For mortgage loans that have been bundled into mortgaged backed securities and other collateralized debt obligations (“collectively, “CDO’s”), the most common defense raised by the property owner is that the party instituting foreclosure does not have standing to sue. The prime example where this comes about is when a servicing agent for a CDO trustee brings a foreclosure action, and simple alleges the right to foreclose without laying out the facts. If the agent does not have ownership and possession of the debt instruments, it can have a problem where the defendant property owner challenges the right to sue. The proper procedure would be for the CDO trustee to assign the debt instruments to the agent before the complaint is filed and for the agent to allege ownership and possession.
Best practices would also dictate that the instrument assignment be recorded in the mortgage records of the county in question. However, failure to record does not result in a sustainable defense. A New Jersey appellate court recently confirmed this point in an unpublished opinion which confirmed that recording is not essential, but ownership and control of the debt instruments must be established to successfully foreclose.