Written by attorney Nicholas M. Moccia


By: Nicholas M. Moccia Staten Island, New York

The Appellate Division, Second Department, has rendered a new decision, which will have the practical effect of limiting judicial activism among lower New York courts in their application of the controversial Silverberg decision in the foreclosure context. The Silverberg decision stands for the proposition that, in order for a bank to have standing to commence a foreclosure, the bank must be the owner the note and mortgage at the time of commencement of the foreclosure. Moreover, Silverberg clarifies when an entity has the capacity to transfer notes and mortgages, noting that only entities which are the holders of the note and mortgage have the capacity to effect valid mortgage assignments. This was a particularly controversial decision since mortgage assignments between financial institutions where often executed by MERS, and entity that is almost never both the note holder and the mortgagee, but merely has the limited role of "nominee". Legally, a mortgage cannot have a separate existence from the note—both must travel together so to speak.

In HSBC v. Hernandez, 2012 N.Y. Slip Op. 01434, 2012 WL 579706 (2d Dep’t 2012), the Appellate division takes some of the bite out the Silverberg decision by limiting the lower court’s ability to dismiss cases in the summary judgment context based on the issues raised in Silverberg.

In Hernandez, HSBC moved for summary judgment in a foreclosure against a Nassau County homeowner. The Supreme Court Justice (Adams, J.) not only denied the bank’s motion for summary judgment, but granted summary judgment in favor the homeowner. Justice Abrams , upon "searching the records", found that documentary evidence provided by the bank did not establish, prima facie, that the note was physically delivered to it prior to the commencement of the foreclosure. In other words, the bank could not show it was the holder of the note and mortgage with standing to foreclose, and the court sua sponte dismissed the case.

The Second Department agreed with Justice Abrams that summary judgment should not have been granted in favor of the bank, but disagreed that the summary judgment should have been granted in favor of the homeowner upon searching the records. The Second Department’s rationale for its decision is not spelled out, and, to the extent that it is intelligible at all, is nuanced in a way that would require knowledge of civil procedure.

In order to win on summary judgment, HSBC would need to demonstrate that there was no genuine issue of material fact as to its entitlement to a judgment of foreclosure. This would require HSBC, among other things, to demonstrate it had standing to foreclose at the commencement of the foreclosure. The Second Department agrees that there was an issue of fact as to HBSC’s standing so as to preclude summary judgment in its favor. The Second Department disagrees with Justice Abrams that there was no genuine issue of material fact as to the HSBC’s lack of standing. In other words, a triable issue of fact exists on the issue of standing-either its presence or the lack thereof--and therefore neither side should be awarded summary judgment.

The Second Department cannot be construed as saying that Justice Abrams did not have the discretion to "search the record"—he does pursuant to CPLR 3212(b), which states in pertinent part: "If it shall appear that any party other than the moving part is entitled to a summary judgment, the court may grant such judgment without the necessity of a cross-motion." (Emphasis supplied).

What baffles me is how it could be that there is an issue of fact as to whether the HSBC was the holder of the note and the mortgage at the commencement of the foreclosure. Either HSBC can demonstrate this fact or it cannot based on the documentary evidence, and the burden is on HSBC to demonstrate this, when challenged. Clearly, HSBC could not meet this burden, otherwise HSBC would have prevailed on its summary judgment motion.

In order to "foreclose a mortgage, the plaintiff must establish the existence of the mortgage and the mortgage note, ownership of the mortgage at the time the plaintiff commenced the foreclosure action, and the defendant's default in payment [Emphasis added]." Campaign v Barba, 23 A.D.3d 327 (2d Dep’t 2005). See also Household Finance Realty Corp. of New York v Wynn, 19 A.D.3d 545 (2d Dep’t 2005); Sears Mortgage Corp. v Yaghobi, 19 A.D.3d 402 (2d Dep’t 2005); Ocwen Federal Bank FSB v Miller, 18 A.D.3d 527 (2d Dep’t 2005); U.S. Bank Trust Nat. Ass'n Trustee v Butti, 16 A.D.3d 408 (2d Dep’t 2005); First Union Mortgage Corp. v Fern, 298 A.D.2d 490 (2d Dep’t 2002); Village Bank v Wild Oaks, Holding, Inc., 196 A.D.2d 812 (2d Dep’t 1993).

The Second Department elliptically explains that the lower court should not have granted summary judgment to the Nassau County homeowner due to the fact that "the parties’ submissions failed to establish, as a matter of law, that the plaintiff lacked standing to commence the action."

The Plaintiff has the burden of proof to establish standing. The Defendant does not have the burden to disprove standing. If the Plaintiff failed to establish, prima facie, that it had standing (as the Second Department concedes), then the discussion should have ended there, and a judgment should have been awarded to the Defendant with the dismissal the foreclosure. Yet, the Second Department now appears to be requiring homeowners to demonstrate (or judges searching the record to find) that the bank lacked standing. This decision does not make sense except to the extent that the Second Department (or the panel writing this particular decision) wants to limit the scope of judicial activism among lower court judges in its application of Silverberg in the foreclosure context.

Hogan Lovells US, LLP, New York, N.Y. (Allison J. Schoenthal, Renee Garcia, and Jessica L. Ellsworth of counsel), for the appellant, HSBC.

Harold M. Somer, P.C., Westbury, N.Y., for respondent, Anna Hernandez et al. Below is a copy of the decision.

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