By Christine Stapleton and Kimberly Miller
Palm Beach Post Staff Writer
Updated: 7:22 p.m. Monday, Jan. 31, 2011
Posted: 11:51 a.m. Monday, Jan. 31, 2011

In an opinion that could have unfathomable consequences in countless foreclosure cases, The Florida Bar says attorneys must notify a judge about potential fraud — including robo-signed affidavits and forged notary stamps — even if a foreclosure case is closed and the home has been sold at auction.

The direction was published in an article in today’s issue of The Florida Bar Journal as part of an outline in a new free online foreclosure class offered by The Bar. The class is in response to problems that led several major lenders to temporarily freeze foreclosures last fall.

No one knows how many cases could be affected or what judges will do when they are notified. About 1.2 million foreclosures have been filed in Florida since January 2007, according to RealtyTrac. Investigators for the Florida Attorney General’s Office have found tens of thousands of forged signatures, backdated documents and other problem paperwork at four law firms, so-called “foreclosure mills” currently under investigation.

“There has never been a problem like this before or this kind of wholesale misrepresentation,” said Margery Golant, a Boca Raton-based attorney who teaches a portion of the Bar’s four-hour online course, which instructs lawyers to report fraud. “No one knows how this is going to turn out or what the right things to do are.”

Excerpt from footnote:

[1] The assignment was executed by an individual identified as Laura Hescott who signed the assignment as an assistant vice-president of Washington Mutual Bank. Ms. Hescott has been identified as an employee of Lender Processing Services, Inc. (“LPS”), a servicer of default mortgages. The bona fides of the practices of this service provider have been the subject of increased judicial scrutiny. See, e.g., In re Taylor, 407 B.R. 618, 623 (Bankr. E.D. Pa. 2009).

The Supreme Court has recognized that “[s]erious questions have surfaced about the accuracy of documents submitted to courts by lenders and service-providers in support of foreclosure requests.” Administrative order 01-2010, 202 N.J.L.J. 1110 (December 27, 2010). The practice of signing and filing documents without any personal knowledge of the information, also known as “robo-signing,” implicates the “overriding concern about the integrity of the judicial process.” Id. at 1111. The order provides that “lenders and service providers who have filed more than 200 residential foreclosure actions in 2010 are required, within 45 days, to demonstrate the reliability and accuracy of documents and other submissions to the court in foreclosure proceedings.” Ibid. On remand, to the extent the order is applicable to plaintiff, plaintiff shall comply with its terms.

DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee for WaMu Series 2007-HEI Trust, Plaintiff-Respondent,

v.

TRACEY T. WILSON , his/her heirs, devisees and personal representatives, and his, her, their or any of their successors in right, title and interest and WILLIS J. WILSON, his/her heirs, devisees and personal representatives, and his, her, their or any of their successors in right, title and interest, Defendants-Appellants.

Docket No. A-1384-09T1.

Superior Court of New Jersey, Appellate Division.

Submitted November 3, 2010.

Decided January 19, 2011.

Tracey T. Wilson, appellant pro se.

Respondent has not filed a brief.

Before Judges Carchman and Messano.

Not for Publication without the Approval of the Appellate Division.

PER CURIAM.

Defendants Tracey T. Wilson and Willis J. Wilson appeal from a final judgment of foreclosure in favor of plaintiff Deutsche Bank National Trust Company, as Trustee for WaMu Series 2007-HE1 Trust. While plaintiff submitted a supplemental affidavit to the trial judge allegedly confirming the assignment of the original mortgage to the named plaintiff, it failed to comply with N.J.R.E. 803(c)(6), and the affidavit should not have been considered.

These are the relevant facts. Plaintiff filed a foreclosure action against defendants. Defendants filed a response, which was accepted as an answer and challenged, among other things, the bona fides of a later assignment of the mortgage. In response, plaintiff filed a motion for summary judgment, but the judge denied relief pending further information regarding the assignment. Thereafter, plaintiff filed a supplemental affidavit, executed by Janine Timmons, a manager of Washington Mutual Bank, attesting to the accuracy of facts “based on our computerized business records maintained in the ordinary course.” She claimed that the note and mortgage had been executed by defendants on December 14, 2006, and the note and mortgage had been sold to plaintiff on January 16, 2007; moreover, an assignment of mortgage was executed on October 31, 2007, two weeks after the filing of the foreclosure complaint on October 18, 2007.[1]

After receiving the supplemental affidavit, the motion judge struck defendants’ answer and permitted the foreclosure matter to proceed by default. Thereafter, a judgment was entered, and this appeal followed.[2]

On appeal, defendants assert that plaintiff’s affidavit regarding the assignment was hearsay and violates the Best Evidence Rule. In addition, defendants claim that they were denied discovery and finally, plaintiff was not a holder in due course.

Although defendants cite N.J.R.E. 803(c)(6), and claim that these were not valid business records, we have more fundamental concern about the substance of the Timmons affidavit. The affidavit makes reference to unidentified computerized business records supporting the verification of the facts attested to, but nothing more is set forth regarding the records other than that conclusory statement.

Recently, the Supreme Court reiterated the relevant factors that must be established by a proponent of documents pursuant to N.J.R.E. 803(c)(6). In New Jersey Div. of Youth and Fam. Servs. v. M.C. III, 201 N.J. 328 (2010), Justice Wallace, speaking for the Court, observed:

Under the business records exception to the hearsay rule, a party seeking to admit a hearsay statement pursuant to this rule must demonstrate that “the writing [was] made in the regular course of business,” the writing was “prepared within a short time of the act, condition or event being described,” and “the source of the information and the method and circumstances of the preparation of the writing must justify allowing it into evidence.” State v. Matulewicz, 101 N.J. 27, 29 (1985) (citation omitted).

[(Id. at 347).]

The affidavit submitted by Timmons falls far short of meeting this threshold showing. Nothing in her affidavit indicates any of the elements identified in either the rule or M.C.

Additional considerations are cause for concern. N.J.R.E. 1002 mandates that, “To prove the content of a writing or photograph, the original writing or photograph is required except as otherwise provided in these rules or by statute.”[3] Here, reference is made to computerized records, yet the record before the trial court or on appeal is devoid of any copies of such records to support the attestations of Timmons. See N.J.R.E. 1001(c) and Fed. Ev. Rule 1001(c) (requiring “original” computer data in the form of printouts or other readable output). Most important, no discovery was permitted to defendants. In such instance, plaintiff should not be allowed to “cut corners” to avoid meeting its burden.

We are satisfied that plaintiff failed to meet its burden to establish the bona fides of the alleged assignment to permit plaintiff to proceed on its foreclosure complaint. We take particular note of the fact that plaintiff has not responded to the appeal so that we are unable to have the benefit of its position on the issues raised by defendants.

We conclude that the appropriate course of action is a remand to the Chancery Division to resolve the issue of the bona fides of the assignment. Accordingly, we reverse and remand for further proceedings consistent with this opinion. We do not retain jurisdiction.

Reversed and remanded.

[1] The assignment was executed by an individual identified as Laura Hescott who signed the assignment as an assistant vice-president of Washington Mutual Bank. Ms. Hescott has been identified as an employee of Lender Processing Services, Inc. (“LPS”), a servicer of default mortgages. The bona fides of the practices of this service provider have been the subject of increased judicial scrutiny. See, e.g., In re Taylor, 407 B.R. 618, 623 (Bankr. E.D. Pa. 2009).

The Supreme Court has recognized that “[s]erious questions have surfaced about the accuracy of documents submitted to courts by lenders and service-providers in support of foreclosure requests.” Administrative order 01-2010, 202 N.J.L.J. 1110 (December 27, 2010). The practice of signing and filing documents without any personal knowledge of the information, also known as “robo-signing,” implicates the “overriding concern about the integrity of the judicial process.” Id. at 1111. The order provides that “lenders and service providers who have filed more than 200 residential foreclosure actions in 2010 are required, within 45 days, to demonstrate the reliability and accuracy of documents and other submissions to the court in foreclosure proceedings.” Ibid. On remand, to the extent the order is applicable to plaintiff, plaintiff shall comply with its terms.

[2] Subsequent to the filing of the appeal, a notice of sheriff’s sale was published. The notice is not part of the record on appeal, and we have no further information regarding the status of the property.

[3] In their brief, defendants refer to the Federal Rules of Evidence. Those rules are not applicable here.

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NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION

DOCKET NO. A-3627-06T1

WELLS FARGO BANK, N.A.,
as Trustee,
Plaintiff-Respondent,
v.
SANDRA A. FORD,
Defendant-Appellant.

Argued October 5, 2010 – Decided

Before Judges Skillman, Yannotti and Espinosa.

On appeal from Superior Court of New Jersey,
Chancery Division, Bergen County, Docket
No. F-12259-06.

Margaret Lambe Jurow argued the cause for
appellant (Legal Services of New Jersey,
Inc., attorneys; Ms. Jurow and Rebecca
Schore, on the brief).

Robert F. Thomas argued the cause for
respondent (Pluese, Becker & Saltzman,
attorneys; Mr. Thomas and Rob Saltzman, on
the brief).

The opinion of the court was delivered by
SKILLMAN, P.J.A.D.

January 28, 2011

For these reasons, the summary judgment granted to Wells Fargo must be reversed and the case remanded to the trial court because Wells Fargo did not establish its standing to pursue this foreclosure action by competent evidence. On the remand, defendant may conduct appropriate discovery, including taking the deposition of Baxley and the person who purported to assign the mortgage and note to Wells Fargo on behalf of Argent.

Our conclusion that the summary judgment must be reversed because Wells Fargo failed to establish its standing to maintain this action makes it unnecessary to address defendant’s other arguments. However, for the guidance of the trial court in the event Wells Fargo is able to establish its standing on remand, we note that even though Wells Fargo could become a “holder” of the note under N.J.S.A. 12A:3-201(b) if Argent indorsed the note to Wells Fargo even at this late date, see UCC Comment 3 to N.J.S.A. 12A:3-203, Wells Fargo would not thereby become a “holder in due course” that could avoid whatever defenses defendant would have to a claim by Argent because Wells Fargo is now aware of those defenses. See N.J.S.A. 12A:3-203(c); UCC Comment 4 to N.J.S.A. 12A:3-203; see generally 6 William D.
Hawkland & Larry Lawrence, Hawkland and Lawrence UCC Series [Rev.] § 3-203:7 (2010); 6B Anderson on the Uniform Commercial Code, supra, § 3-203:14R. Consequently, if Wells Fargo produces an indorsed copy of the note on the remand, the date of that indorsement would be a critical factual issue in determining whether Wells Fargo is a holder in due course.

Accordingly, the summary judgment in favor of Wells Fargo is reversed and the case is remanded to the trial court for further proceedings in conformity with this opinion.

