Standing: Lender Loses; No Proof Note And Mortgage Delivered

This standing issue bugaboo is endless as lenders and servicers surely know by now.  But a new case emphasizes an enlightening point in this regard.  [U.S. Bank National Association v. Weinman, 123 A.D.3d 1108, 2 N.Y.3d 128 (2d Dept. 2014).]

Evidence of an assignment of mortgage is most often demonstrated, and accomplished, by a writing.  Overwhelmingly, this is a paper entitled “assignment of mortgage” which recites that one party assigns a mortgage and the instrument it secures (i.e., the note).  This is given to the assignee and often recorded, although recording is not required for validity (but is recommended for reasons we have previously reviewed in these pages).

If an assignment is affected so easily, what might go wrong?  This, too, is a longer subject addressed in any number of our alerts and so we will focus upon the primary revelation of the new case.  But first, a few basic principles cited in the case to refresh recollection:

• Where a plaintiff’s standing to commence a foreclosure action is placed at issue by a defendant, the plaintiff must eventually establish its standing to be entitled to relief.
• In a foreclosure action, a plaintiff has standing where, at the time the action is begun, it is the holder or assignee of both the mortgage and the underlying note.
• Written assignment of an underlying note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation, which is required for a plaintiff to have standing in that foreclosure action.

Now to the new case.

Here, there was no assignment of mortgage.  While somewhat uncommon, this does happen but may not be of any consequence because, as noted in the prior principles, delivery of the note (which conveys the mortgage with it) is itself sufficient.  Therefore, in the absence of an assignment, a demonstration of delivery is needed.  But that is where the foreclosing party failed in this case.

As the court presented it, the plaintiff was unable to establish that at the time the action was commenced it was the holder or assignee of both the mortgage and the note.  The problem was that in attempting to show that it had received delivery, the affidavit of the plaintiff’s servicing agent did not give any factual details of a physical delivery of the note and also neglected to demonstrate that the plaintiff had physical possession of the note prior to commencing the action.  Furthermore, an attempt to help was insufficient when excerpts from a pooling and servicing agreement that was submitted by the plaintiff did not show either the existence of a written assignment of the note or the delivery of the note prior to commencement of the action.

In the end, the plaintiff lost its motion for summary judgment and to dismiss the borrower’s affirmative defense of lack of standing because the plaintiff was not able to prove that standing.  While in this case for technical reasons the complaint was not dismissed, the plaintiff was nonetheless banished to needing to prove standing at a trial – a time consuming and expensive proposition.

As always, the lesson when it comes to standing is that the foreclosing party must be meticulous in establishing that it holds the note and mortgage before the foreclosure action was begun.

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.