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SEE MANN order_br_cally_so_dist_salazar_vs_us_bank_denying_mfrs_mers_4_11_2011

Bankruptcy Judge Margaret M. Mann GETS IT!

1 Posted by Dan Edstrom on April 12, 2011 at 8:19 pm

Bankruptcy Judge Margaret M. Mann GETS IT!

By Daniel Edstrom
DTC Systems, Inc.

Coming off of the heels of in re: Agard (http://dtc-systems.net/2011/02/mers-agency-york-bankruptcy-court-agard/), the Honorable Judge Mann from the United States Bankruptcy Court Southern District of California took 76 days to review the Motion for Relief From Automatic Stay for the in re: Salazar Chapter 13 bankruptcy (Bankruptcy No: 10-17456-MM13).   The findings of fact and conclusions of law were an amazing reading that confirms many of the issues we have been discussing in regards to loans, securitization and foreclosure.  Like Judge Grossman in the agard case, Judge Mann goes to great lengths to research the details that are applicable to this case.   Here are some highlights:

  • Assignments must be recorded before the foreclosure sale

  • Civil Code Section 2932.5 applies to Deeds of Trust

  • Recorded assignments are necessary despite MERS’ role

  • The Gomes case does not apply [to the Salazar case]

  • US Bank or MERS cannot contract away their obligations to comply with the foreclosure statutes

  • As a matter of law, Salazar’s acknowledgment cannot be read as a waiver of his right to be informed of a change in beneficiary status.

  • MERS System is not an alternative to statutory foreclosure law

  • US Bank as the foreclosing assignee was obligated to record its interest before the sale despite MERS’ initial role under the DOT, and this role cannot be used to bypass Civil Code section 2932.5.  Since US Bank failed to record its interest, Salazar has a valid property interest in his residence that is entitled to protection through the automatic stay

  • Cause does not exist to grant relief from stay

  • Denying relief from stay at this time is the least prejudicial option for both parties

 

WEISBAND Case No. 4:09-bk-05175-EWH. BKR Tucson Judge HOLLOWELL Denies MLS for Lack of Standing

GMAC has failed to demonstrate that it is the holder of the Note because, while it was in possession of the Note at the evidentiary hearing, it failed to demonstrate that the Note is properly payable to GMAC

Once the securities have been sold, the SPV is not actively involved.

IN RE WEISBAND

In re: BARRY WEISBAND, Chapter 13, Debtor.

Case No. 4:09-bk-05175-EWH.

United States Bankruptcy Court, D. Arizona.

March 29, 2010.

Barry Weisband, Tucson, AZ, Ronald Ryan, Ronald Ryan, P.C., Tucson, AZ, Attorney for Debtor.

MEMORANDUM DECISION

EILEEN W. HOLLOWELL, Bankruptcy Judge

I. INTRODUCTION

The debtor, Barry Weisband (“Debtor”), has challenged the standing of creditor, GMAC Mortgage, LLC (“GMAC”), to seek stay relief on his residence. After reviewing the documents provided by GMAC and conducting an evidentiary hearing, the court concludes that GMAC, the alleged servicer of the Debtor’s home loan, lacks standing to seek stay relief. The reasons for this conclusion are explained in the balance of this decision.

II. FACTUAL AND PROCEDURAL HISTORY

A. Creation of Debtor’s Note And Asserted Subsequent Transfers

On or about October 6, 2006, the Debtor executed and delivered to GreenPoint Mortgage Funding, Inc. (“GreenPoint”) an adjustable rate promissory note in the principal sum of $540,000 (“Note”) secured by a Deed of Trust (“DOT”) on real property located at 5424 East Placita Apan, Tucson, Arizona 85718 (“Property”).

On a separate piece of paper, GreenPoint endorsed the Note to GMAC (“Endorsement”). The Endorsement is undated. The DOT was signed by the Debtor on October 9, 2006, and recorded on October 13, 2006. The DOT lists GreenPoint as the lender, and Mortgage Electronic Registration Systems, Inc. (“MERS”) as the beneficiary of the DOT “solely as nominee for [GreenPoint], its successors and assigns.”

Approximately five months before the creation of the Note and DOT, on April 10, 2006, GreenPoint entered into a Flow Interim Servicing Agreement (“FISA”) (Exhibit D)[ 1 ] with Lehman Capital, a division of Lehman Brothers Holdings, Inc. (collectively “Lehman”), pursuant to which Lehman agreed to purchase conventional, residential, fixed and adjustable rate first and second lien mortgage loans from GreenPoint. Under the FISA, GreenPoint agreed to service the mortgage loans it sold to Lehman. According to GMAC, GreenPoint transferred the Note and DOT to Lehman under the FISA.

On November 1, 2006, Lehman entered into a Mortgage Loan Sale and Assignment Agreement (“MLSAA”) with Structured Asset Securities Corporation (“SASC”) (Exhibit E). Under that agreement, Lehman transferred a number of the mortgage loans it acquired under the FISA to SASC. GMAC claims that the Note was one of the mortgage loans transferred to SASC. SASC created a trust to hold the transferred mortgages — GreenPoint Mortgage Funding Trust (“Trust”). The MLSAA also transferred the right to receive principal and interest payments under the transferred mortgage loans from Lehman to the Trust.

