Author Archives: Michael Liptrot

About Michael Liptrot

Michael is a third year student at Brooklyn Law School pursuing the Real Estate Law Certificate. He received his B.A. from The American University in 2010, with a major in Law & Society and minor in Sociology. He has completed legal internships with the New York City Housing Authority, the New York City Housing Development Corporation, Brooklyn Law School’s Corporate & Real Estate Clinic, and is currently working in the law school’s Community Development Clinic.

New York Supreme Court, Appellate Division Holds that Assignee Bank Lacks Standing to Foreclose for Failure to Provide Evidence of Valid Note Assignment

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In Bank of New York v Silverberg, 86 A.D.3d 274 (2d Dept. 2011), the court stated, “[t]he principal issue ripe for determination by this Court . . . is whether MERS, as nominee and mortgagee for purposes of recording, can assign the right to foreclose upon a mortgage to a [bank] in a foreclosure action absent MERS’s right to, or possession of, the actual underlying promissory note.” In making this determination, the court outlined the following rules regarding standing in foreclosure proceedings: “[i]n a mortgage foreclosure action, a [bank] has standing where it is both the holder or assignee of the subject mortgage and the holder or assignee of the underlying note at the time the action is commenced. . . . [A]n assignment of a note and mortgage need not be in writing and can be effectuated by physical delivery.”

The court found that in this case, “as ‘nominee,’ MERS’s authority was limited to only those powers which were specifically conferred to it and authorized by the [original mortgagee].  Hence, although . . . MERS [had] the right to assign the mortgages themselves, it did not specifically [have] the right to assign the underlying notes, and the assignment of the notes was thus beyond MERS’s authority.” Based on these findings, the court concluded, “MERS was never the lawful holder or assignee of the notes described and identified in the consolidation agreement, the corrected assignment of mortgage is a nullity, and MERS was without authority to assign the power to foreclose to the [bank]. Consequently, the [bank] failed to show that it had standing to foreclose.”

New York Times Criticizes $8.5b Foreclosure Settlement

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The New York Times published a story announcing an $8.5 billion settlement with 10 major banks to settle about four million foreclosure actions. The money will be split in two, with $3.3 billion going directly to 3.8 million homeowners, and the rest going towards lowering interest payments and loan amounts. The settlement is controversial, however, because in addition to the payout the settlement will also end the federal government’s review of those foreclosures, and the money is going to be split evenly amongst consumers regardless of whether harm was actually determined. Some believe that the settlement is the result of a flawed and incompetent review process, which became so costly and slow that the government decided to give up on the review. Others think that the rough justice achieved by the settlement is the closest that regulators can come to making victims of unlawful foreclosures whole again. Former FDIC chairwoman Sheila Bair was quoted in the article stating that the government is “mak[ing] the best out of a very bad situation.”

New York Supreme Court Holds that Assignee Bank Lacks Standing to Foreclose for Failure to Validate MERS’s Authority to Assign and Condemns Frivolous Conduct Relating to “Robosigning”

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In HSBC Bank v Taher, 32 Misc. 3d 1208(A) (Sup. Ct. 2011), the New York Supreme Court of Kings County held that an assignee bank conducting a foreclosure action must submit proof of the assignor’s authority to assign the mortgage, including the underlying note, on behalf of the original mortgagee in order for the assignee to lawfully conduct a foreclosure.

In this case, the court found that the assignee bank, HSBC, did not have standing to foreclose on Taher, the homeowner. The court stated, “the instant action must be dismissed because plaintiff HSBC lacks standing to bring this action. MERS lacked the authority to assign the subject Taher mortgage to HSBC and there is no evidence that MERS physically possessed the Taher notes.”

