Editor: David Reiss
Brooklyn Law School

January 29, 2013

Court in Suffolk County New York Holds that Bank that Held Note and Mortgage by Way of Assignment from the Original Lender and MERS had Standing in Foreclosure Action

By Rachel Sherman

In US Bank N.A. v. Flynn, 27 Misc.3d 802 (N.Y. Sup. Ct. 2010), the Supreme Court of New York, Suffolk County, granted a motion by plaintiff US Bank for partial summary judgment and for dismissal of defendant’s affirmative defenses and counterclaims.

In February, 2007, defendant Flynn took out a mortgage for $2,000,000 on his residential real property in Southampton, New York. On November 21, 2008, US Bank commenced a hybrid foreclosure suit against Flynn in connection with this mortgage.

US Bank’s first cause of action was to foreclose on the mortgage given by Flynn to secure a note for $2,000,000 for his purchase of residential real property in Southampton. US Bank’s second cause of action was for declaratory relief to extinguish liens owned by the other defendants.

US Bank’s motion for partial summary judgment of first cause of action was granted because US Bank established a prima facie case for summary judgment, and Flynn failed to rebut that prima facie case. US Bank properly presented copies of the mortgage, the unpaid note, and due proof of a default in payment in their moving papers, as required to establish a prima facie case for summary judgment. Flynn failed to rebut the US Bank’s prima facie case for summary judgment because he did not submit sufficient factual proof or demonstrate an affirmative defense.

Flynn’s argument that US Bank lacked standing to sue because it did not own the note and mortgage failed because US Bank does in fact hold ownership of the note and mortgage by way of a written assignment from the original lender to US Bank.

Flynn’s second argument, that the assignment from MERS to US Bank was an invalid transfer because MERS never owned the note or the mortgage, also failed because the language of the mortgage document itself names MERS as the mortgagee of record and nominee of the lender, and grants MERS the rights associated therewith, including the right to release or discharge the mortgage.

The court held that where an entity (such as MERS) is identified as nominee of the lender and mortgagee of record in the mortgage indenture, that entity has all of the powers of the lender. A written assignment of that mortgage is a valid transfer of good title. US Bank established that a valid transfer had taken place before the litigation, and US Bank thereby had standing to sue defendant Flynn.

Flynn’s affirmative defenses were dismissed as unmeritorious because US Bank’s assignment was effective, so it had standing to sue; and Flynn failed to assert his other affirmative defenses in opposition to US Bank’s motion. Flynn’s counterclaim is also unmeritorious because he asserts relies on a duty of the plaintiff—to notify the mortgagor of the assignment—which did not exist.

Note: The United States Bankruptcy Court for the Eastern District of New York declined to follow US Bank v. Flynn in  In re Agard, 444 BR 231, 235 (Bankr. E.D.N.Y. 2011) because the plaintiff failed to show that it held ownership of the mortgage and the note, thereby negating plaintiff’s standing to bring suit.

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