Supreme Court, Suffolk County, March 6, 2018

Leopold & Associates, PLLC, Armonk (Henry P. DiStefano of counsel), for plaintiff.

Grausso & Foy, LLP, Riverhead (William Grausso of counsel), for defendants.

This is an action to foreclose a mortgage on residential real property located at 9 Nursery Court, Huntington, Suffolk County, New York given by defendants David L. and Tracy J. Cohen to Quicken Loans, Inc. on March 13, 2006, to secure a note given by defendants to Quicken on the same day. The mortgage made Mortgage Electronic Registration Systems, Inc. (MERS) nominee for Quicken as mortgagee solely for the purpose of recording the mortgage, which was recorded with the Suffolk County Clerk on April 5, 2006.

Subsequently, plaintiff Deutsche Bank National Trust Company, as trustee for GSR Mortgage Loan Trust 2007-ARI, Mortgage Pass-Through Certificates, Series 2007-ARI, Quicken's alleged successor in interest, commenced this action upon the default in payment by defendants of their obligations under the note and mortgage by filing the summons, complaint and notice of pendency with the Clerk on July 29, 2009. Defendants answered, raising affirmative defenses including the claim that plaintiff lacked standing to prosecute the action.

Plaintiff moved for summary judgment, defendant filed opposition and the motion was orally argued before this court on September 26, 2016. A more complete history of the case is set{**60 Misc 3d at 185} forth in the decision placed on the record that day, which granted plaintiff's application to amend the caption by excising the "John Doe" and "Jane Doe" defendants, granted plaintiff partial summary judgment dismissing all of defendants' affirmative defenses except their claim that plaintiff lacked standing to prosecute the action, as there were questions of fact as to that issue, and denied plaintiff's application for the appointment of a referee pursuant to RPAPL 1321.

At the time of the court's decision on the record, the court issued a discovery order and schedule which directed a limited issue trial on the issue of plaintiff's standing to bring the action and authorized a limited period of discovery. Although the court's order authorized successive summary judgment motions after the filing of a note of issue, neither party availed themselves of this opportunity. The case appeared for a limited issue trial before the court on October 31, 2017.

The court wishes to emphasize that this was a trial, not a "Framed Issue Hearing," as it is characterized in plaintiff's memorandum of law. The court's decision of September 26, 2016, granted plaintiff partial summary judgment, but directed that a limited issue trial on the remaining issue of plaintiff's standing to bring the action be held. The decision set a discovery schedule, directed that a note of issue be filed, and only after that would renewed summary judgment motions be allowed. The parties entered into a certification order and plaintiff filed a "Note of Issue—Notice For Trial." No summary judgment motions were filed and the parties proceeded to trial.

After the trial, the court reserved decision and directed the parties to file posttrial memorandums of law/briefs in support of their arguments, including defendants' objections to the admission of plaintiff's exhibit 7 into evidence as a business record, plaintiff's proof of its standing to prosecute the action, and in response to certain other questions raised by the court during the trial. Both parties were to submit their memorandums/briefs simultaneously on December 19, 2017. On December 18, 2017, the court received a faxed letter from plaintiff's counsel, copied to defendants' counsel, requesting an extension of time to file his memorandum of law as he had not yet received the transcript. The court advised both parties to file their memorandums/briefs on January 17, 2018. On the afternoon of January 16, 2018, plaintiff's counsel faxed another{**60 Misc 3d at 186} letter to the court, copying defendants' counsel, requesting a further extension of the time for the parties to file their memorandums of law. The court's staff granted the request and extended the time for both sides to file memorandums to February 22, 2018, but no record of this was placed in the court file or in the computer records maintained by the court. Defendants' counsel filed his memorandum of law on January 17, 2018, and as there was no record of the last extension in the file or the computer records, the court had staff call plaintiff's counsel's office to inquire into the status of plaintiff's memorandum of law, but the phone call was not returned. As there was no response from plaintiff's counsel's office, the court issued an order on February 6, 2018, dismissing plaintiff's action for failure to establish its standing at trial. Upon receiving a copy of the decision, plaintiff's counsel called chambers protesting that he had been granted until February 22nd to submit his memorandum. He was asked to provide a copy of the fax granting the extension, but never provided it. The court's staff found the faxed reply to his letter and the court issued an order dated February 14, 2018, vacating and withdrawing the order of February 6, 2018. Plaintiff's counsel submitted his memorandum of law on February 22, 2018, which has been considered by the court in rendering this decision.

