Standing: No Need To Endorse Note

Not so many years ago, foreclosure defendants and their counsel came to the realization that arguing lack of standing on the part of the foreclosing party was an effective way to delay or even defeat a foreclosure action.  After all, the plaintiff had to be the holder of the note and the mortgage at the inception of the action.  Too many lenders and servicers abetted such a defense through careless or sloppy procedures – or lack of awareness of applicable law or just the inability to demonstrate ownership of the documents.

Among the problems (obviously to be avoided) were these:

• The assignment into plaintiff was properly done, but it came after the action was initiated, a fatal defect because the plaintiff must be the holder when the action is begun.
• The assignment into the plaintiff is fine, but there is a break in the earlier chain of assignments calling into question the validity of plaintiff’s ownership of the documents.
• The assignment to plaintiff recited the mortgage but omitted mentioning the note. (The mortgage is deemed transferred with the note, but not vice versa.)
• There is no written assignment at all to plaintiff – not an issue because a note and mortgage can be assigned by delivery alone, but plaintiff has no testimony or evidence to prove delivery.

Unfortunately, this “standing” morass reached the point where courts seemed to treat the slightest miscue as a basis to declare a lack of standing.  At every turn it seemed, the ruling against lenders and servicers was the proverbial “gotcha”.

A not uncommon roadblock was the too often encountered situation of the note not being endorsed by the assigning party.  When the endorsement is accomplished by an allonge, what frequently happened was that the allonge became separated from the note, hardly so surprising when papers go through many hands.  The problem was that more than a few courts ruled that the no longer affixed allonge raised an issue of whether the note was actually assigned.  Lenders’ and servicers’ counsel generally had compelling responsive arguments but these were rejected with some regularity.

But now a new case (from Kings County) correctly recites applicable law.  [Stabilis Fund II, LLC v. Nostrand Plaza, Inc., 2014 Slip Op 50674(U).]

There, the usual standing defense was raised, upon the claim that the allonge was no longer affixed to the note.  But there was an assignment agreement confirming the event of assignment.  That allowed the court to adopt the argument plaintiff counsel always makes – “[w]hen a valid assignment is made, the assignee succeeds to the assignor’s position and acquires the rights the latter had.  [Citing Matter of Stralem, 303 A.D.2d 120, 123 (2d Dept. 2003).]

It then added in context the related recognized concept that either a written assignment of a note, or its physical delivery, is sufficient to transfer the obligation and the mortgage passes with the debt as an inseparable incident.

Here, then, the note was validly assigned pursuant to the assignment agreement.  Accordingly the assignment agreement established the plaintiff’s standing.

The court boldly characterized the borrower’s argument about the separated allonge as a red herring because – and this is the critical part – even were that separation a fact (apparently it was unclear) assignment of a note by a written assignment is valid even without endorsement of the note to the assignee.

Because in most instances there is an assignment, any mishap with an endorsement – either on the note itself or via allonge, should be of no consequence.  Such is the point that makes this ruling so consequential.  Of course, in the absence of an assignment, endorsement or delivery will remain dispositive factors.

But this case really helps regarding one meaningful scenario.

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.