In re: SIMEON MORENO, Chapter 13, Debtor

Case No. 08-17715-FJB.

United States Bankruptcy Court, D. Massachusetts, Eastern Division.

May 24, 2010.

MEMORANDUM OF DECISION ON MOTION OF PROPERTY ASSET MANAGEMENT, INC. FOR RELIEF FROM THE AUTOMATIC STAY

FRANK J. BAILEY, Bankruptcy Judge

In the Chapter 13 case of debtor Simeon Moreno, Property Asset Management, Inc. (“PAM”), claiming to be the assignee of a mortgage originally given by the debtor to Mortgage Electronic Registration Systems, Inc. (“MERS”) as nominee for lender GE Money Bank, moved for relief from the automatic stay to foreclose the mortgage. Moreno initially opposed the motion but then withdrew his objection, whereupon the Court granted the relief requested. Months later, at Moreno’s request, the Court vacated the order granting relief from stay and scheduled an evidentiary hearing on the Motion for Relief from Stay for the limited purpose of reconsidering whether PAM had an interest in the mortgage it sought to foreclose and, to that extent, standing to seek relief from stay.^[1] Having held the evidentiary hearing and received proposed findings and conclusions, the Court now enters the following findings of fact and conclusions of law.

Findings of Fact and Procedural History

On January 23, 2007, Moreno executed a promissory note in the principal amount of $492,000, payable to lender GE Money Bank. GE subsequently endorsed the note in blank, whereupon possession of the note was transferred through a series of holders and ultimately to Lehman Brothers Holdings, Inc. (“LBHI”), who held the note when PAM filed its Motion for Relief from Stay and continues to hold it now.^[2] LBHI, through one of its employees and through LBHI’s attorney, who not coincidentally also is PAM’s attorney in the present matter, produced the original note at the evidentiary hearing. PAM is not now a holder of the note or an entity for whose benefit another has held the note.

To secure the promissory note, Moreno gave a mortgage on the real property at 5 Maple Street, West Roxbury, Massachusetts (the “Property”) to MERS as nominee for GE (the “Mortgage”). The Mortgage specifies that MERS “is a separate corporation that is acting solely as a nominee for [GE] and [GE’s] successors and assigns. MERS is the mortgagee under this security instrument.” The Mortgage further provides that Moreno does hereby mortgage, grant and convey to MERS (solely as nominee for [GE] and [GE’s] successors and assigns) and to the successors and assigns of MERS, with power of sale, the [Property]. . . . Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for [GE] and [GE’s] successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of [GE] including, but not limited to, releasing and canceling this Security Instrument.

The Mortgage was duly recorded.

MERS administers an electronic registry to track the transfer of ownership interest and servicing rights in mortgage loans. With respect to certain loans of which its members are the beneficial owners, MERS also serves as mortgagee of record and holds legal title to the mortgages in a nominee capacity. MERS remains the mortgagee of record when beneficial ownership interests or servicing rights are sold from one member of the MERS system to another. When the beneficial interest in a mortgage loan is transferred from one member of the MERS system to another, MERS tracks the transfer through its internal records. When rights are transferred from a member of the MERS system to a non-member, MERS executes and records an assignment from MERS to the non-member.

To facilitate the execution of the assignments from MERS, MERS designates “certifying officers,” who are typically employees of MERS member firms. MERS authorizes these employees, through formal corporate resolutions, to execute assignments on behalf of MERS. On or about January 6, 2005, MERS, through a document entitled Corporate Resolution and issued by its board of directors, authorized Denise Bailey, an employee of Litton Loan Servicing L.P. (“Litton”), a member of MERS, to execute such assignments on behalf of MERS. In the language of the authorizing document (the “MERS Authorization”),^[3] Ms. Bailey was authorized to, among other things, “assign the lien of any mortgage loan naming MERS as the mortgagee when the Member [Litton] is also the current promissory note-holder, or if the mortgage loan is registered on the MERS System, is shown [sic] to be registered to the Member”^[4]; and Ms. Bailey was further authorized to “take any such actions and execute such documents as may be necessary to fulfill the Member’s servicing obligations to the beneficial owner of such mortgage loan (including mortgage loans that are removed from the MERS System as a result of the transfer thereof to a non-member of MERS).” In each instance, Bailey’s authority to act is dependent on the existence of a specified relationship of Litton, the MERS member for whom she is employed, to the loan in question.

The Moreno loan was entered into the MERS tracking database in the ordinary course of business. Thereafter, MERS tracked the beneficial interest in the loan. The beneficial interest was transferred from G.E. Money Bank to WMC Mortgage Corporation; then, on September 19, 2007, from WMC Mortgage Corporation to Aurora Bank FSB (formerly known as Lehman Brothers Bank FSB), and then, on July 30, 2008, from Aurora Bank FSB to LBHI. Aurora Bank was at all relevant times a wholly-owned subsidiary of LBHI.

