  The defendants opposed the motion.  By order dated April 5, 2017, the Supreme Court granted the plaintiff's motion and appointed a referee to compute the amount due to the plaintiff.

Thereafter, the plaintiff moved to confirm the referee's report and for a judgment of foreclosure and sale.  The defendants opposed the motion.  By order and judgment of foreclosure and sale dated May 31, 2018, the Supreme Court granted the plaintiff's motion, confirmed the referee's report, and directed the sale of the subject property.  The defendants appeal.

RPAPL 1304(1) provides that “at least ninety days before a lender, an assignee or a mortgage loan servicer commences legal action against the borrower, ․ including mortgage foreclosure, such lender, assignee or mortgage loan servicer shall give notice to the borrower.”  “Strict compliance with RPAPL 1304 notice to the borrower or borrowers is a condition precedent to the commencement of a foreclosure action, and the plaintiff has the burden of establishing satisfaction of this condition” (U.S. Bank N.A. v. Gordon, 202 A.D.3d 872, 874, 162 N.Y.S.3d 447 [citations and internal quotation marks omitted]).

RPAPL 1304(2) provides, in relevant part, that “[t]he notices required by this section shall contain a current list of at least five housing counseling agencies serving the county where the property is located from the most recent listing available from [the] department of financial services.  The list shall include the counseling agencies’ last known addresses and telephone numbers.  The department of financial services shall make available on its websites a listing, by county, of such agencies.  The lender, assignee or mortgage loan servicer shall use such lists to meet the requirements of this section.”

CPLR 2001 provides that “[a]t any stage of an action, ․ the court may permit a mistake, omission, defect or irregularity ․ to be corrected, upon such terms as may be just, or, if a substantial right of a party is not prejudiced, the mistake, omission, defect or irregularity shall be disregarded.”  Here, where all five counseling agencies listed served the county in which the property was located, but one mistakenly listed the wrong county, and where the correct phone number and zip code were listed with respect to that agency, no substantial right of the defendants was prejudiced, and the Supreme Court properly disregarded the mistake pursuant to CPLR 2001 (cf.  Aurora Loan Servs., LLC v. Weisblum, 85 A.D.3d 95, 99–100, 923 N.Y.S.2d 609;  U.S. Bank N.A. v. Gordon, 202 A.D.3d at 874, 162 N.Y.S.3d 447).

Generally, a plaintiff moving for summary judgment in a mortgage foreclosure action establishes its prima facie case through the production of the mortgage, the unpaid note, and evidence of default (see Lakeview Loan Servicing, LLC v. Swanson, 231 A.D.3d 801, 802, 220 N.Y.S.3d 356;  HSBC Bank USA, NA v. Thoppil, 227 A.D.3d 1056, 1057, 212 N.Y.S.3d 422).  Where, as here, the plaintiff's standing has been placed into issue by the defendants, the plaintiff also must prove its standing in order to be entitled to relief (see Lakeview Loan Servicing, LLC v. Swanson, 231 A.D.3d at 802–803, 220 N.Y.S.3d 356;  HSBC Bank USA, NA v. Thoppil, 227 A.D.3d at 1057, 212 N.Y.S.3d 422).  A plaintiff in a mortgage foreclosure action has standing where it is the holder or assignee of the underlying note at the time the action is commenced (see Aurora Loan Servs., LLC v. Taylor, 25 N.Y.3d 355, 361, 12 N.Y.S.3d 612, 34 N.E.3d 363;  HSBC Bank USA, NA v. Thoppil, 227 A.D.3d at 1057, 212 N.Y.S.3d 422).  “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” (HSBC Bank USA, NA v. Thoppil, 227 A.D.3d at 1057, 212 N.Y.S.3d 422 [internal quotation marks omitted];  see U.S. Bank N.A. v. Haber, 230 A.D.3d 530, 532, 216 N.Y.S.3d 257).  “A ‘holder’ is the person ‘in possession of a negotiable instrument that is payable either to the bearer or to an identified person that is the person in possession’ ” (Ocwen Loan Servicing, LLC v. Schacker, 185 A.D.3d 1041, 1043, 129 N.Y.S.3d 91, quoting UCC 1–201[b][21][A];  see Deutsche Bank Natl. Trust Co. v. Smartenko, 199 A.D.3d 643, 644–645, 156 N.Y.S.3d 389).

