A new development in real estate acquisitions from distressed homeowners involves investors approaching homeowners in foreclosure and offering to purchase the deed from the owner/mortgagor. After purchasing the deeds, investors have then chosen to litigate with the foreclosing banks on the merits of the mortgage in the hopes of settling for a lesser amount than the amount due or having the case dismissed which may result in the accelerated debt deemed time barred and the mortgage unenforceable. A recent decision in the Appellate Division, Second Department, Citimortgage v. Etienne, 2019 NY Slip Op 03564 (2d Dep’t 2019) shows the limits of the ability of a subsequent owner attempting to assert defenses personal to the original owner/mortgagor in a pending foreclosure proceeding. The decision is instructive to remind practitioners regarding “personal defenses” and standing of other parties to appeal decisions.

In Etienne, the borrower executed a promissory note in favor of the bank in 2009 which was secured by a mortgage against a property in Kings County. Default occurred in 2010. In November 2012, the borrower transferred title to the subject property to the defendant OKL Property Corp. The bank filed a foreclosure against the borrower and OKL in 2012. The borrower filed an answer denying the allegation in the complaint and asserted several defenses, including lack of standing and failure to comply with the notice requirements in RPAPL 1304. OKL filed an answer asserting that it was the record owner of the premises and asserted that the plaintiff lacked standing to commence the action as their second affirmative defense. Etienne, at 1 and 2.

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