With respect to the Moreno Mortgage, MERS remained the mortgagee of record until, on or about April 30, 2008, MERS, acting through Denise Bailey, assigned the Mortgage to PAM. At the time, Aurora Bank FSB was the beneficial owner of the loan. In executing the MERS assignment to PAM, Ms. Bailey purported to be acting under her MERS Authorization.

The MERS Authorization limited Ms. Bailey’s authority to act for MERS to matters with respect to which Litton was involved in at least one of the ways specified in the above-quoted language from the MERS Authorization. There is evidence, and I find, that Aurora Bank FSB had requested that Litton transfer the loan from MERS to PAM in anticipation of foreclosure. However, PAM has adduced no evidence that Litton had any specified connection to this loan at the time it executed this assignment. There is no evidence that Litton was then (or at any time) the servicer of the loan for Aurora Bank or that Litton was registered as servicer of the loan in the MERS system.^[5] (PAM does not contend that Litton was the holder of the promissory note or the owner of the beneficial interest in the loan.)

Scott Drosdick, a vice-president of LBHI and witness for PAM at the evidentiary hearing, testified that Aurora Bank’s instruction to Litton to transfer the mortgage to PAM was later “ratified by LBHI.” Drosdick did not explain what he meant by this, precisely how and when this ratification occurred. Absent such evidence and clarification, this testimony is too vague to have any definite meaning; accordingly I give it no weight.

By a master servicing agreement dated February 1, 1999, LBHI engaged Aurora Loan Services, Inc., now known as Aurora Loan Services LLC (“ALS”), as master servicer of certain loans, including eventually the present Moreno loan. In turn, ALS engaged Litton to service certain loans, including eventually this same loan.

After Bailey executed the MERS assignment to PAM, Bailey executed another assignment of the same mortgage from MERS to LBHI. This second assignment was never recorded; nor is there evidence that it was ever delivered by MERS to LBHI.

Moreno filed a petition for relief under Chapter 13 of the Bankruptcy Code on October 13, 2008, commencing the present bankruptcy case. On November 13, 2008, LBHI, acting through its servicer Litton Loan Servicing, LP, filed a proof of claim in this case; the proof of claim asserts a claim, secured by real estate, in the total amount of $530,168.04, the same secured claim as PAM now seeks relief from stay to enforce by foreclosure. On the proof of claim form itself, Litton actually identifies the creditor claimant as simply “Litton,” but on an explanatory document attached to the proof of claim form, Litton states that the claim is filed by “Litton Loan Servicing, LP, as Servicing Agent for Lehman Brothers Holdings Inc.” The proof of claim does not mention PAM or indicate in any way that the mortgage securing the claim is held by anyone other than LBHI.

On March 31, 2009, and at LBHI’s direction, PAM filed the present motion for relief from the automatic stay, seeking relief from the automatic stay to foreclose and to preserve its rights as to a potential deficiency. PAM intends and is obligated to remit the proceeds of the intended foreclosure sale to Aurora Loan Services LLC, as servicer for LBHI. Regarding ownership of the note and Mortgage, PAM stated in the motion only that it was the holder of a mortgage originally given by Moreno to MERS, that the mortgage secured a note given by Moreno to GE, and that MERS had assigned the mortgage to PAM. PAM did not indicate that LBHI was the current holder of the note or that it held the mortgage as nominee for the benefit of LBHI or of any other entity. The motion did not mention LBHI.

Moreno filed a response to the motion, in essence an objection, in which he expressly admitted PAM’s allegation that his prepetition arrearage was $39,442.49 and, by lack of denial, tacitly admitted that Moreno was some four months in arrears on his postpetition payments under the mortgage. By these allegations and admissions, PAM has established that Moreno is in default on his mortgage loan obligations; the Court rejects Moreno’s request for a finding that PAM has not established a default. The response made no issue of PAM’s standing to foreclose or to seek relief from stay and did not dispute PAM’s allegations regarding ownership of the note and Mortgage. In any event, before a hearing was held on the motion, Moreno, through counsel, withdrew his objection. Consequently, on April 28, 2009, and without a hearing or any review of apparent inconsistencies in the bankruptcy record concerning ownership of the mortgage and note, the court granted PAM relief from the automatic stay to foreclose and to preserve its rights as to a potential deficiency.

