The New York Court of Appeals recently confirmed that, under New York state law, a loan servicer had standing to foreclose on delinquent borrowers based only upon the servicer’s demonstrated possession of the note evidencing the borrowers’ loan since the time the foreclosure action was filed.

The Court also held that, although the loan servicer’s affidavit set out sufficient facts to show exclusive possession and control of the note prior to the date the foreclosure action was filed, the affidavit would have been better and clearer if it had also included facts describing how the servicer came into possession of the note.

A copy of the opinion is available at: Link to Opinion.

In this case, the borrowers obtained a $600,000 adjustable rate mortgage loan in July 2006, and delivered the fully executed note and mortgage to the lender that originated the loan.  Subsequently, the loan became part of a residential mortgage-backed securitization trust pursuant to a pooling and servicing agreement (PSA).  In March 2008, the plaintiff loan servicer began servicing the PSA.  The mortgage was also assigned to the plaintiff loan servicer in August 2009.

Shortly after that, the borrowers defaulted by failing to make their January 2010 payment and every monthly payment after that.  In May 2010, by limited power of attorney, the PSA trustee granted the loan servicer the right to perform certain acts including the right to commence foreclosure proceedings.  The loan servicer also took physical possession of the original note on May 20, 2010.

On May 24, 2010, the loan servicer commenced foreclosure proceedings.  Throughout those proceedings, the borrowers never disputed their default or obligation to pay under the note.

Instead, they argued that the loan servicer lacked standing to foreclose, and filed a motion for summary judgment.  In their motion, they argued that the loan servicer lacked standing because the loan servicer did not also possess the mortgage.

The loan servicer filed a cross-motion for summary judgment, which the trial court granted.  The trial court also denied the borrowers’ motion for summary judgment.  The loan servicer provided an affidavit that stated in pertinent part that the “original Note has been in custody of Plaintiff…and in its present condition since May 20, 2010.”   The affidavit also stated that “prior to commencement of the action…[the servicer] has been in exclusive possession of the original note and allonge affixed thereto…and has not transferred same to any other person or entity.”

The Court of Appeals held the servicer was entitled to summary judgment, and affirmed the lower court’s judgment.

The Court of Appeals held that the borrowers “misconstrue the legal principle that an entity with a mortgage but no note lacks standing to foreclose…to also mean the opposite—that an entity with a note but no mortgage lacks standing.”   The Court held the borrowers’ argument is “simply incorrect.”

Rather, the Court held, the loan servicer’s affidavit and its demonstrated physical possession of the note was enough under New York law to confer standing to foreclose.

Contrary to the borrowers’ argument, the Court of Appeals confirmed that “it is not necessary to have possession of the mortgage at the time the [foreclosure] action is commended.”  The Court held this “conclusion follows from the fact that the note, and not the mortgage, is the dispositive instrument that conveys standing to foreclose under New York law.”

Finally, the Court held that although the loan servicer’s affidavit was sufficient as a matter of law, “the better practice would have been for [it]…to state how it came into possession of the note in its affidavit in order to clarify the situation completely.”