Posts tagged ‘dismissal’

Motion to Dismiss for Lack of Standing

Produce the Note, An Alternate View, Parts 1, 2 and 3 explained why borrowers might be better off asking the foreclosing party to prove ownership of the debt rather than asking it to produce the note. But how and when does the borrower go about asking the lender to do either of these things? In my view, the best way to do it is by a formal motion to dismiss for lack of standing. Part 1 of the Produce the Note series explained that standing is an aspect of subject matter jurisdiction and that if the foreclosing party lacks standing, the court lacks subject matter jurisdiction. If the court lacks subject matter jurisdiction, the case must be dismissed. When a borrower asks the foreclosing party to prove ownership of the debt (or to produce the note if the borrower goes that route), the borrower is really asking the court to dismiss the case because the foreclosing party can’t prove ownership of the debt (or produce the note). Whether the borrower does this informally, by making the request at a court appearance for example, or formally, by filing a written request with the court, the borrower’s request is a motion to dismiss for lack of subject matter jurisdiction. If the borrower chooses to ask the foreclosing party to prove it owns the debt, the borrower should make a formal written motion. The mortgage industry wants to prove standing merely by producing the note and that is all the courts have been requiring. The borrower needs to why producing the note is not sufficient and that requires a written explanation.

One of the best features of the lack of subject matter jurisdiction is that in some jurisdictions, like Connecticut, it cannot be waived or conferred by consent. This means that the borrower can raise it at any time. Other jurisdictions may require the borrower to do something, like raise it as a defense in the pleadings, to preserve the right to move to dismiss later. Assuming the borrower has properly preserved it, or doesn’t have to, the question of when to move to dismiss for lack of subject matter jurisdiction is really a question of strategy in a particular case. It may not be beneficial to do it early in the case when, for example, the borrower is participating in the Foreclosure Mediation Program (CT) or the Foreclosure Settlement Conference Program (NY). The goal of these programs is to modify the mortgage to keep the borrower in the property. They are essentially “court-annexed” programs, which means that if there is no case pending against the borrower, the borrower cannot participate in the program. A successful motion to dismiss will take the borrower out of the program because it results in there being no case. On the other hand, it may be beneficial to do it early in the case when no court-annexed program is available to the borrower as in the case of an investment property. In those circumstances, the borrower might get some leverage in negotiating a workout or modification if the foreclosing party is facing dismissal.

Produce the Note, An Alternate View, Part 1

“Produce the note” has been a popular mortgage foreclosure defense since the revelation that lenders often do not have the “paperwork” necessary to foreclose.  This is the first post in a series that will explain why the defense may be a misstatement of the law and actually may make it easier for a lender to overcome what might otherwise be an insurmountable problem.

The produce the note defense is rooted in the requirement of standing, which is an aspect of subject matter jurisdiction.  If the foreclosing party lacks standing, the court lacks subject matter jurisdiction and the foreclosure action must be dismissed.  This does not mean that the debt or mortgage is unenforceable.  It means that the wrong party commenced the foreclosure action.  The right party can try again but make no mistake — a dismissal is a fantastic result for a borrower.

To have standing, the foreclosing party must have a direct injury or be authorized by statute to foreclose.  The purpose of a foreclosure action is to remedy the injury resulting from the non-payment of the debt.  The party who is owed the debt is the one that is injured by non-payment.  The owner of the debt is the party who is owed the debt.  In short, the owner of the debt has a direct injury from the borrower’s failure to pay and thus has standing to foreclose.

In my experience, foreclosing parties do not try to establish standing by direct injury.  Instead, they claim statutory authority to foreclose.  More specifically, they rely on section 3-301 of the Uniform Commercial Code (commonly called the “UCC”).  Section 3-301 provides the “holder” of the note with the right to enforce the note.  For our purposes, “holder” under the UCC means the person in possession of a note.

The produce the note defense is based on theory that a party who cannot produce the note does not possess the note and so does not have the right to enforce it.  The flaw in the defense, as we’ll see in future posts in the series,  is that the right to enforce the note, without more, is irrelevant to the right to foreclose the associated mortgage.