PAM had not yet foreclosed when, on December 2, 2009 and by new counsel, Moreno filed an adversary complaint against PAM and, with it, a motion for preliminary injunction. The complaint sought among other things (i) an order invalidating the mortgage on account of irregularities in its origination and (ii) a declaration that PAM was not the holder of the mortgage and note. In the motion for preliminary injunction, Moreno asked that the foreclosure be stayed, or that the automatic stay be reimposed, pending disposition of the adversary proceeding. On December 7, 2009, after a hearing on the motion for preliminary injunction, the Court found that the motion was, in part, essentially one to vacate the order granting relief from the automatic stay, vacated that order, and scheduled an evidentiary hearing on the motion for relief. The order specified that the sole issue at the evidentiary hearing would be PAM’s standing to seek relief from the automatic stay, all other issues under 11 U.S.C. § 362(d) being deemed established. After discovery, the evidentiary hearing was held on April 8, 2010, and, with the submission of proposed findings and conclusions, the matter was then taken under advisement.

Discussion

As the party seeking relief from stay to foreclose a mortgage on the debtor’s property, PAM bears the burden of proving that it has authority under applicable state law to foreclose the mortgage in question and, by virtue of that authority, standing to move for relief from the automatic stay to foreclose. PAM contends that it has such authority and standing because, although it does not hold the promissory note that the mortgage secures, it does have title to the mortgage itself; and it holds that title as nominee of and for the benefit of the note holder, LBHI, and is foreclosing for LBHI. In these circumstances, PAM contends, a mortgagee has a right under Massachusetts law to foreclose for the benefit of the note holder and therefore standing to move for relief from stay to foreclose. The Debtor objects, arguing (among other things) that Massachusetts law prohibits foreclosure by one who holds only the mortgage and not the note it secures. I need not address the merits of this and other objections because, even if the theory is a valid one, it requires proof that PAM is the present title holder of the mortgage, and PAM has not carried its burden in this regard.

To show that it presently holds the mortgage, PAM must show a valid assignment of the mortgage from MERS to itself. PAM contends that it holds the mortgage by assignment from MERS. Accordingly, PAM must show that the assignment, which was executed for MERS by Denise Bailey, was within the scope of Bailey’s limited authority to act for MERS.

Ms. Bailey’s authority to act for MERS is defined in the MERS Authorization in seven enumerated paragraphs. In each, Ms. Bailey’s authority to act is dependent on the existence of a specified relationship of Litton, the MERS member by whom she is employed, to the loan in question. PAM has submitted no evidence of the existence of any such relationship. The beneficial owner of the loan at the time of the assignment was Aurora Bank FSB, but there is no evidence that Litton was at the time the servicer of the loan for Aurora Bank FSB or was registered with MERS as such. The Court does not find that Aurora Bank FSB had not retained Litton as its servicer; there is simply no evidence on the issue. But the burden is on PAM to prove that it had, and PAM has not adduced evidence to that effect.

Accordingly, by a separate order, the Court will deny PAM’s motion for relief from the automatic stay without prejudice to renewal upon proper proof.

[1] All other issues were resolved upon entry of the original order granting relief from stay. No cause has been adduced to revisit any but the narrow issue of standing.

[2] Moreno contends that LBHI, which is in bankruptcy proceedings of its own, may have sold its interest in the note through a court-approved sale in its bankruptcy case. However, Moreno does not contend that possession of the note has passed from LBHI to the alleged purchaser (or any nominee of the purchaser), and therefore the alleged possible sale is irrelevant, as possession undisputedly remains in LBHI. In any event, Moreno attempted to establish the fact of the alleged sale by designating certain documents on the docket of the LBHI case and asking the Court to take judicial notice of these and then to find them on its own and to determine from them whether the promissory note in question was among the assets transferred. Having found the alleged sale to be irrelevant, the Court declined to take judicial notice of the bankruptcy documents. However, the proffer also failed for two additional reasons: first, that Moreno did not take a position as to whether a sale did occur, only that the Moreno note may have been among those transferred in the sale; and second, even if the court had taken judicial notice as requested, it remained Moreno’s obligation, which he has not fulfilled, to produce the documents in question and to explain in the first instance how one would conclude from them that the asset in question was among those transferred.

[3] MERS Corporate Resolution, attached to Bailey Affidavit as Exhibit 1.

[4] The grammatical difficulty in this second clause is native to the authorizing document.

[5] The original affidavit of Scott Drosdick includes the following two sentences:

By Master Servicing Agreement dated February 1, 1999, LBHI engaged Aurora Bank FSB (f/k/a Lehman Brothers Bank FSB), to master service, among other things, the Loan [the Moreno loan]. In turn, Aurora Bank FSB engaged Litton pursuant to a Flow Subservicing Agreement dated October 1, 2007, to service the loan.”