Also, on November 1, 2006, SASC entered into a Trust Agreement (Exhibit F) with Aurora Loan Services (“Aurora”) as the master servicer, and U.S. Bank National Association (“U.S. Bank”) as the trustee. A Reconstituted Servicing Agreement (Exhibit G) was executed the same day, which provided that GreenPoint would continue to service the mortgages transferred to the Trust under the MLSAA, but that the Trust could change servicers at any time. Also, according to GMAC, on November 1, 2006, GMAC, Lehman, and Aurora entered into a Securitization Servicing Agreement (“SSA”) (Exhibit H), pursuant to which GMAC would service the loans transferred to the Trust. GMAC claims that under the SSA it is the current servicer of the Note and DOT.

Thus, according to GMAC, as of November 1, 2006, the Note and DOT had been transferred to the Trust, with SASC as the Trustor, U.S. Bank as the Trustee, Aurora as the master servicer, and GMAC as the sub-servicer. GreenPoint went out of business in 2007. According to GMAC, it remains the sub-servicer of the Note, and that is its only financial interest in the Note and DOT. (Transcript Nov. 10, 2009, pp. 44, 47, 75.)

B. Bankruptcy Events

As of March 1, 2009, the Debtor was in default of his obligations under the Note. Debtor filed his petition for relief under Chapter 13 of the Bankruptcy Code on March 19, 2009. On May 16, 2009, GMAC filed a proof of claim (“POC”), which attached the Note and DOT. The Endorsement from GreenPoint to GMAC was not attached to GMAC’s proof of claim. On May 12, 2009, MERS, as nominee for GreenPoint, assigned its interest in the DOT to GMAC (“MERS Assignment”). The MERS Assignment was recorded on July 16, 2009.

GMAC filed a Motion for Relief from Stay (“Motion”) on May 29, 2009, on the grounds that the Debtor had no equity in the Property and the Property was not necessary for an effective reorganization. The Motion also requested adequate protection payments to protect GMAC’s alleged interest in the Property. GMAC attached the Note with the Endorsement and DOT as exhibits to the Motion.

The Debtor filed a response challenging GMAC’s standing to seek relief from stay. After various discovery disputes, GMAC sent a letter dated September 17, 2009, to the Debtor which purported to explain the various transfers of the Note and the DOT. (Docket #90). The letter explained that GreenPoint transferred the “subject loan” to Lehman under the FISA, that Lehman sold the “subject loan” to SASC under the MLSAA, that SASC, Aurora Loan Services, and U.S. National Bank entered into a trust agreement, which created the Trust and made Aurora the master servicer for the “subject loan,” and, that GMAC was the servicer of the “subject loan” under the SSA. According to GMAC, its status as servicer, along with the Endorsement of the Note to GMAC and the assignment of the DOT from MERS to GMAC, demonstrated that it had standing to bring the Motion.

On November 10, 2009, the Court conducted an evidentiary hearing on the Motion. GMAC offered the original Note at the hearing and admitted into evidence a copy of the Note, DOT, copies of the FISA, MLSAA, Trust Agreement, the Reconstituted Servicing Agreement and the SSA. However, GMAC did not offer any documents demonstrating how the Note and DOT were conveyed by GreenPoint to the FISA. No document was offered demonstrating how the Note and DOT were conveyed from the FISA to the MLSAA or from the MLSAA into the Trust. Schedule A-1 of the MLSAA, where the transferred mortgages presumably would have been listed, only has the words “Intentionally Omitted” on it, and Schedule A-2 has the word “None.” (Exhibit F, pp. 19-20). Similarly, there is no evidence that the Note and DOT are subject to the SSA. Exhibit A to the SSA, titled “Mortgage Loan Schedule,” is blank. At the conclusion of the hearing, this Court ordered the Debtor to begin making adequate protection payments commencing on December 1, 2009 to the Chapter 13 Trustee. The Court further ordered GMAC and the Debtor to negotiate the amount of the adequate protection payments. When the parties were unable to reach agreement, the Court set the amount of the monthly payments at $1,000.

III. ISSUE

Does GMAC have standing to bring the Motion?

IV. JURISDICTIONAL STATEMENT

Jurisdiction is proper under 28 U.S.C. §§ 1334(a) and 157(b)(2)(G).

V. DISCUSSION

A. Introduction

Section 362(a) of the Bankruptcy Code provides that the filing of a bankruptcy petition operates as a stay of collection and enforcement actions. 11 U.S.C. § 362(a). The purpose of the automatic stay is to provide debtors with “protection against hungry creditors” and to assure creditors that the debtor’s other creditors are not “racing to various courthouses to pursue independent remedies to drain the debtor’s assets.” In re Tippett,Dean v. Trans World Airlines, Inc., 72 F.3d 754, 755-56 (9th Cir. 1995)); see also In re Johnston, 321 B.R. 262, 2737-4 (D. Ariz. 2005). Despite the broad protection the stay affords, it is not without limits. 542 F.3d 684, 689-90 (9th Cir. 2008) (citing Section 362(d) allows the court, upon request of a “party in interest,” to grant relief from the stay, “such as terminating, annulling, modifying, or conditioning such stay.” 11 U.S.C. § 362(d)(1). The court may grant relief “for cause, including the lack of adequate protection.” Id. The court may also grant relief from the stay with respect to specific property of the estate if the debtor lacks equity in the property and the property is not necessary to an effective reorganization. 11 U.S.C. § 362(d)(2).

