Opinion
23 CV 1724 (LDH)(LB)
02-20-2024
BLUE CASTLE (CAYMAN) LTD., Plaintiff, v. DEE CHANG YEE a/k/a DECHANG YEE a/k/a DE YEE, PETER DEYU TAN, CITY OF NEW YORK ENVIRONMENTAL CONTROL BOARD, CITY OF NEW YORK DEPARTMENT OF TRANSPORTATION PARKING VIOLATIONS BUREAU, SING CHEN, SUN ZHEN, ANN CHEN, Defendants.
REPORT & RECOMMENDATION
LOIS BLOOM, UNITED STATES MAGISTRATE JUDGE
Plaintiff Blue Castle (Cayman) Ltd. brings this diversity foreclosure action against defendants Dee Chang Yee a/k/a Dechang Yee a/k/a De Yee, Peter Deyu Tan, City Of New York Environmental Control Board (“ECB”), City Of New York Department Of Transportation Parking Violations Bureau (“PVB”), Sing Chen, Sun Zhen, and Ann Chen, seeking to foreclose on a mortgage encumbering certain real property located at 132-05 Avery Avenue, Flushing, NY 11355 (“Property”) pursuant to New York Real Property Actions and Proceedings Law (“RPAPL”) Article 13. Complaint (“Compl.”) ¶ 1. On August 23, 2023, the Clerk of Court noted entry of defendants' default. ECF No. 17. Plaintiff now moves for a default judgment and judgment of foreclosure and sale against all defendants. ECF No. 18. The Honorable LaShann DeArcy Hall referred plaintiff's motion for a default judgment to me for a Report and Recommendation in accordance with 28 U.S.C. § 626(b). For the following reasons, it is respectfully recommended that plaintiff's motion for a default judgment should be denied and plaintiff's complaint should be dismissed without prejudice.
Plaintiff's motion incorrectly states that the Property is “located in the County of Suffolk, State of New York.” ECF No. 18 ¶ 14.
BACKGROUND
On or around May 31, 2006, defendant Yee executed and delivered a promissory note (“Note”) to American Brokers Conduit for $760,000.00. Compl. ¶ 9; Compl. Ex. C (ECF No. 15) [“Note”]. As security for payment of the Note, Yee and defendant Tan also executed a mortgage (“Mortgage”) for the same amount on the Property, which was recorded on June 13, 2006. Compl. ¶ 8; Compl. Ex. B (ECF No. 1-4) [“Mortgage”]. In June 2015, Yee executed and delivered a loan modification agreement (“Loan Modification”) and the unpaid principal balance on the loan was changed to $793,795.99. Compl. ¶ 10; Compl. Ex. D (ECF No. 1-6) [“Loan Modification”]. The Mortgage and Note were eventually assigned to plaintiff. Compl. ¶ 12.
Yee failed to make payments that became due on January 1, 2019. Compl. ¶ 13. Plaintiff issued a notice to cure the default on January 20, 2023. Compl. Ex. E (ECF No. 1-7) at 75. As of that date, Yee owed a total of $910,740.79 in unpaid principal, accrued interest and late charges. Compl. ¶ 19(a).
PROCEDURAL HISTORY
Plaintiff commenced this action on March 6, 2023. On May 23, 2023, the Court granted plaintiff's motion to amend the caption to name defendants Sing Chen, Sun Zhen and Ann Chen and to remove the “John Doe” defendants. Despite being properly served, ECF Nos. 5, 13, 14, 15. defendants have failed to respond to the complaint or otherwise defend against the instant action. Plaintiff requested and the Clerk of Court noted entry of default against all defendants pursuant to Federal Rule of Civil Procedure 55(a). ECF No. 17. Plaintiff now moves for default judgment.
ECF No. 18. At the Court's direction, plaintiff filed supplemental material regarding service, damages, and attorney's fees. ECF No. 24.