At the limited issue trial plaintiff presented Carlos Steele, a senior loan analyst employed by plaintiff's present servicer, Ocwen Financial Servicing. After he was sworn, Mr. Steele established his ability to testify as to Ocwen's business records pursuant to CPLR 4518, but claimed that those business records also included business records made by other servicers prior to Ocwen becoming plaintiff's servicer, including Litton Loan Servicing. By the purported absorption of Litton's records, plaintiff argued that parts of plaintiff's records were also{**60 Misc 3d at 187} absorbed by Ocwen, including statements as to when plaintiff came into possession of the note. Although later in his testimony Mr. Steele stated that Ocwen acquired Litton, no date of that [*2]acquisition was established, nor was any other proof offered of the acquisition. Before testifying to Litton's acquisition, Mr. Steele attempted to establish that records of prior servicers were "boarded" by Ocwen to establish if they met the standards of Ocwen's own maintenance of its business records. Although Mr. Steele stated he was trained in this "boarding" process, he did not describe it in detail, nor did he state that he did the "boarding" himself. Mr. Steele did not testify to any familiarity with the business practices and procedures of Litton and stated in response to inquiry by the court that he was not familiar with plaintiff's procedures for maintaining its own business records.

Plaintiff entered into evidence, either without objection or by stipulation, six documents including a copy of a limited power of attorney given to Ocwen by plaintiff to act as plaintiff's servicer, dated February 18, 2015, which included the trust involved in this action (exhibit 1); a prior limited power of attorney given by plaintiff to Ocwen to act as its servicer which included the trust involved in this action filed with the Clerk of Palm Beach County, Florida on December 21, 2011, and dated December 9, 2011 (exhibit 2); a copy of the adjustable rate note executed by defendants to Quicken bearing an undated indorsement on the signature page from Quicken to plaintiff (exhibit 3); a copy of the mortgage between defendants and Quicken, with MERS acting as Quicken's nominee solely for recording the mortgage filed with the Clerk on April 5, 2006 (exhibit 4); an assignment of the mortgage to plaintiff by MERS, also purportedly assigning the note, dated July 22, 2009, and filed with the Clerk on August 11, 2009 (exhibit 5); and a copy of the summons and complaint filed by plaintiff's prior counsel with the Clerk on July 29, 2009 (exhibit 6).

Plaintiff also attempted, through Mr. Steele's testimony, to enter into evidence a portion of a computer printout identified by him as coming from Ocwen's business records (exhibit 7 for identification only). Plaintiff contended that this printout was admissible pursuant to CPLR 4518 as a business record of Ocwen and contended that it established possession of the indorsed note by plaintiff prior to the commencement of the action, thus proving its standing to commence the action. Defendants' counsel objected to the admissibility of this exhibit{**60 Misc 3d at 188} and of any testimony by Mr. Steele based thereon. After voir dire and questioning by both attorneys the court reserved decision on the admissibility of the document and testimony pending the submission of memorandums of law/briefs by counsel referred to above.

Plaintiff's proof of its standing rested upon the admissibility of exhibit 7 (the exhibit). The court sustains defendants' counsel's objection and denies plaintiff's application to admit the exhibit marked for identification into evidence.

