Missing Mortgage Note Signatures: The Hidden Defense That’s Derailing New York Foreclosure Cases in 2024
In New York’s complex foreclosure landscape, homeowners facing the loss of their property often feel powerless against well-funded lenders. However, a growing number of foreclosure cases are being dismissed due to a critical but often overlooked issue: missing or improper endorsements on mortgage notes. The note controls the ownership of the loan, and whoever holds the note will hold an equity right to foreclosure. A note can be transferred in two different ways, depending on how it is endorsed.
The Foundation of Foreclosure Standing: Proper Note Endorsement
The rules of evidence in New York State Supreme Court may require production of the original promissory note in order to proceed with foreclosure litigation. Without said note, a borrower in default may be entitled to defend against a foreclosure action for lack of authentic proof that the lender initiating the foreclosure actually owns the mortgage interest.
Under New York’s Uniform Commercial Code Section 3-202, an endorsement must be written by or on behalf of the holder and on the instrument or on a paper so firmly affixed thereto as to become a part thereof. This seemingly technical requirement has become a powerful defense tool for homeowners when lenders fail to comply.
The “Firmly Affixed” Requirement: More Than Just Paperclips
Recent New York appellate court decisions have scrutinized the attachment of allonges (separate endorsement papers) to mortgage notes. Courts have found that documents do not meet the Uniform Commercial Code requirements necessary to constitute an allonge containing an endorsement when no evidence was submitted to indicate that the paper containing the purported endorsement was so firmly affixed to the note so as to become a part thereof. The purported allonge, which is undated, contains no pagination or writing in any way to demonstrate its connection to the note or that it was firmly affixed thereto.
Where “the purported endorsement [was] attached by a paperclip, [it] was not so firmly affixed to the note as to become a part thereof. As such, the purported endorsement did not constitute a valid transfer of the underlying note to the plaintiff.” This demonstrates how seemingly minor procedural errors can have major consequences for lenders’ ability to foreclose.
Standing Issues in 2024: Why Lenders Are Losing
Courts are increasingly dismissing foreclosure actions for lack of standing, where plaintiffs failed to establish that the note was endorsed in blank and in the plaintiff’s physical possession at time action was commenced or endorsed to plaintiff prior to commencement. Some notes accompanying the original complaint bore no endorsement.
The burden is on the foreclosing party to prove they have the legal right to enforce the note. In mortgage foreclosure actions, a plaintiff must allege that it is in possession of the underlying Note in order to establish that it has standing to prosecute the action. A foreclosing mortgagee makes its prima facie case by the production of the note, the mortgage and evidence of default.
The Secondary Market Problem
Throughout the nation there have been issues as to whether the lender has any of the original documents, whether it be the note or the mortgage. Many of these mortgages were packaged into security pools for investors and changed hands very rapidly, sometimes without the original note or mortgage. This rapid transfer of mortgage notes often results in gaps in the chain of title or missing endorsements.
If the bank attached an Allonge or assignment by document not attached to the note, it may be a sign that the Allonge was not signed with the note, but added later. This makes for improper delivery. These after-the-fact endorsements are increasingly being challenged successfully in New York courts.
Defending Against Defective Foreclosure Complaints
When facing a Foreclosure Complaint, homeowners should carefully examine whether the lender has properly demonstrated its standing to sue. Many borrowers were stunned when most of their lenders, who sold mortgages on the secondary market, did not have all or any of the properly signed documentation. A majority of these initial cases were dismissed if and until the lender could present the proper documentation evidencing it has a valid interest in the property.
Any cancelled endorsements are also suspicious and may disprove a chain of custody. If you suspect the bank may not have the note, you may be able to get the foreclosure dismissed on the basis of lack of standing.
The Importance of Professional Legal Representation
The Law Offices of Ronald D. Weiss, PC, located on Long Island, has been helping homeowners navigate these complex foreclosure defenses since 1993. The firm has been supplying expert bankruptcy, foreclosure defense, and debt negotiation services since 1993. They offer practical, compassionate solutions customized to each client’s financial situation. With over 30 legal professionals on their team, they have the resources to handle important legal matters.
It is important to note that not all judges will dismiss foreclosure proceedings based off this defense; however, borrowers who contest the lender’s ability to foreclose stand at a much better advantage than the borrower who idly sits by and fails to inquire.
Looking Ahead: The Continuing Evolution of Foreclosure Law
As courts continue to scrutinize lenders’ documentation more carefully in 2024, homeowners facing foreclosure should not assume their case is hopeless. When there is a legitimate question as to whether the lender holds the original note then there may be a valid defense to require that lender to produce the same. In New York, if there is no documentation to prove ownership, or an inexistent or insufficiently stated lost note affidavit, then there may be a potential deficiency in the lender’s ability to foreclose.
The technical requirements for proper note endorsement under New York law provide a meaningful opportunity for homeowners to challenge foreclosure actions. However, these defenses require careful analysis of the specific facts and documentation in each case. With the stakes so high, professional legal representation is essential to identify and properly assert these potentially case-winning defenses.