Any party affected by the stay should be entitled to seek relief. 3 COLLIER’S ON BANKRUPTCY ¶ 362.07[2] (Henry Somers & Alan Resnick, eds. 15th ed., rev. 2009); Matter of Brown Transp. Truckload, Inc., 118 B.R. 889, 893 (Bankr. N.D. Ga. 1990); In re Vieland, 41 B.R. 134, 138 (Bankr. N.D. Ohio 1984)). Relief from stay hearings are limited in scope — the validity of underlying claims is not litigated. In re Johnson, 756 F.2d 738, 740 (9th Cir. 1985). As one court has noted, “[s]tay relief hearings do not involve a full adjudication on the merits of claims, defenses or counterclaims, but simply a determination as to whether a creditor has a colorable claim.” In re Emrich, 2009 WL 3816174, at *1 (Bankr. N.D. Cal. 2009).

Nevertheless, in order to establish a colorable claim, a movant for relief from stay bears the burden of proof that it has standing to bring the motion. In re Wilhelm, 407 B.R. 392, 400 (Bankr. D. Idaho 2009). The issue of standing involves both “constitutional limitations on federal court jurisdiction and prudential limitations on its exercise.” Warth v. Seldin, 422 U.S. 490, 498 (1975). Constitutional standing concerns whether the plaintiff’s personal stake in the lawsuit is sufficient to have a “case or controversy” to which the federal judicial power may extend under Article III. Id.; see also Lujan v. Defenders of Wildlife, 504 U.S. 555, 559-60 (1992); Pershing Park Villas Homeowners Ass’n v. United Pac. Ins. Co., 219 F.3d 895, 899 (9th Cir. 2000).

Additionally, the “prudential doctrine of standing has come to encompass several judicially self-imposed limits on the exercise of federal jurisdiction.'” Pershing Park Villas, 219 F.3d at 899. Such limits are the prohibition on third-party standing and the requirement that suits be maintained by the real party in interest. See Warth v. Seldin, 422 U.S. at 498-99; Gilmartin v. City of Tucson, 2006 WL 5917165, at *4 (D. Ariz. 2006). Thus, prudential standing requires the plaintiff to assert its own claims rather than the claims of another. The requirements of Fed. R. Civ. P. 17, made applicable in stay relief motions by Rule 9014, “generally falls within the prudential standing doctrine.” In re Wilhelm, 407 B.R. at 398.

B. GMAC’s Standing

GMAC advances three different arguments in support of its claim to be a “party in interest” with standing to seek relief from stay. First, GMAC asserts it has standing because the Note was endorsed to GMAC and GMAC has physical possession of the Note. Second, GMAC asserts that by virtue of the MERS Assignment, it is a beneficiary of the DOT and entitled to enforce and foreclose the DOT under Arizona law. Third, GMAC asserts it has standing because it is the servicer of the Note. The court addresses each of GMAC’s claims in turn.

1. GMAC Has Not Demonstrated That It Is A Holder Of The Note

If GMAC is the holder of the Note, GMAC would be a party injured by the Debtor’s failure to pay it, thereby satisfying the constitutional standing requirement. GMAC would also be the real party in interest under Fed. R. Civ. P. 17 because under ARIZ. REV. STAT. (“A.R.S.’) § 47-3301, the holder of a note has the right to enforce it.[ 2 ] However, as discussed below, GMAC did not prove it is the holder of the Note.

Under Arizona law, a holder is defined as “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.” A.R.S. § 47-1201(B)(21)(a).[ 3 ] GMAC has failed to demonstrate that it is the holder of the Note because, while it was in possession of the Note at the evidentiary hearing, it failed to demonstrate that the Note is properly payable to GMAC. A special endorsement to GMAC was admitted into evidence with the Note. However, for the Endorsement to constitute part of the Note, it must be on “a paper affixed to the instrument.” A.R.S. § 47-3204; see also In re Nash, 49 B.R. 254, 261 (Bankr. D. Ariz. 1985). Here, the evidence did not demonstrate that the Endorsement was affixed to the Note. The Endorsement is on a separate sheet of paper; there was no evidence that it was stapled or otherwise attached to the rest of the Note. Furthermore, when GMAC filed its proof of claim, the Endorsement was not included, which is a further indication that the allonge containing the Endorsement was not affixed to the Note.[ 4 ]

In Adams v. Madison Realty & Dev., Inc., 853 F.2d 163 (3d Cir. 1988), the plaintiffs executed promissory notes which, after a series of transfers, came into the defendant’s possession. At issue was whether the defendant was the rightful owner of the notes. The court held that the defendant was not entitled to holder in due course status because the endorsements failed to meet the UCC’s fixation requirement. Id. at 168-69. The court relied on UCC section 3-202(2) [A.R.S. § 47-3204]: “An indorsement must be written by or on behalf of the holder and on the instrument or on a paper so firmly affixed thereto as to become a part thereof.” Id. at 165. Since the endorsement page, indicating that the defendant was the holder of the note, was not attached to the note, the court found that the note had not been properly negotiated. Id. at 166-67. Thus, ownership of the note never transferred to the defendant. Applying that principle to the facts here, GMAC did not become a holder of the Note due to the improperly affixed special endorsement.

While the bankruptcy court in In re Nash, 49 B.R. 254 (Bankr. D. Ariz. 1985) found that holder in due course status existed even though an allonge was not properly affixed to an instrument, the court based its determination on the clear intention that the note assignment be physically attached because: (1) the assignment was signed and notarized the same day as the trust deed; (2) the assignment specifically referenced the escrow number; (3) the assignment identified the original note holder; and (4) the assignment recited that the note was to be attached to the assignment. Id. at 261.

