Borrowers Cannot Challenge Mortgage Assignments, Says Nebraska Joining Other States
Attacking sufficiency, accuracy, or validity of assignments of mortgages and deeds of trust has been among the most common strategies employed by borrowers to challenge foreclosures. Allegations regarding the status of MERS, the legal authority of the individual executing the assignment, and the timing of the assignment’s recording have all been raised and litigated in courts throughout the United States. Recently, however, the Nebraska Supreme Court joined a growing number of state courts that have rejected such arguments, citing fundamental questions about borrowers’ standing to challenge contracts in which they have no legally cognizable interest.
Marcuzzo v. Bank of the West, involved a challenge brought by borrowers against several banks and Fannie Mae, which arose from a foreclosure and sale of the borrowers’ residence. While there is a significant factual and procedural background to the case, the basis of borrowers’ claims involved an attack on the validity of the assignment of the deed of trust. On this issue—and there were other issues discussed by the Court, which are not addressed in this post—the Nebraska Supreme Court cited and followed the reasoning of other state courts analyzing this issue:
[T]he majority of courts have found under these principles that borrowers do not have standing to challenge an assignment of their mortgage, because they are not a party to the assignment contract. This is true even if there is proof that the assignment is somehow flawed. Where the mortgage assignment does not alter the borrower’s obligations under the note or mortgage, and no injury is traceable to the mortgage assignment, the borrowers simply have shown no injury. In reaching this conclusion, courts rely on the general common-law principle that the maker of a promissory note cannot challenge his or her obligations under the note by asserting that an invalid assignment had occurred.
(footnotes omitted). Accepting this reasoning, and also pointing out that the borrowers continued to perform their obligations under the mortgage for nearly six years after the challenged assignment, the Court affirmed the lower court’s decision that borrowers could not challenge the assignment.
Had the Marcuzzos established an injury that directly related back to the assignment of their mortgage, our holding may have been different. But no such injury caused by the assignment is alleged or found. Strictly applying Nebraska law, the Marcuzzos were not a party to the assignment. Nor was the assignment made for their benefit. Thus, the Marcuzzos cannot challenge the assignment contract’s validity.
While Nebraska is not considered a high volume state for most financial service companies, Marcuzzo is a valuable opinion that eliminates one category of argument in that state and also serves as good precedent for use in support of similar arguments in other states.