Punitive Damages for Violations of Automatic Stay in Bankruptcy §362

Since 2008 I have called out bankruptcy practitioners for their lack of interest in false claims of securitization. The impact on the bankruptcy estate is usually enormous. But without aggressive education of the presiding judge the case will not only go as planned by the banks, it will also lock in the homeowner to “admissions” in bankruptcy schedules and orders that lead to a false conclusion of fact.

Where a pretender lender ignores the automatic stay Bankruptcy judges are and should be very harsh in their penalty. The stay is the bulwark of consumer protection under bankruptcy proceedings which are specifically enabled by the U.S. Constitution. Hence it is as important as free speech, freedom of assembly, freedom of religion and the right to keep and bear arms.

The attached article shown in the link below gives the practitioner a running start on holding the violator responsible and in giving the homeowner a path to punitive damages, given the corrupt nature of the mortgages and foreclosures that arose during the great mortgage meltdown.

This might be the place where a hearing on evidence is conducted as to the true nature of the forecloser and a place where the petitioner/homeowner will be given far greater latitude in discovery to reveal the emptiness behind the presumptions that the foreclosing “party” exists at all or to show that it never acquired the debt but seeks instead to enforce fabricated paper.

Remember that in cases involving securitization claims or which are based upon apparent securitization patterns the named “Trustee” is not the party in interest. The party is the named “Trust.” If the Trust doesn’t exist it doesn’t matter if the Pope is named as the Trustee, there still is no existing party seeking relief from the Court.

see Eviction Can Lead to Sanctions Including Punitive Damages for Violation of Automatic Stay

The challenge here is that most bankruptcy lawyers are not well equipped for litigation. So it is advised that a litigator be introduced into the case to plead and prove the case for sanctions, if the situation arises in which a violation of stay has occurred or if there is an adversary proceeding seeking to prevent the pretender lender from acting on its false claims.

Most of the litigation in bankruptcy court has simply been directed at motions to lift the automatic stay. In such motions, the petitioner is merely saying we want to litigate this in state court. The burden of proof is as light as a puff of smoke. If the court finds any colorable interest in the alleged loan, it will ordinarily grant the motion to lift stay — as it must under the existing rules. Homeowners in bankruptcy find it a virtually impossible uphill climb to defend because they are required to have evidence only in possession of the opposing party who also might not have the information needed to prove the lack of any colorable interest.

But the lifting of the stay applies to the litigation concerning foreclosure. It does not necessarily extend to the eviction or unlawful detainer that occurs afterwards. And where the stay has not been lifted the pretender lender is out of luck because there is no excuse for ignoring the automatic stay.

So further action by the foreclosing party is probably a violation of the automatic stay. And in certain cases the court might apply punitive damages on top of consequential damages, if any. The inability to prove actual damages is relatively unimportant unless the homeowner has such damages. It is the violation of the automatic stay that is paramount.

The article below starts with a premise that the “creditor” has received notice of the BKR and ignored it — sometimes willfully and arrogantly.

Here are some notable quotes from this well-written article by Carlos J. Cuevas.

The imposition of punitive damages for egregious violations of the automatic stay is vital to the function of the consumer bankruptcy system. Most consumer debtors cannot afford to pay their attorneys to prosecute an automatic stay violation. The enforcement of the automatic stay is predicated upon major financial institutions observing the automatic stay.

If there is a doubt as to the applicability of the automatic stay, then a creditor can obtain a comfort order as to the applicability of the automatic stay, or obtain relief from the automatic stay from the Bankruptcy Court.

“Parties may not make their own private determination of the scope of the automatic stay without consequence.”

What would be sufficient to deter one creditor may not even be sufficient to gain notice from another. Punitive damages must be tailored not only based upon the egregiousness of the violation, but also based upon the particular creditor in violation.

In determining whether to impose punitive damages under Bankruptcy Code Section 362(k), several bankruptcy courts have identified five factors to guide their decision. They are the nature of the creditor’s conduct, the creditor’s ability to pay, the motives of the creditor, any provocation by the debtor, and the creditor’s level of sophistication: In re Jean-Francois, 532 B.R. 449, 459 (Bankr. E.D.N.Y. 2015).

The fact that Church Avenue pursued the eviction more than a week after it learned of the debtor’s bankruptcy suggests that Church Avenue either made its own—incorrect—legal conclusion with respect to whether the eviction would be a stay violation, or decided that moving ahead to empty the building quickly and evict the occupants was worth more to it than the risk associated with defending a future § 362(k) motion.

when a creditor acts in arrogant defiance of the automatic stay it is circumventing the authority of the bankruptcy judge to exercise authority over that particular bankruptcy case. A bankruptcy judge is the only entity vested with the authority to determine whether the automatic stay should be lifted.

Egregious violations of the automatic stay can be deleterious to a consumer bankruptcy debtor. For example, a creditor who refuses to return a repossessed vehicle after the commencement of a bankruptcy case can create a significant hardship for a consumer debtor. A debtor whose vehicle has been repossessed may not be able to rent a substitute vehicle. This can create a significant hardship for a debtor who has to commute to work, who has to transport a child to school, or who is a caregiver for a sick relative.

U.S. Bank: Many Names, Many Creditors — the ultimate shell game

U.S. Bank, Trustee of What?

U.S. Bank shows up in many foreclosure cases and many cases that go into litigation. I believe they are allowing the use of their name for a fee and that they have little or nothing to do with most of the cases where their name is used. A little discovery might cover that and a challenge to the attorney as to proving that he represents U.S. Bank as they have portrayed themselves would be a useful tactic.

One case in Florida U.S. Bank portrayed itself as the holder of the note. In the end the attorney who appeared for U.S. Bank admitted under questioning from the Judge that U.S. Bank was not the holder, was not a trustee, and that the attorney had no idea whether he actually represented U.S. Bank because he never had any contact with them.

