NY Court Rejects Mortgage Foreclosure In MERS Case – LNV Corp. v. Madison Real Estate, LLC
“absent transfer of the debt, the assignment of the mortgage is a nullity.”
In this case, LNV had “not provided any evidence” that showed that when MERS assigned the mortgage to LNV, it also transferred the interest in the underlying note. According to the mortgage assignment contract, MERS held legal title to the mortgage. There was “no language in the agreement” that transferred interest in the note to MERS. “Because MERS did not hold title to the underlying note, it could not transfer any rights to the underlying note when it assigned the mortgage to [LNV],” the court ruled. It therefore concluded that “[w]ithout a transfer of title to the underlying note, [LNV] cannot foreclose on the property based on default payment and lacks standing.”
Excerpts from the order…
Plaintiff LNV Corporation, a banking corporation organizefun&?~fik&ws of the State of Nevada, brings this action for foreclosure against Defendant, Madison Real Estate, LLC, (Madison Real Estate) the owner of 55 Wall Street Unit 633 (55 Wall Street). The complaint alleges that Defendant executed a note whereby it agreed to pay $51 3,000 with interest to Wall Street Mortgage Bankers LTD (Wall Street). As security for the payment, Defendant executed and delivered a mortgage for the property at 55 Wall Street in the amount of the debt. Under the original mortgage agreement between Wall Street and Madison Real Estate in the section titled “Borrower’s Transfer to lender of Rights in the Prqperty”, Mortgage Electronic Registration Systems (MERS)…
Plaintiff alleges that under,this mortgage agreement, MERS had the authority to transfer the mortgage and underlying note to Plaintiff on behalf of Wall Street. Plaintiff bases this cause of action on Defendant’s failure to comply with the conditions of the mortgage and note because Defendant did not pay the principal and interest that were due and payable on March 1 , 2009. Plaintiff now calls due on the entire amount with interest that was secured by the mortgage.
Defendant argues that Plaintiff does not hold title to both the note and the mortgage in this case. Absent an effective transfer of the debt as well as the note, the assignment of the mortgage is void and Plaintiff cannot foreclose on the properly for nonpayment of the note.
Plaintiff argues that it has standing because MERS validly executed the assignment of the mortgage and transferred the underlying note on behalf of Wall Street. Plaintiff cites to the section of the mortgage agreement titled “Borrower’s Transfer to Lender of Rights in the Property,” where it states that “MERS has the right: … (B) to take any action required of Lender including, but not limited to, releasing and cancelling the Security Instrument.” See Exhibit B in Defendant’s Notice of Motion. Plaintiff contends that this language authorized MERS to assign the mortgage and that the assignment included the right to foreclose on the property if the Defendant defaulted on payments of the note.
A plaintiff who seeks to foreclose on a mortgage must hold legal or equitable interest in it, See Katz w, East-Vile Realfy Co., 249 A.D.2d 243, 243, 672 N.Y.S.2d 308, 309 (1st Dept. 1998). The parties do not dispute that the mortgage was assigned to Plaintiff. However, because Plaintiff seeks to recover for non-payment of the note, the issue is whether the assignment of the mortgage contract to Plaintiff also transferred interest in the underlying note. There is little precedent which speaks directly to the standing issue in this case. However, after careful consideration, the court concludes that Plaintiff lacks standing to sue under CPLR 3 321 I (a)(3).
The court in Kafz cites to a Second Department case which elaborates on the ownership interests associated with the transfer of a mortgage. In Kluge w. Fugazy, 145 A.D.2d 537, 538, 536 N.Y.S.2d 92, 93 (2nd Dept. 1988), the plaintiff attempted to foreclose upon a note where it held title to the mortgage, but not the Underlying note. There, the court held that “absent transfer of the debt, the assignment of the mortgage is a nullity.” Implicitly, therefore, Katr approved of the holding that a plaintiff may foreclose on a mortgage if it shows that it holds title to the mortgage as well as the underlying debt. In this case, Plaintiff has not provided any evidence which shows that when MERS assigned the mortgage to Plaintiff, it also transferred the interest in the underlying note. According to the mortgage assignment contract, MERS held legal title to the mortgage. There is no language in the agreement which transfers interest in the note to MERS. Because MERS did not hold title to the underlying note, it could not transfer any rights to the underlying note when it assigned the mortgage to Plaintiff.
Without a transfer of title to the underlying note, Plaintiff cannot foreclose on the property based on default payment and lacks standing under CPLR 5 321 1 (a)(3)
Therefore, it is
ORDERED that Defendant’s motion to dismiss is granted; and it is further
ORDERED that this action is dismissed; and it is further
ORDERED that the clerk of the court directed to enter judgment accordingly.
Full order below…