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EXCERPTS:

To address that condition, and with no end to it in sight, we decided to break the log jam by introducing a process “for debtors and lenders to [mediate and to] reach consensual resolution when a debtor’s residential property is at risk of foreclosure” by “opening communications between debtors’ and [the] lenders’ decision-makers.”3 LMP §I Purpose, 1.

[…]

CONCLUSION
The Rhode Island Loss Mitigation Program was conceived as a case management tool designed to encourage the resolution of differences between residential mortgage lenders and their borrowers, and to provide a way for them to access the various federal housing programs available outside of bankruptcy, such as the Home Affordable Modification Program (HAMP). The Loss Mitigation Program is intended to start a dialogue, giving the parties nothing more than the opportunity to discuss their respective positions. The alleged dire consequences of the implementation of such a Program, as predicted by PHH have not materialized, and if any do emerge, they will be judicially
addressed forthwith.

For the reasons discussed above, and based on the arguments of the NCLC and by the Debtors, here and in Lawton, which are adopted and incorporated herein by reference, PHH’s Objection to participating in this Court’s loss mitigation program is OVERRULED.

Dated at Providence, Rhode Island, this 28th day of January, 2011.

Arthur N. Votolato
U.S. Bankruptcy Court
Entered on docket: 1/28/11

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CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

APPEAL from an order and a judgment of the Superior Court of Los Angeles County, Michael L. Stern, Judge.  Affirmed in part and reversed in part.

Dennis Moore; Nick A. Alden for Plaintiff and Appellant.

Brooks Bauer, Michael R. Brooks and Bruce T. Bauer for Defendant and Respondent.

___________________________________________

As alleged in this case, plaintiff, a married woman, obtained an adjustable rate loan from a bank to purchase real property secured by a deed of trust on her residence.  About two years into the loan, she could not afford the monthly payments and filed for bankruptcy under chapter 7 of the Bankruptcy Code (11 U.S.C. §§ 701–784).  She intended to convert the chapter 7 proceeding to a chapter 13 proceeding (11 U.S.C. §§ 1301–1330) and to enlist the financial assistance of her husband to reinstate the loan, pay the arrearages, and resume the regular loan payments.

Plaintiff contacted the bank, which promised to work with her on a loan reinstatement and modification if she would forgo further bankruptcy proceedings.  In reliance on that promise, plaintiff did not convert her bankruptcy case to a chapter 13 proceeding or oppose the bank’s motion to lift the bankruptcy stay.  While the bank was promising to work with plaintiff, it was simultaneously complying with the notice requirements to conduct a sale under the power of sale in the deed of trust, commonly referred to as a nonjudicial foreclosure or foreclosure.  (See Civ. Code, §§ 2924, 2924a–2924k.)

The bankruptcy court lifted the stay.  But the bank did not work with plaintiff in an attempt to reinstate and modify the loan.  Rather, it completed the foreclosure.

Plaintiff filed this action against the bank, alleging a cause of action for promissory estoppel, among others.  She argued the bank’s promise to work with her in reinstating and modifying the loan was enforceable, she had relied on the promise by forgoing bankruptcy protection under chapter 13, and the bank subsequently breached its promise by foreclosing.  The trial court dismissed the case on demurrer.

We conclude (1) plaintiff could have reasonably relied on the bank’s promise to work on a loan reinstatement and modification if she did not seek relief under chapter 13, (2) the promise was sufficiently concrete to be enforceable, and (3) plaintiff’s decision to forgo chapter 13 relief was detrimental because it allowed the bank to foreclose on the property.  Contrary to the bank’s contention that plaintiff’s use of the Bankruptcy Code was ipso facto bad faith, chapter 13 is “‘uniquely tailored to protect homeowners’ primary residences [from foreclosure].’”  (In re Willette (Bankr. D.Vt. 2008) 395 B.R. 308, 322.)

I

BACKGROUND

The facts of this case are taken from the allegations of the operative complaint, which we accept as true.  (See Hensler v. City of Glendale (1994) 8 Cal.4th 1, 8, fn. 3.)

A.        Complaint

This action was filed on April 1, 2009.  Two months later, a first amended complaint was filed.  On August 17, 2009, after the sustaining of a demurrer, a second amended complaint (complaint) was filed.  The complaint alleged as follows.

Plaintiff Claudia Aceves, an unmarried woman, obtained a loan from Option One Mortgage Corporation (Option One) on April 20, 2006.  The loan was evidenced by a note secured by a deed of trust on Aceves’s residence.  Aceves borrowed $845,000 at an initial rate of 6.35 percent.  After two years, the rate became adjustable.  The term of the loan was 30 years.  Aceves’s initial monthly payments were $4,857.09.

On March 25, 2008, Option One transferred its entire interest under the deed of trust to defendant U.S. Bank, National Association, as the “Trustee for the Certificateholders of Asset Backed Securities Corporation Home Equity Loan Trust, Series OOMC 2006-HE5” (U.S. Bank).  The transfer was effected through an “Assignment of Deed of Trust.”  U.S. Bank therefore became Option One’s assignee and the beneficiary of the deed of trust.  Also on March 25, 2008, U.S. Bank, by way of a “Substitution of Trustee,” designated Quality Loan Service Corporation (Quality Loan Service) as the trustee under the deed of trust.  The Substitution of Trustee was signed by the bank’s attorney-in-fact.

In January 2008, Aceves could no longer afford the monthly payments on the loan.  On March 26, 2008, Quality Loan Service recorded a “Notice of Default and Election to Sell Under Deed of Trust.”  (See Civ. Code, § 2924.)  Shortly thereafter, Aceves filed for bankruptcy protection under chapter 7 of the Bankruptcy Code (11 U.S.C. §§ 701–784), imposing an automatic stay on the foreclosure proceedings (see 11 U.S.C. § 362(a)).  Aceves contacted U.S. Bank and was told that, once her loan was out of bankruptcy, the bank “would work with her on a mortgage reinstatement and loan modification.”  She was asked to submit documents to U.S. Bank for its consideration.

Aceves intended to convert her chapter 7 bankruptcy case to a chapter 13 case (see 11 U.S.C. §§ 1301–1330) and to rely on the financial resources of her husband “to save her home” under chapter 13.  In general, chapter 7, entitled “Liquidation,” permits a debtor to discharge unpaid debts, but a debtor who discharges an unpaid home loan cannot keep the home; chapter 13, entitled “Adjustment of Debts of an Individual with Regular Income,” allows a homeowner in default to reinstate the original loan payments, pay the arrearages over time, avoid foreclosure, and retain the home.  (See 1 Collier on Bankruptcy (16th ed. 2010) ¶¶ 1.07[1][a] to 1.07[1][g], 1.07[5][a] to 1.07[5][e], pp. 1?25 to 1?30, 1?43 to 1?45.)

U.S. Bank filed a motion in the bankruptcy court to lift the stay so it could proceed with a nonjudicial foreclosure.

On or about November 12, 2008, Aceves’s bankruptcy attorney received a letter from counsel for the company servicing the loan, American Home Mortgage Servicing, Inc. (American Home).  The letter requested that Aceves’s attorney agree in writing to allow American Home to contact Aceves directly to “explore Loss Mitigation possibilities.”  Thereafter, Aceves contacted American Home’s counsel and was told they could not speak to her before the motion to lift the bankruptcy stay had been granted.

In reliance on U.S. Bank’s promise to work with her to reinstate and modify the loan, Aceves did not oppose the motion to lift the bankruptcy stay and decided not to seek bankruptcy relief under chapter 13.  On December 4, 2008, the bankruptcy court lifted the stay.  On December 9, 2008, although neither U.S. Bank nor American Home had contacted Aceves to discuss the reinstatement and modification of the loan, U.S. Bank scheduled Aceves’s home for public auction on January 9, 2009.

On December 10, 2008, Aceves sent documents to American Home related to reinstating and modifying the loan.  On December 23, 2008, American Home informed Aceves that a “negotiator” would contact her on or before January 13, 2009 — four days after the auction of her residence.  On December 29, 2008, Aceves received a telephone call from “Samantha,” a negotiator from American Home.  Samantha said to forget about any assistance in avoiding foreclosure because the “file” had been “discharged” in bankruptcy.  On January 2, 2009, Samantha contacted Aceves again, saying that American Home had mistakenly decided not to offer her any assistance:  American Home incorrectly thought Aceves’s loan had been discharged in bankruptcy; instead, Aceves had merely filed for bankruptcy.  Samantha said that, as a result of American Home’s mistake, it would reconsider a loss mitigation proposal.  On January 8, 2009, the day before the auction, Samantha called Aceves’s bankruptcy attorney and stated that the new balance on the loan was $965,926.22; the new monthly payment would be more than $7,200; and a $6,500 deposit was due immediately via Western Union.  Samantha refused to put any of those terms in writing.  Aceves did not accept the offer.

On January 9, 2009, Aceves’s home was sold at a trustee’s sale to U.S. Bank.  On February 11, 2009, U.S. Bank served Aceves with a three-day notice to vacate the premises and, a month later, filed an unlawful detainer action against her and her husband (U.S. Bank, N.A. v. Aceves (Super. Ct. L.A. County, 2009, No. 09H00857)).  Apparently, Aceves and her husband vacated the premises during the eviction proceedings.

U.S. Bank never intended to work with Aceves to reinstate and modify the loan.  The bank so promised only to convince Aceves to forgo further bankruptcy proceedings, thereby permitting the bank to lift the automatic stay and foreclose on the property.

The complaint alleged causes of action against U.S. Bank for quiet title, slander of title, fraud, promissory estoppel, and declaratory relief.  It also sought to set aside the trustee’s sale and to void the trustee’s deed upon the sale of the home.

B.        Demurrer

U.S. Bank filed a demurrer separately attacking each cause of action and the requested remedies.  Aceves filed opposition.

At the hearing on the demurrer, Aceves’s attorney argued that Aceves and her husband “could have saved their house through bankruptcy,” but “due to the promises of the bank, they didn’t go those routes to save their house.  [¶] . . . [¶] . . . [T]hat’s the whole essence of promissory estoppel.  [¶] . . . [¶]  Prior to [American Home’s November 12, 2008] letter, there’s numerous phone contacts and conversations with [American Home], which was the agent for U.S. Bank, regarding, ‘Yes, once we get leave, we will work with you, . . . and they did not work with her at all.’”  The trial court replied:  “The foreclosure took place.  There’s no promissory fraud or anything that deluded [Aceves] under the circumstances.”

On October 29, 2009, the trial court entered an order sustaining the demurrer without leave to amend and a judgment in favor of U.S. Bank.  Aceves filed this appeal.

II

DISCUSSION

Aceves focuses primarily on her claim for promissory estoppel, arguing it is adequately pleaded.  She also contends her other claims should have survived the demurrer.  U.S. Bank counters that the trial court properly dismissed the case.