In bankruptcy court, which is confusing enough, you must realize that it is actually an administrative hearing with a tinge of legal. Some lawyers file adversaries to prove this or that based upon the filing of conflicting papers in the administrative part of the bankruptcy. I think that is a mistake. What are you going to say in your adversary pleading. You are taking on the burden of proof for facts that are exclusively in the possession of either the people you are dealing with, or some other third parties. The Bankruptcy is an administrative action where the forms and procedure are everything. If conflicting claims are present, it isn’t up to you to clear it up. It is up to the creditors or have their claim denied.

It looks to me like you have an OBJECTION to their claim when they change horses, especially when it happens multiple times in one case. If they have not filed a proof of claim within the 90 day time limit (check statutes and consult with attorney) you are allowed to file one for them. In your version be sure to say they are unsecured. The primary grounds for your objections would be that there are obviously multiple creditors, each seeking to collect on the same debt. Don’t say it in your pleading but ONE of them must file an adversary against the others, or at least a motion with affidavits and potentially witnesses to explain the discrepancies.

Here is another case:

“After nearly 4 years of fighting, the “lender” has finally changed their position (again) and now submitted a request for notice in my BKR as the attorneys for US BANK, NATIONAL ASSOCIATION AS TRUSTEE FOR RASC SERIES 2005- EMX4.
Here are some of the names they have used previously (in violation of California Rules of Evidence 623):
  • US Bank, NA as Trustee by Residential Funding Company, LLC fka Residential Funding Corporation Attorney in Fact
    • in a letter sent in conjunction with the NOD dated 12/24/2008 (NOD did not use this name or any derivative)
    • 1st assignment 1/2009 (MERS as nominee for MLN, and MLN went into BKR 2/2007)
    • Proof of Claim circa 5/2009
    • Motion for Relief from Stay circa 9/2009
    • Response to various state lawsuits saying “everything was fine with the recorded documents” (paraphrased)
  • US Bank, NA as Trustee
    • Note endorsement allegedly on or before 11/17/2005 (numerous intervening endorsements, but endorsement to depositor is skipped)
    • 2nd Assignment 7/2009 (MERS as nominee for MLN, and MLN went into BKR 2/2007)
    • Motion for Summary Judgment filed by NDeX West 5/30/2012 in my state court case
  • RFC Trustee 04
    • MERS Servicer ID states that the “investor” is RFC Trustee 04 (not sure when record was created, presumably in November/December 2005)
  • MERS
    • Motion for Summary Judgment filed by NDeX West 5/30/2012 in my state court case
  • US Bank, National Association as Trustee for RASC Series 2005-EMX4
    • Request for Notice filed in my Chp. 11 on 7/31/2012 by Barrett Daffin Treder & Weiss
    • This is the first time EVER this name appears in this form by ANY of the parties I have sued or sent letters. They have never mentioned the trust before.
They cannot perfect their security interest because there is a TRO in the state court case (plus I have the BKR automatic stay).
Attached is this notice, my preliminary status report (read section #6 where I describe the use of different names and tell the judge that I have no idea who I will be naming in the adv. proc. because they constantly change the name of the creditor), and my objection to their request for notice.”
The last sentence is exactly right. So why file it? If for some reason you feel the court requires you to take on the burden then I would suggest conducting a 2004 examination (deposition) in which you ask pertinent questions about the “Story” of how it changed from this creditor to that creditor.
BUT FIRST challenge the competency of the witness they produce to even testify. For those of you who attended my seminars, you know the four rules of competency — Oath, Personal Knowledge, Memory and Communication — all of which are required to establish the foundation for their testimony. If you get to the point where the witness admits they have no personal knowledge of either the particulars of your case or insufficient knowledge as to the records upon which they rely, then shut up and don’t ask questions about the facts of the case. Why put what THEY want into the record?
If the above is Greek to you then you need to attend one of our seminars on the 25th of August in Emeryville outside San Francisco or Anaheim 8/29-8/30, outside L.A.
Here is another case, which is being seen all over the place: “U.S. Bank, as trustee relating to ” and then there is description of certificates, but not certificate holders nor any other reference to a PSA or trust document.
So when they lose the case at the end, and the Judge is awarding attorney fees, many judges are allowing their ridiculous explanation that the award of fees must be against some other party but not U.S. Bank who is not the trustee of a trust but was merely acting as agent or servicer for a disclosed principal. The fact that they did the foreclosure without providing the trustee with evidence of the trust, and that they obtained a deed in foreclosure with a credit bid, without providing the trustee with proof of loan status from the “disclosed principal” seems lost on many judges.
And just for good measure notice that US Bank often enters the foreclosure process AFTER a different creditor has applied for relief from stay — one which has an easier time establishing grounds for the relief. THEN U.S. Bank does the foreclosure, violating the stay order, and contrary the terms of the order lifting stay naming the OTHER creditor as the owner of the loan. Precious few judges have the tenacity of patience to wade through this whirlwind of words to ask simple questions like — who has a loan receivable on their books for this loan? That is the creditor if the entry is supported by competent evidence.
But not all Judges are hoodwinked by these absurd word games. Millions of dollars in sanctions in fines have been levied against the banks and servicers for misdirecting the court and committing perjury or suborning perjury.

While We Were Sleeping, Idaho Took the Lead: In re Sheridan — Real Party Must Have Actual Pecuniary Interest



“The real party in interest in relief from stay is whoever is entitled to enforce the obligation sought to be enforced. Even if a servicer or agent has authority to bring the motion on behalf of the holder, it is the holder, rather than the servicer, which must be the moving party, and so identified in the papers and in the electronic docketing done by the moving party’s counsel.”

