Federal National Mortgage Association v. McDonald
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Attorneys and Parties
Brief Summary
Mortgage foreclosure procedure, including compliance with Real Property Actions and Proceedings Law (RPAPL) 1304 [pre-foreclosure notice requirement for certain home loans] and the evidentiary sufficiency of a referee's computation of the amount due.
The Supreme Court, Kings County, confirmed the referee's report, denied Valerie McDonald's cross-motion for summary judgment dismissing the complaint, and issued a judgment of foreclosure and sale.
The Appellate Division reversed the order and judgment of foreclosure and sale insofar as appealed from, denied the branches of the plaintiff's motion seeking confirmation of the referee's report and a judgment of foreclosure and sale, rejected the referee's report, and remitted for a new computation.
The referee's computation was based on an affidavit relying on unidentified and unproduced business records, which constituted inadmissible hearsay and did not substantially support the report. The court, however, upheld the denial of the defendant's cross-motion because her earlier default in opposing summary judgment had not been vacated, precluding her from using RPAPL 1304 as a basis for dismissal.
Background
In 2011, the plaintiff's predecessor in interest commenced a mortgage foreclosure action against Valerie McDonald and others concerning Brooklyn property. McDonald answered and asserted affirmative defenses, including lack of compliance with RPAPL 1304 [pre-foreclosure notice requirement for certain home loans]. The plaintiff's predecessor later moved for summary judgment, to strike her answer and affirmative defenses, and for an order of reference. McDonald did not oppose that motion, and the Supreme Court granted it in 2017. After a referee computed the amount due, the plaintiff moved to confirm the report and for a judgment of foreclosure and sale. McDonald opposed and cross-moved for summary judgment dismissing the complaint based on alleged noncompliance with RPAPL 1304.
Lower Court Decision
The Supreme Court granted the plaintiff's motion to confirm the referee's report and for a judgment of foreclosure and sale, denied McDonald's cross-motion for summary judgment dismissing the complaint, and later entered an order and judgment directing sale of the property.
Appellate Division Reversal
The Appellate Division dismissed the direct appeal from the February 17, 2023 order because the right to appeal from that order terminated upon entry of the later order and judgment of foreclosure and sale, with the issues reviewable on the appeal from the judgment. On the merits, it held that McDonald could not obtain summary judgment based on RPAPL 1304 because she never secured vacatur of her default in failing to oppose the earlier summary judgment motion. But it reversed the order and judgment of foreclosure and sale insofar as appealed from because the referee's findings were not substantially supported by the record. The affidavit supporting the computation relied on unidentified and unproduced business records and therefore lacked probative value. The matter was remitted for a new report computing the amount due, followed by further proceedings under CPLR 4403 [court review and disposition of a referee's report] and entry of an appropriate amended judgment.
Legal Significance
This decision reinforces two recurring foreclosure principles in New York. First, a borrower who defaults in opposing an earlier dispositive motion cannot later revive a defense such as RPAPL 1304 without first obtaining vacatur of that default. Second, even where liability has already been established, a lender must still prove the amount due with admissible evidence; a referee's report cannot be confirmed if the computation rests on hearsay drawn from unidentified or unproduced business records.
A foreclosure plaintiff may win on liability yet still lose its foreclosure judgment if the amount due is not supported by competent proof. Referee computations must rest on properly supported business records, and defendants who default on earlier motions must first vacate that default before relying on defenses like RPAPL 1304.