By an amendment to the affidavit and in testimony, Drosdick later amended his affidavit to correct this passage by striking Aurora Bank FSB from the first sentence and in its place inserting Aurora Loan Services LLC. Drosdick did not expressly change the second sentence, but that sentence, which begins with the critical words “in turn,” would be nonsensical unless the same substitution—Aurora Loan Services LLC for Aurora Bank FSB—were also made in the second sentence. Therefore, though the second sentence might perhaps be read in isolation as evidence that Litton was servicing the loan for Aurora Bank FSB at the time when Bailey executed the assignment, that sentence cannot credibly be so construed.

May 25, 2010

A Montana Circuit Judge entered a preliminary injunction yesterday enjoining MERS, Recontrust, and Countrywide from undertaking any action to sell, encumber, or transfer the borrower’s property during the pendency of the borrower’s lawsuit challenging a non-judicial foreclosure. The Notice of Trustee’s Sale fraudulently represented that there was an “obligation owed to MERS” when there was never any such obligation, and there is no evidence of any lawful assignment of either the Note or the Deed of Trust from the original lender to anyone. None of the Defendants appeared for the hearing.

The borrower had previously obtained a Temporary Restraining Order which stopped the Trustee’s Sale. Yesterday’s ruling converted the TRO into a preliminary injunction for the duration of the litigation.

This is FDN’s second victory in Montana. The borrowers in both cases are represented by Jeff Barnes, Esq. (who personally appeared at the hearing yesterday and prepared the lawsuit, Motions, and legal memoranda), assisted by local Montana counsel Eric Hummel, Esq.

Jeff Barnes, Esq., www/ForeclosureDefenseNationwide.com

from: b.daviesmd6605

[ipaper docId=31733884 access_key=key-2n6n8zjy9jnh0f6oj9oy height=600 width=600 /]

Calling on MERS

VIENNA, VIRGINIA–BASED MERS IS A great example of how technological solutions can work for the betterment of our industry. MERS’story is more typical, though, in terms of how long it took the company’s solution to become mainstream.

I’ve found that typically new technologies or new technology firms take five to seven years to become successful in this industry. Of course, it is difficult for startup companies to last that long, which is one of the main reasons there is such a high failure rate among these firms. From the start, MERS had widespread support from the Mortgage Bankers Association(MBA) and all the major mortgage companies. Originally, MERS wasn’t well-funded ($5.2 million), but in 1998 it was recapitalized with significant contributions from MBA, FannieMae and Freddie Mac—mostly interms of a line of credit. Still, it took five to seven years until MERS wash and handling millions of loans. Today, it has handled more than 30 million loans and just launched it’s next endeavor, called the MERS® eRegistry. It’s a great success story overall.

MERS’ eRegistry for eNotes was started in March 2003 (see www.mersinc.org for details). Its purpose is to provide a“pointer” to the location of the eNote, and it holds the legal identity of the controller. Any lender can then find the vault where the eNote is stored, as well as who controls it.

MERS provides the very valuable solution of tracking the eNote’s location without trying to compete with the private industry for all of the other actions that occur around an eNote, such as storage in a vault. By MERS’ own admission, this solution will take years before it becomes mainstream.

[…]

Today, most of the aforementioned parties are shipping the documents at great cost through carriers such as Federal Express. With VLF, all such shipping and the manual handling of the traditional loan folder is eliminated. In fact, all the paper in the process is gone. Yes, this is a form of imaging that some mortgage companies are using today. However, it goes much further, in that it would be used by all parties involved with each loan. In addition, it would also store the electronic data file of the loan and do so in a Mortgage Industry Standards Maintenance Organization Inc . (MISMO) format.

CONTINUE READING [SCOTT COOLEY]

An Appeal from the Circuit Court for Miami-Dade County, Jon I. Gordon, Judge.

Morgan, Lewis & Bockius and Robert M. Brochin, for appellant.

Jose A. Fuentes (Plantation), for appellees.

Greenberg Traurig and Elliot H. Scherker and Daniel M. Samson for Amicus Curiae Chase Home Finance LLC.

April Carrie Charney (Jacksonville) for Amicus Curiae Jacksonville Area Legal Aid, Inc.

Before FLETCHER and WELLS, JJ., and SCHWARTZ, Senior Judge.

SCHWARTZ, Senior Judge.

As in, and on the authority of, Mortgage Electronic Registration Systems, Inc. v. Azize, ___ So. 2d ____ (Fla. 2d DCA Case no. 2D05-4544, opinion filed, February 21, 2007)[32 Fla. L. Weekly D546], which involved a very similar procedural situation1 and the identical question of law, we reverse the dismissal below of a mortgage foreclosure action brought by Mortgage Electronic Registration Systems, Inc., entered on the asserted but erroneous conclusion that MERS, which acts essentially as a collection and litigation agent for the current owner of notes and mortgages, see Phyllis K. Slesinger & Daniel McLaughlin, Mortgage Electronic Registration System, 31 Idaho L. Rev. 805 (1995), could not establish its standing to proceed.