For 2 years I have been saying “stick with the basics.” Black Letter Law will set you free. But time and again attorneys, pro se litigants and judges go astray and find themselves in never never land. Most attorneys and Judges take preliminary motions with a grain of salt. Virtually all foreclosures would be eliminated if lawyers and judges paid attention to the very beginning of the case. Gator Bradshaw in Florida delivers a nice piece at our seminar on motion practice.


Your job is to immediately focus the Judge’s attention on the fatal defects presnted by the actions of the intermediaries in the securitization process and more specifically, whoever is attempting to foreclose. By failing to challenge this at the outset you have effectively waived the issue and now face an uphill battle. This case reported below shows that a mere objection from the Trustee in BKR caused the entire claim of the forecloser to completely collapse.

7 months ago, before any of the landmark decisions reported on these pages,  Federal Bankruptcy Judge Myers in Idaho was presented with an objection from the Trustee to  Motion for Relief From stay.  Full pdf version at Sheridan_decision Idaho BKR J Myers

That the Trustee took up the cause is reason enough to note this case. What the Court did with it, in an articulate, well-reasoned memorandum of decision, is nothing short of startling in its clarity. One by one, this Judge takes down the arguments and tactics of the intermediaries in the securitization chain and basically says that none of them has a right to make a claim.

In short, just as in these pages, the Judge doesn’t say say who CAN assert and enforce the claim, he just says that none of these nominees, intermediaries, conduits, bookeepers, servicers, MERS, or pretender lenders has any pecuniary interest in the outcome and therefore they lack standing to be in court. On jurisdictional grounds, therefore, the case is closed and these interlopers are thrown out of court. Will the REAL Lender please stand up? Maybe, maybe not. 

The Judge points out that  “The Motion further alleges that Debtors were indebted at filing “to Movant” and that the debt arose out of a promissory note and a deed of trust dated September 20, 2006 “naming Movant as beneficiary.”

Judge Myers calmly and correctly points out that this was a total lie. When pressed the attorney acknowledged that the movant was not owed any money and that MERS was merely an agent for an undisclosed principal for an undisclosed purpose acting purportedly for the real party in interest. But the Judge says quite clearly and correctly that the rules require the real party in interest to be the movant.

This Judge also addresses the issue of burden of proof, a sticking point for many readers of this blog. He states that the burden is on the movant to prove standing, not on the homeowner or petitioner to prove lack of of standing. In fact, pointing to the rules again, he says that the pleading must  “[p]rovide the details of the underlying obligation or liability upon which the motion is based;” In a stroke of his pen, this Judge ends the issue over who has the burden of proof and even provides grounds BEFORE DISCOVERY for dumping fraudsters out of court. They must plead the allegations, and they must attach documentation that shows their pleadings are true and correct. This Judge is telling fraudsters to stop coming to court with attorney affidavits that are not evidence (see his memorandum) and to stop submitting affidavits, notes, revisions to notes, late indorsements, assingments that don’t match up with the pleadings or the requirements of pleading.










) Case No. 08-20381-TLM



) Chapter 7

Debtors. )

________________________________ )





In this Chapter 7 case, the trustee, Ford Elsaesser (“Trustee”), objects to a

motion under § 362(d) for relief from the § 362(a) automatic stay.

§ 362(d) are common in bankruptcy cases.

promptly to entry of an order, after proper notice, without any objection.

1 Motions under2 Most stay relief requests proceed3


However, changes in mortgage practices over the past several years have

created a number of new issues. The one highlighted in this case is the standing of



& Kronz

(Bankr. D. Idaho 2008). Debtors indicated in their § 521 statement of intention that they would


There was no objection, and the exemption was therefore allowed.

Taylor v. Freeland, 503 U.S. 638, 643-44 (1992); Rainsdon v. Farson (In re Farson), 387 B.R. 784, 797



the moving creditor. Serial assignments of the mortgagee’s interest(s) and the

securitization of mortgages have complicated what was previously a generally

straight-forward standing analysis. Though many creditors provide in their

motions adequate explanation and documentation of their standing to seek relief

on real estate secured debts, Trustee challenges the adequacy of the subject motion

in this case.

Following hearing and consideration of the arguments of the parties, the

Court determines that Trustee’s objection is well taken and the same will be

sustained. The motion for stay relief will be denied.




On June 24, 2008, Darrell and Sherry Ann Sheridan (“Debtors”) filed their

joint chapter 7 bankruptcy petition, schedules and statements. They scheduled a

fee ownership interest in a residence located in Post Falls, Idaho.

at sched. A (the “Property”). Debtors asserted the Property’s value was


Servicing” ($197,000.00) and “Citimortgage” ($34,000.00).

While this left no apparent equity in the Property, Debtors nevertheless claimed

the benefit of an Idaho homestead exemption.

See Doc. No. 1Id. They indicated secured claims existed in favor of “Litton LoanId. at sched. D.Id. at sched. C.4



reaffirm the secured debts on the Property.




Property as a scheduled but not administered asset,


Closing of the case as a no asset chapter 7 would constitute an abandonment of the

see § 554(c), and the automatic stay wouldsee § 362(c)(1).



to by others and in the case law, as “MERS.”

Mortgage Electronic Registration Systems, Inc. refers to itself, and is generally referred



The § 341(a) meeting of creditors occurred on July 31, 2008. Debtors

received a discharge on October 3, 2008. While the case was noticed to creditors

as a “no asset” chapter 7, and though Trustee concedes there will be no anticipated

distribution to creditors, Trustee has not yet filed his final report of no distribution

which would allow the case to close.



On October 16, 2008, the subject motion for relief from stay was filed.



