Mortgages - Foreclosure - Appeal of Dismissal of Prior Foreclosure Action Not Yet Resolved at Time of Commencement - Prior Foreclosure Action Still Pending for Purposes of RPAPL 1301 (3)

Monaco Cooper Lamme & Carr, PLLC, Albany (Jonathan E. Hansen of counsel), for defendant.

Pryor Cashman LLP, New York City (Andrew M. Goldsmith and James S. O'Brien Jr. of counsel), for plaintiff.

In this action, plaintiff, Sandton Credit Opportunities Special Holdings, LLC, is suing defendant, Anthony Nastasi, to collect{**87 Misc 3d at 356} on the unpaid balance of a promissory note, which, Sandton alleges, exceeds $2.5 million. The note is secured by mortgages on real property located in Greene County. Sandton previously brought an action in Supreme Court, Greene County, seeking to foreclose on those mortgages. That action was dismissed in December 2023. Sandton noticed an appeal from the dismissal of the action. Sandton's time to perfect its appeal had not expired, and Sandton had not withdrawn the appeal, when it brought this action in February 2024.

Nastasi now moves to dismiss this action under Real Property Actions and Proceedings Law § 1301 (3). Nastasi's motion requires this court to determine whether an action to recover on a mortgage debt remains "pending" for purposes of RPAPL 1301 (3) when an appeal from the dismissal of that action has been taken and not yet resolved. This court concludes that the action does remain pending in these circumstances. Nastasi's motion to dismiss is granted.

RPAPL 1301 (3) provides that while an action to recover any part of a mortgage debt "is pending . . . no other action shall be commenced or maintained to recover any part of the mortgage debt . . . without leave of the court in which the former action was brought." The statute further provides that leave of court is "a condition precedent to commencement of [the second] action"; and that "the failure to procure such leave shall be a defense to such other action."

It is undisputed that Sandton brought an action in Supreme Court, Greene County, to recover on the debt secured by the Greene County mortgage; and that the current action on the note is also one seeking to recover on the mortgage debt for purposes of section 1301 (3). It is also undisputed that the Greene Supreme action was dismissed in December 2023, before commencement of this action in February 2024; that Sandton had noticed an appeal from the Greene Supreme action; that the appeal was not withdrawn until after Nastasi moved in March 2024 to dismiss this action; and that Sandton did not obtain leave from Greene Supreme to bring this action. The question for this court is the legal import of these undisputed facts.{**87 Misc 3d at 357}

Neither party has cited appellate authority on this particular question.^[FN1] Nor has this court's own research found New York precedent directly on point. But Appellate Division authority in the closely related context of RPAPL 1501 (4) supports Nastasi's motion to dismiss.

RPAPL 1501 (4) permits a party having an interest in real property subject to a mortgage to bring an action to cancel and discharge if the statute of limitations on a mortgage-foreclosure action has expired. However, "[b]ecause the expiration of the statute of limitations is an essential element of an action pursuant to RPAPL 1501 (4), the existence of a pending foreclosure action precludes a RPAPL 1501 (4) action." (4 Stella Mgt., LLC v Citimortgage, Inc., 204 AD3d 868, 869 [2d Dept 2022].) And for section 1501 (4) purposes, if a foreclosure action has been dismissed, but an as-of-right appeal from the dismissal remains available, or has been taken and remains unresolved, that foreclosure action remains pending. (See Davis v Wilmington Sav. Fund Socy., FSB, 219 AD3d 798, 799 [2d Dept 2023] [as-of-right appeal still available]; Mizrahi v US Bank, N.A., 156 AD3d 617, 618 [2d Dept 2017] [as-of-right appeal taken but not resolved].)

This court sees no reason why a mortgage-foreclosure action should be treated as terminated for purposes of RPAPL 1301 (3) when, on the same facts, the action would be treated as still pending for purposes of RPAPL 1501 (4). If anything, the statutory purpose of section 1301 (3) cuts the other way. The Appellate Division's interpretation of "pending" or "terminated" in section 1501 (4) operates to limit the rights of a mortgagor, because that interpretation restricts the circumstances in which an action to cancel a mortgage may be maintained. Section 1301 (3), on the other hand, is intended to protect the rights of a mortgagor by shielding the mortgagor "from the expense and annoyance of two independent actions at the same time with reference to the same debt." (U.S. Bank N.A. v Beymer, 183 AD3d 454, 454 [1st Dept 2020] [internal quotation marks omitted].) So "pending" in the language of section 1301{**87 Misc 3d at 358} (3) should be interpreted at least as broadly as "pending" in the cases applying section 1501 (4)—i.e., to encompass a scenario in which a foreclosure action has been dismissed but the time to take or perfect an as-of-right appeal from the dismissal has not yet run.^[FN2]