DISCUSSION
On a motion for a default judgment, the Court “deems all the well-pleaded allegations in the pleadings to be admitted.” Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 108 (2d Cir. 1997). Even though the well-pleaded allegations are deemed admitted, the Court has a “responsibility to ensure that the factual allegations, accepted as true, provide a proper basis for liability and relief.” Rolls-Royce plc v. Rolls-Royce USA, Inc., 688 F.Supp.2d 150, 153 (E.D.N.Y. 2010) (citing Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981)). In other words, “after default it remains for the court to consider whether the unchallenged facts constitute a legitimate cause of action, since a party in default does not admit conclusions of law.” Id. (cleaned up). “[W]hen doubt exists as to whether a default should be granted or vacated, the doubt should be resolved in favor of the defaulting party.” Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 96 (2d Cir. 1993). If the unchallenged facts establish defendant's liability, the Court then determines the amount of damages due. Credit Lyonnais Secs. (USA), Inc. v. Alcantara, 183 F.3d 151, 155 (2d Cir. 1999) (citing Transatlantic Marine Claims Agency, Inc., 109 F.3d at 111).
ORDER
I. Liability
“To prevail in a mortgage foreclosure action under New York law, the plaintiff must satisfy the common law elements and the statutory requirements set forth in Article 13 of the New York Real Property Actions and Proceedings Law.” Wilmington Sav. Fund Soc'y, FSB v. Fernandez, No. 22-CV-6474, __F.Supp.3d__, 2024 WL 219092, at *5 (E.D.N.Y. Jan. 22, 2024) (citation omitted). As set forth below, plaintiff failed to satisfy RPAPL § 1306, a statutory prerequisite to commencing this mortgage foreclosure, because it did not timely file required information with the New York State Superintendent of Financial Services.
a. Common Law Requirements for Foreclosure and Sale
“Under New York law, a plaintiff moving for a default judgment in a foreclosure action must demonstrate the existence of the mortgage and mortgage note, ownership of the mortgage, and the defendant's default in payment on the loan secured by the mortgage.” Plenitude Cap. LLC v. Utica Ventures, LLC, 592 F.Supp.3d 82, 86 (E.D.N.Y. 2021) (quotation and citation omitted); see also U.S. Bank, N.A. v. Squadron VCD, LLC, 504 Fed.Appx. 30, 32 (2d Cir. 2012) (summary order) (“In a mortgage foreclosure action under New York law, a lender must prove (1) the existence of a debt, (2) secured by a mortgage, and (3) a default on that debt.” (citations omitted)).
Plaintiff has filed the Note, the Mortgage signed by defendants Yee and Tan, the Loan Modification, evidence of assignment of the Note and Mortgage to plaintiff, and established that defendant Yee defaulted by failing to make payments due in January 2019. ECF No. 1-5 (note), ECF No. 18-3 at 1 (mortgage assignment), Compl. ¶ 13. Despite proper service of the summons and complaint, ECF Nos. 5, 5-11, Yee and Tan have not answered or otherwise rebutted plaintiff's showing. Plaintiff has therefore established the common law elements of its claim as to defendants Yee and Tan.
Tan signed for himself and for Yee by power of attorney.
Plaintiff is in “physical possession” of the original Note, compl. ¶ 12, which is indorsed in blank. “[U]nder New York law, physical delivery will effect a valid assignment of a note and mortgage; a written assignment is not required” Squadron VCD, LLC, 504 Fed.Appx. at 33; see also E. Sav. Bank, FSB v. Thompson, 631 Fed.Appx. 13, 15 (2d Cir. 2015) (summary order) (holding plaintiff had standing to bring foreclosure where there was no dispute that it “possessed the original note, indorsed in blank, prior to commencing” the action).
b. Statutory Requirements
To be entitled to a judgment of foreclosure and sale, plaintiff must sufficiently allege compliance with the notice and filing requirements of RPAPL §§ 1304 and 1306. “Though these requirements are sometimes described as procedural, they are substantive in nature and thus must be followed in federal court as well as state court.” Fernandez, 2024 WL 219092, at *5 (cleaned up).
Pursuant to RPAPL § 1304, “at least 90 days prior to commencing legal action against a borrower of a home loan, a lender, assignee, or mortgage loan servicer must provide the borrower with notice stating, inter alia, that the loan is a certain number of days and dollars in default as of a certain date[.]” CIT Bank N.A. v. Donovan, 856 Fed.Appx. 335, 338 (2d Cir. 2021) (summary order). “Section 1304(2) specifies that this notice must be sent ‘by registered or certified mail and also by first-class mail to the last known address of the borrower, and to the residence that is the subject of the mortgage.'” CIT Bank N.A. v. Schiffman, 948 F.3d 529, 533 (2d Cir. 2020) (quoting RPAPL § 1304(2)). “Proper 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 of this condition.” Id. (citation and quotation omitted).
