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There seems to be confusion about what is necessary to file a foreclosure. To start with the basics, the debt is created when the borrower receives the funds or when the funds are disbursed for the benefit of the borrower. This requires no documentation. The receipt of funds presumptively implies a loan that is a demand loan. The source of funding is the creditor and the borrower is the debtor. The promissory note is EVIDENCE of the debt and contains the terms of repayment. In residential loan transactions it changes the terms from a demand loan to a term loan with periodic payments.
But without the debt, the note is worthless — unless the note gets into the hands of a party who claims status as a holder in due course. In that case the debt doesn’t exist but the liability to pay under the terms of the note can be enforced anyway. In foreclosure litigation based upon paper where there are claims or evidence of securitization, there are virtually all cases in which the “holder” of the note seeks enforcement, it does NOT allege the status of holder in due course. To the contrary, many cases contain an admission that the note doesn’t exist because it was lost or destroyed.
The lender is the party who loans the money to the borrower. The lender can bring suit against the borrower for failure to pay and receive a money judgment that can be enforced against income or non-exempt property of the borrower by writ of garnishment or attachment. There is no limit to the borrower’s defenses and counterclaims against the lender, assuming they are based on facts that show improper conduct by the lender. The contest does NOT require anything in writing. If the party seeking to enforce the debt wishes to rely on a note as evidence of the debt, their claim about the validity of the note as evidence or as information containing the terms of repayment may be contested by the borrower.
If the note is transferred by endorsement and delivery, the transferee can enforce the note under most circumstances. But the transferee of the note takes the note subject to all defenses of the borrower. So if the borrower says that the loan never happened or denies it in his answer the lender and its successors must prove the loan actually took place. This is true in all cases EXCEPT situations where the transferee purchases the note for value, gets delivery and endorsement, and is acting in good faith without knowledge of the borrower’s defenses (UCC refers to this as a holder in due course). The borrower who signs a note without receiving the consideration of the loan is taking the risk that he or she has created a debt or liability if the eventual transferee claims to be a holder in due course. Further information on the creation and transfer of notes as negotiable paper is contained in Article 3 of the Uniform Commercial Code (UCC).
Thus the questions about enforceability of the note or recovery on the debt are fairly well settled. The question is what happens in the case where collateral for the loan secures the performance required under the note. This is done with a security instrument which in real property transactions is a mortgage or deed of trust. This is a separate contract between the lender and the borrower. It says that if the borrower does not pay or fails to pay taxes, maintain the property, insure the property etc., the lender may foreclose and the borrower will forfeit the collateral. This suit is an action to enforce the security instrument (mortgage, deed of trust etc.) seeking to foreclose all claims inferior to the rights of the lender established when the mortgage or deed of trust was recorded.
The mortgage is a contract that does not qualify as a negotiable instrument and so is not covered by Article 3 of the UCC. It is covered by Article 9 of the UCC (Secured Transactions). The general rule is that a party who purchases the mortgage instrument for value in good faith and without knowledge of the borrower’s defenses may enforce the mortgage if the contract is breached by the borrower. This coincides with the requirement that the holder of the mortgage must also be a holder in due course of the note — if the breach consists of failure to pay under the terms of the note. Any party may assign their rights under a contract unless the contract itself says that it is not assignable or assignment is barred by statute or administrative rules.
The “assignment” of the mortgage or deed of trust is generally taken to be an instrument of conveyance. But forfeiture of collateral, particularly one’s home, is considered to be a much more severe remedy against the borrower than a money judgment for economic loss caused by breach of the borrower in making payments on a legitimate debt. So the statute (Article 9, UCC) requires that the assignment be the result of an actual transaction in which the mortgage is purchased for value. The confusion that erupts here is that no reasonable person would merely purchase a mortgage which is not really an asset deriving its value from a borrower’s promise to pay. That asset is the note.
So if the note is purchased for value, and assuming the purchaser receives delivery and endorsement of the note, as a holder in due course there is no question that the mortgage assignment is valid and enforceable by the assignee. The problems that have emerged is when, if ever, any value was paid to anyone in the “chain” on either the note or the mortgage. If no value was paid then the note might be enforceable subject to borrower’s defenses but the mortgage cannot be enforced. Additional issues emerge where the “proof” (often fabricated robo-signed documents) imply through hearsay that the note was the subject of a transaction at a different time than the date on the assignment. Denial and/or discovery would reveal the fraud upon the Court here — assuming you can persuasively argue that the production of evidence is required.
