The ruling by the Circuit Court for Wastenaw County, Michigan in HSBC v. Young represents a monumental sea change for homeowners seeking to utilize a pooling-and-servicing agreement (PSA) to challenge a lender's standing to foreclose. The facts in Young are similar to many securitized mortgage cases. Wells Fargo originated a refinance mortgage loan on April 22, 2004. The Young loan was allegedly destined for Wells Fargo Home Equity Trust 2004-2 ("Trust"). The Trust's PSA required that all mortgages and notes be transferred into the Trust by September 29, 2004. The PSA also required that the mortgages transferred into the Trust not be in default. However, the note was not assigned to HSBC until October 8, 2008. At this time, the note was in default.
After HSBC utilized a credit bid to purchase the Young house, it initiated an ejectment action against Young. In response, Young requested to view the original promissory note. The note produced by HSBC was payable to Wells Fargo and had no endorsements or allonges. Not surprisingly, HSBC produced another copy of the note a month later. This copy contained a stamped and typed endorsement to HSBC as Trustee. The stamped endorsement contained no date or notary stamp. Given the foregoing, Young alleged that neither the note nor the mortgage was validly or effectively transferred to HSBC. HSBC alleged that Young did not maintain standing to enforce the PSA provisions regarding the timing of the transfer from Wells Fargo to HSBC or the requirement that a loan not be in default at the time of transfer into the Trust.
The Court ruled that, unlike Gumapac v. Deutsche Bank Nat'l Trust Co ., Michigan maintains no law that prohibits a nonparty to an assignment to have standing to challenge the validity of the assignment. Therefore, because Michigan law permits a debtor to raise a challenge to the enforceability of a mortgage instrument in order to avoid paying the debt twice, the Court ruled that Young maintains standing to challenge the 2008 assignment.
It will be interesting to see whether HSBC appeals this ruling and how courts around the country choose to utilize the Court's reasoning to find in favor of the homeowner.