Transferred Mortgages May Offer a Defense to Foreclosure

When you buy a home, you work hard to establish a relationship with a lender who will approve your loan.

And then the lender breaks up with you. It takes your mortgage, bundles it with some others, and sells it. Pretty soon, you get a letter in the mail saying that some other company you never heard of will now be servicing your loan. For some mortgages, this happens more than once.

As a homeowner, it’s annoying. But if you’re facing foreclosure, those assignments from one lender to another may give you a great defense.

The defense hinges on the legal concept of “standing.” Having standing means having a legal right to bring a lawsuit. In the case of lawsuits involving mortgages and other contracts, the parties who signed the contract have standing. If a contract was assigned or transferred to someone else, then the assignee or transferee has standing. Other people do not.

So, if you have a mortgage with Bank A, then Bank A has standing to file a foreclosure suit. If Bank A assigned the mortgage to Bank B, then Bank B could file foreclosure if it could prove that there was an assignment. Because mortgages are so frequently transferred from one lender or servicer to another, a lender may have trouble producing documents to prove that assignments occurred.

In Seffar v. Residential Credit Solutions, Inc. a borrower recently won dismissal of a foreclosure case because the lender didn’t prove it had standing.

In that case, the borrower had signed a mortgage with ABN Amro Mortgage Group (ABN) and had been notified that servicing of his loan was being transferred from Citimortgage to Residential Credit Solutions, Inc. (RCS). When the borrower defaulted, RCS filed a foreclosure lawsuit.

RCS attached the original mortgage to the lawsuit, as well as another document that did not establish that ABN had assigned the mortgage. RCS then moved to substitute Bayview Loan Servicing as the plaintiff because servicing of the mortgage had been transferred to Bayview.

A litigation manager for Bayview testified at trial, but he didn’t have any evidence that Bayview or RCS had standing. He didn’t know anything about the prior loan servicers’ records or whether they were accurate. He said he believed Bayview was the owner of the Note, but he hadn’t seen any agreement between Bayview and the prior owner, RCS. He did not know who owned the note at the time RCS sent the borrower a notice of intent to take legal action.

On appeal, the Florida Court of Appeal found that Bayview had failed to prove standing. As a result, the court dismissed the foreclosure case.

In any foreclosure case, it’s important to remember that the lender must prove it has standing to file the lawsuit. Sometimes this is just a formality, but sometimes a lender or loan servicer doesn’t have documents to show how it acquired the mortgage. When that happens, the case may be dismissed.