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Foreclosing An Assigned Mortgage


November 11, 2011
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You’d Better Watch Your Timing
A recent New Jersey Appellate Division ruling has placed a further burden on the foreclosure of real estate mortgages. The court vacated a foreclosure judgment and sheriff’s sale, because the mortgage holder – an assignee of the original mortgagee — filed foreclosure before being assigned the note and mortgage, even though the mortgage holder later amended its complaint to allege receipt of the assignment. In essence, the court said that the bank should have waited to file suit until after the assignment was made, and that this default could not be cured simply by updating the original complaint. This creates one more procedural hurdle that a foreclosing bank must clear.
 
In the case, Deutsche Bank National Trust Company v. Mitchell, No. A-4925-09T3 (App. Div. Aug. 9, 2011), the bank filed foreclosure on May 13, 2008. Only on May 14 were the note and mortgage assigned to Deutsche Bank. However, on June 2, the bank filed an amended foreclosure complaint, describing the assignment. The trial court granted summary judgment to the bank, finding it cured its standing defect by amending the complaint. With no request by debtor for a stay, the property proceeded to sheriff’s sale, and Deutsche Bank successfully bid its lien.
 
The appellate court refused to dismiss the appeal as moot, due to the “significant issues of public import” raised by the question of standing. It then held as follows:
 
Because Deutsche Bank has not demonstrated that it possessed the note at the time it filed the original complaint, it has not established standing . . . Deutsche Bank must prove it had possession of the note when it filed the complaint to obtain standing.
 
Deutsche Bank could not cure the defect in the initial complaint, filed one day before obtaining the assignment, by filing an amended complaint following the assignment.
 
The court then overturned the foreclosure judgment and the sheriff’s sale.
 
One final note of caution to foreclosing banks: the bank’s proofs on its motion for judgment contained the usual attorney’s certification, stating that he had reviewed the bank’s computerized file, including the information about the assignment of the note and mortgage. The appellate court noted in dictum that this was legally insufficient, since the standing requirement needed to have been established by someone with personal knowledge.
 

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