Bulletin: NY000475

This Bulletin should be considered in addition to our prior Bulletins on foreclosure NY000372 and NY000465.  Standing has become a key element in many recent decisions concerning a lender’s “right” to foreclosure.  On June 7, 2011, the Supreme Court of the State of NY, App. Div. Second Department issued an opinion in the matter of Bank of New York v. Silverberg 2010-00131 Index # 17464-08 (Westchester), The issue before the court was whether Mortgage Electronic Registration Systems, Inc. (MERS), who was listed in the underlying mortgage instruments as a nominee and mortgagee for the purpose of recording, but was never the actual holder or assignee of the underlying notes, could foreclose the mortgage. The Court held that since MERS was not the owner of the underlying indebtedness, MERS lacked proper standing and as such could not foreclose on the mortgage. A copy of the decision can be found at http://www.nycourts.gov/index.htm.

Needless to say this decision has massive implications for the banking as well as the title insurance industries. This decision is distinguishable from the well known case of the Matter of MERSCORP, Inc. v Romaine (8 NY3d 90). In the Romaine case the issue was whether the Suffolk County Clerk was compelled to record and index mortgages, assignments of mortgages, and discharges of mortgages that named MERS as the lender's nominee or mortgagee of record; it did not address standing issues as this case does.

Based on the above decision, all approved policy issuing offices are directed as follows:

If you are asked to insure a foreclosure where MERS is the foreclosing party, in its own name or as nominee/agent for a lender, you may not insure the foreclosure.  In order to insure, the owner of the indebtedness must re-foreclose the indebtedness. If the foreclosure has been completed by MERS, in its own name, or as nominee, (even if MERS has assigned its referee’s deed interest to the lender during or after the redemption period), you must require a new foreclosure of the property by the actual owner of the indebtedness.

If the property has already been sold to a new purchaser on an REO sale out, where MERS did the foreclosure in its own name or as nominee, you may not insure the transaction on a subsequent sale or refinance by the REO purchaser unless you have an owner's policy from another underwriter in hand insuring the REO purchaser.

If you have questions related to this bulletin, please contact your local underwriting personnel or Stewart Legal Services.

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