Doc. No. 21 (the “Motion”). It was filed by “Mortgage Electronic Registration

Systems, Inc. as nominee HSBC Bank USA, National Association, as Indenture

Trustee of the Fieldstone Mortgage Investment Trust Series 2006-3.”



Movant” and that the debt arose out of a promissory note and a deed of trust dated

September 20, 2006 “naming Movant as beneficiary.”

Id. at 1 (the6 The Movant characterized itself as a “secured creditor andId. The Motion further alleges that Debtors were indebted at filing “toId.


Attached to the Motion is a promissory note (the “Note”) executed by

Debtors. It is payable to “Fieldstone Mortgage Company” as the “Lender.”




by stipulation of the parties, as “Exhibit 1.”

The documents attached to the Motion were admitted into evidence at the final hearing,



evidentiary hearing is a result of the presence of material, disputed facts, which under Fed. R.

Bankr. P. 9014(d) requires testimony in the same manner as in an adversary proceeding.

A “final hearing” is contemplated under § 362(d) and (e). That it would be an



Ex. 1.

Lender or anyone who takes this Note by transfer and who is entitled to receive

payments . . . is called the Note Holder.”

The Note is secured by a deed of trust dated September 20, 2006 and

recorded in the real property records of Kootenai County, Idaho, on September 22,

2006 (the “Deed of Trust”). The Deed of Trust at paragraph (C) identifies and

defines the “Lender” as “Fieldstone Mortgage Company, a Maryland corporation.”

Paragraph (E) of the Deed of Trust recites:

MERS is a separate corporation that is acting solely as nominee for

Lender and Lender’s successors and assigns. MERS is the beneficiary

under this Security Instrument.

Ex. 1.

Trustee objected to the Motion, contending that the Movant failed to

establish its interest in the Property or its standing to seek stay relief. Doc. No. 23.

At a preliminary hearing on November 4, 2008, the parties requested a final

hearing because the question of standing remained unresolved.

was held on December 16, 2008, at which Trustee and counsel for Movant made

argument, but no evidence was presented other than the documents that, as noted

7 A portion of the Note states: “I understand Lender may transfer this Note.8 A final hearing



The Code establishes time frames for preliminary hearing, final hearing and ruling.



§ 362(e)(2), the stay generally “shall terminate on the date that is 60 days after a request is made

by a party in interest” if the case is one under chapters 7, 11 or 13 and the debtor is an individual.

However, that period may be extended by either agreement of the parties or by the Court for good


December 16, 2008, about the 60th day after the request. This delay was by or with concurrence

of the parties. The Court concludes that additional delay to the date of this Decision was required

to address the contentions of the parties.

§ 362(e)(1), (2). In this case, the Motion was originally filed October 16, 2008. Under

See § 362(e)(2)(B). Here, the scheduling of the hearings resulted in a final hearing on



equity in such property coupled with a lack of necessity of such property for an effective


light of the fact that this is a chapter 7 liquidation, the Property is not required for reorganization.

Another ground for stay relief with respect to acts against property is an absence of

See § 362(d)(2). The Motion indicated a lack of equity in the Property and, in



above, were admitted by agreement.




A. Stay relief requires a motion by a party in interest with standing


The Bankruptcy Code, Bankruptcy Rules and this District’s local rules

govern stay relief requests.

Under the Code, relief from the § 362(a) stay is authorized “[o]n request of



made by a “party in interest.”) One ground for stay relief is “cause, including the

lack of adequate protection of an interest in property

§ 362(d)(1) (emphasis added). The Motion here alleged “cause” based on

delinquent payments,

though no specific citations to § 362(d)(1) are made.

party in interest and after notice and a hearing, . . . .” See § 362(d) (emphasisSee also § 362(e)(1) and (2), § 362(f), § 362(j) (all referring to requestsof such party in interest[.]”see Doc. No. 21 at 2, thus implicating § 362(d)(1) even10



The Rules require that a stay relief request be made by a motion.

R. Bankr. P. 9013 (“A request for an order, except when an application is

authorized by these rules, shall be by written

hearing.”) (emphasis added); Fed. R. Bankr. P. 4001(a)(1) (“A

from an automatic stay provided by the Code . . . shall be made in accordance with

Rule 9014[.]”) (emphasis added).

In addition to the Bankruptcy Rules, this District’s local rules require,


– the request shall be made by a “party in interest” and by “motion;”

– the motion shall “[p]rovide the details of the underlying obligation or

liability upon which the motion is based;” and

– the motion shall have attached “accurate and legible copies of all

documents evidencing the obligation and the basis of perfection of

any lien or security interest[.]”

LBR 4001.2(a), (b)(2), and (b)(5).

See Fed.motion, unless made during amotion for reliefinter, that:


1. Party in interest, and standing


While the term “party in interest” is not defined by the Code, this Court has

held that such a party must have a “pecuniary interest” in the outcome of the

dispute before the Court.

D. Idaho Aug. 28, 2007) (citing

4705220 (Bankr. D. Idaho 2005), and


D. Idaho 2003)).

18 (9th Cir. BAP 2007) (noting that a “party in interest” may be one who has an

actual pecuniary interest in the case, one who has a practical stake in the outcome

of the case, or one who will be impacted in any significant way in the case).

See In re Simplot, 2007 WL 2479664 at *9 n.45 (Bankr.In re Elias, 05.2 I.B.C.R. 41, 42, 2005 WLIn re Stone, 03.2 I.B.C.R. 134, 135 (Bankr.See also Brown v. Sobczak (In re Sobczak), 369 B.R. 512, 517-



The question there was whether the J. R. Simplot Company, which was not a

creditor with a claim against the debtor or estate, “had sufficient party in interest

standing to be heard[.]” 2007 WL 2479664 at *9. This Court stated:

not only defined party in interest, it addressed “standing” issues.