Here, the plaintiff established, prima facie, that it had standing by demonstrating that it was in physical possession of the note with an allonge specially endorsing the note to it, which was annexed to the summons and complaint at the time the action was commenced (see Lakeview Loan Servicing, LLC v. Swanson, 231 A.D.3d at 803, 220 N.Y.S.3d 356;  Freedom Mtge. Corp. v. King, 215 A.D.3d 923, 925, 189 N.Y.S.3d 201).

In opposition to the plaintiff's prima facie showing of standing, the defendants failed to raise a triable issue of fact.  Since the mortgage “passes with the debt as an inseparable incident” (U.S. Bank, N.A. v. Collymore, 68 A.D.3d 752, 754, 890 N.Y.S.2d 578;  see Aurora Loan Servs., LLC v. Taylor, 25 N.Y.3d at 362, 12 N.Y.S.3d 612, 34 N.E.3d 363), the validity of an assignment of the mortgage is irrelevant to the issue of standing (see Aurora Loan Servs., LLC v. Taylor, 25 N.Y.3d at 362, 12 N.Y.S.3d 612, 34 N.E.3d 363;  Deutsche Bank Natl. Trust Co. v. Smartenko, 199 A.D.3d at 645, 156 N.Y.S.3d 389).

Nevertheless, the Supreme Court erred in granting the plaintiff's motion to confirm the referee's report and for a judgment of foreclosure and sale, as the referee's computation of the amount due to the plaintiff was not substantially supported by the record.  “The report of a referee should be confirmed whenever the findings are substantially supported by the record and the referee has clearly defined the issues and resolved matters of credibility” (Bank of N.Y. Mellon v. Glasgow, 232 A.D.3d 754, 755, 223 N.Y.S.3d 115;  see U.S. Bank N.A. v. Jong Shin, 224 A.D.3d 933, 936, 207 N.Y.S.3d 88).  “ ‘The referee's findings and recommendations are advisory only and have no binding effect on the court, which remains the ultimate arbiter of the dispute’ ” (IndyMac Fed. Bank, FSB v. Vantassell, 187 A.D.3d 725, 726, 133 N.Y.S.3d 93, quoting Citimortgage, Inc. v. Kidd, 148 A.D.3d 767, 768, 49 N.Y.S.3d 482).

“[A] proper foundation for the admission of a business record must be provided by someone with personal knowledge of the maker's business practices and procedures” (Federal Natl. Mtge. Assn. v. Marlin, 168 A.D.3d 679, 681, 91 N.Y.S.3d 262 [internal quotation marks omitted];  see IndyMac Fed. Bank, FSB v. Vantassell, 187 A.D.3d at 727, 133 N.Y.S.3d 93).  Moreover, “[c]omputations based upon a review of unidentified and unproduced business records, ․ constitute inadmissible hearsay and lack probative value” (Bank of N.Y. Mellon v. Glasgow, 232 A.D.3d at 755, 223 N.Y.S.3d 115;  see U.S. Bank N.A. v. Jong Shin, 224 A.D.3d at 936, 207 N.Y.S.3d 88).

Here, the referee relied on an affidavit of Tom Croft, an “SVP of default” of Carrington Mortgage Services, LLC, attorney-in-fact for the plaintiff.  Croft's affidavit was insufficient to establish a proper foundation for the admission of a business record pursuant to CPLR 4518(a), because he failed to attest that he was personally familiar with the record-keeping practices and procedures of his employer or the plaintiff (see IndyMac Fed. Bank, FSB v. Vantassell, 187 A.D.3d at 727, 133 N.Y.S.3d 93).  Moreover, Croft's computations were “based upon a review of unidentified and unproduced business records” and, consequently, “constitute[d] inadmissible hearsay and lack[ed] probative value” (Bank of N.Y. Mellon v. Glasgow, 232 A.D.3d at 755, 223 N.Y.S.3d 115) on that additional ground.  The error in relying on Croft's hearsay evidence was not harmless, as, contrary to the plaintiff's contention, the referee's determination is not substantially supported by any admissible evidence in the record (see IndyMac Fed. Bank, FSB v. Vantassell, 187 A.D.3d at 727, 133 N.Y.S.3d 93;  cf.  U.S. Bank N.A. v. Kaur, 177 A.D.3d 1016, 1018, 113 N.Y.S.3d 169).

Accordingly, the Supreme Court should have denied the plaintiff's motion to confirm the referee's report and for a judgment of foreclosure and sale, and we remit the matter to the Supreme Court, Westchester County, for a new report computing the amount due to the plaintiff, followed by further proceedings in accordance with CPLR 4403 and the entry of an appropriate amended judgment thereafter.

DILLON, J.P., CONNOLLY, LANDICINO and MCCORMACK, JJ., concur.