Although there is little to add to the Second District’s discussion of the issue, with which we entirely agree,2 we do note that this decision is in accord with

1 Unlike Azize, the trial court here went so far as to strike MERS’s pleadings as sham. Even if we were to reach an opposite conclusion on the merits, we do not think that the circumstances of this case, in which the court considered improper MERS’s perhaps disingenuous attempt to claim the status of a conventional “actual” mortgagee, would justify such a ruling. See Cromer v. Mullally, 861 So. 2d 523 (Fla. 3d DCA 2003).

2 Despite the existence of ambiguous language in the Second District opinion as to whether MERS was the “owner and holder of the note and the mortgage” in the clear majority of cases which have considered the question of MERS’s standing to maintain mortgage foreclosure proceedings. See, e.g., In re Huggins, ___ B.R. ____ (Bankr. D. Mass. Case no. 05-18826, opinion filed, December 14, 2006); In re Sina, No. A06-200, 2006 WL 2729544 (Minn. Ct. App. Sept. 26, 2006)(unpublished); Mortgage Elec. Registration Sys., Inc. v. Ventura, No. CV 054003168S, 2006 WL 1230265 (Conn. Super. Ct. April 20, 2006)(unpublished); Mortgage Elec. Registration Sys., Inc. v. Leslie, No. CV044001051, 2005 WL 1433922 (Conn. Super. Ct. May 25, 2005)(unpublished); but cf. LaSalle Bank Nat’l Ass’n v. Lamy, 824 N.Y.S.2d 769 (N.Y. Sup. Ct. 2006)(unreported table decision). To the extent that courts have encountered difficulties with the question, and have even ruled to the contrary of our conclusion, the problem arises from the difficulty of attempting to shoehorn a modern innovative instrument of commerce into nomenclature and legal categories which stem essentially from the medieval English land law. See MERSCORP, Inc. v. Romaine, 8 N.Y.3d 90, 101, 828

question, see Azize, ___ So. 2d at ____ [32 Fla. L. Weekly at D547], we apply the holding that the thing called MERS, see R.K. Arnold, Yes, There is Life on MERS, 11 Prob. & Prop. 32 (July/August 1997), does not lack standing to foreclose to the facts of this case, in which it is clear that, in accordance with the usual practice, MERS was only the holder (by delivery) of the note. See Dasma Invs., LLC v. The Realty Assocs. Fund III, L.P., 459 F. Supp. 2d 1294 (S.D. Fla. 2006). Although it was called the “mortgagee” in the instrument and acted on behalf of the most recent purchaser-assignee-lender, however, MERS was not – again, as usual – its “owner.” We simply don’t think that this makes any difference. See Fla. R. Civ. P. 1.210(a)(action may be prosecuted in name of authorized person without joining party for whose benefit action is brought); 37 Fla. Jur. 2d Mortgages § 519 (2007)(mortgage security follows the note).

N.Y.S.2d 266, 271, 861 N.E.2d 81, ____ (N.Y. 2006)(Kaye, C.J., dissenting in part)(“It is the incongruity between the needs of the modern electronic secondary mortgage market and our venerable real property laws regulating the market that frames the issue before us.”). Because, however, it is apparent – and we so hold – that no substantive rights, obligations or defenses are affected by the use of the MERS device, there is no reason why mere form should overcome the salutary substance of permitting the use of this commercially effective means of business. See 22 Fla. Jur. 2d Equity § 64 (2007).

Accordingly, the orders under review are reversed and the cause is remanded for further proceedings to foreclose the mortgage in question.

Reversed and remanded.

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

PIERRE ELLIOTT and LISA ELLIOTT, Appellants,
v.
AURORA LOAN SERVICES, LLC, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., as nominee and STONEBROOK ESTATES COMMUNITY ASSOCIATION, INC., Appellees.

No. 4D08-4362.

District Court of Appeal of Florida, Fourth District.

April 7, 2010.

Nathaniel E. Green of Nathaniel E. Green, P.A., Fort Lauderdale, for appellants.

Patricia A. Arango of the Law Offices of Marshall C. Watson, P.A., Fort Lauderdale, for Appellee-Aurora Loan Services, LLC.

TAYLOR, J.

Pierre and Lisa Elliott appeal a final judgment of foreclosure entered for Aurora Loan Services, LLC (Aurora). Because the trial court erred in denying the Elliotts’ verified motion to vacate default and, consequently, erred in entering the final judgment of foreclosure, we reverse.

