Tag Archives: foreclosure action

Possession of Note Confers Standing to Foreclose

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Dale Whitman posted this discussion of Aurora Loan Services, LLC v. Taylor, 2015 WL 3616293 (N.Y. Ct. App., June 11, 2015) on the DIRT listserv:

There is nothing even slightly surprising about this decision, except that it sweeps away a lot of confused and irrelevant language found in decisions of the Appellate Division over the years. The court held simply holds (like nearly all courts that have considered the issue in recent years) that standing to foreclose a mortgage is conferred by having possession of the promissory note. Neither possession of the mortgage itself nor any assignment of the mortgage is necessary. “[T]he note was transferred to [the servicer] before the commencement of the foreclosure action — that is what matters.” And once a note is transferred, … “the mortgage passes as an incident to the note.” Here, there was a mortgage assignment, the validity of which the borrower attacked, but the attack made no difference; “The validity of the August 2009 assignment of the mortgage is irrelevant to [the servicer’s] standing.”

The opinion in Aurora makes it clear that prior Appellate Division statements are simply incorrect and confused when they suggest that standing would be conferred by an assignment of the mortgage without delivery of the note. See, e.g., GRP Loan LLC v. Taylor 95 A.D.3d at 1174, 945 N.Y.S.2d 336; Deutsche Bank Trust Co. v. Codio, 94 A.D.3d 1040, 1041, 943 N.Y.S.2d 545 [2d Dept 2012].) For an excellent analysis of why these decisions are wrong, see Bank of New York Mellon v. Deane, 970 N.Y.S.2d 427  (N.Y. Sup. Ct. 2013).

The Aurora decision implicitly rejects such cases as Erobobo, which suppose that the failure to comply with a Pooling and Servicing Agreement would somehow prevent the servicer from foreclosing. In the present case, the loan was securitized in 2006, but the note was delivered to the servicer on May 20, 2010, only four days before filing the foreclosure action. This presented no problem at all the court. If the servicer had possession at the time of the filing of the case (as it did), it had standing. (I must concede, however, that the rejection is only implicit, since the Erobobo theory was not argued in Aurora.)

If there is a weakness in the Aurora decision, it is its failure to determine whether the note was negotiable, and (assuming it was) to analyze the application UCC Article 3’s “person entitled to enforce” language. But this is not much of a criticism, since it is very likely that under New York law, the right to enforce would be transferred by delivery of the note to the servicer even if the note were nonnegotiable.

It has taken the Court of Appeals a long time to get around to cleaning up this area of the law, but its work is exactly on target.

NY Court Rejects Lack-of-Standing Claim

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The court in deciding HSBC Bank USA v Sage, 112 A.D.3d 1126 (N.Y. App. Div. 3d Dep’t 2013) affirmed the lower court’s decision dismissing the defendant’s lack of standing claim.

HSBC Bank USA commenced this foreclosure action alleging that defendant Gregory Sage defaulted on a note secured by a mortgage on his real property. After joinder of issue and an extended period of time during which settlement conferences took place, plaintiff moved for summary judgment striking the answer and appointment of a referee. Defendant cross-moved for, among other things, leave to amend his answer to allege that plaintiff lacked standing to bring the action. Supreme Court granted plaintiff’s motion and denied the cross motion. After considering the arguments, this court affirmed the lower court’s decision.

This court found that the plaintiff had established that the custodian of the trust had physical possession of the note and mortgage prior to the commencement of the action and that, as trustee, the plaintiff was responsible for carrying out the terms of the trust. Contrary to the defendant’s claim, the affidavit from an assistant vice-president of the mortgage servicing company was adequately based on a review of the books and records of the company maintained in the ordinary course of business, and the lack of personal knowledge as to the creation of the documents was not fatal.

Accordingly, the court found that the plaintiff met its initial burden on the motion for summary judgment and the burden then shifted to defendant to come forward with competent and admissible evidence demonstrating the existence of a defense that properly could raise an issue of fact as to his default. Defendant, as this court noted, did not do this, thus the case was properly dismissed.

Vermont Court Rejects Homeowners’ Request to Dismiss Complaint for Lack of Standing

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The court in deciding Deutsche Bank National Trust v. Merritt, 2013 Vt., 225 (Vt. Oct. 1, 2013) ultimately

Defendant homeowners sought to appeal the lower court’s order, which granted substitute plaintiff bank’s motion to dismiss the foreclosure action.

The homeowners raised several arguments regarding the bank’s standing to enforce homeowners’ promissory note, and sought an order dismissing the case. The defendant specified the bank’s lack of standing as the basis for the dismissal request, ordering that any legal charges, assessments and fees assessed by a bank against homeowners in connection with this action be removed from their mortgage debt, and ordering that initial plaintiff OneWest return all mortgage payments received from homeowners with statutory interest.

After considering the defendant’s claim, this court followed the lower court in dismissing the case.

