Foreclosure of Mortgage by Established Holder
On January 19, 2016, effective February 18, 2016, the statute titled “Foreclosure of Mortgage
by Established Holder” was amended to restrict the entities entitled to bring a foreclosure
action. At first blush, the statute appears to tighten the reigns to require a recorded
assignment of mortgage to the foreclosing entity prior to the initiation of the foreclosure.
Rather, the change appears to give a little more clarity and confidence that the party bringing
the foreclosure action is entitled to do so; the amendment clarifies how to confirm standing.
NJS §46:18-13 provides:
a. Only the established holder of a mortgage shall take action to foreclose a mortgage.
b. A person, or entity, is the “established holder of a mortgage” if that person, or entity,
1. the record holder of the mortgage as established by the latest record of assignment or by the
original mortgage recording in the records of the county clerk or the register of deeds and
mortgages, as appropriate to the county in which the mortgage is located, or
2. found to be the holder of the mortgage in a civil action joining as defendants the record holder
of the mortgage, the mortgagor, and any other person known to have an interest in the mortgage.
c. The provisions of this section shall not abridge, impair, invalidate, or supersede any
other rights, under law, of any person known to have an interest in a mortgage.
The change made to the law adds clarification that only a person fitting the categories under
section b.(1) and (2) may bring a mortgage foreclosure action. b.(1) is the traditional plaintiff,
the person/entity that has legal title to the mortgage according to the records of the county
b.(2) provides the current holder to establish its right to foreclose by including the record
holder of the mortgage as a defendant (as well as the mortgagor(s) and other parties with an
interest in the mortgage as defendants) in a civil action in which the claim of holder status is
made. Essentially, b.(2) just invites the current holder to get a court determination confirming
its position as current holder with the rights to enforce the instrument.
Under the NJ UCC §12A:3-301, a person/entity entitled to enforce a negotiable instrument
(such as the mortgage note) falls into three categories:
1. the holder of the instrument
2. a non-holder in possession of the instrument who has the rights of a holder (a servicer or
other legal representative of the holder)
3. or a person not in possession of the instrument entitled to enforce it (lost instrument provision)
Previously, in order to proceed with foreclosure, the Plaintiff must establish a right to enforce
the underlying debt obligation; in other words, the Plaintiff must fit within the definitions
under the UCC, section 301 as having rights to enforce the note. Bank of New York v.
Raftogianis, 418 N.J.Super 323, 13 A.3d 435 (2010). Possession of a properly endorsed (or
endorsed in blank) note confirms that standing. Id. While the lack of an assignment may raise
concerns as to the Plaintiff’s true right to bring the foreclosure, it appears that NJS 46:18-13
b(2) recognizes that the appropriate entity to challenge the Plaintiff would be the last known
holder of the mortgage. See In Re Walker, 486 B.R. 271, 76 UCC Rep.Serv. 818 (EDPa 2012).
The Courts in New Jersey have sometimes struggled with the notion of standing; has this
statutory change completely clarified the issue?
Certainly, the establishment of standing in a foreclosure action is not only germane but also
required. See Raftogianis. The concept of standing is part of the entire controversy at issue
when a mortgage foreclosure action is brought. Hopefully, this amendment has brought a
bright line to the issue of standing. Where a lender or servicer does not have an assignment
and one is not readily forthcoming, NJS 46:18-13b(2) provides the path for
establishing/confirming standing during the foreclosure process. The Foreclosure of
Mortgage by Established Holder appears to be New Jersey’s way of making sure the prior
record holder (and any other entities with an interest) is aware of the action.
While the true meaning of the statutory change will be determined through the Courts, it
appears that having the assignment clearly establishes standing, while giving the plaintiff a
designated path to proceed and establish standing even when an assignment was not
available. It will always still be best practice to confirm the assignment and possession of the
note; however, there is an option when an assignment is not forthcoming or may take a
significant amount of time to obtain.
Again, it is yet to be seen if the amendment to the statute draws a difference in burden
between those with an assignment and those without an assignment? Will the change in the
statute result in a change in arguments regarding the need for possession of the instrument?
The impact of the change in the statute is to be determined.
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