I General Answer Issues
• Be sure to raise lack of standing as a defense in the homeowner’s answer if the plaintiff’s ownership of the note and mortgage is questionable. Standing/capacity to sue may be waived if not raised in the answer.
• Late Answers:
• Pro se homeowners often do not file answers and do not seek attorneys until they receive notice of the settlement conference. In these circumstances, homeowner attorneys should serve and file a late answer. If the plaintiff rejects the answer, file a motion to compel acceptance of the late answer.
• A court may permit a defendant to file a late answer “upon a showing of reasonable excuse for delay or default.” CPLR § 3012(d); Cirillo v.Macy’s, Inc., 61 A.D.3d 538, 540, 877 N.Y.S.2d 281, 283 (1st Dep’t 2009).
• Mortgagor’s belief that foreclosure action was stayed during ongoing settlement negotiations with mortgagee was reasonable excuse for filing late answer. HSBC Bank USA, N.A. v. Cayo, 2011, 34 Misc.3d 850, 934 N.Y.S.2d 792.
• Courts have routinely permitted service of a late answer where the delay was not willful, the defendant has meritorious defenses, and service of the answer does not unfairly prejudice the plaintiff. See, e.g., Nickell v. Pathmark Stores, Inc., 44 A.D.3d 631, 632, 843 N.Y.S.2d 177, 178 (2d Dep’t 2007); Jolkovsky v. Legeman, 32 A.D.3d 418, 419, 819 N.Y.S.2d 561, 562 (2d Dep’t 2006); Watson v. Pollacchi, 32 A.D.3d 565, 565-66, 819 N.Y.S.2d 612, 613 (3d Dep’t 2006); Nason v. Fisher, 309 A.D.2d 526, 526, 765 N.Y.S.2d 32, 33 (1st Dep’t 2003)
• Allowance of a late answer is consistent with New York’s strong public policy in favor of a determination of controversies on the merits. See, e.g., Jones v. 414 Equities LLC, 57 A.D.3d 65, 81, 866 N.Y.S.2d 165, 178 (1st Dep’t 2008);Hosten v. Oladapo, 52 A.D.3d 658, 658-59, 858 N.Y.S.2d 915, 916 (2d Dep’t 2008); Kaiser v. Delaney, 255 A.D.2d 362, 362, 679N.Y.S.2d 686, 687 (2d Dep’t 1998).
Where the defendant has answered but not asserted a standing defense, a motion for leave to amend to assert a standing defense should be granted if such amendment causes no prejudice to plaintiff. U.S. Bank Natl. Assn. v. Sharif, 89 A.D.3d 723, 933 N.Y.S.2d 293, 2011 N.Y. Slip Op. 07835 (2d Dep’t Nov. 1, 2011) (motions for leave to amend should be freely granted absent prejudice or surprise from the delay in seeking leave; reversing denial of leave and holding that trial court should have dismissed for lack of standing upon plaintiff’s failure to submit either written assignment of note or evidence of physical delivery).
• New York law permits reciprocal attorney’s fees for homeowner’s attorney in defending against foreclosure on residential mortgages: RPL § 282.
II. Affirmative Defenses and Counter Claims
A. Standing and Capacity To Sue
• Many documents needed to establish standing were “robo-signed”
• Sloppiness in assigning mortgages to mortgage securitization trusts often makes it difficult for plaintiff trusts (or servicers) to establish standing.
1. The Difference Between Standing and Capacity to Sue
a. Standing Is Jurisdictional
• U.S. Constitution Article III – Case and Controversy Requirement
• Siegel on New York Practice: “It is the law’s policy to allow only an aggrieved person to bring a lawsuit. One not affected by anything a would-be defendant has done or threatens to do ordinarily has no business suing, and a suit of that kind can be dismissed at the threshold for want of jurisdiction without reaching the merits. When one without the requisite grievance does bring suit, and it’s dismissed, the plaintiff is described as lacking “standing to sue” and the dismissal as one for lack of subject matter jurisdiction.”
• “Standing to sue is critical to the proper functioning of the judicial system. It is a threshold issue. If standing is denied, the pathway to the courthouse is blocked. The plaintiff who has standing, however, may cross the threshold and seek judicial redress….The rules governing standing help courts separate the tangible from the abstract or speculative injury, and the genuinely aggrieved from the judicial dilettante or amorphous claimant.” Saratoga County Chamber of Commerce, Inc. v. Pataki, 100 N.Y. 801, 766 N.Y.S.2d 654, 798 N.E.2d 1047 (2003)
• New York courts have treated standing as a common law concept, in contrast to federal approach, where it rests on constitutional and prudential grounds. New York case law tends to blend standing with capacity to sue.
b. Capacity to Sue v. Standing
• Capacity to sue goes to the litigant’s status, i.e., its power to appear and bring its grievance before the court. For example, a foreign corporation or LLC may not bring an action unless it is registered with the Secretary of State; minors lack legal capacity, etc.
