Bank of NY v Silverberg -NY APP Ct

An intermediate appellate court of the State of New York recently held that Mortgage Electronic Registration Systems, Inc. ("MERS") cannot assign the right to foreclose to a plaintiff in a foreclosure action, absent MERS's right to enforce, or possession of, the related promissory note.


The foreclosure defendant borrowers ("borrowers") received two loans from Countrywide Home Loans ("Countrywide"), each secured by separate mortgages. Both mortgages identified MERS as the mortgagee of record, as nominee of Countrywide.

The borrowers then executed a consolidation agreement with Countrywide (the "consolidation agreement"). The terms of the consolidation agreement again named MERS as mortgagee as nominee of Countrywide, and named Countrywide as the lender and note holder. In addition, the terms of the agreement gave MERS the right to assign the underlying mortgages, but did not specifically give MERS the right to assign the underlying notes.

The borrowers defaulted. After the default, MERS assigned the consolidation agreement to Bank of New York, as Trustee ("Trustee").

Trustee initiated foreclosure proceedings in its name. The borrowers moved to dismiss the foreclosure action for lack of standing. The lower court denied borrowers' motion, and borrowers appealed.

The appellate court noted that, under New York law, "[i]n a mortgage foreclosure action, a plaintiff has standing where it is both the holder or assignee of the subject mortgage and the holder or assignee of the underlying note at the time the action is commenced;" and that "a transfer of the mortgage without the debt is a nullity." Based on that precedent, the Court concluded that "a foreclosure of a mortgage cannot be pursued by one who has demonstrated no right to the debt."

With this in mind, the Court scrutinized the consolidation agreement. It found that although the agreement gave MERS the right to assign the mortgages, it did not specifically give MERS the right to assign the underlying notes. Further, the record did not indicate that the notes were ever physically delivered to MERS. Therefore, MERS did not have the authority to assign the notes. According to the Court, because Countrywide "merely stepped into the shoes of MERS" as the assignee of the mortgages, the Court held that Countrywide and its successors and assigns did not have standing to foreclose.

The Court did not explain how the plaintiff Trustee was somehow not both the holder or assignee of the subject mortgage, and the holder or assignee of the underlying notes, at the time the foreclosure action was commenced.

The foreclosure plaintiff Trustee relied a recent New York appellate court opinion which held that MERS did have the authority to foreclose where MERS is identified in the mortgage as the mortgagee and nominee of record (as was the case in the consolidation agreement). However, the appellate court here noted that the other case involved a lender who transferred the promissory note to MERS prior to the commencement of the foreclosure action. Here, in contrast, there was no such transfer. Thus, the Court found it distinguishable from the matter at hand.

The Court concluded by noting that it was "mindful" of the impact its decision might have on the mortgage industry. However, the Court stated that "the law must not yield to expediency and the convenience of lending institutions."