CIT Bank v. McDonnell

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CIT BANK, N.A., Plaintiff, v. STEVEN MCDONNELL A/K/A STEVE MCDONNELL A/K/A STEPHEN MCDONNELL, PUBLIC ADMINISTRATOR OF NASSAU COUNTY AS LIMITED ADMINISTRATOR OF THE ESTATE OF GEORGE ANDREW FOX A/K/A GEORGE FOX, DECEASED, KAREN MCDONNELL INDIVIDUALLY AND AS HEIR AND DISTRIBUTEE OF THE ESTATE OF GEORGE ANDREW FOX, PATRICIA VIVIRITO AS HEIR AND DISTRIBUTEE OF THE ESTATE OF GEORGE ANDREW FOX, DEBRA FOX AS HEIR AND DISTRIBUTEE OF THE ESTATE OF GEORGE W. FOX AND AS HEIR AND DISTRIBUTEE OF THE ESTATE OF GEORGE ANDREW FOX, CHRISTINA FOX LORD AS HEIR AND DISTRIBUTEE OF THE ESTATE OF GEORGE W. FOX AND AS HEIR AND DISTRIBUTEE OF THE ESTATE OF GEORGE ANDREW FOX, MICHAEL FOX AS HEIR AND DISTRIBUTEE OF THE ESTATE OF GEORGE W. FOX AND AS HEIR AND DISTRIBUTEE OF THE ESTATE OF GEORGE ANDREW FOX, CACH LLC, Defendants.

No. 18-CV-476-CBA-SJB

United States District Court, E.D. New York

February 2, 2023

REPORT & RECOMMENDATION

SANKET J. BULSARA United States Magistrate Judge

CIT Bank, N.A. (“CIT”) initiated this litigation to foreclose upon 40 Satterie Avenue, Valley Stream, New York 11580 (the “Subject Property”). (Am. Compl. dated Mar. 25, 2019 (“Am. Compl.”), Dkt. No. 21 ¶ 1). On March 14, 2022, CIT filed a combined motion for summary judgment and default judgment, (Mot. for Summ. J. & Default J. dated Mar. 14, 2022 (“Pl.'s Mot.”), Dkt. No. 74), which the Honorable Carol Bagley Amon referred to the undersigned for a report and recommendation. (Order Referring Mot. dated Aug. 22, 2022).

For the reasons stated below, it is respectfully recommended that the motion for summary judgment be denied due to CIT's failure to establish compliance with section 1304 of the New York Real Property Actions and Proceedings Law (“RPAPL”), but the default judgment motion be granted in part. The Court separately grants CIT's motion to have U.S. Bank substituted as plaintiff.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

On or about June 22, 2007, Steven McDonnell and George Andrew (“A.”) Fox (together, the “Borrowers”) executed a Note with IndyMac Bank F.S.B. (“IndyMac”) in the principal amount of $352,000. (Pl.'s Loc. R. 56.1 Statement of Material Facts (“Rule 56.1 Stmt.”), Dkt. No. 74 ¶ 4; Am Compl. ¶ 18; Note dated June 22, 2007 (“Note”), attached as Ex. A to Pl.'s Mot.). As security for the Note, the Borrowers along with Defendant Karen McDonnell (together, the “Mortgagor Defendants”) executed a Mortgage on the Subject Property in the same amount; the mortgage was recorded on August 20, 2007. (Rule 56.1 Stmt.¶ 5; Mortgage dated June 22, 2007 (“Mortgage”), attached as Ex. B to Pl.'s Mot.). On February 26, 2010, Steven McDonnell executed a Home Affordable Loan Modification Agreement that modified the original terms of the Note and Mortgage. (Rule 56.1 Stmt. ¶ 7; Loan Modification Agreement, attached as Ex. D to Pl.'s Mot.). The Mortgage was subsequently assigned to CIT Bank, N.A. (Rule 56.1 Stmt. ¶¶ 6 9; Am. Compl. ¶ 23). Following the commencement of this litigation, CIT's interest was transferred to MTGLQ Investors, LP, whose interest was subsequently transferred to U.S. Bank Trust National Association (“U.S Bank”). (Rule 56.1 Stmt. ¶ 13; see Assignments of Mortgage, attached as Ex. E to Pl.'s Mot.). U.S. Bank has been in possession of the Note since June 30, 2021. (Rule 56.1 Stmt. ¶ 14; Aff. of Louis Levithan in Supp. of Mot. for Summ. J. dated Jan. 31, 2022, Dkt. No. 74 ¶ 8).

Beginning with the payment due on June 1, 2015 and subsequent payments thereafter, the Borrowers failed to make any payments due under the Note. (Rule 56.1 Stmt. ¶ 8; Am. Compl. ¶ 32). Each failure to pay constituted a default under the Note. (Note ¶ 7(B); Am. Compl. ¶¶ 28-33). On September 25, 2017, pursuant to Paragraphs 15 and 22 of the Mortgage, notices were mailed to the Mortgagors informing them of their default (the “Notices of Default”). (Mortgage ¶¶ 15, 22; Notices of Default, attached as Ex. 7 to Aff. of Kemberly Pitcher dated Mar. 13, 2020 (“Pitcher Aff.”), Dkt. No. 74). The next day, 90-day foreclosure notices were sent to the Mortgagors at the Subject Property warning them that they were at risk of losing the Subject Property. (Rule 56.1 Stmt. ¶ 11; 90-Day Notices, attached as Ex. 3 to Pitcher Aff.). The Borrowers failed to cure the defaults. (Aff. of Nik Fox in Supp. of Summ. J. (“Fox Aff.”), Dkt. No. 74 ¶ 11; Loan Payment History, attached as Ex. F to Pl.'s Mot.).