Another interesting question comes up when you seen the language of endorsement on the mortgage. This might be seen as splitting hairs, but I think it is more than that. To assign a mortgage in form that would ordinarily be accepted in general commerce — and in particular by banks — the assignment would be in the form that recites the ownership of the mortgage and the intention to convey it and on what terms. Instead, many cases show that there is an additional page stapled to the mortgage which contains only the endorsement to a particular party or blank endorsement. The endorsement is not recordable whereas a facially valid assignment is recordable.
The attachment of the last page could mean nothing was conveyed or that it was accidentally done in addition to a proper assignment. But I have seen several cases where the only evidence of assignment was a stamped endorsement, undated, in which there was no assignment. This appears to be designed to confuse the Judge who might be encouraged to apply the rules of transfer of the note to the circumstances of transfer of the mortgage. This smoke and mirrors approach often results in a foreclosure judgment in favor of a party who has paid nothing for the debt, note or mortgage. It leaves the actual lender out in the cold without a note or mortgage which they should have received.
It is these and other factors which have resulted in trial and appellate decisions that appear to be in conflict with each other. Currently in Florida the Supreme Court is deciding whether to issue an opinion on whether the assignment after the lawsuit has begun cures jurisdictional standing. The standing rule in Florida is that if you don’t own the mortgage at the time you declare a default, acceleration and sue, then those actions are essentially void.
Valid assignment is necessary for the plaintiff to have standing in a foreclosure case. (David E. Peterson, Cracking the Mortgage Assignment Shell Game, The Florida Bar Journal, Volume 85, No. 9, November, 2011, page 18).
In BAC Funding Consortium v. Jean-Jeans and US Bank National Association, the Second District of Florida reversed summary judgment for a foreclosure for bank because there was no evidence that the bank validly held the note and mortgage. BAC Funding Consortium Inc. ISAOA/ATIMA v. Jean-Jacques 28 So.2d, 936.
BAC has been negatively distinguished by two cases:
- Riggs v. Aurora Loan Services, LLC, 36 So.3d 932, (Fla.App. 4 Dist.,2010) was distinguished from BAC, because in BAC the bank did not file an affidavits that the mortgage was properly assigned; in Riggs they did. The 4th District held that the “company’s possession of original note, indorsed in blank, established company’s status as lawful holder of note, entitled to enforce its terms.” [Editor’s note: The appellate court might have erred here. The enforcement of the note and the enforcement of the mortgage are two different things as described above].
- Dage v. Deutsche Bank Nat. Trust Co., 95 So.3d 1021, (Fla.App. 2 Dist.,2012) was distinguished from BAC, because in Dage, the homeowners waited two years to challenge the foreclosure judgment on the grounds that the bank lacked standing due to invalid assignment of mortgage. The court held that a lack of standing is merely voidable, not void, and the homeowners had to challenge the ruling in a timely manner. [Editor’s note: Jurisdiction is normally construed as something that cannot be invoked at a later time. It can even be invoked for the first time on appeal.]
In his article, “Cracking the Mortgage Assignment Shell Game,” Peterson in on the side of the banks and plaintiffs in foreclosure cases, but his section “Who Has Standing to Foreclosure the Mortgage?” is full of valuable insights about when a case can be dismissed based on invalid assignment. Instead of reinventing the wheel, I’ve copied and pasted the section below:
It should come as no surprise that the holder of the promissory note has standing to maintain a foreclosure action.34 Further, an agent for the holder can sue to foreclose.35 The holder of a collateral assignment has sufficient standing to foreclose.36 [Editor’s note: Here again we see the leap of faith that just because someone might have standing to sue on the note, they automatically have standing to sue on the mortgage, even if no value was paid for either the note or the mortgage].
Failure to file the original promissory note or offer evidence of standing might preclude summary judgment.37 Even when the plaintiff files the original, it might be necessary to offer additional evidence to show that the plaintiff is the holder or has rights as a nonholder. In BAC Funding Consortium, Inc. v. Jean-Jacques, 28 So. 3d 936 (Fla. 2d DCA 2010), for example, the court reversed a summary judgment of foreclosure, saying the plaintiff had not proven it held the note. The written assignment was incomplete and unsigned. The plaintiff filed the original note, which showed an indorsement to another person, but no indorsement to the plaintiff. The court found that was insufficient. Clearly, a party in possession of a note indorsed to another is not a “holder,” but recall that Johns v. Gillian holds that a written assignment is not needed to show standing when the transferee receives delivery of the note. The court’s ruling in BAC Funding Consortium was based on the heavy burden required for summary judgment. The court said the plaintiff did not offer an affidavit or deposition proving it held the note and suggested that “proof of purchase of the debt, or evidence of an effective transfer” might substitute for an assignment.38 [e.s.]
