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Standing to Sue in Foreclosure Cases

New York's Opportunity to Address the Problem

August 18, 2011

Author:  Kirsten Keefe 1


The boom and bust of the housing bubble of the last decade has had a devastating effect on consumers throughout New York State.  Predatory lending practices were the catalyst, though today, more homeowners are defaulting in New York as the result of loss of employment and income, a by-product of the financial meltdown following the collapse of the subprime markets.   Foreclosure actions in New York are a significant part of courts’ dockets and are costing the parties involved, as well as the State, time and money. 

Adding to the foreclosure crisis New York faces are the cases that are improperly filed by plaintiffs who lack standing to sue.  The law is clear in New York that the plaintiff must own and hold the mortgage and note at the time of filing.  Yet there are many instances of cases filed by parties who lack standing, requiring courts to police filings and increasing motion practice. 2  The full extent of the problem is not known, since most homeowners proceed unrepresented and courts lack resources to investigate every case, but the increase of cases dismissed for lack of standing evidence that these cases are not anomalies.  Standing became a significant issue when filings on subprime loans, which were routinely securitized by Wall Street, rose significantly starting back in 2006, but the “robo-signing scandal” 3 of last fall really brought the issue to light and gave standing its almost proverbial “household name.” 

A foreclosure reform bill introduced this year by Assemblymember Helene E. Weinstein (A.629B) and Senator Jeffrey Klein (S. 697A) would go a long way to resolving the issue of standing in New York foreclosure filings. 4  The bill passed the Assembly but has not been brought to a vote in the Senate.  Following is an explanation of the standing issue and its complicating factors, and a description of what A.629B/S.697A would do to alleviate New York’s foreclosure crisis. 

Standing to Sue and How it Has Been Complicated

In a residential mortgage foreclosure case in New York, the plaintiff must own the mortgage and hold the note at the time the action is filed. 5  The majority of mortgages in the US have been securitized into trusts with the trustee being the real owner.  Borrowers generally do not know the owner and holder of their mortgage and note, as all interaction is with the mortgage servicer. 6  A mortgage servicer is the party contracted by the owner, under a Pooling and Servicing Agreement (PSA), to manage the loan, including, send statements, collect and apply payments, run the escrow analysis, make tax and insurance payments, and engage in loss mitigation if the borrower falls behind, among other things.  Mortgage servicers are typically granted broad authority through the PSA to initiate foreclosure actions if required, yet the mortgage servicer has no ownership interest.  Therefore, even if the servicer manages the foreclosure, the servicer is not the owner and lacks standing; the action must be filed in the name of the trustee or entity which owns the mortgage and note.

MERS, or Mortgage Electronic Registration Systems, has complicated matters considerably.  Created by the industry as a clearing house to manage the high volume of loans being made as well as to avoid fees with having to record each mortgage, MERS registers and tracks assignments of mortgages, notes and servicers.  Whether MERS has standing to bring a foreclosure action depends on whether MERS holds or is assigned the note and the mortgage before the commencement of an action. 7  MERS was often named as nominee for the mortgagee in the mortgage, though this alone has been found to be an insufficient basis to give MERS standing to bring an action.        

It is critical that the mortgage and note be properly assigned or transferred.  A mortgage can be transferred by physical delivery as well as an assignment, a document assigning the security interest from one party to another.  To enforce a note, a party must establish that they originated the note, or that the lender listed on the document (or subsequent assignee) physically delivered the note to them.  New York UCC §§ 3-104 [2] [d], 3-202 [1] requires a valid assignment of a negotiable note made payable to a specific bearer (the originating lender, classifying it as “order paper”) to include an indorsement on the note itself, or on an allonge 8 firmly affixed to the note.    

Courts have consistently held that the assignment must occur prior to the filing. 9  In the rapid growth of mortgage lending, coupled with furious packaging, selling and reselling of mortgage notes into loan pools known as securitization, laws were ignored and mortgage notes were not properly transferred at the time.  The “wanna-be” plaintiff must ensure that the assignment is completed.  In many instances, parties have skipped this step, presumably proceeding under the belief that a right to ownership is sufficient.  The process can further be complicated if the originating lender, or assignee no longer exists, or if an assignment today of a loan which should have been assigned years ago might violate the terms of the trust.

Volume or a lack of basic due diligence, may be underlying reasons in a subset of cases filed in New York’s courts in which the plaintiff doesn’t currently own and hold the mortgage and note, and in fact, never has had any right to an ownership interest in the paper.  Though we have no way of telling how many cases of this sort have been filed in New York, they are not infrequent enough to be ignored and pose potential problems if the foreclosure goes through and the property is sold to an unknowing third party.  

