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Courchevel 1850 LLC v. Stern

United States District Court, E.D. New York

June 27, 2018

COURCHEVEL 1850 LLC, Plaintiff,
v.
ISAAC STERN et al., Defendants.

          MEMORANDUM & ORDER

          NICHOLAS G. GARAUFIS, UNITED STATES DISTRICT JUDGE.

         Defendant Isaac Stern moves to dismiss this mortgage-foreclosure action on the grounds that Plaintiff Courchevel 1850 LLC ("Courchevel 1850") never served him with notice of the impending foreclosure, as he claims Section 1304 of the New York Real Property Actions and Proceedings Law ("RPAPL") requires. (Mot. to Dismiss (Dkt. 104); Mem. in Supp. of Mot. to Dismiss ("Stern Mem.") (Dkt. 104-6).) For the reasons that follow, the motion is GRANTED.

         I. BACKGROUND

         The following statement of facts is taken from Plaintiffs complaint (Dkt. 1), the well-pleaded allegations of which the court accepts as true for purposes of this motion. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

         In 2005, Stem borrowed $190, 000 from National City Bank under a line of credit secured by a mortgage on real property located at 355A Halsey Street in Brooklyn (the "Property"). (Compl. ¶¶ 1, 50-51; see also Note (Dkt. 1-2); Mortgage (Dkt. 1-3).) The terms of the line of credit were reflected in an "equity reserve agreement," which the court refers to as the "Note" for the sake of brevity. Several years later, National City Bank was acquired by PNC Bank, see The PNC Financial Services Group, Annual Report (Form 10-K) (Mar. 11, 2010) at 2, 25, which thereafter endorsed the Note to non-party American Servicing Group, LLC (Compl. ¶ 54). After several further assignments, the Note wound up in Plaintiffs hands. (Id. ¶¶ 55-57.)

         Stern failed to make a payment due "on the first day of June 22, 2005" [sic] and remains in default on the Note. (Id. ¶ 58.) On December 15, 2016, Plaintiff notified Stern that it intended to treat the entire balance outstanding under the Note as immediately due, and gave him 30 days to cure his default, as the Mortgage required. (Id. ¶ 59.) Plaintiff did not, however, send Stern a notice that he was at risk of foreclosure because Stern no longer owned or resided at the Property and so, in Plaintiffs view, was not entitled to such notice under RPAPL § 1304. (Id. ¶ 60.) As the parties appear to agree, sometime after he executed the Note and Mortgage but before Plaintiff instituted this action, Stern sold the Property, which was subdivided into four units that now belong to new owners. (Compl. ¶¶ 7-16; Affirm, of Isaac Stern ("Stern Affirm.") (Dkt. 104-2) ¶ 3; Pl. Mem. in Opp'n to Mot. to Dismiss ("Pl. Mem.") (Dkt. 104-7) at 5.)

         On March 30, 2017, after Stern failed to pay off the Note, Plaintiff commenced this action to foreclose on the Mortgage, naming as defendants Stern, the new owners of the subdivided Property, several financial institutions that hold mortgages allegedly junior to the Mortgage, and several government agencies and creditors alleged to hold liens on the Property. (Compl. ¶¶ 7-44.) Stern then moved to dismiss the complaint on the grounds that Plaintiff had not served him with a pre-foreclosure notice in accordance with RPAPL § 1304. (Stern Mem. at 1; Stern Affirm. ¶ 3.)

         III. LEGAL STANDARD

         The purpose of a Rule 12(b)(6) motion is to test the legal sufficiency of a plaintiff s complaint. Patane v. Clark, 508 F.3d 106, 111-12 (2d Cir. 2007) (per curiam). "To survive a motion to dismiss, a complaint must contain sufficient well-pleaded factual allegations, accepted as true, to 'state a claim to relief that is plausible on its face.'" Iqbal, 556 U.S. at 678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).[1] When considering a Rule 12(b)(6) motion, the court accepts the plaintiffs well-pleaded factual allegations as true and draws all reasonable inferences in the plaintiffs favor. Id; ATSI Commc'ns. Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007). On a Rule 12(b)(6) motion, the court's review is generally limited to the allegations of the complaint, as well as "any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference," Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002), and "matters subject to judicial notice," N.Y. Pet Welfare Ass'n v. City of New York, 850 F.3d 79, 86 (2d Cir. 2017).

