Failure To Assign Note Along With Mortgage Sinks Foreclosing Lender, Says NJ Judge; Delinquent Borrowers Still Own Home With $1.4M Unpaid Mortgage

In Atlantic City, New Jersey, NewJerseyNewsroom.com reports:

• With mortgage loans increasingly chopped up and repackaged into other investments, lenders must be able to demonstrate they still hold the underlying note before they can foreclose on a property, a Superior Court judge has ruled.

• In Atlantic City, Judge William C. Todd dismissed The Bank of New York's attempt to foreclose on a Brigantine house, saying the bank had not adequately documented that it holds the mortgage after a complex trail of financial transactions. The ruling is not binding on other courts, but pulls New Jersey into a trend emerging in other states, what some observers have called a "borrower rebellion."

• Besides triggering a financial crisis and a taxpayer bailout, the increasingly exotic market in mortgage-related securities has become hard for the layperson to follow, said Karen DiPrima, spokeswoman for Garrabrant's firm, Flaster/Greenberg PC.

• The new ruling "is ironic, because as the transactions get more complicated, we've seen people in foreclosure get confused while trying to find out who holds their mortgages, and now banks seem to be falling into the same little web."

• Krywopusk and Michael Raftogianis bought the beachfront house in Brigantine in September 2004 as an investment, Garrabrant said. They took out a mortgage of almost $1.4 million from American Home Mortgage Acceptance Inc.
At the time, "they were buying a number of properties in the area, but then the real estate market did what it did," Garrabrant said.

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• [I]n February, MERS said that as nominee for American Home Mortgage Acceptance, it had assigned and transferred the mortgage to the bank. While that may have been "intended" to transfer the debt, Todd wrote, "it is now apparent that is not what occurred."

• The Bank of New York needed to show that it was not merely the trustee for investors, but actually held possession of the mortgage note. But that got more difficult as the court asked for documentation. A copy of the endorsement provided to the court, intended to show the note had been transferred to the bank, was blank, the judge wrote.(1)

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• The dismissal is almost certainly not the end of the case. The Bank of New York did not respond to a request for comment. But Garrabrant acknowledged he would be "surprised" if the bank does not re-file a foreclosure action with some documentation. Even so, he said, this outcome is not a foregone conclusion. In the meantime, that beachfront house belongs to Krywopusk and Raftogianis, Garrabrant said, "and it's for sale."

For the story, see N.J. judge rules lenders must prove they hold note before they can foreclose on a property.

(1) According to the story, the case ultimately turned on the the failure by the foreclosing lender to provide "any meaningful proofs as to the transfer or negotiation of the note" or when that occurred, Judge Todd wrote.