[1] Plaintiff offered the exhibit as a business record admissible pursuant to CPLR 4518. The court questions whether the exhibit is a business record as determined by CPLR 4518 or a document produced specifically for litigation, and therefore not admissible pursuant to CPLR 4518 (see Cornier v Spagna, 101 AD2d 141 [1st Dept 1984]; National States Elec. Corp. v LFO Constr. Corp., 203 AD2d 49 [1st Dept 1994]; 76-82 St. Marks, LLC v Gluck, 147 AD3d 1011 [2d Dept 2017]). Although not in evidence, the court of necessity had listened to the description of the exhibit given by Mr. Steele on direct and cross-examination and had to view the exhibit to [*3]rule upon its admissibility. Both Mr. Steele's testimony and the document itself showed that the exhibit was printed by another employee of Ocwen on October 3, 2017, four weeks before the trial. The exhibit appears to actually be a "comment" made in Ocwen's records on May 22, 2017, by a third employee of Ocwen and to be a compilation made by him of the alleged history of transfers of the note based upon his review of other records originating from not only Ocwen, but also Litton prior to it being purchased by Ocwen, and plaintiff's records. The exhibit appears to be inserted in Ocwen's records in an attempt to establish the history of possession of the note at a time after the court set the case for a limited issue trial on the issue of plaintiff's standing, after the case was certified for trial and a note of issue was to be filed. Mr. Steele testified that "[i]t gives a transaction history from Litton to Deutsche to Ocwen of the note going back and forth." (See trial tr at 38, lines 23-25.) This record appears to be made in an attempt to produce an Ocwen "business record" that establishes plaintiff's possession of the note prior to the commencement of the action in anticipation for use at trial. As such the court finds that it is a document prepared specifically for litigation and inadmissible pursuant to the business{**60 Misc 3d at 189} record rule (CPLR 4518). A hallmark of the reliability of hearsay evidence admitted pursuant to CPLR 4518 is that it can be trusted because it is made as part of the regular course of business practices and procedures of an entity, at or about the time of the events that it relates to. When this is not the manner in which a record is produced, and instead, as here, it is made after the events it purports to relate to for the purposes of litigation, that trustworthiness dissipates. The court denies the admission of the exhibit as a business record pursuant to CPLR 4518.

[2] Even if the court were to consider this a "business record," it fails to meet the standards of admissibility pursuant to CPLR 4518 on a number of grounds. First, its proffer by plaintiff through the testimony of Mr. Steele fails to meet all of the required elements of CPLR 4518 (a). The statute requires that the court find that the writing or record was made in the regular course of business at the time of the act, transaction, occurrence or event or within a reasonable time thereafter. Mr. Steele's testimony offers no credible proof that the act that the records are offered to prove, plaintiff's possession of the indorsed note prior to the filing of the action, is recorded in Ocwen's business records at or within a reasonable time after that event. Although in response to a question by plaintiff's counsel Mr. Steele may have stated that the exhibit was made at or near the time of the "act" (see trial tr at 38, line 20 through 40, line 7), that may establish that the compilation was made at or about the time it was put together in May 2017, but it does not establish that the entry was made at or about the time of the act it intends to memorialize, plaintiff's alleged possession of the indorsed note on March 22, 2006, over 11 years earlier. In fact when questioned by the court, Mr. Steele stated that the notation in the exhibit that plaintiff received the original note on March 22, 2006, was made at a time prior to Ocwen becoming servicer and that in essence, someone else reviewed another entity's records that showed the act occurred before the notation was made in May 2017 "entering" them into Ocwen's records (see trial tr at 49, line 4 through 50, line 15). Mr. Steele fails to establish that the notation was made at or about the time of the "act" it refers to. It is attempted to be entered not to prove the compilation was made in May 2017, but for the truth of the fact that plaintiff possessed the note [*4]on{**60 Misc 3d at 190} March 22, 2006. For the court to find otherwise, on this record, would be unsupportable.

Second, Mr. Steele's testimony attempts to establish that plaintiff possessed the note on March 22, 2006, or at least before the action was filed on July 29, 2009, by relying upon an entry made in Ocwen's records in May 2017 that someone else had reviewed. Plaintiff's counsel attempts to establish Ocwen's "boarding" process, an apparent review by Ocwen of other entities' business records it incorporates into its own. This process was presented by counsel as some assurance of the accuracy of other entities' prior business records. Counsel's questions of Mr. Steele did not fully describe the process to establish this "authenticity," and makes it appear that Mr. Steele performed this "boarding" process for the records here. Upon questioning by the court, although Mr. Steele stated that he is trained in these procedures, he stated that he only reviewed the documents when preparing for his testimony in court, that he does not review what other people have already reviewed in the "boarding" process, and that the "boarding" process is something independent of the duties he performs (see trial tr at 56, line 14 through 58, line 10). Even if the court wished to accept this "boarding process" as some proof of the reliability and trustworthiness of others' records incorporated in Ocwen's records, and somehow then find that they are admissible as Ocwen's business records pursuant to CPLR 4518, plaintiff's proof fails to establish that.

