Long Island Mortgage Assignment Fraud: The Hidden Threat That Could Invalidate Your Foreclosure in 2024

As foreclosure rates continue to fluctuate across Long Island, homeowners facing the loss of their homes are discovering a powerful defense that could save their property: challenging invalid mortgage assignments. Mortgage assignment fraud may have played a role in the financial crisis and in subsequent foreclosure scams, and understanding these complex legal issues has become crucial for homeowners fighting wrongful foreclosures in 2024.

Understanding Mortgage Assignment Fraud

Mortgage lenders can assign a mortgage loan. However, certain legal procedures must be followed. Mortgage assignment fraud may have played a role in the financial crisis and in subsequent foreclosure scams. The problem often stems from the complex web of mortgage transfers that occurred during the housing boom, where mortgages were converted into bonds and sold leading up to 2008. Trustees pooled the mortgage loans and sold the resulting securities to investors; however the mortgage and promissory note must have been physically conveyed into the trust in order for this process to work correctly. The note had to be endorsed along with a mortgage assignment confirming ownership would be transferred.

The consequences of improper transfers are severe. When mortgages weren’t properly transferred, the mortgage-backed securities wouldn’t actually have any mortgages backing them. Some lawsuits allege that mortgage assignments weren’t delivered to the trusts, although trustees and investors told the SEC and investors they were. This made it impossible to establish that the trust owned the mortgages. Without the ability to actually establish ownership, false documents were created to foreclose on properties, leading to massive litigation and lenders settling claims of improper foreclosure practices.

Recent Long Island Mortgage Fraud Cases

Long Island has been at the center of several high-profile mortgage fraud cases in recent years. According to court filings and facts presented during the plea proceeding, Kaufman worked as an unlicensed mortgage broker and often assisted clients in Queens and Long Island with refinancing their mortgages. Between 2016 and 2019, Kaufman, together with others, engaged in a scheme to defraud Home Point Financial Corporation, LoanDepot.com LLC and United Wholesale Mortgage and other mortgage lenders (the “Lenders”) by obtaining, and attempting to obtain, monies and funds from the Lenders by means of materially false representations. Specifically, Kaufman provided incorrect wire routing information to the Lenders for the existing mortgages. Instead of wiring the funds to the correct financial institution, the funds were instead transferred to bank accounts controlled by Kaufman.

These cases highlight the ongoing nature of mortgage fraud in the region and demonstrate how homeowner-clients in danger of losing their homes to foreclosure can become victims of fraudulent schemes.

The MERS Problem: A Major Source of Invalid Assignments

One of the most significant sources of invalid mortgage assignments involves the Mortgage Electronic Registration System (MERS). The mortgage industry uses a tool known as the Mortgage Electronic Registration System (MERS) to keep track of assignments. MERS may be a nominee for the lender, or it may receive the mortgage as an assignment. If MERS is the current assignee, it cannot pursue a foreclosure because it does not have an interest in the promissory note.

After litigation in multiple states questioned whether MERS as a nominee had standing to start a foreclosure, the company changed its policies in 2011. Now, MERS generally prohibits the initiation of foreclosures in its name. So, to foreclose, a MERS mortgage usually has to be assigned from Mortgage Electronic Registration Systems to the current owner and holder of the promissory note (the entity that actually owns the debt obligation).

Key Legal Defenses Against Invalid Assignments

Homeowners have several powerful defenses when facing foreclosure based on invalid mortgage assignments:

• Standing Challenges: Only the loan holder (the current loan owner or someone acting on the owner’s behalf) may foreclose. If the foreclosing party can’t prove it owns the loan, it doesn’t have “standing” to foreclose.
• Chain of Title Issues: The lender must prove an unbroken chain of ownership from the original lender to the current holder. Any gaps or errors in this chain can call their standing into question.
• Recording Requirements: If it does not have an assignment or failed to record it as required by state law, this may result in the dismissal of the foreclosure action. Recording rules may require that the foreclosing party record the assignment before starting the foreclosure.

The Robosigning Crisis Legacy

The legacy of the robosigning crisis continues to impact foreclosure cases today. During the height of the foreclosure crisis, servicers had such high volumes of foreclosures that it became common practice to “robosign” mortgage assignments. Servicers had employees that were also MERS officers. Sometimes, employees signed thousands of assignments without verifying the loan ownership. In some instances, signature stamps were floated to other employees to aid in executing thousands of MERS assignments.

How to Stop Foreclosure with Professional Legal Help

Given the complexity of mortgage assignment fraud cases, homeowners need experienced legal representation to effectively challenge invalid foreclosures. The Law Offices of Ronald D. Weiss, PC, have been supplying expert bankruptcy, foreclosure defense, and debt negotiation services since 1993. We offer practical, compassionate solutions customized to each client’s financial situation. With over 30 legal professionals on our team, we have the resources to handle your important legal matter.

Located to serve Suffolk County, NY our law firm serves the following towns: Huntington, Islip, Smithtown, Brookhaven, Babylon, East Hampton, Southampton, Southold, Riverhead, and Shelter Island. In Nassau County, NY we serve the following towns: Oyster Bay, Glen Cove, Hempstead, North Hempstead, and Long Beach. In the greater New York area we serve the following boroughs and counties: Queens, Brooklyn, Staten Island, Manhattan, Bronx, and Westchester.

Taking Action in 2024

The statute of limitations and other procedural requirements make timing crucial in foreclosure defense cases. Lack of standing must be raised as an affirmative defense, meaning the burden falls on the homeowner to prove the lender doesn’t have the legal right to foreclose. However, recent changes in New York law have provided additional protections. RPAPL 1302-a, which became effective in December of 2019, and changed that rule in the context of certain mortgage foreclosure actions, provides: Notwithstanding the provisions of subdivision (e) of rule thirty-two hundred eleven of the civil practice law and rules, any objection or defense based on the plaintiff’s lack of standing in a foreclosure proceeding related to a home loan, as defined in paragraph (a) of subdivision six of section thirteen hundred four of this article, shall not be waived if a defendant fails to raise the objection or defense in a responsive pleading or pre-answer motion to dismiss. A defendant may not raise an objection or defense of lack of standing following a foreclosure sale, however, unless the judgment of foreclosure and sale was issued upon defendant’s default.

If you’re facing foreclosure on Long Island, don’t assume the lender has the right to take your home. Invalid mortgage assignments remain a significant issue in 2024, and challenging these assignments could be the key to saving your property. With proper legal representation and a thorough investigation of your mortgage’s chain of title, you may discover that the foreclosing party lacks the legal standing to proceed – potentially stopping the foreclosure in its tracks.