George A. Fox died on December 6, 2008. (Death Transcript, attached as Ex. D to Pl.'s Mot.). He died intestate, and the Public Administrator of Nassau County was appointed by the Surrogate's Court.^[1] (See Limited Letters of Administration dated July 10, 2017 (“Limited Letters”), attached as Ex. C to Suppl. Decl. dated Oct. 21, 2022 (“Suppl. Decl.”), Dkt. No. 81). Distributees of the Estate of George A. Fox identified in the Amended Petition for Limited Letters-Karen McDonnell, George W. Fox, and Patricia Vivirito-and the Nassau County Public Administrator were named as defendants in the original Complaint, along with a judgement creditor, Cach LLC.^[2]

George W. Fox then passed away on January 19, 2018 and was survived by his wife, Debra Fox, and his two children, Michael Fox and Christina Fox Lord. (Death Certificate, attached as Ex. D to Suppl. Decl.; Family Tree Affidavit, attached as Ex. E to Suppl. Decl.; Am. Compl. ¶ 25). Those individuals-his heirs-at-law-were substituted for him as additional defendants in the Amended Complaint.^[3] Cach LLC, an entity that has an interest in the Subject Property as a judgment creditor, was also named as a defendant. (Am. Compl. ¶ 11).

Each Defendant was served with a summons and the Amended Complaint. (Summonses Returned Executed, Dkt. Nos. 33-40; Affs. of Service dated Oct. 16, 2019, attached as Ex. K to Pl.'s Mot.). Steven McDonnell appeared pro se until he retained Mr. Singer as counsel in 2021. (Notice of Appearance dated Dec. 1, 2021, Dkt. No. 71). Default was entered against Karen McDonnell, (see Entry of Default dated May 7, 2021, Dkt. No. 59), but Mr. Singer's appearance, and opposition to the present motion, were filed on her behalf, following entry of the default. (See Notice of Appearance dated Dec. 1, 2021, Dkt. No. 71; Aff. of Stephen McDonnell (“McDonnell Aff.”), Dkt. No. 76; Defs.' Mem. of Law in Opp'n to Pl.'s Mot. (“Defs.' Mem.”), Dkt. No. 76). “[O]pposition to a motion for a default judgment can be treated as a motion to set aside the entry of a default despite the absence of a formal Rule 55(c) motion.” Meehan v. Snow, 652 F.2d 274, 276 (2d Cir. 1981). The factors to set aside a default-set forth in Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 96 (2d Cir. 1993), namely “(1) whether the default was willful; (2) whether setting aside the default would prejudice the adversary; and (3) whether a meritorious defense is presented”-weigh in favor of vacating the default. There is little evidence of prejudice because the same standards under the RPAPL pertaining to Steven McDonnell-who has appeared, not defaulted, and contests foreclosure-apply with equal force to Karen McDonnell, a signatory of the Mortgage. And given the denial of summary judgment as to Steven, permitting Karen to defend on the merits causes no additional delay. Finally, a meritorious defense is clearly present for Karen in light of the Court's finding that CIT failed to comply with § 1304. The Court's preference is to resolve cases on the merits, not on default. See New York v. Green, 420 F.3d 99, 104 (2d Cir. 2005) (noting that the Second Circuit has “expressed a strong preference for resolving disputes on the merits” (quotations omitted)). The Court therefore recommends the default against Karen McDonnell be vacated by the Clerk and treats the present motion against her as one for summary judgment. See, e.g., Sea Hope Navigation Inc. v. Novel Commodities SA, 978 F.Supp.2d 333, 341 (S.D.N.Y. 2013) (vacating entry of default where plaintiff would suffer no prejudice from vacatur and defendant's opposition to the motion “presented facts which, if credited, would constitute a complete defense”).

The remaining Defendants failed to appear, and the Clerk of Court entered default against them on May 7, 2021. (Entry of Default dated May 7, 2021, Dkt. No. 59).

CIT first filed a motion for summary judgment against Steven McDonnell on April 30, 2020. (Mot. for Summ. J. dated Apr. 30, 2020, Dkt. No. 53). The motion was denied without prejudice, and the case was stayed pending the resolution of CIT Bank N.A. v. Schiffman, 948 F.3d 529 (2d Cir. 2020). CIT Bank, N.A. v. McDonnell, No. 18-CV-476, 2020 WL 13157556, at *1 (E.D.N.Y. June 10, 2020). After the stay was lifted, CIT filed a second motion for summary judgment, which it ultimately withdrew. (See Order dated Oct. 26, 2021). CIT then filed the present dual motion for summary judgment and default judgment, which was referred to the undersigned for a report and recommendation. (Pl.'s Mot.; Order Referring Mot. dated Aug. 22, 2022). The motion was opposed by Mr. Singer on behalf of both McDonnells. (See McDonnell Aff.; Defs.' Mem.).

CIT also filed an affirmation of service indicating that the motion for default judgment and supporting papers were mailed to the defaulting defendants in compliance with Local Rule 55.2. (Affirmation of Service dated Jan. 31, 2022, attached as Ex. 25 to Pl.'s Mot.). The Court issued two orders seeking additional materials and clarification about the procedural background of the case, (see Order dated Oct. 7, 2022; Order to Show Cause dated Nov. 8, 2022), and responses by CIT were timely filed and served on all the Defendants. (Suppl. Decl.; Affirmation of Service dated Oct 21, 2022; attached as Ex. 6 to Suppl. Decl.; Affirmation of Service dated Nov. 16, 2022, Dkt. No. 84; Affirmation of Service dated Nov. 18,...