Adam Leitman Bailey, P.C. obtained a first-of-its-kind Appellate Division, First Department decision allowing a Manhattan condominium to defeat a first mortgage foreclosure and protect its interest in a condominium unit.
Because New York law provides that first mortgage lenders have priority over condominium charge liens, where a unit owner stops paying both her mortgage and her condominium charges, condominiums must often wait years without payment and then receive nothing while a mortgage foreclosure slowly winds its way through the courts. In Deutsche Bank National Trust Company v. Tanibajeva, a foreclosure originally filed in 2008, this problem had grown particularly acute for a Manhattan condominium.
To help the condominium collect its arrears, Adam Leitman Bailey, P.C. brought a separate contract action for damages against the unit owner. To settle that action, the unit owner agreed to vacate the unit and deed it to the condominium. This allowed the condominium to rent out the unit and collect rental income to make up for the years of common charge arrears.
Once the title to the unit was in the name of the condominium, the firm took over defense of the foreclosure to protect the condominium’s new ownership of the unit, ultimately winning dismissal of the foreclosure in the Supreme Court, New York County.
In its appeal of the dismissal, the lender made two significant arguments, both of which were rejected by the First Department in landmark rulings. First, the lender argued that as a new owner of the unit, the condominium was not allowed to challenge the lender’s claim that it was the proper holder of the mortgage. Second, the lender argued that it was the proper holder of the mortgage on the basis of several disputed assignment documents.
On behalf of the condominium, Adam Leitman Bailey, P.C. argued that, despite becoming owner of the unit only after years of foreclosure litigation, the condominium had the right to object to the lender’s claim that it was a proper holder of the mortgage entitled to bring the foreclosure. The court agreed, holding that as unit owner, the condominium had “standing to challenge any element of plaintiff’s claims, including the assignment and delivery of the note and mortgage, to establish its affirmative defense that plaintiff lacks standing.” This is the first appellate ruling in New York holding that a condominium that takes title to a unit based on the owner’s arrears steps into the owner’s shoes in defending a foreclosure against the unit.
Adam Leitman Bailey, P.C. also challenged the lender’s claim that it was the proper holder of the mortgage. New Century Mortgage Corporation had originated the mortgage, and later went through a bankruptcy in which all of its assets were transferred into a liquidating trust. Following this bankruptcy, certain individuals had signed documents, purportedly in the name of the liquidated New Century, assigning the mortgage to the lender bringing the foreclosure, a mortgage backed securities trust.
In examining the lender’s claim that it was the proper holder, Adam Leitman Bailey, P.C. undertook a detailed review of New Century’s Delaware bankruptcy documents and mortgage assignment cases from around the country. Based on its research, the firm found that the individuals signing the documents were officers of the lender’s loan servicer, Countrywide, not the bankrupt New Century, and that these individuals had signed them without any authority after the transfer of New Century’s assets to the bankruptcy liquidating trust.
The First Department upheld the analysis propounded by Adam Leitman Bailey, P.C. in all respects, finding that under the national case law cited by the firm, it was impossible for the purported assignments to be valid, that the documents had been improperly signed by the loan servicer, Countrywide, and that the assignments were therefore a nullity. The court found the defective assignments deprived the plaintiff of standing to bring the foreclosure, and thus affirmed its dismissal. Again, this was the first appellate ruling in New York dismissing a foreclosure based on unauthorized signature of loan assignment documents by a lender’s loan servicer.
Together, these two new holdings give condominiums a potential way out of the untenable situation they face when a unit owner stops paying and the lender’s pending foreclosure prevents them from enforcing their common charge lien rights.
The condominium board was represented by William J. Geller and Jeffrey R. Metz on behalf of Adam Leitman Bailey, P.C.