Supreme Court, Rockland County, March 31, 2023

Gross Polowy LLC, Williamsville (Christine L. Fox of counsel), for plaintiff.

Legal Aid Society of Rockland County, Inc., New City (Derek S. Tarson of counsel), for defendants.

The papers filed electronically via NYSCEF (New York State Courts Electronic Filing System) and numbered as documents 70 through 107 were read on (1) plaintiff's motion (a) for summary judgment pursuant to CPLR 3212, (b) to dismiss defendant's affirmative defenses pursuant to CPLR 3211, (c) for appointment of a referee, (d) to amend the caption, and (e) for default judgment against the non-appearing and non-answering defendants pursuant to CPLR 3215; and (2) defendants' cross-motion for (a) summary judgment pursuant to CPLR 3212 (b), and (b) attorney fees pursuant to Real Property Law § 282.

Upon reading the foregoing papers, it is ordered that the motions are disposed as follows.

This is an action to foreclose a home equity conversion mortgage, or a "reverse mortgage" (the mortgage), that secures a home equity conversion adjustable rate note (the note) executed by John J. Fitton and Margaret M. Fitton (the borrowers). On October 26, 2005, the borrowers obtained the mortgage from Financial Freedom Senior Funding Corporation, a subsidiary of IndyMac Bank, F.S.B. The mortgage constitutes a lien on the property located at 11 Spruce Lane, West Nyack, NY{**79 Misc 3d at 542} (the property). John J. Fitton died on October 22, 2011, leaving Margaret M. Fitton as surviving tenant by the entirety. Upon Margaret M. Fitton's death on December 3, 2017, title to the property vested in her estate. Defendants Regina Hendrickson (Hendrickson) and Christopher Fitton (collectively defendants) are the co-executors of the estate of Margaret M. Fitton.

On June 21, 2019, plaintiff commenced this action by filing a notice of pendency and summons and complaint. Plaintiff refiled the notice of pendency on June 13, 2022.

On September 17, 2019, Derek Tarson, Esq., of the Legal Aid Society of Rockland County, Inc., filed a notice of limited appearance to represent Hendrickson in foreclosure settlement conferences only.

On September 25, 2019, Hendrickson, appearing pro se, filed an answer with 14 affirmative defenses, including but not limited to (1) lack of standing; (2) improper service; (3) failure to comply with RPAPL 1304 and 1306 notice requirements; (4) violation of General Business Law § 349; and (5) attorney fees.

Mandatory foreclosure settlement conferences were held on October 7, 2019, December 12, 2019, and January 28, 2020.^[FN1] The case was released from the Foreclosure Settlement Part after the parties failed to reach a settlement at the January 28, 2020 conference. Plaintiff was then permitted to proceed with the foreclosure action.

The action was stayed from March 18, 2020, through July 31, 2021, due to the residential foreclosure moratorium put in place by Congress's passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (15 USC § 9001 et seq., as added by Pub L 116-136, 134 US Stat 281) on March 27, 2020, and the U.S. Department of Housing and Urban Development's extension of the moratorium on May 14, 2020.[*2]

On March 9, 2021, Mr. Tarson filed a notice of appearance to represent defendants in the action. The parties subsequently engaged in discovery.

On October 13, 2022, plaintiff filed the instant motion (1) for summary judgment against Hendrickson pursuant to CPLR 3212; (2) to dismiss Hendrickson's affirmative defenses pursuant{**79 Misc 3d at 543} to CPLR 3211 (b); (3) for an order of reference; (4) to amend the caption; (5) for default judgment against non-appearing and non-answering defendants pursuant to CPLR 3215; and (6) for such other and further relief as the court deems just and proper.

On October 31, 2022, defendants filed a cross-motion (1) to dismiss the complaint pursuant to CPLR 3212; (2) attorney fees pursuant to Real Property Law § 282; and (3) such other and further relief as the court deems just, proper, and equitable.

