• Court Rules Against Bank of New York; Dismisses Foreclosure Complaint
  • January 12, 2011 | Author: Eric C. Garrabrant
  • Law Firm: Flaster/Greenberg P.C. - Linwood Office
  • In a case of first impression in New Jersey, a Superior Court Judge in Atlantic County has ruled against the Bank of New York and dismissed its foreclosure action, for failing to prove that the bank owned the defendant's promissory note on the date the case was filed. The ruling, announced on June 29, indicated that, while no New Jersey cases had addressed this issue, dismissal of the complaint was appropriate since the bank simply could not show the court that the bank had the ownership interest to enforce the defendant's debt when the bank filed its complaint. The court also indicated that, in the event a loan being foreclosed was assigned as part of a large package of many loans, i.e., "securitization," a bank whose right to bring suit was challenged, would be required to produce the documents which show the title transfer chain from the party who originally made the loan, to the party foreclosing the mortgage. Because the majority of foreclosure actions go unchallenged by borrowers, such proof is seldom demanded of a foreclosing plaintiff.

    Significance of the ruling

    The ruling established, with definiteness never before articulated by New Jersey courts, that the party bringing suit must prove, on the date the suit is filed, that the borrower owes the money to the party filing the law suit. Furthermore, because the process of securitization is so complex, and involves so many loans being transferred among so many entities, gathering that proof in future cases may not always be easy.  The ruling may help borrowers who have been trying in good faith to work out the terms of their loans, by allowing the borrower to be assured that the party asking for the money is really owed the money.

    With the number of foreclosures surging, the ruling may renew hope for borrowers who legitimately question whether they owe money to the party demanding payment.  In many such cases, the loans have been conveyed to the point where borrowers cannot ascertain with certainty exactly what entity is the real holder of their loan.  But it may present a new challenge for lenders seeking repayment, as they traverse the same convoluted paper trail to prove they own the note and the mortgage on a particular property. 

    The case was litigated by Eric C. Garrabrant of the Real Estate and Litigation Practice Groups. If you have any questions or would like more information, please contact any member of the Real Estate or Litigation Practice Groups. To read the 53-page Opinion, please click here. 

    If you have questions about the information contained in this alert, contact a member of the Real Estate and Land Use Practice Group at Flaster/Greenberg.