In Jeff-Ray Corp. v. Jacobson, 566 So. 2d 885 (Fla. 4th DCA 1990), the court held that an assignment executed after the filing of the foreclosure case was not sufficient to show the plaintiff had standing at the time the complaint was filed. In WM Specialty Mortgage, LLC v. Salomon, 874 So. 2d 680 (Fla. 4th DCA 2004), however, the court distinguished Jeff-Ray Corp., stating that the execution date of the written assignment was less significant when the plaintiff could show that it acquired the mortgage before filing the foreclosure without a written assignment, as permitted by Johns v. Gilliam.39
When the note is lost, a document trail showing ownership is important. The burden in BAC Funding Consortium might be discharged by an affidavit confirming that the note was sold to the plaintiff prior to foreclosure. Corroboratory evidence of sale documents or payment of consideration is icing on the cake, but probably not needed absent doubt over the plaintiff’s rights. If doubt remains, indemnity can be required if needed to protect the mortgagor.40 [e.s.] 34 Philogene v. ABN AMRO Mortgage Group, Inc., 948 So. 2d 45 (Fla. 4th D.C.A. 2006); Fla. Stat. §673.3011(1) (2010).
35 Juega v. Davidson, 8 So. 3d 488 (Fla. 3d D.C.A. 2009); Mortgage Electronic Registration Systems, Inc. v. Revoredo, 955 So. 2d 33, 34, fn. 2 (Fla. 3d D.C.A. 2007) (stating that MERS was holder, but not owner and “We simply don’t think that this makes any difference. See Fla. R.Civ. P. 1.210(a) (action may be prosecuted in name of authorized person without joining party for whose benefit action is brought)”). [Editor’s note: This is an example of judicial ignorance of what is really happening. MERS is a conduit, a naked nominee, whose existence is meaningless, as is its records of transfer or ownership of the the debt, the note or the mortgage]
36 Laing v. Gainey Builders, Inc., 184 So. 2d 897 (Fla. 5th D.C.A. 1966) (collateral assignee was a holder); Cullison v. Dees, 90 So. 2d 620 (Fla. 1956) (same, except involving validity of payments rather than standing to foreclose).
37 See Fla. Stat. §673.3091(2) (2010); Servedio v. US Bank Nat. Ass’n, 46 So. 3d 1105 (Fla. 4th D.C.A. 2010).
38 BAC Funding Consortium, Inc. v. Jean-Jacques, 28 So. 3d at 938-939 (Fla. 2d D.C.A. 2010). See also Verizzo v. Bank of New York, 28 So. 3d 976 (Fla. 2d D.C.A. 2010) (Bank filed original note, but indorsement was to a different bank). But see Lizio v. McCullom, 36 So. 3d 927 (Fla. 4th D.C.A. 2010) (possession of note is prima facie evidence of ownership). [Editor’s note: this is the nub of the problems in foreclosure litigation. The law requires purchase for value for ownership, along with other criteria described above. This court’s conclusion places an unfair burden of proof on the borrower. The party with the sole care, custody and control of the actual evidence and information about the transfer or sale of the ndebt, note or mortgage is the Plaintiff. The plaintiff should therefore be required to show the details of the transaction in which the debt, note or mortgage was acquired. To me, that means showing a cancelled check or wire transfer receipt in which the reference was to the loan in dispute. Anything less than that raises questions about whether the loan implied by the note and mortgage ever existed. See my previous articles regarding securitization where the actual loan was actually applied from third party funds. hence the originator, who did not loan any money, was never paid for note or mortgage because consideration from a third party had already passed.]
39 See also Glynn v. First Union Nat. Bank, 912 So. 2d 357 (Fla. 4th D.C.A. 2005), rev. den., 933 So. 2d 521 (Fla. 2006) (note transferred before lawsuit, even though assignment was after). [Editor’s note: if the note and mortgage were in fact transfered for actual value (with proof of payment) then a “late” assignment might properly be categorized as a clerical issue rather than a legal one — because the substance of the transaction actually took place long before the assignment was executed and recorded. But the cautionary remark here is that in all probability, nobody who relies upon the “Chain” ever paid anything but fees to their predecessor. Why would they? If the consideration already passed from third party — i.e., pension fund money — why would the originator or any successor be entitled to demand the value of the note and mortgage? The originator in that scenario is neither the lender nor the owner of the debt and therefore should be given no rights under the note and mortgage, where title was diverted from the third party who DID the the loan to the originator who did NOT fund the loan. 40 Fla. Stat. §673.3091(2) (2010); Fla. Stat. §69.061 (2010).-David E. Peterson, “Cracking the Mortgage Assignment Shell Game”, The Florida Bar Journal, Volume 85, No. 9, November, 2011.