Hasso v. Mozsgai (In re La Sierra Fin. Servs.)

BAP 2002), explained that the doctrine of standing encompasses both

constitutional limitations on federal court jurisdiction (

controversy requirements of Article III), and prudential limitations on

the court’s exercise of that jurisdiction. Constitutional standing

requires an injury in fact,

interest. 290 B.R. at 726-27. Prudential standing requires that the

party’s assertions fall within the zone of interests protected by the

statute and, further, requires that the litigant assert only its own rights

and not those of another party.

U.S. 154, 162, 167-68 (1997). The party asserting standing exists has

the burden of proving it.

the cases as principles applicable to standing on appeal, the same

propositions apply to a party at the bankruptcy court level.

, 290 B.R. 718 (9th Cir.

i.e., the case orviz. an invasion of a judicially cognizableId. at 727 (citing Bennett v. Spear, 520Id. at 726. Though sometimes articulated in



not assert . . . objections that relate solely to others, or that go to issues that do not

directly and adversely affect them pecuniarily.”

omitted). These same standing requirements were recently highlighted in a stay

relief context by the court in


*5-6 (Bankr. W.D. Wash. Mar. 6, 2009).

(footnote citations omitted). In

Simplot, the Court concluded that “parties mayId. at *10 (footnote citationsIn re Jacobson, ___ B.R. ___, 2009 WL 567188 at


2. Real party in interest


Under Rule 9014, which by virtue of Rule 4001(a)(1) governs stay relief

requests, certain “Part VII” rules are applicable.

incorporated rules is Rule 7017, which in turn incorporates Fed. R. Civ. P. 17, and

Rule 17(a)(1) provides that “An action must be prosecuted in the name of the real

party in interest.”

See Rule 9014(c). Among those



holder of the note, “neither asserts beneficial interest in the note, nor that it could

enforce the note in its own right.” 2009 WL 567188 at *4. It concluded that Fed.

R. Civ. P. 17 applied, requiring the stay relief motion to be brought in the name of

the real party in interest.

Cal. 2008));

notes that its moving party, who claimed to be a servicer for the

Id. (citing In re Hwang, 396 B.R. 757, 767 (Bankr. C.D.see also In re Vargas, 396 B.R. 511, 521 (Bankr. C.D. Cal. 2008). As



The real party in interest in relief from stay is whoever is entitled to

enforce the obligation sought to be enforced. Even if a servicer or

agent has authority to bring the motion on behalf of the holder, it is the

holder, rather than the servicer, which must be the moving party, and

so identified in the papers and in the electronic docketing done by the

moving party’s counsel.





The upshot of these several provisions of the Code, Rules, local rules and

case law is this: to obtain stay relief, a motion must be brought by a party in

interest, with standing. This means the motion must be brought by one who has a



Cir. 2008) does not require a different conclusion.

did not violate the automatic stay by seeking to foreclose on the debtors’ property after the

bankruptcy court granted the loan servicer’s (Washington Mutual) § 362(d) motion.

62. Although Wachovia did not join in the motion or separately seek stay relief, the court held

that the order entered “as to Washington Mutual” was effective as to Wachovia.

Notably, however, the Reussers never challenged Washington Mutual’s standing in bankruptcy

court; instead, they launched that attack in a subsequently filed district court action.

62. The Ninth Circuit held that “a final order lifting an automatic stay is binding as to the

property or interest in question—the res—and its scope is not limited to the particular parties

before the court.”

standing and, of course, no final order has been entered.

The Ninth Circuit’s recent decision in

Reusser v. Wachovia Bank, 525 F.3d 855 (9thReusser held that a lender, Wachovia Bank,Id. at 861-Id. at 857, 861.Id. at 861-Id. at 861. The difference here is that Trustee has timely objected to Movant’s



pecuniary interest in the case and, in connection with secured debts, by the entity

that is entitled to payment from the debtor and to enforce security for such

payment. That entity is the real party in interest. It must bring the motion or, if

the motion is filed by a servicer or nominee or other agent with claimed authority

to bring the motion, the motion must identify and be prosecuted in the name of the

real party in interest.



B. The present Motion


Under the documents attached to the Motion and later admitted at hearing

as Ex. 1, Fieldstone Mortgage Company, a Maryland corporation, would certainly

appear to be a party in interest and have standing. It has an economic interest

according to the Note attached to the Motion and an interest in Debtors’ Property

according to the Deed of Trust that is also attached.

However, the Motion was not brought by Fieldstone Mortgage Company.



“the person named or otherwise designated in a trust deed as

deed is given, or his successor in interest, and who shall not be the trustee.” Idaho Code § 45-

1502(3) defines trust deed as “a deed executed in conformity with this act and conveying real

property to a trustee in trust

person named in the deed

Idaho Code § 45-1502(1) defines beneficiary for purposes of the trust deed statute as

the person for whose benefit a trustto secure the performance of an obligation of the grantor or otherto a beneficiary.” Id. (emphasis added).




1. MERS as “nominee” or “beneficiary”


Counsel for Movant argues that MERS, given its titular designation of

“beneficiary” under the Deed of Trust, is or should be able to prosecute the

Motion under the Code, Rules and Local Rules. Counsel conceded, however, that

MERS is not an economic “beneficiary” under the Deed of Trust. It is owed and

will collect no money from Debtors under the Note, nor will it realize the value of

the Property through foreclosure of the Deed of Trust in the event the Note is not




Further, the Deed of Trust’s designation of MERS as “beneficiary” is

coupled with an explanation that “MERS is . . . acting

Lender and Lender’s successors and assigns.” Ex. 1 (emphasis added). Movant’s

briefing suggests that a “nominee” is synonymous with an “agent.”

26 at 2.

