Aurora Loan Services v. Monique Taylor

This opinion is uncorrected and subject to revision before

publication in the New York Reports.

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No. 83

Aurora Loan Services, LLC,

Respondent,

v.

Monique Taylor, &c., et al.,

Appellants,

et al.,

Defendants.

Jeffrey Herzberg, for appellants.

Martin C. Bryce, Jr., for respondent.

MERSCORP Holdings, Inc., et al., amici curiae.

LIPPMAN, Chief Judge:

The issue presented by this appeal is whether plaintiff

Aurora Loan Servicing, LLC had standing to commence this mortgage

foreclosure action. We now affirm that part of the Appellate

Division order (114 AD3d 627 [2d Dept 2014]) upholding Supreme

Court's grant of summary judgment in favor of plaintiff, and hold

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that Aurora did have standing.

Defendant Monique Taylor executed and delivered an

adjustable rate note dated July 5, 2006 to First National Bank of

Arizona, wherein she agreed to repay the bank $600,000.00, with

interest. To secure the payment, Monique and Leonard Taylor (the

Taylors) executed a mortgage with the bank, granting Mortgage

Electronic Recording Systems, Inc. (MERS), as nominee, a mortgage

lien on the property located in Fleetwood, New York. The note,

however, was not transfered to MERS with the mortgage.

Subsequent to the note's execution, pursuant to a March

2006 pooling and servicing agreement (PSA), the loan was made

part of a residential mortgage-backed securitization trust.

Deutsche Bank Trust Company Americas (Deutsche), as trustee,

became the owner of the note through an allonge indorsing the

note to Deutsche, as required under the PSA. The allonge shows

the chain of ownership of the note through indorsements from

First National Bank of Arizona, to First National Bank of Nevada,

to Residential Funding Company, LLC, to Deutsche.

On April 1, 2008, Aurora assumed servicer obligations

under the PSA pursuant to a March 10, 2008 master servicing

assignment and assumption agreement (MSAAA). The mortgage was

subsequently assigned by MERS to Aurora on August 13, 2009, and

recorded with the County Clerk on October 29, 2009.

Thereafter, the Taylors defaulted under the note and

mortgage by failing to make the payment due on January 1, 2010,

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and each month thereafter. The Taylors have never disputed their

obligation to make the payments or their default. Multiple

notices of default were mailed to the Taylors through May of

2010.

On May 14, 2010, Deutsche, by limited power of

attorney, granted Aurora the right to perform certain acts in the

trustee's name, including the execution of documents related to

loan modification and foreclosure. Aurora, through its agents,

asserts it took physical custody of the original note on May 20,

2010. Aurora commenced this foreclosure action by filing a

summons and complaint with the Westchester County Clerk on May

24, 2010. These were personally served upon the Taylors on May

29, 2010. The Taylors filed an answer on June 29, 2010.

The Taylors filed a motion for summary judgment,

asserting that Aurora did not have standing to bring this

foreclosure action. Aurora cross-moved for summary judgment. In

support of its cross motion, Aurora submitted the affidavit of

Sara Holland (Holland Affidavit), Aurora's legal liaison, who

stated that based on her "personal knowledge" of the facts as

well as her "review of the note, mortgage and other loan

documents" and "related business records . . . kept in the

ordinary course of the regularly conducted business activity,"

the "original Note has been in the custody of Plaintiff Aurora

Loan Services, LLC and in its present condition since May 20,

2010." Holland also stated that, "prior to the commencement of

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the action, Aurora Loan Services, LLC, has been in exclusive

possession of the original note and allonge affixed thereto,

indorsed to Deutsche Bank Trust Company Americas as Trustee, and

has not transferred same to any other person or entity." A copy

of the note and allonge were attached to the affidavit.

Supreme Court denied the Taylors' motion for summary

judgment, granted Aurora's cross motion for summary judgment, and

appointed a referee to determine the amount due under the note.

Aurora then filed a motion for summary judgment of foreclosure

and sale, which the Taylors opposed. The court granted that

motion on April 29, 2013, adopting the referee's recommendation

without a hearing. The Taylors appealed both orders.

The Appellate Division affirmed the first order,

concluding that Aurora had proven its standing as a matter of

law. The Court concluded that, under New York law, the Holland

Affidavit demonstrated that Aurora had obtained physical

possession of the original note prior to commencement of this

foreclosure action, and that such was legally sufficient to

establish standing. The Court specifically noted that the

Taylors "offered no evidence to contradict those factual

averments and, therefore, failed to raise a triable issue of fact

with respect to [Aurora's] standing" (114 AD3d at 629). However,

the Court reversed the judgment of foreclosure and sale and

remitted the matter to Supreme Court for further proceedings,

concluding that Supreme Court erred in confirming the referee's

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report because the referee had computed the amount due to Aurora

without holding a hearing on notice to the Taylors (see id. at

629-630). One Justice dissented, arguing that the Holland

Affidavit was insufficient to confer standing on Aurora because

it did not give sufficient "factual details" regarding the

physical delivery of the note to Aurora (id. at 631, citing HSBC

Bank USA v Hernandez, 92 AD3d 843, 844 [2d Dept 2012]).

