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When a borrower borrows money from a lender the repayment obligation is evidenced by a promissory note signed by the borrower and delivered to the lender. Frequently, a borrower’s repayment obligations are secured by a mortgage on real property. Upon a payment (or other) default, the lender may sue on the note or foreclose the mortgage, but cannot do both simultaneously. [Eds. Note: the issue of a lender’s election of remedies under RPAPL § 1301 has been addressed by this Blog [here], [here] and [here].
When a lender elects to foreclose a mortgage foreclose instead of suing on the note for the sums due, or vice versa, it generally considers the solvency of the borrower and the collectability of a money judgment versus the extent to which the sale of the mortgaged real property at public auction will wholly or partially satisfy the borrower’s financial obligations. The important question of the amount due to the lender is generally answered during the course of the foreclosure litigation. Typically, when the lender moves for a default judgment and/or summary judgment (depending on the extent to which the defendants have appeared and/or answered), it will also move for the appointment of a referee to, inter alia, compute the amount due to the lender. While it is possible for the judge overseeing the foreclosure action to determine these issues, they are most frequently resolved by a reference.
Thus, RPAPL § 1321(1) provides, in pertinent part that “[i]f the defendant fails to answer within the time allowed or the right of the plaintiff is admitted by the answer, upon motion of the plaintiff, the court shall ascertain and determine the amount due, or direct a referee to compute the amount due to the plaintiff … and to examine and report whether the mortgaged premises can be sold in parcels and, if the whole amount secured by the mortgage has not become due, to report the amount thereafter to become due”.
The court, in its order appointing a referee, specifically sets forth the scope of the referee’s appointment. In this regard, CPLR § 4311 provides that “[a]n order of reference shall direct the referee to determine the entire action or specific issues, to report issues, to perform particular acts, or to receive and report evidence only. It may specify or limit the powers of the referee and the time for the filing of his report and may fix a time and place for the hearing.” Accordingly, “[t]he scope of a referee’s duties are defined by the order of reference [and a] Referee’s authority is derived from the order of reference and a Judicial Hearing Officer who attempts to determine matters not referred to him by the order of reference acts beyond and in excess of his jurisdiction.” Zaslavskaya v. Boyanzhu, 144 A.D.3d 675, 676 (2 nd Dep’t 2016) (citations, internal quotation marks, and internal brackets omitted).
In Zaslavskaya, for example, the Court appointed a referee to “hear and determine” a single issue. Zaslavskaya, 144 A.D.3d at 676 (emphasis added). At the hearing, however, the parties stipulated that the referee could determine additional issues and the referee noted this fact on the order of reference. After the hearing, the referee issued a decision and an order and judgment. An appeal was filed by the plaintiff, who was aggrieved by the referee’s determination on the additional issues. The Second Department held that the “Referee erred when he issued an order and judgment” deciding issues outside of the scope of his appointment. The Court also noted several options that were available to the parties to ensure the validity of any rulings by the referee outside of the scope of the initial appointment. Thus, the Court noted that here, “the parties did not obtain an order of reference referring the additional question to the Referee, either by moving in the Supreme Court for a new order of reference or to amend the original order of reference, or by filing a copy of their stipulation with the clerk of the court and obtaining a supplemental order of reference (see CPLR 4317 [a]), or by obtaining an order of reference in some other way.” Zaslavskaya, 144 A.D.3d at 676.
In the context of computing the amounts due to a mortgagee in a foreclosure action, the referee is typically appointed to report to the court on the amounts due (as opposed to determining the amounts due) in which case the court is the “ultimate arbiter of the dispute [with] the power to reject the Referee’s report and make new findings (see, CPLR 4403)….” Adelman v. Fremd, 234 A.D.2d 488, 489 (2 nd Dep’t 1996). See also, Nationstar Mortgage, LLC v. Durane-Bolivard, 175 A.D.3d 1308, 1310 (2 nd Dep’t 2019) (citation omitted).
While a hearing before the referee is contemplated, it can be waived or disposed of if the defendant has ample opportunity to object to the referee’s report. In MTGLQ Investors, L.P. v. Thompson, 188 A.D.3d 1483 (3 rd Dep’t 2020), the Court, addressing the defendant’s claim that the supreme court erred in confirming the referee’s report, stated that the:
record reflects that a notice of computation provided that, if the parties had objections, they were to submit written objections to the referee. The notice also stated that the determination of whether a hearing was warranted based upon any objections would be left to the discretion of the referee and that if no objections were submitted, the referee’s report would be based solely on submissions. Although defendant submitted objections, the objections took the form of legal arguments and, as the referee noted, did not address any errors in the computations. Accordingly, the referee did not err in summarily reaching his computation. MTGLO, 188 A.D.3d 1483 (citations omitted).
Courts generally assess the referee’s computation report when the lender moves to confirm the report and for a judgment of foreclosure and sale. The defendant can object to the referee’s computation report in opposition to the motion to confirm as well.
A challenge to a referee’s report in a mortgage foreclosure action was resolved in Bank of America, N.A. v. Barton, decided by the Appellate Division, Second Department, on November 3, 2021. The Barton supreme court appointed a referee to compute the sums due to the mortgagee. The defendant opposed the motion to confirm the resulting report and for a judgment of foreclosure and sale and “cross-moved to reject the referee’s report and for a computation hearing”. The supreme court granted the lender’s motion and denied the cross-motion. The Court found that a hearing was unnecessary because:
[h]ere, the defendants were served with the referee’s proposed report and were afforded the opportunity to serve objections thereto. The defendants were advised that the referee would compute the amount due to the plaintiff on submission if they failed to serve objections. The defendants did not request a hearing at that time or serve objections to the proposed report. As a result, the referee was not required to hold a hearing.
Nonetheless, the Court remitted the matter to the supreme court “for a new report computing the amount due to the plaintiff in accordance [with the opinion], followed by further proceedings in accordance with CPLR 4403, and the entry of an appropriate amended judgment thereafter,” finding that:
the Supreme Court should have denied the plaintiff’s motion to confirm the referee’s report and for a judgment of foreclosure and sale, and granted that branch of the defendants’ cross motion which was to reject the referee’s report. The referee’s computations as to the amount due and owing to the plaintiff were not substantially supported by the record. An affidavit of an assistant vice president of the plaintiff, which was submitted in support of the plaintiff’s motion to establish the amount due and owing, constituted inadmissible hearsay and lacked probative value because the business records purportedly relied upon in making the calculations were not produced. (Numerous citations omitted.)
Similarly, in Nationstar, the Court noted that the “report of a referee should be confirmed whenever the findings are substantially supported by the record, and the referee has clearly defined the issues and resolved matters of credibility.” Nationstar, 175 A.D.3d at 1310 (citation omitted). As in Barton, the Court in Nationstar remitted the matter to the supreme court for a new report because the “plaintiff failed to lay a proper foundation for the business records on which [the referee] relied with respect to the amount due to the plaintiff. Contrary to the plaintiff’s contention, under the circumstances presented, the Supreme Court’s error in relying on the hearsay evidence was not harmless.”
Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.
This article is for informational purposes and is not intended to be and should not be taken as legal advice.
