Don’t Need Original Earlier Notes When Foreclosing CEMA


15 October, 2019


Mortgage Lender and Servicer Alerts

For some reason, the consolidation, extension and modification agreement (CEMA) in New York tends to cause some confusion for lenders and servicers, particularly those not based in the Empire State. 

 One issue is that a lender which assigns a note and mortgage to a new lender, the latter giving new money and consolidating the new mortgage with the original one, satisfies that earlier mortgage even though it was assigned.  This is typically a bureaucratic error because while the mortgage was paid it was of course assigned, not satisfied.  But that is not the issue here.  Rather the point is one raised and confirmed by a recent case: Wells Fargo Bank N.A. v. Lawson Ho-Shing, 168 A.D.3r 126, 92 N.Y.S.3d 194 (1st Dept. 2019).

 This new case addresses the sometimes apparently thorny concern about the role of earlier notes in a chain.  There is, to be sure, no limit to the number of notes and mortgages which can be given, consolidated and assigned, among other transaction varieties.  Ultimately, though, when the documents arrive at a final CEMA, there will be (some variety of) a restated note and the consolidated, extended and modified mortgage itself.

 This leads to the question, what obligation is there upon the foreclosing CEMA holder to plead the history of the notes, attach copies of the notes, and be certain originals are in the file?  Usually, lenders and servicers are always told to retain original notes – for any number of good reasons.  But this need not apply to the CEMA situation.  This has seldom been addressed by the courts in New York, but the mentioned recent case confirms the few decisions on point.

There, the borrower did not contest that the lender sued to enforce the consolidated note and mortgage, not the earlier originals, and it was not contested that the foreclosing CEMA lender was the holder of the consolidated note and mortgage before commencing the suit.

 The court also noted as critical that the CEMA made clear that the consolidated note superseded the original note and that the consolidated note was the operative document in the case.  This, not incidentally, is the usual situation.  The holder is foreclosing on the restated note and mortgage which would, presumably without exception, recite the history of the notes in any event.  Thus, as the court also observed, any absence of the underlying notes is accounted for by the CEMA.

 For the sake of clarity, counsel would probably wish to plead the history of the notes arriving at the restated note and CEMA.  Beyond clarity’s sake, though, it is not required.  Nor would copies of the earlier notes have to be annexed to the pleading.  Nor would originals of those notes need to be in the possession of the CEMA holder, although tradition dies hard and somehow symmetry suggests it as prudent to have the original earlier notes in any event.

But ultimately, it is the consolidated or restated note which represents the debt and is the subject of the action; the earlier notes are just historical artifacts.  

Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2019), 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.