REVERSE MORTGAGE SOLUTIONS, INC., corporations, if any, having or claiming an interest in or lien upon the premises being foreclosed herein, Plaintiff, v. Marie C. LANFRIT a/k/A Marie Lanfrit, the Secretary of Housing and Urban Development, New York State Department of Taxation and Finance, “John Doe No.1–5” and “Jane Doe # 1–5” said names being fictitious, it being the intention of Plaintiff to designate any and all occupants, tenants, persons or corporations, if any, having or claiming an interest in or lien upon the premises being foreclosed herein, Defendants.
Upon the following papers electronically filed and read on this motion for order of reference and appointment of a referee to compute (Seq.# 001); Notice of Motion/ Order to Show Cause and supporting papers (Doc. # 18–22); and upon the following papers numbered 1 to 33 read on this motion for leave to serve and file a late answer and vacate the default (Seq.# 002); Notice of Motion/Order to Show Cause and supporting papers 1–20; Answering Affidavits and supporting papers 21–33; it is,
ORDERED that plaintiff's motion for order of reference appointing a referee to compute (seq.# 001) is denied; and it is further
ORDERED that defendant's motion for leave to serve and file a late answer and vacate her default (seq.# 002) is granted; and it is further
ORDERED that defendant's proposed answer is deemed served and filed as of the date of this order; and it is further
ORDERED that this action shall be calendared for a status conference on Wednesday, January 11, 2018 at 9:30 AM in Part 27 for the court to monitor the progress of this action.
This is an action to foreclose a reverse mortgage on property known as 46 Babylon Avenue, West Islip, Suffolk County, New York (“the property”). The action was commenced by filing of a summons and complaint on November 12, 2015. Defendant Marie C. Lanfrit a/k/a Marie Lanfrit (“defendant”) was personally served at the property on November 18, 2015. Defendant did not answer or appear.
The Court's records indicate that a foreclosure settlement conference was scheduled for March 11, 2016. Since the action involves a reverse mortgage it was marked not eligible for conference and referred to an IAS part. The action was administratively transferred to the general inventory of this part on June 12, 2017 pursuant to Administrative Order 76–17.
Reverse Mortgage Solutions, Inc. (“plaintiff”) moves for an order of reference fixing the default of all non-appearing, non-answering defendants, for appointment of a referee to compute, and to amend the caption (Seq.# 001). Pro se defendant Marie C. Lanfrit a/k/a Marie Lanfrit (“defendant”) does not oppose the motion but files a motion for leave to serve and file a late answer and vacate her default (Seq.# 002). Plaintiff opposes defendant's motion.
Although defendant's motion was not denominated a cross-motion, for purposes of simplicity and clarity the court consolidates both motion for this decision.
In determining the motions the court has considered plaintiff's submissions in support of its motion (Seq.# 001) consisting of the affirmation of counsel and attached exhibits, including the affidavit of merit of a representative of plaintiff, the pleadings, note, mortgage and assignment of mortgage, the notice of default pursuant to the mortgage, affidavits of service of the summons and complaint, an affidavit of service of the motion and a proposed order appointing a referee to compute. The court has also considered defendant's submissions in support of her motion for leave to serve and file a late answer and vacate her default (Seq.# 002) including defendant's affidavit in support and proposed answer. Plaintiff submits the affirmation of counsel in opposition to defendant's motion with supporting exhibits.
STATEMENT OF FACTS
On June 2, 2010 defendant executed a fixed rate note in favor of Genworth Financial Home Equity Access, Inc. agreeing to pay the sum of $562,50.00 plus interest, at the same time defendant executed a fixed rate home equity conversion mortgage, more commonly referred to as a reverse mortgage, on the property to secure the note. Thereafter the mortgage and note were transferred by assignment dated May 16, 2011, from Genworth Financial Home Equity Access, Inc. to plaintiff, and recorded in the Suffolk County Clerk's Office on June 8, 2011. The mortgage and note were subsequently assigned by Genworth Financial Home Equity Access, Inc. to plaintiff pursuant to Confirmatory Assignment dated June 7, 2011 and recorded on June 13, 2011, and thereafter subject of a Corrective Assignment dated October 13, 2015, and recorded on October 30, 2015.
Pursuant tot he terms of the mortgage, defendant was required to pay property taxes and home insurance, failure to do so would be grounds for acceleration of the debt (paragraph 9(b)(ii) of the mortgage, see plaintiff's Exhibit “G”). Defendant allegedly failed to pay the property taxes and home insurance commencing with those payments due on December 30, 2013. Pursuant to the terms of the reverse mortgage plaintiff allegedly notified defendant of the default and the amount necessary to cure the default. In support plaintiff submits a copy of the default notice, dated June 17, 2015, addressed to defendant at the property. Plaintiff did not provide proof of notice to the Secretary of Housing and Urban Development (“Secretary”), nor did it submit proof of authorization by the Secretary to proceed with this action (paragraphs 3, 9(b) and 9(d) of the mortgage).
