It is a sad commentary on people that identity theft is so rampant. But that is a reality, one which increasingly impacts not only upon the world of mortgage lending, but mortgage servicing as well. A recent case in New York confirms the legal approach we have been taking and is the first analysis of this issue from a foreclosure standpoint. [Homeside Lending v. Velasquez, N.Y.L.J., Aug. 22, 2007 (King Co., Sup. Ct., Demarest, J.)].
The underlying question is, when a person who has stolen another’s identity is your borrower, who do you foreclose upon? The answer is, foreclose upon the phoney – but that needs some explanation which will follow.
First, we will address the “easier” scenario: Mr. X owns property. Mr. Y steals X’s identity, applies for a mortgage under X’s name and gets a mortgage from lender. When Y defaults in paying, lender sues X who says, “I never got a mortgage from you – I never signed anything.” X is correct, and that is where lender turns to its title company and makes a claim. That would be the correct and typical approach. While none of this is effortless, the title company will likely be responsible.
But here is the thornier and probably more common scenario. Mr. Y steals Mr. X’s identity and, pretending to be Mr. X, buys a property, gets a deed in the name of Mr. X and simultaneously obtains a mortgage for the purchase from lender.
When Y (purporting to be X) defaults, can the lender ask the title company to be responsible? We think not. The person who mortgaged the property is the owner of the property – he just used a phony name. That he used an assumed name, however, does not change the actuality that he does own the property and did mortgage it. It is he who must be named in the foreclosure. The title company promised that the person who pledged the title (via the mortgage) owned the property and that remains so. There are some mechanics to attend to in naming the thief, but the foreclosure can be pursued by the lender – hence, it is not the title company’s responsibility. (Whether they choose to help as a matter of business relations is a difference subject.)
In the new case mentioned, the lender sued the person whose identity was stolen. Here, though, the thief didn’t own the property and did not have the authority to mortgage the property. Therefore, suing the real Mr. X was improper – which is why the court dismissed the foreclosure.
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.