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IN RE: MILLER | 10th Cir. Court of Appeals Reverses 10th Cir. BAP “Under the U.C.C. … Deutsche Bank failed to show that it is the current holder of IndyMac’s Note”

IN RE: MILLER | 10th Cir. Court of Appeals Reverses 10th Cir. BAP “Under the U.C.C. … Deutsche Bank failed to show that it is the current holder of IndyMac’s Note”

 United States Court of Appeals, Tenth Circuit.

In re: MARK STANLEY MILLER, also known as A Moment to Remember Photo & Video, also known as Illusion Studioz; JAMILEH MILLER, Debtors. MARK STANLEY MILLER; JAMILEH MILLER, Appellants,

 No. 11-1232.

 February 1, 2012.


3. The BAP Appeal

The Millers appealed the bankruptcy court’s order granting relief from stay to the BAP. The BAP began its decision by noting that “[t]he details surrounding the assignment to Deutsche Bank are not part of the record on appeal.” Aplee. Supp. App. at 6 n.8. In particular, the record submitted to the BAP did not even contain a copy of the Note, much less the original.

In its decision, the BAP spent little time discussing the adequacy of proof that Deutsche Bank was in possession of the original Note, and the legal consequences thereof. Instead, the BAP relied on the Rooker-Feldman doctrine. See Rooker v. Fid. Trust Co., 263 U.S. 413 (1923); D.C. Court of Appeals v. Feldman, 460 U.S. 462 (1983). Though noting that the bankruptcy court had not expressly mentioned this doctrine, it concluded that the court had relied on the state court’s decision on the standing issue. The BAP further concluded that in light of this doctrine, which generally prohibits federal courts from entertaining suits by parties who have lost in state court and who seek review of state court decisions in federal court, “the bankruptcy court properly declined to revisit the state court’s decision that Deutsche Bank was an `interested person’ entitled to a Rule 120 order of sale.” Aplee. Supp. App. at 16. Armed with the state-court decision finding Deutsche Bank had standing to proceed with the foreclosure, the BAP reached a further conclusion that Deutsche Bank had standing to seek relief from stay.


We conclude that neither the Rooker-Feldman doctrine nor issue preclusion applies to prevent a federal court from determining whether Deutsche Bank is a “party in interest” entitled to seek relief from stay. Because the BAP incorrectly relied on Rooker-Feldman and because neither the bankruptcy court nor the BAP conducted a proper statutory standing analysis under § 362(d), we could simply stop our analysis here and remand for a further consideration of the standing issue. The parties, however, have presented arguments on the merits concerning standing, and the sufficiency of Deutsche Bank’s showing concerning standing in this case is a legal issue that can be resolved on appeal. We will therefore now proceed to discuss why Deutsche Bank has failed to demonstrate its standing as a “party in interest.”

4. Deutsche Bank’s Status as “Party in Interest”

We return to the key question: is Deutsche Bank a “creditor” of the Millers with standing to seek relief from stay? To answer this question, we turn to the Bankruptcy Code. According to the Bankruptcy Code, a “creditor” includes an “entity that has a claim against the debtor.” 11 U.S.C. § 101(10)(a). A “claim” is a “right to payment.” Id. § 101(5)(A).

Does Deutsche Bank have a “right to payment” from the Millers? In examining this question, we begin with the principle that “[w]ithin the context of a bankruptcy proceeding, state law governs the determination of property rights.” In re Mims, 438 B.R. 52, 56 (Bankr. S.D.N.Y. 2010). We must therefore turn to Colorado law, in particular that state’s version of the Uniform Commercial Code (U.C.C. or Code).

We ask first how Colorado law would classify the Note signed by the Millers. Under Colorado law, a promise or order such as the Note is payable “to order” “if it is payable (i) to the order of an identified person or (ii) to an identified person or order.” Colo. Rev. Stat. § 4-3-109(b). The Note at issue here is payable “to the order of Lender. Lender is IndyMac Bank, F.S.B., a federally chartered savings bank[.]” Aplt. App., Vol. I at 14. Thus, the Note is payable to the “order” of IndyMac Bank under § 4-3-109(b).

