U.S. Bank v. Cadeumag

196 N.Y.S.3d 862

US BANK, AS TRUSTEE FOR the STRUCTURED ASSET SECURITIES CORPORATION MORTGAGE LOAN TRUST 2006-BC1, Plaintiff,

v.Claude CADEUMAG, as Heir and Administrator for the Estate of Lorvana Cadeumag, Wendy Cadeumag as Heir to the Estate of Lorvana Cadeumag, Nancy Cadeumag as Heir to the Estate of Lorvana Cadeumag, New York City Parking Violations Bureau, Criminal Court of the City of New York, United States of America-Internal Revenue Service, New York State Department of Taxation and Finance, Jean Figaro, New York City Environmental Control Board, New York City Transit Adjudication Bureau, Lucienne Exil, Sundia Exil Tamara Exil, Elaine Condo, Eldiu Boiner, Meusic Etienne, Nashi Woodham, and Rene Doe, Defendants.

Index No. 899/2014

Supreme Court, Kings County, New York.

Decided on September 8, 2023

Attorneys for Plaintiff, Lisa J. Fried, Esq., Allison M. Funk, Esq., Hogan Lovells US LLP, 390 Madison Avenue, New York, NY 10017

Attorney for Defendants, Christopher Villanti, Esq., Petroff Amshen LLP, 1795 Coney Island Avenue, 3rd Floor, Brooklyn, NY 11230

Katherine A. Levine, J.

The issue presented at trial is whether plaintiff - an assignee at least two times removed from the holder of the original note - has standing to foreclose if the original note cannot be produced because it was lost or destroyed, and a previous court has already denied summary judgment to plaintiff on the grounds that the lost note affidavit prepared by the original owner of the loan is deficient. The subsidiary issue is whether either the servicer of, or a representative of the plaintiff can bolster the information contained in the deficient lost note affidavit when neither entity has any knowledge as to the actions taken by the original owner of the note who subsequently lost the note This court rules that neither the servicer of the loan nor the plaintiff assignee of the loan possessed any knowledge which could cure the infirmities of the lost note affidavit, thus precluding the admission into evidence of the lost note and mandating that the case be dismissed.

Plaintiff US Bank National Association ("plaintiff" or "US Bank"), as Trustee for the Structured Asset Securities Corporation Mortgage Loan Trust 2006-BC1, commenced this action to foreclose a mortgage encumbering the investment property at 719 Bristol Street in Brooklyn ("subject property") against Claude Cadeumag, Wendy Cadeumag, and Nancy Cadeumag, as heirs to the Estate of Lorvana Cadeumag ("Cadeumag heirs" or "defendants"). The mortgage was executed by Lorvana Cadeumag on 10/17/2005 to secure a note in favor of Aegis Funding Corporation ("Aegis") in the amount of $420,000. The mortgage was recorded on 11/9/2005 in the name of Mortgage Electronic Registration Systems, Inc. ("MERS"), a clearinghouse firm, on behalf of Aegis, on 11/9/2005.¹ The underlying note was never sent to MERS.

Sometime between October 17, 2005 and February 7, 2006, Aegis or Lehman Brothers ("Lehman") allegedly lost the original note. By affidavit of lost note dated February 7, 2006, Jose Guevara, Assistant Secretary to Aegis, averred that the subject note "cannot be produced because it has been lost or destroyed," and that the note is not in possession of any person having any lawful claim to the same. It also stated that Cadeumag would be indemnified and held harmless from any loss, liability or damages resulting from the unavailability of the original paper note. The electronic copy of the subject note bears Guevara's endorsement to Aegis

The chain of custody of the note and date of assignments are in dispute. However, at some point Aegis sold the mortgage to the now defunct Lehman Brothers, which in turn assigned the mortgage to Structured Asset Securities Corporation ("SASC"). Pursuant to a Trust Agreement dated 4/1/2006 (the "Trust Agreement"), SASC, as depositor, transferred and assigned a pool of mortgage loans to U.S. Bank National Association, as Trustee for Structured Asset Securities Corporation Mortgage Loan Trust Mortgage Pass-Through Certificates Series 2006-BC1. The Mortgage Loan Schedule to the Trust Agreement indicates that Cadeumag's mortgage loan was among the about 6500 mortgage loans sold and assigned to the Trust pursuant to the Trust Agreement. The Trust Agreement lists Lehman Brothers Holdings, Inc. as Seller and declares "the Depositor has acquired the Mortgage Loans from the Seller, and at the Closing Date is the owner of the Mortgage Loans and the other property being conveyed by it to the Trustee" (Pl. Exh. 7, at 7).

US Bank's business records² indicate the collateral file received on February 9, 2006, contained a lost note affidavit and a copy of the note which Guevara alleged endorsed over to US Bank wherein U.S. Bank agreed to pay $420,000.00 to Aegis for the property's mortgage note. Although plaintiff alleges that U.S. Bank became the assignee of the lost note in 2006.³ The record is also unclear whether the note passed from Aegis to the various intermediate assignees listed above. Aegis also serviced the mortgage loan until the servicing was transferred to Wells Fargo Bank, N.A. ("Wells Fargo") in April 2006. Cadeumag made payments to Wells Fargo, as servicer of the Trust, until she defaulted by failing to make the payment due on 10/1/2008 and all payments thereafter due afterward. Ms. Cadeumag passed away soon thereafter in March 2009.