On March 7, 2008, Aurora filed a complaint against the Elliotts to foreclose on their mortgage. The Elliotts received the summons and complaint on March 11, 2008. According to their verified motion, on March 11, 2008, Lisa Elliott contacted Aurora’s attorney, as directed in a letter attached to the complaint. The attorney instructed they call Aurora directly. The Elliotts did so and they then began a workout agreement. Lisa Elliott, in the verified motion, stated that they reached a proposed “Special Forbearance Agreement” with Aurora, dated June 27, 2008.

Due to the Elliotts’ failure to file any papers, Aurora moved for an entry of default against the Elliotts, which was entered on May 21, 2008. Further, on May 21, 2008, Aurora filed a Motion for Summary Judgment and Motion for Attorneys Fee’s and Memorandum (along with supporting affidavits).

Lisa Elliott stated in the verified motion that they discovered the entry of default for the first time on August 27, 2008. They filed their Verified Motion to Vacate Default with Proposed Answer and Affirmative Defenses on September 3, 2008.

At the hearing on September 24, 2008, the trial court denied the Elliotts’ verified motion to vacate default and granted Aurora’s motion for summary judgment. The court then entered the final judgment of foreclosure.^[1]

The Elliotts argue the court erred by denying their verified motion to vacate default. “`An order denying a motion to vacate a default is reviewed under an abuse of discretion standard.'” Jeyanandarajan v. Freedman, 863 So. 2d 432, 433 (Fla. 4th DCA 2003) (quoting Lloyd’s Underwriter’s at London v. Ruby, Inc., 801 So. 2d 138, 139 (Fla. 4th DCA 2001)).

Florida Rule of Civil Procedure 1.500(a) (2008) provides that a clerk may enter a default against a party who fails to file any papers or pleadings. The court may set aside this default, however, under Rule 1.540(b). Fla. R. Civ. P. 1.500(d). “`Florida public policy favors the setting aside of defaults so that controversies may be decided on the merits.'” Jeyanandarajan, 863 So. 2d at 433 (quoting Lloyd’s Underwriter’s, 801 So. 2d at 139).

Rule 1.540(b) provides that if the terms are just, the court may relieve a party from a final order for mistake, inadvertence, surprise, or excusable neglect. To set aside the default pursuant to this rule, the court must determine: “(1) whether the defendant has demonstrated excusable neglect in failing to respond[;] (2) whether the defendant has demonstrated a meritorious defense; and (3) whether the defendant, subsequent to learning of the default, had demonstrated due diligence in seeking relief.” Halpern v. Houser, 949 So. 2d 1155, 1157 (Fla. 4th DCA 2007) (citing Schwartz v. Bus. Cards Tomorrow, Inc., 644 So. 2d 611, 611 (Fla. 4th DCA 1994)). Because the Elliotts demonstrated these elements, the court abused its discretion in denying their motion to vacate the default.

Excusable neglect is found “where inaction results from clerical or secretarial error, reasonable misunderstanding, a system gone awry or any other of the foibles to which human nature is heir.” Somero v. Hendry Gen. Hosp., 467 So. 2d 1103, 1106 (Fla. 4th DCA 1985). Although ignorance of the law and failure to understand consequences are not viable excuses, “a reasonable misunderstanding between attorneys regarding settlement negotiations does constitute excusable neglect sufficient to vacate a default.” Gables Club Marina, LLC v. Gables Condo. & Club Ass’n, Inc., 948 So. 2d 21, 23-24 (Fla. 3d DCA 2006). In Gables Club, the parties’ attorneys were engaged in settlement talks, and the court found it reasonable that the defendant believed it need not file an answer to the plaintiff’s complaint. Id. at 24.

“`Excusable neglect must be proven by sworn statements or affidavits.'” Geer v. Jacobsen, 880 So. 2d 717, 720 (Fla. 2d DCA 2004) (quoting DiSarrio v. Mills, 711 So. 2d 1355, 1356 (Fla. 2d DCA 1998)). Here, the Elliotts filed a verified motion containing properly sworn statements, as follows:

2. Defendants were served with summons and complaint on or about March 11, 2008.

3. On or about March 11, 2008 I, Lisa Elliott, contacted the attorney for AURORA at XXX-XXX-XXXX to discuss resolution of the complaint. I was instructed to contact the lender.

4. I contacted AURORA and began a workout agreement which lead to a proposed “Special Forbearance Agreement” dated June 27, 2008. See attached letter from Aurora Loan Services marked Exhibit “A”.