But “[a]n instrument payable to an identified person [such as IndyMac Bank] may become payable to bearer if it is indorsed in blank pursuant to section 4-3-205(b).” Colo. Rev. Stat. § 4-3-109(c).7 Section 4-3-205(b) provides that “[i]f an indorsement is made by the holder of an instrument and it is not a special indorsement, it is a `blank indorsement.’ When indorsed in blank, an instrument becomes payable to bearer and may be negotiated by transfer of possession alone until specifically indorsed.” (emphasis added).

Deutsche Bank presented evidence that IndyMac had indorsed the Note in blank. Is proof of this indorsement sufficient under the U.C.C. requirements to establish Deutsche Bank as the successor holder of the note? As we shall see, it is not, because Deutsche Bank must also prove it has possession of the Note.

The U.C.C. identifies the requirements for “negotiation” of a note, that is, for “transfer of possession . . . to a person who thereby becomes its holder.” Id. § 4-3-201(a). This statute provides that “if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement by the holder.” Id. § 4-3-201(b) (emphasis added). The Official Commentary to section 4-3-201 explains that negotiation “always requires a change in possession of the instrument because nobody can be a holder without possessing the instrument, either directly or through an agent.” (emphasis added). See also Colo. Rev. Stat. § 4-1-201(b)(20)(A) (defining “holder” of negotiable instrument as “person in possession” of it).

“Possession is an element designed to prevent two or more claimants from qualifying as holders who could take free of the other party’s claim of ownership.” Georg v. Metro Fixtures Contractors, Inc., 178 P.3d 1209, 1213 (Colo. 2008) (citation omitted).8 “With rare exceptions, those claiming to be holders have physical ownership of the instrument in question.” Id. (citation omitted).9 In the case of bearer paper such as the Note, physical possession is essential because it constitutes proof of ownership and a consequent right to payment.10

While Deutsche Bank has offered proof that IndyMac assigned the Note in blank, it elicited no proof that Deutsche Bank in fact obtained physical possession of the original Note from IndyMac, either voluntarily or otherwise.11 Under the U.C.C. requirements, Deutsche Bank has therefore failed to show that it is the current holder of the Note.

Colorado law does not limit enforcement of an obligation to a holder who received the instrument through negotiation. A note may also be enforced by a transferee. See Colo. Rev. Stat. § 4-3-203. “Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument.” Id. § 4-3-203(b). But transfer requires delivery: “An instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument.” Id. § 4-3-203(a) (emphasis added). “Delivery” with respect to an instrument “means voluntary transfer of possession” of the instrument. Id. § 4-1-201(14). Because Deutsche Bank has failed to prove transfer of possession of the original Note it has failed to establish its status as a transferee.

Deutsche Bank also argues that it has standing because under Colorado law it can initiate a public trustee foreclosure without producing the original Note. It cites Colo. Rev. Stat. § 38-38-101(1), which provides that the “holder of an evidence of debt” may initiate a foreclosure. An “evidence of debt” includes a promissory note such as the Note at issue here. Colo. Rev. Stat. § 38-38-100.3(8). Under certain circumstances, the “holder of an evidence of debt” can file a public trustee foreclosure without supplying the original note. See id. § 38-38-101(b)(I)-(III).

But this argument depends, first, on Deutsche Bank’s ability to show that it is a “holder of an evidence of debt.” Article 38 defines a “holder of an evidence of debt” as a person “in actual possession of” or “entitled to enforce an evidence of debt.” Colo. Rev. Stat. § 38-38-100.3(10) (emphasis added). Section 38-38-100.3(10) lists a number of presumptive holders of a debt presumed to be the “holder of an evidence of debt.” Each of these requires possession of the evidence of debt, which Deutsche Bank has thus far failed to demonstrate. See id. § 38-38-100.3(10)(a)-(d).

