However, in a recent major decision, Bank of New York v. Silverberg (Appellate Division, 2nd Dept. 2011) a New York Appellate Judge, the Honorable John M. Leventhal, dismissed a foreclosure action on the basis that the assignment of the mortgage by MERS was invalid. The court held that MERS did not have the right to assign the mortgage because MERS was not the actual owner or assignee of the underlying note, and therefore the plaintiff lacked standing.
Background:
In a foreclosure action, the complaint must establish a chain of ownership of the note and mortgage from the original lender to the plaintiff instituting the foreclosure.
Standing is an inquiry into whether a litigant has an interest in the lawsuit that the law will recognize as a sufficient predicate for determining the issue in question.
In a foreclosure action, standing is met when the Plaintiff is:
1) Both the holder or assignee of the mortgage and
2) The holder or assignee of the underlying promissory note at the time the action
is commenced.
Generally, one a note is properly assigned, the mortgage passes as an incident to the note (the security, or mortgage, does not have to be formally transferred in writing). A mortgage is merely security for a debt and cannot exist independently of the debt.
The issue for the Court was:
Can MERS, as nominee and mortgagee for purposes of recording, assign the right to foreclose upon a mortgage to a Plaintiff, absent MERS right to, or possession of, the actual underlying promissory note? No.
As nominee, MERS’ authority is limited to only those powers which were specifically conferred to it and authorized by the actual lender. A nominee is a person or entity designated to act in place of another usually in a limited way.
In this case there was a consolidation agreement, which consolidated two previous loans taken out by the homeowner. So instead of two loans, there was one debt obligation. As such, the consolidation merged the two prior notes and mortgages.
Although the consolidation agreement gave MERS the right to assign mortgages, it did not specifically give MERS the right to assign the note, and therefore such assignment of notes was beyond MERS authority as nominee or agent of the lender. A party who claims to be the agent of another bears the burden of proving the agency relationship by a preponderance of evidence.
Assuming the consolidation transformed MERS into a mortgagee for purposes of recording, the consolidation agreement never gave MERS title to the note, nor was the note physically delivered to MERS. Therefore, the Plaintiff in this case, Bank of New York, stepped into the shoes of MERS, its assignor, and thus gained only that to which its assignor was entitled. See Uniform Commercial Code 3-201.
Because MERS was never the lawful holder or assignee of the Note described in the consolidation agreement, the corrected assignment of mortgage by MERS is a nullity and MERS was without authority to assign the power to foreclose to Bank of New York (the plaintiff).
The Judge went on to stress that proper procedural requirements must be followed to “ensure the reliability of the chain of ownership, to secure the dependable transfer of property, and to assure the enforcement of the rules that govern real property.”
This case stands for the proposition that:
1) MERS did not actually own the promissory notes for the mortgage loans that it assigned to the bank that instituted the foreclosure.
2) Only the owner (holder or assignee) of a promissory note may properly assign it to another party.
This case carries great importance because MERS hold about 60 million mortgage loans in its registry and is involved with about 60% of all mortgage loans in the U.S.
If your home is in New York
The Law Firm of Eran D. Grossman can help you stay in your home.
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