Foreclosure Defense Law Blog

Who has standing to bring a foreclosure action?

In a recent decision, the Appellate Division of the Superior Court of New Jersey held that a bank that sued for foreclosure did not have “standing” to sue because the bank was not in possession of the mortgage note when it filed the complaint. Deutsche Bank Nat. Trust Co. v. Mitchell,  2011 WL 3444223 (N.J.Super.A.D.,2011).

That case involved a foreclosure action filed by the Plaintiff, Deutsche Bank, the day before it was assigned the mortgage. In its original complaint, Deutsche Bank alleged “that ‘[o]n or before the date the within complaint was drafted, the plaintiff herein became owner of the note and mortgage being foreclosed herein.’” Id. at 4. However, Deutsche Bank failed to provide proof about how it obtained the possession of the note. To cure this defect, the bank filed an amended complaint.  Although, this amended complaint listed the assignment of the mortgage, this assignment occurred the day after the Bank filed its original complaint. The lower court held that Deutsche Bank cured the defect in its original complaint by filing an amended complaint and therefore, had standing to bring the foreclosure action.

The Appellate Division reversed the lower court’s decision. The Court held that Deutsche Bank did not have standing when it filed its original complaint because it was not in possession of the note at that time. Therefore, it did not have the right to bring the lawsuit in the first place. Standing is a right of a party to bring a lawsuit. In a foreclosure action, “a party seeking to foreclose a mortgage must own or control the underlying debt.” Id. at 5. Thus, “Deutsche Bank could have established standing as an assignee, if it had presented an authenticated assignment indicating that it was assigned the note before it filed the original complaint.” Id at 6. But, it failed to provide any such evidence and hence could not cure the defect in its original complaint that was filed when it never had the right to commence the foreclosure action in the first place. Thus, the Appellate Division’s decision resulted in vacating the sheriff’s sale of the foreclosed property.

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Can You Stop a Foreclosure Just Because of a Defect in the Paperwork Giving Notice?

In a recent decision, the Appellate Division of the New Jersey Superior Court dismissed a foreclosure complaint without prejudice (which means they can bring the suit again) for failure to identify the lender’s name in the notice of intention to foreclose. Bank of New York v. Laks, 2011 WL 3424983 (N.J. Super. A.D.).

In that case, the Court was faced with two questions:

(1)             Was the homeowner entitled to vacate a judgment of foreclosure because the bank failed to identify the “lender” in the written notice of intention to foreclose (as required by N.J.S.A. 2A:50-56(c)(11), a provision of the Fair Foreclosure Act)?

(2)             What is the appropriate remedy for that violation of the Act’s notice of intention provision?

The answers to these two questions were simple. The Court held that the homeowner was entitled to vacate the judgment of foreclosure, and the appropriate remedy for such a violation of the Fair Foreclosure Act was a dismissal without prejudice.

The facts of the case were straightforward. In August 2004, in order to secure a promissory note, Laks executed a mortgage on her home in favor of the Mortgage Electronic Registration System, Inc. (MERS). Laks missed her May 2008 payment on the note and every monthly payment.  Thereafter, Countrywide Home Loans, plaintiffs loan service provider, sent Laks a notice of intention to foreclosure. The notice stated that Countrywide was acting on behalf of the owner of Laks promissory note. However, the notice failed to identify the owner of the note. The notice also warned that if Laks failed to pay the balance to Countrywide within 30 days, Laks’s noteholder, who was not identified, would commence foreclosure proceedings against her. The notice also provided a contact number and address for Countrywide which Laks could use in case of any dispute related to her default. But, the notice failed to identify that plaintiff was the owner of Laks’s promissory note. Also, neither plaintiff’s address nor telephone number was never given to Laks. Furthermore, MERS had assigned Laks’ mortgage to the plaintiff, three days before the foreclosure complaint was filed.