The court went on to explain that MERS must have authority to assign both the mortgage and the underlying note in order for an assignee to lawfully conduct a foreclosure. The court stated, “even if MERS had authority to transfer the mortgage to HSBC… MERS [was not] the note holder. . . . MERS cannot transfer something it never proved it possessed. . . . [Thus,] MERS was never the lawful holder or assignee of the notes described and identified in the consolidation agreement, the . . . assignment of mortgage is a nullity, and MERS was without authority to assign the power to foreclose to [HSBC]. Consequently, [HSBC] failed to show that it had standing to foreclose.”

In addition to finding that the assignee bank lacked standing, the court also took the opportunity in this case to highlight its intention to prevent the degradation of the foreclosure process, particularly concerning the practice of “robosigning.” Citing the need to “protect the integrity of the foreclosure process and prevent wrongful foreclosures,” the court announced its institution of a new filing requirement in any foreclosure action. This requirement is that assignees must “file an affirmation certifying that counsel has taken reasonable steps—including inquiry to banks and lenders and careful review of the papers filed in the case—to verify the accuracy of documents filed in support of residential foreclosures.” The court scrutinized HSBC’s foreclosure filing practices, which included instances where the court believed robosigning occurred, and reprimanded the bank and its counsel for its conduct. The court concluded that the conduct bordered on frivolous, and determined that further inquiry, by way of a hearing, was necessary.

New York Supreme Court Holds that Assignee Banks Must Produce Evidence of MERS’s Authority to Assign in Order to Have Standing to Foreclose

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The New York Supreme Court of Kings County in Bank of New York v. Alderazi, 28 Misc. 3d 376 (Sup. Ct. 2010) held that a foreclosing bank, as assignee, does not have standing to bring a foreclosure action if it cannot submit proof of MERS’s authority to assign the mortgage. In this case, “MERS was referred to in the mortgage as nominee of the mortgagee . . . for the purpose of recording the mortgage.” The court then stated that “MERS, as nominee, is an agent of the principal, for limited purposes, and has only those powers which are conferred to it and authorized by its principal.” Based on this rule, the court held that an assignee moving to foreclose must submit evidence to the court that such authority was granted to MERS by the original mortgagee. Here, “[the assignee] submits no evidence that [the mortgagee] authorized MERS to make the assignment. MERS submits only its own statement that it is the nominee for [the mortgagee], and that it has authority to effect an assignment on [the mortgagee’s] behalf.” Thus, the court found that the assignee in this case could not lawfully conduct a foreclosure proceeding.

The court went on to explain that “even accepting MERS'[s] position that the [mortgagee] acknowledges MERS'[s] authority to exercise any or all of the [mortgagee’s] rights under the mortgage, the mortgage does not convey the specific right to assign the mortgage. The only specific right enumerated in the mortgage is the right to foreclose and sell the property. The general language ‘to take any action required of the Lender including, but not limited to, releasing and canceling this Security Instrument’ is not sufficient to give [MERS] authority to alienate or assign a mortgage without getting the mortgagee’s explicit authority for the particular assignment.” Hence, under the terms of its own agreement, MERS would have had to solicit an explicit grant of the authority to assign the mortgage from the original mortgagee in order to effectuate a valid assignment. Since the assignee could not prove that such a grant of authority occurred in this case, the court found that the assignment was still invalid under MERS’s and the assignee’s argument.

The Appellate Division of New York State Supreme Court Holds that Assignee Lenders Must Produce Evidence of MERS’s Authority to Assign Mortgage Notes to Lawfully Conduct a Non-Judicial Foreclosure

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The New York State Supreme Court, Appellate Division, Second Department in Aurora Loan Services v Weisblum, 923 N.Y.S.2d 609 (App. Div. 2011) held that a mortgage lender does not have standing to foreclose if it cannot establish its lawful status as assignee. In this case, MERS assigned both a mortgage and mortgage note to Aurora Services (“the Assignee”), who subsequently moved to foreclose on the subject property. At the time of the assignment, MERS was the holder of the mortgage, but not the note, which was held by the original mortgagee. MERS claimed that the assignment was valid because it was acting on behalf of the original mortgagee when it assigned the note. The court rejected this argument and held that the assignment was not valid because the Assignee failed to prove that MERS received an explicit grant of authority to assign the note from the original mortgagee. The court explained that, in general, MERS can legitimately assign notes. However, if the assignee moves to conduct a foreclosure, it must produce evidence of MERS’s authority to assign, which must be granted from the original lenders. The court further held that the evidence must show that the original mortgagee explicitly granted MERS such authority to assign.

