Yes, foreclosing plaintiffs being assaulted for claimed lack of standing has become a mantra, most regrettably from the viewpoint of lenders and servicers. Yet another case where the lender lost – a borrower’s motion to dismiss the foreclosure complaint was granted (on appeal) – has emerged. [Citibank, N.A. v. Herman, 125 A.D.3d 587, 3 N.Y.S.3d 379 (2d Dept. 2015).] But there was a new twist to this one worthy of note.
Lenders and servicers will by now be familiar with the legal principle that assignment of the mortgage alone, that is, without the note, is a nullity; the assignee gets nothing. The opposite of that concept is that assignment of the note brings with it the mortgage as an incident of the assignment. (These rules were mentioned in the new case.)
So if the foreclosing party has the note (as did the plaintiff here) it suggests no problem. Not so in this case and this leads to the mentioned nuances which elicit this alert.
One such point is that MERS cannot assign a note – at least if it never owned the note which is almost invariably the case. This creates an immediate and pervasive problem (although it alone may not be so new). That is, someone else needs to be the one to assign the note.
This then approaches the second meaningful concept in the case: what a defendant must show is governed by what the plaintiff pleads in its complaint. What did the plaintiff allege here? It stated that the plaintiffs obtained its right to foreclosure through assignment of the note and mortgage from MERS. But the borrowers were able to show – easily – that MERS never owned the note and could not have assigned it, whereby the plaintiff could not have had standing.
To be sure, the plaintiff submitted a copy of the note (so it had it) but could not establish delivery of the note to MERS so that MERS could have delivered it to plaintiff. Case dismissed!
The unhappy ending for the plaintiff is that not only did it lose the case, it lost about two years’ worth of time and expended all the legal fees attendant to an appeal. Then it needed to start all over again. This all continues to be a trap for mortgage holders.
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.