Bank’s Standing In Foreclosure Actions Just Got Easier

Attorneys who defend foreclosure actions often employ a defense called “produce the note.” Because mortgage notes often change hands (i.e., are sold) between the time the mortgage is taken out and the time of foreclosure, the foreclosing bank sometimes doesn’t have the actual note — and this may defeat the foreclosure action.

But New York’s Court of Appeals just made the bank’s job a little easier in today’s decision in J.P. Morgan Chase Bank v Caliguri, 2020 NYSlipOp 07660. Here, the Court held that the bank satisfied its burden of proving standing to sue, “through evidence that it possessed the note when it commenced this action, including a copy of the original note endorsed in blank, and other supporting material, including an affidavit of possession based on an employee’s review of plaintiff’s business records.”

Noting that “there is no ‘checklist’ of required proof to establish standing,” the Court ruled that “there is no per se rule requiring the court to grant a request for inspection of the original note prior to awarding summary judgment to a plaintiff in a mortgage foreclosure action.” As a result, summary judgment was granted to the bank.

Comment

This will not help banks who cannot produce even a copy of the note, but a photocopy and an affidavit of possession will make their case. A plaintiff suing to foreclose on a mortgage or to sue on a promissory note has the affirmative obligation to plead (and prove, if put at issue) that it is the holder of the note forming the basis of the suit.

NY UCC 3-301 makes it clear that the holder of the note is entitled to enforce it, and so courts must determine whether the plaintiff is in “possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.” A purchaser of a note becomes the holder through negotiation (NY UCC 3-202). If the instrument is payable to order it is negotiated by delivery with any necessary indorsement; if payable to bearer it is negotiated by delivery. Therefore, the issue of what documentation is necessary to establish a plaintiff’s right to demand payment on a negotiable instrument is properly understood as a question of whether the note in question has been negotiated  such that the plaintiff becomes the holder (see 80 NY Jur 2d Negotiable Instruments § 269 [2d ed 2013] [“The mere possession of a promissory note endorsed in blank, just like a check, provides presumptive ownership of that note by the current holder; such is the foundation of negotiable instruments law. Assuming that execution of a negotiable instrument if put in issue has been proved, its possession and production at the trial of the action to enforce it is sufficient prima facie proof of the plaintiff’s ownership. This is the rule applicable to an instrument payable to bearer or indorsed in blank”].

Therefore the question of standing in a foreclosure case is different than standing in other cases, where a plaintiff must either be a party to a contract or a person who has sustained an injury for which a legal remedy is prescribed. Mortgage notes are negotiable instruments, and standing is conferred by becoming a “holder in due course” per the UCC.