KABOOM | NY Appellate Division | Bank of NY v Silverberg - MERS Does NOT Have The Right to Foreclose on a Mortgage in Default or Assign That Right to Anyone Else
ubiquitous Mortgage Electronic Registration Systems, nominal holder of
millions of mortgages, does not have the right to foreclose on a
mortgage in default or assign that right to anyone else if it does not
hold the underlying promissory note, the Appellate Division, Second
Department, ruled Friday. "This Court is mindful of the impact that this
decision may have on the mortgage industry in New York, and perhaps the
nation," Justice John M. Leventhal wrote for a unanimous panel in Bank of New York v. Silverberg,
17464/08. "Nonetheless, the law must not yield to expediency and the
convenience of lending institutions. Proper procedures must be followed
to ensure the reliability of the chain of ownership, to secure the
dependable transfer of property, and to assure the enforcement of the
rules that govern real property." The opinion noted that MERS is
involved in about 60 percent of the mortgages originated in the United
From the ruling...
(Emphasis added by 4F)
Decided on June 7, 2011
SUPREME COURT OF THE STATE OF NEW YORK
APPELLATE DIVISION : SECOND JUDICIAL DEPARTMENT
ANITA R. FLORIO, J.P.
THOMAS A. DICKERSON
JOHN M. LEVENTHAL
ARIEL E. BELEN, JJ.
(Index No. 17464-08)
[*1]Bank of New York, etc., respondent,
Stephen Silverberg, et al., appellants, et al., defendants.
LEVENTHAL, J.This matter involves the enforcement of the rules that govern real property and whether such rules should be bent to accommodate a system that has taken on a life of its own.
The issue presented on this appeal is whether a party has standing to
commence a foreclosure action when that party's assignor—in this case,
Mortgage Electronic Registration Systems, Inc. (hereinafter MERS) —was
listed in the underlying mortgage instruments as a nominee and mortgagee
for the purpose of recording, but was never the actual holder or
assignee of the underlying notes. We answer this question in the
On appeal, the defendants argue that the
plaintiff lacks standing to sue because it did not own the notes and
mortgages at the time it commenced the foreclosure action. Specifically,
the defendants contend that neither MERS nor Countrywide ever
transferred or endorsed the notes described in the consolidation
agreement to the plaintiff, as required by the Uniform Commercial Code.
Moreover, the defendants assert that the mortgages were never properly
assigned to the plaintiff because MERS, as nominee for Countrywide, did
not have the authority to effectuate an assignment of the mortgages. The
defendants further assert that the mortgages and notes were bifurcated,
rendering the mortgages unenforceable and foreclosure impossible, and
that because of such bifurcation, MERS never had an assignable interest
in the notes. The defendants also contend [*3]that the Supreme Court
erred in considering the corrected assignment of mortgage because it was not authenticated by someone with personal knowledge of how and when it was created, and was improperly submitted in opposition to the motion.
the consolidation agreement purported to merge the two prior notes and
mortgages into one loan obligation. Countrywide, as noted above, was not
a party to the consolidation agreement. " Either a written assignment
of the underlying note or the physical delivery of the note prior to the
commencement of the foreclosure action is sufficient to transfer the
obligation, and the mortgage passes with the debt as an inseparable
Therefore, assuming that the
consolidation agreement transformed MERS into a mortgagee for the
purpose of recording—even though it never loaned any money, never had a
right to receive payment of the loan, and never had a right to foreclose
on the property upon a default in payment—the consolidation agreement
did not give MERS title to the note, nor does the record show that the
note was physically delivered to MERS. Indeed, the consolidation
agreement defines "Note Holder," rather than the mortgagee, as the
"Lender or anyone who succeeds to Lender's right under the Agreement and
who is entitled to receive the payments under the Agreement." Hence,
the plaintiff, which merely stepped into the shoes of MERS, its
assignor, and gained only that to which its assignor was entitled
(see Matter of International Ribbon Mills [Arjan Ribbons], 36 NY2d 121,
126; see also UCC 3-201 ["(t)ransfer of an instrument vests in the
transferee such rights as the transferor has therein"]), did not acquire the power to foreclose by way of the corrected assignment.
In sum, because MERS
was never the lawful holder or assignee of the notes described and
identified in the consolidation agreement, the corrected assignment of
mortgage is a nullity, and MERS was without authority to assign the
power to foreclose to the plaintiff. Consequently, the
plaintiff failed to show that it had standing to foreclose. MERS
purportedly holds approximately 60 million mortgage loans (see Michael
Powell & Gretchen Morgenson, MERS? It May Have Swallowed Your Loan,
New York Times, March 5, 2011), and is involved in the origination of
approximately 60% of all mortgage loans in the United States (see
Peterson at 1362; Kate Berry, Foreclosures Turn Up Heat on MERS, Am.
[*6]Banker, July 10, 2007, at 1). This Court is mindful of
the impact that this decision may have on the mortgage industry in New
York, and perhaps the nation. Nonetheless, the law must not yield to
expediency and the convenience of lending institutions. Proper
procedures must be followed to ensure the reliability of the chain of
ownership, to secure the dependable transfer of property, and to assure
the enforcement of the rules that govern real property.
Accordingly, the Supreme Court should have granted the defendants'
motion pursuant to CPLR 3211(a) (3) to dismiss the complaint insofar as
asserted against them for lack of standing. Thus, the order is reversed,
on the law, and the motion of the defendants Stephen Silverberg and
Fredrica Silverberg pursuant to CPLR 3211(a)(3) to dismiss the complaint
insofar as asserted against them for lack of standing is granted.
FLORIO, J.P., DICKERSON, and BELEN, JJ., concur.
that the order is reversed, on the law, with costs, and the motion of
the defendants Stephen Silverberg and Fredrica Silverberg pursuant to
CPLR 3211(a)(3) to dismiss the complaint insofar as asserted against
them for lack of standing is granted.
Full opinion below...
It is well worth the read...