In this case, however, there is no proof that the allonge containing the special endorsement from GreenPoint to GMAC was executed at or near the time the Note was executed. Furthermore, the Endorsement does not have any identifying numbers on it, such as an account number or an escrow number, nor does it reference the Note in any way. There is simply no indication that the allonge was appropriately affixed to the Note, in contradiction with the mandates of A.R.S. § 47-3204. Thus, there is no basis in this case to depart from the general rule that an endorsement on an allonge must be affixed to the instrument to be valid.

GMAC cannot overcome the problems with the unaffixed Endorsement by its physical possession of the Note because the Note was not endorsed in blank and, even if it was, the problem of the unaffixed endorsement would remain.[ 5 ] As a result, because GMAC failed to meet its burden of demonstrating that the Endorsement was proper, it has failed to demonstrate that it is the holder of the Note.

2. The MERS Assignment Of The DOT Did Not Provide GMAC With Standing

GMAC argues that it has standing to bring the Motion as the assignee of MERS.[ 6 ] In this case, MERS is named in the DOT as a beneficiary, solely as the “nominee” of GreenPoint, holding only “legal title” to the interests granted to GreenPoint under the DOT. A number of cases have held that such language confers no economic benefit on MERS. See, e.g., In re Sheridan, 2009 WL 631355, *4 (Bankr. D. Idaho 2009); In re Mitchell, 2009 WL 1044368, *3-4 (Bankr. D. Nev. 2009); In re Jacobson, 402 B.R. 359, 367 (Bankr. W.D. Wash. 2009). As noted by the Sheridan court, MERS “collect[s] no money from [d]ebtors under the [n]ote, nor will it realize the value of the [p]roperty through foreclosure of the [d]eed of [t]rust in the event the [n]ote is not paid.” 2009 WL 631355 at *4.

Because MERS has no financial interest in the Note, it will suffer no injury if the Note is not paid and will realize no benefit if the DOT is foreclosed. Accordingly, MERS cannot satisfy the requirements of constitutional standing. GMAC, as MERS’ assignee of the DOT, “stands in the shoes” of the assignor, taking only those rights and remedies the assignor would have had. Hunnicutt Constr., Inc. v. Stewart Title & Trust of Tucson, Trust No. 3496, 187 Ariz. 301, 304 (Ct. App. 1996) citing Van Waters & Rogers v. Interchange Res., Inc., 14 Ariz. App. 414, 417 (1971); In re Boyajian, 367 B.R. 138, 145 (9th Cir. BAP 2007). Because GMAC is MERS’ assignee, it cannot satisfy the requirements of constitutional standing either.[ 7 ]

3. GMAC Does Not Have Standing As The Servicer Of The Note

(a) Servicer’s Right To Collect Fees For Securitized Mortgages

Securitization of residential mortgages is “the process of aggregating a large number of notes secured by deeds of trust in what is called a mortgage pool, and then selling security interests in that pool of mortgages.” Kurt Eggert, Held Up In Due Course: Predatory Lending, Securitization, and the Holder in Due Course Doctrine, 35 CREIGHTON L. REV. 503, 536 (2002). The process begins with a borrower negotiating with a mortgage broker for the terms of the loan. Then, the mortgage broker either originates the loan in its own name or in the name of another entity, which presumably provides the money for the loan. Almost immediately, the broker transfers the loan to the funding entity. “This lender quickly sells the loan to a different financial entity, which pools the loan together with a host of other loans in a mortgage pool.” Id. at 538.

The assignee then transfers the mortgages in the pool to another entity, which in turn transfers the loans to a special purpose vehicle (“SPV”,) whose sole role is to hold the pool of mortgages. Id. at 539. “The transfer to the special purpose trust must constitute a true sale, so that the party transferring the assets reduces its potential liability on the loans and exchanges the fairly illiquid loans for much more liquid cash.” Id. at 542. Next, the SPV issues securities which the assignee sells to investors. Id. at 539.

Once the securities have been sold, the SPV is not actively involved. It “does not directly collect payments from the homeowners whose notes and deeds of trust are held by the SPV.” Id. at 544. Rather, servicers collect the principal and interest payments on behalf of the SPV. Id. Fees are associated with the servicing of loans in the pool. Therefore, GMAC would have constitutional standing if it is the servicer for the Note and DOT because it would suffer concrete injury by not being able to collect its servicing fees.[ 8 ]In re O’Kelley, 420 B.R. 18, 23 (D. Haw. 2009) . In this case, however, the evidence does not demonstrate that the Note and DOT were transferred to the Trust, and, without that evidence, there is no demonstration that GMAC is the servicer of the Note.

(b) There Is Insufficient Evidence That The Note Was Sold To Lehman And Became Part Of The Trust

When the Debtor executed the Note and DOT, GreenPoint was the original holder of the Note and the economic beneficiary of the DOT. GreenPoint, allegedly, transferred the Note to Lehman pursuant to the FISA. However, the term “mortgage loans” is not defined in the FISA and GMAC’s documents regarding the securitization of the Note and DOT provide no evidence of actual transfers of the Note and DOT to either the FISA or the Trust. Because such transfers must be “true sales,” they must be properly documented to be effective. Thus, to use an overused term, GMAC has failed “to connect the dots” to demonstrate that the Note and DOT were securitized. Accordingly, it is immaterial that GMAC is the servicer for the Trust.