I also came across a blog post from another attorney on how to argue Florida assignments of judges. I don’t know how reliable this is, but it does cite several cases, and may be a useful resource to you: http://discoverytactics.wordpress.com/tactics-strategies/how-to-argue-florida-assignments-to-judges/. Someone also posted the content of the above link verbatim in a comment on my blog at https://livinglies.wordpress.com/foreclosure-defense-forms/people-players-and-resources/state-laws/florida-laws/.
Filed under: AMGAR, CASES, CORRUPTION, escrow agent, evidence, expert witness, foreclosure, foreclosure defenses, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Motions, Neil Garfield Show, originator, Pleading, securities fraud, Servicer, STATUTES, Title, TRUST BENEFICIARIES, trustee | Tagged: ARTICLE 3, ARTICLE 9, assignments, debt, holder in due course, Note and Mortgage, purchase for value, UCC |
Part 2 – How to Challenge an Assignment of Mortgage by Glenn Augenstein continued from Part 1on DeadlyClear.
Glenn Augenstein, a seasoned researcher and expert witness in foreclosure fraud, has taken the time to research the ancient word “seisin” which gives us better insight into what the mortgage document was meant to convey.
Recent Case Law
Wells Fargo v Erobobo
On this I must first comment that standing, or lack thereof, is considered differently in some jurisdictions than it is others. Some treat it as an affirmative defense that must be pleaded timely or it is considered waived. “Because the issue of standing is distinct from the issue of subject-matter jurisdiction and, thus, can be waived, we hold that an appellate court cannot, on its own motion, resolve an appeal based upon a lack of standing before the trial court.”Harrison v. Leach, 323S.W.3d 702 (Ky. 2010) – as pointed out by my attorneys.
Others treat it as a brother to jurisdiction, which cannot be waived, and consider being so closely related that standing, or a lack thereof, cannot be waived and can be raised for the first time on appeal. This information is public and can be found on the Internet.
The recent Wells Fargo Bank, N.A. v. Erobobo of Supreme Court Kings County NY engaged in a brief discussion in re standing, and how it related to the instant case. “Many decisions treat the question of whether the Plaintiff in a foreclosure action owns the note and mortgage as if it were a question of standing and governed by CPLR 3211(e).”Citigroup Global Markets Realty Corp. v. Randolph Bowling, 25 Misc 3d 1244(A), 906 N.Y.S.2d 778 (Sup. Ct. Kings Cty 2009); Federal Natl. Mtge. Assn. v. Youkelsone, 303 AD2d 546, 546—547 (2d Dept 2003); Nat’l Mtge. Consultants v. Elizaitis, 23 AD3d 630, 631 (2d Dept 2005); Wells Fargo Bank, N.A. v. Marchione, 2009 NY Slip Op 7624, (2d Dept 2009).
“However, Plaintiff’s ownership of the note is not an issue of standing but an element of its cause of action which it must plead and prove.”Wells Fargo Bank, N.A. v. Erobobo, 042913 NYMISC, 2013-50675.
Not to be deterred plaintiff had attempted a bit of misdirection to shift the argument to one of standing. “Plaintiff argues that Defendant’s claim that Plaintiff does not own the note and mortgage amounts to a standing argument, and because Defendant failed to raise standing in his answer as an affirmative defense or pre answer motion, he cannot do so now.”ibid.
This was a well-played “burden of proof” tactic, as the Erobobo general denial was considered sufficient to place the burden on Wells Fargo. The Erobobo Court went on to offer an excellent analysis of the relevant Pooling and Servicing Agreement (PSA) that alleged to own/hold the Erobobo note and mortgage.
“Section 2.01, subsection 1 of the PSA requires that transfer and assignment of mortgages must be effected by hand delivery, for deposit with the Trustee with the original note endorsed in blank.
“Section 2.05 of the PSA requires that the Depositor transfer all right, title, interest in the mortgages to the Trustee, on behalf of the trust, as of the Closing Date. The Closing Date as provided in the PSA is November 14, 2006.
“Option One assigned Defendant’s mortgage loan to the Plaintiff, as the Trustee, on July 15, 2008, approximately eighteen months after the trust had closed.” ibid .