Plaintiff can establish proper service of RPAPL § 1304 notice through evidence that either (1) the notice was actually mailed; or (2) the notice would have been mailed pursuant to standard office procedure. The first approach requires plaintiff to provide “proof of the actual mailings, such as affidavits of mailing or domestic return receipts with attendant signatures.” CIT Bank N.A. v. Schiffman, 999 F.3d 113, 116 n.2 (2d Cir. 2021) (quoting Citibank, N.A. v. Conti-Scheurer, 172 A.D.3d 17, 21 (2019)). Under the second approach, plaintiff, even without proof of actual mailing, may “create a rebuttable presumption that it complied with § 1304 by submitting proof of a standard office mailing procedure designed to ensure that items are properly addressed and mailed, sworn to by someone with personal knowledge of the procedure.” Id. at 116 (quotation omitted).
“RPAPL § 1306 further requires that a foreclosure plaintiff file certain information, within three business days of mailing a § 1304 notice, with a state regulator, the Superintendent of Financial Services.” Id. at 117 (citing RPAPL § 1306(1)). “A proof of filing statement from the New York State Department of Financial Services is sufficient to establish” that a plaintiff filed with the superintendent. MTGLQ Invs., L.P. v. Assim, 209 A.D.3d 1006, 1008 (2nd Dep't 2022) (citations omitted). A plaintiff must also show that the filing statement is timely relative to the date of § 1304 notice mailing. PROF-2013-S3 Legal Title Tr. V v. Johnson, 214 A.D.3d 745, 747 (2nd Dep't 2023) (holding that “plaintiff could not establish, as a matter of law, that it complied with the requirement of RPAPL 1306 to file with the superintendent of financial services within three business days of the mailing of the notice required by RPAPL 1304” in the absence of evidence establishing the date of notice mailing (emphasis added)). “[A] plaintiff seeking a default judgment of foreclosure and sale must sufficiently plead strict compliance with RPAPL Sections 1304 and 1306; its failure to do so warrants denial of a motion for default judgment.” Wilmington PT Corp. v. Gray, No. 19-CV-1675, 2020 WL 7684876, at *4 (E.D.N.Y. Oct. 22, 2020) (citation omitted), adopted by, 2020 WL 7296858 (E.D.N.Y. Dec. 11, 2020).
Here, plaintiff fails to establish that it complied with the pre-foreclosure statutory requirements under the RPAPL. Plaintiff alleges that the § 1304 notices were “issued” on October 31, 2022-an allegation that says nothing about when they were mailed. Compl. ¶ 14. Plaintiff fails to show the § 1304 notices were mailed pursuant to standard policies and instead relies on evidence of actual mailing in the form of first-class mail receipts accompanied by certified mail tracking numbers and receipts. On its face, this evidence establishes only that plaintiff prepared the mailings. Miss Jones, LLC v. Viera, No. 18-CV-1398, 2020 WL 1527141, at *3 (E.D.N.Y. Mar. 31, 2020) (holding that “copies of certified mail receipts and stamped and addressed envelopes with the accompanying certified mail stickers attached” are insufficient because they do not prove that the letters were mailed, only that steps were taken in preparation to do so); Wilmington Sav. Fund Soc'y, FSB v. White, No. 17-CV-2288, 2021 WL 2548971, at *5 (E.D.N.Y. June 22, 2021) (“The postage meter stamp and bar code indicate that the envelopes were prepared for mailing, but not that they were actually sent, and the exhibits do not contain proof of mailing issued by the USPS.”). However, the Court takes judicial notice of the tracking histories on the USPS website associated with plaintiff's tracking numbers, which show that notice was mailed to Yee on or before November 1, 2022 and to Tan on or before November 2, 2022. See Empire Cmty. Dev., LLC v. Giambalvo-W., No. 19-CV-5341, 2020 WL 9813022, at *5 (E.D.N.Y. Mar. 6, 2020) (finding unsigned certified mail receipts combined with tracking information the Court confirmed on the USPS website sufficient to establish service of § 1304 notice), adopted by, Order dated Mar. 27, 2020; Martinez v. Staten Island Univ. Hosp., No. 19-CV-2672, 2020 WL 13837813, at *7 n.3 (E.D.N.Y. June 19, 2020) (finding that the Court may “take judicial notice of information available on mail and package carrier's tracking websites”) (collecting cases).
