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New York App. Court Reverses Dismissal of Foreclosure Action Involving Electronic Note

The Appellate Division of the Supreme Court of New York recently reversed the dismissal of a foreclosure action involving an electronic note, holding that the mortgagee’s evidence of the eNote transaction history and the eNote itself were sufficient to establish the mortgagee’s standing to foreclose.

A copy of the opinion in New York Community Bank v. McClendon is available at:  Link to Opinion.

On Nov. 7, 2008, the borrower executed a mortgage in favor of a lender bank to secure a promissory note executed the same day for $544,000. The note was signed by electronic signature.

The lender bank was subsequently closed, and a receiver was appointed. The receiver and the plaintiff mortgagee entered into a purchase and assumption agreement pursuant to which the receiver sold the plaintiff mortgagee “all qualified contracts to which [the lender] was a party.”

The plaintiff mortgagee filed an action to foreclose the mortgage loan. The borrower moved to dismiss the foreclosure action, asserting that the plaintiff mortgagee lacked standing. In opposition to the borrower’s motion, the plaintiff mortgagee submitted, among other things, the underlying eNote, the “eNote Transfer History,” and an affidavit of a knowledgeable person at the plaintiff mortgagee.

Nevertheless, the trial court granted the borrower’s motion to dismiss, and this appeal ensued.

As you may recall, under New York law a plaintiff establishes its standing in a mortgage foreclosure action by demonstrating that, when the action was commenced, it was either the holder or assignee of the underlying note.  Where the evidence shows the plaintiff had physical possession of the note prior to commencement of the foreclosure action, standing is established.

The Appellate Court confirmed that an eNote is a “transferable record” as defined by 15 U.S.C. §7021(a)(1), and that “[e]xcept as otherwise agreed, a person having control of a transferable record is the holder” under 15 U.S.C. § 7021(d).  New York’s version of the UCC defines the holder as “the person in control of a negotiable electronic document of title.”

In turn, the Court noted that “[a] person has control of a transferable record if a system employed for evidencing the transfer of interests in the transferable record reliably establishes that person as the person to which the transferable record was issued or transferred.”  15 U.S.C. § 7021(b).  In addition, “[d]elivery, possession, and endorsement are not required to obtain or exercise any of the rights” of a holder of a transferable record such as an eNote.  15 U.S.C. § 7021(d).

Under 15 U.S.C. § 7021(f), “reasonable proof” that a person seeking to enforce a transferable record has control of such record “may include access to the authoritative copy of the transferable record and related business records sufficient to review the terms of the transferable record and to establish the identity of the person having control of the transferable record.”

Here, the Appellate Court found that the eNote transfer history supplied by the plaintiff mortgagee established that the eNote was transferred from the receiver to the plaintiff mortgagee on March 23, 2010, more than two years before the foreclosure action was filed.  The sworn eNote transfer history established that on March 23, 2010, the plaintiff mortgagee obtained control and became the owner of the eNote.

Thus, the Appellate Court held, the sworn eNote transfer history together with the note itself were sufficient to show the identity of the person who had control over the transferable record, and therefore were sufficient to establish the plaintiff mortgagee’s standing to foreclose as the holder of the eNote.

Accordingly, the Appellate Court held that the trial court erred in granting the borrower’s motion to dismiss the foreclosure action for lack of standing, and reversed the trial court’s ruling.

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Tom Dominczyk is based in Maurice Wutscher's New Jersey office and supports the firm's matters in its New York and Pennsylvania offices, practicing in the firm's Commercial Litigation, Consumer Credit Litigation and Bankruptcy groups. Tom has successfully represented financial institutions and law firms throughout the country for claims filed under the Fair Debt Collection Practices Act, Fair Credit Reporting Act and various state consumer protection statutes. In addition to his litigation practice, Tom represents national, regional and local creditors in a variety of bankruptcy matters ranging from the defense of adversary actions to complex non-dischargeability litigation and preference defenses. He served as a Judicial Clerk to the Honorable Graham T. Ross, P.J.F.P., Superior Court of New Jersey, Somerset County. For more information, see

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