EAST FORK FUNDING LLC v. DEUTSCHE BANK NATIONAL TRUST COMPANY AS TRUSTEE FOR CERTIFICATE HOLDERS FOR ARGENT SECURITIES INC ASSET BACKED CERTIFICATES SERIES 2006 (2024)

MEMORANDUM DECISION AND ORDER

This is a quiet title action, in which the current titleholder of a condominium unit, which it acquired at a foreclosure sale, seeks a declaration that a pre-existing mortgage on the property is not enforceable because the time to commence an action to foreclose on that pre-existing mortgage has lapsed. It has not lapsed, because at all relevant times, the pre-existing mortgagee already had a foreclosure action pending. The mortgagee brought a foreclosure action prior to plaintiff's purchase of the unit, and although that foreclosure action was dismissed after plaintiff purchased the unit, the dismissal was vacated and the mortgagee successfully foreclosed. Accordingly, defendant's motion to dismiss is granted and plaintiff's motion for summary judgment is denied.

BACKGROUND

The case concerns a condominium on Staten Island formerly owned by one Pamela Palermo (the “Premises”). She granted a mortgage on the Premises in favor of a lender, Argent Mortgage Company (“Argent”). Argent securitized its assets, including the mortgage, and defendant Deutsche Bank was appointed as trustee for Argent's asset-backed securities.

Sometime in or before 2009, the mortgage went into default. Deutsche Bank, as trustee, commenced a foreclosure action on the Premises (the “DB Foreclosure Action”) in state court. The DB Foreclosure Action named Palermo, a trade creditor lienholder against Palermo (“Orlando”), and the Board of Managers of Wellington at Essex Park Condominium 1 (the “Condo Board”), as defendants.

In 2013, the Condo Board commenced its own, separate foreclosure action against Palermo for failure to pay maintenance fees or dues. It named Palermo, Orlando, and the NYC Parking Violations Bureau as defendants. It is not clear why the Condo Board did not join Deutsche Bank as a defendant in this action, since, at that time, Deutsche Bank's notice of pendency against the property had not yet expired (it did in 2015).

The Condo Board Foreclosure Action went to judgment in or about 2015, and plaintiff East Fork, a purchaser and seller of distressed mortgages and real estate, was the successful bidder at a public auction in 2016. East Fork thereby became titleholder to the Premises.

In 2018, the state court in the DB Foreclosure Action dismissed that case sua sponte without prejudice because Deutsche Bank had “taken no action since November 10, 2011.”

Neither East Fork nor Deutsche Bank took any further action concerning their respective positions until East Fork commenced this quiet title action in 2021. East Fork's theory of the case was that Deutsche Bank's six-year statute of limitations had begun to run in 2009 when it accelerated the mortgage debt by commencing the DB Foreclosure Action, and when the state court dismissed that action in 2018 – nine years after Deutsche Bank accelerated its debt – it could no longer seek to foreclose its mortgage.

But events subsequent to East Fork's commencement of this quiet title action have left its theory behind. In October 2021, two months after East Fork commenced this action (and, no doubt, in response to it), Deutsche Bank returned to state court and moved to vacate the 2018 dismissal. It argued that the state court had not complied with the requirements of the C.P.L.R. to dismiss a case for non-prosecution and had no inherent authority to do so outside the requirements of the C.P.L.R. Deutsche Bank did not serve East Fork with a copy of its motion to vacate, purportedly on the ground that East Fork was not a party to the DB Foreclosure Action. Deutsche Bank's motion to vacate went unopposed, and the state court granted the motion, which vacated the 2018 dismissal of the DB Foreclosure Action and restored the action and the notices of pendency therein. Deutsche Bank served a copy of the November restoration order on East Fork the same day.

On February 23, 2022, Deutsche Bank moved for a judgment of foreclosure and sale in the DB Foreclosure Action. East Fork did not seek to intervene in the restored DB Foreclosure Action to prevent the sale. The state court granted Deutsche Bank's motion on September 22, 2022. Deutsche Bank purchased the Premises at a foreclosure sale on March 23, 2023. The DB Foreclosure Action is therefore over.

On November 17, 2023, Deutsche Bank filed a new action in state court for strict foreclosure, naming East Fork as the only defendant. That process allows a senior interest holder in real estate to extinguish the interest of a junior holder. Deutsche Bank contends that it is senior to East Fork because Deutsche Bank's mortgage dates back to 2005 and East Fork's titled ownership was not acquired until 2016.

Where all of this leaves us is that there are two pending actions which can result in a determination of whether Deutsche Bank or East Fork has the superior interest in the Premises. The first is this one, where East Fork seeks to quiet title to prevent Deutsche Bank from enforcing its mortgage. The second is Deutsche Bank's pending strict foreclosure action in state court, where it seeks to determine that any interest East Fork has is void or secondary to Deutsche Bank's interest.

