Avelo Mortgage, LLC v Stewart
Attorneys and Parties
Brief Summary
Mortgage foreclosure; whether conclusory fraud-based affirmative defenses and counterclaims challenging a lender’s bona fide encumbrancer status can survive summary judgment.
The Supreme Court, Kings County, denied the lender’s motion for summary judgment dismissing the borrower’s third, fourth, and fifth affirmative defenses and two counterclaims alleging fraudulent mortgage encumbrance.
The Appellate Division reversed and granted summary judgment dismissing the third, fourth, and fifth affirmative defenses and the counterclaims.
The lender made a prima facie showing that the defenses and counterclaims were conclusory and lacked factual allegations under CPLR 3211(e) [procedural rule addressing timing/waiver and sufficiency considerations for defenses and motions to dismiss] and CPLR 3016(b) [requires that fraud be pleaded with particularity]. The respondent’s opposing affidavit offered only speculative assertions about the original lender’s knowledge of an alleged straw-buyer scheme, which was insufficient to raise a triable issue.
Background
In 2006, Jennifer Stewart executed a $456,000 note to First National Bank of Arizona secured by a mortgage on Brooklyn property formerly owned by Daphne Thomas. Avelo Mortgage, LLC, as purported successor to First National, commenced a foreclosure in 2007. A 2014 judgment of foreclosure and sale was later vacated in 2017; the sale was canceled and Thomas was allowed to file a late answer. Thomas asserted affirmative defenses alleging First National knew or should have known of a fraudulent scheme and counterclaimed to cancel the mortgage as fraudulent. She averred she fell behind on payments, relied on her brother’s advice to transfer the property to a straw buyer for a year to obtain better terms, and unknowingly signed a deed by which Stewart obtained the mortgage. She believed the originating bank knew or should have known of the scheme.
Lower Court Decision
By order dated March 27, 2024, the Supreme Court, Kings County, denied the lender’s motion for summary judgment dismissing Thomas’s third, fourth, and fifth affirmative defenses and her two counterclaims to cancel the mortgage as fraudulent.
Appellate Division Reversal
The Appellate Division reversed insofar as appealed from and granted summary judgment dismissing the third, fourth, and fifth affirmative defenses and the counterclaims. The court held that Avelo established, prima facie, that the defenses and counterclaims were conclusory and lacked factual particulars as required by CPLR 3211(e) [procedural rule addressing timing/waiver and sufficiency considerations for defenses and motions to dismiss] and CPLR 3016(b) [requires that fraud be pleaded with particularity]. Thomas’s affidavit—asserting only a belief that the originating bank knew or should have known of a straw-buyer scheme—was speculative and insufficient to raise a triable issue.
Legal Significance
Confirms that, in mortgage foreclosure actions, affirmative defenses and counterclaims sounding in fraud and attacking a lender’s bona fide encumbrancer status must be pleaded with particularity and supported by concrete facts. Conclusory allegations or beliefs about a lender’s knowledge of a purported straw-buyer scheme will not defeat a properly supported motion for summary judgment.
To survive summary judgment in foreclosure cases involving alleged fraud, defendants must present specific, non-speculative facts showing the lender’s knowledge or bad faith; mere beliefs or conclusory assertions are insufficient under CPLR 3016(b), and such defenses and counterclaims can be dismissed.