We conclude Aceves stated a claim for promissory estoppel.  As alleged, in reliance on a promise by U.S. Bank to work with her in reinstating and modifying the loan, Aceves did not attempt to save her home under chapter 13.  Yet U.S. Bank then went forward with the foreclosure and did not commence negotiations toward a possible loan solution.  As demonstrated in its brief on appeal, U.S. Bank fails to appreciate that chapter 13 may be used legitimately to assist a borrower in reinstating a home loan and avoiding foreclosure after a default.

All but one of Aceves’s remaining claims were properly dismissed.  She adequately pleaded a claim for fraud.  But the record does not support her other claims or requests for relief:  The complaint does not allege any irregularities in the foreclosure process that would permit the trial court to void the deed of sale or otherwise invalidate the foreclosure.

A.        Promissory Estoppel

“‘The elements of a promissory estoppel claim are “(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) [the] reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.” . . .’”  (Advanced Choices, Inc. v. State Dept. of Health Services (2010) 182 Cal.App.4th 1661, 1672.)

1.  Clear and Unambiguous Promise

“‘[A] promise is an indispensable element of the doctrine of promissory estoppel.  The cases are uniform in holding that this doctrine cannot be invoked and must be held inapplicable in the absence of a showing that a promise had been made upon which the complaining party relied to his prejudice . . . .’ . . . The promise must, in addition, be ‘clear and unambiguous in its terms.’”  (Garcia v. World Savings, FSB (2010) 183 Cal.App.4th 1031, 1044, citation omitted.)  “To be enforceable, a promise need only be ‘“definite enough that a court can determine the scope of the duty[,] and the limits of performance must be sufficiently defined to provide a rational basis for the assessment of damages.”’ . . . It is only where ‘“a supposed ‘contract’ does not provide a basis for determining what obligations the parties have agreed to, and hence does not make possible a determination of whether those agreed obligations have been breached, [that] there is no contract.”’”  (Id. at p. 1045, citation omitted.)  “[T]hat a promise is conditional does not render it unenforceable or ambiguous.”  (Ibid.)

U.S. Bank agreed to “work with [Aceves] on a mortgage reinstatement and loan modification” if she no longer pursued relief in the bankruptcy court.  This is a clear and unambiguous promise.  It indicates that U.S. Bank would not foreclose on Aceves’s home without first engaging in negotiations with her to reinstate and modify the loan on mutually agreeable terms.

U.S. Bank’s discussion of Laks v. Coast Fed. Sav. & Loan Assn. (1976) 60 Cal.App.3d 885 misses the mark.  There, the plaintiffs applied for a loan and relied on promissory estoppel in arguing that the lender was bound to make the loan.  The Court of Appeal affirmed the dismissal of the case on demurrer, explaining that the alleged promise to make a loan was unclear and ambiguous because it did not include all of the essential terms of a loan, including the identity of the borrower and the security for the loan.  In contrast, Aceves contends U.S. Bank promised but failed to engage in negotiations toward a solution of her loan problems.  Thus, the question here is simply whether U.S. Bank made and kept a promise to negotiate with Aceves, not whether, as in Laks, the bank promised to make a loan or, more precisely, to modify a loan.  Aceves does not, and could not, assert she relied on the terms of a modified loan agreement in forgoing bankruptcy relief.  She acknowledges that the parties never got that far because U.S. Bank broke its promise to negotiate with her in an attempt to reach a mutually agreeable modification.  While Laks turned on the sufficiency of the terms of a loan, Aceves’s claim rests on whether U.S. Bank engaged in the promised negotiations.  The bank either did or did not negotiate.

Further, U.S. Bank asserts that it offered Aceves a loan modification, referring to the offer it made the day before the auction.  That assertion, however, is of no avail.  Aceves’s promissory estoppel claim is not based on a promise to make a unilateral offer but on a promise to negotiate in an attempt to reach a mutually agreeable loan modification.  And, even assuming this case involved a mere promise to make a unilateral offer, we cannot say the bank’s offer satisfied such a promise in light of the offer’s terms and the circumstances under which it was made.

2.  Reliance on the Promise

Aceves relied on U.S. Bank’s promise by declining to convert her chapter 7 bankruptcy proceeding to a chapter 13 proceeding, by not relying on her husband’s financial assistance in developing a chapter 13 plan, and by not opposing U.S. Bank’s motion to lift the bankruptcy stay.

3.  Reasonable and Foreseeable Reliance

“‘Promissory estoppel applies whenever a “promise which the promissor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance” would result in an “injustice” if the promise were not enforced. . . .’”  (Advanced Choices, Inc. v. State Dept. of Health Services, supra, 182 Cal.App.4th at pp. 1671–1672, citation omitted, italics added.)

“[A] party plaintiff’s misguided belief or guileless action in relying on a statement on which no reasonable person would rely is not justifiable reliance. . . . ‘If the conduct of the plaintiff in the light of his own intelligence and information was manifestly unreasonable, . . . he will be denied a recovery.’”  (Kruse v. Bank of America (1988) 202 Cal.App.3d 38, 54, citation omitted.)  A mere “hopeful expectation[] cannot be equated with the necessary justifiable reliance.”  (Id. at p. 55.)

We conclude Aceves reasonably relied on U.S. Bank’s promise; U.S. Bank reasonably expected her to so rely; and it was foreseeable she would do so.  U.S. Bank promised to work with Aceves to reinstate and modify the loan.  That would have been more beneficial to Aceves than the relief she could have obtained under chapter 13.  The bankruptcy court could have reinstated the loan — permitted Aceves to cure the default, pay the arrearages, and resume regular loan payments — but it could not have modified the terms of the loan, for example, by reducing the amount of the regular monthly payments or extending the life of the loan.  (See 11 U.S.C. § 1322(b)(2), (3), (5), (c)(1); 8 Collier on Bankruptcy, supra, ¶¶ 1322.06[1], 1322.07[2], 1322.09[1]–[6], 1322.16 & fn. 5, pp. 23–24, 31–32, 34–42, 55–56.)  By promising to work with Aceves to modify the loan in addition to reinstating it, U.S. Bank presented Aceves with a compelling reason to opt for negotiations with the bank instead of seeking bankruptcy relief.  (See Garcia v. World Savings, FSB, supra, 183 Cal.App.4th at pp. 1041–1042 [discussing justifiable reliance].)

We emphasize that this case involves a long-term loan secured by a deed of trust, one in which the last payment under the loan schedule would be due after the final payment under a bankruptcy plan.  (See 11 U.S.C. § 1322(b)(5).)  Aceves had more than 28 years left on the loan, and a bankruptcy plan could not have exceeded five years.  In contrast, if a case involves a short-term loan, where the last payment under the original loan schedule is due before the final payment under the bankruptcy plan, the bankruptcy court has the authority to modify the terms of the loan.  (See 11 U.S.C. § 1322(c)(2); In re Paschen (11th Cir. 2002) 296 F.3d 1203, 1205–1209; 8 Collier on Bankruptcy, supra, ¶ 1322.17, pp. 57–58; March et al., Cal. Practice Guide: Bankruptcy (The Rutter Group 2010) ¶ 13:396, p. 13?45; compare id. ¶¶ 13:385 to 13:419, pp. 13?42 to 13?48 [discussing short-term debts] with id. ¶¶ 13:440 to 13:484, pp. 13?49 to 13?54 [discussing long-term debts].)  The modification of a short-term loan may include “lienstripping,” that is, the bifurcation of the loan into secured and unsecured components based on the value of the home, with the unsecured component subject to a “cramdown.”  (See In re Paschen, supra, 296 F.3d at pp. 1205–1209; 8 Collier on Bankruptcy, supra, ¶ 1322.17, pp. 57–58; see also March et al., Cal. Practice Guide: Bankruptcy, supra, ¶¶ 13:370 to 13:371.1, p. 13?41 [discussing lienstripping].)  If a lien is “stripped down,” the lender is “only assured of receiving full [payment] for the secured portion of the [bankruptcy] claim.”  (In re Paschen, supra, 296 F.3d at p. 1206.)

4.  Detriment

U.S. Bank makes no attempt to hide its disdain for the protections offered homeowners by chapter 13, referring disparagingly to Aceves’s bankruptcy case as “bad faith.”  But “Chapter 13’s greatest significance for debtors is its use as a weapon to avoid foreclosure on their homes.  Restricting initial . . . access to Chapter 13 protection will increase foreclosure rates for financially distressed homeowners.  Loss of homes hurts not only the individual homeowner but also the family, the neighborhood and the community at large.  Preserving access to Chapter 13 will reduce this harm.

“Chapter 13 bankruptcies do not result in destruction of the interests of traditional mortgage lenders.  Under Chapter 13, a debtor cannot discharge a mortgage debt and keep her home.  Rather, a Chapter 13 bankruptcy offers the debtor an opportunity to cure a mortgage delinquency over time — in essence it is a statutorily mandated payment plan — but one that requires the debtor to pay precisely the amount she would have to pay to the lender outside of bankruptcy.  Under Chapter 13, the plan must provide the amount necessary to cure the mortgage default, which includes the fees and costs allowed by the mortgage agreement and by state law.  Mortgage lenders who are secured only by an interest in the debtor’s residence enjoy even greater protection under 11 U.S.C. § 1322(b)(2) . . . . Known as the ‘anti-modification provision,’ [section] 1322(b)(2) bars a debtor from modifying any rights of such a lender — including the payment schedule provided for under the loan contract. . . . [Cf. 11 U.S.C. § 1322(c)(2) [bankruptcy court has authority to modify rights of lender, including payment schedule, in cases involving short-term mortgages]; see pt. II.A.3, ante.]

“Even though a debtor must, through reinstatement of her delinquent mortgage by a Chapter 13 repayment plan . . . , pay her full obligation to the lender, Chapter 13 remains the only viable way for most mortgage debtors to cure defaults and save their homes.  Mortgage lenders are extraordinarily unwilling to accept repayment schedules outside of bankruptcy. . . . There is no history to support any claim that lenders will accommodate the need for extended workouts without the pressure of bankruptcy as an option for consumer debtors.  Reducing the availability of [C]hapter 13 protection to mortgage debtors is most likely to result in higher foreclosure rates, not in greater flexibility by lenders.”  (DeJarnatt, Once Is Not Enough: Preserving Consumers’ Rights To Bankruptcy Protection (Spring 1999) Ind. L.J. 455, 495–496, fn. omitted.)

“It is unrealistic to think mortgage companies will do workouts without the threat of the debtor’s access to Chapter 13 protection.  The bankruptcy process is still very protective of the mortgage industry.  To the extent that the existence of Chapter 13 protections increases the costs of mortgage financing to all consumers, it can and should be viewed as an essential form of consumer insurance . . . .”  (DeJarnatt, Once Is Not Enough:  Preserving Consumers’ Rights To Bankruptcy Protection, supra, Ind. L.J. at p. 499, fn. omitted.)