C. Debtor’s Other Arguments

1. Securities Investors Are Not The Only Individuals Who Can Satisfy Standing Requirements When Dealing With A 362 Motion on a “Securitized” Mortgage

The Debtor argues that, in an asset securitization scheme, only the securities investors have standing to seek stay relief because they are the only parties with a financial interest in the securitized notes. However, because the Debtor executed the Note and received consideration (which he used to purchase the house), the contract is enforceable regardless of who provided the funding. In other words, the fact that the funds for a borrower’s loan are supplied by someone other than the loan originator, does not invalidate the loan or restrict enforcement of the loan contract to the parties who funded the loan. A number of cases and treatises recognize that consideration for a contract, including a promissory note, can be provided by a third party. See, e.g., DCM Ltd. P’ship v. Wang, 555 F. Supp. 2d 808, 817 (E.D. Mich. 2008); Buffalo County v. Richards, 212 Neb. 826, 828-29 (Neb. 1982); 3 WILLISTON ON CONTRACTS § 7:20 (Richard A. Lord, 4th ed. 2009); RESTATEMENT (SECOND) OF CONTRACTS § 71(4) (2009).

Notes are regularly assigned and the assignment does not change the nature of the contract. The assignee merely steps into the shoes of the assignor. In re Boyajian, 367 B.R. 138, 145 (9th Cir. BAP 2007); In re Trejos, 374 B.R. 210, 215 (9th Cir. BAP 2007). No additional consideration is required, as opposed to a novation which creates a new obligation. Id. at 216-17 citing RESTATEMENT (SECOND) OF CONTRACTS § 280, cmt. e. Therefore, the Debtor’s argument that the Note is unenforceable because the funder of the Note was not the payee fails. The Note is still valid and can be enforced by the party who has the right to enforce it under applicable Arizona law.

2. Proof Of A Note’s Entire Chain Of Ownership Is Not Necessary For Stay Relief

A movant for stay relief need only present evidence sufficient to present a colorable claim — not every piece of evidence that would be required to prove the right to foreclose under a state law judicial foreclosure proceeding is necessary. In re Emrich, 2009 WL 3816174, at *1 (Bankr. N.D. Cal. 2009). Accordingly, not every movant for relief from stay has to provide a complete chain of a note’s assignment to obtain relief.

Arizona’s deed of trust statute does not require a beneficiary of a deed of trust to produce the underlying note (or its chain of assignment) in order to conduct a Trustee’s Sale. Blau v. Am.’s Serv. Co., 2009 WL 3174823, at *6 (D. Ariz. 2009); Mansour v. Cal-W. Reconveyance Corp., 618 F. Supp. 2d 1178, 1181 (D. Ariz. 2009); Diessner v. Mortg. Elec. Registration Sys., 618 F. Supp. 2d 1184, 1187 (D. Ariz. 2009). It would make no sense to require a creditor to demonstrate more to obtain stay relief than it needs to demonstrate under state law to conduct a judicial or non-judicial foreclosure. Moreover, if a note is endorsed in blank, it is enforceable as a bearer instrument. See In re Hill, 2009 WL 1956174, at *2 (Bankr. D. Ariz. 2009). Therefore, this Court declines to impose a blanket requirement that all movants must offer proof of a note’s entire chain of assignments to have standing to seek relief although there may be circumstances where, in order to establish standing, the movant will have to do so.

3. The Movant Has Not Violated Rule 9011

The Debtor argues that GMAC “violated Rule 7011” by presenting insufficient and misleading evidence. Given that there is no Rule 7011, the Court assumes that the Debtor was actually referring to Bankruptcy Rule 9011. Rule 9011 allows a court to impose sanctions for filing a frivolous suit. FED. R. BANKR. P. 9011(c); see also FED. R. CIV. P. 11(c). As noted at the evidentiary hearing, the Court did not find that GMAC filed its motion for relief stay in bad faith, nor does this Court believe GMAC filed its motion thinking it did not have proper evidentiary support. There are numerous, often conflicting, decisions on the issues of “real party in interest” and constitutional standing, and what evidence must be presented by a servicer seeking stay relief. The record in this case does not support imposition of 9011 sanctions.

VI. CONCLUSION

GMAC has not demonstrated that it has constitutional or prudential standing or is the real party in interest entitled to prosecute a motion for relief from stay.

Accordingly, its motion is DENIED without prejudice.

FLA BK COURT STOPS US BANK N.A. NO STANDING FEB 2010

The Affidavit executed by Movant’s loan servicer makes no mention of the location of the original Note or who has possession of it. Movant proffered no business records or testimony tracing ownership of the Note and establishing Movant is the present holder of the Note.

The Affidavit executed by Movant’s loan servicer makes no mention of the location of the original Note or who has possession of it. Movant proffered no business records or testimony tracing ownership of the Note and establishing Movant is the present holder of
the Note.
The veracity of the Allonge and Assignment is questionable. The dates contained in the Allonge are chronologically impossible. The Allonge is dated August 1, 2006, but references a trust that came into existence on October 31, 2006. The signature of Jennifer Henninger is undated and not notarized. The Allonge was not referenced in or filed with Movant’s Motion in October 2009, but was presented three months later as an attachment to its post-hearing brief.

