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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