“Under New York Trust Law, every sale, conveyance or other act of the trust in contravention of the trust is void. EPTL §7-2.4. Therefore, the acceptance of the note and mortgage by the trustee after the date the trust closed, would be void.” ibid
Defendant Erobobo argued that in addition to timely conveyance, pursuant to the strict and regimented requirements in Section 2.01 and 2.05, conveyance to the trust must be by a specific party, the Depositor. In Erobobo the “The assignment of the note and mortgage from Option One rather than from the Depositor ABFC violates section 2.01 of the PSA which requires that the Depositor deliver to and deposit the original note, mortgage and assignments to the Trustee.”
“The assignment of the Defendant’s note and mortgage, having not been assigned from the Depositor to the Trust, is therefore void as in being in contravention of the PSA.The evidence submitted by Defendant that the note was acquired after the closing date and that assignment was not made by the Depositor, is sufficient to raise questions of fact as to whether the Plaintiff owns the note and mortgage, and precludes granting Plaintiff summary judgment.” ibid
Standing to challenge an assignment of mortgage was not a central issue in Well Fargo v Erobobo. However, the court made a very significant ruling in respect of the requirements of the PSA, and the application of NY EPTL 7-2.4
It is important to note the ruling in Erobobo is merely interlocutory. At some point there may be further deliberations. Until a final order is issued the case remains on the Supreme Court of Kings County NY active docket. No appeal can be taken from an interlocutory order. The entire interlocutory order is available here.
In re Saldivar
Approximately 5.5 weeks after the Erobobo interlocutory order a Texas Bankruptcy Case, In re Saldivar, cited to the case.
“As a threshold matter, the court must first address Chase and Deutsche Bank’s assertion that the Saldivars lack standing to challenge the validity of the assignment of mortgage to the Trust.” In re Saldivar, Case No: 11-10689.
The Saldivar court begins its discussion on Saldivar’s standing to challenge the validity of the assignment stating “’A third party generally lacks standing to challenge the validity of an assignment.’ Bank of American Nat’l Assoc. v. Bassman FBT, L.L.C., et al., 981 N.E.2d 1, 7 (Ill. App. Ct. 2012).” ibid
It then considers whether the Trustee’s acts in contravention to the PSA, and NY EPTL 7-2.4, are ultra vires, and merely voidable, but not void ab initio.
Finally the Saldivar Court states, “Based on the Erobobo decision and the plain language of N.Y. Est. Powers & Trusts Law § 7-2.4, the Court finds that under New York law, assignment of the Saldivars’ Note after the start up day is void ab initio. As such, none of the Saldivars’ claims will be dismissed for lack of standing.” In Re Saldivar, Case No: 11-10689.
There are likely to be further deliberations in In Re Saldivar. The entire In Re Saldivar opinion in is available here:
GLASKI v BofA (PUBLISHED Version)
This case seems to be a “shot heard round world” based on the amount of attention it has received since issue, and subsequent publication. There are a number of nuggets.
“We conclude that a borrower may challenge the securitized trust’s chain of ownership by alleging the attempts to transfer the deed of trust to the securitized trust (which was formed under New York law) occurred after the trust’s closing date. Transfers that violate the terms of the trust instrument are void under New York trust law, and borrowers have standing to challenge void assignments of their loans even though they are not a party to, or a third party beneficiary of, the assignment agreement.” Glaski v. Bank of America, National Association, F064556.
I am particularly fond of footnote 6 in which the court states, “Because the trial court took judicial notice of the existence and recordation of the assignment earlier in the litigation, we too will consider the assignment, but will not presume the matters stated therein are true. (See pt. IV.B, post.) For instance, we will not assume that JP Morgan actually held any interests that it could assign to LaSalle Bank. (See Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1375 [taking judicial notice of a recorded assignment does not establish assignee’s ownership of deed of trust].)” ibid
Here the Glaski court is unwilling to extend a presumption of good faith in respect of the validity or veracity of the recorded document. This seems something of a sea change. By refusing to presume good faith the court is unwilling to merely accept as true whatever documents BANA may wave under the Court’s nose. It appears the veracity can be challenged, and must needs be proven.
