Finder’s Keepers? Possession of Mortgage Note Generally, But Not Always, Needed For Foreclosure

by:    Michael L. Rich

Mortgage holders seeking to foreclose on delinquent mortgagors need to be aware of a recent precedential ruling that imposed a strict requirement concerning proof of standing.  The N.J. Appellate Division, in Wells Fargo Bank, N.A. v. Ford, A-3627-06, held on January 28, 2011 that a bank could not proceed with foreclosure on a residential home unless it proved it acquired ownership or control of the mortgage note from the original lender.                

Wells Fargo asserted that it acquired the mortgage and underlying $403,750 promissory note by assignment from the original lender, Argent Mortgage Co.   The assignment had not been recorded.  Wells Fargo nonetheless won summary judgment below based on a certification from someone who claimed knowledge of the amounts owed for principal, interest and other charges, but who did not indicate the source of that knowledge.

The certification attached documents purporting to be “true copies” of the note and mortgage, but no copy of the alleged assignment.  While plaintiff proffered a document titled “Assignment of Mortgage”, it was not referenced in the certification or otherwise authenticated.

The motion Judge presumably relied on that document in finding Wells Fargo to be a “holder in due course” under New Jersey’s version of the Uniform Commercial Code.  The Appellate Division reversed, holding that although the papers filed by Wells Fargo, “if properly authenticated,” might be sufficient to establish that it was entitled to enforce the obligation as a “nonholder in possession of the [note] who has the rights of a holder,” authentication was not demonstrated.  The Appellate Division further  found that certifications concerning authentication must be based on personal knowledge.

The Appellate Division remanded for further proceedings, finding that even if Wells Fargo can establish standing by showing that the original lender duly assigned the note and mortgage, whether Wells Fargo becomes a holder in due course, and thus free of any defenses the homeowner may have, is dependent upon when the assignment occurred.

This decision adds to a spate of recent rulings on foreclosure practices.

In Bank of N.Y. v. Raftogianis, F-7356-09, the Atlantic County Chancery Court precluded the Bank of New York from proceeding with foreclosure because it failed to prove it had the original note when it filed the action.  That case, decided on June 29, 2010, was approved for publication on November 16, 2010.

However, in an unpublished January 11, 2011 decision in Bank of America, N.A. v. Alvarado, BER-F-47941-08, the Bergen County Chancery Court permitted the foreclosure even though the note was lost by the original lender and, consequently, never delivered in connection with the assignment.  The Judge in that case cited equitable principles, noting that no one could otherwise enforce the mortgage, which would unjustly enrich the borrower.

These decisions are being issued in the backdrop of the judiciary grappling with widespread allegations of robo-signing and various other improper residential mortgage foreclosure practices.

On December 20, 2010, the Superior Court of New Jersey announced emergency rule changes that put considerable onus on lenders’ attorneys to employ measures to police their clients’ compliance with foreclosure proceedings.  The Court  ordered six lenders  implicated in the robo-signing to show cause why their processing of New Jersey foreclosure matters should not be suspended.  A hearing is now scheduled for March 1, 2011.

In the meantime, the unprecedented level of residential foreclosure filings, and the resulting backlog in the Office of Foreclosure, continues to impact the processing of commercial foreclosures as well.

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