An example of the sloppiness of many mortgage lenders (and their attorneys) in going about their obligations in bringing foreclosure actions is illustrated in a recent decision of a New York City trial court. While there is nothing necessarily remarkable about the case in terms of its value as precedent, it nevertheless highlights the importance for an attorney representing a homeowner facing foreclosure to hold the lender's feet to the fire and make sure the lender presents in court all the crucial paperwork necessary to establish its right to foreclose.
In this case, the foreclosing mortgage lender simply failed to present in court the legal paperwork associated with the loan that proves that it was the owner of the mortgage in court. In denying the mortgage lender a judgment of foreclosure, the court stated the following:
- "A plaintiff seeking to foreclose upon a mortgage must establish that it has legal or equitable interest in the mortgage and underlying debt. Ownership of the note and mortgage may be established by the lending documents themselves or by proof that the plaintiff is the owner of the note and mortgage by reason of an assignment of both the note and mortgage by the owner thereof to the plaintiff or by the owner’s indorsement of the note and its written assignment of mortgage to the plaintiff." (all citations to New York case law omitted).
In this case, the lender failed to either present the properly indorsed promissory note or any properly executed documentation establishing the chain of title supporting the lender's claim that it was the rightful owner of the mortgage. Accordingly, the judge refused to allow the foreclosure action to continue. See Terwin Advisors LLC vs. Balbachan (New York Supreme Court - Queens County; April 16, 2007).
One concluding point on this post. Buried in a recent article on Bloomberg.com that makes reference to "damaged goods" in the context of Wall Street mortgage investors buying and selling problem residential mortgage loans at steep discounts (see Bad Loans Pit Vranos Against Cayne as Hedge Funds Outbid Street), the article states:
- "In the loan business, the term denotes damaged goods whose borrowers missed payments or walked away entirely, as well as mortgages where lenders misplaced crucial documents or applied rules too loosely." (my emphasis added)
Admittedly, this fact may not be an issue in most foreclosures in view of the fact that homeowners facing foreclosure are typically not represented by an attorney and the foreclosing mortgage lender typically will get away with not presenting the "crucial documents" in court if they don't have them. However, for those attorneys who do represent homeowners facing foreclosure, forcing the lender to present all the legally required paperwork in court (ie. properly indorsed, original promissory note, assignments of mortgage. etc.) may, at a minimum, buy your client some time and some leverage in negotiating a resolution with the lender; or it could possibly result in an unexpected windfall for the homeowner. (Personally, I think a mortgage lender's inability to present all the legally required paperwork in court in a foreclosure action is, potentially, a much bigger problem for the lender than they would want a homeowner -- or homeowner's legal counsel -- to realize).
For a recent Massachusetts Federal Bankruptcy case where the judge refused to allow a foreclosing mortgage lender to evict a homeowner facing foreclosure because because the party bringing the foreclosure (HomEq Servicing Corporation) failed to prove (by presenting the necessary loan documents) that it was the correct party to bring and conduct the foreclosure proceedings, see In re Shwartz, (Bankr. Ct., Ma. April 19, 2007).
For a 2005 court order from a Pinellas County, Florida trial court ruling that a mortgage servicer, Mortgage Electronic Registration Systems, Inc. ("MERS") "lacked standing" to bring foreclosure actions on behalf of the actual mortgage holders whose loans MERS was servicing (because MERS was not the true owner of the mortgage loans that it sued to foreclose on), and accordingly, dismissed twenty foreclosure actions that MERS brought on their behalf), see in re Mortgage Electronic Registration Systems, Inc. (MERS), available online courtesy of Mortgage Servicing Fraud .org, at msfraud.org.
(Please note that the Pinellas County, Florida trial court decision, the logic of which might still be found to be persuasive in courts outside Florida, has subsequently been reversed by a Florida appellate court. For more on this point, see Mortgage Servicer "Has Standing" To Bring Foreclosure Actions, Say Three Courts.)
For a reported court decision from a Florida appellate court affirming a lower court decision denying a mortgage lender's request to proceed with a foreclosure sale because it failed to either present the original promissory note or give a satisfactory explanation for its failure to do so, see State St. Bank & Trust Co. v. Lord, 851 So. 2d 790; (Fla. App. Ct. 4th Dist., 2003), and the cases cited therein.
For other posts that reference the sloppiness and carelessness of some mortgage lenders and their attorneys when bringing foreclosure actions, either go here, or see:
- Defending Consumers In Foreclosure Actions, and
- Dillon Continues Battle Against Alleged Predatory Mortgage Servicer (see "Editorial Note"),
- Ohio State Court Judge Halts Foreclosure; Lender Fails To Prove Ownership Of Mortgage Loan (this link added 12-26-07),
- Foreclosures Stalled By Missing Loan Documents (this link added 12-31-07).