Onewest Bank, FSB v. Smith , 22 N.Y.S.3d 674 ( 2016 )

State of New York
Supreme Court, Appellate Division
Third Judicial Department
Decided and Entered: January 7, 2016 521333
________________________________
ONEWEST BANK, FSB,
Appellant,
v
MEMORANDUM AND ORDER
LISA M. SMITH,
Respondent,
et al.,
Defendants.
________________________________
Calendar Date: November 17, 2015
Before: Lahtinen, J.P., Garry, Rose, Lynch and Devine, JJ.
__________
Hogan Lovells US LLP, New York City (Chava Brandriss of
counsel), for appellant.
Wapner Koplovitz & Futerfas, PLLC, Kingston (Joshua N.
Koplovitz of counsel), for respondent.
__________
Devine, J.
Appeal from an order of the Supreme Court (Mott, J.),
entered September 16, 2014 in Ulster County, which, among other
things, granted defendant Lisa M. Smith's cross motion for
summary judgment dismissing the complaint against her.
Defendant Lisa M. Smith (hereinafter defendant) is the
owner of real property in the Town of Woodstock, Ulster County
and, in 2009, she borrowed over $320,000 from a subsidiary of
plaintiff that was secured by a home equity conversion mortgage,
more commonly known as a reverse mortgage, on that property (see
e.g. 12 USC § 1715z-20 [b] [3]; Banking Law § 6-h). Reverse
mortgages are designed to allow elderly homeowners to borrow
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money against the accumulated equity in their homes and, unlike
traditional mortgages, "the borrower in a reverse mortgage
receives periodic payments (or a lump sum) and need not repay the
outstanding loan balance until certain triggering events occur"
(Bennett v Donovan, 703 F3d 582, 584-585 [DC Cir 2013]). The
triggering event generally involves the death of the borrower or
the sale of the home, but the note and mortgage here create a
trigger where "[a]n obligation of the borrower under the mortgage
is not performed" and defendant Secretary of Housing and Urban
Development (hereinafter the Secretary) approves of requiring
immediate payment in full (24 CFR 206.27 [c] [2] [iii]).
Defendant was obliged under the terms of the loan documents
to maintain hazard insurance on the property and, after she
failed to pay the insurance premiums, plaintiff advanced them on
her behalf (see 24 CFR 206.27 [b] [2], [6]). Plaintiff deemed
the failure of defendant to make the payments to be a triggering
event under the note and mortgage and, after defendant failed to
repay the advances, the present action to foreclose on the
mortgage ensued. Defendant answered and asserted several
affirmative defenses, including that plaintiff had failed in
various ways to comply with requirements for reverse mortgages
set forth by the federal Department of Housing and Urban
Development. Plaintiff then moved for summary judgment,
prompting defendant to respond with a cross motion for summary
judgment or, alternatively, leave to serve an amended answer.
Supreme Court granted summary judgment to defendant, and
plaintiff now appeals.
Defendant was obliged to "pay all property charges
consisting of taxes, ground rents, flood and hazard insurance
premiums, and special assessments" under the terms of the loan
documents (24 CFR 206.205 [a]), and those documents contemplate
that foreclosure is an available remedy for her failure to
perform such an obligation (see 24 CFR 206.27 [b] [6]; [c] [2]
[iii]).1 Supreme Court nevertheless held that plaintiff was
1
Plaintiff made the reverse mortgage loan here "in
conformity with applicable federal laws and regulations
specifically regulating reverse mortgage loans" and, as such, the
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precluded from seeking foreclosure by 24 CFR 206.205 (c), which
provides that "[i]f the mortgagor fails to pay the property
charges in a timely manner, and has not elected to have the
mortgagee make the payments, the mortgagee may make the payment
for the mortgagor and charge the mortgagor's account" (emphasis
added). Language such as "may" should ordinarily be read as
permissive, "and mandatory effect is given to [it] only when
required by the context of the [regulation], the facts
surrounding its [promulgation], or the purposes sought to be
served thereby" (McKinney's Cons Laws of NY, Book 1, Statutes
§ 177 [b]). The context of 24 CFR 206.205 gives no reason to
believe that mandatory effect should be afforded to its
discretionary language and, contrary to the conclusion of Supreme
Court, neither does the purpose underlying the federal regulatory
scheme. The scheme in question is intended to enable the
Secretary to provide insurance for reverse mortgages that will
facilitate the offering of such mortgages to elderly homeowners
by lenders which, in turn, will allow the homeowners to monetize
their accumulated home equity (see 12 USC § 1715z-20 [a]; 24 CFR
206.1). This actual goal runs against an interpretation of the
regulation that would prevent a mortgagee from pursuing whatever
permissible remedy it deems appropriate to recover unpaid
carrying costs and, indeed, adopting that reading could well have
a chilling effect on the willingness of lenders to offer reverse
loan "shall be deemed to conform to the requirements of [Real
Property Law § 280-a] unless such reverse mortgage loan fails to
conform to such rules and regulations as the [S]uperintendent of
[F]inancial [S]ervices has expressly declared to be neither
preempted by, nor otherwise inconsistent with[,] such federal
laws or regulations" (Real Property Law § 280-a [4]; see Banking
Law § 6-h). Defendant asserts that the loan here does not comply
with certain requirements set forth by Real Property Law § 280-a
but, to the extent that assertion is properly before us, the
declaration of inconsistency that would render those requirements
applicable has not been made by the state Superintendent of
Financial Services (see 3 NYCRR 79.1 [c]; 79.14; Dept of
Financial Servs Banking Interpretation RE: Banking Law § 6-h,
General Regulations Part 79, Reverse Mortgages [Feb. 8, 2008],
http://www.dfs.ny.gov/legal/interpret/lo080208.htm).
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mortgages. We therefore read 24 CFR 206.205 (c) as allowing, but
not requiring, plaintiff to pay carrying charges owed by
defendant rather than resorting to foreclosure (but see Metlife
Home Loans v Vereen, 43 Misc. 3d 537, 541 [2014]).
Defendant's remaining arguments, to the extent that they
are properly before us, do not provide an alternative basis for
upholding the grant of her cross motion insofar as it sought
summary judgment dismissing the complaint. Nonetheless, we do
not agree with plaintiff's further contention that its motion for
summary judgment should have been granted. The loan documents
impose a condition precedent that plaintiff obtain "approval of
the Secretary" prior to accelerating the loan and commencing a
mortgage foreclosure action. Plaintiff submitted the affirmation
of its attorney indicating that it had obtained such approval,
but the attorney based those representations upon documents
relating to an entirely different borrower and loan. Plaintiff
thus failed to make a prima facie showing that it was entitled to
foreclose upon the mortgage, which "required the denial of its
motion [for summary judgment], regardless of the sufficiency of
the . . . opposition papers" (Nationstar Mtge., LLC v Dimura, 127
AD3d 1152, 1153 [2015]; see Winegrad v New York Univ. Med. Ctr.,
64 NY2d 851, 853 [1985]; compare Community Bank, N.A. v Naito,
118 AD3d 1181, 1181-1182 [2014]).
Lahtinen, J.P., Garry, Rose and Lynch, JJ., concur.
ORDERED that the order is modified, on the law, without
costs, by reversing so much thereof as granted defendant Lisa M.
Smith's cross motion for summary judgment; said cross motion
denied; and, as so modified, affirmed.
ENTER:
Robert D. Mayberger
Clerk of the Court