We mention just a few of the rights Aceves sacrificed by deciding to forgo a chapter 13 proceeding.  First, although Aceves initially filed a chapter 7 proceeding, “a chapter 7 debtor may convert to a case[] under chapter []13 at any time without court approval, so long as the debtor is eligible for relief under the new chapter.”  (1 Collier on Bankruptcy, supra, ¶ 1.06, p. 24, italics added; accord, March et al., Cal. Practice Guide: Bankruptcy, supra, ¶¶ 5:1700 to 5:1701, 5:1715 to 5:1731, pp. 5(II)?1, 5(II)?3 to 5(II)?5; see 11 U.S.C. § 706(a).)  In addition, Aceves could have “cured” the default, reinstating the loan to predefault conditions.  (See In re Frazer (Bankr. 9th Cir. 2007) 377 B.R. 621, 628; In re Taddeo (2d Cir. 1982) 685 F.2d 24, 26–28; 11 U.S.C. § 1322(b)(5); March et al., Cal. Practice Guide: Bankruptcy, supra, ¶ 13:450, p. 13?50.)  She also would have had a “reasonable time” — a maximum of five years — to make up the arrearages.  (See 11 U.S.C. § 1322(b)(5), (d); 8 Collier on Bankruptcy, supra, ¶ 1322.09[5], pp. 39–40; March et al., Cal. Practice Guide: Bankruptcy, supra, ¶ 13:443, p. 13?49.)  And, by complying with a bankruptcy plan, Aceves could have prevented U.S. Bank from foreclosing on the property.  (See 8 Collier on Bankruptcy, supra, ¶¶ 1322.09[1] to 1322.09[3], 1322.16, pp. 34–37, 55–56.)  “‘“Indeed, the bottom line of most Chapter 13 cases is to preserve and avoid foreclosure of the family house.”’”  (In re King (Bankr. N.D.Fla. 1991) 131 B.R. 207, 211; see also March et al., Cal. Practice Guide: Bankruptcy, supra, ¶¶ 8:1050, 8:1375 to 8:1411, pp. 8(II)?1, 8(II)?42 to 8(II)?47 [discussing automatic stay]; In re Hoggle (11th Cir. 1994) 12 F.3d 1008, 1008–1012 [affirming district court order denying lender’s motion for relief from automatic stay]; Lamarche v. Miles (E.D.N.Y. 2009) 416 B.R. 53, 55–62 [affirming bankruptcy court order denying landlord’s motion to set aside automatic stay]; In re Gatlin (Bankr. W.D.Ark. 2006) 357 B.R. 519, 520–523 [denying lender’s motion for relief from automatic stay].)

U.S. Bank maintains that even if Aceves had pursued relief under chapter 13, she could not have afforded the payments under a bankruptcy plan.  But the complaint alleged that, with the financial assistance of her husband, Aceves could have saved her home under chapter 13.  We accept the truth of Aceves’s allegations over U.S. Bank’s speculation.  (See Hensler v. City of Glendale, supra, 8 Cal.4th at p. 8, fn. 3.)

5.  Absence of Consideration

U.S. Bank argues that an oral promise to postpone either a loan payment or a foreclosure is unenforceable.  We have previously addressed that argument, stating:  “‘[I]n the absence of consideration, a gratuitous oral promise to postpone a sale of property pursuant to the terms of a trust deed ordinarily would be unenforceable under [Civil Code] section 1698.’  (Raedeke v. Gibraltar Sav. & Loan Assn. (1974) 10 Cal.3d 665, 673, italics added.)  The same holds true for an oral promise to allow the postponement of mortgage payments.  (California Securities Co. v. Grosse (1935) 3 Cal.2d 732, 733 [applying Civil Code section 1698].)  However, ‘. . . the doctrine of promissory estoppel is used to provide a substitute for the consideration which ordinarily is required to create an enforceable promise. . . . “The purpose of this doctrine is to make a promise binding, under certain circumstances, without consideration in the usual sense of something bargained for and given in exchange. . . .”’  (Raedeke, supra, 10 Cal.3d at p. 672.)  ‘“Under this doctrine a promisor is bound when he should reasonably expect a substantial change of position, either by act or forbearance, in reliance on his promise, if injustice can be avoided only by its enforcement. . . .”’”  (Sutherland v. Barclays American/Mortgage Corp. (1997) 53 Cal.App.4th 299, 312; accord, Garcia v. World Savings, FSB, supra, 183 Cal.App.4th at pp. 1039–1041.)  We further commented:  “When Raedeke and California Securities Co. were decided, Civil Code section 1698 provided in its entirety:  ‘A contract in writing may be altered by a contract in writing, or by an executed oral agreement, and not otherwise.’ . . . In 1976, a new section 1698 was enacted which states in part:  ‘A contract in writing may be modified by a contract in writing . . . [or] by an oral agreement to the extent that the oral agreement is executed by the parties. . . . Nothing in this section precludes in an appropriate case the application of rules of law concerning estoppel . . . .’”  (Sutherland v. Barclays American/Mortgage Corp., supra, 53 Cal.App.4th at p. 312, fn. 8, citations omitted.)  Our earlier analysis in Sutherland applies here.

Finally, a promissory estoppel claim generally entitles a plaintiff to the damages available on a breach of contract claim.  (See Toscano v. Greene Music (2004) 124 Cal.App.4th 685, 692–693.)  Because this is not a case where the homeowner paid the funds needed to reinstate the loan before the foreclosure, promissory estoppel does not provide a basis for voiding the deed of sale or otherwise invalidating the foreclosure.  (See Garcia v. World Savings, FSB, supra, 183 Cal.App.4th at p. 1047, distinguishing Bank of America v. La Jolla Group II (2005) 129 Cal.App.4th 706, 711–714.)

B.        Remaining Claims

The elements of fraud are similar to the elements of promissory estoppel, with the additional requirements that a false promise be made and that the promisor know of the falsity when making the promise.  (See McClain v. Octagon Plaza, LLC (2008) 159 Cal.App.4th 784, 792–794 [discussing elements of fraud].)  Aceves has adequately alleged those facts.

Aceves’s other claims and requests for relief lack merit as a matter of law.  All of them are based on alleged irregularities in the foreclosure process.  We see no irregularities that would justify relief.  For example, Aceves contends U.S. Bank’s designation of Quality Loan Service as the trustee under the deed of trust was defective because the “Substitution of Trustee” was signed by the bank’s attorney-in-fact.  But Aceves cites no pertinent authority for her contention.  (See Schoendorf v. U.D. Registry, Inc. (2002) 97 Cal.App.4th 227, 237–238 [party forfeits contention absent citation of authority].)  Neither Civil Code section 2934a, which governs the substitution of trustees, nor the trust deed itself precludes an attorney-in-fact from signing a Substitution of Trustee.  And case law strongly suggests Aceves is wrong.  (See Tran v. Farmers Group, Inc. (2002) 104 Cal.App.4th 1202, 1213 [“an attorney-in-fact is an agent owing a fiduciary duty to the principal”]; Burgess v. Security-First Nat. Bank (1941) 44 Cal.App.2d 808, 818–819 [person can perform any legal act through attorney-in-fact that he or she could perform in person, including entering into contracts].)

Aceves also takes issue with the notice of default, pointing out that it mistakenly identified Option One as the beneficiary under the deed of trust when U.S. Bank was actually the beneficiary.  Although this contention is factually correct, it is of no legal consequence.  Aceves did not suffer any prejudice as a result of the error.  Nor could she.  The notice instructed Aceves to contact Quality Loan Service, the trustee, not Option One, if she wanted “[t]o find out the amount you must pay, or arrange for payment to stop the foreclosure, or if your property is in foreclosure for any other reason.”  The notice also included the address and telephone number for Quality Loan Service, not Option One.  Absent prejudice, the error does not warrant relief.  (See Knapp v. Doherty (2004) 123 Cal.App.4th 76, 93–94 & fn. 9.)

Last, after the filing of the reply brief and before oral argument, we requested additional briefing on the protections accorded by chapter 13.  In her letter brief, Aceves went beyond the scope of the request and presented arguments not previously made about the order in which various documents were recorded.  The new arguments were unsolicited; Aceves did not explain why the arguments were not raised earlier; and U.S. Bank had no opportunity to respond.  Accordingly, we do not reach them.  (See City of Costa Mesa v. Connell (1999) 74 Cal.App.4th 188, 197; Campos v. Anderson (1997) 57 Cal.App.4th 784, 794, fn. 3.)

It follows that the trial court properly sustained the demurrer without leave to amend with respect to all claims and requests for relief other than the claims for promissory estoppel and fraud.  Aceves should be allowed to pursue those two claims.

III

DISPOSITION

The order and the judgment are reversed to the extent they dismissed the claims for promissory estoppel and fraud.  In all other respects, the order and judgment are affirmed.  Appellant is entitled to costs on appeal.

CERTIFIED FOR PUBLICATION.

MALLANO, P. J.

We concur:

ROTHSCHILD, J.

JOHNSON, J.

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Decided on January 25, 2011

APPELLATE DIVISION : SECOND JUDICIAL DEPARTMENT
JOSEPH COVELLO, J.P.
THOMAS A. DICKERSON
L. PRISCILLA HALL
PLUMMER E. LOTT, JJ.
2010-02046
(Index No. 102965/08)

DeGuerre Law Firm, P.C., Staten Island, N.Y. (Anthony DeGuerre
of counsel), for appellants.
Hogan Lovells US LLP, New York, N.Y. (Allison J. Schoenthal
and Michael E. Blaine of counsel), for
respondent.

DECISION & ORDER

In an action to foreclose a mortgage, the defendants Miguel Madero and Martha Madero appeal, as limited by their brief, from so much of an order of the Supreme Court, Richmond County (Maltese, J.), dated January 5, 2010, as granted those branches of the plaintiff’s motion which were for summary judgment on the complaint insofar as asserted against them and for an order of reference and, in effect, denied those branches of their cross motion which were for summary judgment dismissing the complaint insofar as asserted against them, or for a framed-issue hearing.

ORDERED that the order is modified, on the law, by deleting the first, second, seventh, eighth, and ninth decretal paragraphs thereof granting those branches of the plaintiff’s motion which were for summary judgment on the complaint insofar as asserted against them and for an order of reference, and substituting therefor a provision denying those branches of the plaintiff’s motion; as so modified, the order is affirmed insofar as appealed from, with one bill of costs to the appellants.

