How to deal with the Court of Appeals' decision in Aurora v. Taylor.
One of my favorite areas of the law is foreclosure defense, and I love helping attorneys create arguments that might save their clients' homes (see some of my work here).
Although it's difficult, I also love the challenge of trying to persuade the courts in New York that the laws relating to promissory notes and mortgages are specific and precise–and that lenders must follow them before they can take away a person's home. After all, as one justice in New York County likes to say, ours is nation of laws.
And, as I like to say, the rule of law is only as strong as the will to enforce it.
As foreclosure defense lawyers all over New York (and beyond) know, plaintiffs seeking to foreclose–who are more often than not merely mortgage servicers–love to go into court and say their capacity and standing is proven by a statement that someone on their payroll (or sometimes, just their attorney) reviewed the company records which show it is in possession of the note (thus creating a cause of action in foreclosure).
Sometimes the note has been properly indorsed and sometimes not; the effect of an indorsement (or the lack of it) on the determination of whether a note has been negotiated according to the procedure required by Article 3 of the Uniform Commercial Code (UCC) is another hotly contested legal issue (and one that I will deal with in a later post).
The question I want to highlight right now is whether a blanket statement on an affidavit that is clearly a form processed document (with blanks to be filled in by whoever is submitting it to the court) is enough to prove possession of the note?
Foreclosure defense attorneys say no for a variety of reasons, not least of which is the fact that it is now known that many notes were not properly transferred–or they were straight up lost–during the most chaotic parts of the subprime mortgage crisis. That is the (well-founded) point many are trying to persuade the courts to accept.
So I was disappointed to read the Court of Appeals' decision in Aurora v. Taylor, 2015 NY Slip Op 04872, which was rendered on June 11, 2015.
The case involved a promissory note that was part of a mortgage-backed security trust. Apparently, the evidence was sufficient to show the chain of ownership from the original lender to the trustee, Deutsche Bank. Sometime after Deutsche Bank became the owner of the note, Aurora became the servicer of the mortgage pursuant to a master servicing assignment and assumption agreement (the MSAAA). Deutsche Bank also granted a power of attorney to Aurora, which authorized it to execute documents relating to modification and foreclosure.
Aurora filed its foreclosure action a short time later. After submitting an answer, the Taylors filed a motion for summary judgment arguing that Aurora did not have standing.
The Taylors presented a few different arguments, but their essential point was that Aurora could not prove standing based upon an affidavit that merely states the date of delivery to Aurora (precisely the argument I summarized above). Aurora, of course, argued that its affidavit was sufficient, and that the Taylors had not presented any evidence to contradict its factual averments.
The trial court agreed with Aurora–and so did the Second Department (who said that no further detail was necessary to establish standing because Aurora provided the "exact delivery date" of the note to its possession).
The case was certified to the Court of Appeals to determine whether Aurora's affidavit was indeed adequate to prove its possession of the note.
The Court of Appeals was careful to say that physical delivery of a note to a plaintiff from its owner is sufficient to create standing to foreclose in certain circumstances. But, ultimately, it decided that the combination of facts–that Aurora's affidavit stated a specific delivery date, that it was abundantly clear that Deutsche Bank was the owner of the note, and that it was shown that Aurora had authority to pursue the foreclosure pursuant to the MSAAA–was enough to vest Aurora with standing in this case.
It doesn't appear the Taylors made any arguments relating to proper negotiation pursuant to UCC Article 3 (so that issue is still hotly ripe). But they did make the argument that Aurora should have produced the original, wet-ink, note for examination–a sensible argument given what many of us know about lenders' and servicer's history of fudging documents and making false statements in affidavits.
Curiously, the Court of Appeals disposed of this particular argument by pointing out the Taylors had never requested production of the original note, while also noting that "the better practice would have been for Aurora to state how it came into possession of the note in its affidavit in order to clarify the situation completely..."
Well okay, Court of Appeals. Duly noted.
So, let's adjust our arguments in light of this decision. Here is my proposal, a new best practice for all foreclosure defense cases going forward: as soon as a case is commenced and an answer filed, serve a demand to produce the original, wet-ink, note for examination (at the local offices of the servicer or their attorney, of course).
The demand could be a one-page document, so it will not require a huge amount of time or resources. But it could change the course of your client's case, and your ability to convince the courts that a servicer should not have standing to foreclose without actually proving it has physical possession of the note (even if that were enough to prove a proper UCC Article 3 negotiation).
What do you think about my proposal–might it help your clients? I would love to hear your thoughts, so please, leave a comment below.
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