In a recent decision from the U.S. Bankruptcy Court for the Southern District of New York, Judge Martin Glenn reminded the bankruptcy bar that a lender/movant must provide sufficient evidence to show that it has standing to make a motion to lift the automatic stay to foreclose. In re Garcia, 584 B.R. 483 (Bankr. S.D.N.Y. 2018).
Most practitioners view lift-stay motions as “routine” and, in fact, such motions are regularly granted. However, as Judge Glenn noted in his decision, the “case present[ed] an example of the sloppiness too often seen by the Court . . . [including] by the loan servicer’s counsel that filed a motion to lift the automatic stay to permit foreclosure on one of a debtor’s properties,” with the motion “failing to provide evidence that [movant] has standing to foreclose.” Id. at 486.
This decision is a good reminder that a lift-stay movant must provide sufficient evidence to show that it has standing to make the motion, which generally requires showing that it has the ultimate right to foreclose in the eventual state court foreclosure action.
Under New York law, “a plaintiff has standing to commence a mortgage foreclosure action ‘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’.” In re Everton Aloysius Sterling, 543 B.R. 385, 390 (Bankr. S.D.N.Y. 2015) (quoting In re Lippold, 457 B.R. 293, 296-97 (Bankr. S.D.N.Y. 2011)). Where the movant is not the original lender, the movant must provide proof of a written assignment of the promissory note or demonstrate that it has physical possession of the promissory note with a valid endorsement. In re Escobar, 457 B.R. 229, 240-41 (Bankr. E.D.N.Y. 2011). Ownership of a mortgage by an entity other than the original lender is generally evidenced by a written assignment.
In In re Garcia, Judge Glenn found that the lender’s motion failed to provide evidence to support that the lender/movant held the subject note, which was endorsed in blank (i.e., the original noteholder endorsed the note without indicating who the new noteholder is). In re Garcia, 854 B.R. at 489. While the subject mortgage was assigned to the movant, as evidenced by a written assignment, “no assignment of the Note [was] shown in the documents submitted in support of the Motion” with “the Note show[ing] an endorsement in blank from [original lender] Wells Fargo Bank, N.A.” but “no affidavit or declaration (or any document submitted in support of the Motion) establish[ing] that [movant/lender] holds the original Note endorsed in blank.” Id. Such an error, as noted by Judge Glenn, is “all too common.” Id. at 486.
As such, lenders seeking to lift the automatic stay to proceed with a state court foreclosure should, where the movant is not the original lender, provide sufficient evidence in the motion to allow the Court to track the ownership of the subject note and mortgage from the original lender to the movant. This should address any potential standing issues. Where a standing question arises during the hearing on the motion, certain courts may be willing to entertain a supplemental affidavit from the lender providing further evidence for the ownership of the note and/or mortgage. While permitting such supplemental affidavit is within the discretion of a particular judge, if there are questions regarding the lender’s standing, lender’s counsel should consider requesting permission to submit such affidavit rather than risk denial of the motion.