Possession of the Note, Not the Mortgage, Confers Standing to Foreclose

The Court of Appeals, in a full-fledged opinion by Judge Lippman, determined that possession of the note, not the mortgage, when the foreclosure proceedings are commenced is sufficient to confer standing upon the note-holder. ” ‘[A]ny disparity between the holder of the note and the mortgagee of record does not stand as a bar to a foreclosure action because the mortgage is not the dispositive document of title as to the mortgage loan; the holder of the note is deemed the owner of the underlying mortgage loan with standing to foreclose’… . . Accordingly, the [defendants’] argument that [plaintiff] lacked standing because it did not possess a valid and enforceable mortgage as of the commencement of this action is simply incorrect. The validity of the … assignment of the mortgage is irrelevant to [plaintiff’s]  standing;”

… [T]o have standing, it is not necessary to have possession of the mortgage at the time the action is commenced. This conclusion follows from the fact that the note, and not the mortgage, is the dispositive instrument that conveys standing to foreclose under New York law. In the current case, the note was transferred to [plaintiff] before the commencement of the foreclosure action — that is what matters.

A transfer in full of the obligation automatically transfers the mortgage as well unless the parties agree that the transferor is to retain the mortgage (Restatement [Third] of Property [Mortgages] § 5.4, Reporter’s Note, Comment b). The [defendants] misconstrue the legal principle that “an entity with a mortgage but no note lack[s] standing to foreclose” … to also mean the opposite — that an entity with a note but no mortgage lacks standing. Once a note is transferred, however, “the mortgage passes as an incident to the note” … . Aurora Loan Servs., LLC v Taylor, 2015 NY Slip Op 04872, CtApp 6-11-15