OneWest Bank, N.A. v. FMCDH Realty, Inc.

Citation: 2018 NY Slip Op 6101Docket: 2016-00039

Court: Appellate Division of the Supreme Court of the State of New York; September 19, 2018; New York; State Appellate Court

Original Court Document: View Document

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OneWest Bank, N.A. v. FMCDH Realty, Inc. addresses an appeal regarding a foreclosure action on a reverse mortgage. The Supreme Court of New York's Appellate Division, Second Department, upheld an order that granted OneWest Bank's motion for summary judgment against FMCDH Realty, Inc., while denying FMCDH's cross-motion for summary judgment to dismiss the complaint based on a lack of standing.

The primary legal question is whether the bank demonstrated standing to foreclose on the reverse mortgage by possessing the original line of credit agreement, indorsed in blank, at the time the action was initiated, and whether this agreement qualifies as a negotiable instrument under the Uniform Commercial Code.

Key facts include that the borrower, Maxine Minicozzi, entered into a reverse mortgage transaction in September 2005, involving a Cash Account Agreement and a mortgage that secured a principal sum significantly higher than the cash advances allowed. After the borrower's death in May 2010, the mortgage was assigned to Mortgage Electronic Registration Systems, Inc., and subsequently to OneWest Bank. The property was transferred through several entities before the foreclosure action began in August 2014, with FMCDH asserting lack of standing as a defense. The case involved detailed examination of the mortgage agreements and the legal definitions relevant to standing in foreclosure proceedings.

On November 10, 2015, the Supreme Court granted the plaintiff's motion for summary judgment and denied the defendant's cross motion in a mortgage foreclosure action. To establish a prima facie case for foreclosure, the plaintiff must present the mortgage, the unpaid note, and evidence of default. Additionally, if standing is contested, the plaintiff must prove it is the holder or assignee of the note at the time the action is initiated. A 'holder' is defined as the person in possession of a negotiable instrument, which may be payable to bearer or an identified person. If the note is indorsed in blank, the holder must demonstrate possession of the original note at the time of filing the action.

In this case, the plaintiff referred to the note as a 14-page Cash Account Agreement and provided an affidavit from its assistant secretary, stating that the plaintiff received the original agreement, indorsed in blank, on May 5, 2011. Additionally, the plaintiff presented evidence of the borrower's death and the estate's default on the debt. The defendant contested this by referencing a prior foreclosure action where standing was based on a different indorsement related to the Cash Account Agreement. However, the Supreme Court accepted the plaintiff's submission, including a new indorsement in blank that lacked specifics about the borrower or the property, while disregarding the prior allonge from the previous action. The court emphasized the need for clarification on whether the Cash Account Agreement qualifies as a negotiable instrument under the Uniform Commercial Code.

The Cash Account Agreement does not qualify as a negotiable instrument under UCC 3-104, thus the plaintiff cannot establish standing solely by possessing the original, blank-indorsed agreement at the action's commencement. A negotiable instrument must be signed by the maker or drawer, contain an unconditional promise to pay a specific sum without additional obligations, and be payable on demand or at a definite time to order or bearer. While the Cash Account Agreement has the required signature and promise to pay, it also includes provisions that exceed UCC allowances, such as establishing an open-end line of credit allowing the borrower to draw up to $806,152. The borrower is obligated to pay all amounts advanced, which complicates its classification as a negotiable instrument. There is no relevant New York case law directly addressing this issue.

In various jurisdictions, line of credit agreements have been differentiated from agreements to pay a specific sum. The Cash Account Agreement permits periodic adjustments to the advance limit and allows the lender to suspend or terminate the borrower's access to future advances under specific conditions. Section 17.2 empowers the lender to sell or assign its rights to third parties, with the stipulation that the purchaser is not required to remedy the lender's defaults, and the lender remains liable to the borrower unless the assignee assumes all obligations. Disputes under the agreement, excluding foreclosure actions, must be resolved through binding arbitration. The Cash Account Agreement establishes a banking relationship and outlines the terms for obtaining cash advances, indicating it is not merely a negotiable instrument. The plaintiff cannot establish standing solely by possessing the original agreement, leading to the denial of the plaintiff's summary judgment motion. The Supreme Court also denied the defendant’s cross motion for summary judgment regarding the complaint, as there were unresolved factual issues regarding the plaintiff's standing. Consequently, the order was modified to deny the plaintiff's motion for summary judgment and affirmed as modified, without costs or disbursements.