Standing at Inception

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I recently had the pleasure of defending one of our clients in a foreclosure action up in Palm Beach. Thankfully, we were able to have the case dismissed due to the Bank’s failure to prove that they could enforce the Note and I wanted to spend some time today discussing that case with you all.

In many ways, the client’s foreclosure case appeared to be a “standard” foreclosure. Money was borrowed, our client fell on hard times and couldn’t make their payments and the Bank started a foreclosure action. Like many of you, the original lender sold the rights to the loan to another bank, who decided to bundle the loan together with hundreds of other loans and securitize it all. The result being, our client’s loan was supposedly transferred to a trust, controlled by various banks, and the trustee initiated a foreclosure action against our client.

As the trial date started to approach, I began my review of the Bank’s documents, trying to piece together the story of this loan – how it was created, who it was sent to, what entities were entitled to enforce it, and the ultimate question – does the Bank have the right evidence to support their foreclosure action. One of the big issues that stood out was the indorsements on the loan, compared to the documents controlling the trust.

You see, when a group of banks decide to create a trust and securitize a mortgage loan, they create a set of rules that the trust and trustee are supposed to follow. A lot of these rules spell out what type of loans can be part of the trust, who will service the loans, and what to do in the event something happens to the loan (a modification is created, the loan is paid off or reinstated, a foreclosure action is filed, a foreclosure action is won/lost, etc.). Most of the time, the rules regulating a trust state that any loans given to the trust/trustee must either be endorsed in blank (meaning anyone who has physical possession of the loan can enforce it) or they must be endorsed to a specific entity (the plaintiff in the event a foreclosure action is filed). Sure enough, this trust required that the Note is specifically endorsed to the plaintiff/trustee. Moreover, that endorsement had to be placed on the Note before the trust “closed” and would not allow any more loans to be associated with it. That closing date was back in 2005.

Flash forward to the trial, I noticed that the endorsement on the Note was to the plaintiff/trustee, however, that endorsement was updated. Which means, it could have been placed on the Note before the trust “closed” in 2005, or it could have been placed on the Note after 2005. For a bunch of technical legal reason I won’t get into, this distinction would make or break the case for the Bank. At the end of the day, the bank was able to provide some evidence that they had the authority to put the critical endorsement on the Note, but that evidence only showed that they had the authority to do it in 2013, well after the “cutoff” date in 2005. For this reason, the Court agreed that the Bank could not prove standing at inception and dismissed the Bank’s foreclosure action.

These types of issues plague many foreclosure cases, but sometimes a very technical argument needs to be made. On the face of the Note, it looks like the Bank had the power to enforce it. Thankfully, we are able to show the Court that it wasn’t so black and white and were able to keep our client’s in their home from a wrongful foreclosure.

If your bank has filed a foreclosure action against you, contact us to set up and appointment to go over your options. For more information about foreclosure defense, contact us.