Standing: Still A Waivable Defense – For Now

Lenders, servicers and practitioners should readily recognize that the issue of a foreclosing party’s standing to prosecute the action is very much on the mind of borrowers and the courts.  While we suggest that the problems in this regard are not as widespread as the publicity might indicate, it is nonetheless a meaningful issue as we have mentioned with some regularity in alerts over the last year or so.

A critical aspect of this subject is that the defense of lack of standing is waivable.  That means that if a defaulting borrower does not assert the claim in a motion attacking the complaint, or in an answer, it can no longer be expressed.  That is, it is waived.  This was reviewed at length in our alert of April 15, 2011 and a new case reconfirms the concept [Citimortgage, Inc. v. Rosenthal, ___ A.D.3d ___, ___ N.Y.S.2d ___ (2d Dept. 2011)].  Because the new case reasserts a known principle (very helpful to lenders and servicers of course) it is not of any great meaning – except to the extent that the defense was interposed by the borrower on the eve of sale.    More on the significance of that in a moment, but first the facts to highlight the concern.

The foreclosure action was commenced on July 23, 2008.  The borrower answered in August, 2008 although no defense of lack of standing was raised.  The foreclosure judgment was signed on July 1, 2009, and the sale was scheduled for July 21, 2010.  Then, almost two years after the moment the borrower could have offered the defense of lack of standing, she first chose to do so.  The court properly ruled that the defense had been waived because it was not in the answer, but this process through an appeal consumed more than a year – and thus imposed that level of delay upon the action with its concomitant accrual of interest.

Here now the suggested importance of the timing issue regarding a standing defense.  Readers may recall our alert of last spring (and if they saw it, our article on the subject in the New York Law Journal)  inveighing against a proposed New York State statute which will make standing a non-waivable defense as well as imposing perhaps unachievable obligations upon foreclosing parties as a basis to prosecute a mortgage foreclosure action.  While we noted there that arguing against making standing a non-waivable defense was a difficult point, we observed the danger that wily borrowers would hold the defense in reserve until the eve of sale, thereby garnering yet further delay of the action – even if the defense were without foundation.  The new case confirms what experience always instructed would happen.  Borrowers may indeed maintain that defense in their arsenal, using it to pounce at the last moment and thereby obtain a lengthy reprieve.

Should the new statute ultimately be passed – and in today’s climate of the perceived need to protect borrowers one can predict that it will become law – lenders and servicers may regularly encounter standing as an eleventh hour defense.

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.