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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: October 20, 2020

Court Should Not Have Vacated Default Judgment When Loan Servicer’s Excuse Was “Confusion Regarding the Multiple Cases Filed in Multiple Counties”

On October 14, 2020, the Second Department issued a decision in Insiders Success Ventures, LLC v. Onewest Bank, FSB, 2020 NY Slip Op. 05728, holding that the Supreme Court should not have vacated a default judgment when a loan servicer’s excuse was “confusion regarding the multiple cases filed in multiple counties,” explaining:

Generally, a defendant seeking to vacate a judgment or order entered on default must demonstrate a reasonable excuse for the default and a potentially meritorious defense to the action. Here, in support of its motion, Deutsche Bank submitted an affidavit of a senior loan analyst employed by Ocwen Financial Corporation, whose indirect subsidiary was Ocwen Loan Servicing, LLC, the servicer of the subject mortgage. The affidavit, which indicated that the servicer did not refer this action to the law firm retained by Deutsche Bank “due to confusion regarding the multiple cases filed in multiple counties,” was conclusory and unsubstantiated and, under the circumstances of this case, did not constitute a reasonable excuse for Deutsche Bank’s default. The absence of a reasonable excuse for Deutsche Bank’s default renders it unnecessary to determine whether it demonstrated the existence of a potentially meritorious defense to the action.

Accordingly, the Supreme Court should have denied Deutsche Bank’s motion pursuant to CPLR 5015(a)(1) to vacate the judgment entered September 26, 2017, and for leave to interpose a late answer, and granted that branch of the plaintiff’s cross motion which was to cancel the notice of pendency filed against the subject property.

(Internal citations omitted).

This decision relates to a mortgage that was in an RMBS trust. Schlam Stone & Dolan represents investors in RMBS actions against underwriters and trustees and in related proceedings, such as trust instruction proceedings where an RMBS trustee seeks court guidance regarding the management of an RMBS trust. If you or a client are RMBS investors and have questions regarding potential claims against a trustee or how to influence the trustee’s prosecution of a put back action like the one at issue here, contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com.

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