Mortgage Assignment That Fails To Transfer Promissory Note, Failure To Establish Its Physical Delivery Sink F'closing Lender; Trial Court Wrong Again

A New York intermediate appeals court recently found itself compelled to give the boot to another trial judge screw-up in a foreclosure case. The problem in this case (as is becoming quite common among sister appeals courts throughout the country): the bankster failed to establish that, at the time the action was filed, it had standing to initiate the foreclosure case.

In this case, the lender failed to establish either that it had possession of the promissory note at the time the case was filed, or that it had otherwise acquired said note by a proper assignment prior to filing the action.(1) (Based on the facts of the case and reasons set forth in the ruling, the lender's attempt to use a post-filing corrective assignment of mortgage (the foreclosing bankster claimed that an original assignment, purportedly dated two weeks before the filing of the suit, was sent to the appropriate county office for recording, but was somehow (mysteriously?) lost prior to recording) to establish that it had standing to initiate the action at the time it was commenced fell flat on its face).(2)

For the ruling, see U.S. Bank Natl. Assn. v Dellarmo, 2012 NY Slip Op 02481 (App. Div. 2nd Dept. April 3, 2012).

Representing the homeowner in this case was Schloss & Schloss, Airmont, N.Y. (Jonathan B. Schloss of counsel).

(1) The appellate court gives the following summary of the New York case law that applied in this case:

• "In a mortgage foreclosure action, a plaintiff has standing where it is 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" (Bank of N.Y. v Silverberg, 86 AD3d 274, 279; see Countrywide Home Loans, Inc. v Gress, 68 AD3d 709).
  
  Where a defendant raises the issue of standing, the plaintiff must prove its standing to be entitled to relief (see CitiMortgage, Inc. v Rosenthal, 88 AD3d 759; U.S. Bank, N.A. v Collymore, 68 AD3d 752, 753).
  
  Moreover, while assignment of a promissory note also effectuates assignment of the mortgage (see Bank of N.Y. Silverberg, 86 AD3d at 280; U.S. Bank, N.A. v Collymore, 68 AD3d at 753-754; Mortgage Elec. Registration Sys., Inc. v Coakley, 41 AD3d 674), the converse is not true: since a mortgage is merely security for a debt, it cannot exist independently of the debt, and thus, a transfer or assignment of only the mortgage without the debt is a nullity and no interest is acquired by it (see Deutsche Bank Natl. Trust Co. v Barnett, 88 AD3d 636; Bank of N.Y. v Silverberg, 86 AD3d at 280).
  
  The failure to record an assignment prior to the commencement of the action is not necessarily fatal since "an assignment of a note and mortgage need not be in writing and can be effectuated by physical delivery" (Bank of N.Y. v Silverberg, 86 AD3d at 280; see Deutsche Bank Natl. Trust Co. v Barnett, 88 AD3d 636; U.S. Bank, N.A. v Collymore, 68 AD3d at 754; LaSalle Bank Natl. Assn. v Ahearn, 59 AD3d 911, 912).

(2) The basis for the appellate court's ruling follows:

• Here, as the plaintiff concedes, the complaint incorrectly asserts that the April 11, 2006, assignment of the mortgage to the plaintiff had been duly recorded.
  
  Further, there is no allegation that the note or mortgage was physically delivered to the plaintiff prior to commencement of the action (compare Mortgage Elec. Registration Sys., Inc. v Coakley, 41 AD3d 674).
  
  The record also suggests that in the order dated January 4, 2010, in which the Supreme Court held that the plaintiff had standing pursuant to the April 11, 2006, assignment, the court relied upon the incorrect assertion in the complaint that the April 11, 2006, assignment had been recorded. The Supreme Court referred only to the April 11, 2006, assignment and made no reference to the corrective assignment's purported replacement of the April 11, 2006, assignment.
  
  The plaintiff now relies on the corrective assignment, which was recorded with the Clerk of Rockland County on October 30, 2009, to demonstrate that it was a holder of the mortgage as of the April 25, 2006, commencement of this action. The corrective assignment recites, in pertinent part, that it "is meant to correct and replace the April 11, 2006 assignment by and between the parties herein which was sent for recording but was lost prior to being recorded" in Rockland County.
  
  However, inasmuch as the complaint does not allege that the note was physically delivered to the plaintiff, and nothing in the plaintiff's submission in opposition to Dellarmo's motion could support a finding that such physical delivery occurred, the corrective assignment cannot be given retroactive effect (see Countrywide Home Loans, Inc. v Gress, 68 AD3d at 710; Wells Fargo Bank, N.A. v Marchione, 69 AD3d 204, 210; LaSalle Bank Natl. Assn. v Ahearn, 59 AD3d at 912-913).
  
  Moreover, both the unrecorded April 11, 2006, assignment and the recorded corrective assignment indicate only that the mortgage was assigned to the plaintiff. Since an assignment of a mortgage without the underlying debt is a nullity (see Deutsche Bank Natl. Trust Co. v Barnett, 88 AD3d 636; Bank of N.Y. v Silverberg, 86 AD3d at 280), the plaintiff has failed to demonstrate that it had standing to commence this action (see Bank of N.Y. v Silverberg, 86 AD3d at 280; U.S. Bank, N.A. v Collymore, 68 AD3d at 754).