                          State of New York
                   Supreme Court, Appellate Division
                      Third Judicial Department
Decided and Entered: March 31, 2016                    520544
________________________________

U.S. BANK NATIONAL ASSOCIATION,
   as Trustee for RASC
   2005-EMX4,
                    Appellant,
      v                                     MEMORANDUM AND ORDER

KRISTINE H. McCRORY,
                    Respondent,
                    et al.,
                    Defendants.
________________________________


Calendar Date:   February 9, 2016

Before:   Peters, P.J., McCarthy, Egan Jr. and Lynch, JJ.

                             __________


      Hogan Lovells US LLP, New York City (Chava Brandriss of
counsel), for appellant.

      Legal Services of Central New York, Inc., Syracuse (Reta
Raymond of counsel), for respondent.

                             __________


Lynch, J.

      Appeal from an order of the Supreme Court (Campbell, J.),
entered April 4, 2014 in Cortland County, which sua sponte
dismissed the complaint.

      In 2005, defendants Kristine H. McCrory and Michael P.
McCrory (hereinafter collectively referred to as defendants)
executed a note in favor of M & T Mortgage Corporation, secured
by a mortgage on real property located in Cortland County. The
note included an allonge payable to the order of plaintiff. For
recording purposes, the mortgage names Mortgage Electronic
                               -2-                520544

Registration Systems, Inc. as nominee and mortgagee.

      Mortgage Electronic assigned the mortgage to plaintiff in
November 2008, and the parties entered into a loan modification
agreement at that time capitalizing arrears into the principal
balance. When defendants defaulted on the modified loan in 2010,
plaintiff commenced a foreclosure action. That action, however,
was dismissed without prejudice in April 2011, after Supreme
Court determined that plaintiff failed to act in good faith
through a series of eight settlement conferences (see CPLR 3408
[f]; 22 NYCRR 202.12-a [c] [4]). The court further directed
plaintiff to attach a copy of the dismissal order to the
pleadings in any subsequent foreclosure action. In November
2013, plaintiff commenced the instant foreclosure action, through
new counsel, but failed to reference and attach the previous
order as directed by Supreme Court. Kristine McCrory responded
with a letter to the court that she was pursuing a short sale. A
settlement conference was held on April 3, 2014, at which
plaintiff's counsel advised Supreme Court that he was unaware of
the court's previous order and that he was not authorized to
dispose of the case without consulting plaintiff. That same day,
the court sua sponte dismissed the complaint, with prejudice,
finding that plaintiff continued to act in bad faith. Plaintiff
appeals.1

      We reverse. In a residential foreclosure action, the
parties are obligated to participate in good faith in the
settlement conference mandated under CPLR 3408 and 22 NYCRR
202.12-a, and the court is authorized to impose an appropriate
sanction for a party's failure to comply (see US Bank N.A. v
Sarmiento, 121 AD3d 187, 207 [2014]). Since the April 2011 order
was not appealed, Supreme Court's determination to dismiss the
initial foreclosure action is not at issue here, and the court
acted well within its equity powers in directing plaintiff to
attach the dismissal order to any new action – in this way


     1
        Plaintiff properly appealed the order as of right since
the court dismissed the complaint with prejudice, which
constitutes a final judgment of the action (see CPLR 5701 [a]
[1]).
                              -3-                  520544

assuring that any assigned judge would be informed of the case
history (see generally Norwest Bank Minn., NA v E.M.V Realty
Corp., 94 AD3d 835, 836 [2012], lv dismissed 19 NY3d 1085
[2012]). Given that background, it is understandable that
Supreme Court reacted to plaintiff's failure to comply with the
earlier directive. That said, a party must be placed on notice
and given an opportunity to be heard as a matter of due process
before the court imposes a sanction (see Bank of N.Y. v Castillo,
120 AD3d 598, 600-601 [2014]; Bank of Am., N.A. v Lucido, 114
AD3d 714, 715 [2014]; Wells Fargo Bank, N.A. v Meyers, 108 AD3d
9, 22 [2013]). There is no indication in this record that the
court provided such notice. Moreover, the circumstances
presented are not so extraordinary as to warrant the severe
penalty of a dismissal of the complaint with prejudice (see U.S.
Bank N.A. v Polanco, 126 AD3d 883, 885 [2015]; Bank of N.Y. v
Castillo, 120 AD3d at 601). This is particularly so since
plaintiff was represented by new counsel and had previously
entered into a loan modification agreement after defendants
missed certain payments in 2008. We also note that Supreme
Court's reliance on 22 NYCRR 202.26 (e) as authority for the
dismissal was misplaced, for that rule concerning settlement
authority applies to pretrial conferences after the filing of a
note of issue, not a CPLR 3408 settlement conference.
Accordingly, the complaint is reinstated and the matter remitted
to Supreme Court for further proceedings.

     Peters, P.J., McCarthy and Egan Jr., JJ., concur.



      ORDERED that the order is reversed, on the law, with costs,
and complaint reinstated.




                             ENTER:




                             Robert D. Mayberger
                             Clerk of the Court