The Motion was filed by MERS “as nominee [for] HSBC Bank USA,

National Association, as Indenture Trustee of the Fieldstone Mortgage Investment

Trust Series 2006-3.” Even assuming that MERS as a “nominee” had sufficient

rights and ability as an agent to advance its principal’s stay relief request, there

solely as nominee forSee Doc. No.



evident consistency. The Motion commenced as follows:

“COMES NOW Mortgage Electronic Registration Systems, Inc. as nominee

HSBC Bank USA, National Association, as Indenture Trustee of the Fieldstone

Mortgage Investment Trust Series 2006-3, a secured creditor and Claimant

herein, and moves the Court for its Order granting relief from the automatic


Thus, the “Claimant” and evidently the “Movant” (

moves”) are one and the same, and this entity also purports to be a “secured creditor.” Since

MERS is acting as nominee, the Claimant/Movant and secured creditor appears by these

allegations to be HSBC Bank USA (in its role as indenture trustee for others). The Motion

continues by asserting that “Debtor was on the date of filing the petition herein,


Movant as beneficiary

Bank USA or the Fieldstone Mortgage Investment Trust as its beneficiary. Nor is there

explanation of how Debtors came to owe HSBC Bank USA.

The Motion uses several terms (Movant, Claimant, Petitioner) without definition or

i.e., the party who “COMES NOW . . . andindebted toarising out of [the Note] and a Deed of Trust dated September 20, 2006, naming.” Contrary to these assertions, the Deed of Trust does not name HSBC




This language appears in the Deed of Trust only. There is no mention of MERS in the



remains an insuperable problem. The Motion provides no explanation, much less

documentation or other evidence, to show that the Fieldstone Mortgage

Investment Trust Series 2006-3 (as an entity) or HSBC Bank USA (as that entity’s

“indenture trustee”) has any interest in the subject Note or the subject Deed of




In light of Trustee’s objection on this score, Movant argues that MERS’

role as “nominee for Lender [

successors and assigns” gives it ample authority to assert the stay relief request

under the Deed of Trust for whatever successor in interest or assignee might have

the beneficial interest.

i.e., Fieldstone Mortgage Company] and Lender’s14 Even if the proposition is accepted that the Deed of Trust



assignments resulting in the movant becoming the holder of the note.

B.R. 259, 269 (Bankr. D. Mass. 2008) (“The Court and the Debtor are entitled to insist that the

moving party establish its standing in a motion for relief from stay through the submission of an

accurate history of the chain of ownership of the mortgage.”);

(Bankr. D. Mass. 2007) (“‘If the claimant acquired the note and mortgage from the original lender

or from another party who acquired it from the original lender, the claimant can meet its burden

through evidence that traces the loan from the original lender to the claimant.’”) (quoting

Some courts have indicated that the stay relief request should explain the serial

See, e.g., In re Hayes, 393In re Maisel, 378 B.R. 19, 22In re





provisions give MERS the ability to act as an agent (“nominee”) for another, it

acts not on its own account. Its capacity is representative.


2. Documentation


This District’s Local Bankruptcy Rule 4001.2 requires copies of “all

documents evidencing the obligation and the basis of perfection of any lien or

security interest.” The sole documentation provided with the Motion here

evidences the interests in the Note and Deed of Trust held by Fieldstone Mortgage

Company, a Maryland corporation. This submission does not answer the key

question — Who was the holder of the Note at the time of the Motion?

Several movants for stay relief have argued that the holder of a note secured

by a deed of trust obtains the benefit of the deed of trust even in the absence of an

assignment of the deed of trust, on the theory that the security for the debt follows

the debt. Under this theory, it would appear that when bankruptcy intervenes, and

somewhat like a game of Musical Chairs, the then-current holder of the note is the

only creditor with a pecuniary interest and standing sufficient to pursue payment

and relief from stay.







“need not here go so far” as to require such tracing, because of the paucity of proof presented in

that case. 2009 WL 567188 at *6. The same is true here. Movant’s proof does not even show

who presently holds the Note. That alone provides sufficient basis to deny the Motion.

, 326 B.R. 708, 720 (Bankr. N.D. Ohio 2005)). The court in

Jacobson decided that it



The Motion here certainly suggests that the Fieldstone Mortgage

Investment Trust Series 2006-3 (or perhaps HSBC Bank USA in its capacity as

indenture trustee for that trust) was the holder of the note on the June 24, 2008,

petition date. But at the time of the final § 362(e) evidentiary hearing herein, the

parties discussed and Movant ultimately conceded that (I) the Note contained

nothing indicating its transfer by Fieldstone Mortgage Company, (ii) the Motion

was devoid of allegations regarding the details of any such transfer, and (iii) the

record lacked any other documents related to the issue.


3. The supplemental affidavit


Subsequent to the closing of the hearing and after the Court took the

dispute under advisement, Movant filed a “supplemental affidavit” of its counsel.



counsel obtained on such date the “original” Note and that the same contains an

indorsement. Counsel states that his “affidavit is presented to supplement the

record herein and for the Court’s consideration in the pending motion[.]”

The filing and consideration of this supplemental affidavit are improper for

several reasons.

Doc. No. 28 (filed January 2, 2009). This affidavit alleges that Movant’s

Id. at 2.




Accord Jacobson, 2009 WL 567188 at *6-8 (discussing inadequacies of evidentiary



First, the record was closed, and the Court did not authorize the reopening

of that record, nor did it indicate any post-hearing submissions would be accepted.

Second, Trustee did not have the opportunity to address this “newly

obtained” document at hearing, and nothing shows his consent to the

post hoc

supplementation of the evidentiary record.

Third, disputed factual issues in contested matters may not be resolved

through testimony in “affidavits” but rather require testimony in open court.