Deutsche Bank appears to argue that notwithstanding its failure to prove it has actual possession of the Note, it qualifies as a “person entitled to enforce an evidence of debt” under § 38-38-100.3(10) and thus is a “holder of an evidence of debt” because (1) it holds a copy of the Note indorsed in blank and (2) it can initiate a foreclosure without presenting the original Note to the public trustee. Deutsche Bank contends that it is a “qualified holder,” see id. § 38-38-100.3(21), that would be permitted under Colorado law to foreclose without presenting the original note, see id. § 38-38-101(B)(II). But foreclosure under this provision requires either the bank or its attorney to execute a statement “citing the paragraph of section 38-38-100.3(20) under which the holder claims to be a qualified holder and certifying or stating that the copy of the evidence of debt is true and correct” and that the bank agrees to “indemnify and defend any person liable for repayment of any portion of the original evidence of debt in the event that the original evidence of debt is presented for payment to the extent of any amount, other than the amount of a deficiency remaining under the evidence of debt after deducting the amount bid at sale, and any person who sustains a loss due to any title defect that results from reliance upon a sale at which the original evidence of debt was not presented.” Id. §§ 38-38-101(b)(II), 38-38-101(2)(a). There is no evidence that Deutsche Bank or its attorneys have executed such a certification or intend to do so. We therefore reject Deutsche Bank’s claim to standing founded on these statutes.

5. Conclusion

For the foregoing reasons, the evidence is insufficient as it currently stands to establish that Deutsche Bank is a “party in interest” entitled to seek relief from stay. The bankruptcy court therefore abused its discretion by granting Deutsche Bank relief from stay.

The Millers raise a number of other objections to the proceedings and orders in the bankruptcy court and the BAP but we need not reach any of them in light of the remand we now order. The judgment of the BAP is REVERSED and the case is REMANDED to the BAP with instructions to remand to the bankruptcy court for further proceedings in accordance with this opinion. The Millers’ motion for leave to file a supplemental appendix is DENIED.

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BANK OF NEW YORK MELLON v. FAULK | “Capacity, Possession of the fourth page of the note, which includes a blank endorsement”

BANK OF NEW YORK MELLON v. FAULK | “Capacity, Possession of the fourth page of the note, which includes a blank endorsement”

Via: Prof. Adam Levitin

You have to read Do We Have a Fraud Problem? The Case of the Mysteriously Appearing Allonge, to understand where this is coming from but here is a sample of what the professor says about the case below:

Which brings us to BONY v. Faulk. In this case, the foreclosure filing included a 3 page note. The note lacked endorsements connecting the originator to BONY as trustee for the foreclosing securitziation trust. This set up a motion to dismiss on the grounds that BONY didn’t have any right to do anything–it had no connection with the note.

But wait!  Suddenly BONY’s attorney tells the court that she is in possession of the fourth page of the note, which includes a blank endorsement. Puhlease…  What a ridiculous deus ex machina ending. Are we do believe that this attorney filed 3 pages of the note, but not the 4th? If so, I sure hope she’s not billing for that screw up.

But here’s what perplexes me. Suppose that an allonge is produced. How are we going to know when that allonge was created or that it even relates to the note in question? (Just so everyone’s clear–if the endorsement were created later, then BONY as trustee for CWABS 2006-13 trust had no standing at the time the action was filed because the trust didn’t own the note at that time.) How do we know that this attorney isn’t engaged in fraud on the court (and a host of other violations of state and federal law)?