Here, the lender failed to produce any evidence of MERS’s authority to assign the notes. Thus, the court found that MERS could not assign the note and therefore the lender did not have standing to foreclose.

Oregon District Court Holds that MERS Must Record Every Assignment of Trust Deed to Lawfully Conduct a Non-Judicial Foreclosure

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The District Court of Oregon in Hooker v Northwest Trustee Services, Inc., 2011 WL 2119103 (D.Or. May 25, 2011) granted homeowners’ motion for declaratory judgment preventing MERS from continuing with a non-judicial foreclosure proceeding. The court first held that MERS could only be a nominee or agent of a lender, and not have a beneficial interest in the trust deed, where MERS was not listed as the beneficiary on the note. However, the court did not hold that this precluded MERS from lawfully initiating a non-judicial foreclosure. The problem in this case was that MERS only recorded the final assignment of the trust deed, instead of recording every assignment as required by law. In failing to record every assignment of the trust deed in this case, the court found that MERS could not lawfully conduct a non-judicial foreclosure.

MERS Must Possess Note or Have Authority to Act on Behalf of Note Holder in Order to Foreclose, According to Massachusetts Supreme Court

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In Eaton v Federal National Mortgage Association, 462 Mass. 569 (Mass. 2012), the Supreme Judicial Court of Massachusetts addressed “the propriety of a foreclosure by power of sale undertaken by a mortgage holder that did not hold the underlying mortgage note.” In this case, the homeowner executed both a promissory note, solely to the lender, and a mortgage to the lender and to MERS. Under the terms of the mortgage, the lender was referred to as “lender” and MERS was referred to as “mortgagee.” As mortgagee, MERS was stipulated to hold legal title to the property with the power of sale “solely as nominee.” MERS was also given explicit authority under the mortgage to exercise the right to foreclose the property as nominee for lender. Subsequently, MERS assigned its interest to Green Tree servicing, LLC (Green Tree). The assignment was recorded in the county register of deeds, but without evidence of transfer of the note.

Eventually, the homeowner fell behind on his mortgage payments and Green Tree moved to foreclose. Green Tree was the highest bidder at the foreclosure auction, and assigned the rights to its bid to Fannie Mae. Fannie Mae later moved to evict the homeowner from the property. In response, the homeowner filed a counterclaim, arguing that the underlying foreclosure was invalid because Green Tree did not hold the note at the time of the foreclosure action. The housing court and the superior court found in favor of the homeowner, holding that a mortgagee must possess both the mortgage and the mortgage note to have authority to foreclose.

However, the Supreme Court, transferring the case to its court on its own motion, came to a different conclusion. The Supreme Court found that the lower courts relied only on common law for their holdings, and that statutory law, particularly G.L.c. 183, § 21 and G.L.c. 244, § 14, changes the analysis. Relying on these stautes, the court held “that where a mortgagee acts with the authority and on behalf of the note holder, the mortgagee may comply with these statutory requirements without physically possessing or actually holding the mortgage note.” Whether a mortgagee is acting with authority and on behalf of the note holder is a an agency question, which the Supreme Court could not address based on the record.

The court also held that the ruling only had prospective effect, and thus the ruling “appl[ies] only to mortgage foreclosure sales for which the mandatory notice of sale has been given after the date of this opinion.” However, the court also applied the ruling to the parties in the case, and the court remanded the case to the superior court to determine whether Green Tree was acting with authority and on behalf of the lender at the time of the closing.