When plaintiff instituted a foreclosure proceeding, Laks contested it. Laks argued that the notice of intention to foreclose was defective because it did not state plaintiff’s name and address, as required under N.J.S.A. 2A:50-56(c)(11). Plaintiff responded by submitting a true copy of the note which was endorsed by the originating lender, BSM Financial. The lower court held against Laks. It held that the notice of intention was adequate. Laks moved to vacate the judgment and in response, the plaintiff produced another copy of the note that had two additional endorsements, none of which referred to the plaintiff.  Nonetheless, the court found the notice to be adequate and denied Laks motion to vacate the judgment.

However, the Appellate Division disagreed with the lower court. It looked at the statutory definition of the term “lender” which is defined as “any person, corporation, or other entity which makes or holds a residential mortgage, and any person, corporation or other entity to which such residential mortgage is assigned.” N.J.S.A. 2A:50-55. The Appellate Division held that the Legislature had defined the meaning of the term “lender” and that meaning excluded loan servicers like Countrywide. If the Legislature did not intend to deem the identity of the lender to be important, it could have excluded those words. There was no ambiguity in the language of the Act and therefore, the notices of intention that failed to identify the lender have the “potential to undermine the Legislature’s purpose.” Id at 5.

This was not a mere technical exercise. There is a practical reason for the Legislature’s focus on this requirement. One of the main purposes of such a notice is to provide the defaulting debtor with an opportunity to cure the default. How can the debtor do that if they don’t know who the creditor is?

Unfortunately, the Legislature did not address the remedy for such a violation, and the other courts are split on this issue. Nevertheless, the Appellate Division held that the appropriate remedy for such a violation was a dismissal without prejudice. Hence, the case can be filed again once the proper notices are sent.

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May a homeowner defend a foreclosure action on the grounds that the lender cannot prove it owns her mortgage?

The article “Waiting 7 Years for 2 Answers” (New York Times on Sunday, February 27, 2011) discussed the case of Zella Mae Green of Decatur, Georgia. She challenged whether Wells Fargo possessed the documentation it needed to foreclose against her. She asserted that because Wells Fargo could not prove it actually owned the loan, it could not foreclose. Ultimately, Wells Fargo agreed to settle Green’s lawsuit against it for a confidential and undisclosed amount.

The clear lesson from this case is that a lender must be able to prove that it owns the loan it is foreclosing upon. Therefore, it is incumbent upon a borrower that is the subject of a foreclosure to obtain from the lender appropriate documents demonstrating the lender’s ownership. As demonstrated by Ms. Green’s situation, when a borrower demands proof that the lender owns its own loan, that borrower may be in for a pleasant surprise.

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May a bank foreclose when the homeowners are being evaluated for a loan modification under the Emergency Economic Stabilization Act?

On February 17, 2011 the Appellate Division of the New Jersey Superior Court set aside the sheriff’s sale of a home on the grounds that Federal law prohibits a foreclosure sale from proceeding when the homeowner is being evaluated for a loan modification.  Nationstar Mortgage, LLC v. Jones, 2011 WL 535861 (N.J.Super. 2011).

The bank, Nationstar Mortgage, LLC, (“Nationstar”) tried to foreclose on the home of George and Edith Jones (the “Joneses”) following their default on a mortgage valued at $348,386.50.  The trial court entered a final judgment of foreclosure in favor of Nationstar and the property was purchased by New Jersey Home Construction, Inc. (“NJHC”) at a sheriff’s sale. 

One week after the sale, Nationstar sued to set aside the sale on the grounds that the sale proceeded “by mistake.”  Specifically, Nationstar argued that the Jones’ were under evaluation for a loan modification pursuant to a federal assistance program under the Emergency Economic Stabilization Act, 12 U.S.C.A. §5201.  Per Nationstar, federal directives require sheriff’s sales be adjourned pending evaluation of homeowners for loan modifications.  Nationstar admitted that an inadvertent internal miscommunication caused the sale not to be adjourned as required.  Nationstar’s application to set aside the sale was further supported by evidence that the home sold for a price “unconscionably less” than its market value.  The trial court refused to set aside the sale, reasoning that such a sale could not be set aside based on Nationstar’s unilateral mistake.

