Standing for Foreclosure Plaintiffs and Trustees

“Standing” is a legal term that relates to whether a specific plaintiff holds a right to bring a lawsuit against specific defendants. Standing does not involve factual issues in foreclosure actions, such as the amount in default. Instead, it involves whether the specific entity acting as plaintiff in the lawsuit holds the legal right and authority to sue a particular defendant or defendants.

While each state below defines standing in a slightly different way, the universal requirement is that the party with the authority to sue must be the plaintiff in the action. That party should allege a sufficient stake in the outcome of the action and an injury caused by the defendant. Standing is an affirmative defense to any lawsuit, and if raised correctly, can cause a foreclosure action to be dismissed.

When a securitized trust is formed, a bank is typically appointed as trustee. This trustee is the entity given authority to file a lawsuit under both the trust documents and the laws of the particular state in which the suit is brought. As a general rule, the trustee of a trust is the party with the standing to file a foreclosure suit, not the beneficiaries of the trust or the trust itself.

‍Ohio

‍In its Schwartzwald decision, the Ohio Supreme Court determined that standing is a jurisdictional requirement, mandating that the plaintiff has alleged “a sufficient stake in an otherwise justiciable controversy to obtain judicial resolution of that controversy.” The court found that a foreclosure plaintiff did not have standing to sue before the mortgage was assigned to the plaintiff because the plaintiff had yet to suffer any injury. As it relates to trustees, the court relied on Ohio Civ.R. 17 (“Real Party in Interest”) to state that representative plaintiffs, such as trustees, can be the correct plaintiff.

For these reasons, Ohio foreclosures require that the plaintiff, regardless of whether it is or isn't a trustee, allege a sufficient stake in the outcome of the controversy and be prepared to back up its allegations during the foreclosure action with documents to demonstrate its interest. If the mortgage loan at issue in the foreclosure proceeding is held within a securitized trust, the trustee of that trust should act as plaintiff in the foreclosure action.

‍Illinois

‍To file a lawsuit in Illinois, the party must also allege it has an interest in the outcome of the suit. "The doctrine of standing is designed to preclude persons who have no interest in a controversy from bringing suit," and "assures that issues are raised only by those parties with a real interest in the outcome of the controversy,"  according to Glisson v. City of Marion.  The Barnes case ruled that "[s]tanding requires some injury in fact to a legally cognizable interest."

Under 760 ILCS 5/4.11, a trustee holds the authority "[t]o compromise, contest, prosecute or abandon claims or other charges in favor of or against the trust estate," according to the Pierce ruling. A written trust in Illinois possesses a distinct legal existence that is recognized by statute.  Trustees possess a specific statutory power to sue in a representative capacity on behalf of a trust. Thus in Illinois, neither beneficiaries of the trust, nor the trust itself, holds standing to file a lawsuit on behalf of the trust, as this power is specifically reserved for the trustee.

‍Indiana

‍In Indiana, standing is a similar, although not an identical requirement, as the "real party in interest requirement" in Trial Rule 17(A), according to the Lunsford ruling. The purpose of both is to ensure that the party before the court has the substantive right to enforce the claim being asserted.Under Ind. Code Ann. § 30-4-3-15, the trustee may maintain a civil action in his representative capacity for any legal or equitable remedy against a third person that he could maintain in his own right if he were the owner. Furthermore, Ind. R. Trial P. 17(A)(1) defines the trustee of an express trust as the real party in interest in a lawsuit.

‍Pennsylvania

‍In Pennsylvania, to have standing to bring such a claim, "a Plaintiff must establish that he or she has suffered an 'injury in fact' that is both 'concrete and particularized' and 'actual or imminent, not conjectural or hypothetical,' ” according to the Khan decision.  A person who is not adversely affected in any way by the matter he seeks to challenge is not "aggrieved" thereby and has no standing to obtain a judicial resolution of his challenge, according to the Wm. Penn Parking Garage v. Pittsburgh ruling.

Much like Ohio, Illinois, and Indiana, the right to file suit on behalf of the trust is reserved as a right of the trustee in Pennsylvania. 20 Pa. Cons. Stat. Ann. § 7780.6(a)(4) provides that the trustee holds the right to prosecute or defend actions, claims, or proceedings to protect trust assets and the trustee in the performance of the trustee’s duties.

‍Kentucky

‍In Kentucky, the authority to sue and be sued, much like the previous states, is also reserved for the trustee. In the case of a statutory trust, a trustee may exercise:

• Powers conferred by the governing instrument.
• Any other powers necessary or convenient to carry out the business and affairs of the statutory trust except as limited by the governing instrument.
• Other powers conferred by this chapter.

In addition, according to Ky. Rev. Stat. § 386A.5-020, every trustee of a statutory trust, by accepting election or appointment as a trustee, including by service, shall be deemed to have consented to the jurisdiction of the Commonwealth of Kentucky for any action by the statutory trust or a beneficial owner against the trustee.

For a business trust, Ky. Rev. Stat. § 386.390 states that the trustees hold the legal title to all property belonging to the business trust at any time. They have control over the property as well as control and management of the business trust's business and affairs. The trustee has such powers as to the trust estate investment  as may be set out in the trust declaration without regard to the type of investments to which trustees generally are restricted by the laws of the Commonwealth of Kentucky.

According to the laws of these states in which Manley Deas Kochalski LLC practices, foreclosure plaintiffs should be trustees of a securitized trust where applicable and must always allege both a concrete interest in the outcome of the foreclosure proceeding and an injury-in-fact caused by the defendant. Do not file the lawsuit prematurely, before assignment documents have transferred the plaintiff’s interest in the note and mortgage to the plaintiff. This way, foreclosure plaintiffs can avoid dismissal of a foreclosure and re-filing.

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Please note that Matt Richardson is an MDK Alumni member.