Aurora Loan Services v. Monique Taylor , 25 N.Y.3d 355 ( 2015 )

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 B.R. 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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