The first tracking entry for the notice sent to defendant Tan states it was received at a Brooklyn USPS Distribution Center at 2:14 a.m. on November 3, 2022. As it is not reasonable to infer that plaintiff mailed the notice between midnight and 2:15 a.m., the Court determines that the notice was mailed on or before November 2, 2022 and was scanned at the USPS Distribution Center on November 3, 2022. The first tracking entry for the notice sent to defendant Yee shows it arrived at a USPS Distribution Center on November 1, 2022 at 8:50 p.m. See USPS Tracking, https://tools.usps.com/go/TrackConfirmAction?tRef=fullpage&tLc=3&text28777=&tLabels=702127200003217584 16%2C70212720000321758423%2C&tABt=false# (last visited Feb. 14, 2024).
But although establishing that the § 1304 notices were mailed, the USPS tracking information reflects dates of mailing that contradict the November 4, 2022 dates of notice mailing that plaintiff reported on its § 1306 filings with the New York Superintendent of Financial Services. ECF No. 1-7 at 81-82. At minimum, this “internal inconsistency renders the assertion of compliance” with § 1306 “not well-pleaded.” Wilmington PT Corp. v. Gray, No. 19-CV-1675, 2020 WL 7296858, at *3 (E.D.N.Y. Dec. 11, 2020). While that, alone, would be sufficient grounds to deny the motion for a default judgment, the inconsistency reveals a more fundamental problem: plaintiff's § 1306 filings are untimely. As noted, § 1306 requires that plaintiff file certain information with the Superintendent regarding the borrower of a loan within three business days of mailing the § 1304 notice. As plaintiff made its § 1306 filings on November 8, 2022, a Tuesday, plaintiff was required to have mailed its § 1304 notices on or after Thursday, November 3, 2022 for the filings to have been timely. Plaintiff instead mailed the notices on or before November 2, 2022.
Plaintiff's failure to strictly comply with § 1306-a condition precedent to commencing a residential foreclosure proceeding-is fatal to its motion for a default judgment. See Gray, 2020 WL 7296858, at *3 (denying motion for default judgment where date of § 1304 mailing alleged in plaintiff's complaint differed from date of mailing reported on § 1306 filing by a single day); Freedom Mortg. Corp. v. Bullock, No. 19-CV-664, 2022 WL 4445399, at *3 (E.D.N.Y. Sept. 23, 2022) (denying motion for default judgment because plaintiff failed to strictly comply with §§ 1304 and 1306); Windward Bora LLC v. Durkovic, No. 22-CV-411, 2022 WL 16230872, at *6 (E.D.N.Y. Oct. 28, 2022) (denying motion for default judgment where § 1306 notice lacked last known telephone number of the borrower as required by statute), adopted as modified by, 2022 WL 17987045 (E.D.N.Y. Dec. 29, 2022). And because plaintiff cannot cure its untimely filing, the complaint must also be dismissed. TD Bank, N.A v. Leroy, 121 A.D.3d 1256, 1259 (3rd Dep't 2014) (citing Aurora Loan Servs., LLC v Weisblum, 85 A.D.3d 95, 103 (2nd Dep't 2011)).
Plaintiff's § 1306 filings also list defendants' phone numbers as “111111111”-placeholder phone numbers that made it impossible for the State to call defendants to offer them foreclosure assistance. Though the Court does not rely on this issue to reach its recommendation, any unexplained failure to include defendants' actual last known phone numbers on the notices would provide another reason to deny its motion for a default judgment. See Windward Bora LLC, 2022 WL 16230872, at *6.