Aurora filed no refuting affidavits or other evidence to rebut the Elliotts’ claims that the parties were engaged in settlement negotiations.^[2]

In Gibson Trust, Inc. v. Office of the Attorney General, 883 So. 2d 379, 382 (Fla. 4th DCA 2004), we vacated the default entered by the trial court, stating that “[b]ecause the defendants’ affidavits were uncontradicted and established that there was a `misunderstanding’ regarding whether an extension had been agreed upon, we conclude that excusable neglect was shown.” Similarly, here, the Elliotts’ verified motion indicates they began a workout agreement with Aurora, which led to a proposed “Special Forbearance Agreement.” Aurora failed to file any affidavits refuting this. Therefore, the Elliotts’ uncontradicted verified motion established excusable neglect.

A meritorious defense is established where a “proposed answer [is] attached to its motion to vacate, which answer sets out in detail a number of affirmative defenses.” Fortune Ins. Co. v. Sanchez, 490 So. 2d 249, 249 (Fla. 3d DCA 1986). We similarly held that where a party “immediately filed a proposed answer with affirmative defenses upon receipt of the plaintiffs’ motion to set the cause for trial on damages,” the meritorious-defense and due-diligence elements were met. Broward County v. Perdue, 432 So. 2d 742, 743 (Fla. 4th DCA 1983). The Elliotts’ verified motion to vacate default contained a proposed answer and affirmative defenses, which met the meritorious-defense element.

Finally, due diligence, which is a test of reasonableness, must be evaluated based on the facts of the particular case. Franklin v. Franklin, 573 So. 2d 401, 403 (Fla. 3d DCA 1991). Due diligence must be established with evidence, which includes a sworn affidavit. Cedar Mountain Estates, LLC v. Loan One, LLC, 4 So. 3d 15, 17 (Fla. 5th DCA 2009).

Here, although the default was entered on May 21, 2008, Lisa Elliott, in the verified motion, stated that they discovered the default for the first time on August 27, 2008. Again, this sworn allegation was not refuted by Aurora. Upon discovering the default, the Elliotts filed the verified motion to vacate the default, along with the proposed answer and affirmative defenses; it was dated August 28, 2008, but not rendered with the clerk of court until September 3, 2008. Only six days elapsed between the time the default was discovered and the time the motion to vacate was filed. It has been held that six-day, sevenday, and fifteen-day time lapses between the discovery of a default and the filing of a motion to vacate that default showed due diligence. See Allstate Floridian Ins. Co. v. Ronco Inventions, LLC, 890 So. 2d 300, 303 (Fla. 2d DCA 2004) (citing Goodwin v. Goodwin, 559 So. 2d 109 (Fla. 2d DCA 1990) (six-day delay)); Coquina Beach Club Condo. Ass’n v. Wagner, 813 So. 2d 1061 (Fla. 2d DCA 2002) (seven-day delay); Marshall Davis, Inc. v. Incapco, Inc., 558 So. 2d 206 (Fla. 2d DCA 1990) (fifteen-day delay)). Thus, the Elliotts exercised due diligence by filing the motion to vacate the default within six days of discovery of the default.

Because the Elliotts demonstrated the elements necessary to set aside the default, the trial court abused its discretion in denying their motion and subsequently entering the final judgment of foreclosure.

Accordingly, we reverse the final judgment of foreclosure and order denying the Elliotts’ motion to vacate the default.

Reversed and Remanded.

FARMER and MAY, JJ., concur.

Not final until disposition of timely filed motion for rehearing.

[1] The foreclosure sale was set for November 26, 2008, but the parties agreed to stay the case and cancel the sale pending this appeal.

[2] Although the Gables Club court states that there must have been a “reasonable misunderstanding between attorneys,” this is met because the Elliotts were proceeding pro se.

May 12, 2010

New York Judge Arthur Schack has dismissed another foreclosure case, this time with prejudice, as a result of an illegal MERS assignment which was “executed” by an attorney in the office of counsel for the Plaintiff, finding that the alleged assignment violated the New York Rules of Professional Conduct as doing so was a conflict of interest.

The Plaintiff was US Bank, N.A. as Trustee for the SG Mortgage Securities Asset-Backed Certificates, Series 2006-FRE2. The original lender was Fremont Investment and Loan. The purported Assigment of Mortgage (which did not assign the Note at all) was executed by a New York attorney as “Assistant Secretary and Vice-President” of MERS. As this attorney, signing for the assignor, listed her business address as that of the law office of the Plaintiff’s counsel (Steven J. Baum P.C.), which represented the assignee US Bank as Trustee, the Court found this to be a conflict of interest in violation of 22 NYCRR sec. 1200.0 Rules of Professional Conduct. Judge Schack dismissed US Bank’s foreclosure action with prejudice and cancelled the Lis Pendens.