• Standing requires an inquiry into whether the litigant has an interest in the claim at issue that the law will recognize as a sufficient predicate for determining the issue at the litigant’s request. Is the relief sought in the case properly sought by this plaintiff?
2. Standing in a Foreclosure Case
• Foreclosing plaintiff must own the note and the mortgage at the inception of the action. Deutsche Bank National Trust Co. v. Barnett, 88, A.D. 3d 636, 931 N.Y.S. 2d 630, 2011 WL 4600619 (2d Dep’t Oct. 4, 2011); Kluge v. Fugazy ,145 A.D. 2d 537, 536 N.Y. S. 2d 92 (2d Dep’t 1988)
• Note: represents contractual debt obligation Mortgage: represents collateral security for debt
• Assignment of the mortgage without assignment of the debt, i.e. the note, is a nullity.
• Assignment must be complete before foreclosure is commenced
• Assignment can be by written assignment or by physical delivery of note and mortgage.
• An indorsed note (to the plaintiff or in blank) is not sufficient: the plaintiff must prove physical delivery before the foreclosure was commenced.
• If a written assignment involved and has a date, the execution date generally controls.
• Back dated assignment are ineffective absent proof of prior physical delivery. Wells Fargo v. Marchione, 69 A.D. 3d 204, 887 N.Y. S. 2d 615 (2d Dep’t 2009)
3. Common Assignment Red Flags in Foreclosure Cases
Assignments that jump over links in the chain of title, including timing.
• Suspicious or contradictory endorsements and allonges.
• Assignments from MERS as nominee
• Robo-signing of assignment documents
• Mortgage-Backed Securities Investment Vehicles: Pooling and Servicing Agreements and non-compliance with trust closing dates and other terms
4. MERS and Standing
• Second Department: assignment from MERS when MERS is designated merely as nominee of lender, and never owned note, is ineffective to confer standing on its assignee.
Bank of New York v. Silverberg, 86 A.D. 3d 274, 926 N.Y.S. 2d 532 (2d Dep’t 2011). See also In re Lippold, 2011 WL 3890540 (SDNY Bkrtcy 2011)(MERS, as assignor, could not legally assign the note as prior holder of note and mortgage only conferred legal rights with respect to the mortgage); In re Agard, 444 B.R. 231 (SDNY Bkrtcy 2011) (mortgage naming MERS as nominee did not authorize it to assign)
• Issues concerning who executes assignments on behalf of MERS (plaintiff’s counsel, robo-signing servicer employees?)
5. Waiver of Standing Defenses
• CPLR 3211(e) only provides that capacity to sue is waived; no mention of standing.
• Wells Fargo Bank v. Mastropaolo, 42 A.D. 3d 239, 837 N.Y.S. 2d 247 (2d Dep’t 2007); HSBC v. Dammond, 59 A.D. 3d 679, 875 N.Y.S. 2d 490, 875 N.Y. S. 2d 490, (2d Dep’t 2009); Countrywide v. Delphonse, 64 A.D. 3d 624, 883 N.Y. S. 2d 135 (2d Dep’t 2009).
• Cf. Security Pacific Nat’l Bank v. Evans, 31 A.D. 2d 278, 820 N.Y.S. 2d 2 (1stDep’t 2006) (plaintiff lender commenced action after merging with anotherbank; lack of legal capacity waived; not an issue of standing)
• Some trial courts have held there is no waiver of standing defense where plaintiff had not appeared or answered altogether. Deutsche Bank v. McRae, 894 N.Y. S. 2d 720 (Allegheny Cty. 2010); Citigroup v. Bowling, 25 Misc. 3d 1244A, 906 N.Y. S. 2d 778 (Kings Cty. 2009).
