When a borrower purchases a house, they execute a note to the lender and give a mortgage to allow the property to be used as security for the note. Since the late 90’s, bank’s set up an entity to allow the recording of mortgages to occur in one place as opposed to filing in the office of each clerk in the county where the property is located known as Mortgage Electronic Recording Systems or (MERS).
For many years, the banks sold or transferred rights between the notes freely, and each time, MERS would keep track of the bank owner of the note. So if A sells to B, who in turn sells to C, and to D. If D owns it when the borrower stops paying, they request the mortgage to be assigned to them and they commence an action using the mortgage assignment.
New York law holds that an entity cannot foreclose a mortgage without the corresponding right to receive the proceeds under the note. Both the Courts and several years of case law hold that the actual mortgage is a nullity. It is the note that controls the ownership of the loan, and by operation of fiction, whoever holds the note will hold an equity right to foreclosure irrespective of who holds or has the mortgage.
A note can be transferred in two different ways, depending on how it is endorsed. Usually with only an ink stamp, the lender will assign the note to another bank by either a specific endorsement- directly to that second entity, or more common, with an endorsement in blank or to bearer. The second endorsement must be conveyed by physical delivery of the original. If the bank attached an Allonge or assignment by document not attached to the note, it may be a sign that the Allonge was not signed with the note, but added later. This makes for improper delivery.
If you have a note with an ink endorsement in blank or bearer, or an Allonge to the same, then the bank must have the original note at the time of commencement, and be able to provide a chain of title of that note. Keep in mind that any cancelled endorsements are also suspicious and may disprove a chain of custody.
In New York foreclosure courts, you are not entitled to demand original loan documents and inspect the original unless you are not in default and request it in discovery. You waive most rights when you are in default, and even when you are not, the failure to request the information may be disastrous.
If you suspect the bank may not have the note, you may be able to get the foreclosure dismissed on the basis of lack of standing. If you have any further inquiries or wish to speak to a professional Don't hesitate to contact us. Call (516) 246-2449 today.