The Assignment was executed and recorded post-petition approximately two weeks prior to Movant’s filing of the Motion for Relief. It was prepared by Jennifer Henninger, who executed the Allonge, and was recorded by the law firm that is representing Movant in this proceeding. Jack Jacob’s execution of the Assignment was notarized by Jennifer Henninger and witnessed by Louis Zaffino, the affiant of Movant’s Affidavit. It appears the Allonge and the Assignment were created post-petition for the purpose of the relief from stay proceeding. Movant did not establish Jennifer Henninger and Jack Jacob had authority to execute the Allonge and Assignment.


FLA BK COURT STOPS US BANK N.A. NO STANDING FEB 2010

UNITED STATES BANKRUPTCY COURT
MIDDLE DISTRICT OF FLORIDA
ORLANDO DIVISION

In re:

JORGE CANELLAS, Case No. 6:09-bk-12240-ABB
Chapter 7
Debtor.
_____________________________/

ORDER

This matter came before the Court on the Motion for Relief from Stay (Doc. No.
22) (“Motion”) filed by U.S. Bank National Association, as Trustee of the Lehman
Brothers Small Balance Commercial Mortgage Pass-Through Certificates, 2006-3
(“Movant”), and the Objection thereto (Doc. No. 25) filed by the Chapter 7 Trustee Carla P. Musselman (“Trustee”). Hearings were held on November 23, 2009, December 7, 2009, December 21, 2009, and January 4, 2010 at which the Trustee, her counsel, counsel for Movant, and counsel for the Debtor Jorge Canellas (“Debtor”) appeared.

The parties, pursuant to the Court’s directive, filed post-hearing briefs (Doc. Nos. 43, 45, 46, and 47). The Movant’s Motion is due to be denied for the reasons set forth herein. The Court makes the following findings of fact and conclusions of law after
reviewing the pleadings and evidence, hearing live proffers and argument, and being
otherwise fully advised in the premises.

Hoffner Avenue Property

The Debtor filed this case on August 21, 2009 (“Petition Date”). He owns commercial property located at 830 Hoffner Avenue, Orlando, Florida 32809
(“Property”) and more particularly described as:
Lot 7, SUNDAY BLOCK, according to the plat thereof, recorded in Plat Book O, Page 27, of the Public Records of Orange County, Florida.

He values the Property at $250,000.00 and listed “Aurora” in Schedule D as holding a
security interest in the Property valued at $0.00 (Doc. No. 1). The security interest is not designated as contingent, unliquidated, or disputed. He did not claim the Property as exempt in Schedule C. The Property constitutes non-exempt property of the estate
pursuant to 11 U.S.C. Section 541(a).

The Debtor filed an Affidavit (Doc. No. 47) asserting the Property is important to his appraisal business, Appraisers of America, because he operates his business at the Property. The Debtor’s statements regarding his business location and intentions as to
the Property are inconsistent. He set forth in this Statement of Financial Affairs (Doc. No. 1) he operates the business at his home at 2033 Bearing Lane, Kissimmee, Florida 34741. He set forth in his Statement of Intention (Doc. No. 1) he intends to surrender the Property. His Schedule J does not include a monthly expense for the Property.

The Trustee filed a memorandum on October 21, 2009 stating the initial meeting of creditors pursuant to 11 U.S.C. Section 541 was held and concluded on October 14, 2009, but she has not designated this case as an asset or no asset case. No bar date has
been established for the filing of proofs of claim. No proofs of claim have been filed.
The Debtor received a discharge on December 22, 2009 (Doc. No. 39).

Movant filed the Motion for Relief from Stay on October 19, 2009 seeking relief from the automatic stay of 11 U.S.C. Section 362(a) pursuant to 11 U.S.C. Sections
362(d)(1) and (d)(2) to continue a foreclosure proceeding against the Property which was
pending on the Petition Date. Movant asserts in its Motion:

(i) It is the “owner and holder” of a promissory note and first-priority mortgage on the Property pursuant to an Assignment of Mortgage and Loan Documents.
(ii) The Debtor has failed to pay the monthly mortgage payment of $2,282.90 since May 1, 2009 and the loan balance is approximately $300,662.84, which contains interest charges of $18,232.08, late charges of $570.70, and forced placed insurance
costs of $11,314.24.
(iii) The Property has a value of $178,273.00 based upon the Orange County Property Appraiser’s 2009 assessment.
(iv) Legal title to the Property is vested in the Debtor.
Accompanying Movant’s Motion are:

A. An Affidavit in Support of Motion for Relief from Stay executed in the State of California on October 9, 2009 by Louis Zaffino as a special assets officer at
Aurora Bank FSB, which is Movant’s authorized servicer and services the Debtor’s loan.
The Affidavit sets forth the loan balance and a break-down of the arrearages.

B. A copy of the Promissory Note (“Note”) executed by the Debtor as Borrower on August 1, 2006 for the principal amount of $274,500.00 payable to Lehman
Brothers Bank, FSB as Lender. The Note requires the Debtor to make monthly loan payments of principal and interest of $2,282.90 to Lender from October 1, 2006 for sixty months and thereafter at varying monthly amounts. The interest rate is variable. The
Note designates the loan as Loan Number 00207199.
The Note provides it is secured by the Property described in the Mortgage dated August 1, 2006. It sets forth at page 2: “The terms of this Note . . . shall inure to the benefit of Lender and its successors and assigns. . . .” and it is “governed by federal law
applicable to Lender and, to the extent not preempted by federal law, the laws of the State
of California without regard to its conflicts of law provisions.”