Reverse mortgages are designed to allow elderly homeowners to borrow money against the accumulated equity in their homes and, unlike traditional mortgages, the borrower in a reverse mortgage receives periodic payments (or a lump sum) and need not repay the outstanding loan balance until certain triggering events occur (see Bennett v. Donovan, 703 F3d 582, 584–585 [D.C.Cir.2013] ). While the triggering event is generally the death of the borrower or the sale of the home, repayment can be triggered when, an obligation of the mortgage is not performed and the Secretary of Housing and Urban Development approves of requiring immediate payment in full (24 CFR 206.27[c][iii] )(emphasis supplied)(see also paragraphs 9(b) and (d) of the mortgage).
PLAINTIFF FAILS TO ESTABLISH PRIMA FACIE CASE
On a motion for leave to enter a default judgment, the movant is required to submit proof of service of the summons and complaint, proof of the facts constituting the claim, and proof of the defaulting party's default in answering or appearing (CPLR 3215[f]; see Dupps v. Betancourt, 99 AD3d 855 [2d Dept 2012]; Green Tree Serv., LLC v. Cary, 106 AD3d 691[2d Dept 2013] ). In the present case plaintiff has failed to meet its burden in establishing its prima facie case. Pursuant to the terms of the loan documents defendant agreed to pay all property charges including, but not limited to, taxes, ground rents, flood and hazard insurance premiums. Failure to make such payments is grounds for acceleration of the debt. However, pursuant to the same loan documents, plaintiff may only accelerate the debt upon approval of the Secretary after notice to the borrower and the Secretary of the default (see paragraphs 9(b) and (d) of the mortgage) (emphasis supplied). Plaintiff failed to establish prima facie entitlement to default judgment since it failed to submit proof of defendant's default in paying property taxes and home insurance, and further plaintiff failed to submit proof it notified the Secretary of the default, and obtained approval from the Secretary to accelerate the debt and commence the action.
Pursuant to CPLR 3215(f) a party moving for default must submit proof of the facts constituting the claim. Here the only proof that defendant defaulted under the terms of the mortgage is the conclusory statement in the affidavit of Michele Mullican, plaintiff's Foreclosure Specialist, wherein she states that she reviewed plaintiff's business records and prior to commencement of the action defendant “failed to pay the property taxes and home insurance.” Plaintiff fails to provide the date of the missed payments, the amount of any missed payments, or the entity that was supposed to be paid. In a motion for default judgment a plaintiff must establish enough facts to enable a court to determine that a viable cause of action exists (Woodson v. Mendon Leasing Corp., 100 N.Y.2d 62  ). In order to sustain this burden, a plaintiff must submit evidence from one with personal knowledge of the relevant facts constituting the claim (see HSBC Bank USA, N.A. v. Betts, 67 AD3d 735 [2d Dept 2009] ). The affidavit of plaintiff's foreclosure specialist, purportedly based on personal knowledge, is the only proof offered to prove defendant's alleged default in payment of the property taxes and home insurance. As plaintiff is not the taxing authority or insurer one questions how its Foreclosure Specialist can testify as to the default and the amounts due. If those amounts have been advanced by plaintiff on defendant's behalf there is no evidence before the court as to that fact, even if the affiant establishes her ability to testify pursuant to CPLR 4518(a), she does not state that the records show plaintiff advanced these monies, only that they were not paid. Further, failure of payment would be in the business records of another entity, making the testimony of plaintiff's Foreclosure Specialist inadmissible hearsay. Additionally, the court notes an inconsistency in the documents submitted in support of plaintiff's motion. Specifically the default notice dated June 17, 2015, indicates an “accelerated loan balance” of $327,568.45, while the affidavit of merit refers to the “total principal” of $300,057.30 due as of December 30, 2013.
Unlike a traditional mortgage foreclosure action based upon defendant's failure to make payments to plaintiff, in which a plaintiff's affidavit can sufficiently establish those facts, the present case involves a reverse mortgage and allegations that defendant failed to make payments to third-parties. Yet plaintiff offers only the conclusory statement of its foreclosure specialist as proof that defendant defaulted in paying the taxes and insurance. Having failed to submit proof in evidentiary form to establish the default, plaintiff failed to meet its burden.
Plaintiff also failed to meet its contractual obligations under the note. Pursuant to the note and mortgage plaintiff was required to notify both the defendant and the Secretary of the default, and obtain approval from the Secretary prior to accelerating the loan and commencing the action (paragraphs 9(b) and (d) of the mortgage; 24 CFR § 206.27[c][iii] ). Although the motion includes a copy of the default notice purportedly sent to defendant (the adequacy of which is not addressed at this time) there is no proof that notice was sent to the Secretary. Further, as previously stated, plaintiff failed to provide proof that it obtained approval of the Secretary prior to accelerating the loan and commencing the action. Therefore plaintiff failed to establish prima facie entitlement to an order of reference (see OneWest Bank v. Smith, 135 AD3d 1063 [3d Dept 2016] ).
