Lack of Standing and Mortgagor Protection

The Illinois Second District Appellate Court recently adopted a legal principle aimed at protecting borrowers and further curbing lender wrongs, such as improperly affixing lender’s signatures to foreclosure documents without reviewing them.

As early as 2008, Federal and State jurisdictions around the country began a trend of dismissing foreclosure suits due to a lack of mortgagee standing.  In December 2012, the Second District adopted this trend — which could have significant implications on Illinois mortgagors and mortgagees alike.

In practice, it is not unusual for a mortgagee foreclosing on an assigned note to produce documents evidencing such assignment took place after or even well after initiation of the foreclosure suit.  These late assignments could be a result of a mortgagee’s honest inadvertent act or, more likely, may represent a mortgagee’s standard business practice.  Mortgagees that engage in this behavior intentionally operate on the assumption that no one will notice or raise the timing discrepancy.  Usually, they are correct.

For whatever reason the assignment was late, the servicer will more than likely argue that it should be given retroactive effect because it merely memorialized an earlier assignment or dismissal and refiling would unnecessarily strain judicial resources.  Moreover, a servicer will also most likely attempt to argue that the statutory provision, 735 ILCS 5/2-616(c), allows for liberal amendment of pleadings to correct so that cases are decided on the their merits and not on procedural technicalities.

However, federal courts[1] and state courts in New York[2], Ohio[3] and elsewhere[4] recently began dismissing foreclosure suits in which servicers or mortgagees were assigned the note subsequent to initiating a foreclosure action.  For example, in Saxon Mortgage Servs., Inc v. Hillery, a foreclosure action was dismissed because a plaintiff failed to allege the note had been assigned to it before filing its complaint.  2008 WL 5170180.  Moreover, in Countrywide Home Loans, Inc. v. Gress, a foreclosure suit was dismissed because it was “undisputed that the subject mortgage was not assigned to the plaintiff until . . . more than five months after the commencement of [the] action” and “retroactive assignment cannot be used to confer standing upon the assignee in a foreclosure action.”  888 N.Y.S. 2d 914-15 (2009).  While the factual bases of the foregoing examples differ, the trend of courts scrutinizing plaintiff standing in foreclosure cases is clear.

Recently, in Deutsche Bank National Trust Co. v. Gilbert, the Illinois’ Second District appellate court followed this trend when it dismissed Deutsche Bank’s foreclosure claim on the basis that it lacked standing at the time of filing.  982 N.E. 2d 815, 824 (2012).  Lack of standing is an affirmative defense, and the burden of proving the defense is on the party asserting it.  Therefore, the mortgagor bears the burden to prove the mortgagee lacked standing at the time the foreclosure was initiated.  However, when a prima facie showing is made — such as an assignment executed subsequent to filing of the foreclosure complaint– the mortgagee must rebut that showing with admissible evidence to establish it had standing at the time the action was initiated.

In Gilbert, the mortgagor established a prima facie defense by drawing attention to the fact that Deutsche Bank’s assignment did not explicitly state when it was assigned the mortgage.  That showing established a prima facie defense and shifted the burden to Deutsche Bank National Trust Co. to rebut with admissible evidence.

Deutsche Bank attempted to rebut Gilbert’s prima facie showing by submitting an affidavit stating that the assignment merely memorialized an earlier assignment of the note, but did not attach any documentary evidence to support the assertion.  The appellate court was not persuaded by the affidavit but rather followed the trend of scrutinizing mortgagee standing in foreclosure cases.  Although not addressed in the Gilbert decision, it is important to note that other jurisdictions and courts have expanded on this trend to further securitize mortgagee standing by awarding attorneys’ fees for such deficiencies.[5]

The upshot of the recent Illinois appellate court decision in Gilbert is that counsel for mortgagees and mortgagors alike must diligently examine the dates of any assignments and be prepared to support a prima facie defense or rebuttal with documentary evidence.  A failure to do so could result in a dismissal, a failure to obtain a dismissal or even sanctions.

— James D. Trail
The Bernstein Law Firm, LLC

[1] Saxon Mortgage Servs., Inc. v. Hillery, 2008 WL 5170180 (N.D. Cal. Dec. 9, 2008)

[2] Countrywide Home Loans, Inc. v. Gress, 888 N.Y.S.2d 914 (2009)

[3] Wells Fargo Bank, N.A. v. Jordan, 2009 WL 625560 (Ohio Ct. App. Mar. 12, 2009)

[4] Jeff-Ray Corp. v. Jacobson, 566 So. 2d 885 (Fla. Dist. Ct. App. Sept. 12, 1990)

[5] Bank of New York v. Williams, 979 So. 2d 347 (Fla. Dist. Ct. App. 2008); Countrywide Home Loans, Inc. v. Taylor, 843 N.Y.S.2d 495 (N.Y. Sup. Ct. 2007)


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