6.Leave to Amend Answer to Assert Standing Defense
U. S. Bank, Natl. Assn. v. Sharif, 89 A.D. 3d 723,933 N.Y.S. 2d 293, 2011 NY Slip Op 07835 (2d Dep’t Nov. 1, 2011) (reversing denial of leave to amend to assert standing and denial of motion to dismiss for lack of standing where plaintiff demonstrated no prejudice and failed to establish its standing to foreclose). Aurora v. Thomas, 70 A.D. 3d 986, 897 N.Y.S.2d 140 (2d Dep’t 2010) (affirming grant of motion for leave to amend to assert standing and capacity to sue, finding no waiver where documents relied upon were revealed during discovery); HSBC v. Enobakhare, 2010 Slip Op 31925 (U) (Richmond Cty. 2010) (granting motion for leave to amend answer; amended answer could assert defenses that were arguably waived by failure to assert originally)
• Deutsche Bank v. Ramotar, 30 Misc. 3d 1208(A), 2011 WL 66041 (Kings Cty. 2011) (denying summary judgment and order of reference, granting defendant who had previously answered pro se leave to file amended answer asserting standing and robo-signing defenses)
7. Standing as a Meritorious Defense to Vacate Default Judgments/Plaintiff’s Motions for Default/Summary Judgment/Order of Reference and Absence of Standing
• Prima facie case in a foreclosure case requires showing of ownership of note and mortgage. Campaign v. Barba, 23 A.D. 3d 327, 805 N.Y.S. 86 ( 2d Dep’t 2005)
• Distinction between moving to dismiss for lack of standing when defense has arguably been waived and opposition to plaintiff’s motion for summary judgment and order of reference for failure to establish ownership of note (prima facie case)
8. Sua Sponte Dismissals on Standing Grounds/Robo-signing Concerns
• Financial Freedom v. Slinkosky, 28 Misc. 3d 1209(a) (Suffolk Cty. 2010) (denying summary judgment where plaintiff failed to submit note and mortgage and failed to demonstrate standing) HSBC Bank USA, N.A. v Taher, NY Slip Op 51208(U) (Sup. Ct. Kings Cty., July 1, 2011) (denying order of reference, making detailed analysis of robo-signed assignments and affidavits of merit and amounts due, questioning employment histories of individuals who signed papers on behalf of different entities, determining that plaintiff lacked standing to foreclose because, among other reasons, assignment of mortgage from MERS as nominee, which never owned note, was ineffective, and dismissing with prejudice. In light of frivolous motion for order of reference by HSBC and its counsel, court scheduled hearing on sanctions and ordered chief executive officer of HSBC to personally appear at hearing)
9. Standing as Meritorious Defense (for leave to file untimely answer or to vacate default)
• Deutsche Bank National Trust Co. v. Ibaiyo, 20910-08 (Queens Ct. 2009) (meritorious defense criteria for CPLR § 3012 motion to extend defendant’s time to answer)
• Maspeth Federal Av. & Loan Ass’n v. McGown, 77 A.D. 3d 890, 909 N.Y. S. 2d 642 (2d Dep’t 2010) (trial court has considerable discretion on applications to vacate default and extend time to answer when determining existence of meritorious defense and reasonable excuse for default)
10. True Capacity to Sue Issues
• BCL §1372 (prohibits lawsuits by foreign corporations not authorized to do business in NY)
• Exception for foreign banking corporations via BCL § 103(a) and Banking Law § 200(4).
• Sutton Funding LLC v. Parris, 24 Misc. 3d 889, 878 N.Y.S.2d 610 (Kings Cty. 2009) (dismissing foreclosure where plaintiff was not a foreign bank and was not authorized to do business in NY)
B. Federal Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692-1692p
1. Scope of FDCPA Coverage
a. Who is covered
• Applies to debt collectors. § 1692a(6)
• Debt collector is any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts
• For §1692f(6) purposes it also includes any business the principal purpose of which is the enforcement of security interests.
• Or, any person who regularly collects, directly or indirectly, debts owed or due or asserted to be owed or due another.
• Includes debt buyers
• Includes attorneys who regularly collect consumer debts.
• There used to be an exemption for attorneys collecting on behalf of and in the name of a client. In 1986, Congress repealed this exemption.
b. Who is not covered
• Original creditors. § 1692a(6)(F)(ii)
• It does include any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. § 1692a(6)
• Creditors employees or agents collecting in the name of the creditor. § §692a(6)(A)
• State and federal officials performing their duties, such as the IRS or U.S. Dept. of Education. § 1692a(6)(C)
• Persons collecting debts not in default, such as some servicers. §1692a(6)(F)(iii)
• Process servers. §1692a(6)(D)
• At least one court has held that they are covered if they are engaging in sewer service Mel Harris v. Sykes, 757 F.Supp.2d 413 (2010)
c. What transactions are covered Consumer debts
• Consumer is defined in § 1692a(3) as “any natural person obligated or allegedly obligated to pay any debt”
• Does not apply to artificial entities, such as corporations Debts are defined in § 1692a(5) as any obligation of a consumer to pay money
• underlying transaction must be for money, property, insurance, or services
• must be primarily for personal, family or household purposes
• no business debts or fines Communications – § 1692a(2)
• Means the conveying of information regarding a debt directly or indirectly to any person through any medium
• Also applies to statements and activities during the course of litigation. Heintz v. Jenkins , 514 U.S. 291 (1995)
• Recent amendments to FDCPA clarify that a legal pleading
cannot be considered an “initial communication” under FDCPA.
