The Continuing Problem Of Mortgage Assignments

This discussion is not just a technical nicety or an academic review – foreclosure actions are increasingly being dismissed in New York for want of a properly obtained assignment.  A new case confirms the continuing dilemma. [LaSalle Bank Nat’l.  Association v. Ahearn, 59 A.D. 3d 911, 875 N.Y.S. 2d 595(3d Dept. 2009)]   In this case, an assignment dated after the foreclosure was begun, purported to be effective prior to the start of the action. “No good” ruled the court and the foreclosure was dismissed.

Not surprisingly, there is some nuance to this so this will be an opportunity to recite the rules that lenders and servicers need to know.  Not incidentally, the creation of MERS was designed to avoid these very problems.  Unfortunately, a combination of litigious borrowers and courts’ confusion about the system has led to MERS often assigning mortgages which then encounter the same potential time trap as any other assignment.

Here is a distillation of the principles found in the mentioned new case (and one other).

• The foreclosing party must be the owner or holder of the note and mortgage – hence the need for an assignment if some other lender originated the loan.
• The assignment must be complete at the time the foreclosure is begun.
• There need not be a written assignment; delivery alone of the note and mortgage with the intention that the recipient own it is sufficient. Because demonstrating that can be somewhat elusive is one reason why as a practical matter written assignments are prepared.
• Where there is a written assignment (as is typical) it is generally deemed effective the date it is signed.
• If an assignment claims to be effective from a date before it was signed (and we see this often) it is deficient unless accompanied by proof that physical delivery of the documents was indeed made earlier.

Returning to the result in the case which spurred this review, the assignment dated after the foreclosure recited that it was effective earlier, but there was no proof that the note and mortgage were earlier delivered.  So in the face of the borrower’s motion to dismiss the action the court agreed.  Obviously, then, care in this arena is particularly necessary.

One somewhat helpful note:  If a borrower does not move to dismiss the complaint for this lack of standing, or does not put this defense in an answer, it is waived.  Thus, such a neglectful borrower could not first raise this in the ubiquitous eve of sale order to show cause.  But where the borrower does seasonably raise the defense of an untimely assignment, peril may be lurking for the lender or servicer.

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.