On June 11, 2015, in Aurora Loan Services, LLC v. Taylor, the New York Court of Appeals held that a lender only needed to show possession of the note, and not the mortgage, when proving standing to foreclose under New York law (34 N.E.3d 363 (2015)).

Borrower Monique Taylor executed an adjustable rate note in the amount of $600,000 to First National Bank of Arizona on July 5, 2006. The note was secured by a mortgage granting Mortgage Electronic Registration Systems, Inc. (MERS) a lien on Monique and Leonard Taylor's home. The loan was made part of a residential mortgage based securitization trust, with Deutsche Bank Trust Company Americas, as the trustee.

On April 1, 2008, Aurora Loan Services, LLC became the servicer of the loan under a pooling and servicing agreement (PSA). On May 14, 2010, Deutsche Bank granted Aurora the right to perform certain acts in the trustee's name. Aurora claims that it took possession of the original note on May 20th, 2010. On May 24, 2010 Aurora commenced a foreclosure action against the Taylors.

The Taylors filed a motion for summary judgment with the trial court, asserting that Aurora did not have standing to commence the action. The trial court denied the Taylors' motion, largely relying on an affidavit from Aurora's legal liaison (Holland affidavit) stating that the original note was in the custody of Aurora, and had been in its custody since May 20, 2010. The Taylors appealed the decision to the Appellate Division, and the Appellate Division, Second Department, affirmed the lower court decision, but granted the Taylors' motion for leave to appeal. The Taylors appealed to the New York Court of Appeals.

On appeal, the Court of Appeals held that to have standing to foreclose, a lender must be in possession of the promissory note. Transferring the obligations under the note automatically transfers the mortgage as well. Possession of the mortgage is not necessary to have standing to foreclose.

The Taylors then argued that even if possession of the note was dispositive, Aurora did not prove that it had possession of the physical note. Rather than producing the actual note, Aurora presented the Holland Affidavit as proof of possession of the note. While the court acknowledged that it would have been better practice for Aurora to state in the affidavit how it came into possession of the note, the court still upheld the decision of the lower court and granted summary judgment to Aurora.

This case appears to be a victory for lenders in New York. The Court of Appeals not only clarified that possession of the mortgage is unnecessary to prove standing in a foreclosure action, but it granted summary judgment to Aurora without a physical copy of the promissory note being produced. However, best practice for lenders remains to always keep a copy of all loan documents, especially the promissory note.

This case should also somewhat streamline the foreclosure process, as it will stop borrowers from challenging foreclosures based on the effectiveness of assignments of mortgage after the default. Since New York's highest court has held that the plaintiff in a foreclosure is not required to hold the mortgage, these challenges should cease.