Standing has been interpreted as a defense that must be raised in the answer by the defendant borrower, or it is deemed waived. 10  A defendant also can bring a pre-answer motion to dismiss the case for lack of standing.  This interpretation of the law has proved difficult for many defendants who lack legal counsel and fail to raise standing in their answer, but who discover subsequently that the plaintiff is not the rightful owner of the mortgage and note.  As noted above, a foreclosure that proceeds to sale by the wrong party may have negative implications for future homebuyers.   
A Legislative Fix – A.629B/S.697A

A.629B/S.697A would prevent wrongful parties from filing mortgage foreclosure actions by shifting the burden from courts and borrowers to uncover the illegality onto the plaintiff to affirmatively show at the outset of the case that they have standing to sue. The bill also would allow standing to be raised as a defense after the initial filing of the answer (though as one legislative staffer pointed out, if plaintiffs comply with the first section of the bill, the need to raise standing defensively will be diminished). 11

Requiring Proof at Time of Filing

The bill codifies what is already established common law, that the plaintiff must be the record owner and holder of the note and the mortgage.  The plaintiff would be required to affirmatively aver in the complaint that it “is the owner and holder of the subject mortgage and note, or has been delegated the authority to institute a mortgage foreclosure action by the owner and holder of the subject mortgage and note,” and that “the originals of the subject mortgage and note are in its possession and control.” 12  Third, the bill would require plaintiffs to prove ownership by affixing copies of the original mortgage and note to the summons and complaint, along with evidence of endorsements, assignments and transfers, if applicable, to show the trail of ownership leads to the plaintiff. 

The burden of proof required up front in the legislation should not pose a burden if the assignment of the mortgage and note were completed properly under New York law.  The effect for courts, though, as well as defendant borrowers would be significant.  Assignments of notes need not be publicly recorded in New York.   An inquisitive court or borrower can attempt to find out who owns their loan by going to a website maintained by the Securities and Exchange Commission (SEC), but it is a complicated process (especially if the name of a trust is unknown), not understood by many.  Borrowers don’t learn the identity of the trust which owns, or allegedly owns their mortgage note until a foreclosure is filed and it appears as the plaintiff.  Currently, borrowers generally lack any basis to affirm that the plaintiff is the owner when answering the complaint.

Courts have the same difficultly in knowing whether a plaintiff has standing.  Some judges in New York conduct their own investigations and have dismissed cases in which standing is not evident.  Such examinations involve considerable judicial resources and time, though, and are not done in every case throughout the state.  Affidavits filed by plaintiffs in foreclosure cases are not reliable, especially if a robo-signer was involved.  The proposed legislation would make the issue of standing transparent and rid court dockets of cases in which ownership could not be averred.      
The media attention given to the robo-signing scandal and websites dedicated to foreclosure fraud have lead to more defendant borrowers raising the issue of standing either in their answer or filing a motion to dismiss.  While this is a good thing, especially if the defense is waived if not raised in the beginning stages of the case, it certainly adds to the workload of the courts.  Requiring the plaintiff to show standing up front will reduce motion practice.          

Standing Should Not be a Waivable Defense

The proposed legislation also would allow a defendant borrower to raise standing at any point during the litigation.  The case law is more complicated, but a prevailing view has interpreted standing in foreclosure cases to be a defense that is waived if not raised in the initial answer or in a pre-answer motion by the defendant borrower.  Even if the borrower discovers at a later point in the litigation that the plaintiff is not the owner, borrowers have been barred from filing motions  on these grounds.

Defendants have 20 or 30 days to file an answer after a complaint is served (depending on means of service).  A minority of homeowners have access to direct legal assistance during this short time frame.  Most homeowners filing pro se answers generally lack the knowledge to raise standing in their answer, even with the increased media attention given to the issue.  Fewer still understand anything about filing a motion to dismiss.  As a result of this procedural mishap, a plaintiff could be allowed to proceed to judgment and sale even if it revealed that they are not the rightful owner and holder of the mortgage and note.  This result is certainly unfair to the borrower and potentially presents problems for subsequent buyers of the property. 13

Opposition to this provision has been based on the concern that extending the timeframe could cause borrowers to hold the defense in their back pocket and/or use it as a tactic to delay litigation down the road.  Frivolous filings are prohibited already, however, and a party has to have a good faith basis for filing a motion.  It is difficult to imagine that borrowers would intentionally hold onto a valid standing defense merely as a litigation tactic, as litigants generally want a speedy resolution of their case.  This argument especially seems to be a red herring in light of the reality that most homeowners don’t have lawyers.