Fed. R. Bankr. P. 9014(d). Under the circumstances, the identity of the holder of

the Note certainly appears to be a fact in dispute falling within the ambit of this


Fourth, the affidavit is insufficient to establish that counsel, as affiant, has

the ability to testify regarding or lay the foundation required to admit the


594-95 (Bankr. D. Idaho 2000).

the “original” appears to be based not on the affiant’s (counsel’s) personal

knowledge but on the assertions of someone else.

Fifth, the proffer of this “new” note as the “original” note directly

contradicts Movant’s prior representations that the Note attached to the Motion

See Esposito v. Noyes (In re Lake Country Invs., LLC), 255 B.R. 588,16 The assertion that the newly possessed note is


payable to the bearer and may be negotiated by transfer of possession alone until specially

indorsed.”); § 28-3-301 (providing that the holder of the instrument may enforce it). These

provisions make identification of the current holder significant.

See generally Idaho Code § 28-3-205(2) (“When indorsed in blank, an instrument is


was “true and correct” and the operative document in this matter.

at 1.

Sixth, even were it considered, the “new” Note’s asserted indorsement

states: “Pay To The Order Of [

signed by Fieldstone Mortgage Company through a named assistant vice

president. There is no date nor indication of who was or is the transferee.

Fieldstone Mortgage Company may have indorsed the Note in blank, but this

document does not alone establish that either HSBC Bank USA or Fieldstone

Mortgage Investment Trust is the Note’s holder.

See Doc. No. 21blank] Without Recourse” and then purports to be17

Thus, even if a “nominee” such as MERS could properly bring a motion for

stay relief in the name of and on behalf of the real party in interest – the entity that

has rights in and pecuniary interest under the Note secured by the Deed of Trust –

nothing of record adequately establishes who that entity actually is. Under the

evidence submitted at the § 362(e) final hearing, which consists solely of Exhibit

1, the only entity that MERS could conceivably represent as an agent/nominee

would be Fieldstone Mortgage Company. But MERS does not represent that party

according to the Motion and, in fact, its contentions are to the effect that


2006) is misplaced.

nominee, had standing to seek stay relief.

continued to hold the note, and the mortgage had not been transferred.

For this reason, Movant’s reliance on

In re Huggins, 357 B.R. 180 (Bankr. D. Mass.Huggins held that MERS, which was named in a mortgage as the lender’sId. at 184-85. But in Huggins, the original lenderId. at 182, 184.


presentation constitutes a certification that there has been an “inquiry reasonable under the

circumstances” and that factual allegations made “have evidentiary support or, if specifically so

identified, are likely to have evidentiary support after a reasonable opportunity for further

investigation or discovery”). Trustee here was clear, though, that he asserted no Rule 9011

claims against Movant or its counsel.

See Fed. R. Bankr. P. 9011(b) (providing inter alia that a motion’s filing or other


Fieldstone Mortgage Company is no longer a party in interest.


At the time of that final hearing, counsel for Movant conceded that he had

no documentation provided to him by his “client” which indicated the interests

under the Note or Deed of Trust were held by either HSBC Bank USA or the

Fieldstone Mortgage Investment Trust. Counsel filed the Motion and

characterized the Movant’s identity therein based solely on undocumented

representations made to him. This would appear to be a problematic approach


matter at issue and Movant to its proof.

19 And, in this particular case, Trustee’s objection to the Motion put the


When Trustee challenged the Motion’s bare assertions, Movant failed to

provide an adequate record showing it was a party in interest with standing

entitled to seek such relief. On the record presented, the Court finds and

concludes Trustee’s objection is well taken. That objection will be sustained. The

Motion will be denied. The Trustee will provide a form of order for the Court’s


review and entry.

DATED: March 12, 2009




Foreclosure Defense — Strategic Bankruptcy Options

Strategic Comment: There are two ways for you stop foreclosure, sale and eviction dead in its tracks. One is to file bankruptcy under Chapter 13 which is an opportunity for debtors to reorganize their payments to creditors.

  • An automatic stay goes into effect immediately upon filing with the Bankruptcy Court. Creditors who say or do anything in furtherance of collecting a debt are committing a federal crime from the moment it is filed, whether they know about it or not.
  • However, the payments include fees to the Court and Trustee which exceeds 10% of what you pay into the Court for the benefit of your creditors, so since you are strapped for cash it further impedes your ability to work out a realistic plan.
  • Also for secured debts like mortgages, the lender can come into Bankruptcy court and ask the court to lift the automatic stay which in the past has been routinely granted and for the most part still is, UNLESS YOU DO SOMETHING ELSE.
  • YOU SHOULD ALSO NAME, AS THE CREDITOR, THE ORIGINAL LENDER, and state the amount of the loan as a contingent liability to them. The fact is, in most cases, you have not been presented with proof of transfer of anything, nor seen any assignment, or what rights or obligations were picked up in transactions after your closing by third parties who own the servicing rights, or the mortgage or the note. The Trustee or other party coming into court or posting notices of sale on your property probably is getting his/her marching orders from someone who either doesn’t have or can’t prove they know the amounts you paid, to whom or what is currently due. PLACE THE BURDEN WHERE IT BELONGS — ON THEM.
  • Then you should state the present mortgage servicing entity to whom you are now sending your payments (this applies only where the loan has been sold which is true in 95% of the cases) as a contingent liability in an unknown or unliquidated amount.
  • Then you should add a creditor “John Doe” as also an unknown unliquidated debt as a party who might claim ownership of the implied or alleged unpiad loan account or the possible owner of a security under which he has ownership of the mortgage and note.
  • Then you should file an adversary proceeding or action under TILA, RESPA, fraud etc. making all appropriate claims for rescission, refund of interest, points, loss of value in the property etc.
If your case is handled in this way there is a higher probability that you will survive the motion for lifting of the stay as the movant will have to prove the chain of title and authority on the mortgage and note, thus giving rise the the issue of legal standing for them to standing in the courtroom at all.
The second option, if you are faced with foreclosure, sale or eviction is just file the TILA action in Federal court and then go the State Court and ask the State Court to issue a stay because there is pending litigation in Federal Court. Usually State Court judges are more than happy to get the matter off their desks and thus grant your motion for stay, but they might not be under no obligation to do so.
Remember that whether you go straight into Federal Civil Court or Federal bankruptcy Court, which is a different division, and you are NOT represented by counsel, the Judge must do the legal research to determine your claims’ merit.
If you are represented by counsel you need to make damn sure he knows what he is doing. Most bankruptcy lawyers don’t know an adversary proceeding or TILA action from egg on the wall. They have no experience with it. Very few lawyers or judges know this area since it only became important in the last couple of years.
Nobody paid me to write this. I am self-funded, supported only by donations. My mission is to stop foreclosures and other collection efforts against homeowners and consumers without proof of loss. If you want to support this effort please click on this link and donate as much as you feel you can afford.