Another good nugget, “Despite the foregoing cases, we will join those courts that have read the New York statute literally. We recognize that a literal reading and application of the statute may not always be appropriate because, in some contexts, a literal reading might defeat the statutory purpose by harming, rather than protecting, the beneficiaries of the trust. In this case, however, we believe applying the statute to void the attempted transfer is justified because it protects the beneficiaries of the WaMu Securitized Trust from the potential adverse tax consequence of the trust losing its status as a REMIC trust under the Internal Revenue Code. Because the literal interpretation furthers the statutory purpose, we join the position stated by a New York court approximately two months ago:
“Under New York Trust Law, every sale, conveyance or other act of the trustee in contravention of the trust is void. EPTL § 7-2.4. Therefore, the acceptance of the note and mortgage by the trustee after the date the trust closed, would be void.” (Wells Fargo Bank, N.A. v. Erobobo (Apr. 29, 2013) 39 Misc.3d 1220(A), 2013 WL 1831799, slip opn. p. 8; see Levitin & Twomey, Mortgage Servicing, supra, 28 Yale J. on Reg. at p. 14, fn. 35 [under New York law, any transfer to the trust in contravention of the trust documents is void].)” id
The above section seems to have as its intent protection of the bond or certificate holders, the beneficiaries, from adverse tax consequences that could result from the trustee violating the governing trust documents and losing REMIC tax status.
This position is significantly different from the oft repeated lines put forward by bank PR firms of “The homeowner just wants a free house.” There may be further deliberations on Glaski.
The entire Glaski v. Bank of America, National Associationopinion, post publication, is available here.
Choice of Law Provision
Upon satisfying the court one has standing to challenge the invalidity of an assignment, or substitution of trustee, or conveyance, where do you go next? The above cases of Erobobo, In re Saldivar, and Glaski all tie in New York Estate Powers and Trust Law (NY EPTL). Several sections, but particularly §7-2.4. If you’re in Ohio, or Nebraska, gaining that standing may not help in having the court apply NY EPTL. Enter the choice of law provision (CLP).
If your battling a party different than the originating lender it is likely your loan has been securitized into a mortgage backed security trust. The PSA is the document that expresses the duties, authorities, and limits and disabilities of the trustee.
In almost all the PSAs I’ve reviewed there is a section, usually in Article 11.04 titled “Governing Law; Jurisdiction.” The language in the first sentence or two usually reads something like:
“This Agreement shall be construed in accordance with the laws of the State of New York, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws.”
It appears the Ohio court is going to be entirely reticent at now having to become knowledgeable in regard to New York law, and particularly NY EPTL. But a lifesaver has been thrown out to us on the frigid, choppy waters. One of the cases referenced and cited to above, Bank ofAmerican Nat’l Assoc. v. Bassman FBT, L.L.C., has some very beneficial language in respect of a CLP.
“We are cognizant that we have already concluded that defendants are not entitled to rely on the PSA’s choice-of-law provision; however, we do not view the application of New York law under these circumstances as an invocation by defendants. Quite simply, plaintiff was a party to a transaction that took place under and contained a choice-of-law provision expressly contemplating the application of New York law.”
Continuing, “In any event, by participating in transactions under the PSA, it is plaintiff’s actions, rather than defendants’, that make New York law applicable to this issue.”Bank ofAmerican Nat’l Assoc. v. Bassman FBT, L.L.C., et al. 981 N.E.2d 1, 7 (Ill. App. Ct. 2012).
If you scour some legal databases for cases in your jurisdiction it is likely you’ll find some beneficial appellate level case law in respect of CLP. While CLP isn’t frequently discussed it is not a new, unproven legal theory. It has substantial history. With such you should be able to move your court to rule in accordance with New York law.
Bassmancontinues with this other nugget relating more directly to standing to challenge an assignment, “Therefore, a borrower generally lacks standing to challenge the assignment. Id. at 736. However, a borrower may raise a defense to an assignment that would render it “absolutely invalid,” that is, void. Id. at 735-36; Tri-Cities Construction, Inc. v. American National Insurance Co., 523 S.W.2d 426, 430 (Tex. Civ. App. 1975) (“The law is settled that the obligors of a claim may defend the suit brought thereon on any ground which renders the assignment void, but may not defend on any ground which renders the assignment voidable only, because the only interest or right which an obligor of a claim has in the instrument of assignment is to insure himself that he will not have to pay the same claim twice.”);
See also: Greene v. Reed, 486 P.2d 222, 224 (Ariz.Ct.App. 1971); cf. Young v. Chicago Federal Savings & Loan Ass’n, 180 Ill.App.3d 280, 284 (1989) (“If a valid assignment is effected, the assignee acquires all of the interest of the assignor in the property that is transferred.” (Emphasis added.) (Internal quotation marks omitted.)); O’Neill v. De Laney, 92 Ill.App.3d 292, 297 (1980) (holding that third party could challenge validity of a contract where she established a “significant and direct interest” in its validity) [emphasis added]. Ibid
Back Dating an AOM, or Substitution of Trustee
With livery of seisin it was the ceremony (and witnesses) that created the conveyance. With the Statute of Frauds it was the writing (and witnesses) that created the conveyance. These were both “present tense” transactions.