Plaintiff commenced the instant action against defendants (the administrator for and heirs of Lavorna's estate) on January 17, 2014. In its amended complaint, plaintiff alleges that it has standing to bring the lawsuit as it is in possession of the note with a proper endorsement and/or allonge and is therefore the holder of both the note and mortgage, which passes as incident to the note. It avers that the Trust Agreement and related documents prove ownership of the note and establish the chain of assignments and that the transfers from MERS to U.S. Bank establish standing. Defendants contend that plaintiff lacks standing because it failed to conclusively prove the full chain of assignments from Aegis to U.S. Bank or the full chain of assignments to MERs. They also contend that plaintiff failed to establish a prima facie case under UCC § 3-804 because Guevara's lost note affidavit is insufficient as a matter of law. Plaintiff moved for summary judgment and defendants cross-moved for summary judgment and to dismiss the complaint pursuant to CPLR § 3211(a)(3), and for an order directing plaintiff to provide an undertaking pursuant to General Business Law § 394-a(2) and Uniform Commercial Code ("UCC") § 3-804.

By a lengthy decision and order dated March 20, 2018, the Hon. Mark I. Partnow, J.S.C., denied plaintiff's motion on the grounds that it failed to demonstrate its standing, and questioned the sufficiency of the lost note affidavit. Citing liberally from Justice Partnow's decision, the court first cited the well established precedent that to establish prima facie entitlement to summary judgment in a foreclosure action, a plaintiff must produce the mortgage, the unpaid note, and evidence of default. Id. at 3 citing to Deutsche Bank Trust Co. Ams. v. Garrison , 147 A.D.3d 725, 726, 46 N.Y.S.3d 185 (2d Dept. 2017) ; Deutsche Bank Natl. Trust Co. v. Abdan, 131 A.D.3d 1001, 1002, 16 N.Y.S.3d 459 (2d Dept. 2015) ; Plaza Equities, LLC v. Lamberti , 118 A.D.3d 688, 689, 986 N.Y.S.2d 843 (2d Dept. 2014).

Justice Partnow first ruled that a plaintiff establishes its standing in a mortgage foreclosure action by demonstrating that, when the action was commenced, it was either the holder of, or the assignee of the underlying original note. Id. at 5 citing to Aurora Loan Servs., LLC v. Taylor , 25 N.Y. 3d 355, 361-362, 12 N.Y.S.3d 612, 34 N.E.3d 363 (2015) ; LGF Holdings, LLC v. Skydel , 139 A.D.3d 814, 32 N.Y.S.3d 243 (2d Dept. 2016) ; Wells Fargo Bank, N.A. v. Jones , 139 A.D.3d 520, 523, 32 N.Y.S.3d 95 (1st Dept. 2016) ; Wells Fargo Bank, N.A. v. Rooney , 132 A.D.3d 980, 981, 19 N.Y.S.3d 543 (2d Dept. 2015). A written assignment of the note or physical delivery of the note is sufficient to establish standing. U.S. Bank N.A. v. Madero , 80 A.D. 3d 751, 753, 915 N.Y.S.2d 612 (2d Dept. 2011).

A plaintiff will establish holder status where it possesses a note that, on its face or by allonge, contains an indorsement in blank or bears a special indorsement payable to the order of the plaintiff. Wells Fargo Bank, NA v. Ostiguy , 127 A.D. 3d 1375, 1376, 8 N.Y.S.3d 669 (3d Dept. 2015) ; U.S. Bank, N.A. v. Zwisler, 147 A.D.3d 804, 46 N.Y.S.3d 213 (2d Dept. 2017). It is the note, and not the mortgage, that is the dispositive instrument that conveys standing to foreclose. U.S. Bank v. Richards , 155 A.D.3d 522, 65 N.Y.S.3d 178 (1st Dept. 2017). See, Aurora Loan Servs., LLC v. Taylor , supra, 25 N.Y. 3d at 361, 12 N.Y.S.3d 612, 34 N.E.3d 363. "Conclusory boilerplate statements, such as a bald assertion that the plaintiff is the holder of the note, will not suffice." Richards, supra , 155 A.D. 3d at 523, 65 N.Y.S.3d 178 citing to Wells Fargo Bank, N.A. v. Jones, supra, 139 A.D.3d at 523, 32 N.Y.S.3d 95.

Justice Partnow then found that either a written assignment, or the physical delivery of the underlying original note prior to the commencement of the foreclosure action is sufficient to transfer the obligation, and the mortgage passes with the debt as an inseparable incident. Id. at 4. See, U.S. Bank Trust N.A. v. Rose, 176 A.D. 3d 1012, 1014, 110 N.Y.S.3d 700 (2d Dept. 2019) ; Richards, supra, 155 A.D. 3d at 523, 110 N.Y.S.3d 700; U.S. Bank NA. v. Collymore , 68 A.D.3d 752, 754, 890 N.Y.S.2d 578 (2009) ; Security Lending, Ltd. v. New Realty Corp. , supra, 142 A.D.3d at 987, 37 N.Y.S.3d 327. Since defendant raised the issue of standing, the plaintiff must also establish its standing as part of its prima facie case. Id. at 4 citing to Deutsche Bank Trust v. Garrison, supra , 147 A.D.3d at 726, 46 N.Y.S.3d 185 ; Security Lending, Ltd. v. New Realty Corp. , 142...