Initially, some title insurers expressed concerns that this provision could allow former homeowners to come in after their home had been sold with new grounds to vacate the sale and judgment based on a lack of standing defense.  The burden of proof to vacate a judgment and sale in New York requires more than a meritorious claim, however, generally requiring the party to show a lack of service or notice of the lawsuit, as well.  Nonetheless, the legislature amended the bill to address this concern, requiring the court to “make an affirmative finding of standing which shall be included in the judgment of foreclosure and sale.” 14

Current Status of A.629B/S.697A

Assemblymember Weinstein’s bill was co-sponsored by Assemblymembers Clark, P. Rivera, Colton, Lavine, M. Miller, Abinanti and Schimel and passed the Assembly on June 22, 2001. Senator Klein’s bill, co-sponsored by  Senators Fuschillo, Golden, Grisanti, Hassel-Thompson, Krueger, Maziarz, Montgomery and Parker, has been referred to the Rules Committee but has not yet been brought up for a vote.   


1   This article was written with the assistance of J.R. Cummings, a third-year law student at Syracuse University College of Law.  Mr. Cummings interned with Empire Justice Center in the summer of 2011.
2   Many decisions of cases dismissed for lack of standing are collected on the website.
3   In the fall of 2010, the media started reporting on the robo-signing scandal.  A Maine pro bono lawyer had uncovered that a mortgage servicer was not verifying each loan that was being sent to foreclosure, but rather used forged affidavits signed and notarized en masse, by an independent company which never saw the loan file.  Subsequent investigations by lawyers, the media and state and federal regulatory agencies have found this to be a common practice across the industry, bringing into question the veracity of foreclosure filings nationwide. 
4   Text of the legislation is available at
5   Kluge v. Fugazy, 536 N.Y.S. 92 (2d Dept. 1988)(absent the transfer of the debt, the assignment of the mortgage is a nullity). A note can exist independently as it is the personal obligation by the borrower to pay back a certain sum.  Conversely, a mortgage, which is the instrument by which a borrower gives a security interest in real property, cannot exist without the existence of an accompanying underlying debt obligation.  A foreclosure is an action initiated by one party to exercise on its rights under the security instrument, the mortgage, for a breach of contract by the borrower of the underlying debt obligation, the note.
6   The Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. sec. 2605(b)-(d) mandates that a homeowner be notified when servicing of their mortgage is transferred.  There is no parallel requirement that a borrower be notified when their mortgage and note is sold.  Homeowners typically believe their mortgage servicer is their “lender.”  If the loan was never sold and the originating lender is still the record owner, this is probably true.  However, the majority of mortgage loans have been securitized and are currently held by a trust. A servicer must provide a borrower with the name and contact information of the owner or assignee of their loan within ten days of a written request.  Part 419.4(e), NYS Banking Department Superintendant’s regulations “Servicing Mortgage Loans:  Business Conduct Rules.” 
7   Bank of New York v. Silverberg, 2011 WL 2279723 (2d Dep’t 2011); Mortgage Electronic Registration Systems, Inc. v. Coakley, 21 AD3d 674, 838 NYS2d 622 (2d Dep”t. 2007) (holding MERS has standing because the note was indorsed in blank and transferred to MERS, and mortgage instrument gave MERS authority to foreclose.)
8   An allonge is an attachment to a legal document used to insert language or signatures when the original document does not have sufficient space for the inserted material. The allonge must be firmly attached so as to become a part of the instrument.
9   See Deutsche Bank Natl. Trust Co. v. McRae, 27 Misc.3d 247, 894 N.Y.S.2d 729 (Sup. Ct. Allegany Cty., 2010); Aurora Services, LLC v. Weisblum, N.Y.S.2d, WL 1902620 (2d Dep’t 2011).
10  See Wells Fargo Bank, Minnesota v. Mastropaolo, 42 A.D. 3d 239, 837 N.Y.S. (2d Dept. 2007).  NY CPLR does not specify standing as a defense that can be waived.  The issue is whether standing is a jurisdictional defense under Civil Practice Law and Rules (CPLR) 3211(a) that cannot be waived, or affects capacity to sue under CPLR 3211(e), which can be waived..    
11  A.629B/S.697A amends NY’s Real Property Actions and Proceedings Law (RPAPL), sec. 1302(1) and adds sec. 1302-A.
12  A.629B/S.697A , Section 1.  If the original of the note has been lost or destroyed, a plaintiff could satisfy the requirement by complying with applicable law to establish the right to enforce the mortgage and note, including NY Uniform Commercial Code sec. 3-804.
13  It is not clear what claim a real party of interest in the mortgage and note could have were it to discover down the road that a property was foreclosed upon by a different party which received payment for the note and released the mortgage lien.  If the property had been purchased by an third party who obtained a new mortgage on the property, there could be complications for the new homeowner, their mortgage company as well as the title insurer. 
14  A.629B/S.697B, sec. 2(4).


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