The defendants Miguel Madero and Martha Madero (hereinafter together the Maderos) owned and resided in a home located on Victory Boulevard in Staten Island since 1995. On October 20, 2005, Miguel Madero executed a note and, in return for a loan he received, promised to pay the sum of $570,000 plus interest to the lender, Mortgage Lenders Network USA, Inc. (hereinafter the lender). The note was secured by a mortgage on the Maderos’ home. The mortgage states that the Maderos mortgaged their home to Mortgage Electronic Registration Systems, Inc. (hereinafter MERS), and its successors in interest solely as nominee for the lender and its successors in interest. In or around April 2008, the Maderos allegedly defaulted in paying their mortgage.

The mortgage was assigned by MERS, as nominee for the lender, its successors and assigns, to the plaintiff, US Bank National Association, as Trustee, by assignment of mortgage dated July 7, 2008, and recorded July 28, 2008.

On or about July 12, 2008, the plaintiff commenced this action against, among others, the Maderos to foreclose on the mortgage. The Maderos answered and alleged lack of standing as an affirmative defense. Thereafter, the plaintiff moved, inter alia, for summary judgment on the complaint as to the Maderos, and the Maderos cross-moved, among other things, for summary judgment [*2]dismissing the complaint insofar as asserted against them, or for a framed-issue hearing to determine whether the terms of the note and mortgage were unconscionable. In the order appealed from, the Supreme Court, inter alia, granted those branches of the plaintiff’s motion which were for summary judgment on the complaint as to the Maderos and for an order of reference and, in effect, denied those branches of the Maderos’ cross motion which were for summary judgment dismissing the complaint insofar as asserted against them and for a framed-issue hearing. The Maderos appeal. We modify.

Where, as here, a plaintiff’s standing is put into issue by the defendants, the plaintiff must prove its standing to be entitled to relief (see U.S. Bank, N.A. v Collymore, 68 AD3d 752, 753; Wells Fargo Bank Minn., N.A. v Mastropaolo, 42 AD3d 239, 242). “In a mortgage foreclosure action, a plaintiff has standing where it is both the holder or assignee of the subject mortgage and the holder or assignee of the underlying note at the time the action is commenced” (U.S. Bank, N.A. v Collymore, 68 AD3d at 753). “Where a mortgage is represented by a bond or other instrument, an assignment of the mortgage without assignment of the underlying note or bond is a nullity” (id. at 754). “Either a written assignment of the underlying note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation, and the mortgage passes with the debt as an inseparable incident” (id.; see LaSalle Bank Natl. Assn. v Ahearn, 59 AD3d 911, 912). Here, the plaintiff failed to demonstrate its prima facie entitlement to judgment as a matter of law because it did not establish that it had standing, as the lawful holder or assignee of the subject note on the date it commenced this action, to commence the action (see U.S. Bank, N.A. v Collymore, 68 AD3d 752; see also Suraleb, Inc. v International Trade Club, Inc., 13 AD3d 612; Tawil v Finkelstein Bruckman Wohl Most & Rothman, 223 AD2d 52, 55). Accordingly, the Supreme Court should have denied those branches of the plaintiff’s motion which were for summary judgment on the complaint as to the Maderos and for an order of reference.

The Supreme Court properly denied those branches of the Maderos’ cross motion which were for summary judgment dismissing the complaint insofar as asserted against them (cf. U.S. Bank, N.A. v Collymore, 68 AD3d 752), or for a framed-issue hearing (see Gillman v Chase Manhattan Bank, 73 NY2d 1).

In light of our determination, we need not reach the Maderos’ remaining contentions.
COVELLO, J.P., DICKERSON, HALL and LOTT, JJ., concur.

ENTER:

Matthew G. Kiernan

Clerk of the Court

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via: Brian Davies

ELIZABETH ANN KENTON, an Individual.
Plaintiff,

-vs.-

BANK OF AMERICA, N.A.; WELLS FARGO
BANK N.A. F/K/A WELLS FARGO BANK
MINNESOTA, N. A., as Trustee of BANK OF
AMERICAN SECURITIES INC.
ALTERNATIVE LOAN TRUST 2003-2;
FLORIDA DEFAULT LAW GROUP, P.I
Defendants.

COMPLAINT TO DETERMINE THE
NATURE, EXTENT AND VALIDITY
OF LIEN AND TO DISALLOW
SECURED CLAIM, TILA VIOLATION,
FRAUD, LIBEL, QUIET TILE, AND
INJUNCTIVE RELIEF.

continue below…begin on page 4

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* Allegations Deutsche Bank filed false documents

* Inquiry could affect foreclosures across United States

* Testimony demanded from Deutsche Bank officials

By Scot J. Paltrow

NEW YORK, Jan 28 (Reuters) – A branch of the U.S. Department of Justice is investigating whether Deutsche Bank (DBKGn.DE) filed false documents and attempted to mislead a bankruptcy judge in a foreclosure action.

Although the investigation involves the case of only one homeowner in Connecticut, a court document filed on Jan. 26 by the United States Trustee’s Office said it wants to elicit information about Deutsche Bank’s practices in general in foreclosure cases.

The inquiry involves Deutsche Bank National Trust Co, the Deutsche Bank unit that acts as trustee for thousands of trusts that invested in mortgage-backed securities. The U.S. Trustees’ Office is a division of the Department of Justice responsible for overseeing administration of bankruptcy cases.

In recent months, the office has stepped up efforts around the United States to block banks and law firms from using false or fabricated documents in home foreclosure actions. The effort follows disclosures in October 2010 of large-scale “robo-signing”, the mass signing of foreclosure affidavits containing “facts” that had never been checked, and wide production of false mortgage assignments.

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[edit] GUEST COMMENT: Anybody that understands the foreclosure fraud situation and read this document would tell you: REVIEW OF THE HAWAII TASK FORCE REPORT 1/28/11

1. It appears to me that the group was weighted toward lenders/bankers;

2. The report does nothing to address the problems that have been caused by the securitization of mortgages;

3. There is nothing addressing the MERS issue and its subversion of the recordation process;

4. I see nothing that addressed investigating the elimination of non-judicial foreclosures. The recommendations appear to continue the two courses of action (judicial and non-judicial);

5. There was no “out of the box” thinking…just band-aids and hole-plugging. Apparently, Hawaii banks didn’t want to be “painted with the same brush” as mainland banksters; however, all but a couple participated in the securitization feeding frenzi and MERS – and basically didn’t give a damn about the borrower.

More Homeowners Would Have Access To Judge

And so it begins. We’re about to witness the main event in financial institution internecine warefare: investment funds (MBS buyers) vs. banks (MBS sellers).

There have already been some opening skirmishes. The monoline bond insurers (MBIA, Syncora, FGIC, Ambac (and here), CIFG (and here), and–I haven’t found any litigation with them on this, but there’s gotta be some–ACA) have been litigating against some of the banks whose securitizations they insured for various fraud, negligent misrepresentation, and breach of warranty claims. Many of the Federal Home Loan Banks (Chicago, Indianapolis, Pittsburgh, San Francisco, Seattle, maybe others that I don’t recall of the top of my head), which slurped up RMBS during the bubble, only to find them toxic, have brought (separate) suits mainly on securities fraud charges, but also on common law fraud and negligent misrepresentation claims. (See here for a totally dated, August 2010 estimation of the liabilities in these suits.)

Then last fall the financial world was shaken by the New York Fed, BlackRock, and PIMCO’s demand letter to Bank of New York Mellon and Countrywide. That showed that A-list financial institutions were taking the range of problems with RMBS, from representation and warranty breaches to servicer malfeasance, seriously. (You can see the NY Fed, acting for the Maiden Lane LLCs, as really another representing AIG, essentially the mother of all monolines for these purposes.) But that wasn’t litigation proper, just an angry growl, with a threat of litigation if things weren’t resolved. (When you see the letterhead for the response, you’ll see that BoA/CW is taking this mighty seriously. Despite the typo in that snippy letter, it didn’t come cheap. These guys are lawyering up.)

In re MIKE ZITTA AND IRENA ZITTA, Debtors.
BAC HOME LOANS SERVICING, LP FKA COUNTRYWIDE HOME LOANS
SERVICING LP, its assignees and/or successors in interest, Movant,
v.
MIKE ZITTA AND IRENA ZITTA, Respondents.

No. 09-bk-19154-SSC

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ARIZONA

DATED: January 21, 2011.

Not for Publication-Electronic Docketing ONLY

AMENDED1 MEMORANDUM DECISION

I. PRELIMINARY STATEMENT
This Court recently received a Notice of Appeal filed by BAC Home Loans Servicing, L.P., f/k/a Countrywide Home Loans Servicing, L.P.(“BAC”) on December 23, 2010. The Notice of Appeal concerns the Court’s denial of a Motion for Reconsideration filed by BAC relating to its Motion for Relief from Stay in the Chapter 11 bankruptcy case of Mike and Irena Zitta (“Debtors”). Because BAC may have prematurely filed its Notice of Appeal, and because this Court had anticipated an opportunity to execute some sort of Order, with an appended memorandum decision on the issues presented, this Court will amplify its reasoning in denying the Motion for Reconsideration and clarify the record so that the Motion for Reconsideration may be heard on appeal.

BAC filed its Motion for Relief from Stay on August 30, 2010.2 Copies of the interest-only promissory note (“Note”), along with an allonge (“Allonge”), the recorded deed of trust (“Deed of Trust”), and the Broker’s price opinion were attached to the Motion.3 BAC also filed a declaration in support of the Motion.4 However, no assignment of the Deed of Trust from any entity to BAC was included. The Debtors filed a response/objection to the relief requested.5 The Court denied BAC’s Motion by Minute Entry Order issued on October 20, 2010 (the “Minute Entry Order”), because BAC had failed to provide a copy of an assignment of the Deed of Trust with its Motion.6 The October 20 Minute Entry Order was not executed by this Court.

On October 29, 2010, BAC filed a Motion for Reconsideration of the Minute Entry Order, asserting that under Arizona law, an assignment of the Deed of Trust was not necessary to establish standing to move for relief from the automatic stay.7 The Court heard the Motion for Reconsideration on December 15, 2010, and denied the requested relief. BAC never submitted a form of order denying the Motion for Reconsideration, and although a minute entry order was generated that same day outlining briefly the Court’s denial of the Motion, the minute entry order was never executed by this Court.8 Rather than wait for an appropriate form of order to be entered, BAC chose to file a Notice of Appeal on December 23, 2010.

In this Memorandum Decision, the Court has set forth its findings of fact and conclusions of law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure. The issues addressed herein constitute a core proceeding over which this Court has jurisdiction. 28 U.S.C. §§ 1334(b) and 157(b) (West 2010).

