The Incessant Issue Of Standing – A Stern Servicer Lesson

The subject of standing will not go away.  All the publicity and scandals of recent years have energized borrowers to claim – almost as a matter of course – that the foreclosing party did not really own or hold the note before the action was begun, upon which basis it is asserted that  the plaintiff lacks standing.  While most often this will be an unfounded defense, lender/servicer miscues can hand defaulting borrowers a ready-made defense – as a recent case jarringly instructs.  [Deutsche Bank National Trust Company v. Haller, 100 A.D.3d 680, 954 N.Y.S.2d 551 (2d Dept. 2012)].  This matter is a study in how not to do it.

The end result of this case was that summary judgment was denied the foreclosing party because it could not demonstrate standing, although as icing on the cake, nor could it prove that it mailed the mandated thirty-day notice.

Helpfully, the court recited some standing concept basics and those are worthy of recitation here, certainly as an aid to appreciate the decision:

• Where standing is made an issue by a defendant, the plaintiff must prove its standing to be entitled to relief.
• A foreclosing plaintiff has standing when it is the holder or assignee of both the note and the mortgage at the time the action is commenced.
• The mortgage obligation is transferred either by written assignment or physical delivery of the note before the action is begun.

So how did the foreclosing party stumble?

As readers will recognize, an assignment of the mortgage is usually and most readily accomplished and established by a written assignment.  There was an assignment in this case and it was to the plaintiff, but signed by “Ameriquest Mortgage Company: by CitiResidential Lending, Inc. as attorney in fact”.  No evidence was produced, though, as to Citi’s authority to sign the assignment.  A power of attorney would have been fine, the court said, but none was produced.  So the court found a question of fact on the legitimacy of the assignment then it could not support summary judgment.

Endorsement of the note to plaintiff could solve the problem but, while the note was indeed endorsed, the endorsement was undated.  Therefore the court could not determine whether this occurred before the foreclosure was begun.  Thus, the servicer could not be rescued by this.

Of course, as noted, physical delivery of the note puts all this to rest.  But that could not be proven either.  Plaintiff’s servicing agent submitted an affidavit in support of the delivery assertion but offered no factual details about the physical delivery.  Therefore, this too was insufficient to establish physical possession of the note before the action was begun.

So the mortgage holder failed in all its attempts to demonstrate standing.  It was thus banished to time consuming and expensive discovery, or a trial, or at the very least, another attempt at summary judgment – all quite unpalatable.

Avoiding such a scenario suggests care in the assignment process.  With the rules recited it should perhaps not be so difficult.

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2017), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.