Court invalidates foreclosures based on ineffective mortgage assignments

Background

Multiple assignments of mortgage loans from one lender to another are common, particularly in the securitisation market where mortgage loans are pooled, sold and assigned to a securitisation trustee, then converted into mortgage-backed securities and sold to investors. The enforceability of remedies under the mortgage loan documents, including foreclosure remedies, is important to the assignee of the mortgage loan. Generally, foreclosure remedies may be exercised only by the then holder of the mortgage. In many transactions, the note and the mortgage are assigned and physically transferred, pursuant to assignment documents, to a trustee that holds the note, the mortgage and other loan documents on behalf of investors.

As discussed in the American Securitisation Forum white paper on the subject,(1) in many states, even where a mortgage is not specifically assigned to the assignee of the note, the mortgage is considered to be automatically assigned to the assignee of the note under the common law rule that 'the mortgage follows the note'. However, some states do not follow the general common law rule and require a mortgage to be specifically assigned to the assignee of the note.