NJ mortgage ruling departs from other U.S. courts

* Lender need not show physical possession of note

* Homeowner challenge Bank of America's foreclosure right

By Grant McCool

NEW YORK, Jan 25 (Reuters) - A lender need not show physical possession of a note on underlying debt in order to seek foreclosure of a mortgage that has been securitized, a New Jersey court ordered, departing from previous court rulings in the United States.

In the case decided on Jan. 7, Bank of America Corp (BAC.N) sought to foreclose on the home of Janett Alvarado of Bogota, New Jersey, but the note and mortgage for $292,000 had been lost by Washington Mutual Bank [WMPDC.UL] before the loan obligation was transferred to Bank of America.

Courts in the United States have been unwilling to allow banks to enforce their interests without showing that they possessed the physical note.

A Superior Court judge in New Jersey, Mary Thurber, ruled that Bank of America was entitled to enforce Alvarado's note obligation and was entitled to summary judgment.

"The combination of several factors, including the passage of more than four years since the note was lost, the circumstance that it was lost immediately after execution in 2006, and the total absence of any person or entity making demand for payment make it unlikely that (Alvarado) would be faced with a demand for payment from another source hereafter," the written ruling said in part.

"In the unlikely event any such action is filed in the future, Bank of America shall be required to intervene and participate in the defense so that (Alvarado) shall not be liable twice for the same obligation," the ruling said.

Alvarado did not dispute that she executed a note and mortgage to Washington Mutual Bank and defaulted on the loan on July 1, 2008. She challenged Bank of America's claim that it had the right to foreclose.

Also on Jan 7, Massachusetts' highest court voided the seizure of two homes by Wells Fargo & Co (WFC.N) and US Bancorp (USB.N) after the banks failed to show they held the mortgages at the time they foreclosed. Legal experts said the decision might slow foreclosures. [ID:nN07198844]

That was among the earliest cases to address the validity of foreclosures done without proper documentation. That issue, including the use of "robo-signers" who approved foreclosure documents without reviewing them, last year prompted an uproar that led lenders such as Bank of America, JPMorgan Chase & Co (JPM.N) and Ally Financial Inc to temporarily stop seizing homes.

The case is Bank of America v Janett Alvarado, Superior Court of New Jersey Chancery, Bergen County No. BER-F-47941-08. (Reporting by Grant McCool; Editing by Gary Hill)