Even if the court assumed that Litton's records became Ocwen's records upon Ocwen's purchase of Litton, a fact only referred to in passing and not established by any proof of that corporate purchase, the records of these companies do not establish plaintiff's possession of the indorsed note prior to the filing of the action. The two power of attorneys (exhibits 1, 2) establish Ocwen's status, authority and obligations as servicer for plaintiff at the earliest as of December 9, 2011. Any transfer of the note to Ocwen at that time fails to prove that plaintiff had possession of the indorsed note on or before July 29, 2009. No proof of the power of attorney given by plaintiff to Litton was established. Even if the exhibit had been allowed into evidence as to Ocwen/Litton's business records, it too at best could only establish that Litton had received the indorsed note from plaintiff on August 17, 2010. All of this fails to establish plaintiff's standing to bring the action on July 29, 2009.{**60 Misc 3d at 191}

In a mortgage foreclosure action plaintiff establishes its standing where it has proved by admissible evidence that it is the holder or assignee of both the subject mortgage and of the underlying note at the time the action is commenced (see HSBC Bank USA v Hernandez, 92 AD3d 843 [2d Dept 2012]; Wells Fargo Bank, N.A. v Rooney, 132 AD3d 980 [2d Dept 2015]). Plaintiff establishes its lawful status as assignee, either by written assignment or physical delivery of the note prior to the filing of the complaint (see Aurora Loan Servs., LLC v Weisblum, 85 AD3d 95 [2d Dept 2011]; Bank of N.Y. Mellon v Gales, 116 AD3d 723 [2d Dept 2014]). A "holder" of the note is a person in possession of the negotiable instrument that is payable either to bearer or an identified person that is the person in possession (UCC 1-201 [b] [21]; 3-202 [1]; 3-204 [2]; see Deutsche Bank Natl. Trust Co. v Brewton, 142 AD3d 683 [2d Dept 2016]; U.S. Bank N.A. v Cruz, 147 AD3d 1103 [2d Dept 2017]). A written assignment or physical delivery prior to the commencement of the action is sufficient to transfer [*5]the obligation, and the mortgage passes with the debt as an inseparable incident thereto (see U.S. Bank, N.A. v Collymore, 68 AD3d 752 [2d Dept 2009]; Bank of N.Y. Mellon v Gales).

[3] It has been long and well established that the mere filing of papers received from other entities which are retained in the recipient's regular course of business do not qualify those papers as business records of the recipient so as to meet the requirements of CPLR 4518 as exceptions to the rule against hearsay (see Standard Textile Co. v National Equip. Rental, 80 AD2d 911 [2d Dept 1981]). In order for the testimony of a representative of Ocwen, such as Mr. Steele, to prove that plaintiff had possession of the note on March 22, 2006, or at the time the action was filed, that witness must establish his/her personal knowledge of the business practices and procedures of plaintiff. The failure of Mr. Steele to establish his personal knowledge of plaintiff's business practices and procedures makes his testimony inadmissible on that issue and as such, fails to support the admission of the exhibit into evidence, or provide proof establishing plaintiff's possession of the note prior to commencement of the action and therefore its standing (CPLR 4518; see Aurora Loan Servs., LLC v Mercius, 138 AD3d 650 [2d Dept 2016]; U.S. Bank N.A. v Handler, 140 AD3d 948 [2d Dept 2016]; Deutsche Bank Natl. Trust Co. v Brewton, 142 AD3d 683 [2d Dept 2016]; HSBC Mtge. Servs., Inc. v Royal, {**60 Misc 3d at 192}142 AD3d 952 [2d Dept 2016]; Aurora Loan Servs., LLC v Baritz, 144 AD3d 618 [2d Dept 2016]; Bank of N.Y. v Willis, 150 AD3d 652 [2d Dept 2017]; Aurora Loan Servs., LLC v Komarovsky, 151 AD3d 924 [2d Dept 2017]; Wells Fargo Bank, N.A. v Talley, 153 AD3d 583 [2d Dept 2017]; Bank of N.Y. Mellon v Cutler, 154 AD3d 910 [2d Dept 2017]; Bank of N.Y. Mellon v Alli, 156 AD3d 597 [2d Dept 2017]; Bank of N.Y. Mellon v Lopes, 158 AD3d 662 [2d Dept 2018]; US Bank, N.A. v Ballin, 158 AD3d 786 [2d Dept 2018]; OneWest Bank, FSB v Berino, 158 AD3d 811 [2d Dept 2018]).

