JP Morgan Chase Bank v. Butler, Kings County Supreme Court, Index No. 1686/2010.
Justice Arthur Schack has once again dropped the hammer on a lender and its counsel. The case began as a typical mortgage foreclosure case. Plaintiff, JP Morgan Chase, claimed to have acquired the note in mortgage in question from WAMU after its 2008 failure and FDIC receivership. Chase’s counsel, first Steven J. Baum and then Cullen & Dykman, represented to the court at various statutorily required conferences that Chase owned the note and mortgage.
As the case progressed, however, the court learned that the true owner of the note and mortgage was Fannie Mae and that Chase only owned the servicing rights to the mortgage. In the interim, the owner/borrower was able to close on a long sale of the property and $490,000 of sale proceeds was deposited into the court registry.
Justice Schack resolved the issues as follows: the note was declared fully satisfied and the court registry was directed to pay the borrower $55,617.11 and a hearing was ordered on the disposition of the remaining $434,382.89. The issue was whether that sum should be paid to Chase or Fannie Mae. The court also directed a hearing on whether the plaintiff’s representation that Chase was the owner of the loan was sanctionable conduct and, if it was, whether Chase or its counsel should bear the financial costs of the sanction.
The lesson of JP Morgan Chase v Butler is twofold. First, foreclosing lenders should take particular care to mind all the technicalities especially when in Justice Schack’s court. Second, it is essential that the Complaint properly identify the owner of the note and mortgage. While, at least in the Second Department, it is clear that a borrower’s defense of lack of standing will be waived unless raised in the initial pleading, there is no guarantee that a court may not focus on the issue later in the proceedings.