         III. discussion

         This motion turns on a discrete question of law. Under New York law, "[p]roper service of RPAPL [§] 1304 notice on the borrower or borrowers is a condition precedent to the commencement of a foreclosure action, and the plaintiff has the burden of establishing satisfaction with this condition." Deutsche Bank Nat'l Tr. Co. v. Spanos, 961 N.Y.S.2d 200, 202 (App. Div. 2013) (quoting Aurora Loan Servs., LLC v. Weisblum, 923 N.Y.S.2d 609, 616 (App. Div. 2011)). Does a plaintiff carry that burden at the pleading stage by alleging that it was not required to serve RPAPL § 1304 notice on the borrower because he no longer owned or resided at the subject property? The court answers this question in the negative: In the court's view, RPAPL § 1304 requires that pre-foreclosure notice to be sent to the borrower of what is at origination a "home loan," even if the borrower subsequently moves out of the property securing the loan.

         The court begins with some background on RPAPL § 1304. "In response to the mortgage foreclosure crisis, New York enacted the Foreclosure Prevention and Responsible Lending Act ('FPRLA'), which provides a series of legal protections and foreclosure prevention opportunities to homeowners at risk of losing their homes." Avail Holding LLC, v. Ramos, No. 15-CV-7068 (NGG), 2017 WL 979027, at *2 (E.D.N.Y. Mar. 10, 2017) (citing 2008 N.Y. Sess. Law ch. 472 (S. 8143-A)). Among these protections is the requirement, codified at RPAPL § 1304, that a lender or mortgage servicer provide the borrower of a "subprime" or "non-traditional home loan" with certain prescribed notices at least 90 days before initiating mortgage foreclosure or other legal action with respect to the loan. 2008 N.Y. Sess. Law ch. 472 (S. 8143-A), § 2. As the bill's sponsor explained, the purpose of the notice was to "urge[] borrowers to work with their lender or a housing counseling agency to address their situation." Introducer's Mem., N.Y. Bill Jacket, 2008 S.B. 8143, ch. 472, at 6; see also Aurora Loan Servs., 923 N.Y.S.2d at 617 (noting that the "legislative history [of RPAPL § 1304] noted a typical lack of communication between distressed homeowners and their lenders prior to commencement of litigation, leading to needless foreclosure proceedings"). One year later, the New York State Legislature expanded RPAPL § 1304 to apply to all "home loan[s]," not just subprime or non-traditional loans. 2009 N.Y. Sess. Law ch. 507 (S. 66007), § 1-a: see Deutsche Bank Nat. Trust, 961 N.Y.S.2d at 201.

         Under New York law, a mortgagee must properly serve an RPAPL § 1304 notice before bringing an action to foreclose on a mortgage securing a qualifying "home loan." See Aurora Loan Servs., LLC v. Komarovsky, 58 N.Y.S.3d 96, 100 (App. Div. 2017). When a lender, assignee, or mortgage servicer fails to demonstrate strict compliance with RPAPL § 1304, its foreclosure action must be dismissed. Weisblum, 923 N.Y.S.2d at 616; First Nat'l Bank of Chi. v. Silver, 899 N.Y.S.2d 256, 259-62 (App. Div. 2000); see also In re Gill 529 B.R. 31, 41 (Bankr. W.D.N.Y. 2015) ("New York Courts routinely dismiss foreclosure proceedings where a mortgage lender does not provide notice in strict compliance with the RPAPL § 1304.").

         With that background in mind, the court turns to the interpretive problem raised in this case. At the time Stern executed the Note and Mortgage, he resided at the Property, which was described in the recorded Mortgage as a single-family dwelling. (Mortgage at 2, 7-8.)[2] By the time Plaintiff commenced this action, however, Stern no longer resided at the Property. (Compl. ¶ 60.) Plaintiff does not allege that it served an RPAPL § 1304 notice on Stern before bringing this action, but contends instead that no such notice was required because Stern no longer resided at or owned the Property at the time. (Id.) The question before the ...


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