As has been been observed by at least one lender-favoring
commentator:(1)
- Attacking sufficiency, accuracy, or validity of assignments of mortgages and deeds of trust has been among the most common strategies employed by borrowers to challenge foreclosures. Allegations regarding the status of MERS, the legal authority of the individual executing the assignment, and the timing of the assignment’s recording have all been raised and litigated in courts throughout the United States.
Recently, however, the Nebraska Supreme Court joined a growing number of state courts that have rejected such arguments, citing fundamental questions about borrowers’ standing to challenge contracts in which they have no legally cognizable interest.
However, the point the commentator and others fail to emphasize, and what some courts throughout the country are either missing, or less-than-effective foreclosure defense attorneys are failing to raise, is the fact that, in order to have standing to challenge said assignments, an allegation that the assignment is absolutely void, and an allegation that some injury or prejudice (or risk thereof) due to the faulty assignment is present and must be sufficiently plead, briefed, and ultimately proven by the homeowners.
This appears to be the case in the recent ruling by the Nebraska Supreme Court referenced above.
Buried on the 16th page of the 18-page ruling, and on the basis of what it pointed out earlier in its ruling, the Nebraska high court made this observation:
- We need not decide in this case whether a borrower who is at risk of paying the same debt twice, or otherwise at risk of prejudice from an improper assignment, would have standing to challenge that assignment of its mortgage.
Had the Marcuzzos established an injury that directly related back to the assignment of their mortgage, our holding may have been different.
But no such injury caused by the assignment is alleged or found. Strictly applying Nebraska law, the Marcuzzos were not a party to the assignment. Nor was the assignment made for their benefit. Thus, the Marcuzzos cannot challenge the assignment contract's validity.
Clearly, the court here is telegraphing to anyone who's bothering to pay attention (ie. hopefully, homeowners in foreclosure, foreclosure defense attorneys, etc.) that challenging said assignment requires an allegation (which must be plead and proven) that the assignment is absolutely void (ie. void ab initio, invalid, ineffective, etc.) and not merely voidable, and an allegation that the homeowners face some harm or risk of harm due to the faulty assignment. In this case, the homeowner, according to the court, didn't bother to even allege a void assignment, harm, or risk of harm, much less prove it.
In laying its groundwork for this observation (which it acknowledges is an exception to the general rule that one cannot challenge the validity of a contract to which it is neither a party nor a third-party beneficiary), the court made reference to a recent federal appeals court case in which the homeowner succeeded in challenging a mortgage assignment to which it was not a party:
- Some courts while accepting this general rule have recognized an exception if the borrower can show actual prejudice by the improper assignment of the loan.[22]
For example, if the borrower was at risk of paying the same debt twice, then the borrower could establish a concrete injury arising from the improper assignment of the mortgage.[23]
If the borrower can show any injury that is directly traceable to the assignment of the mortgage, then, under this exception, the borrower would have standing to challenge that assignment.
Only one circuit court has held that the borrower does not need to demonstrate injury in order to have standing to challenge the validity of an assignment that the borrower was not a party to.[24] But, the court strictly circumscribed the type of challenge for which a borrower may have standing.[25]
In Culhane v. Aurora Loan Services of Nebraska,[26] the First Circuit Court of Appeals held that a borrower can have standing to challenge the assignment of his or her mortgage where the borrower is arguing the mortgage is invalid, ineffective, or void. Examples of void assignments include where the right attempted to be assigned is not assignable, or a prior revocation of the assignment.[27]
However, the Culhane court held that a borrower does not have standing to challenge shortcomings in an assignment that render it merely voidable at the election of one party, but otherwise effective to pass legal title.[28]
The plaintiff in Culhane argued that the assignor of the mortgage never had valid title to the mortgage, and therefore never had the right to assign the mortgage.[29] If true, the mortgage assignment would be void ab initio.
The First Circuit Court of Appeals found that the harm to the plaintiff in such circumstances would be the foreclosure, which could be traced directly to the creditor's "exercise of the authority purportedly delegated by the assignment."[30] The court also found two key facts in favor of standing in light of the allegations presented: (1) that, in Massachusetts, debtors have a statutory right under state law to ensure that any attempted foreclosure on his or her home is conducted lawfully and (2) that the mortgage contained a power of sale without prior judicial authorization.[31] The court was careful to caution that its holding was narrow, specific to Massachusetts law, and applied only when the borrower challenged the mortgage assignment as invalid, ineffective, or void.[32]
We find Culhane to be distinguishable from the case at bar. The Marcuzzos did not allege a void assignment. They did not allege that MERS, or Bank of the West, had no legally cognizable right to assign under the mortgage documents.
Instead, the Marcuzzos' argument is that the assignment paperwork between the assignor and Bank of the West did not follow the proper procedural framework. Even if this were true, the assignment would not be defective.[33]
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Based on the forgoing, it appears clear that to have any chance at successfully challenging a faulty mortgage assignment, the homeowner must sufficiently plead, brief and prove that:
- the defective aspects of the assignment render it void ab initio (ie. ineffective, invalid, a nullity) and not merely voidable, and
- the homeowner faces some prejudice (ie. injury or risk of injury - risk of paying debt twice (ie. "double collection" on the part of note holder(s)), lack of assignor's right to assign, assignee's lack of title) which, as the court put it, "could be traced directly to the creditor's exercise of the authority purportedly delegated by the assignment."
For the Nebraska Supreme Court ruling, see
Marcuzzo v. Bank of the West, 290 Neb. 809 (Neb. May 1, 2015).
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(1) See
Borrowers Cannot Challenge Mortgage Assignments, Says Nebraska Joining Other States.
(2) For earlier posts providing examples of homeowners who have successfully challenged mortgage assignments, despite the fact that they were not parties to the assignment, see:
- Homeowners Have Standing To Challenge Faulty Mortgage Assignments From One Bankster To Another, But Only Where Defects Render Conveyance Absolutely Void, Not Merely Voidable,
.
1st Circuit: Borrower Has Standing To Challenge Mortgage Assignments When Invalid, Ineffective, Or Void; Transfers That Are Merely Voidable Are Immune From Protest,
.
Michigan Trial Court OKs Homeowner Challenge To Validity Of Mortgage Assignment Where Assignee's Lack Of Title Is Raised As A Defense (reversed on other grounds, HSBC Bank USA, NA v. Young, No. 313212 (Mich. App. 2014) (unpublished) (appeal denied HSBC v. Young, 2015).