Finally, reverse mortgage loans in New York must conform to the requirements of New York Real Property Law (“RPL”)(see 3 NYCRR 79.9[a]  ). RPL § 280 governs reverse mortgage loans to persons 60 years of age or older and RPL § 280–a governs those loans to persons 70 years of age or older. Among the regulations governing the termination of reverse mortgages is the following provision:
in the event that an authorized lender or holder of the reverse mortgage loan intends to initiate foreclosure proceedings the mortgagor shall have the right to designate a third party who shall be notified. In the event that the mortgagor has not designated a third party to receive such notice of foreclosure, then the authorized lender or the holder of said reverse mortgage loan shall notify the local or county office for the aging of its intent to commence foreclosure proceedings. Such entity shall take appropriate action to protect the interests of the mortgagor;
RPL § 280(2)(f) and RPL § 280–a (2)(m).
Plaintiff's submission provides no proof that it notified defendant's designated third party, or the local or county office for the aging, of its intent to commence foreclosure proceedings as mandated by New York's Real Property Law, therefore plaintiff's motion must be denied.
A defendant who has failed to timely appear or answer the complaint must provide a reasonable excuse for the default and demonstrate a meritorious defense to the action when moving to extend the time to answer or to compel the acceptance of an untimely answer (CPLR 5015(a)(I); CPLR 3012(d); see Maspeth Fed. Sav. & Loan Assn. v. McGown, 77 AD3d 890 [2d Dept 2010]; Karalis v. New Dimensions HR, Inc., 105 AD3d 707 [2d Dept 2013]; Midfirst Bank v. Al–Rahman, 81 AD3d 797 [2d Dept 2011] ). This standard governs applications made both prior and subsequent to a formal fixing of a default on the part of the defendants by the court (see Bank of New York v. Espejo, 92 AD3d 707 [2d Dept 2012]; Integon Natl. Ins. Co. v. Norterile, 88 AD3d 654 [2d Dept 2011] ). The determination as to what constitutes a reasonable excuse lies within the sound discretion of the trial court (see Segovia v. Delcon Constr. Corp., 43 AD3d 1143 [2d Dept 2007]; Matter of Gambardella v. Ortov Light., 278 A.D.2d 494 [2d Dept 2000] ). Whether there is a reasonable excuse for default is a discretionary, sui generis determination based on all relevant facts including the length of delay, prejudice to the opposing party, whether there has been willfulness, and the strong public policy in favor of resolving cases on the merits (Fried v. Jacob Holding, Inc., 110 AD3d 56 [2d Dept 2013]; quoting Harcztark v. Drive Variety, Inc., 21 AD3d 876 [2d Dept 2005] ).
Here, defendant states she was unaware she needed to file an answer, that she has been trying to resolve the matter, that she is elderly and the process has “taken a toll” on her. While the court recognizes a defendant's claim that it was unaware they had to serve an answer has been deemed an insufficient excuse (see Chase Home Fin., LLC v. Minott, 115 AD3d 634 [2d Dept 2014]; US Bank Natl. Assn. v. Ahmed, 137 AD3d 1106 [2d Dept 2016] ), those cases involved traditional mortgages, not a reverse mortgage such as defendant's.
The unique facts of this action require a deeper review. The purpose of reverse mortgages is to create a program to “meet the special needs of elderly homeowners by reducing the effect of the economic hardship caused by the increasing costs of meeting health, housing, and subsistence needs at a time of reduced income, through the insurance of home equity conversion mortgages to permit the conversion of a portion of accumulated home equity into liquid assets” (12 U.S.C.A. § 1715z–20). Both federal and state law include mandatory notification provisions and approvals when an action involves a reverse mortgage. In the present case defendant was personally served with the summons and complaint on November 18, 2015. Although defendant did not file an answer, she filed her motion to vacate the default within weeks of being served with plaintiff's motion. The court has taken all of the unique facts and circumstances of this action into consideration and determined plaintiff would not be prejudiced by vacatur of the default, the strong public policy in favor of resolving a case on the merits, the purposes and principles underlying reverse mortgages, coupled with plaintiff's failure to notify those entities tasked with protecting the interests of elderly mortgagors involved in reverse mortgage programs, and deems defendant's excuse reasonable under the unique circumstance of the case. The court cannot allow those safeguards, which were intentionally placed on the “reverse mortgage process” by government to ensure the elderly mortgagors are protected, to be ignored.
Having established a reasonable excuse for her default the court next turns to whether defendant has demonstrated a meritorious defense. In the proposed answer annexed to her motion, defendant raises numerous defenses to the action including, inter alia, failure to comply with the notice of default and failure to comply with reverse mortgage notice requirements (RPL 280; 280–a; 3 NYCRR § 79.9[a] ). As the court has previously established plaintiff failed to establish compliance with the default provision in the mortgage since it did not submit proof that the default notice was served on the Secretary, and plaintiff submits no proof of compliance with the reverse mortgage notice requirements in New York's Real Property Law, defendant has demonstrated a meritorious defense. Defendant's remaining defenses are not addressed at this juncture.
Accordingly, for the foregoing reasons plaintiff's motion for order of reference is denied, and defendant's motion for leave to serve and file a late answer and vacate her default is granted, and her answer is deemed served as of the date of this order.
This constitutes the Order and decision of the Court.
ROBERT F. QUINLAN, J.