New York Court Raises Standing Issue When Defendant Did Not

I am subscribed to an internet discussion group called DIRT, which is a service of the American Bar Association Section on Real Property, Probate & Trust Law and the University of Missouri, Kansas City, School of Law.

Daily Developments are copyrighted by Patrick A. Randolph, Jr., Professor of Law, UMKC School of Law; but Professor Randolph has given me permission to post this Daily Development. (Thanks to Professor Randolph!)

I subscribed to this discussion group because it is full of attorneys talking about fighting foreclosure. I’ve learned a LOT just by being on this thread, so if you’re interested in subscribing, you can check out the website here.

I have really just been listening to the conversation among the attorneys who post to this thread. There are attorneys one the list who seem to side with the banks and think all the foreclosure defense tactics are baloney. However, after reading a LOT of their analyses and arguments, there seem to be many more attorneys who are genuinely concerned for homeowners and the legal issues surrounding foreclosure.

Anyway, Professor Randolph (I feel obligated to call him Professor now that I’m getting ready to start law school…), sends out Daily Developments and most of them lately have been related to case law on foreclosure.

Daily Development for Tuesday, March 23, 2010
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Husch Blackwell Sanders
Kansas City, Missouri
dirt@umkc.edu

MORTGAGES; FORECLOSURE; STANDING: Although state law requires that the defendant raise the issue of standing at the beginning of a case, where foreclosure defendant does not appear and files no response, court may raise standing issue independently and will dismiss if it determines that filed papers do not support verified complaint stating that plaintiff is owner of the note and mortgage.

Deutsche Bank National Trust Co. v. McRae, 2010 Westlaw 309105 (N.Y. Sup.
1/25/10)

This case likely is a product of the current turmoil, well known to the New York courts, concerning whether mortgagees seeking to foreclose in fact have control over the debt. New York law apparently that the mortgagee of a high cost home loan, or the mortgagee s agent, demonstrate when filing for foreclosure that it is the owner and holder of the mortgage and note.

1. Any complaint served in a proceeding initiated pursuant to this article relating to a high-cost home loan or a subprime home loan, as such terms are defined in section six-l and six-m of the banking law, respectively, must contain an affirmative allegation that at the time the proceeding is commenced, the plaintiff:

(a) is the owner and holder of the subject mortgage and note, or has been delegated the authority to institute a mortgage foreclosure action by the owner and holder of the subject mortgage and note; and

(b) has complied with all of the provisions of section five hundred ninety-five-a of the banking law and any rules and regulations promulgated thereunder, section six-l or six-m of the banking law, and section thirteen hundred four of this article.

2. It shall be a defense to an action to foreclose a mortgage for a high-cost home loan or subprime home loan that the terms of the home loan or the actions of the lender violate any provision of section six-l or six-m of the banking law or section thirteen hundred four of this article.

It is not clear whether possession of the debt might be deemed the possession of the rights under the mortgage. The editor would venture the
conclusion probably not. but that issue is moot in this case, because
the question raised by the court on its own motion was whether the mortgagee in fact held the note at the time of filing for foreclosure. There was a written assignment of the mortgaage.

As indicated the mortgagee filed a verified complaint stating that is was the owner of the note and mortgage, but the attorney s verified the complaint on the basis of information and belief. It attached a xerox copy of the note, made out to original lender, was attached to the complaint filing. The court commented that this clearly does not satisfy the statutory standards for ownership of the note

The judge first determined that the mortgagee had not met New York s new statutory procedure mandating a kind of mediation period prior to final foreclosure, and also that it had not demonstrated to the court s satisfaction that it owned the note and mortgage. In this opinion, the court does not give the basis for that original opinion.

Later, after meeting the requirement concerning mediation, the mortgagee sought to reargue the question as to whether it was the holder of the note.
This time it attached a copy of the note that contained an endorsement of the note from the original mortgagee to an apparent related party to the original mortgagee and then an endorsement in blank, executed by the
original mortgagee. Both were undated. The judge did not indicate whether
these endorsements were on the note body itself or in allonges attached to the note.

Although there was authority, and the statute suggested, that issues of possession of the note are to be raised defensively at the first hearing, the judge determined that, in the absence of the mortgagor or its counsel at that hearing, the court should represent the interest of the mortgagor and make a ruling on standing where appropriate.

Today, with multiple and (and often unrecorded) assignments of mortgage obligations and multiple securitizations often related to the same debt, the courts should carefully scrutinize the status of parties who claim the right to enforce these mortgage obligations. For the unrepresented homeowner, the issues of standing and real party in interest status of the foreclosing party are never considered. Without such scrutiny, there is a risk that the courts will give the judicial “seal of approval” to foreclosures against unrepresented homeowners who have little, if any, understanding of these issues, much less the legal significance thereof. To quote my colleague in Kings County, “[a]llowing this case to proceed on behalf of a plaintiff without standing at the commencement of the action would [also] open the door to potential fraud and place in jeopardy the integrity of title to the property to be foreclosed.”

Comment: This case could have been avoided easily if the parties responsible for the foreclosure had arranged their ducks in a row prior to filing. They clearly had an assignment of the mortgage and control over the note. But the editor agrees that the circumstances suggest that the formal endorsements of the note did not occur until after the mortgage was first filed. And it might have been difficult for the mortgagee to demonstrate that the original note was actually in possession of the foreclosing party,
unendorsed, prior to the filing.

There is a lot of fuss and feathers about the propriety of behavior of mortgage foreclosure lawyers. It seems likely that, in the past, they routinely fudged the rules because, after all the debt was not paid and the mortgagor was not contesting the foreclosure proceeding. No more fudging.

But why haven t they heard this message already???

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. The same is true of all commentary provided by contributors to the DIRT list. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor or individual contributors and are in no sense the publication of the ABA.

Christine here: What’s interesting in this case is that the court decided that it could raise the issue of standing on its own, even when the Defendant didn’t appear. Is this another case of judges finally getting it? What do you think?

DISCLAIMER:

****CHRISTINE SPRINGER IS NOT A LICENSED ATTORNEY. THIS BLOG IS COMPRISED OF HER OPINIONS, OBSERVATIONS AND INTERPRETATIONS AND IS NOT INTENDED TO BE CONSTRUED AS LEGAL ADVICE. PLEASE CONSULT WITH AN ATTORNEY BEFORE RELYING ON OR TAKING ANY ACTION BASED ON THE INFORMATION IN THIS BLOG.****

Related posts:

1. Video: Kansas Supreme Court: MERS Has No Standing to Foreclose Apparently the Arkansas Supreme Court recently decided the same thing…homeowners in these states just got a reprieve until the banks...
2. Jane Almost Gets Her Day in Court This morning was Jane’s court hearing in Illinois. She noticed up a bunch of motions, including the Motion to Set...
3. MERS Finally Takes a Hit Thanks to the Kansas Supreme Court In case you haven’t heard, a Kansas Supreme Court has ruled that MERS has no standing to foreclose. It was...
4. California BK Court Sustains Debtor Objection Another one I saw on Scribd today in California. Judge Ronald Sargis didn’t bother to hold a hearing on this...
5. Court Denies Motion to Dismiss and Holds Backdated Mortgage Assignments May be Invalid On March 30, 2010, in the case of Ohlendorf v. Am. Home Mortg. Servicing, (2010 U.S. Dist. LEXIS 31098) on...
6. State Court Judge Ruled in Favor of the Bank….Now What? Over the weekend I heard from two separate homeowners that the state court judges in their lawsuits ruled in favor...
7. New York Federal Reserve’s Quarterly Report This is an easy read and is full of charts that illustrate the numbers. Be sure to look at page...