Justice Schack strikes again in U.S. Bank v. Emmanuel

Justice Schack seems to have his attention fixed on his favorite whipping boy again. The Law Offices of Steven J. Baum, P.C. take yet another beating in U.S. Bank v. Emmanuel, 2010 NY Slip Op 50819(U)(Sup. Ct. Kings County 2010). Here, Justice Schack denied with prejudice a motion for a judgment of foreclosure and sale brought by Baum’s office on behalf of U.S. Bank, N.A. In addition, Justice Schack dismissed U.S. Bank’s summons and complaint and cancelled its notice of pendency.

The grounds for Justice Schack’s decision appears to be an ineffective assignment of mortgage from the originating lender, Fremont Investment and Loan, to U.S. Bank. Once again, MERS as nominee of Fremont purportly made the transfer. Justice Schack also noted a recurrent conflict of interest issue pertaining to Baum’s simultaneous representation of MERS and the foreclosing bank—however, this does not appear to have been the basis of Justice Schack’s holding.

With regard to the conflict of interest, the culpable attorney is Elpiniki Bechakas, whom Justice Schack has already admonished for her involvement in a similar conflict just a month ago—see LaSalle Bank, N.A. v. Smith, 2010 NY Slip Op 50470(U), 26 Misc 3d 1239(A) (Sup. Ct. Kings County 2010).

Ultimately, Justice Schack holding turns on a defective assignment. Here, MERS as nominee of Fremont only assigned the mortgage, but failed to assign the note. It is well established that the transfer of a note secured by a mortgage carries with it the mortgage as an incident. However, the converse does not bring about the same result—i.e. a transfer of the mortgage will not result in an automatic transfer of the note. Justice Schack cites the following case law in this regard:

The Appellate Division, Second Department in Kluge v Fugazy (145 AD2d 537, 538 [2d Dept 1988]), held that a "foreclosure of a mortgage may not be brought by one who has no title to it and absent transfer of the debt, the assignment of the mortgage is a nullity [Emphasis added]." Moreover, "a mortgage is but an incident to the debt which it is intended to secure . . . the logical conclusion is that a transfer of the mortgage without the debt is a nullity, and no interest is assigned by it. The security cannot be separated from the debt, and exist independently of it. This is the necessary legal conclusion." (Merritt v Bartholick, 36 NY 44, 45 [1867]. The Appellate Division, First Department, citing Kluge v Fugazy in Katz v East-Ville Realty Co. (249 AD2d 243 [1d Dept 1998]), instructed that "[p]laintiff's attempt to foreclose upon a mortgage in which he had no legal or equitable interest was without foundation in law or fact." Last December, the Appellate Division, Second Department, instructed that "[w]here a mortgage is represented by a bond or other instrument, an assignment of the mortgage without assignment of the underlying note or bond is a nullity (see Merritt v Bartholick, 36 NY 44, 45 [1867]; Kluge v Fugazy, 145 AD2d 537, 538)." (U.S. Bank, N.A. v Collymore, 68 AD3d 752, 754 [2d Dept 2009]).

Since, MERS only “assigned” the mortgage to U.S. Bank, and failed to assign the note, MERS essentially assigned nothing to U.S. Bank. Therefore, U.S. Bank was foreclosing a mortgage it is did not own, and thus lacked standing.