C. A copy of the Mortgage dated August 1, 2006 and executed by the Debtor as Grantor, and his wife Amanda Crim as the joining spouse, in favor Lehman Brothers Bank, FSB as Lender pursuant to which the Debtor granted Lender a first-priority
mortgage in the Property, its rents, and personal property to secure his performance of the
Note obligations. The Mortgage references Loan Number 00207199, the Note, and contains an identical legal description for the Property as contained in the Note.

The Mortgage provides regarding governing law:
With respect to procedural matters related to the perfection and enforcement of Lender’s rights against the Property, this Mortgage will be governed by federal law applicable to Lender and to the extent not
preempted by federal law, the laws of the State of Florida. In all other respects, this Mortgage will be governed by federal law applicable to Lender and, to the extent preempted by federal law, the laws of the State of California without regard to its conflicts of law provisions.

Mortgage at p. 7. It provides regarding successors and assigns: Subject to any limitations stated in this Mortgage on transfer of Grantor’s interest, this Mortgage shall be binding upon and inure to the benefit of the parties, their successors and assigns.
Id. “Lender” is defined as “Lehman Brothers Bank, FSB, its successors and assigns.” Id.

The recordation stamp on page one of the Mortgage reflects it was recorded in the Official Records Book for Orange County, Florida on August 15, 2006 as Instrument 20060534342 at Book 08805, Page 4292.

D. A copy of an Assignment of Mortgage and Loan Documents (“Assignment”) executed on September 28, 2009 by Jack Jacob as the Vice President of
“Aurora Bank FSB f/k/a Lehman Brothers Bank, FSB,” and notarized on September 30, 2009, purporting to assign the Mortgage and underlying loan documents from Aurora Bank FSB, formerly known as Lehman Brothers Bank, FSB, as Assignor, to and in favor
of Movant, as Assignee, “effective as of the 30th day of November, 2006.”

The Assignment references the Mortgage’s Book and Page Numbers and the Property’s common and legal descriptions. The recordation stamp on its first page
reflects it was recorded in the Official Records Book for Orange County, Florida on October 5, 2009 at Book 9944, Page 1038.

Trustee’s Objection

The Trustee opposes Movant’s Motion on the grounds Movant lacks standing to obtain stay relief and it failed to perfect its security interest prior to the Petition Date.
Her opposition is grounded on the contention the Assignment is invalid. She has
presented various legal theories in support of her position:

1.Aurora Bank FSB f/k/a Lehman Brothers Bank did not own the Mortgage and Promissory Note on the date of execution of the Assignment and had no authority to assign them to Movant.
2. By the terms of the two securitized trusts for Lehman Brothers designated 2006-3 registered with the U.S. Securities and Exchange
Commission, no assignment occurred.
3. The Assignment was executed and recorded post-petition and may constitute a violation of the automatic stay pursuant to 11 U.S.C. Section 362(a)(4).
4. Movant has not established that on the Petition Date it had physical possession of the original Promissory Note properly endorsed in its favor.
5. Lehman Brothers’ ability to enforce the Promissory Note or Mortgage was extinguished in 2006 when it was paid by the Trust for the pool of mortgages which form the Trust’s corpus.
6. Title between the Promissory Note and Mortgage were bifurcated, thereby rendering the Mortgage unenforceable.
The Trustee asserts Movant is an unsecured creditor and she has authority to sell the Property free and clear of encumbrances for the benefit of the estate.
Movant asserts the Note and Mortgage are owned by the Lehman Brothers Small Balance Commercial Mortgage Pass-Through Certificates, 2006-3, a private securitized trust, and Movant, as the asserted owner and holder of the Note and Mortgage, has
authority to enforce the security interest. Movant presented with its post-hearing brief an Allonge to Promissory Note (“Allonge”) purportedly dated August 1, 2006 and executed by Jennifer Henninger as the Special Assets Administrative Assistant of Aurora Bank FSB directing: Pay to the Order of U.S. Bank National Association, as Trustee (the
‘Trustee’) under the Trust Agreement dated as of October 31, 2006, among Structured Asset Securities Corporation, as Depositor, Lehman
Brothers Bank, FSB, as Servicer, and the Trustee relating to Lehman Brothers Small Balance Commercial Mortgage Pass-Through Certificates,
Series 2006-3, without recourse.

Doc. No. 46 (emphasis added).

The Debtor filed an Affidavit (Doc. No. 47) stating he had no prepetition communications with Movant, was not aware Movant had a security interest in the
Property, and, if the Assignment is deemed invalid, desires to purchase the Property from the Trustee.

Analysis

The evidence presented establishes the Property is encumbered by the Mortgage, which secures the Debtor’s performance of the Note. The Mortgage was properly perfected pre-petition through its recordation in the Official Records Book for Orange
County, Florida. The Mortgage and Note have not been bifurcated. The Mortgage has not been satisfied. The Debtor had actual knowledge of the unsatisfied Mortgage and the Trustee, through the recordation of the original Mortgage, had constructive, if not actual,
knowledge of the unsatisfied Mortgage. Kapila v. Atlantic Mortgage and Inv. Corp. (In re Halabi), 184 F.3d 1335, 1339 (11th Cir. 1999).