Via motion, Nationstar asked the trial court to reconsider its decision.  The trial court reversed its earlier decision after argument on the motion and set aside the sheriff’s sale, holding that Nationstar’s objection to the sale was timely as it was filed before the deed was transferred to NJHC.  The trial court additionally found that the purchase price paid by NJHC was “most probably inadequate.”  Finally, the trial court held that equity required consideration of the loan modification for which the Joneses were still being evaluated.  NJHC appealed the decision of the trial court to the Appellate Division arguing that there were no grounds upon which to set aside the sale; that the sale price was not so disproportionate to the home’s value that the sale should be set aside on those grounds; and that NJHC should not be punished for Nationstar’s negligence in proceeding with the sale.

The Appellate Division affirmed the decision of the trial court and set aside the sheriff’s sale.  The Court determined that there was sufficient evidence to support the trial court’s finding that the purchase price was inadequate for the property.  The Appellate Division also held that the trial court properly determined that the sale should not have proceeded given the federal directive that such sales be adjourned when the homeowner is under evaluation for a loan modification under a federal assistance program.  Finally, the Court noted that Nationstar’s failure to adjourn the sale was not due to any negligence on the part of the Joneses.  Therefore, the negligence of Nationstar did not preclude the court from considering the interest of the Joneses in making its decision.

Download Nationstar Mortgage, LLC v. Jones, 2011 WL 535861 (N.J.Super. 2011)

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What is the difference between a judicial and a non-judicial foreclosure under Texas law?

The most common types of mortgage foreclosures under Texas law are judicial and non-judicial foreclosures.

A judicial foreclosure is required when the property owner owes the government taxes on the property.  In that instance, the government files a lawsuit seeking to have the property sold in order to pay the taxes owed.  If the government proves that the taxes are owed, the judge signs an order of foreclosure and the property is sold at a foreclosure sale.  While this type of foreclosure is available to lenders, it takes longer and is less subject to control by the lenders.  As a result, lenders prefer to use non-judicial foreclosures when possible.  Property owners are strongly encouraged to retain attorneys to represent them in judicial foreclosure situations.

In a non-judicial foreclosure certain notices must be served by the lender once the property owner is in default.  The first notice is the “Notice of Default and Intent to Accelerate” which permits the property owner 20 days to cure the default.  Once 20 days has passed without the owner curing the default, the lender must serve the “Notice of Sale and Acceleration of Debt” which provides the details of the upcoming foreclosure sale.  What follows is the foreclosure sale, which must be held on the first Tuesday of the month in a designated area of the county courthouse.  Following the foreclosure sale, the sale proceeds are distributed as necessary to pay for the costs of sale and to pay back the balance of the loan.  The new property owner must permit the old property owner 3 days from the date of sale to vacate the property.  Also, the lender has 2 years from the date of sale to sue the old property owner for any costs not covered by the proceeds of the foreclosure sale.

A “right of redemption” permits the old property owner a period of time after the sale within which to buy back the home. However, Texas law does not generally permit the old property owner a “right of redemption” following a non-judicial foreclosure sale

As a Texas property owner, it is important to know which type of foreclosure procedure is being used by the lender.  This information will permit the property owner to decide whether to handle it themselves or to retain an attorney.

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Can a lender enforce a contract prohibiting a borrower from suing because the lender failed to fund a loan?

Recently, the Appellate Division of the Superior Court of New Jersey refused to enforce a contractual provision in loan documents which prohibited the borrower from making counter-claims against the lender in any lawsuit arising from the loan.  Investor’s Savings Bank v. Waldo Jersey City, LLC, No. A-6201-09T3, 2011 WL 535102 (N.J.Super. 2010). 

