NYSBA Understanding Residential Foreclosure


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NYSBA Understanding Residential Foreclosure

  1. 1. STANDING AND ASSIGNMENT<br />Gary Pieples, Esq.<br />Visiting Assistant Professor <br />Director, Securities Arbitration & Consumer Clinic Syracuse University College of Law<br />Dealing with Residential Foreclosures: Workouts & DefensesNYSBA<br />
  2. 2. The World of Mortgage Finance has changed<br />http://www.youtube.com/watch?v=EOzMdEwYmDU&feature=related<br />
  3. 3. The Players<br />Originating Lenders<br />Secondary Market<br />Fannie Mae, Freddie Mac, Investment Banks<br />Servicers<br />Investors<br />MERS<br />CDO<br />REMIC<br />
  4. 4. The Basic Players<br />
  5. 5. SECURITIZATION<br />Original lenders sells right to collect payments in order to convert Payment Stream into cash <br />Purchaser (usual an investment bank) bundles into investment vehicles & sell to investors (pension funds etc)<br />Lender generates profits not from loan payments but from fees selling loans to investors<br />Incentive now to generate loans rather than look at likelihood of default<br />Exploded in early 2000’s because of declining treasury rates<br />
  6. 6. How Securitization Process lead to the Mortgage Crisis<br />Lenders Incentive for quantity rather than quality<br />“Creative” mortgage products were created to increase volume <br />Many of which were time bombs <br />Negative amortization<br />Teaser rates<br />Balloon payments<br />
  7. 7. How Securitization Process lead to the Mortgage Crisis<br />Separation of ownership of loans from servicing<br />Huge volumes of loans being Sliced, Diced & Sold<br />Lead to short cuts & mistakes in documentation of loans & their assignment<br />
  8. 8.
  9. 9. The Prima Facie Case<br />Produce the Mortgage<br />Produce the Note <br />Evidence of Default<br />
  10. 10. STANDING<br />RPAPL § 1302 requires plaintiff to plead that it is the owner of the mortgage and note for loans subject to Banking Law 6-l and 6-m<br />In order to commence a foreclosure action, the plaintiff must have a legal or equitable interest in the mortgage (see Katz v. East-Ville Realty Co., 249 A.D.2d 243, 243, 672 N.Y.S.2d 308).<br />Foreclosure of a mortgage may not be brought by one who has no title to it and absent an effective transfer of the debt, the assignment of the mortgage is a nullity (Kluge v Fugazy, 145 AD2d 537 [2d Dept 1988]).<br />
  11. 11. Standing <br />Ownership of the Note & Mortgage may be established by proof that plaintiff is owner of the note & mortgage either by assignment or by owner’s indorsement of the note & written assignment of the mortgage to plaintiff. MERS v. Coakley, 41 A.D.3d 838 (2nd Dept. 2007)<br />
  12. 12. Timing<br />Assignee must have received assignment when action has commenced to have standing ( Federal Natl. Mtge. Assn. v. Youkelsone, 303 A.D.2d 546, 546-547, 755 N.Y.S.2d 730<br />Cannot be remedied retroactively. Wells Fargo Bank, N.A. v. Marchione 69 A.D.3d 204, 887 N.Y.S.2d 615<br />
  13. 13. Standing<br />Is an Affirmative Defense<br />Therefore it can be waived<br />Security Pacific National Bank v. Evans, 31 A.D.3d 278 (1st Dept. 2006)<br />Wells Fargo v. Mastropaola, 42 A.D.3d 837 (2nd Dept. 2007)<br />
  14. 14. The Note is the Cow & Mortgage is the Tail<br />A Note is contract to repay money<br />The Note is “generally” considered a Negotiable Instrument governed by Article 3 of the Uniform Commercial Code (UCC) (See Wilson v. Toussie 260 F.Supp.2d 530 (E.D.N.Y. 2003)).<br />It therefore must be negotiated in compliance with the UCC<br />Foreclosure of a mortgage may not be brought by one who has no title to it & absent an effective transfer of the debt, the assignment of the mortgage is a nullity (Kluge v Fugazy, 145 AD2d 537 [2d Dept 1988]).<br />
  15. 15. What is a Negotiable Instrument3-104<br />Any writing to be a negotiable instrument within this Article must<br />(a) be signed by the maker or drawer; and<br />(b) contain an unconditional promise to pay a sum certain; and no other promises<br />(c) be payable on demand or at a definite time; and<br />(d) be payable to order or to bearer.<br />
  16. 16. How Does it Change Hands<br />Negotiation – UCC 3-202<br />Transfer so that transferee becomes a holder<br />Transfer of possession of the instrument<br />Required Indorsements (Bearer v. Order)<br />Indorsement must be written on instrument or firmly affixed to it<br />Transfer – UCC 3-201<br />Transfer of instrument vests transferee such rights as the transferor has<br />
  17. 17. Why is this Important?In re Kemp, 2010 WL 4777625 (Bankr. D. N.J. 2010)<br />Did the Note get delivered?<br />Did it get indorsed?<br />Did it get indorsed by someone with authority?<br />Did it get indorsed in a timely fashion?<br />
  18. 18. The Mortgage <br />A Mortgage creates a lien on real estate as collateral for debt<br /> The UCC has nothing to do with the creation, drafting, recording or assignment a mortgage<br />Regulated by state real estate/conveyance law<br />Must be recorded to protect interest<br />
  19. 19. “The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.” Carpenter v. Longan, 83 U.S. 271<br />
  20. 20. Servicers & Standing<br />Most Mortgages Pooled & Sold to investors<br />Servicing Rights often retained by the Original Lender<br />The Authority of the Servicer is defined in a Pooling & Servicing Agreement (PSA)<br />
  21. 21.
  22. 22. The Special Problem of MERS<br />What’s a MERS?<br />What is a “Nominee?”<br />Is MERS a Holder?<br />Does MERS have Standing to bring Foreclosure Actions?<br />
  23. 23.
  24. 24. In re Agard444 B.R. 231 (E.D.N.Y. 2011)<br />
  25. 25. Robo Signers<br />