Why have we seen so many back dated, past tense, writings in the past several years? Can a present tense transaction be converted to one that is past tense?
The 1st Circuit Court of Appeals in Juarez v Select Portfolio, No. 11-2431, February 12, 2013, handed down what many believed to be a new holding in saying “In this case, even a perfunctory scrutiny of the ‘Corporate Assignment of Mortgage’ attached by Juárez to her amended complaint reveals that we are before a document that was executed after the foreclosure and that it purports to reference, by virtue of its heading, a pre-foreclosure assignment. Specifically, the heading reads ‘Date of Assignment: June 13, 2007,’ and it states that the document was executed ‘[o]n October 16, 2008.’ However, nothing in the document indicates that it is confirmatory of an assignment.”
This section above, and surrounding, was interpreted as meaning back dating of an Assignment of Mortgage was impermissible, and that this was a new holding. I respectfully beg to differ.
Doing some random research in late 2012 I came across a nice 6th Circuit case from 1962. It seems our jurists at that time had more awareness in respect of the history of conveyance of ownership and interests in real property. They weren’t ambiguous about it. While it appears more recently to have been forgotten, it is long standing and well established that conveyances of interests in, or ownership of, land and real estate are present tense transactions only. “Land cannot be transferred except by writing and necessarily is in the present tense. The writing itself is the transfer when executed [emphasis added].” Belcher v Elliot, 312 F.2d 245 (6th Cir. 1962).
Consider in the alternative an analysis by an attorney with whom I consult:
“Here, the purported ‘assignment’ would need to be recorded on or about February 2, 2010, but the actual assignment had not yet occurred, making the task a legal impossibility. The soonest the June 11, 2010 ‘assignment’ could have been recorded would be June 11, 2010 – the day it allegedly occurred. Thus, the recording could never be timely completed to effectuate a February 2, 2010 transfer date. KRS § 382.360(3), supra. (The backdating of a transfer of interest in real property raises other issues as well.
For example, if A owns Blackacre on June 1, 2010 when B is seriously injured on the land due to a latent defect, but A transfers his interest in Blackacre on June 11, 2010, backdating the transfer to be ‘effective’ as of February 2, 2010, does A escape liability for the injuries incurred by B?
“In the case sub judice, the purported ‘assignment’ executed June 11, 2010 is a ruse designed solely to hoodwink the Court and party-litigants. The backdated mortgage assignment was executed several months after this lawsuit was filed; however, it unlawfully purports to be ‘effective’ at some date in the past. This kind of assignment, if considered lawful, would wreak havoc on real property law, paving the way for fraudulent takings, the dismantling of recording statutes, and a breach of the public’s trust that matters of public record can be relied upon as what is of public record on February 2, 2010, for example – more than thirty days after Plaintiff allegedly ‘obtained’ an interest in the mortgage.
For example, a person examining the public records on February 2, 2010 simply would not know that the ‘future’ June 11, 2010 ‘back dated assignment’ existed. Why? Because June 11, 2010 had not yet happened, as had not the back dated assignment. The record would be silent about any alleged ownership interest, even though the purported assignment would have to have been filed by February 2, 2010. On February 2, 2010, the purported assignment did not exist – and it certainly does not ‘now exist’ as of February 2, 2010 just because Plaintiff says so.”
Why You Might Want to Pass in Asserting Standing to Raise Challenges to an AOM, or a Substitution of Trustee, or Conveyance
Bassman(previously referenced) informs us of some of the additional difficulties of asserting, and proving, standing to challenge an assignment. “To have standing, a party must have suffered an injury to a legally cognizable interest.”Commercial Credit Loans, Inc. v. Espinoza, 293 Ill.App.3d 923, 929 (1997).” Bank ofAmerican Nat’l Assoc. v. Bassman FBT, L.L.C., et al. 981 N.E.2d 1, 7 (Ill. App. Ct. 2012).
Similar is expressed in many state constitutions that have an open courts doctrine. The concept of standing is implicit in the Kentucky Constitution, Bill of Rights §14 which states, in relevant part:
‘All courts shall be open, and every person for an injury done him in his lands, goods, person or reputation, shall have remedy by due course of law, and right and justice administered without sale, denial or delay’ [emphasis added].
