There was a time, not long ago, when borrowers in default on their mortgage loan raised relatively few defenses when the loan was turned over to foreclosure counsel.  That is far from true today!

Most of us have been involved in or have read about the various legal defenses being raised every day by borrowers trying to avoid foreclosure or to at least delay it.  One of the more popular defenses we are seeing these days is the claim asserting that the lender lacks standing to enforce the note and mortgage.  The defense has its roots in the mortgage securitization vehicles set up to syndicate the modern mortgage market.  Because ownership of these mortgages is commonly transferred (after all, it is a “security”), enterprising defense counsel figured out that sometimes the paperwork assigning these mortgages between owners is either non-existent or defective.  State law generally requires that properly executed assignments be recorded before the new owner of the note and mortgage can enforce them.

You should expect that defense counsel will check the local courthouse to see who holds record title to the mortgage.  If record ownership is not in the name of the institution seeking to foreclose, then you can expect a challenge.  Sometimes the paperwork is defective and the challenge is proper.  However, we have seen several instances recently where counsel for the mortgage holder could have anticipated the challenge and, perhaps, avoided both it and the resulting delays and extra work involved.  On important scenario where careful drafting can be of the most benefit is where there has been a bank merger or acquisition. 

When Bank A is acquired by Bank B, it would be impractical for an assignment to be recorded for every mortgage and note on Bank A’s books.  Fortunately, there is a federal statute that makes assignments unnecessary when dealing with national banks (and there are similar state laws).  12 U.S.C. § 215 specifically provides that no evidence of assignment need be recorded in the case of a merger or consolidation of national banks.

But defense counsel often doesn’t realize that the current holder of the mortgage became its owner as a result of a bank consolidation; she simply sees that there is no recorded document evidencing transfer so she files a motion attacking the standing of the plaintiff to enforce the mortgage.

Counsel for the mortgage holder may avoid the needless delays and costs involved by doing a little “extra” work before filing the foreclosure; explain how your client acquired the mortgage.  Prior to any foreclosure filing, a prudent attorney will do his own research to determine the status of the record ownership of the mortgage.  In many states, a title report must be filed with the complaint.  Even where not required by statute, such title reports are often ordered to reveal other parties who should be named in the foreclosure complaint.  Whenever that report doesn’t show a recorded claim of ownership of the mortgage in the name of the present plaintiff-lender, the explanation may be that there has been a merger or consolidation.  If so, counsel should be certain to thoroughly document in the complaint how ownership of the mortgage was transferred without a recorded document.  When appropriate, the complaint may cite to the federal or state statute that makes an assignment unnecessary.  In the long run, the extra work at the beginning of the case can save time and money later.