On December 16, 2022, plaintiff submitted its opposition to the cross-motion.^[FN2]

CPLR 3212 (b) provides that a motion for summary judgment "shall be granted if, upon all the papers and proof submitted, the cause of action or defense shall be established sufficiently to warrant the court as a matter of law in directing judgment in favor of any party" such that there are no triable issues of fact. (CPLR 3212 [b]; Zuckerman v City of New York, 49 NY2d 557 [1980]; Roos v King Constr., 179 AD3d 857, 859 [2d Dept 2020].) The court is required to view the evidence "in the light most favorable to the nonmoving party, and all reasonable inferences must be resolved in favor of the nonmoving party." (Santiago v Joyce, 127 AD3d 954, 954 [2d Dept 2015], citing Green v Quincy Amusements, Inc., 108 AD3d 591, 592 [2d Dept 2013], and Pearson v Dix McBride, LLC, 63 AD3d 895 [2d Dept 2009].)

Plaintiff contends that it has established its prima facie entitlement to summary judgment by submitting the note, the mortgage, and evidence of the borrowers' default by the affidavit of Marilyn Solivan, contract management coordinator for PHH Mortgage Corporation (Solivan affidavit), which states that there was a default under the terms of the note and mortgage upon Margaret M. Fitton's death on December 3, 2017. (Aurora Loan Servs., LLC v Taylor, 25 NY3d 355, 361-362 [2015].)

Defendants argue that they have established their prima facie entitlement to summary judgment because plaintiff has{**79 Misc 3d at 544} not proved that it has standing to prosecute the instant foreclosure action.

Because the issue of standing is a threshold issue and plaintiff's alleged lack of standing was raised as an affirmative defense, the court will address defendants' cross-motion for summary judgment first.

Defendants' Cross-Motion for Summary Judgment

Defendants argue that they are entitled to judgment as a matter of law because plaintiff lacks standing to prosecute this action. Defendants argue that the note is a nonnegotiable instrument, and that a reverse mortgage creates a security interest; therefore article 9 of the UCC governs how plaintiff must establish its right to foreclose the mortgage. UCC 9-203 (b) outlines the criteria for when a security interest is enforceable. Defendants posit that plaintiff [*3]cannot satisfy the requirements of UCC 9-203 (b), and therefore, it cannot enforce the note.

Plaintiff asserts that it has "established, prima facie, that it had standing to prosecute this action by demonstrating that it was in physical possession of the Note, which was annexed to the Complaint and CPLR § 3012-b Certificate of Merit, at the time the action was commenced." (NYSCEF Doc No. 73, plaintiff's MOL at 5-6, citing HSBC Bank USA v Olivier, 179 AD3d 648 [2d Dept 2020].) Plaintiff has submitted the Solivan affidavit, which demonstrates that plaintiff had retained possession of the note and possessed it at the time the action was commenced, which is sufficient to establish standing in a typical mortgage foreclosure action. (Flagstar Bank, FSB v Hart, 184 AD3d 626, 627 [2d Dept 2020]; NYSCEF Doc No. 80 ¶ 7.)

Plaintiff further argues that it is not required to give factual details related to the physical delivery of the note because, under UCC 3-204 (2), "[a]n indorsement in blank specifies no particular indorsee and may consist of a mere signature [and] [a]n instrument payable to order and indorsed in blank becomes payable to bearer and may be negotiated by delivery alone until specially indorsed." (Plaintiff's MOL at 6.)^[FN3]

Despite plaintiff arguing that it has standing because it has{**79 Misc 3d at 545} demonstrated its right to foreclose on a negotiable instrument, the parties agree that the reverse mortgage agreement at issue can be categorized as a "cash account." (Plaintiff's MOL at 7; NYSCEF Doc No. 88, affirmation of Derek S. Tarson [Tarson affirmation] ¶¶ 12-21.)

