Proving the Note was Transferred

Prior to the “modern era” where mortgages were “securitized,” the original Note and Mortgage typically remained in the possession of the “local bank” that originated the loan, and the bank collected and retained the loan payments.

Today, most mortgages are sold and transferred numerous times, often without adequate procedures to document each transfer. Since the foreclosure crisis began, courts have begun to scrutinize Plaintiff’s “standing” to commence the foreclosure, whether or not the issue of Standing was raised by a defendant!

In 2011, the Appellate Division, Second Department, decided Bank of New York v. Silverberg, 86 A.D.3d 274 (App. Div. 2011), holding that irrespective of any Assignments of Mortgage, recorded or not, the ownership of a mortgage may not be transferred unless the Note is validly transferred as well. Id. at 283, reaffirming the requirement of UCC 3-201 that the Note must be validly transferred in order to transfer ownership of the Mortgage.

For example, if a mortgage was transferred from Company A to Company B then to Company C, and finally, to Company D, and Company D now seeks to foreclose, it first must prove that the Note has been validly transferred since its origination. Company D’s employee, however, can only testify as to how it obtained the Note from Company C; he/she cannot attest to anything that happened before because he/she does not have personal knowledge of the previous transfers, so affidavits must often be obtained from prior Mortgagees or their Servicers.

Prior Mortgagees or their Servicers, however, are often unable or unwilling to sign such affidavits. Companies go out of business, files are lost or destroyed, and concern for potential liability makes getting these affidavits signed and returned challenging, to say the least.

To resolve this problem as efficiently and expeditiously as possible, we recommend the following procedures:

1. Make the affidavits short and simple. One of the reasons company officials refuse to sign affidavits is the affidavit often contains extraneous information which can not be easily verified. There is no need to include statements regarding the default or any other facts besides those establishing the transfer of the Note.

2. Minimize the number of affidavits needed. In the example given, Company B can provide an affidavit stating that the Note was transferred to it from Company A and another stating that the Note was thereafter transferred from it to Company C. Plaintiff (Company D) can then provide an affidavit stating that the Note was transferred to it from Company C. This establishes a complete chain of title for the three prior owners while avoiding the need to obtain affidavits from Company A and Company C.

If you would like to discuss any specific issues you are having, please feel free to contact me at peter.roach@roachlawfirm.com.