When Mortgage Transfers Go Awry

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When the bank fails to connect the dots in a mortgage note transfer, the homeowners win out.

The Fourth District Court of Appeal ruled against HSBC Bank USA in a foreclosure case for lack of standing. The defendants, Donna and Marc Murray, appealed a final foreclosure judgment against the bank with the argument that they failed to validate that the mortgage originator transferred its rights. Judge Melanie May wrote on behalf of the unanimous panel “In this foreclosure puzzle, one of the pieces is missing”.

The Murrays had their original mortgage note with Option One Mortgage Corp., who did business as Sand Canyon Corp. HSBC filed for foreclosure in February 2009 when the homeowner became delinquent on their loan claiming they own and hold the mortgage. However, the mortgage from Option One was not assigned to HSBC Bank USA until April of the following year, and even after that, the note itself was still payable to the servicer.

When Sand Canyon completed the mortgage assignment the following year, they backdated it to 2007, providing HSBC all the back-up they needed to claim its entitlement to enforce the mortgage terms as a “non-holder in possession with the rights of a holder”. Palm Beach Circuit Senior Judge Howard Harrison presided over the bench trial. “They got the mortgage. They got the records. They got the servicing. They got the whole thing. They just don’t have the endorsement, and is that fatal?” Harrison asked. “In other words do you have to go and get, and then start over again? That’s the question. I don’t know the answer.”

Ultimately Judge Howard Harrison ruled in favor of HSBC. The homeowners argued that HSBC did not connect the dots as Option Once changed names, ownership and branding in the in-between years with several other companies servicing as depositor and servicers. What they court could not ignore is the fact that the mortgage note still remained payable to Option One without a legal transfer to the bank. The court went one step above and created a one-page diagram as an appendix listing all the corporate hands on the mortgage and leaving a dotted line representing “the missing piece in the chain of transfers.”

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