nysba understanding residential foreclosure
TRANSCRIPT
STANDING AND ASSIGNMENT
GARY PIEPLES, ESQ.V I S I T I N G A SSI S TA N T P R O F E SS O R
D I R E C T O R , S E C U R I T I E S A R B I T R AT I O N & C O N S U M E R C L I N I C S Y R A C U S E U N I V E R SI T Y
C O L L E G E O F L AW
Dealing with Residential Foreclosures: Workouts & Defenses
NYSBA
The World of Mortgage Finance has changed
http://www.youtube.com/watch?v=EOzMdEwYmDU&feature=related
The Players
Originating LendersSecondary Market
Fannie Mae, Freddie Mac, Investment BanksServicersInvestorsMERSCDOREMIC
The Basic Players
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
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
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
The Prima Facie Case
Produce the MortgageProduce the Note Evidence of Default
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]).
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)
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
Standing
Is an Affirmative DefenseTherefore 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)
The Note is the Cow & Mortgage is the Tail
A Note is contract to repay moneyThe 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]).
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.
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
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?
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
“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
Servicers & Standing
Most Mortgages Pooled & Sold to investorsServicing Rights often retained by the
Original LenderThe Authority of the Servicer is defined in a
Pooling & Servicing Agreement (PSA)
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?
In re Agard444 B.R. 231 (E.D.N.Y. 2011)
Robo Signers