DISCUSSION

Despite the procedurally complex history of this case, the legal issues are not complicated. The section of the New York Real Property Actions and Proceedings Law that supersedes the former equitable quiet title action states:

Where the period allowed by the applicable statute of limitation for the commencement of an action to foreclose a mortgage ․ has expired, any person having an estate or interest in the real property subject to such encumbrance may maintain an action against any other person or persons ․ to secure the cancellation and discharge of record of such encumbrance, and to adjudge the estate or interest of the plaintiff in such real property to be free therefrom ․.

N.Y. Real Prop. Acts. § 1501(4). East Fork's argument is straightforward: Deutsche Bank's statute of limitations to bring a foreclosure action began in 2009 when, by commencing its foreclosure action, it accelerated its debt. See Avail Holding LLC v. Ramos, No. 19-cv-117, 2019 WL 6498170, at *2-3 (E.D.N.Y. Dec. 9, 2019), aff'd, 820 F. App'x 83 (2d Cir. 2020). The statute of limitations to commence a mortgage foreclosure action is six years. N.Y. C.P.L.R. § 213(4). Therefore, East Fork argues, it became eligible to commence a quiet title action in 2015.

This argument is terribly flawed. Most fundamentally, it is premised on cases where a dismissed mortgage foreclosure action was followed by a fresh mortgage foreclosure action. See Avail Holding, 2019 WL 6498170, at *1. Courts understandably reject the notion that the first foreclosure action, even if timely, effects a toll of the statute of limitations, as that would allow “stacking” of multiple foreclosure actions with only the “gap” period between them counting towards the statute of limitations. See, e.g., Costa v. Deutsche Bank Nat'l Trust Co., 247 F. Supp. 3d 329, 335, 345-46, 353 (S.D.N.Y. 2017) (mortgagor's quiet title action was appropriate where first foreclosure action was dismissed and mortgagee reasserted new foreclosure counterclaim in that action).

But that is not what happened in this case. There is and has been only one DB Foreclosure Action. It commenced in 2009, and it continued until Deutsche Bank foreclosed upon the Premises in 2023. Reading N.Y. Real Prop. Acts. § 1501(4) as allowing title to be quieted against a mortgagee with a pending foreclosure action would make no sense.

Although East Fork could reasonably rely on the 2018 dismissal of the DB Foreclosure Action at the time it commenced this action in 2021, New York law is clear that those kind of temporary “interruptions” of a single foreclosure action do not give rise to a quiet title action. First, if the mortgage foreclosure action is dismissed but later reinstated, a quiet title action will not lie, even if brought before the reinstatement. See 68 16th Realty, LLC v. Bank of N.Y., 190 A.D.3d 796, 797, 136 N.Y.S.3d 766, 767 (2nd Dep't 2021). Second, even if a mortgage foreclosure action is dismissed, a quiet title action cannot be brought if the time to appeal the dismissal has not expired, even if the mortgagee could have – but had not yet – exercised its right to appeal. See Windward Bora, LLC v. Bank of N.Y. Mellon, No. 19-cv-858, 2020 WL 7042761, at *4 (E.D.N.Y. Nov. 30, 2020). These cases make clear that an opportunistic real estate speculator cannot swoop in during a gap in a foreclosure action and oust a pre-existing interest holder through a quiet title action.

East Fork's remaining arguments are not persuasive. It contends that it is not bound by the sale of the Premises to Deutsche Bank pursuant to its foreclosure judgment because Deutsche Bank did not serve its motion to vacate on East Fork. That is not an issue for this Court, as it does not sit as an appellate court to review state court judgments. The issue for this Court is whether East Fork may maintain a quiet title action under N.Y. Real Prop. Acts. § 1401(4). Perhaps lack of notice of the motion to vacate is something that East Fork can raise in Deutsche Bank's strict foreclosure action in state court, although this Court notes that East Fork did have notice both of the vacatur of the dismissal order, Deutsche Bank's newly-filed notice of pendency, and the sale of the Premises, and yet took no action to prevent that sale. In any event, all that New York requires is the filing of a notice of pendency 20 days before the entry of judgment and sale, and it is undisputed that East Fork received that notice. See N.Y. Real Prop. Acts. § 1331 (notes).

This Court will not predict how the parties will ultimately resolve their competing claims to this condominium. It may be that East Fork can seek to vacate the foreclosure sale to Deutsche Bank, or it may be able to successfully defend the strict foreclosure action that is currently pending in state court. I will leave that issue alone. What is clear under New York law is that East Fork may not maintain a quiet title action.

CONCLUSION

East Fork's motion for summary judgment is denied, and Deutsche Bank's motion to dismiss is granted.

SO ORDERED.

COGAN, District Judge.