WHEN IT COMES TO EVIDENCE, “FIRST-HAND KNOWLEDGE IS POWER”

This Blog has previously addressed issues surrounding various evidentiary issues faced by foreclosing mortgage lenders, among others, in proving their prima facie case on summary judgment. <HERE=">HERE</a>">, <HERE=">HERE</a>">, <HERE=">HERE</a>"> and <HERE=">HERE</a>">. On September 25, 2019, the Appellate Division, Second Department, in JPMorgan Chase Bank v. Grennan, yet again analyzed the sufficiency of the foreclosing lender’s evidence submitted on its motion for summary judgment. One of the defendants in JPMorgan, defaulted on the repayment of a note (that was secured by a mortgage encumbering her home) in the amount of $280,000 and made payable to CTX Mortgage Company, LLC.  As a result of the defaults, JPMorgan Chase commenced a foreclosure action by the filing of a summons and verified complaint, annexed to which was a copy of the note.  In their answer, the defendants asserted among other defenses, lack of standing and failure to comply with RPAPL 1304.  (This Blog has previously treated the standing issue <HERE,=">HERE</a>," HERE=">HERE</a>" and="and"> and the RPAPL 1304 issue <HERE,=">HERE</a>," HERE=">HERE</a>" and="and">.) Plaintiff’s motion for, inter alia, summary judgment and to appoint a referee to compute was granted over defendants’ opposition.  Thereafter, plaintiff’s motion to confirm the referee’s report and for a judgment of foreclosure and sale was granted; again, over defendants’ objection.  On the JPMorgan Defendants’ appeal, the Second Department reversed the Judgment of Foreclosure and Sale and denied plaintiff’s motion for summary judgment and for an order of reference. The JPMorgan Court noted that a foreclosing plaintiff makes its prima facie case by “producing the mortgage, the unpaid note, and evidence of default. (Citations omitted.)  Also, when a standing defense is raised, a foreclosing plaintiff “must prove its standing as part of its prima facie showing on a motion for summary judgment” (citations omitted), which is done by “demonstrating that, when the action was commenced, it was either the holder or assignee of the underlying note” (citations omitted).  A “written assignment” or “physical delivery of the note” sufficiently transfers the obligation (citations omitted).  According to the JPMorgan Court, standing as the holder of the note may be established by “demonstrating that a copy of the note, including an endorsement in blank, was among the exhibits annexed to the complaint at the time the action was commenced” (citations omitted).

A promissory note is a negotiable instrument within the meaning of the Uniform Commercial Code (seeUCC 3-104<2>). A "holder" is "the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession" (UCC 1-201<21>; seeUCC 3-301). Where an instrument is endorsed in blank, it may be negotiated by delivery (seeUCC 3-202<1>; 3-204[2). "An indorsement must be . . . on the instrument or on a paper so firmly affixed thereto as to become a part thereof" (UCC 3-202<2>).  (Some citations, internal quotation marks and brackets omitted.)

The

JPMorgan

Court found that the plaintiff failed to establish its standing as a matter of law because “it cannot be ascertained from the copy of the note annexed to the complaint whether the separate page that bears the endorsement in blank was stamped on the back of the note, as alleged by the plaintiff, or on an allonge, in which case the plaintiff would have to prove that the endorsement was ‘so firmly affixed thereto as to become a part thereof,’ as required under UCC 3-202(2).” The

JPMorgan

Court also found that the lender failed to establish the borrower’s default as a matter of law due to the insufficiency of the affidavit of lender’s vice president.  A lender’s prima facie case can be based on a variety of business records “so long as the plaintiff satisfies the admissibility requirements of CPLR 4518(a), and the records themselves actually evince the facts for which they are relied upon.”  (Citations and internal quotation marks omitted.)  The Court found that although the bank officer’s affidavit “sufficient

establish

a proper foundation for the admission of a business record pursuant to CPLR 4518(a), the plaintiff failed to submit copies of the business records themselves.”  (Some citations omitted.)  Citing

Bank of N. Y. Melon v. Gordon

, 171 A.D.3d 197, 205 (2

^nd

Dep’t 2019), the

JPMorgan

Court stated that “

he business record exception to the hearsay rule applies to a writing or record and it is the record itself, not the foundational affidavit, that serves as proof of the matter asserted.”  (Some citations, internal quotation marks, brackets and ellipses omitted.) Because the bank officer failed to annex copies of the records on which he relied in attempting to establish the borrower’s default in his affidavit, the narrative descriptions about those records in the affidavit were “inadmissible hearsay.”  (Citations omitted.)  Thus, the

JPMorgan

Court stated:

While "a witness may always testify as to matters which are within his or her personal knowledge through personal observation" (Bank of N.Y. Mellon v Gordon, 171 AD3d 197, citing Jerome Prince, Richardson on Evidence §§ 4-301, 6-210 ), did not attest to such personal knowledge. Contrary to the plaintiff's assertion, a review of records maintained in the normal course of business does not vest an affiant with personal knowledge. Since affidavit was the only evidence of default proffered in support of the motion, the plaintiff failed to establish its prima facie entitlement to summary judgment on the complaint on this additional ground.”

The JPMorgan Court also found that lender failed to meet its burden of demonstrating compliance with the mailings required by RPAPL 1304 because the affiant bank officer “did not have personal knowledge of the purported mailing by first-class mail, and failed to attest that he was familiar with the plaintiff’s mailing practices and procedures.”