Appeals Court Ruling May Portend Dim Future For Some MERS' Mortgage Assignments & Foreclosures In NYS

Lexology has a report discussing the recent ruling, and ramifications flowing therefrom, in Bank of New York v. Silverberg, a June, 2011 decision by an intermediate New York appeals court in which the validity of mortgage assignments by Mortgage Electronic Registration Systems ("MERS") was rejected.

• The New York Appellate Division, Second Department, has held that a lender does not have standing to commence a foreclosure action when the lender’s assignor was listed in the underlying mortgage instruments as a nominee and mortgagee for the purpose of recording, but never actually held the underlying notes. Bank of New York v. Silverberg, 926 N.Y.S.2d 532 (2d Dep’t 2011).



• The court’s decision casts doubt on the validity of loan assignments executed by the Mortgage Electronic Registration System (“MERS”), and has significant ramifications for the foreclosure process in New York, suggesting that foreclosing lenders may have to present substantially more robust documentation concerning the mortgage note’s history of assignment and transfer.

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• [T]he court commented that its earlier decision in MERS v. Coakley, [838] N.Y.S.2d 622 (2d Dep’t 2007), holding that MERS’ standing to foreclose is limited to circumstances where MERS actually holds the note before a foreclosure action is commenced.



• In the BoNY case, MERS never held the note, and thus the court found that Coakley did not apply. Even though BoNY contended that the language in the first and second mortgages gave MERS the right to foreclose, the consolidation agreement superseded those mortgages. Either way, broad language “cannot overcome the requirement that the foreclosing party be both the holder or assignee of the subject mortgage, and the holder or assignee of the underlying note, at the time the action is commenced.”

For more, see New York Appellate Court rejects validity of loan assignments by MERS (may require subscription; if no subscription, GO HERE; or TRY HERE - then click the appropriate link for the story).