Provides that only the owner and holder of a mortgage and note, or its agent, shall have standing to commence a mortgage foreclosure action

Section 2: Adds anew section 1302-a which states that:

(1) No person shall have standing to commence an action unless it is the owner and holder of the mortgage and note and any defense based on a plaintiff's lack of standing cannot be waived if a defendant fails to raise such a defense in a responsive pleading or pre-answer motion.

(2) Every summons and complaint to commence a foreclosure action shall include an affirmative allegation at the time of the proceeding that the plaintiff is the owner and holder of the note

(3) That every summons and complaint filed to commence a foreclosure action shall be accompanied by a copy of the note with all original endorsements, assignments and transfers.

Section 3: Sets the effective date on the 90th day after it shall have become law.

Justification

During the past 4 years, both before and after the stock market crash of 2008, and the previous and associated meltdown of the housing market, there has been a nationwide increase in foreclosures throughout the country. However, many of the foreclosure actions initiated by lenders and trusts to obtain the securitized debt obligation (the property)," have called into question the inherent legality of the proceedings, due to the plaintiff s lack of "standing" and in many cases it is simply not clear who actually owns the mortgage or debt.

Despite the fact that in order to have an appropriate foreclosure proceeding the filing party must legally have "standing to commence a foreclosure action" against a mortgagor or borrower, many lenders and trusts alike continue to move forward with bringing a legal action against borrowers when many of these lenders don't even own the debts in the first place.

In New York, numerous court decisions have held that if the borrower doesn't raise standing upon answering the foreclosure action, the defense of standing is waived for the borrower. See, HSBC Bank, USA v Dammond, 59 AD3d 679 (2nd Dept 2009). Unfortunately, many times the borrower often has no way of knowing who owns the loan, and despite the clear requirement that the plaintiff own the note, if the defendant borrower does not raise the issue initially in an answer or

pre-answer motion to dismiss up front, they may never be able to raise it again. In this situation, an entity foreclosing can foreclose on a home they don't have any legal right to foreclose on.

The proposed bill language does several things, inter alia:

1. In order to foreclose, the mortgagee must allege and prove ownership of the note and mortgage.

2. Asserts that defense of standing is not waivable and can be raised throughout the foreclosure process.

3. Requires all documents that prove ownership be filed with summons and complaint.

While there exists some case law which requires plaintiffs in foreclosure actions to adhere to some or all of these measures, a statutory clarification is required in order to eliminate the possibility of any ambiguity or confusion for either bench or bar as to applicable law. See, Countrywide Home Loans, Inc. v Gress, 68 AD3d 709 (2nd Dept 2009). Absent further clarification in the law which this bill provides, mortgagees will continue to be able to foreclose solely because an otherwise viable standing defense was not timely raised.

Legislative history

2010: A.11465/S.8174-PA/S. Cal

Fiscal implications for state and local governments

None.

Effective date

Immediately with provisions.