There are a variety of issues an attorney must look into when analyzing the defense of a foreclosure action. One of the first issues that should be investigated is whether the institution initiating the foreclosure action has standing to bring the lawsuit.
Standing To Sue In Foreclosure
The plaintiff, the financial institution, must be the appropriate party to bring the foreclosure lawsuit. The attorney should look into whether the financial institution is the original financial institution and whether assignments from the original financial institution have been made. Have these assignments been filed with the County Clerk or the Registrar of Deeds in the county?
The financial institution must establish it has standing by establishing it is either the holder or the assignee of the mortgage it is foreclosing on.
Ownership Of The Note
Even if the financial institution has possession or ownership of the note, it is still not sufficient to establish they are the holder of the mortgage. The assignment of the mortgage must take place prior to the initiation of the lawsuit. Assignments cannot be made on a retroactive basis regarding a mortgage.
Real Estate Mortgage Investment Conduit (REMIC) Trust
Many mortgages are maintained by the Real Estate Mortgage Investment Conduit Trust. The assignment of these mortgages must comply with REMIC rules and regulations as set out by the Internal Revenue Service as well as the rules provided in the Pooling and Service Agreement (PSA) which acts as a servicing agent governing the agreements for the trust.
The PSA creates rules concerning how the trust operates. It specifically controls “the exact steps necessary for a trust to be created, bundled, mortgages to be transferred into the trust, issuance of securities by the trust to the depositor on the open market, generally to institutional investors and maintenance of the trust to achieve a favorable [REMIC] tax status. This document exists for each specific trust and it is in the public record available through the Securities and Exchange Commission (SEC) website. The transfers within the trust require a very specific language. The language is called “recital of the transfer”. This outlines the steps necessary to transfer the mortgage to the trustee.
PSA requires the financial institution to show an unbroken chain of transfers. It also must show deliveries and acceptances of the mortgage note from the original institution to the sponsoring organization that established a securitization of the mortgage and finally to the designated trustee.
Mortgage Electronic Registration System
The Mortgage Electronic Registration System (MERS) acts as a nominee and does not own the mortgage. It therefore lacks authority to assign a mortgage. If there is an assignment of the mortgage to the trust with MERS acting as the assignor this is invalid as it violates the chain of title requirements set up by the PSA.
Time Frame Of Transfers
Besides establishing proper chain of title, the financial institution and its lawyers must show that the note and mortgage were transferred to the trust between the time of the origination and closing dates. This is usually a period of approximately 90 days. Only during that period can the trust accept the mortgage transfer. If the mortgage transfer takes place outside that 90 day window it is invalid.
About The Author
Elliot S. Schlissel, Esq. has been representing individuals in foreclosure and real estate related problems and mortgage issues in the metropolitan New York area for more than two decades
