Miuse of Lift Stay Order Causes Chaos in State and Federal Courts

I have noticed on many occasions that the bankruptcy court judges are adding to the orders some language of finding that the movant is the owner of the loan. The court lacks jurisdiction to consider those issues and that is the reason why the act of lifting the stay is a ministerial act based upon a preliminary finding that the movant has some colorable right to proceed.

It is nothing more than an order of remand outside the administrative side of the bankruptcy following which the debtor ought to be able to file either an adversary proceeding in the Bankruptcy action, a federal civil action with the Federal District Civil Court or the state court of competent jurisdiction.

But when filed outside the adversary proceeding in the bankruptcy court, the debtor is often met with the argument that the matter has already been litigated and that therefore the debtor should be barred from “re-litigating” the issue under the Rooker-Feldman doctrine, or the common law doctrines of collateral estoppel or res judicata.

Frequently uninformed Judges accept this argument as true. While it is true that good research and writing of memorandums might suffice I have suggested to attorneys that they attack the source — the bankruptcy Judge in the administrative proceedings in which the bankruptcy is being processed.

Based upon this I have advised several attorney who have asked for my research and opinion, that the court be advised that the lift stay order is going to be misused and that the court lacks jurisdiction to do anything other than grant or deny the motion to lift stay. But many Judges are adding language that implies that the matter has been litigated, which causes unending procedural problems for the homeowners.

If you lose, you ought to ask the Judge to insert language in the order that the order may not be construed as a findings of fact based upon an adversary hearing in which evidence was presented on the merits of the intended foreclosure or the the debtor’s defenses.

The problem you are addressing is that if the lift stay order is entered, it is often construed by state courts as being conclusive as to the issue of the ownership of the loan, the legal ability of the forecloser to submit a credit bid, and your potential defenses.

This is particularly true where Judges gratuitously add, at the urging of the would-be forecloser that the forecloser is the owner of the loan. Since the burden of proof required at a motion to lift stay hearing is merely whether there exists some “colorable” right to proceed, it is not a hearing in which due process  has been afforded the debtor as to the merits of the supposed creditor’s claim nor the defenses of the debtor, where the burden of proof is at least a preponderance of the evidence.

So I often suggest that counsel for the debtor specifically request that if the Judge is inclined to grant the lift stay order, that the Judge also recite the fact that this order should not be construed as barring the defenses or claims of the debtor under the Rooker-Feldman doctrine, res judicata or collateral estoppel, which is something for the state court to decide.

Whether you are filing or speaking or both, the wording should go something like this (check with licensed counsel as to form and content):

1. The debtor denies that the party seeking relief from stay is a creditor of the bankruptcy estate or an authorized representative of any creditor. In fact, the moving party refuses to provide the identity of the creditor who could submit a credit bid in lieu of cash at auction and refuses to provide either the debtor or this court with any evidence from the Master Servicer which has access to the loan receivable account that contains all of the receipts and disbursements relative to this loan and the pool it is alleged to be the owner of the loan.
2. Debtor also denies that a perfected lien exists in which this moving party or any other party can foreclose.
3. Debtor denies the default, since the subservicer and other parties continued to make payments to the creditor’s loan or bond receivable account after the alleged declaration of default and notice of sale. Hence even if this court were to decide that the “colorable” claim threshold had been met, the order entered should not be subject to claims by this movant that a default exists or that it is the the actual owner of a loan receivable account in which the balance is deficient or payments have not been made to the creditor.
4. In fact, based upon public records, it is apparent that a mortgage bond was issued in lieu of an account or loan receivable and that the account was or should be credited with payments received by insurance, credit default swaps and other contractual arrangements with the subservicer and master Servicer in which the creditor was paid or credited with those payments that expressly waived subrogation and which did not involve an assignment or purchase of the loan.
5. Based upon the facts thus far discovered by debtor and the lack of evidence offered by the the party seeking the right to foreclose, debtor specifically denies that she ever entered into a financial transaction with this party or any of its predecessors. Debtor admits that she has had many loans or credit with many parties as is evident from the schedules filed in this bankruptcy, but none of those included this party moving to lift stay or any predecessors.
6. If the court were to enter an order based upon the “colorable” interest doctrine, Debtor respectfully requests that this party or any successors be barred from using this order as a matter that had had already been litigated and that debtor be permitted to assert claims and defenses in the state court, as these would-be foreclosers have claimed when the debtor brings actions for Temporary restraining Orders and other claims.
7. Debtor denies the the note is evidence of any loan owed by debtor to this movant or any of its predecessors and denies therefore that the Deed of Trust constitutes a perfected lien against the subject property and further denies that the power of sale contained in the Deed of Trust can be exercised —particularly without an adversary proceeding in which evidence is presented with proper foundation through testimony of competent witnesses that the debtor can cross examine.
8. In fact, upon information and belief, the wire transfer instructions received by a closing agent specifically exclude this movant and any predecessors in interest or asserted interest regarding the loan origination documents, that were not and never were supported by consideration nor were any “assignments” or sales of the loan ever supported by consideration in which value or money exchanged hands. Debtor denies that the named payee was the lender or source of funds for any loan and therefore could not neither be the beneficiary under the deed of trust nor have any nominee as beneficiary under the deed of trust.
9. This is being brought to the court’s attention at a late date because the information about the origination of the loan only recently came into the hands of the debtor.
10. Debtor denies the validity and authenticity of any documents proffered by the supposed creditor to whom no money is owed and who lacks any right, justification or excuse to bring any collection or foreclosure proceeding since it neither funded nor purchased the loan.
11. Even in a motion to lift say, the burden is upon the movant to bring forward some competent evidence in which the foundation for any documents being used to support the motion are supported by the testimony of a witness that is competent to testify — on personal knowledge of the all of the receivable instead of the partial accounting from the subservicer upon which the the movant and the trustee on the deed of trust rely. Debtor denies that such a witness exists because the facts upon which such a witness would be required to testify also do not exist.
12. Debtor intends to bring an adversary action against this movant for wrongful foreclosure, abuse of process and slander of title, amongst other causes of action. If the court denies the motion to lift stay, debtor shall file the adversary action in the in this Court. If the Court grants the motion to lift stay, debtor shall file the proceeding in state court. Debtor requests that her meritorious claims not be barred by misuse of civil procedure and misuse of the rules of evidence and common law doctrines based upon a hearing whose burden of proof is less than “probable cause” in criminal actions.

If the BKR judge disagrees, then statistics would indicate that a LATERAL appeal to the District Court judge would have a much higher likelihood (50%) of success than an appeal to the BAP (15%) or Circuit Court of Appeal (15%).

Rooker Feldman Doctrine: Another Look At Standing and Necessary Parties

In Rooker v. Fidelity Trust Company, 263 U.S. 413, 416 (1923) the Court held that the federal district court had no subject matter jurisdiction to entertain what was essentially an appeal seeking to review the substantive merits of a final state court judgment. The Court noted that the common law bill was merely an attempt to collaterally attack the judgment for alleged errors of law committed in the state court.

Rooker simply provides that where a final state court judgment has been rendered, after due hearing, by a state trial court, with jurisdiction of the subject matter and parties, and fairly presented to the highest state court in which a decision could be obtained, then only the resort for correction of errors involving federal questions is by certiorari to the United States Supreme Court under 28 U.S.C. § 1257.

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