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NYSBA Understanding Residential Foreclosure
1. STANDING AND ASSIGNMENT Gary Pieples, Esq. Visiting Assistant Professor Director, Securities Arbitration & Consumer Clinic Syracuse University College of Law Dealing with Residential Foreclosures: Workouts & DefensesNYSBA
2. The World of Mortgage Finance has changed http://www.youtube.com/watch?v=EOzMdEwYmDU&feature=related
3. The Players Originating Lenders Secondary Market Fannie Mae, Freddie Mac, Investment Banks Servicers Investors MERS CDO REMIC
5. SECURITIZATION Original lenders sells right to collect payments in order to convert Payment Stream into cash Purchaser (usual an investment bank) bundles into investment vehicles & sell to investors (pension funds etc) Lender generates profits not from loan payments but from fees selling loans to investors Incentive now to generate loans rather than look at likelihood of default Exploded in early 2000’s because of declining treasury rates
6. How Securitization Process lead to the Mortgage Crisis Lenders Incentive for quantity rather than quality “Creative” mortgage products were created to increase volume Many of which were time bombs Negative amortization Teaser rates Balloon payments
7. How Securitization Process lead to the Mortgage Crisis Separation of ownership of loans from servicing Huge volumes of loans being Sliced, Diced & Sold Lead to short cuts & mistakes in documentation of loans & their assignment
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9. The Prima Facie Case Produce the Mortgage Produce the Note Evidence of Default
10. STANDING 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 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). 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]).
11. Standing 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)
12. Timing 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 Cannot be remedied retroactively. Wells Fargo Bank, N.A. v. Marchione 69 A.D.3d 204, 887 N.Y.S.2d 615
13. Standing Is an Affirmative Defense Therefore it can be waived Security Pacific National Bank v. Evans, 31 A.D.3d 278 (1st Dept. 2006) Wells Fargo v. Mastropaola, 42 A.D.3d 837 (2nd Dept. 2007)
14. The Note is the Cow & Mortgage is the Tail A Note is contract to repay money 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)). It therefore must be negotiated in compliance with the UCC 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]).
15. What is a Negotiable Instrument3-104 Any writing to be a negotiable instrument within this Article must (a) be signed by the maker or drawer; and (b) contain an unconditional promise to pay a sum certain; and no other promises (c) be payable on demand or at a definite time; and (d) be payable to order or to bearer.
16. How Does it Change Hands Negotiation – UCC 3-202 Transfer so that transferee becomes a holder Transfer of possession of the instrument Required Indorsements (Bearer v. Order) Indorsement must be written on instrument or firmly affixed to it Transfer – UCC 3-201 Transfer of instrument vests transferee such rights as the transferor has
17. Why is this Important?In re Kemp, 2010 WL 4777625 (Bankr. D. N.J. 2010) Did the Note get delivered? Did it get indorsed? Did it get indorsed by someone with authority? Did it get indorsed in a timely fashion?
18. The Mortgage A Mortgage creates a lien on real estate as collateral for debt The UCC has nothing to do with the creation, drafting, recording or assignment a mortgage Regulated by state real estate/conveyance law Must be recorded to protect interest
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
20. Servicers & Standing Most Mortgages Pooled & Sold to investors Servicing Rights often retained by the Original Lender The Authority of the Servicer is defined in a Pooling & Servicing Agreement (PSA)
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22. The Special Problem of MERS What’s a MERS? What is a “Nominee?” Is MERS a Holder? Does MERS have Standing to bring Foreclosure Actions?
