Consumer Finance Insights
June 18, 2015

New York’s Highest Court Clarifies Judicial Foreclosure Standing Requirements

Editor’s Note:  This post was guest-authored by Joseph Yenouskas, a partner in Goodwin Procter’s Consumer Financial Services Litigation Group who focuses on general civil litigation in federal and state trial and appellate courts, with a particular emphasis on defending financial institutions and mortgage lenders in complex consumer class action lawsuits.

The New York Court of Appeals has clarified the requirements for showing standing to pursue  judicial foreclosures in New York state courts after borrowers default on payment obligations, in a ruling that could resolve arguments in other cases by borrowers challenging mortgage assignments.

The June 11, 2015 ruling by the state’s highest court, in Aurora Loan Services, LLC v. Taylor, held that a note holder who commences a judicial foreclosure need not have possession of the mortgage.  The case involved borrowers who obtained a loan in 2006 and who defaulted in payments in 2010.  Aurora, the loan servicer, took physical possession of the note on May 20, 2010, and filed a judicial foreclosure action four days later, on May 24, 2010.

The trial court granted summary judgment in favor of Aurora, and an appeals court affirmed.  The New York Court of Appeals affirmed the summary judgment on the standing issue, holding that Aurora had standing to commence a judicial foreclosure action under New York law because it possessed the original note before it filed the lawsuit.  In so doing, the Court of Appeals rejected the borrowers’ argument that Aurora lacked standing because it did not also possess the mortgage:

Contrary to the Taylors’ assertions, to have standing, it is not necessary to have possession of the mortgage at the time the action is commenced.  This conclusion follows from the fact that the note, and not the mortgage, is the dispositive instrument that conveys standing to foreclose under New York law.  In the current case, the note was transferred to Aurora before the commencement of the foreclosure action — that is what matters.

Prior to Taylor, some New York courts had held that a plaintiff in a judicial foreclosure action was required to show both that it was the note holder and the mortgagee at the time of the action; this led to many challenges by borrowers attacking the validity of assignments of mortgages after default on various grounds, including objections to the role of Mortgage Electronic Registration Systems, Inc. in assigning mortgages.  The rationale in Taylor should remove these challenges in New York judicial foreclosure suits going forward.


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