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The crash of the housing bubble in the last decade caused a devastating effect on consumers throughout New York State. In 2016, homeowners in New York are defaulting on mortgages as the result of the 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 the courts’ dockets and are costing the parties involved, as well as the state, both time, and money.

Adding to the foreclosure crisis in Long Island, there are cases that are improperly filed by plaintiffs who lack standing to sue. The law in New York is clear in 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. The full extent of the problem is not known, since many homeowners proceed unrepresented and courts lack the resources to investigate every case, but the increased number of cases dismissed for lack of standing demonstrate that these cases are all too common. 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[1]” brought the issue to the forefront.

In a residential mortgage foreclosure case in New York, the plaintiff must own the mortgage and hold the note[2] at the time the action is filed. 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. A mortgage servicer is the party contracted by the owner, under a Pooling and Servicing Agreement[3] (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[4]depends on whether MERS holds or is assigned the note and the mortgage before the commencement of an action. 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.

Standing has been interpreted as a defense that must be raised in the answer by the defendant borrower, or it is deemed waived. 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 homeowner defendants who lack legal counsel and fail to raise standing in their answer, but who discover as the case progresses that the plaintiff is not the rightful owner of the mortgage and note and that no standing exists. In order to make certain that you raise the issue of standing in a timely fashion, it is important to speak to a skilled Long Island foreclosure attorney as soon as you learn that I foreclosure action is being filed against you, or even after you miss your first monthly mortgage payment.

The issue of standing has been at the center of hundreds of contested residential mortgage foreclosure actions. Despite the volume of mortgage foreclosure actions in which the plaintiff’s standing has been a central issue, the New York State Court of Appeals avoided weighing until June 11, 2015, when the Court of Appeals issued its decision in Aurora Loan Services LLC v. Taylor[5]. In Taylor, the Court of Appeals affirmed a split decision of the Appellate Division, Second Department, in which the majority of the Appellate Division, Second Department, panel concluded that the plaintiff had standing to prosecute a residential foreclosure action.

The Taylor case is significant because, at least on the facts before the Court of Appeals, the Court may have abandoned the requirement imposed by the Appellate Division, Second Department, of proof of “factual details” of a physical delivery of the promissory note in order for a lender to establish its standing. It is unclear if Taylor represents a radical shift in the burden placed on lenders to establish their standing or whether it is a case that lower courts will attempt to distinguish by limiting it to its facts.

Further, there is a clear split in authority between the departments of New York’s Appellate Division on the issue of whether the defense of lack of standing may be waived by a borrower upon the borrower’s pleading default in a foreclosure action. Indeed, the Appellate Division decisions are so split on this issue that even decisions within the same Appellate Division department have conflicted with one another. The issue of whether a standing defense is waived upon the borrower defaulting in a foreclosure action is one that is of great importance to not only the foreclosure bar and the lending industry, but also the trial courts in New York state that see the waiver issue litigated regularly and are asked to render decisions based upon conflicting guidance from the Appellate Division. Absent clear guidance from the New York Court of Appeals, the question of whether and when a standing defense is waived following a pleading default by a borrower in a foreclosure action will only continue to be one of many contested issues that arise frequently in mortgage foreclosure litigation.

If you are unable to pay your monthly mortgage, it is important to speak with a skilled greater Long Island and New York area foreclosure attorney who can review your individual situation based federal and New York laws. As the issue of standing should be raised in an answer or presented in a pre-answer Motion to Dismiss, it is critical to speak to an attorney as soon as you believe that you may have a financial problem, even before a foreclosure action is filed against you. The experienced attorneys at the office of Ronald P. Weiss can determine if the plaintiff has standing, file the appropriate motion on your behalf and discuss all of the foreclosure solutions that are appropriate for you and your family. Call the office of Ronald P. Weiss today at (631) 296-0361 in order to discuss the specifics of your financial situation and possible foreclosure solutions.