And this isn’t even getting into the question of whether the PSA at issue requires specific endorsements, not endorsements in blank. As it turns out that’s a problem in this particular case. Here’s the PSA for CWABS 2006-13 trust.  Section 2.01(g)(1) provides that the Depositor deliver to the trustee:

the original Mortgage Note, endorsed by manual of facsimile signature in blank in the following form: “Pay to the order of _______ without recourse”, with all intervening endorsements that show a complete chain of endorsement from the originator to the Person endorsing the Mortgage Note…

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© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

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ADAM LEVITIN | Do We Have a Fraud Problem? The Case of the Mysteriously Appearing Allonge

ADAM LEVITIN | Do We Have a Fraud Problem? The Case of the Mysteriously Appearing Allonge

“Now allonges. An allonge isn’t a delicious throat-soothing lozenge from Switzerland. It’s a piece of paper that goes a-long with the note. The allonge is basically an overflow sheet for extra endorsements”

Prof. Adam Levitin:

I have generally been willing to give mortgage servicers, servicer support shops (like LPS), and foreclosure attorneys the benefit of the doubt when it comes to documentation irregularities (to put it mildly) in foreclosures. My working assumption up to this point has been that the documentation problems have been a function of corner cutting with securitization based on the assumptions that (1) the loans would perform better than they did and (2) those that defaulted would result in default judgments in foreclosure, so no one would ever notice the problems. I’ve also assumed that lack of capacity has played a critical role in problems in the default management chain–the system is held together by Scotch tape at this point. In other words, the problems in the system weren’t caused by malice.

Continue reading [CREDITSLIPS]

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FALSE STATEMENTS: Veal v. American Home Mortgage Servicing, BAP No. AZ-10-1055-MkKiJu

FALSE STATEMENTS: Veal v. American Home Mortgage Servicing, BAP No. AZ-10-1055-MkKiJu

By Lynn Szymoniak, ESQ.

False Statements

American Home Mortgage Servicing
Lender Processing Services
Sand Canyon Corporation
Wells Fargo Bank, N.A.

Action Date: June 12, 2011
Location: Phoenix, AZ

On June 10, 2011, the U.S. Bankruptcy Appellate Panel of the Ninth Circuit issued an important and lengthy analysis of standing and real-party-in-interest issues in a foreclosure case in Veal v. American Home Mortgage Servicing, BAP No. AZ-10-1055-MkKiJu.

GSF Mortgage Corporation was the original lender in this case. Wells Fargo Bank, as Trustee for Option One Mortgage Loan Trust 2006-3, and its servicer, American Home Mortgage Servicing, Inc., sought to set aside the automatic bankruptcy stay in order to foreclose on the Veals. The note was not endorsed to Wells Fargo or to the trust. As part of their efforts to establish standing, and real-party-in-interest status, Wells Fargo and American Home Mortgage Servicing, the servicer for the Trust, filed a mortgage assignment.

The Assignment was prepared by Docx, LLC in Alpharetta, GA, the document mill made famous by Fraud Digest, then by 60 Minutes, Reuters, The Washington Post, the New York Times, Huffington Post, Firedoglake, Naked Capitalism, Foreclosure Hamlet, 4closure Fraud, Stop Foreclosure Fraud, the Wall Street Journal, and many others. While Docx is now closed, its documents live on in courts and recorders offices across the country.

The Veal Assignment was signed by Tywanna Thomas and Cheryl Thomas who claimed to be officers of Sand Canyon Corporation formerly known as Option One Mortgage. From deposition testimony of Cheryl Thomas, it is known that both Cheryl and Tywanna Thomas were actually employees of Lender Processing Services, the company that owned Docx. There are many different versions of the Tywanna Thomas signature because, as we now know, the employees in Alpharetta forged each other’s names on witnessed and notarized documents.

The Assignment was signed (by someone) on November 10, 2009, but a line on the Assignment right underneath the legal description of the property states:
“Assignment Effective Date 10/13/2009.”

The closing date of the trust was October 27, 2006, almost three years prior to the Assignment effective date. Investors were told the trust would obtain actual Assignments to the Trust of the mortgages pooled in that trust by the closing date.

Dale Sugimoto, the president of Sand Canyon, said in a sworn affidavit on March 18, 2009, filed in the Ron Wilson bankruptcy case in the Eastern District of Louisiana, Case No. 10-51328, Document 52-3, that Sand Canyon does not own any residential mortgages and has no servicing rights.

