Appellate Court Scoffs at Law, Moves Again To Protect Banks

Panel Reinstates Foreclosure Action, Assigns to New Judge
The New York Law Journal by Andrew Keshner  -  February 21, 2011

A state appeals panel has reinstated a foreclosure action thrown out by a Brooklyn judge known for his scrutiny of lenders and ordered that the case be handled by another judge on remand.  The Appellate Division, Second Department, faulted Supreme Court Justice Arthur M. Schack for sua sponte dismissing a foreclosure complaint with prejudice after the lender did not provide requested loan origination documents.  The decision marks the second time in less than two months that a Second Department panel has reversed Justice Schack on a foreclosure action. Moreover, the Feb. 14 decision cites a 2011 case in which the court restored a foreclosure case dismissed by the judge.  In the latest case, Aurora Loan Services v. Sookoo, 2011-03143, the unanimous panel wrote that Justice Schack "erred in, sua sponte, directing the dismissal of the complaint with prejudice and the cancellation of the notice of pendency. Under the circumstances of this case, we deem it appropriate to remit the matter for further proceedings before a different Justice."  Homeowner Shahmela Shah Sookoo received a mortgage in August 2007 for her Bushwick residence but she failed to make any mortgage payments and eventually defaulted on the loan.  Aurora Loan Services began foreclosure proceedings, but Ms. Sookoo never appeared in the action nor answered the complaint, the panel said.  Aurora, which was represented by Rosicki, Rosicki & Associates at the Supreme Court, moved for an order of reference appointing a referee to compute the amount owed to the bank.  Justice Schack denied the motion in March 2009, but granted leave to renew provided Aurora submit all loan origination documentation and an affirmation identifying whether the loan was a subprime home loan as defined in RPAPL §1304 or a high-cost home loan as defined under Banking Law §61.  Justice Schack commented in his March 2009 order that he was "concerned that defendant Sookoo's immediate default could be a strong indicator of either defendant's inability to pay or outright fraud."  He said he would determine if Ms. Sookoo did not have sufficient income to make any payments, "which could mean that the loan may have been in violation of federal statutes, or that the entire mortgage event was a fraud."  When Aurora renewed its application for an order of reference, it submitted the records on the type of loan but did not provide the origination documents.  Justice Schack in August 2009 dismissed Aurora's complaint and canceled the notice of pendency.  The Second Department reversed, finding that Aurora's motion for an order of reference should have been granted.  "The defendants failed to answer within the time allowed, and the plaintiff submitted, in support of its unopposed motion, the mortgage, the note, the verified complaint setting forth the facts establishing the claim, and an affidavit of its employee attesting to the default," the panel said in its unsigned opinion.  The case follows US Bank, N.A. v. Guichardo, 19086/08, in which the Second Department on Dec. 27, 2011, reversed Justice Schack's decision to dismiss a foreclosure action with prejudice after a requested affirmation came 123 days after a 60-day deadline (NYLJ, Jan. 3).  The latest case also cites an April 26, 2011, decision overruling Justice Schack's dismissal of an earlier foreclosure complaint. The court in U.S. Bank, N.A. v. Emmanuel, 83 AD 3d 1047, observed that "a court's power to dismiss a complaint, sua sponte, is to be used sparingly and only when extraordinary circumstances exist to warrant dismissal."  The Emmanuel court, in turn, cited HSBC Bank USA, N.A. v Valentin, 72 AD3d 1027 (2010), a fourth decision in which Justice Schack, was found to have abused his discretion by dismissing a foreclosure complaint.  Justices Peter B. Skelos, L. Priscilla Hall, Leonard B. Austin and Robert J. Miller joined the unsigned opinion in Sookoo.  Andrew P. Zacharda of Tompkins, McGuire, Wachenfeld & Barry in Newark, N.J., represented Aurora Loan Services on appeal.  Justice Schack declined to comment on the ruling.  Andrew Keshner can be contacted at akeshner@alm.com.