We know that there are literally hundreds (if not thousands) of these MERS assignments which have been executed by paralegals and others from the law offices of the Plaintiff’s foreclosure counsel as alleged “Vice Presidents” or “Assistant Secretarys” of MERS. This decision indicates that all such purported assignments are most likely illegal, void, and that any foreclosure action based on such an assignment should be dismissed with prejudice.

Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com

RELATED STORY: Lasalle Bank N.A. v Smith 2010: NY Slip Judge Schack does it again! Slams BAUM Law Firm!

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BACKLOG

1. Dismiss all cases filed after February 11, 2010, that do not include a verification in accordance with the Florida Supreme Court revised  rules of Civil Procedure.   The big foreclosure firms, particularly the Law Offices of David Stern, are choosing to ignore the rule requiring verifications.  All parties should be required to follow the rules.

2. Dismiss all of the cases where the plaintiff is a bank “as Trustee” but the name of the trust is not disclosed.  Failure to identify the actual trust is one of the newest strategies of the foreclosure mills.  The trust, not the trustee, is the real party in interest.

3. Dismiss all of the cases where the complaint is not signed by the attorney whose name appears on the pleading.  The big foreclosure firms in thousands of cases have someone other than the attorney on the pleading sign “for” the attorney who drafted the pleading.  This is done so that both attorneys can deny responsibility.

4. Dismiss all of the cases that include these boilerplate allegations by the bank or trust: “We own the note. We had possession of the note. We lost the note.”  These allegations appear in over 20,000 cases.  By now it is apparent this is a ruse – no one actually lost 20,000 mortgages and notes. Frauds upon the courts should not be tolerated.

5. Dismiss all of the cases that include a Mortgage Assignment that was signed by an employee of the foreclosure mill law firm signing as a MERS officer.  This would include thousands of cases where Cheryl Samons and Beth Cerni, administrative employees for David Stern, signed as a representative of the GRANTOR when the firm was actually working for the GRANTEE.  This would also include cases where Patricia Arango and Caryn Graham, two associates working for The Law Offices of Marshall C. Watson, signed as MERS officers.  This would also include all cases where Christopher Bossman, an administrative employee in the Daniel Consuegra fiirm, signed as a MERS officer.  This would also include all cases where officers of Florida Default Law Group signed as MERS officers. In all of these cases, no disclosure was made to the Court or to the homeowner/defendants that the Assignments were prepared by law firm employees with no knowledge of the truth of the matters asserted therein.

6. Dismiss all of the cases where a Mortgage Assignment was signed by Jeffrey Stephan of GMAC (notarized in Montgomery County, PA).  Stephan has already admitted in sworn testimony that a notary was NOT present when he signed mortgage assignments, even though the Assignments contained a contrary statement.

7. Dismiss all of the cases where the documents were prepared by employees of Lender Processing Services since this company has already admitted in its Annual Statement with the SEC that investigations, internal and otherwise, revealed problems with the documents that were so significant that the company implemented a “remediation” program (and in January, 2010, laid off most of its employees in Alpharetta, GA. Until this company discloses which documents were determined to be defective, and what corrective actions were taken, no documents from LPS submitted to establish ownership and standing (notarized in Fulton County, GA; Duval County, FL and Dakota County, MN) should be relied upon by the Courts.

8. Dismiss all cases where a Mortgage Assignment has been made by American Brokers Conduit, American Home Mortgage Acceptance or American Home Mortgage Company, or nominees or mortgage servicing companies working for these American Home companies, after August 6, 2007, the day these companies filed for bankruptcy.  The bankruptcy court did not authorizing these actions.

If Palm Beach County judges looked critically at the documents submitted by the foreclosure mills,  they would reach the same conclusion as judges in other Florida Circuits – that the documents submitted by the foreclosure mills are worthless and the attorneys submitting these documents deserve strict sanctions.

LYNN E. SZYMONIAK ESQ.

Contributor: Cameron Totten Law Offices of Cameron H. Totten

SUMMARY: Sample Complaint against loan servicer, trustee of mortgaged-backed securities fund, MERS and foreclosure trustee for wrongful foreclosure, quiet title, cancellation of trustee’s deed upon sale, unfair business practices, fraud and negligence.

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Via: Livinglies

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.

via b.daviesmd6605

SAME RESPONSES OBJECTIONS AND NO DOCUMENTS. IT IS THE GAME. HOPEFULLY WE CAN BREAK THIS GAME. WE ALL HAVE ERICA JOHNSON-SECKS DEPOSITION. JUST FOLLOW THE YELLOW BRICK ROAD.

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