Some New York courts have increasingly ordered risk-averse foreclosure plaintiffs to go to trial. These trials frequently conclude in dismissal and require the plaintiff to recommence the action within the time constraints of an eclipsing statute of limitations.

Al Degatano is a Senior Court Attorney Referee in the Foreclosure Settlement Conference Part and the Foreclosure Trial Part in Westchester County. Degatano, a square-jawed former criminal defense litigator with shortly-cropped gray hair, has grown accustomed to the unassuming role as the building's trusted advisor on foreclosure matters.

Over the past eight years, he's observed defendants successfully challenge formerly unassailable mortgage foreclosure cases with greater frequency. "When I went to law school, if there was a bank in the caption of the case, the bank won. Didn't matter. It could have been a criminal case, it could have been a matrimonial case, it didn't matter what it was, the bank won. But now, that's just totally out the window." Degatano estimates that 85% of foreclosure trials in Westchester are decided in favor of the homeowner.

The influx in the number of foreclosure trials is limited to the New York City metropolitan area, reflective of the higher property values and stronger pro bono legal presence in these counties. According to statistics provided by the New York State Unified Court System, Division of Technology and Court Research, there are 1,800 cases statewide in which a Note of Issue and Certificate of Trial Readiness was filed. This is slightly more than 5% of the 33,764 foreclosures pending statewide. Of the 1,800 cases identified as ready for trial, 405 cases are pending in Westchester County. Neighboring Rockland County, which is also in New York's Ninth Judicial District, has the second highest number of trial ready cases at 353, followed by Kings (330 cases), Queens (205), Suffolk (163), Orange (90), and the Bronx (88).

Degatano describes myriad factors for this trend. "[T]here's been an evolution," he says, "so initially it was standing … then it started being [New York Real Property and Proceedings Law §] 1304 and the contractual notice … ." However, the primary obstacle for foreclosing plaintiffs is basic rules of evidence.

For example, to establish proof of default under the mortgage or mailing of a pre-foreclosure notice, the plaintiff must enter admissible proof into the record supported by a testimonial witness with knowledge. See, e.g., JPMorgan Chase Bank, N.A. v. Grennan, 175 A.D.3d 1513, 1518 (2d Dept. 2019) (summary judgment in favor of the lender reversed where lender's witness "did not have personal knowledge of the purported mailing [of the RPAPL §1304 notice] by first-class mail, and failed to attest that he was familiar with the plaintiff's mailing practices and procedures").

Suffolk County Supreme Court Justice Robert F. Quinlan has observed foreclosure defense attorneys raising hearsay objections with greater frequency. "There is no difference [between foreclosures and other types of civil litigation] you have the same rules of evidence, you just have to prove different issues."

Courts routinely hold that conclusory allegations made ex post facto to prove the mailing of default notices are inadmissible hearsay. If no contemporaneous affidavit of mailing exists, the plaintiff must demonstrate the trustworthiness of corroborating records by satisfying the elements of the business records exception to the hearsay rule. See, e.g., Wells Fargo Bank, N.A. v. Taylor, 170 A.D.3d 921, 923 (2d Dept. 2019) (summary judgment reversed where employee of plaintiff's loan servicer "did not have personal knowledge of the purported mailing and failed to make the requisite showing that he was familiar with the plaintiff's mailing practices and procedures").

Establishing a lender's case at trial becomes more complex where the lender delegates the task of mailing default notices to third-party vendors, or where a loan was transferred from one mortgage servicer to another during a case. The third-party vendor or prior mortgage servicer may be unavailable to testify and the plaintiff may be reluctant to subpoena a corporate witness against its will. The reliance on a lender witness who may only be indirectly familiar with a third-party vendor's mailing policies and procedures puts the foreclosure attorney at a significant disadvantage. See, e.g., Bank of America NA v. Ahmad, 61 Misc.3d 1226(A) (Sup. Ct. Suffolk Co., 2019) (trial court dismissed the action because the plaintiff's witness "did not establish any familiarity with the procedures at Walz [the third-party agent contracted to mail default notices], or that he had received any training … as to Walz' mailing procedures … . He honestly admitted: 'I can't speak to Walz' record keeping.'").

Justice Quinlan noticed several years ago that plaintiffs were routinely submitting foreclosure exhibits in summary judgment motions without complying with the business records rule (CPLR 4518(a)), and as "[n]obody said that this isn't admissible, I wondered if there was some exception [for foreclosures] that I was unaware of, because no one was bringing it up." However, some attorneys representing homeowners have adjusted their strategy. "Some of them have become more familiar with the rules of evidence because many of these attorneys were not trial lawyers [on either side]," Quinlan says.

Upstate counties have not experienced the same upswing in foreclosure trials. In Onondaga County, which includes Syracuse and neighboring communities in central New York state, a court official says that trials are unnecessary because defendants are unlikely to aggressively contest the foreclosure. In the unusual event that a contested issue complicates an otherwise routine case, the assigned justice directs a settlement conference in chambers and persuades the parties to reach a settlement, a practice broadly familiar in various types of civil litigation.

Robert M. Link is a partner at David A. Gallo & Associates.