The Court in OneWest Bank, N.A. v FMCDH Realty, Inc. (165 AD3d 128 [2d Dept 2018]) held that demonstrating possession of a cash account agreement, or the note, at the time of commencement is not enough to establish standing in a foreclosure action on a reverse mortgage, because a cash account agreement does not constitute a negotiable instrument within the meaning of UCC 3-104. Therefore, plaintiff must do more than prove it possessed the note at the time of commencement to establish standing. However, the Court in FMCDH Realty did not state what is required to prove standing in the case of a nonnegotiable instrument or reverse mortgage.

Defendants contend that article 9 of the UCC, which governs secured transactions including the sale of promissory notes, provides the requirements for establishing standing to enforce a nonnegotiable instrument. (See UCC 9-109 [a] [3].) Specifically, UCC 9-203 (b) provides for the enforceability of security interests.^[FN4] It states:[*4]

"Except as otherwise provided in subsections (c) through (i), a security interest is enforceable against the debtor and third parties with respect to the collateral only if:

"(1) value has been given;

"(2) the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and

"(3) one of the following conditions is met:

"(A) the debtor has authenticated a security agreement that provides a description of the collateral and, if the security interest covers timber to be cut, a description of the land concerned;

"(B) the collateral is not a certificated security and{**79 Misc 3d at 546} is in the possession of the secured party under Section 9-313 pursuant to the debtor's security agreement;

"(C) the collateral is a certificated security in registered form and the security certificate has been delivered to the secured party under Section 8-301 pursuant to the debtor's security agreement; or

"(D) the collateral is deposit accounts, electronic chattel paper, investment property, letter-of-credit rights, or electronic documents, and the secured party has control under Section 7-106, 9-104, 9-105, 9-106, or 9-107 pursuant to the debtor's security agreement."

In other words, plaintiff can only enforce its interest in the note if (1) value has been given; (2) the seller of the note had rights in the note or the power to transfer rights in the note to plaintiff; and (3) one of four conditions is met: (a) the seller of the note has authenticated an agreement for the sale of promissory notes that include the note, and the agreement provides a description of the note, (b) the note, if not a certificated security, is in plaintiff's possession under UCC 9-313 pursuant to the security agreement, (c) the note, if a certificated security, is in registered form and has been delivered to the plaintiff under UCC 8-301 pursuant to the security agreement, or (d) the note is a deposit account, electronic chattel paper, investment property, letter-of-credit rights, or electronic documents, and plaintiff has control over the note under UCC 7-106, 9-104, 9-105, 9-106, or 9-107 pursuant to the security agreement. (UCC 9-203 [b].)

Defendants contend that plaintiff fails to satisfy any of the four conditions under UCC 9-203 (b) (3), and therefore has not established its right to enforce an interest in the note, or its standing to commence this action.

First, plaintiff has not submitted a security agreement for the sale of the note which includes a description of the note as required by UCC 9-203 (b) (3) (A). Further, in response to defendants' discovery demand for plaintiff to "[i]dentify all Assignments of [the note] either in [plaintiff's] custody or of which [plaintiff] contend[s] are in existence based upon Documents in [plaintiff's] possession," plaintiff responded that it "is not in custody of any such Assignments, and is not aware of any such Assignments in existence." (NYSCEF Doc No. 96, plaintiff's response {**79 Misc 3d at 547}to defendants' [*5]second set of interrogatories [exhibit H] at 4-5 ¶ 2.) Further, in response to defendants' discovery demand for plaintiff to "[i]dentify all entities who became assignees of the Note pursuant to an Assignment of [the note]," plaintiff provided the same response as above. (Id. at 5-6 ¶ 3.) Plaintiff's acknowledgment that a security agreement for the sale of the note does not exist clearly shows that it cannot satisfy UCC 9-203 (b) (3) (A).

None of the other provisions of UCC 9-203 (b) (3) are met here. UCC 9-203 (b) (3) (B) would only apply if the note is not a certificated security and is in plaintiff's possession under UCC 9-313, which applies to "tangible negotiable documents, goods, instruments, money, or tangible chattel paper," pursuant to a security agreement. (UCC 9-313 [a].) As discussed above, plaintiff conceded that there is no security agreement. Additionally, the note does not fall under one of the security interests included in UCC 9-313.

