Editor: David Reiss
Brooklyn Law School

February 13, 2013

New York Supreme Court Holds that Judgment of Foreclosure and Sale May be Vacated Where Bank did not Own the Mortgage Note and Mortgage on the Date it Commenced the Foreclosure Suit

By Rachel Sherman

In Wells Fargo v. Sposato, 2013 N.Y. Misc. LEXIS 75, 2013 NY Slip Op 30034(U) (N.Y. Sup. Ct. Jan. 7, 2013), the Supreme Court of New York, Richmond County held that a judgment of foreclosure and sale be vacated where the assignment was executed after the suit to foreclose was commenced.

On April 8, 2008, Wells Fargo filed an action to foreclose on a mortgage originated by Option One Mortgage Corporation in 2006. However, the assignment of the mortgage and note from Option One to Wells Fargo was not executed until the next day, and was not filed with the Richmond County Clerk until April 18, 2008.

A default judgment of foreclosure and sale was granted on October 14, 2008, when the mortgagee, Sposato, did not appear in court. When Sposato filed her first Order to Show Cause on December 1, 2008, the sale planned for December 4, 2008 was cancelled. The foreclosure and sale to Wells Fargo eventually took place on November 28, 2011 for $443,634.00.

Sposato sought to vacate the October 4, 2008 judgment of foreclosure and sale, claiming that Wells Fargo lacked standing to file the original action to foreclose because: (1) the assignment was executed after commencement of the action; (2) the assignment is invalid because it was executed by a “robo-signer”; and (3)  because Wells Fargo has not demonstrated that it acquired the note in accordance with the requirements of the terms for “Pooling and Servicing” the mortgage (mainly that any transfer to a Trust must be made by a depositor, not an originator).

In opposition, Wells Fargo argued that it did have standing to bring the action as “beneficial owner and holder of the note and mortgage” at the time of commencement, and that the mortgage was properly pooled and transferred by the SEC. Wells Fargo failed to address the issue of the robo-signer, and to provide details as to when and how it attained “beneficial ownership” of the mortgage and the note.

The court found that Sposato’s challenge to the judgment of foreclosure and sale did have merit, citing the possibility of fraud and/or misrepresentation concerning the assignment. Additionally, the court ruled that the failure of the bank to show that the validity of the signature on the assignment gave Sposato grounds to seek vacatur of the judgment.

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