Thereafter, the Appellate Division granted the Taylors' motion

for leave to appeal, certifying the following question: "Was the

decision and order of this Court . . . properly made?"

The critical issue we must resolve is whether the

record demonstrates a basis for finding that Aurora had standing

to commence this mortgage foreclosure action. The physical

delivery of the note to the plaintiff from its owner prior to

commencement of a foreclosure action may, in certain

circumstances, be sufficient to transfer the mortgage obligation

and create standing to foreclose (see e.g. Bank of N.Y. Mellon

Trust Co. NA v Sachar, 95 AD3d 695 [1st Dept 2012]; Deutsche Bank

Natl. Trust Co. v Pietranico, 33 Misc 3d 528, 535 [Sup Ct,

Suffolk County 2011]; In re Escobar, 457 BR 229, 240 [Bankr ED NY

2011]).

Applying these principles of New York law, Aurora was

vested with standing to foreclose. The evidence established

that, as of 2006, Deutsche, as trustee under the PSA, became the

lawful owner of the note. The Holland Affidavit establishes that

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Aurora came into possession of the note on May 20, 2010, prior to

the May 24, 2010 commencement of the foreclosure action. From

these specific statements, together with proof of Aurora's

authority pursuant to the MSAAA and the limited power of

attorney, the Appellate Division held, "[i]t can reasonably be

inferred . . . that physical delivery of the note was made to the

plaintiff" before the action was commenced (114 AD3d at 629).

Contrary to the Taylors' assertions, to have standing,

it is not necessary to have possession of the mortgage at the

time the action is commenced. This conclusion follows from the

fact that the note, and not the mortgage, is the dispositive

instrument that conveys standing to foreclose under New York law.

In the current case, the note was transferred to Aurora before

the commencement of the foreclosure action -- that is what

matters.

A transfer in full of the obligation automatically

transfers the mortgage as well unless the parties agree that the

transferor is to retain the mortgage (Restatement [Third] of

Property [Mortgages] § 5.4, Reporter's Note, Comment b). The

Taylors misconstrue the legal principle that "an entity with a

mortgage but no note lack[s] standing to foreclose" (Knox v

Countrywide Bank, 4 F Supp 3d 499, 508 [ED NY 2014]) to also mean

the opposite -- that an entity with a note but no mortgage lacks

standing. Once a note is transferred, however, "the mortgage

passes as an incident to the note" (Bank of N.Y. v Silverberg, 86

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AD3d 274, 280 [2d Dept 2011]).

"[A]ny disparity between the holder of the note and the

mortgagee of record does not stand as a bar to a foreclosure

action because the mortgage is not the dispositive document of

title as to the mortgage loan; the holder of the note is deemed

the owner of the underlying mortgage loan with standing to

foreclose" (14A Carmody-Wait 2d § 92:79 [2012] [citations

omitted]). Accordingly, the Taylors' argument that Aurora lacked

standing because it did not possess a valid and enforceable

mortgage as of the commencement of this action is simply

incorrect. The validity of the August 2009 assignment of the

mortgage is irrelevant to Aurora's standing.

The question that follows this analysis is whether

Aurora adequately proved that it did, indeed, have possession of

the note prior to commencement of this action. The Taylors argue

that to demonstrate possession of the note Aurora had to produce

the original mortgage note for examination, and that the Holland

Affidavit does not suffice. Additionally, the dissent at the

Appellate Division concluded that the affidavit was lacking

details regarding Aurora's possession of the note.

As to production of the original note, there is no

indication in the record that the Taylors ever requested such

production in discovery or moved Supreme Court to compel such

production. Although the Taylors assert that the best evidence

rule should require production of the original, they fail to cite

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any authority holding that such is required in this context.

Second, Ms. Holland asserts in her affidavit that she examined

the original note herself, and the adjustable rate note

attachments submitted with the moving papers clearly show the

note's chain of ownership through Deutsche.

Although the better practice would have been for Aurora

to state how it came into possession of the note in its affidavit

in order to clarify the situation completely, we conclude that,

under the circumstances of this case, the court did not err in

granting summary judgment to Aurora.

Insofar as Aurora argues that the Appellate Division

erred in reversing the judgment of foreclosure, the issue is not

properly before us because Aurora never obtained permission from

the Appellate Division to appeal to this Court from the Appellate

Division order (see 511 W. 232nd Owners Corp. v Jennifer Realty

Co., 98 NY2d 144, 151 n 3 [2002]).

Accordingly, the order of the Appellate Division,

insofar as appealed from, should be affirmed, with costs, and the

certified question answered in the affirmative.

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Order, insofar as appealed from, affirmed, with costs, and

certified question answered in the affirmative. Opinion by Chief

Judge Lippman. Judges Read, Pigott, Rivera, Abdus-Salaam, Stein

and Fahey concur.

Decided June 11, 2015

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