II. FACTUAL DISCUSSION
In the Motion for Relief from Stay filed on August 30, 2010, BAC asserted that it was the “holder in due course” and that it was the “payee and a holder in due course under that certain Promissory Note dated March 20, 2007.”9 The Note attached to the Motion for Relief from Stay stated that GreenPoint Mortgage Funding, Inc., had provided the financing to the Debtors so that the Debtors could acquire the real property located at 5100 East Blue Jay Lane, Flagstaff, Arizona (“Property”).10 The Note further stated that anyone taking the Note “by transfer and who [was] entitled to receive payments under [the] Note [was] called the “Note Holder.”11 The Allonge, dated March 20, 2007, stated as follows: “Pay to the Order of BAC Home Loans Servicing, LP f/k/a Countrywide Home Loan Servicing, LP without recourse.”12 GreenPoint Mortgage Funding, Inc. had executed the Allonge, although the signature is difficult to discern.13 The Deed of Trust attached to the Motion for Relief from Stay stated that GreenPoint Mortgage Funding, Inc. was the lender and that MERS was the nominee for the lender. Specifically, the Deed of Trust stated:

(E) “MERS” is Mortgage Electronic Registration Systems, Inc. MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is the beneficiary under this Security Instrument.14

The Deed of Trust stated that the Debtors acknowledged or executed the document on March 21, 2007, although the Allonge and the Note had an execution date of March 20, 2007. Finally, the Declaration submitted in support of the Motion for Relief from Stay stated that “[it] is in the regular course and scope and business for BAC Home Loans Servicing, LP f/k/a Countrywide Home Loans Servicing LP to prepare and maintain books and records relating to the status of the servicing of Movant’s Deed of Trust.”15 The Declaration also stated that “Movant is the payee under that certain Promissory Note dated March 20, 2007…. Further, Movant is the present holder and owner of that certain First Deed of Trust of same date…. securing said Note against Debtors’ property….”16 Thus, BAC’s Declaration creates an ambiguity as to whether BAC is the servicer of the loan or whether it is the Note Holder who is entitled to payments under the Debtors’ Note obligation. The documentation presented by BAC also includes a security agreement, granting BAC a security interest in the Note.17

A review of the Motion for Relief from Stay reflects the myriad problems that this and other Courts are facing in attempting to handle the tremendous volume of such motions that are filed in the numerous bankruptcy cases that are pending across the country. First, the Motion that was filed in this case appears to be a form that may have been imperfectly tailored to the facts of this case. For instance, the Motion for Relief from Stay alleges that GreenPoint Mortgage Funding, Inc. “was the original lender on the subject Note and Deed of Trust. Thereafter, GreenPoint Mortgage Funding, Inc. assigned all of its rights, title and interest in and to said [N]ote and Deed of Trust to BAC Home Loans Servicing, L.P., f/k/a Countrywide Home Loans Servicing, L.P. by way of an Allonge….”18 However, as noted previously, the Declaration seems to indicate that BAC was acting as a servicer. If BAC was simply the servicer, then for whom was BAC receiving payments under the Note? If BAC was holding the Note as the servicer, for whom was it acting? If BAC was the Note Holder, as defined in the Note, then why does the Declaration state that BAC operates as a servicer? Another way to state the problem is that the Motion for Relief from the Stay and the Declaration seem to reflect imperfectly the transfer of the various interests in the Note and Deed of Trust. Given the posture of the record presented to the Court, and the lack of clarity, the Court denied the Motion for Relief from Stay by Minute Entry Order on October 20, 2010. Rather than clarify the record by filing the appropriate assignment, a further declaration or affidavit, or some other documentation, BAC filed its Motion for Reconsideration. BAC chose to provide no further information to the Court from a factual standpoint.

III. LEGAL DISCUSSION
The Motion for Reconsideration

As outlined above, part of the problem with the issues to be decided is the context in which the matters have been presented to the Court. When a motion for relief from stay is filed, the Bankruptcy Code, the Rules of Bankruptcy Procedure, and the Local Rules of this Court are immediately applicable or implicated.

11 U.S.C. §362 (d) states that the bankruptcy court may, for instance, terminate, modify, or condition the automatic stay (1) “for cause, including the lack of adequate protection of an interest in property of such party in interest,” or (2) “with respect to a stay of an act against
property under subsection (a) of this section if-(A) the debtor does not have an equity interest in such property; and (B) such property is not necessary to an effective reorganization.”19 Section 362(g) states that the party requesting relief from the automatic stay has the burden of proof of whether the debtor has any equity in the property at issue.20 The Local Rules of the Arizona Bankruptcy Court further require that a party filing a motion for relief from the automatic stay be able to provide some support for the relief requested. For instance, if the party is stating that it is a secured creditor requesting relief from the automatic stay to pursue a trustee’s sale under Arizona law, the secured creditor should be able to provide support in the motion that it has a perfected security interest in property of the estate in which the debtor or debtor in possession also has an interest.21

In reviewing the sufficiency of any motion for relief from the automatic stay, the court must also consider under what provision of the Bankruptcy Code the debtor has filed. For instance, if the individual debtor has filed a chapter 7 petition, a trustee in bankruptcy is appointed that must collect and liquidate property of the estate, that has not been claimed exempt by the debtor, for distribution to the debtor’s creditors, according to the priorities set forth in the Bankruptcy Code.22 The trustee in bankruptcy may increase the amount of property of the estate available for distribution to creditors by exercising certain avoidance powers enumerated, inter alia, in Bankruptcy Code Sections 544, 547, and 548.23 An individual debtor may acquire the same duties and responsibilities of a trustee in bankruptcy by filing a chapter 11 petition, seeking to reorganize or to file a plan of liquidation.24 Because the debtor in possession is vested with the same powers of the trustee, the debtor in possession may pursue avoidance actions as well.25 In this case, the individual Debtors filed a chapter 11 petition seeking to reorganize, and no bankruptcy trustee has yet been appointed in this case. As a result, the Debtors exercise the rights of a bankruptcy trustee concerning the ability to avoid certain transfers or transactions.

Because of the avoidance powers of the bankruptcy trustee or the debtor in possession, this Court requires that if a party seeking relief from the automatic stay asserts a perfected security interest in any property of the estate, that moving party must be able to present at least a prima faciecase that it has such a perfected security interest under applicable law.26 The fact that the transaction is not avoidable between the parties to the underlying loan transaction is not dispositive of whether the transaction may be avoided by third parties that are, for instance, bona fidepurchasers.27

Turning to the standards of a motion for reconsideration, the moving party must show a manifest error of fact, a manifest error of law, or newly discovered evidence. School Dist. No. 1J Multnomah County, OR v. ACandS, Inc., 5 F.3d 1255, 1263 (9th Cir. 1993); In re Gurr, 194 B.R. 474 (Bankr. D. Ariz. 1996). A motion for reconsideration is not specifically contemplated by the Federal Rules. To the extent it is considered by the Court, it is under Fed. R. Civ. P. 59(e) to alter or amend an order or judgment. In re Curry and Sorensen, Inc., 57 B.R. 824, 827 (Bankr. 9th Cir. 1986). Because BAC presented no new evidence to this Court and has not outlined any manifest error of fact, the sole basis for the BAC Motion for Reconsideration must be a manifest error of law by this Court. BAC has outlined several bases for what it believes is this Court’s manifest error of law.

(A) Is the Movant the Real Party in Interest?

A colleague in the Arizona Bankruptcy Court has stated that a party that brings a motion for relief from the automatic stay must first establish a “colorable claim.” “In order to establish [such a claim], a movant…. bears the burden of proof that it has standing to bring the motion.” In re Weisband, 427 B.R. 13, 18 (Bankr. D. Ariz. 2010) (citing In re Wilhelm, 407 B.R. 392, 400 (Bankr. D. Idaho 2009)). In the Weisband decision, the Court states that the moving party may establish standing by showing that it is a “real party in interest.”28 The Weisband Court next states that a holder of a note is a “real party in interest” under FRCP 17 because, under the Arizona Revised Statute (“ARS”) § 47-3301, the note holder has the right to enforce it. Weisband at 18. Relying on a decision from a bankruptcy court in Vermont, the Weisband Court next opines that “[b]ecause there is no federal commercial law which defines who is a note holder, the court must look to Arizona law to determine whether [movant] is [such] a holder.” Id. (citing In re Montagne, 421 B.R. 65, 73 (Bankr. D. Vt. 2009)). Finally, the Weisband Court states that under Arizona law, a holder of a note is defined as, inter alia, “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.” Id. (citing ARS § 47-1201(B)(21)(a)).

BAC’s citation to Weisband fails to address this Court’s concerns. In the Motion for Relief, BAC contends that it is the “payee and a holder in due course.” However, the Declaration that it filed appears to reflect that BAC is the servicer for some other party. Obviously there is a difference. A servicer acts pursuant to a separate agreement with the Note Holder and is paid a separate fee to determine what payments have been made, or not made, by a given borrower. However, the servicer would not normally list the loan on its balance sheet as one of its assets. The Note Holder, according to the definition in the Note, is the party that is entitled to receive the payments under the Note, because it has arguably paid some consideration for the transfer of the obligation to it, and has listed the obligation as an asset in its books and records.29 BAC has not provided any additional facts to clarify whether it is the servicer pursuant to an agreement with the Note Holder, or contrary to its Declaration, it actually acquired the loan and has placed the loan on its balance sheet as one of its assets.

From the documentation provided by BAC, it appears that GreenPoint provided the original funding for the loan to the Debtors so that they could acquire the Property. Yet, at the time of the closing, GreenPoint immediately assigned its interest in the Note to BAC. The Declaration submitted by BAC, however, seems to indicate that BAC is only in the business of servicing loans-perhaps for some other entity associated or related to BAC. If BAC Home Loans Servicing, LP, is acting as the servicer of a Bank of America entity, for which entity is it acting? Conversely, if GreenPoint transferred the Debtors’ loan from its books and records to some other entity, was it BAC? If BAC alleges in its Motion for Relief from the Stay that it is the Note Holder, is it, in fact, the one legally entitled, because of the purchase of the Debtors’ obligation, to receive the Debtors’ payments?

As a part of its prima faciecase, BAC should have provided the Court with more factual information in support of its position. As a result, this Court may deny the Motion for Reconsideration, and the underlying Motion for Relief from the Stay, on the basis that BAC has failed to provide sufficient documentation to this Court so that the Court may ensure that BAC is the proper Note Holder, or servicer if appropriate, to pursue such a Motion for Relief from the Stay.

Thus, the focus of the BAC’s Motion for Reconsideration does not consider all of the factual and legal issues that it should. It does not address whether BAC, in this matter, has presented an appropriate factual and legal basis to proceed on this loan concerning the Debtors and their Property. BAC could have easily supplemented the record to provide the appropriate documentation to proceed, but chose not to do so.

(B) Has BAC Set Forth a Prima Facie Case That It Has
A Perfected Security Interest in the Property Given the Status
Of the Debtors As Debtors In Possession?

