The tide has started to turn against lenders. In the last year or so, courts have begun to dismiss foreclosure lawsuits because the banks filing the lawsuits did not have “standing”. Standing is a concept engraved in our Constitution that simply means that a party to a lawsuit must have have a legitimate interest in the relief being sought. In the foreclosure context, that means the bank must be able to show that it has possession of the original loan, it was property assigned the loan and that it had “standing” at the time of the filing of the Complaint. While these requirements might appear uncomplicated, the practices adopted by lenders over the last decade or so often make it difficult for lenders and their sevices to meet these requirements. Moreover, the securitization of many loans, where they have been bundled upon into trusts whose shares were sold to investors such as pension funds, further complicates the process. While the trust documents require careful scrutiny of the loan documents and proper endorsements before loans are allowed into the trust, the actual practices did not measure up in many instances. As a result, lenders and their assignees are unable to prove ownership of the loans inside the trusts and therefore lack “standing”.
In Bank of New York v. Raftogianis, the judge considered a set of facts where the a mortgage had been securitized and placed into a trust and whether the Bank, as plaintiff in the case, had the ability to foreclose if it did not have possession of the loan when the foreclosure suit was initiated. The court dismissed the lawsuit and said the Bank could not proceed until such time as it could establish by someone with personal knowledge that the Bank possessed the original loan. A similar result was reached in Deutshce Bank v. Mitchell, where the court held that “Deutsche Bank did not prove it had standing at the time it filed the original complaint. The assignment [of the mortgage] was not perfected until after the filing of the complaint, and plaintiff presented no evidence of having possessed the underlying note prior to filing the complaint”. Even in situations where a bank presents what are purported to be copies of the original loan or note, courts will accept such documents only when sworn to by someone with knowledge. In Wells Fargo Bank v. Ford, the court noted that the documents “that Wells Fargo relied upon in support of its motion for summary judgmnet . . . were not properly authenticated.” The certification from the Wells Fargo bank officer failed to give any indication how he had obtained the knowledge relied upon and failed to say how the officer knew that the documents relied upon by Wells Fargo were “true copies”. As a result, the foreclosure action was dismissed by the court.
As a practical matter, as the foreclosure floodgates begin to open again in New Jersey, many homeowners are unaware of the multitude of problems that exist with bank documents. Aggressive lending and securitization have created in many instances poor records and missing loan files. Many homeowners hold legitimate defenses to foreclosure lawsuits, but are failing to assert these defenses. The cases cited above have been decided in the last year or so and represent new opportunities for homeowners to assert new legal defenses that hold the potential to dismiss the foreclosure cases filed agianst them.