Mortgages are big business. When mortgages are assigned, however, the mortgagor often is a non-party to the assignment. Thus, within certain jurisdictions, mortgagors have historically lacked the requisite standing to challenge the validity of the assignment.
Recently the First Circuit handed down the decision of Culhane v. Aurora Loan Services of Nebraska, in which they faced the question whether or not a mortgagor has standing to challenge the assignment of her mortgage – an assignment to which she is not a party and of which she is not a third party beneficiary. Ultimately the court found that the mortgagor did have standing to raise a legal challenge to the assignment.
The case was a matter of first impression for the First Circuit, and it has interesting implications both to real estate and contract law. Ordinarily, a non-party who does not benefit from a contract generally lacks standing to assert right sunder such contract. Nevertheless, the court found that a mortgagor has a legally cognizable right to challenge a foreclosing entity’s status “qua mortgagor,” which may include, in certain instances, challenging the validity of an assignment that purports to transfer the mortgage to a successor mortgagee.
Further narrowing their holding, the court noted that a mortgagor has standing qua mortgagor to challenge a mortgage assignment as invalid, ineffective, or void, but lacks standing when the assignment is merely voidable at the election of one party but otherwise effective to pass legal title.
Lenders should keep track of the impact that Culhane may have in their jurisdictions, as it potentially opens the courthouse doors to mortgagors who in the past would have lacked standing to challenge the validity of the assignment of their home’s mortgage.