In its Motion for Reconsideration, BAC relies on ARS § 33-817, which states, “The transfer of any contract or contracts secured by a trust deed shall operate as a transfer of the security for such contract or contracts.” ARS § 33-817. BAC further points out that the Supreme Court of Arizona has held that a mortgage is a “mere incident to the debt,” and its “transfer or assignment does not transfer or assign the debt or the note,” but “the mortgage automatically goes along with the assignment or transfer” of the note. Hill v. Favour, 84 P.2d 575, 578 (Ariz. 1938) (emphasis added). However, at the hearing on December 15, 2010, the Court expressly stated its concern about the ability of BAC to proceed given that it had not provided any information as to a recorded assignment of the Deed of Trust. The Court asked counsel how her analysis was appropriate given (1) the status of the Debtors as Debtors in Possession who had objected to the relief requested, and (2) ARS § 33-818 which provides, in pertinent part, as follows:

[A]ssignment of a beneficial interest under a trust deed,… shall from the time of being recorded impart notice of the content to all persons, including subsequent purchasers and encumbrancers for value.
As outlined above, the Debtors, as Debtors in Possession, acquire the status of a bona fide purchaser and are able to set aside any real estate transaction, concerning their Property, for which the creditor has not taken appropriate steps under Arizona law. See 11 U.S.C. § 544(a)(3) (West 2010). Arizona law requires that if a secured creditor with a lien on the Debtors’ Property wishes to ensure that said interest is not subject to the claims of a bona fide purchaser, that said secured creditor record an assignment of its interest with the Recorder in the County where the Debtors’ Property is located. If notice of the assignment has not been provided, through recordation, the secured creditor may have its interest avoided by a bona fide purchaser. See Rodney v. Arizona Bank, 836 P.2d 434, 172 Ariz. 221 (Ariz. App. Div. 2 1992) (Unless and until the transferee of the beneficial interest in the deed of trust records an assignment of the deed of trust, the security interest in the real property remains unperfected.)

At the time of the hearing on the Motion for Reconsideration, BAC’s counsel agreed that although vis-a-vis the original parties to the transaction, no assignment of the Deed of Trust need be produced or recorded, because of the Debtors’ filing of a bankruptcy petition, ARS § 33-818 required that an assignment be prepared and properly recorded given the new status of the Debtors as Debtors in Possession.30 It is unclear why BAC has not simply supplemented the record to provide the assignment of the Deed of Trust.

The request that an assignment be recorded is not a burdensome requirement. MERS, through its registration system, keeps track of the transfers of the beneficial interests, under a deed of trust, from member to member in the system. When there is some type of default under the loan transaction, MERS generally prepares an assignment of the beneficial interest in the deed of trust for signature and then records the assignment with the appropriate state authority, which in Arizona would be the Recorder in the County where the real property that is subject to the secured creditor’s lien is located. This recordation of the assignment provides the requisite notice to third parties, as required under Arizona law.

Although BAC relies on the decision of Rodney v. Arizona Bank, 836 P.2d 434, 172 Ariz. 221 (Ariz. App. Div. 2 1992), the decision actually supports this Court’s understanding of the importance of the recordation of the assignment of the deed of trust. In Rodney, the borrowers were the Vasquezes, who received purchase money financing from the initial lender, Hal Clonts (“Clonts”), to purchase real property (“Property”) located in Mohave County. The Vasquezes executed a promissory note and deed of trust in favor of Clonts to provide him with a lien on their Property to secure repayment of the note. It is important to keep in mind that the Vasquezes remained the borrowers throughout a series of subsequent transactions that only affected the lender or the party that had a security interest in the promissory note and deed of trust.

Clonts transferred his interest to the Fidlers through an assignment of the beneficial interest in the promissory note and deed of trust. Id. at 435. However, on April 11, 1985, the Fidlers entered into a separate loan transaction in which they borrowed money from a third party, State Bank, later called Security Pacific Bank Arizona (“Security Pacific”). The Fidlers provided security to Security Pacific for their loan transaction by pledging “all monies” received by the Fidlers in “Escrow # 85-02-9290.” Id. Security Pacific immediately notified the title company, for the subject escrow, as to Security Pacific’s interest in the escrow funds. In September 1986, the Fidlers again transferred their beneficial interest in the promissory note and deed of trust to Theron Rodney (“Rodney”). The Fidlers received $20,000 from Rodney for the transfer of their interest. The Fidlers executed an assignment of the beneficial interest under the deed of trust. Rodney recorded his interest in the deed of trust with the Mohave County Recorder’s Officer where the Property was located. Not surprisingly, Security Pacific and Rodney disagreed as to the priority of their respective security interests in the loan proceeds. Security Pacific argued that the interest in the loan proceeds could only be perfected pursuant to the Uniform Commercial Code. Conversely, Rodney argued that the real property provisions of Arizona law were applicable. Id. at 436.

The sole issue to be addressed by the Appellate Court was whether Article Nine of the Uniform Commercial Code (as adopted in Arizona) applied to the creation and perfection of a security interest in a promissory note when the note itself was secured by a deed of trust in real property. Id. Before considering the analysis by the Court, let’s diagram the various loan transactions.

+——————————————————————————————————–+———————————————+
| The Vasquezes |                                                                                                                                                  Clonts |
| —- | |
+——————————————————————————————————–+———————————————+
| initial borrowers purchase money financing |                                                                                     initial lender |
+——————————————————————————————————–+——————————————————————+
| Vasquezes continue to pay on the original note and deed of trust to the title company, as escrow agent | (1) transfer of the interest in the note and deed of trust for consideration to the Fidlers |
|                                                                                                                                                                                                                   | (2) separate loan to the Fidlers–security interest in the note and deed of trust given to Security Pacific-consideration given to Fidlers |
|                                                                                                                                                                                                                   | (3) Fidlers again seek financing–security interest in the note and deed of trust given to Rodney |
|                                                                                                                                                                                                                   | for $20,000. |
+——————————————————————————————————–+——————————————————————–+
| | |
+——————————————————————————————————–+——————————————————————–+

Thus, it is only the parties on one side of the initial loan transaction that are in disagreement as to the priority of their security interests. Noting that Security Pacific only wanted to obtain a perfected security interest in the promissory note proceeds, the Court stated “we find that Security Pacific received a corollary security interest in the real property evidenced by the deed of trust, along with its interest in the note, although the corollary interest remained unperfected.” Id. The Court then stated that Security Pacific need not have a perfected security interest in the real property, because Security Pacific’s interest was only in the note which was a security interest in personal property under ARS § 47-1201(37). Id. at 436-37. The Court concluded that “Arizona case law holds that a mortgage note and the debt evidenced thereby are personal property (citing to Hill v. Favour, 52 Ariz. at 571, 84 P.2d at 579). Article Nine of the UCC applies to security interests in personal property….” Id. at 437. However, Article Nine of the Uniform Commercial Code does not apply to obtaining a lien on real property. In considering the somewhat murky area of “realty paper,” the Court relied on Commentators J White and R. Summers, who described “realty paper” as follows:

B mortgages his real estate to L. L gives B’s note and the real estate mortgage to Bank as security for a loan. Article Nine does not apply to the transaction between L and B, but does apply to that between L and Bank.

Id.31 Turning to the facts of this case, BAC is arguing that its security interest in the Note and Deed of Trust is perfected as to all others, rather than to just other mortgagees. It has forgotten the other side of the transaction, which is the “mortgagor” in the White and Summers analysis, or someone that may acquire an interest from the mortgagor, such as a bona fide purchaser. To perfect its interest as to the “mortgagor,” which would be the Zittas, or someone who may acquire an interest in the Property from the Zittas, BAC needed to record its assignment in the Deed of Trust, as required under real property law, such as ARS § 33-818 (West 2010). BAC has not shown this Court that any such assignment exists, so its Motion for Reconsideration must be denied as a matter of law.

BAC also relies on In re Smith, 366 B.R. 149 (Bank. D. Colo. 2007), which is inapposite. The debtor had been in a chapter 13 proceeding, but had converted his case to one under chapter 7. Id. at 150. Bank of New York, N.A. (“Bank of New York”) subsequently requested relief from the automatic stay as to the real property owned by the debtor. The debtor did not oppose the motion, and a foreclosure sale, pursuant to Colorado law, subsequently occurred. Bank of New York then recorded a deed upon sale as to the debtor’s real property. Without seeking any stay of the foreclosure proceedings, the debtor filed an adversary proceeding with the bankruptcy court. The debtor asserted that the Bank of New York was not the real party in interest, and therefore, it was unable to proceed with a foreclosure of his real property. The bankruptcy court reviewed the evidence presented and determined that Bank of New York was the holder of the promissory note at the time it commenced its foreclosure sale. The court stated that Countrywide Home Loans, Inc., which had originally provided the financing to the debtor, had endorsed the promissory note in blank. Under Colorado law, such a blank endorsement allowed the promissory note to become “payable to bearer.” However, Bank of New York did submit a Certification of Owner and Holder of the Evidence Debt, which allowed the Colorado court to conclude that Bank of New York was the “holder of the original evidence of debt.” The court then reviewed the deed of trust, determining that it was recorded at approximately the same time as the loan closing between the debtor and Countrywide Home Loan, Inc. The bankruptcy court then concluded that the promissory note was assigned to the Bank of New York. As such, once the promissory note was assigned to the Bank of New York, MERS then functioned as the nominee for the Bank of New York. Id. at 151. Presumably, as a result of MERS nominee status, the bankruptcy court concluded, sub silentio, that no additional action needed to be taken by Bank of New York vis-a-vis the debtor.

This Court questions the analysis by the Smith court.32 Although the Smith court relies on a 2002 decision from the Colorado Supreme Court, the court does not analyze the concept of “realty paper” or discuss White and Summers. As noted by this Court supra, the lender in the original loan transaction or a party that may subsequently obtain a security interest in the promissory note, as a result of a separate loan transaction, may be protected, but this Court is viewing the transaction from a different viewpoint: that of the Debtors in Possession that acquire the status of bona fide purchasers. There is no discussion, in Smith, as to how Colorado law would treat such third parties. Moreover, it is unclear whether Colorado has a similar provision as Arizona’s ARS § 33-818 that focuses on the separate requirements of a creditor that may have a beneficial interest under a deed of trust assigned to it.

In considering the ability of the debtor to pursue a claim under 11 U.S.C. § 544, the Colorado court concludes that the debtor does not have the standing of the bankruptcy trustee. Smith at 152. Such an analysis is correct, since the debtor pursued his claim against the Bank of New York only after he had converted his case to one under chapter 7. The chapter 7 trustee also failed to join with the debtor in the adversary proceeding or to pursue the claim separately.33 However, as to the facts before this Court, the Debtors, as Debtor in Possession, in this chapter 11 proceeding do have the standing to pursue claims under Section 544.34 Thus, this Court must reject the analysis in the Smith case.