If a witness employed by plaintiff's present servicer attempts to testify concerning the business records of a prior holder of the note or the plaintiff, he/she must establish his/her ability to do so by showing personal knowledge and familiarity with the record keeping practices and procedures of that entity (see Arch Bay Holdings, LLC v Albanese, 146 AD3d 849 [2d Dept 2017]; Aurora Loan Servs., LLC v Ang, 150 AD3d 649 [2d Dept 2017]). Mr. Steele testified that he was not familiar with plaintiff's practices for maintaining its business records and that plaintiff was custodian of its records on March 22, 2006 (see trial tr at 48, line 24 through 50, line 15). He provides no proof of his familiarity with Litton's business practices and procedures, and as indicated, it appears that Litton only possessed the note as plaintiff's servicer after the action was filed. He offers no testimony as to the business practices, procedures or records of any other possible prior servicer. Having failed to establish his familiarity with these practices and procedures, his testimony fails to establish plaintiff's standing to prosecute the action.

Plaintiff's argument, both at the trial and in its memorandum of law, is that the testimony of Mr. Steele relating to the business records of Ocwen, plaintiff and prior servicers is not impermissible hearsay and is admissible pursuant to CPLR 4518, over the objection of defendants. To support this thesis plaintiff relies upon holdings of the First and Third Departments of the Appellate Division. Those courts interpret the admissibility pursuant to CPLR 4518 of other entities' business records incorporated into the business records of a successor differently than has the Second Department. This is indicated by a comparison of the cases cited by plaintiff with the holdings set forth by the Second Department in the cases cited [*6]above. Plaintiff actually cites three Second Department cases in support of its position, although one is cited only to the affirmance{**60 Misc 3d at 193} by the Court of Appeals. Viviane Etienne Med. Care, P.C. v Country-Wide Ins. Co. (31 Misc 3d 21 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2011], mod 114 AD3d 33 [2d Dept 2013], affd 25 NY3d 498 [2015]), cited by plaintiff, directly overrules a second cited case, Matter of Carothers v GEICO Indem. Co. (79 AD3d 864 [2d Dept 2010]), as being a deviation from its prior holdings. The third case cited by plaintiff, People v DiSalvo (284 AD2d 547 [2d Dept 2001]), was discussed and distinguished by the appellate term's decision in Vivian Etienne Med. Care, P.C. v Country-Wide Ins. Co. (31 Misc 3d 21 [App Term, 2d Dept, 2d, 11th & 13th Jud Dists 2011]), supra, affirmed as modified by the Appellate Division and Court of Appeals, and involved a business under contract with a municipality which submitted proof of the amount of waste it was "dumping" pursuant to that contract, a far different circumstance than the relationship between plaintiff, its prior servicers and Ocwen herein. Although plaintiff cites a decision by another Suffolk County Supreme Court Justice which criticized and rejected the position of the Second Department on this issue, this court will continue to follow the clear holdings of the Second Department.