Please Donate to Support Neil Garfield’s Efforts to Stop Foreclosure Fraud.

Neil F Garfield, MBA, JD, 75, is a Florida licensed trial and appellate attorney since 1977. He has received multiple academic and achievement awards in business, accounting and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.
FREE REVIEW: Don’t wait, Act NOW!

CLICK HERE FOR REGISTRATION FORM. It is free, with no obligation and we keep all information private. The information you provide is not used for any purpose except for providing services you order or request from us. You will receive an email response from Mr. Garfield  usually within 24 hours. In  the meanwhile you can order any of the following:

Click Here for Preliminary Document Review (PDR) [Basic, Plus, Premium) includes 30 minute recorded CONSULT). Includes title search under PDR Plus and PDR Premium.

Click here for Administrative Strategy ANALYSIS AND NARRATIVE. This could be all you need to preserve your objections and defenses to administration, collection or enforcement of your obligation. Suggestions for discovery demands are included.
CLICK HERE TO ORDER CONSULT (not necessary if you order PDR)


But challenging the “servicers” and other claimants before they seek enforcement can delay action by them for as much as 14 years or more. In addition, although currently rare, it can also result in your homestead being free and clear of any mortgage lien that you contested. (No Guarantee).

Yes you DO need a lawyer.
If you wish to retain me as a legal consultant please write to me at neilfgarfield@hotmail.com.

Please visit www.lendinglies.com for more information.

Foreclosure Defense: Opposing Motion for Relief from Stay in Bankruptcy



See also Foreclosure Defense: Cash for Keys Offer and TILA Defenses

May 9, 2008

This is where the shell game played by lenders starts being used in your favor.

Nail them with their own behavior.

More and more Federal, Bankruptcy, and state courts are adopting this view for both legal reasons and practical reasons — the system can’t absorb this number of foreclosures and bankruptcies, and the communities can’t afford to enforce use restrictions where houses are abandoned.

  • As to pursuing the foreclosure defense and counterclaim market, it demonstrates the confusion created by the scheme of the lenders, the intentional obfuscation of the real parties and the very real possibility that they simply don’t have or won’t be able to find the paperwork to back up their claims as to who is in fact the real party in interest. 
  • The volume was so huge that it is doubtful that these predators all crossed their t’s. This leads to the very real possibility that is arising in courts across the land (Federal and State) that their failure to come up with the real holder of the note and mortgage, once the litigation has commenced, might lead a dismissal with prejudice or a dismissal without prejudice. 
  • In either case, it is a finding that the party to whom the borrower was directing their payments is not the proper party.
  • This leads to the possibility that the borrower could, with or without filing a lawsuit, either stop paying mortgage payments altogether (but not stop insurance or tax payments) or can put the money in some interest bearing escrow account, waiting an appropriate period of time for the lender to either show up or not. 
  • And the amount put in escrow can be in accordance with the allegations of the borrower:
  1.  that they were defrauded and 
  2. that the mortgage, note, payments should be reduced to reflect 
  • a reduction in the total mortgage obligation due to the artificially and fraudulently inflated appearance of fair market value (benefit of the bargain), 
  • the down payment and points and closing fees and interest paid to date, 
  • costs of closing, and 
  • money invested in a house that is not worth what the borrower thought who relied upon his fiduciaries — the lender, the underwriter, the auditor for the lender, the appraiser, the title agent, the mortgage broker, etc. 

The Real Party in Interest and Motions for Relief From the Automatic Stay

A recent bench decision by Maryland Bankruptcy Court Judge Thomas J. Catliota was an important ruling regarding the real party in interest requirement of FRBP 7017.

Americredit Financial Services, Inc., an auto loan servicer, filed a MLS in its own name. Its name appears on the car title as the sole lienholder, it represented that it “has a validly perfected, first priority purchase money security interest in the Collateral…” and it was listed as a secured creditor in both the Schedules and the Chapter 13 Plan.

A response was filed to the MLS arguing that the car loan had been sold to a securitized trust, and that Americredit was therefore not the real party in interest. Americredit responded by agreeing that the note had been transferred to the securitized trust, but argued that the debtor’s failure to object to the POC waived this issue, and that its servicing agreement with the trust allowed it to file the MLS in its own name.

Judge Catliota ruled that since the loan was not owned by Americredit, it needed to file the MLS in the name of the actual noteholder, and denied the MLS (but allowed Americredit to amend to reflect the true owner of the loan).

With the vast majority of loans (home, car, computer, etc.) being securitized, this is an important defense to MLSs, particularly since in a number of these cases, the securitized trust is simply unable to produce the original note or demonstrate that the title records appropriately reflect that it is the proper secured party.

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