Wednesday, March 23, 2011

Justice Anthony I. Giacobbe of the Supreme Court, Richmond County, opines that standing is a waivable defense

In a remarkable decision, Justice Giacobbe of the Supreme Court, Richmond County, held that standing was a waivable defense in the mortgage foreclosure context.  See Flagstar Bank, FSB, v. Louis P. Bonaccolta et al., 2011 N.Y. Slip Op 30645(U)(Sup. Ct. Richmond County March 10, 2011).

The following factual circumstances underlie this matter:   Flagstar Bank ("Plaintiff Bank") commences a foreclosure action against Louis P. Bonaccolta ("Defendant Borrower").  Plaintiff Bank obtains a judgment of foreclosure and sale, and schedules an foreclosure auction.  Defendant Borrower brings an Order to Show Cause to stay the foreclosure sale and requests that the Court give him more time to negotiate a short sale with the Plaintiff Bank.  Defendant Borrower argues that the foreclosure auction should be stayed by attacking the regularity of the notice of foreclosure sale of the premises, arguing that he received said notice by regular mail a mere two days before the foreclosure auction.  Defendant Borrower contends that such short notice was improper and unfair, placing the defendant "at such a disadvantage to protect his interest in 385 Ramona Avenue."  Nevertheless, the Defendant Borrower acknowledges receipt of the notice of foreclosure sale.  The Court also notes that the Defendant Borrower's attempt to sell the property via a short sale or to renegotiate the terms of the loan were fruitless.  Lastly, but most significantly, the Defendant Borrower argues in his Reply that the Plaintiff bank lacked standing to bring the foreclosure.

With regard to the Defendant Borrower's standing argument, Justice Giacobbe opines as follows:

Turning to the defendant's argument that "it may be that Flagstar Bank, FSB is not the proper mortgagor [sic]" such that plaintiff may lack sufficient standing to sue, such argument is improperly raised for the first time in his Reply, and therefore, will not be considered.  See, generally, Burlington Insurance Co. v. Guma Construction Corp., 66 A.D.3d 622 (2d Dep't 2009); Pinkston v. Weiss, 238 A.D.2d 393 (2d Dep't 1997).  Moreover, were the Court to consider it, such argument would be unavailing, particularly in light of the fact that defendant is not contesting service and that the affidavits of service appear regular on their face, because where, as here, a defendant has failed to raise the affirmative defense of a plaintiff's lack of standing in an answer or pre-answer motion to dismiss, the objection is deemed waived.  HSBC Bank, USA v. Dammond, 59 A.D.3d 679 (2d Dep't 2009); Wells Fargo Bank Minnesota, NA v. Mastropaolo, 42 A.D.3d 239 (2d Dep't 2007).
Justice Giacobbe's position is remarkable insofar as there is some disagreement among Staten Island judges regarding the waivability of the standing defense.  Justice Maltese quite explicitly holds that standing is never waivable and the defense can be raised at any time. See e.g. Deutsche Bank National Trust Company v Abbate, 25 Misc 3d 1216(A) 2009 NYSlipOp 52154(U) (Sup. Ct. Richmond County October 6, 2009). Justice McMahon, however, is in agreement with Justice Giacobbe and regularly holds that standing is a waivable defense. In my experience, Justice Fusco, Justice Aliotta and Justice Minardo, have not ruled one way or another on the standing issue; rather, they appear to avoid the issue in the foreclosure context and seem to make a point of rendering their decisions on some other basis.

For my part, I respectfully disagree with Justice Giacobbe and Justice McMahon on the standing issue, and agree with the Justice Maltese that standing cannot be waived.  I cite Aurora Loan Services, LLC, v. Thomas, 70 A.D.3d 986, 897 N.Y.S.2d 140 (2d Dep't 2010), wherein the Second Department held that a defendant borrower in a foreclosure action did not waive the defense of lack of standing--notwithstanding the Mastropaolo decision, notably cited as authority by J. Giacobbe--and further held that the defendant borrower should be granted leave to amend his pleadings to include lack of standing as an affirmative defense.  Indeed, the Second Department explicitly distinguished its position from that of Mastropaolo.  With regard to amending pleadings, leave to amend is to be freely given absent prejudice or surprise on the other party.  Essentially, the Second Department is saying that standing cannot be waived, since motion to amend pleadings are almost always granted.

The bottom line is that standing, according to the Second Department, isn't automatically waived even if the defense  happens to not be raised in an answer or pre-answer motion to dismiss.  The Court of Appeals held that “[s]tanding to sue is critical to the proper functioning of the judicial system. It is a threshold issue. If standing is denied, the pathway to the courthouse is blocked.”  See Saratoga County Chamber of Commerce, Inc. v Pataki, 100 N.Y.2d, 801, 812 (2003), cert denied 540 U.S. 1017, 124 S. Ct. 570, 157 L. Ed. 2d 430 (2003).

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