The lender, Investor’s Savings Bank (the “Bank”), included in its loan documents a provision that required the borrower, Waldo Jersey City, LLC (“Waldo”), to waive the right to file counter-claims in any lawsuit arising from the loan documents (the “Waiver Provision”).  At the time of closing, the Bank provided only half the funds that Waldo needed.  Shortly after closing, Waldo defaulted due to the Bank’s failure to fully fund the loan.

The Bank foreclosed on Waldo’s property.  Waldo asserted a counter-claim against the Bank seeking damages because the Bank failed to fund the loan.  The Bank moved to dismiss the counter-claim citing the waiver provision.  The trial court granted the Bank’s motion to dismiss the counter-claim, basing its decision on the waiver provision.  Waldo appealed the trial court’s decision. 

On appeal, the Appellate Division reversed the trial court’s decision.  It reasoned that Waldo would have the right to assert its claims in a separate lawsuit regardless of the waiver provision.  Since New Jersey law generally requires a separate lawsuit arising from the same transaction or occurrence to be consolidated with any existing lawsuit, the parties would find themselves in precisely the same position they would have been in had the court simply permitted the original counter-claim to stand.  Thus, the Court held that enforcing the waiver provision under these facts would serve no purpose.  The Court reinstated the counter-claim and remanded the case to the trial court for further proceedings consistent with its ruling.

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Can a bank foreclose on a home when it does not possess an authentic assignment in its favor of the mortgage note?

The Appellate Division of the Superior Court of New Jersey recently held that a bank did not have standing to foreclose on a home because it did not possess an assignment in its favor of the mortgage note.

The case arose when the bank foreclosed against one of its borrowers who failed to make mortgage payments.  The homeowner defended on the basis that the bank could not prove that it owned the loan. The reason was that the bank did not possess an assignment in its favor of the mortgage note.

The trial court granted the bank’s motion for summary judgment, ruling against the homeowner. However, that decision was reversed by the Appellate Division of the Superior Court of New Jersey. Wells Fargo Bank v. Ford, 2011 WL 250561 (N.J.Super. 2011).  It held that the bank could not establish that it was assigned the mortgage because it could not produce authentic copies of either the mortgage note or the assignment.  The Court based this conclusion upon the fact that the certification

Wells Fargo submitted in support of its motion for summary judgment alleged that “[p]laintiff is still the holder and owner of the said Note/Bond and mortgage,” and a copy of the mortgage and note was attached to the certification.  In addition, Wells Fargo submitted a document that purported to be an assignment of the mortgage, which stated that it was an assignment of "the described Mortgage, together with the certain note(s) described therein with all interest, all liens, and any rights due or to become due thereon."

Id. at 9-10.

The Court held that these documents were not authenticated in the submission from Wells Fargo. As a result, the Court held that the bank did not have standing to foreclose on the home. The case was remanded to the trial court, where the authenticity of the documents could be addressed.

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A Foreclosure Proceeding Involving A Mortgage May Not Be Brought By One Who Has No Title To It

On August 25, 2010, the Supreme Court of New York, Kings County, decided a case in which it determined whether a plaintiff was authorized to initiate a foreclosure action against a defendant who defaulted on a mortgage note.  Specifically, the Court in The Bank of New York v. Mulligan, 2010 WL 3339452, held that the plaintiff, Bank of New York (“BNY”), did not have standing to bring its foreclosure action because the plaintiff did not own the mortgage at the time the action was filed.  Id. at 6. 

 

    The Bank of New York initiated the foreclosure action against defendant on August 7, 2007, despite the fact it received the assigned mortgage and note on October 7, 2007, and recorded it on October 24, 2007.  The Court reasoned that:

 

It is the law's policy to allow only an aggrieved person to bring a lawsuit ... a want of “standing to sue,” in other words, is just another way of saying that this particular plaintiff is not involved in a genuine controversy, and a simple syllogism takes us from there to a “jurisdictional” dismissal: (1) the courts have jurisdiction only over controversies; (2) a plaintiff found to lack “standing” is not involved in a controversy; and (3) the courts therefore have no jurisdiction of the case when such a plaintiff purports to bring it.