While the Court may disregard a minor irregularity so long as it does not prejudice a substantial right of a party, N.Y. C.P.L.R. 2001, the Court declines to do so in this case for two reasons. First, defendants may be substantially prejudiced if the Court overlooks the untimely filing as defendants may have chosen not to answer due to their assessment that plaintiff's “pleading is defective and therefore cannot properly produce a judgment even if the defendant defaults.” Gray, 2020 WL 7684876, at *5. Ignoring plaintiff's noncompliance therefore risks substantial prejudice to defendants.
Second, as “the condition sought to be disregarded is a mandatory condition precedent, the plaintiffs failure to comply cannot be disregarded.” Aurora Loan Servs., LLC, 85 A.D.3d at 107, abrogated on other grounds by, Conti-Scheurer, 172 A.D.3d 17; see also CIT Bank, N.A. v. Anderson, No. 16-CV-1712, 2019 WL 3842922, at *3 (E.D.N.Y. Aug. 14, 2019) (“The Second Department . . . require[es] strict compliance with the RPAPL's notice provisions even where no reliance on the defective notice is alleged.”). Plaintiff's untimely § 1306 filing undercuts plaintiff's ability to bring this suit at all. Leroy, 121 A.D.3d at 1259 (“RPAPL 1306's condition precedent to commencing a foreclosure action is strict compliance with . . . the condition precedent [that the] lender has filed the appropriate form with the superintendent within three days of mailing the RPAPL 1304 notice to the borrower.”). Plaintiff's mistake is therefore not the equivalent of a stray typo or an overlooked signature, the type of error often forgiven through application of CPLR 2001. To hold otherwise would place the burden of demonstrating compliance with § 1306 on the borrower rather than the lender. A lender could simply fail to comply and assert the failure caused no prejudice, thereby forcing the borrower to produce proof of prejudice. But timely compliance with § 1306 is a “precondition of a foreclosure action” that plaintiff must show that it satisfied. Schiffman, 948 F.3d at 535.
In Aurora Loan Services, the Appellate Division expressly declined to offer “an opinion [on] when, if ever, a defect or irregularity in the content of an RPAPL 1304 notice might be so minimal as to warrant the exercise of the court's discretion under CPLR 2001 to avoid dismissal of the action.” 85 A.D.3d at 107 (emphasis added). This dicta pertains to the content of a § 1304 notice and does not support the Court disregarding plaintiff's failure to timely file a § 1306 notice.
The Court's reasoning is underscored by TD Bank, N.A v. Leroy, in which the Appellate Division, Third Department granted summary judgment to the defendant in a foreclosure proceeding because the plaintiff failed to file its § 1306 notice within three business days, instead waiting over three months after mailing the § 1304 notice. 121 A.D.3d at 1260. In rejecting the plaintiff's argument that the court should excuse the untimely filing under CPLR 2001, the Appellate Division did not consider whether a substantial right of the defendant was, in fact, prejudiced by the delay under the facts of that case-an analysis one would expect if the state court had reached its holding through an application of CPLR 2001. Instead, the state court dismissed the action after determining that the legislature included the filing time limit in § 1306 as a blanket condition precedent to suit to ensure that the State could quickly identify and assist distressed homeowners, thereby protecting their substantive rights. Id.; see also Anderson, 2019 WL 3842922, at *3 (finding plaintiff failed to establish prima facie compliance with condition precedent to mortgage foreclosure due to factual inaccuracy on notice even where there was no allegation the inaccuracy prejudiced defendant). While the filing delay in this case is shorter than the three months in Leroy, the difference is immaterial: in both cases, plaintiff failed to strictly comply with a condition precedent to foreclosure.
Even as the Court of Appeals has recently broadened what constitutes strict compliance with a condition precedent to a mortgage foreclosure action, it has not held in these cases that a failure to comply with a condition precedent may be disregarded. See Bank of Am., N.A. v. Kessler, 39 N.Y.3d 317, 325 (2023) (holding that a plaintiff complies with statutory language requiring that § 1304 notices be sent “in a separate envelope from any other mailing or notice” when it also includes “accurate statements that further the underlying statutory purpose of providing information to borrowers”); CIT Bank N.A. v. Schiffman, 36 N.Y.3d 550, 560 (2021) (holding that a lender complies with § 1306 where its filing statement includes information only about one of multiple borrowers of a loan). Finding a statute is not as strict as it may seem is not the same as finding that the statute does not require compliance.