This Court concludes that given the summary nature of motions for relief from the automatic stay, 35 the general requirements in the case law and the Local Rules of this Court36 that a creditor alleging a security interest in certain property of the debtor and/or the bankruptcy estate at least set forth a prima facie case as to its perfected security interest, 37 BAC should have provided an assignment of the Deed of Trust. It failed to do so; however, the Motion for Relief from the Automatic Stay was denied without prejudice. BAC still has the opportunity to refile the Motion with the appropriate documents as exhibits thereto.

IV. CONCLUSION
For the foregoing reasons, the Court denies BAC Home Loans Servicing, LP’s Motion for Reconsideration of this Court’s Denial of the Motion for Relief from the Automatic Stay. The Court

SARAH SHARER CURLEY, Bankruptcy Judge

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MERS could be “harnessed by Congress and the industry to improve the mortgage finance system,” R.K. Arnold, its president and CEO, told a House subcommittee in November. Arnold retired this month.

By Prashant Gopal and Lorraine Woellert – Jan 27, 2011 12:01 AM ET

U.S. mortgage servicers face a new era of tighter oversight as regulators seek to cut the number of botched foreclosures and increase loan modifications for struggling borrowers.

The industry, which oversees $10.6 trillion in loans, has been overwhelmed by more than 3 million foreclosures since 2006. The housing-market collapse exposed failures — in the way servicers are paid, track loans and process property seizures — that threaten to stall a fledgling rebound in prices and sales.

“If we fail to act decisively now to deal with the foreclosure crisis, we risk triggering a double-dip in U.S. housing markets,” Sheila Bair, chairman of the Federal Deposit Insurance Corp., said in a Jan. 19 speech to mortgage-industry executives in Washington. “The problem is serious, and the need for action is urgent.”

Changes being studied include a new fee structure for servicers, independent reviews of rejected requests to ease loan terms and a fund to compensate victims of improper foreclosures, according to Bair and other federal and state regulators. Lawmakers have proposed reining in the privately run Merscorp Inc., even as the company says it could serve as a national mortgage registry.

Members of the committee questioned Special Inspector General Barofsky and others about the quarterly report on the Troubled Asset Relief Program (TARP) and Home Affordable Mortgage Program (HAMP) . Chairman Rep. Darrell Issa, (R-CA) Witnesses: Neil Barofsky, special inspector general for the troubled asset relief program Department of the Treasury Tim Massad, Acting Assistant Secretary for Financial Stability and Chief Counsel

House Committee on Oversight & Reform hearing on latest SIGTARP report:

http://www.c-spanvideo.org/program/Bailouts

Barofsky opening statement: http://oversight.house.gov/images/stories/Hearings/Opening_Statements/Testimony.Barofsky.SIGTARP.012611.pdf

Treasury opening statement: http://oversight.house.gov/images/stories/Hearings/Opening_Statements/Massad_Testimony_1.26.11.pdf

Ranking Minority Member Cummings opening statement barred from ‘live’ delivery by Chair Darrell Issa (R-CA): http://democrats.oversight.house.gov/index.php?option=com_content&view=article&id=5164:cummings-opening-statement-for-the-sigtarp-hearing-&catid=3:press-releases&Itemid=49

Documents and video should be posted later:

http://oversight.house.gov/index.php?option=com_content&view=article&id=1085%3Abailouts-and-the-foreclosure-crisis-report-of-the-special-inspector-general-for-the-troubled-asset-relief-program&catid=12&Itemid=20

January 2011 – SIGTARP quarterly report to Congress: http://www.sigtarp.gov/reports/congress/2011/January2011_Quarterly_Report_to_Congress.pdf

By ABIGAIL FIELD Posted 4:47 PM 01/26/11

Among the many legal problems now being discovered with the foreclosure documents that banks have been using are false notarizations. The most typical variety of this problem occurs when a notary certifies that the person whose signature appears on a document really did sign it, even though the notary didn’t witness the signing.

While such false notarizing is criminal, I’ve not yet heard of any notaries being charged. However, in Maryland, Steve Lash of The Daily Record reports that 18 current and former notaries have invoked their Fifth Amendment right against self-incrimination in a foreclosure case.

The notaries were brought before the court in proceedings involving a lawyer who didn’t actually sign numerous foreclosure documents that were nonetheless notarized saying he did. The judge excused the notaries from the proceedings after they took the Fifth, and apparently, they aren’t facing prosecution.

Via: NakedCapitalism

A new development is that the US Bankruptcy Trustee, which is part of the Department of Justice, has started poking around the nether world of slipshod and possible made-up documents, and is asking banks to explain what they are up to. These inquiries may be paving the ground for broader-based action.

[…]

DeutscheBank purports to be the trustee for a particular 2005 mortgage securitization which contains the mortgage at issue. This is a partial list of the documentation problems; the motion itself makes for instructive reading:
In the first filing, Deutsche provides a copy of an undated promissory note which is not made out to the trust but the originator. A few days later, Deutshce filed an objection to the debtor’s plan of reorganization, and in it said the mortgage (the lien, not the note) had been recorded as transferred from the originator to Sand Canyon (a unit of Option One) in 2005 and then transferred to Deutsche less than two weeks before the bankruptcy filing. Note that a 2010 transfer is well outside the time parameters stipulated in the pooling and servicing agreement.

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via: A. Campbell

Excerpt:

The Court has considered the pleadings, evidence and the arguments of the parties’ counsel and/or representative in this cause and is of the opinion that judgment should be rendered for defendants.

The Court makes the following findings:

A Temporary Restraining Order was signed by the Presiding Judge of the 448th Judicial District Court and was in effect at the time of the foreclosure sale; and

The Foreclosure sale was conducted irrespective of the Order of the 448th Judicial District Court and title is presently at issue.

It is accordingly ORDERED, ADJUDGED AND DECREED that:

Continue reading below…

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By ABIGAIL FIELD Posted 1:45 PM 01/26/11

Lee County, Florida has become infamous for speeding foreclosure cases through its courts. The super-charged system — or “rocket docket” — can dispense with a foreclosure case in minutes, sometimes mere seconds. In the interests of speed, the courts have even refused requests for delay from foreclosing banks to get their papers in order and exempted banks from rules that apply to others.

Indeed, earlier this month Lee County Judge James Thompson denied a bank’s request to delay a foreclosure so it could try to complete a short sale under the government’s Home Affordable Foreclosure Alternatives program. A HAFA short sale was presumably in the bank’s interest, which is why it requested the delay, and it certainly was in the homeowner’s interest, as the program would protect the homeowner from having to pay the roughly $200,000 difference between the mortgage and the short sale price. Whose interests does Judge Thompson’s order serve?

Florida’s “rocket docket” has been suggested as a reason why so many banks are now voluntarily dismissing Florida banks just aren’t ready to go forward. Those voluntary dismissals have two negative consequences for the banks, so surely they wouldn’t undertake them lightly. The first is that the banks will have to pay new filing fees, some $2,000 per case. (The banks can recoup the costs from the proceeds of an eventual foreclosure sale.) The second is that banks can only do a voluntary dismissal once; if they file again and have to dismiss the case for some reason, it will be with prejudice.

Example below…

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Wed Jan 26, 2011 2:23pm EST

* Treasury: won’t shut down foreclosure prevention program

* Democratic lawmakers want to grill mortgage servicers

* States, SEC already probing banks’ foreclosure practices (Adds comments from Treasury, lawmakers, TARP details, byline)

By Rachelle Younglai

WASHINGTON, Jan 26 (Reuters) – A top congressional cop said on Wednesday he would consider investigating U.S. mortgage servicers, which have been accused of shoddy home foreclosure practices.

If the House Oversight Committee decides to take on this probe, it will add yet another layer of pressure on top servicers such as Citigroup Inc (C.N), Wells Fargo & Co (WFC.N) and Bank of America Corp (BAC.N).

The nation’s 50 state attorneys general, the Securities and Exchange Commission, bank regulators and the Justice Department are among those probing the handling by banks of mortgage-related paperwork and foreclosure procedures.

At the House Oversight Committee’s first hearing of the year, lawmakers said more had to be done. Democratic Representatives Dennis Kucinich and Elijah Cummings asked the Republican committee Chairman Darrell Issa to haul in servicers such as JPMorgan Chase & Co (JPM.N).

Issa, who became chairman when Republicans took control of the House of Representatives in January, said he would consider the request.

According to records:
Attorney/Firm For Defendant: STEVEN J. BAUM, P.C.

Attorney Type: Attorney Of Record Atty. Status: Active

220 NORTHPOINTE PKWY SUITE G
AMHERST, NEW YORK 14228 716-204-2400

excerpt…

NOW, IT IS ORDERED THAT EXECUTION OF ANY PUBLIC SHARES OF PLAINTIFF’S PROPERTY, LOCATED AT 135 OCEAN PARKWAY, UNIT 16-D, BROOKLYN, NEW YORK, 11218, SHALL BE STAYED PENDING THE HEARING OF THIS MOTION, AND SPECIFICALLY THAT DEFENDANT HSBC BANK USA, N.A. BE STAYED FROM EXECUTING A PUBLIC SALE OF PLAINTIFF’S SHARE OF STOCK ON JANUARY 13, 2011 at 2:OO P.M.

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[read order below]

By David McLaughlin – Jan 25, 2011 7:19 PM ET

A Bank of America Corp. unit, ReconTrust Co. N.A., was ordered by a Nevada judge to temporarily stop foreclosures in the state that aren’t approved by a court order.

Judge Robert W. Lane in Nye County, Nevada, issued a preliminary ruling that blocks ReconTrust from conducting nonjudicial foreclosures until he holds a hearing Feb. 28 on whether to make the ban permanent, according to a Jan. 20 order provided by the court. The injunction was sought in a Nevada homeowner’s lawsuit against Bank of America and ReconTrust.

Stopping the foreclosures is necessary to prevent the “irreparable injury” that would result from “unlawful” seizure of the plaintiff’s home by ReconTrust Co., the judge wrote. The ruling applies to any real estate or personal property in Nevada.

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* Lender need not show physical possession of note

* Homeowner challenge Bank of America’s foreclosure right

By Grant McCool

NEW YORK, Jan 25 (Reuters) – A lender need not show physical possession of a note on underlying debt in order to seek foreclosure of a mortgage that has been securitized, a New Jersey court ordered, departing from previous court rulings in the United States.

In the case decided on Jan. 7, Bank of America Corp (BAC.N) sought to foreclose on the home of Janett Alvarado of Bogota, New Jersey, but the note and mortgage for $292,000 had been lost by Washington Mutual Bank [WMPDC.UL] before the loan obligation was transferred to Bank of America.

Courts in the United States have been unwilling to allow banks to enforce their interests without showing that they possessed the physical note.

A Superior Court judge in New Jersey, Mary Thurber, ruled that Bank of America was entitled to enforce Alvarado’s note obligation and was entitled to summary judgment.