Supreme Court of New York (Kings County) Denies Summary Judgment Motion on Plaintiff’s Standing To Foreclose

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The court in deciding U.S. Bank Natl. Assn. v Steinberg, 42 Misc. 3d 1201(A) (N.Y. Sup. Ct. 2013) denied the plaintiff’s motion for summary judgment in its entirety.

The Morgan Stanley Mortgage Trust commenced this foreclosure action against the Steinbergs. Plaintiff’s unverified complaint contained a single allegation regarding its standing to maintain this foreclosure action, alleged that plaintiff was the holder of the note and mortgage, which was indorsed by blank indorsement and delivered to plaintiff prior to commencement of this action.

In regards to plaintiff’s standing to foreclose, the court found that the plaintiff was not entitled to the relief it sought because it has failed to proffer any evidence of its standing to foreclose under the Steinberg Note at the time of commencement.

Further, the court found that there were triable issues of fact regarding delivery of the Steinberg note from the originating lender and indorser, Hemisphere National Bank, to the Morgan Stanley Mortgage Trust, requiring denial of the instant summary judgment motion in its entirety.

Connecticut Court Denies Claim Alleging Lack of Standing

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The court in deciding Deutsche Bank Nat’l Trust Co. v. Speer, 2013 Conn. Super. 2682 (Conn. Super. Ct., 2013) found that the defendant misstated the law in arguing that the plaintiff must hold the assignment of the mortgage before commencing a foreclosure action.

Defendant, Sheri A. Speer, challenged the standing of the plaintiff to commence the foreclosure action. After hearing from both sides, the court was satisfied with the fact that at the commencement of this action, the plaintiff was the holder of the promissory note that was the foundation of this cause of action.

Although the plaintiff had not been assigned the mortgage at the time of commencement of the suit, it eventually had been assigned the mortgage. Furthermore, the court noted that the defendant misstated Connecticut law in arguing that the plaintiff must hold the assignment of the mortgage prior to the commencement of this foreclosure action.

Defaulting Mortgagor Lacked Standing Under 11 U.S.C.S. § 1109(b)

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The court in deciding In re Residential Capital, LLC, 2013 Bankr. (Bankr. S.D.N.Y., 2013) held that the plaintiff Scott was not a party in interest and therefore lacked standing to assert a violation of the automatic stay. The court thus denied his motion.

Before this court was Phillip Scott’s motion to (1) determine that bankruptcy estate owns title to the note, (2) void state court title transfer, and (3) enjoin post petition state court prosecution.

Through his Motion, Scott sought: (1) declaratory relief determining that the bankruptcy estate owns title to the note; (2) injunctive relief enjoining, restraining, and prohibiting the mortgage foreclosure action in the Supreme Court of New York, County of Westchester; and (3) judgment for costs, including attorneys’ fees.

This court held that a mortgagor who defaulted on a note he executed in 2005 did not have standing under 11 U.S.C.S. § 1109(b) to seek a ruling from the bankruptcy court that a business that declared Chapter 11 bankruptcy after it acquired and transferred a mortgage he executed with the note held title to real property that secured the note, and an order enjoining a foreclosure action which a bank filed against the property in a New York court. The court also held that the mortgagor was not a creditor in the debtors’ bankruptcy estate, the note and mortgage were not owned or serviced by any of the debtors, and none of the debtors was a party to the foreclosure action.

Thus this court denied the mortgagor’s motion for an order declaring that the debtors’ bankruptcy estate owned title to the note, voiding a state court title transfer, and enjoining the foreclosure action that was filed in state court.

Court Finds that BAC Home Loans did not Have Standing to File Suit

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The court in deciding BAC Home Loans Servicing, L.P. v. Blythe, 2013-Ohio-5775 (Ohio Ct. App., Columbiana County, 2013) reversed the lower court’s decision and found that appellee had not established that it was the current holder of the note and mortgage, thus, appellee did not have standing to file suit.

Appellant Walter J. Blythe appealed the Columbiana County Common Pleas Court’s decision granting summary judgment in favor of BAC Home Loans Servicing, L.P., in a foreclosure action.

Blythe challenged the trial court’s finding that BAC had standing to foreclose in the absence of evidence that BAC was the holder of the note that created the obligation. Blythe relied on the material submitted by BAC in support of this claim.

This court held that the note that had been specially indorsed to a bank under R.C. 1303.25(A) could not be enforced by the loan servicing company (LSC) that was not the transferee or successor in interest of the bank. The LSC was not the holder of the note under R.C. 1303.32(A)(1) by virtue of the merger of the bank and a national association (NA). The LSC was not a non-holder in possession entitled to enforce under R.C. 1303.31 as it had not acquired the bank’s right to the note under R.C. 1303.21.

The court noted that even if the NA had filed the foreclosure suit, there was no evidence of the transaction, merger, or mergers that gave rise to an its interest in the note. The note was not bearer paper and could only be enforced by the bank since the note was payable to the bank, here the bank was the real party in interest in the foreclosure action, thus the LSC lacked standing to foreclose.