Foreclosing Lenders Must Be The Holder Of The Underlying Note At The Time Of Suit.

The opinion in BONY v Raftogianis, contains the trial court’s detailed discussion of the assignments occurring in a securitization of loans, and the role of MERS with respect to residential loans.  The technical ruling of this NJ Court is that, in order to commence a foreclosure action in NJ, the foreclosing plaintiff must be a holder of the underlying Note at the time the action is commenced [and cannot cure that by becoming the holder after the action is commenced], and must be able to produce the original note upon request.

This excellent opinion clarifies many important foreclosure issues that are vital to the plaintiff’s standing in a judicial foreclosure.  The assignment of the mortgage by MERS is not the transfer of the note.  But MERS, as nominee, is not the actual owner of the mortgage – that status remains with the payee and transferees of the note.  Assignment of the mortgage by MERS is not necessarily the transfer of ownership, but just the documentation of it.

As more standing challenges are made to residential foreclosure actions with respect to securitized loans, the ability of a foreclosing party, when challenged, to establish that it holds the underlying Note and has the right to foreclose, may actually get seriously scrutinized by more trial courts.  Most foreclosure complaints that are commenced for securitized loans contain the necessary perfunctory and conclusory allegations, but they may nevertheless fail if trial courts will require lenders to meet their burden of proof by producing admissible evidence that traces the true ownership trail of the Note or the loan.

The underlying standing rules vary from state to state, and it is difficult for borrowers to challenge their lenders and stop their foreclosures.  But a foreclosing trustee may find that there are serious legal consequences (e.g., bad faith, breach of contract, attorney fees, costs, etc) if a standing challenge is asserted, and the trustee proceeds with the foreclosure without being the holder of the underlying Note at the time the action is commenced.

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