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Does New York Trust law address what's required for proper transfer for an Illinois foreclosure case?

Westchester, IL |

Does New York Trust law address what's required for proper transfer for an Illinois foreclosure case?

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Attorney answers 1

Posted

Great question for those confused between the Uniform Commercial Code (UCC) and New York (and Illinois) Trust Law.

I recently had a federal foreclosure case dismissed by Judge Pallmeyer on October 11, 2011. As a nationally recognized leader in Mortgage Foreclosure Defense Education & Litigation, I successfully defeated Plaintiff Complaint by filing A Motion to Dismiss for lack of standing. See Deutsche Bank v. Bodzianowski (11 cv 1950)

Judge Pallmeyer ruled that Deutsche, a major Wall Street bank, lacked standing to foreclosure on an Illinois homeowner. Standing is the threshold question in every federal case. Plaintiff was NOT the original lender and sought to establish standing by endorsing the Promissory Note and assigning the Mortgage directly to the Trustee . While Plaintiff pled that it was the legal holder of the Note and Mortgage, it failed to convey the mortgage file according to the terms creating Trust (Pooling and Servicing Agreement - PSA) and New York trust law. A Promissory Note is an asset of the trust and should have an "unbroken" chain of endorsements from the Originator (original lender) to Sponsor to Seller to Depositor and then to the Trustee, sequentially. In other words, the act of the Trustee receiving an instrument that does not have ALL of the intervening endorsements is void. Although Plaintiff argued that it has standing because the Promissory Note, a negotiable instrument, is governed by the Uniform Commercial. However, the UCC permits parties to agree to a more exacting method of transferring the notes to the trust and in this case the parties did so inside the private-label mortgage-backed security (MBS) trust.

As always, individual cases may and will vary.

Theodore Arthur Woerthwein

Theodore Arthur Woerthwein

Posted

Let me add to my answer to address the New York Trust Law question as it relates to Illinois mortgages Under New York law, the trustee under a corporate indenture . . . has his [or her] rights and duties defined, not by the fiduciary relationship, but exclusively by the terms of the agreement. AG Capital Funding Partners, L.P. v. State St. Bank & Trust Co., 2008 N.Y. Slip Op. 5766, 7 (N.Y. 2008). This would also be the law in Illinois under 760 ILCS 5/3. A trustee has only the authority granted by the instrument under which he holds. Allison & Ver Valen Co. v. McNee, 170 Misc. 144, 146 (N.Y. Sup. Ct. 1939). New York Estates Powers and Trusts Law Section 7-2.1(c) authorizes a trustee to acquire property “in the name of the trust as such name is designated in the instrument creating said trust property.” For the transfer of property to the trust to be effective, the transfer must be done under the terms of the instrument creating the trust and the transfer must designate the particular trust and the beneficiary. Without that, the assignment of the Mortgage Note is without merit. Wells Fargo Bank, N.A. v. Farmer, 2008 NY Slip Op 51133U, 6 (N.Y. Sup. Ct. 2008). Under New York law, there are four essential elements for a trust of personal property: (1) A designated beneficiary; (2) a designated trustee, who must not be the beneficiary; (3) a fund or other property sufficiently designated or identified to enable title thereto to pass to the trustee; and (4) the actual delivery of the fund or other property, or of a legal assignment thereof to the trustee, with the intention of passing legal title thereto to him as trustee. Brown v. Spohr, 180 N.Y. 201, 209-210 (N.Y. 1904). There is no trust until there is a valid delivery of the asset in question to the Trust. If the Trust fails to acquire the property, then there is no trust over that property which may be enforced. Kermani v. Liberty Mut. Ins. Co., 4 A.D.2d 603 (N.App.Div. 3d Dep’t 1957). Under New York law, the trustee under a corporate indenture . . . has his [or her] rights and duties defined, not by the fiduciary relationship, but exclusively by the terms of the agreement. AG Capital Funding Partners, L.P. v. State St. Bank & Trust Co., 2008 N.Y. Slip Op. 5766, 7 (N.Y. 2008). This would also be the law in Illinois under 760 ILCS 5/3. A trustee has only the authority granted by the instrument under which he holds. Allison & Ver Valen Co. v. McNee, 170 Misc. 144, 146 (N.Y. Sup. Ct. 1939). New York Estates Powers and Trusts Law Section 7-2.1(c) authorizes a trustee to acquire property “in the name of the trust as such name is designated in the instrument creating said trust property.” For the transfer of property to the trust to be effective, the transfer must be done under the terms of the instrument creating the trust and the transfer must designate the particular trust and the beneficiary. Without that, the assignment of the Mortgage Note is without merit. Wells Fargo Bank, N.A. v. Farmer, 2008 NY Slip Op 51133U, 6 (N.Y. Sup. Ct. 2008). Under New York law, there are four essential elements for a trust of personal property: (1) A designated beneficiary; (2) a designated trustee, who must not be the beneficiary; (3) a fund or other property sufficiently designated or identified to enable title thereto to pass to the trustee; and (4) the actual delivery of the fund or other property, or of a legal assignment thereof to the trustee, with the intention of passing legal title thereto to him as trustee. Brown v. Spohr, 180 N.Y. 201, 209-210 (N.Y. 1904). There is no trust until there is a valid delivery of the asset in question to the Trust. If the Trust fails to acquire the property, then there is no trust over that property which may be enforced. Kermani v. Liberty Mut. Ins. Co., 4 A.D.2d 603 (N.App.Div. 3d Dep’t 1957). If the Note was not transferred to the Trust according to the Trust’s terms, then the transfer never happened and the Trust cannot be the holder of the Note. A trust does not have free will. A trust can

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