UCC 9-203 (b) (3) (C) does not apply because a promissory note is not a certificated security, and there is no security agreement. The note also does not fall within UCC 9-203 (b) (3) (D), as it is not a deposit account, electronic chattel paper, investment property, letter-of-credit rights, or electronic documents.

Plaintiff has not satisfied any of the four conditions under UCC 9-203 (b). In its opposition to defendants' motion, plaintiff simply restates its argument that it has satisfied the requirements for standing to enforce the note because it has met the requirements to enforce a negotiable instrument. Plaintiff contends that defendants have not established plaintiff's lack of standing, because the Court in FMCDH Realty did not set forth a clear-cut standard for what is required to establish standing to enforce a nonnegotiable instrument. UCC article 9 governs. UCC 9-203 (b) provides the applicable standard to establish standing to enforce a nonnegotiable instrument such as the note. Defendants have established that plaintiff is unable to satisfy that standard. Indeed, plaintiff admitted as much by admitting that it has no security agreement or assignment of the note.

Accordingly, defendants' motion for summary judgment is granted and the complaint is dismissed. Plaintiff's motion for summary judgment is denied as moot.

Defendants' Motion for Attorney Fees

In her answer, defendant Hendrickson asserted that, should she retain counsel, she is entitled to recover her attorney fees{**79 Misc 3d at 548} in defending this action pursuant to Real Property Law § 282. Real Property Law § 282 provides that, in an action commenced by a lender against a borrower for breach of a mortgage, the borrower may recover attorney fees if they prevail in a defense or counterclaim. There must be a "substantive determination on the merits" for the borrower to have prevailed within the meaning of the statute. (Bank of Am., N.A. v Destino, 138 AD3d 654, 654-655 [2d Dept 2016], lv denied 27 NY3d 911 [2016].)

Plaintiff contends that defendants are not entitled to attorney fees because they (1) did not retain counsel, (2) are not a party to the mortgage, and (3) cannot prevail on the merits.

Plaintiff's first and third contentions are inaccurate. Defendants have retained counsel. Mr. Tarson filed a notice of appearance to represent defendants in the action on March 9, 2021, and plaintiff subsequently engaged in discovery with defendants' counsel prior to the filing of its motion. Additionally, as discussed above, defendants have prevailed on the merits of an affirmative defense.

Plaintiff's second contention, that defendants are not a party to the mortgage, is correct. However, this does not bar their recovery of attorney fees because the executor(s) of an estate are entitled to recover attorney fees under Real Property Law § 282. (See U.S. Bank N.A. v Bajwa, 208 [*6]AD3d 1197 [2d Dept 2022] [awarding attorney fees to the executor of borrower's estate in a mortgage foreclosure action pursuant to Real Property Law § 282].)

Defendants' counsel being a publicly funded legal services organization does not bar defendants' recovery of attorney fees. Real Property Law § 282 was enacted, in part, to create a right for borrowers to recover attorney fees, similar to the right to recover attorney fees given to tenants by Real Property Law § 234. (Bill Jacket, L 2010, ch 550.) The Second Department has held that the award of attorney fees under Real Property Law § 234 applies to tenants who obtained free legal services, because it would "significantly thwart" the legislature's intent in enacting Real Property Law § 234 to only award attorney fees to a tenant who is "of sufficient financial ability to be able to afford his own attorney." (Maplewood Mgt. v Best, 143 AD2d 978, 978-979 [2d Dept 1988].) It follows that the legislature's intent in enacting Real Property Law § 282 would be similarly thwarted if an award of attorney fees was denied to defendants here because they obtained free legal services.{**79 Misc 3d at 549}

Defendants have prevailed on their motion for summary judgment and are therefore entitled to recover attorney fees under Real Property Law § 282.

It is ordered that the branch of defendants' motion for summary judgment and dismissal of the complaint is granted; and it is further ordered that plaintiff's motion for summary judgment is denied as moot; and it is further ordered that the branch of defendants' motion seeking attorney fees is granted.