Implicit in the open courts provision of Kentucky’s Constitution is a restraint upon the courts to the adjudication of actual justiciable controversies. Our Kentucky state Constitution reinforces this restraint within §112(5), which states, in relevant part:
The circuit court shall have original jurisdiction of all justiciable causes not vested in some other court [emphasis added].
These provisions limit access to the courts to real parties in interest suffering an “injury.” The open courts provision expresses that courts are to be open for “justiciable causes”. A “justiciable cause” has been defined by the Supreme Court of Kentucky as a “controversy in which a present and fixed claim of right is asserted against one who has an interest in contesting it.”West v. Commonwealth, Ky., 887 S.W.2d 338, 341 (Ky. ).
The Kentucky Constitution places substantial restrictions on the power of judicial intervention by limiting its availability to those real parties in interest who have suffered an “injury” and pled a “justiciable controversy.” The limitation, per my attorney, is placed upon the power of judicial authority via Section 14 of the Kentucky Constitution is a limitation upon the court’s subject-matter jurisdiction, and as such, it cannot be waived. Cann v. Howard, 850 S.W.2d 57, 59 (Ky. App. ).
When presenting a challenge to a void AOM or conveyance are these the kinds of arguments you want to force yourself to make, and win? Right from the get go? There may be an easier way.
The Contractual Obligation to Defend Generally the Title, or Keep It Simple Silly
The simpler we make this for our courts the more likely we’ll obtain our desired result; a fair proceeding, equal and fair application of the rules of procedure, the rules of evidence, terminating in justice.
Now, pull out, or up, your mortgage or deed of trust. Find the following language:
“BORROWER COVENANTS that Borrower is lawfully seised of the estate hereby conveyed and has the right to mortgage, grant and convey the Property and that the Property is unencumbered, except for encumbrances of record. Borrower warrants and will defend generally the title to the Property against all claims and demands, subject to any encumbrances of record.”
Over several years I’ve looked at more mortgages than I care to admit. Given a choice between knowing any of this stuff and having a lit cigar stuck up my nose I’d opt for the latter. I used to get paid to start fires without matches. I’d rather be doing that still. The last five (5) years are not what I had planned. Yet I am here.
Did you see the part that contractually obligates the borrower to “defend generally the title to the Property against all claims and demands?” Maybe, you don’t need to assert standing to challenge the validity of an assignment after all? To this layman it looks to be “Contract Law 101.” And even better it is found in a seminal document; the mortgage or DOT.
Since reading my own again several months ago (you can’t EVER read your own documents, your own pleadings, motions and other papers, the pleadings, motions and other papers of adverse party, or the rules [Read the Rules. Read the Rules. Read the Rules] too many times), and noticing that language, I’ve reviewed several hundred more mortgages and DOTs. Thus far I’ve found the language in every one I’ve reviewed. I hesitate to say it is universal, but I’m hopeful.
Every example I’ve seen has always started with “BORROWER COVENANTS” in all caps (that makes it a bit easier to find). I’ve seen it in different places, on different pages, but thus far it has been in every one I’ve reviewed.
Imagine this conversation.
Homeowner: Your Honor, I dispute the validity of the assignment.
Court: You’re a non-party to the assignment. You don’t have standing to challenge it.
Homeowner: I’m not asserting standing to challenge the assignment, Your Honor. I’m contractually obligated to defend generally the title to the Property against all claims and demands.
Court: Are you trying to get a free house?
Homeowner: No, Your Honor. My contractual obligation, expressed in the mortgage on page X, par. Y, is to protect the interests of the holder/owner/investor/real party in interest. It appears that is not the party before this court.
Court: Well, I don’t think that is what it means.
Homeowner: It looks pretty unambiguous to me, Your Honor. Even if it is ambiguous, Your Honor, the doctrine of “contra proferentem” is applicable; ambiguities are to be construed unfavorably to the drafter. I didn’t draft the mortgage…
From this point, fulfilling a contractual obligation to protect the interests of the proper party, connecting the dots that lead to the PSA, a CLP, and NY EPTL may become considerably easier.
* Disclaimer: This is research and personal experience expressed and shared for the purpose of thought and conversation. Nothing in this post should be construed as legal advice or practicing law. If you need legal advice you should consult an attorney.
Thank you Glenn Augenstein for a terrific post.
Part 2 – How to Challenge an Assignment of Mortgage is one of our most popular posts. The author has been a terrific researcher and paralegal assistant from whom we have all benefited.
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