Id. at 5.

Standing to sue requires an interest in the claim at issue in the lawsuit that the law will recognize as a sufficient predicate for determining the issue at the litigant's request.  If a plaintiff lacks standing to sue, the plaintiff may not proceed in the action.

Id.  

Plaintiff BNY lacked standing to foreclose on the instant mortgage and note when this action commenced on August 7, 2007, the day that BNY filed the summons, complaint and notice of pendency with the Kings County Clerk, because it did not own the mortgage and note that day.  The instant mortgage and note were assigned to BNY, 61 days later, on October 7, 2007.  To establish a prima facie case in an action to foreclose a mortgage, the plaintiff must establish the existence of the mortgage and the mortgage note, ownership of the mortgage, and the defendant's default in payment.

Id.

 

The Court held that the plaintiff's attempt to foreclose upon a mortgage in which it had no legal or equitable interest was without foundation in law or fact and dismissed plaintiff’s foreclosure action with prejudice.  Id. at 6.

 

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New York Court Uses Land Sales Full Disclosure Act to Allow Condo Buyers to Rescind Their Contract

On August 10, 2010, the Federal District Court for the Southern District of New York allowed a number of purchasers of condominiums to rescind their contracts based upon the Land Sales Full Disclosure Act, 15 U.S.C. Section 1701 (“ILSFDA”).  In that case, An v. Leviev Fulton Club, LLC, Slip Copy, 2010 WL 3291402 (2010 S.D.N.Y.), the Court noted that,

the ILSFDA requires developers to file a statement of record with the Department of Housing and Urban Development (“HUD”), and to provide purchasers or lessees with a printed property report before the signing of any contract. 15 U.S.C. §§ 1703(a)(1)(A), 1703(a)(1)(B). Any contract or agreement for the sale of a lot that does not meet these requirements, and is not exempt under 15 U.S.C. § 1702, may be revoked within two years of signing at the option of the purchaser or lessee. 15 U.S.C. § 1703(c)(d). A purchaser or lessee has a right of rescission and is entitled to the return of his or her deposit. 15 U.S.C. § 1703(e). In addition, “the court may order damages, specific performance, or such other relief as the court deems fair, just, and equitable.” 15 U.S.C. § 1709.

Id.  at 2.

    The Court held that since the applicable two year period had expired, and no exemption applied, the contracts of sale could be rescinded. Ironically, the developer defended by taking the position that it was exempt from the law since it had obligated itself to complete the project within two years (in which case the ILSFDA would not have applied). However, the Court found that the defendant had only “anticipated” closing within two years, so there was no binding exemption.

 

 

 

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New York Courts Uphold Many Defenses to Foreclosures

The July 21, 2010 New York Law Journal discussed the fact that many defenses are being upheld to prevent successful foreclosure actions by lenders. The article noted that “Over the last five years, the annual number of foreclosure filings in New York state has more than doubled, from 22,350 in 2005 to 46,673 last year. More cases were filed in the first five months of 2010 than in all of 2005. In [Suffolk County], the increase has been even steeper, to 7,536 filings last year from only 2,016 in 2005. And the county had recorded 4,144 foreclosure filings as of May 24 (See County-by-County Foreclosure Numbers for 2010 as of May 24 and 2009).”

    Many of the defenses, and the assessment of damages, that have been upheld are familiar to those who represent borrowers: (a) unconscionable practices during loan modification negotiations; (b) damages for failing to obtain the legal right to go into a defaulted borrower’s home; (c) damages for the unreasonable and overreaching language of a mortgage agreement.

    These decisions have been very important in setting the stage for the mandatory settlement conferences that the New York Courts conduct in regard to foreclosures. The lenders are compelled to take the conferences seriously, given the fact that the Judges appear open to the idea of turning the foreclosure process against lenders who cause the borrower unjustified harm. In essence, it is a way of promoting settlement and restructuring of mortgage debt.

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