• Note that this is a narrow amendment; other provisions of FDCPA still apply.
2. Substantive Consumer Protections
• Cease communications. § 1692c
• Dispute/verification. § 1692g
• Notice within 5 days of initial communication
• Right to dispute within 30 days of receiving notice
• Once debt collector receives dispute in writing, must stop all debt collection activity (including filing a lawsuit) until it provides “verification” of the debt.
• NOTE: Local NYC law expands these dispute rights. Under local law, consumers can request verification at any time. NYC Admin Code § 20-493.2.
• Verification must include (1) copy of the contract or other agreement creating the obligation to pay (2) copy of final account statement (3) an accounting itemizing the total amount do, specifying principal, interest, and other charges.
For each additional charge, the debt collection must state the date and basis for the charge. See § 2-190 of the Rules of the City of New York.
3. Prohibited Activities
• Communications. §§1692b & 1692c
• Contacting consumer after consumer sends cease communication letter
• Contacting consumer who is represented by counsel
• Contacting third parties about a consumer’s debt
• Contacting consumer at work if debt collector has reason to know that consumer’s employer prohibits such communication
• Common scenario: Debt collector can’t reach consumer, so calls consumer’s neighbor/family member/employer and leaves telephone number and message for the consumer to call back about an important matter. This is a violation.
• Harassment or Abuse. § 1692d
• Debt collector may not engage in conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with collection of debt
• Includes: threats of violence, use of profanity, repeated telephone calls for purpose of harassment, calling without disclosure of identity (e.g. threats to repossess property)
• False or Misleading Representations. § 1692e
• False representation of character, amount, or legal status of any debt (e.g., suing for more interest and fees than is actually owed)
• Threat to take any action that cannot legally be taken or is not intended to be taken
• Implying that consumer could be arrested or children taken away for nonpayment of debt
• Pretending to be attorney, marshal
• Making false or inaccurate reports to credit reporting agencies
• Unfair Practices. § 1692f
• Using unfair or unconscionable means to collect a debt
• Collection of any amount (including interest and fees) that is not actually owed
• Threatening to take or repossess property (a) without the right; (b) without the intent; (c) if property is exempt
4. FDCPA Litigation and Remedies
a. Statute of limitations
• one year from the date on which the violation occurs – § 1692k(d)
• No continuing violations doctrine
• May bring in either state or federal court
• May also bring as a counterclaim in a debt collection suit
• Strict liability statute – proof of the debt collector’s intent is not required
• intent is a factor that can be used when calculating damages
• Courts apply a “least sophisticated consumer” standard to analyze violations
• Up to $1000 statutory damages
• A majority of courts hold that capped at $1,000 per action no matter how many violations are joined in the lawsuit
• Per Plaintiff
• Sometimes per Defendant, depending on the violation
• Factors used by courts in determining statutory awards:
• Intent to commit the violation or evade the protections
• Repetition of the violations
• Timely correction of the violations
• Multiple consumers affected by the violations
• Prior violations by the collector for similar acts
• Actual damages
• Attorney’s fees
• Declaratory relief
• No Injunctive relief
C. NYS Banking Law Defenses
1. Banking Law § 6-l
• Applies to loans made after April 1, 2003.
• Covers “high – cost home loans”: a first lien residential mortgage loan, not exceeding conforming loan size for a comparable dwelling as established by the Federal National Mortgage Association in which (1) the APR exceeds eight percentage points over the yield on Treasury securities having comparable periods of maturity; or (2) total points and fees exceed 5% of the total loan amount, excluding certain bona fide discount points if total loan is $50,000 or more.
• Prohibits, inter alia, (1) lending without regard to a borrower’s ability to repay; (2) points and fees in excess of 3% of the loan; (3) loan flipping; (4) kickbacks to mortgage brokers; (5) points and fees when lender refinances its own high-cost loan; (6) balloon payments, negative amortization, and default interest rates.
• Provides private right of action with 6-year statute of limitations (from origination); actual and statutory damages; attorney fees; possible rescission of the loan.
• Intentional violation may result in voiding of the loan.
2. Banking Law § 6-m
• Covers “sub-prime home loan”: a loan where the fully indexed APR for the first-lien loan exceeds by more than 1.75, or for a subordinate loan by more than 3.75, the average commitment rate for loans in the northeast region with a comparable duration as published in the Freddie Mac Primary Mortgage Market Survey (PMMS) in the week prior to the week in which the lender received a completed loan application.
• Lenders must take reasonable steps to verify that the borrower has the ability to repay the loan, including taxes and insurance.
• Prohibitions similar to those in Banking Law §6-l.
• Lenders must disclose charges for taxes and insurance and must escrow such payments after July 1, 2010.
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