by Shawn Spielberg, Esq.

Frenkel Lambert Weiss Weisman & Gordon LLP

USFN Member (FL, NJ, NY)

Historically in New York, proving the plaintiff is the noteholder in a foreclosure proceeding, has always been viewed as a question regarding whether the plaintiff has standing to commence an action. Based on a recent statutory enactment and a concurring opinion from an associate judge of the Court of Appeals, noteholder status may, in fact, become an element of a prima facia residential mortgage foreclosure action plaintiffs must plead. 

Most courts in the State of New York, interpret defenses related to whether a plaintiff is the noteholder, a note’s owner, or in possession of the note, as standing defenses. New York’s Supreme Courts and the four Appellate Divisions have held such defenses to be waivable pursuant to New York Civil Practice Law and Rules (“CPLR”) § 3211(e). CPLR § 3211(e) requires a standing defense to be alleged in an answer or a timely motion to dismiss, or else the defense is waived. 

A commonly cited case, supporting this interpretation, is Wells Fargo Bank Minnesota, Nat. Ass'n v Mastropaolo, 42 A.D.3d 239 (2d Dept. 2007) wherein the appellate court held that the defendant waived the defense of standing, pursuant to CPLR § 3211(e), after the defendant argued in opposition to the plaintiff’s motion for summary judgment that the plaintiff was not the legal titleholder of the mortgage at the time of commencement. 

This interpretation was recently questioned by the Hon. Rowan D. Wilson, an Associate Judge of the New York State Court of Appeals, the highest court in the State of New York.  In his concurring opinion in US Bank N.A. v Nelson, 36 N.Y.3d 998, 163 N.E.3d 49 (N.Y. 2020), Judge Wilson states that whether a plaintiff can sue for breach of contract is not a question of standing, but rather a question of whether the plaintiff possesses the note and, thus, a cause of action.  The Judge further states that a fundamental requirement for a breach of contract action is an allegation that the plaintiff is a party to the contract or has acquired the rights of a party.

The Judge briefly discusses the doctrine of standing and how it is utilized when parties aim to enforce public, not private, rights, which ultimately lead him to conclude that courts have erroneously described a failure by a defendant to affirmatively plead plaintiff is not a noteholder as an issue of standing.  According to the Judge, the New York State legislature intervened to undo the confusion with the enactment of Real Property Actions and Proceedings Law (“RPAPL”) § 1302-a.

In December 2019, the New York State legislature removed the waiver of standing as a defense in residential foreclosure actions by enacting RPAPL § 1302-a, which provides that, notwithstanding CPLR § 3211(e), standing is not waived in a foreclosing proceeding if a defendant fails to raise said defense in a responsive pleading or pre-answer motion to dismiss. The statute also permits a defendant to challenge standing after a judgment of foreclosure and sale is signed and even post-foreclosure sale, provided the judgment was issued upon default.

In light of the enactment of RPAPL § 1302-a, coupled with the concurring opinion of Associate Judge Rowan D.  Wilson, foreclosing plaintiffs may want to plead plaintiff as a noteholder in their complaints and thereafter prove they are the noteholders during the pendency of the foreclosure action. Failure to do so may prevent an enforceable judgment of foreclosure and sale from being obtained.

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Summer 2021 USFN Report