The additional arguments of plaintiff in support of the admissibility of Mr. Steele's testimony and the exhibit are without merit. Plaintiff argues that its and its servicers' business practices cause documents to be constantly transferred from one entity to another, thereby making the Second Department's interpretation of the business records rule an unrealistic burden upon them. This is akin to the defendant convicted of murdering his parents asking the court for mercy because he is an orphan. Both are self-caused problems. If plaintiff wishes to be successful in foreclosure actions before New York's courts, it should be aware of New York's business record rule and operate in conformity with it. As indicated below, a business operating in conformity with good business practices and procedures should be able to present someone from its own staff who could testify that its business records show when it received possession of the note, or present a representative of the servicer or law firm who received the note from plaintiff in preparation for the filing of the action, who could testify that its business records show that the note was in its possession at the time the action was filed. Such a practice would not "ensure lifetime employment" for whoever participated in receipt of the note as claimed by plaintiff, but would only require the testimony of{**60 Misc 3d at 194} someone from that entity who could testify to its business practices or procedures to satisfy the requirements of CPLR 4518. It seems that plaintiff would rather stretch the rules of evidence to fit its needs than comply with them; if that is its choice, it will sometimes bear the result of such conduct, as in this case.

The argument that defendants allowed the admission of other hearsay testimony, either by stipulation or without objection, therefore they have waived any objection to the present hearsay is belied by basic trial practice. Often an attorney does not make an available objection because the evidence offered does not hurt his/her client's position, yet makes the objection to hearsay when the evidence is damaging. The strategy in doing so does not constitute a waiver of all hearsay objections as to every piece of evidence allegedly a "business record," and evidence objected to will only be admissible if it is proper. Here, defendants' stipulations or failure to raise an objection to prior evidence does not waive defendants' right to object to Mr. Steele's testimony on this point or to the admission of the exhibit.

[4] The only other proof offered by plaintiff at trial to establish its standing is the offer of the assignment of mortgage from MERS to plaintiff filed with the Clerk on August 11, 2009, dated July 22, 2009, seven days prior to the filing of the action (exhibit 5). This evidence was admitted by stipulation, as was a copy of the original mortgage filed with the Clerk (exhibit 4). As previously indicated the mortgage between defendants and Quicken noted that MERS was acting as Quicken's nominee solely for recording the mortgage; it gave MERS no authority over the note. A purported assignment of the note and mortgage from MERS to plaintiff at best transferred only the mortgage, as plaintiff provides no proof of the authority for MERS to assign the note (see Bank of N.Y. v Silverberg, 86 AD3d 274 [2d Dept 2011]), and thus fails to demonstrate that the note was assigned at that time (see Mortgage Elec. Registration Sys., Inc. v Coakley, 41 AD3d 674 [2d Dept 2007]; US Bank N.A. v Faruque, 120 AD3d 575 [2d Dept 2014]; Aurora Loan Servs., LLC v Baritz, 144 AD3d 618 [2d Dept 2016]). Therefore, it cannot establish plaintiff's standing to prosecute the action.{**60 Misc 3d at 195}

Plaintiff had the opportunity to present other witnesses who could have established plaintiff's possession of the note prior to commencement of the action. Plaintiff could have produced an employee of plaintiff who, through plaintiff's business records, could have established when plaintiff came into possession of the indorsed note. Plaintiff could have produced an employee of a prior servicer who serviced the loan for plaintiff at or about the time that the action was filed and could have established plaintiff's possession of the note at the time the action was commenced through its business records, or established that plaintiff had transferred the note to it prior to the action being commenced on its behalf. Plaintiff could also have called a representative of plaintiff's former counsel who commenced the action on behalf of plaintiff and could have provided through that law firm's records proof that plaintiff possessed the note at the time of commencement and/or had transferred the note to it so that the action could be filed. Plaintiff failed to do so and the reasons for that failure and its attempt to rely upon the "proof" presented here is best known to plaintiff.

As plaintiff has failed to establish at trial its prima facie requirement to prove its standing to prosecute the action by establishing that it was either holder of the note, or assignee thereof, at the time the action was commenced, the court is constrained to deny it judgment upon its complaint and to dismiss that complaint. Accordingly it is ordered that plaintiff's action to foreclose the above mortgage under index No. 29628-2009 is dismissed for failure of plaintiff's proof to establish its standing to bring this action at trial.