Can Borrowers Claim Rights Under The Pooling And Servicing Agreement?


15 July, 2006


Mortgage Lender and Servicer Alerts

Our title here seems like an absurd question. What possible role could a borrower play in the pooling and servicing agreement?  And if the question is so bizarre in the first place, would a borrower ever deign to raise the point?  Of course, we didn’t present the issue unless it happened in a real case, so yes, a borrower did try to claim rights under the agreement and no, said the court to the borrower, you have no such rights. [see 767 Third Avenue, LLC v. Orix Capital Markets, LLC., 26 A.D. 3d 216, 812 N.Y.S. 2d 8 (1st Dept., 2006) ]

But before we just dismiss this and chalk it up to the never ending creativity of wily borrowers, we must mention ever so briefly the concept of a third party beneficiary of a contract.  If  A and B enter into a contract, but one of the things the contract is designed to do is create benefits for C ( who is not a party to the contract ), then it is possible for C to demand rights under that contract, akin to the claim the borrower made in the case here under scrutiny.

In this case, when the borrower refinanced its mortgage, it demanded an assignment of the lender’s mortgage (which would have saved a huge sum in mortgage tax).  Because, however,  statute in New York only requires a lender upon payment to issue a satisfaction, the lender declined.  Absent statutory support to get the assignment, the borrower tried the third party beneficiary theory, arguing that somehow the pooling and servicing agreement gave it the right to make the request.  In rejecting the borrower’s argument, the court said the best answer is found in the language of the contract.  The pooling and servicing agreement expressly provided that it could not be enforced by third parties.

Would the borrower’s posture have been so empty if the pooling and servicing agreement did not have the noted prohibitions?  While probably yes, we can’t tell for sure without reading the agreement. So we close with the thought that it is a good thing the agreement had that provision.  You should always see it.

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.