The purported assignment of the Note and Mortgage to Movant does not affect perfection or constitute a transfer of property of the estate or the Debtor. Id. at 1337.
“[A] subsequent assignment of the mortgagee’s interest – whether recorded or not – does not change the nature of the interest of the mortgagor or someone claiming under him.”
Id. at 1338. Recordation of an assignment post-petition does not constitute a violation of the automatic stay. Id. at 1337; Rogan v. Bank One, N.A. (In re Cook), 457 F.3d 561, 568 (6th Cir. 2006) (affirming the analysis of In re Halabi).

It is uncontroverted the Note has been in default since approximately May 2009 and a balance of approximately $300,662.84 is due and owing. The Debtor, who is a property appraiser, values the Property at $250,000.00 and Movant values the Property at $178,000.00. The Debtor is not making adequate protection payments to Movant. There
is no equity in the Property and it is not necessary to an effective reorganization given this is a Chapter 7 proceeding and the disclosures made by the Debtor regarding the Property in his bankruptcy papers. Grounds exist for relief from the automatic stay
pursuant to 11 U.S.C. Sections 362(d)(1) and (d)(2).

Movant’s Motion, however, is due to be denied because Movant has failed to establish it has standing to seek stay relief. A motion for relief from the automatic stay must be prosecuted in the name of the real party in interest. 11 U.S.C. § 362(d); FED. R. 7
CIV. P. 17(a)(1); FED. R. BANKR. P. 7017. “The real party in interest in relief from stay is whoever is entitled to enforce the obligation sought to be enforced.” In re Jacobson, 402 B.R. 359, 366 (Bankr. W.D. Wash. 2009). Only the holder of the Note and Mortgage, or
its authorized agent, has standing to bring the Motion. Id. at 367.
Movant asserts in its Motion it is the “owner and holder” of the Note and Mortgage, but has presented no evidence substantiating that assertion. The copies of the Note presented do not contain an endorsement evidencing an assignment of the Note.
The Affidavit executed by Movant’s loan servicer makes no mention of the location of the original Note or who has possession of it. Movant proffered no business records or testimony tracing ownership of the Note and establishing Movant is the present holder of
the Note.

The veracity of the Allonge and Assignment is questionable. The dates contained in the Allonge are chronologically impossible. The Allonge is dated August 1, 2006, but references a trust that came into existence on October 31, 2006. The signature of Jennifer Henninger is undated and not notarized. The Allonge was not referenced in or filed with Movant’s Motion in October 2009, but was presented three months later as an attachment to its post-hearing brief.

The Assignment was executed and recorded post-petition approximately two weeks prior to Movant’s filing of the Motion for Relief. It was prepared by Jennifer Henninger, who executed the Allonge, and was recorded by the law firm that is representing Movant in this proceeding. Jack Jacob’s execution of the Assignment was notarized by Jennifer Henninger and witnessed by Louis Zaffino, the affiant of Movant’s Affidavit. It appears the Allonge and the Assignment were created post-petition for the purpose of the relief from stay proceeding. Movant did not establish Jennifer Henninger and Jack Jacob had authority to execute the Allonge and Assignment.

Movant’s submissions are insufficient to establish it is the owner and holder of the Note and Mortgage or is authorized to act for whoever holds these documents. In re Relka, No. 09-20806, 2009 WL 5149262, at *5 (Bankr. D. Wyo. Dec. 22, 2009) (granting
stay relief where movant established possession of note through testimony of witness
who personally retrieved note from movant’s vault); In re Jacobson, 402 B.R. at 370 (denying movant’s stay relief motion due to movant’s failure to establish it was holder of note); In re Hayes, 393 B.R. 259, 270 (Bankr. D. Mass. 2008) (denying movant’s stay relief motion and sustaining debtor’s claim objection due to movant’s failure to establish it was holder of note). Movant has not established it has standing to bring the Motion and the Motion is due to be denied.

Accordingly, it is

ORDERED, ADJUDGED AND DECREED that the Property located at 830 Hoffner Avenue, Orlando, Florida 32809 and more particularly described as:

Lot 7, SUNDAY BLOCK, according to the plat thereof, recorded in Plat Book O, Page 27, of the Public Records of Orange County, Florida is encumbered by the Mortgage executed by the Debtor on August 1, 2006 and recorded in the Official Records Book for Orange County, Florida on August 15, 2006 as
Instrument 20060534342 at Book 08805, Page 4292, which Mortgage constitutes a valid properly perfected lien, and which secures the Promissory Note executed by the Debtor on August 1, 2006 in the principal amount of $274,500.00 and designated as Loan
Number 00207199; and it is further ORDERED, ADJUDGED AND DECREED that the amount of the Mortgage lien encumbering the Property exceeds the Property’s value and there is no equity in the
Property; and it is further ORDERED, ADJUDGED AND DECREED that the Movant’s Motion for
Relief from Stay (Doc. No. 22) is hereby DENIED due to Movant’s failure to establish it
has standing to bring the Motion; and it is further

ORDERED, ADJUDGED AND DECREED that the Trustee, within twenty-one days of the entry of this Order, is hereby directed, pursuant to 11 U.S.C. Section 704(a) and Federal Rule of Civil Procedure 5009, to file with the Court a Report of No Distribution or to designate this case as an asset case.

Dated this 9th day of February, 2010.

/s/ Arthur B. Briskman

ARTHUR B. BRISKMAN
United States Bankruptcy Judge

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