That many borrowers will fight to the death to avoid completion of a mortgage foreclosure action is nothing new. What never ceases to amaze, though, is the depth of creativity – better word would be chicanery – that is employed.
The latest example involved an assault upon a MERS mortgage assignment as a claimed basis to declare a mortgage absolutely void. [Ruiz v. Mortgage Electronic Registration Systems, Inc., 130 A.D.3d 1000, 15 N.Y.S.3d 376 (2d Dept. 2015)]
Start by recognizing that the borrower was loaned the sum of $671,250 by Webster Bank. There was no issue about the loan having been made. But the borrower decided she just did not want to pay it and endeavored to twist an accepted legal principle to support her attack.
What was typical here was the MERS construct. Webster Bank made the loan evidenced by a note. Per the mortgage, Webster Bank was defined as the lender (which of course it was) and MERS was designated as lender’s nominee, for purposes of recording the mortgage, with MERS to be the mortgagee of record. Again, this is the standard methodology.
Now we come to the principle that the borrower intended to perversely apply. It is a rule (and there is no issue on this) that a mortgage is but an incident of the debt it is intended to secure so that any transfer of the mortgage without the debt is a nullity and no interest is thereby acquired. The security can neither be separated from the debt nor exist independent of it. (This is why an assignment of mortgage advisedly assigns both the note and the mortgage.)
The borrower’s interpretation (it was erroneous) was that naming MERS as the mortgagee, even though Webster Bank was the payee on the note, constituted a violation of the clear prohibition against separating the collateral from the debt and therefore the mortgage was rendered null and void!
Clever? In a perverse sort of way, perhaps. Correct? Pointedly not – as the court ruled, citing extensive authority as faithfully and consistently supporting its interpretation.
The use of the term “nullity” in the cited principle does not mean that the mortgage instrument is rendered null and void. Rather, it means that the enforceable interest intended to be transferred by assignment of a mortgage alone is ineffective, as no interest is thereby acquired.
In sum, there was no basis to assail the enforceability of what Webster bank held. The borrower was not entitled to an order declaring the property free of the mortgage. (So the borrower would have to pay in the end.)
Of course, because of this borrower gambit the lender had to suffer the litigation expense both at the trial court level and in appeal court – all unnecessarily costly and disconcerting.
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.