It is plaintiff's obligation to comply with the statutory prerequisites to a mortgage foreclosure to receive a judgment of foreclosure and sale, notwithstanding defendants' default. See Fernandez, 2024 WL 219092, at *5 (denying motion for default judgment for failure to submit proof of compliance with RPAPL statutory requirement). Courts in this district have rejected the argument-frequently advanced by lenders-that noncompliance with a condition precedent to a mortgage foreclosure proceeding is a nonjursidictional defense that must be affirmatively raised by the defendant and thus cannot be considered on a motion for a default judgment. Some courts point to their authority under Rule 55. See Freedom Mortg. Corp. v. Cadet, No. 19-CV-3158, 2023 WL 6358070, at *6 (E.D.N.Y. Sept. 29, 2023) (“Rule 55 gives federal courts the latitude to consider nonjurisdictional defenses, even if they have not been raised by the defendant.”); Bullock, 2022 WL 4445399, at *3 (E.D.N.Y. Sept. 23, 2022) (“Regardless of whether compliance with RPAPL §§ 1304 and 1306 is an affirmative defense, it would be unfair to enter default judgment against the [defendants], despite their apparent defense to liability, solely because they have not appeared to assert it.”). Other courts have concluded that plaintiff, by alleging compliance with the statutory requirements of foreclosure, raises the issue. See Freedom Mortg. Corp. v. Monteleone, 628 F.Supp.3d 455, 465 (E.D.N.Y. 2022) (reasoning that the Court is not sua sponte raising an affirmative defense of noncompliance with a condition precedent to suit where plaintiff “asserts that it complied” with the provision “and a basic examination of the evidence it provided reveals that it has not”).
Here, plaintiff alleges that it complied with the statutory prerequisites for commencing this mortgage foreclosure action, compl. ¶ 14, but plaintiff's motion demonstrates that it has failed to do so. As nothing about defendants' default requires that the Court ignore plaintiff's shortcomings, plaintiff's motion for a default judgment should be denied and plaintiff's complaint should be dismissed.
Plaintiff's failure to comply with the Servicemembers Civil Relief Act (“SCRA”), 50 U.S.C. § 3931, provides an independent reason to deny this motion for default judgment. “That statute requires a plaintiff seeking a default judgment to file an affidavit stating whether the defendant is in the military service.” Fernandez, 2024 WL 219092, at *3. “The court lacks discretion to excuse the plaintiff's failure to comply with the statute.” Id. In its supplemental filing, defendant's counsel stated that, through the Department of Defense, plaintiff verified only that defendant Yee was not in active military service at the time of default. ECF No. 24 ¶ 4. While plaintiff's process server inquired as to defendant Tan's military service at the time of serving the summons and complaint, this is not sufficient since it occurred prior to defendant's default. Guanglei Jiao v. Shang Shang Qian Inc., No. 18-CV-5624, 2020 WL 5105063, at *2 (E.D.N.Y. Aug. 31, 2020) (“[U]nder the SCRA, these affidavits must attest to military service at the time of default. Since default cannot occur until long after service of process, affidavits from the time of service, like the plaintiffs', cannot satisfy the SCRA.”). As defendant Tan signed the mortgage and is an indispensable party to this action, the failure to verify whether he was in the military at the time of default is another reason this motion for a default judgment should be denied.
CONCLUSION
Accordingly, it is respectfully recommended that plaintiff's motion for a default judgment should be denied and that plaintiff's complaint should be dismissed without prejudice.
FILING OF OBJECTIONS TO REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have fourteen (14) days from service of this Report to file written objections. See also Fed.R.Civ.P. 6. Such objections shall be filed with the Clerk of the Court. Any request for an extension of time to file objections must be made within the fourteen-day period. Failure to file a timely objection to this Report generally waives any further judicial review. Marcella v. Capital Dist. Physician's Health Plan, Inc., 293 F.3d 42 (2d Cir. 2002); Small v. Sec'y of Health & Human Servs., 892 F.2d 15 (2d Cir. 1989); see Thomas v. Arn, 474 U.S. 140 (1985).
SO ORDERED.