To summarize:

1. Cheryl Thomas and Tywanna Thomas were not officers of Sand Canyon, as represented on the Assignment. Someone other than Tywanna Thomas and Cheryl Thomas often forged their names.

2. The Veal loan was not transferred to the Option One trust effective October 13, 2009, as represented on the Assignment.

3. Sand Canyon did not own the Veal mortgage and, therefore, had no authority to assign the mortgage to the Option One Trust. The Latin phrase – Nemo dat quod non habit – best covers this situation. Translation: one cannot give what one does not have.

Investors in this Option One trust, the Bankruptcy Judge in the Veal case, bankruptcy trustees with similar documents, homeowners and their lawyers, the SEC, and the Justice Department must all demand answers (and reparations) from the Trustee, the document custodian, the servicer and Lender Processing Servicing.

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

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IN RE VEAL | AZ 9th Circuit BAP “Reverses Stay, Wells Fargo & AHMSI Lack of Standing, PSA Fail, Assignment Fail, UCC Articles 3 & 9 Applied”

IN RE VEAL | AZ 9th Circuit BAP “Reverses Stay, Wells Fargo & AHMSI Lack of Standing, PSA Fail, Assignment Fail, UCC Articles 3 & 9 Applied”


In re:



Trustee for Option One Mortgage
Loan Trust 2006-3 Asset-Backed
Certificates, Series 2006-3, and
its successor and/or assignees,

Argued and Submitted on June 18, 2010
at Phoenix, Arizona
Filed – June 10, 2011
Appeal From The United States Bankruptcy Court
for the District of Arizona

Honorable Randolph J. Haines, Bankruptcy Judge, Presiding

Before: MARKELL, KIRSCHER and JURY, Bankruptcy Judges.


The Substantive Law Related to Notes Secured by Real Property

Real party in interest analysis requires a determination of the applicable substantive law, since it is that law which defines and specifies the wrong, those aggrieved, and the redress they may receive. 6A Federal Practice and Procedure § 1543, at 480-81 (“In order to apply Rule 17(a)(1) properly, it is necessary to identify the law that created the substantive right being asserted . . . .”). See also id. § 1544.

1. Applicability of UCC Articles 3 and 9
Here, the parties assume that the Uniform Commercial Code (“UCC”) applies to the Note. If correct, then two articles of the UCC potentially apply. If the Note is a negotiable instrument, Article 3 provides rules governing the payment of the obligation represented by and reified in the Note.


In particular, because it did not show that it or its agent had actual possession of the Note, Wells Fargo could not establish that it was a holder of the Note, or a “person entitled to enforce” the Note. In addition, even if admissible, the final purported assignment of the Mortgage was insufficient under Article 9 to support a conclusion that Wells Fargo holds any interest, ownership or otherwise, in the Note. Put another way, without any evidence tending to show it was a “person entitled to enforce” the Note, or that it has an interest in the Note, Wells Fargo has shown no right to enforce the Mortgage securing the Note. Without these rights, Wells Fargo cannot make the threshold showing of a colorable claim to the Property that would give it prudential standing to seek stay relief or to qualify as a real party in interest.

Accordingly, the bankruptcy court erred when it granted Wells Fargo’s motion for relief from stay, and we must reverse that ruling.


AHMSI apparently conceded that Wells Fargo held the economic interest in the Note, as it filed the proof of claim asserting that it was Wells Fargo’s authorized agent. Rule 3001(b) permits such assertions, and such assertions often go unchallenged. But here the Veals did not let it pass; they affirmatively questioned AHMSI’s standing. In spite of this challenge, AHMSI presented no evidence showing any agency or other relationship with Wells Fargo and no evidence showing that either AHMSI or Wells Fargo was a “person entitled to enforce” the Note. That failure should have been fatal to its position.



For all of the foregoing reasons, the bankruptcy court’s order granting Wells Fargo’s relief from stay motion is REVERSED, and the order overruling the Veals’ claim objection is VACATED and REMANDED for further proceedings consistent with this opinion.

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