When a property owner defaults on a mortgage in New York, the lender that owns that mortgage has the right to file an action for foreclosure against the borrower to seize the property due to non-payment. However, as in any type of legal action, the borrower has the right to assert certain defenses and simply because a request for a foreclosure was filed does not mean the borrower will lose their property. Instead, they should enlist the assistance of a skilled foreclosure defense attorney who knows how to thoroughly examine the situation to identify any relevant defenses in that particular case. As cited by many legal academic articles and law journals,1 one of the first considerations in a foreclosure case – or any case, actually – is whether or not the party asserting the claim has legal standing (also known as locus standi) to do so.
Standing is a party’s capacity and right to bring forth a claim against another. Specifically, the party asserting the claim must have suffered redressable harm or foresees imminent redressable harm by the defendant. The standing requirement prevents lawsuits from being filed simply because a party dislikes a law or for other frivolous reasons. On the federal level, Article III, Section 2 of the United States Constitution2 only gives the federal courts powers to hear “cases” and “controversies” that involve a dispute between two parties, which requires standing on the part of the plaintiff. The Supreme Court of the United States has also ruled in several cases3 aiming to further define federal standing requirements. On the state level, where foreclosure actions are filed, both New York laws and court decisions contribute to the requirements for standing to sue4 in each particular type of case.
What Establishes Legal Standing in a Foreclosure Action?
Standing in a foreclosure action is not something that is necessarily reviewed “sua sponte,” or voluntarily, by the foreclosure court. Instead, a defendant generally must file a motion that specifically challenges the mortgage company’s right to file the lawsuit. In order for a mortgage company to demonstrate sufficient standing to file a legitimate foreclosure action, the company must prove that the defendant has defaulted on their mortgage debt and that the lender filing suit owns or controls the debt instrument. The two most common documents that the lender can present to prove ownership of the mortgage debt are as follows:
Promissory Note – This is the document that a borrower signs that indicates their promise to repay the lender for the amount of money borrowed to purchase or refinance the property.
Mortgage – Contrary to popular belief, the “mortgage” is not the loan itself, but is instead the document a borrower signs that creates a lien on their property for the amount of the loan that must be satisfied before they can sell the property. The mortgage gives the lender a property interest that allows them to seize the property to collect on the lien if needed. Note that New York uses mortgages, although some states use a document called a deed of trust. If a lender can prove that it owns or controls the two above documents, it can generally establish standing. If a lender does not have access to these documents for any reason and cannot present them to the court, the case may be dismissed due to lack of standing.
Ruling in Aurora Loan Services, LLC v. Taylor
In modern times, mortgages are constantly being sold from company to company, with an assignment of mortgage being issued as proof of the transfer. Because many assignments are not completed with the appropriate paperwork or because lenders can lose documents, many borrowers facing foreclosure have raised a standing defense, asserting that the current lender that filed for foreclosure cannot prove an uninterrupted chain of assignment, as well as the current assignment of mortgage.
In one case out of New York, a mortgage had been signed with First National Bank of Arizona by defendant Taylor in 2006. The loan was later assigned to a trust held by Deutsche Bank Trust Company after passing through several other entities. Aurora Loan Services began servicing the mortgage in 2008 and actually received the physical promissory note in May of 2010. Taylor had already defaulted on the loan, so Aurora filed a foreclosure action four days after receiving the promissory note.
The defendant challenged Aurora’s standing in the case, as the company did not have possession of the mortgage document at the time of the filing but only the note. Both the trial and appellate courts found in favor of Aurora and New York’s highest court, the New York Court of Appeals, affirmed the decision5 that Aurora could prove standing. The Court’s ruling stated that both a promissory note and a mortgage are not necessarily required to prove assignment and ownership of a loan. Instead, the Court stated that:
“the note, and not the mortgage, is the dispositive instrument that conveys standing to foreclose under New York law.”6
This decision is important for any future foreclosure defendants who may try to raise a standing defense after a mortgage assignment. No longer can a standing challenge survive based on a lack of physical possession of the mortgage. As long as the lender has the promissory note, the foreclosure action will likely move forward unless there are any other relevant defenses at issue in the case. This is only one of many examples of how the state courts help shape foreclosure requirements in New York.
Discuss Your Legal Rights and Options with an Experienced New York Foreclosure Defense Attorney
While successfully raising legal defenses against a foreclosure action can be challenging, it is possible to do under certain circumstances. If you are facing a foreclosure, it is critical that you have a foreclosure lawyer representing you who understands how to thoroughly review every aspect of the petition and hold mortgage lenders accountable for any errors, insufficiencies, or potential foreclosure fraud whenever possible. However, the courts in New York are constantly issuing new decisions and changing the standards for foreclosure defense in our state to try to lessen the burden on the courts and protect the rights of the respective parties on either side of a foreclosure case. If a foreclosure has been filed or if you believe that a case is imminent, you want to ensure your rights are represented by a skilled NY foreclosure attorney who stays apprised of all of the new development in foreclosure law. Please do not hesitate to call the law office of Ronald D. Weiss, P.C., Attorney at Law at 631-271-3737 for more information today.
3E.g. County of Riverside v. McLaughlin, 500 U.S. 44 (1991), Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992), Northeastern Fla. Chapter of the Associated Gen. Contractors v. City of Jacksonville, 508 U.S. 656 (1993).