Although less analogous than RPAPL 1501 (4), appellate precedent on when an action has been "terminated" or "finally determined" for purposes of several limitations-related tolling provisions provides for a similar rule. (See Lehman Bros. v Hughes Hubbard & Reed, 92 NY2d 1014, 1016-1017 [1998] [CPLR 205 (a)]; Joseph Francese, Inc. v Enlarged City School Dist. of Troy, 95 NY2d 59, 64-65 [2000] [CPLR 204 (b)]; Britt v Nestor, 145 AD3d 544, 545 [1st Dept 2016] [CPLR 203 (e)].)

In opposing dismissal, Sandton, citing U.S. Bank N.A. v Karnaby (190 AD3d 1005 [2d Dept 2021]), argues that "this action still should not be barred by RPAPL 1301 (3) because Sandton has dismissed its appeal." (NY St Cts Elec Filing [NYSCEF] Doc No. 80 at 4-5.) But Karnaby does not help Sandton here.

Karnaby does not address whether an action remains "pending" for section 1301 (3) purposes if an appeal has been taken. Instead, it concerns how a court should proceed when a mortgagee brings two actions on the same mortgage debt in the same court, and does not discontinue the first action until after commencement of the second.

In that case, the mortgagee brought both foreclosure actions in Supreme Court, Kings County. When the mortgagor moved to dismiss the second action, the motion court denied dismissal, noting not only that the first action had now been discontinued, but also that leave of court to bring the second action could "seemingly be given retroactively, nunc pro tunc and this Court . . . elects to do so." (2018 NY Slip Op 34577[U], *1 [Sup Ct, Kings County 2018]; see NYSCEF Doc No. 65, decision & order, in Karnaby, Sup Ct, Kings County, index No. 513122/2015.) The Second Department affirmed. It held that it was appropriate for the motion court, in deciding the request for dismissal,{**87 Misc 3d at 359} to "retroactively grant the plaintiff leave to commence the instant action, nunc pro tunc, as the defendants were not thereby placed in the position of having to defend against more than one lawsuit." (190 AD3d at 1007.) Here, on the other hand, the first action was brought in a different court (Supreme Court, Greene County). There is no suggestion in the record that Sandton sought leave of court there, even after the fact, to bring this action.

Moreover, even if the Second Department's decision in Karnaby were taken to stand for the broader proposition that a section 1301 (3) motion should be denied when action 1 is discontinued shortly after commencement of action 2, the result here would remain the same, because the Appellate Division, First Department, does not accept that proposition. In U.S. Bank N.A. v Beymer, the First Department held that the complaint was subject to dismissal because it was "undisputed that the 2008 foreclosure action was pending at the time the 2013 foreclosure action was brought, and that plaintiff did not seek leave of court before doing so." (161 AD3d 543, 544 [1st Dept 2018].) In doing so, the Court expressly rejected "[p]laintiff's arguments contesting the applicability" of section 1301 (3), "most notably" plaintiff's reliance on the fact that "the 2008 foreclosure action was dismissed prior to the relevant motion practice in the 2013 foreclosure action." (Id.) Beymer, not Karnaby, controls here. And if (as this court has concluded above) the Greene Supreme action remained pending when Sandton brought this action, Beymer requires dismissal of Sandton's complaint.^[FN3]

Given the court's conclusion on this point, the court does not reach Nastasi's alternative statute-of-limitations argument for dismissal. This court also does not reach the parties' related disagreement about whether conclusions reached by Supreme Court, Greene County, in dismissing the first action are entitled to issue-preclusive effect here for limitations purposes.

Accordingly, it is ordered that defendant's motion to dismiss the complaint is granted, and plaintiff's complaint is dismissed without prejudice, with costs and disbursements as taxed by the Clerk upon the submission of an appropriate bill of costs; and it is further ordered that defendant serve a copy of this order on plaintiff and on the office of the County Clerk (by the{**87 Misc 3d at 360} means set forth in the court's e-filing protocol, available on the e-filing page of the court's website, https://ww2.nycourts.gov/ courts/1jd/supctmanh/E-Filing.shtml), which shall enter judgment accordingly.