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MOTION FOR RELIEF – “SHOW ME THE NOTE” AND OTHER ISSUES

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Castaic Partners II, LLP v. DACA Castaic, LLP (9th Cir. 5/23/16) – In a bankruptcy case, in which the bankruptcy courted granted a party’s motion for relief from the automatic bankruptcy stay so that it could proceed with foreclosure sale, the debtors’ appeal to the District Court without seeking a stay of the bankruptcy court’s order pending appeal, allowing the foreclosures to occur, the debtors’ appeals are dismissed where they were constitutionally moot because there no longer was any case or controversy.

Veal v. American Home Mortgage Servicing, Inc. (In re Veal), Bk. No. 09-14808 (9th Cir. BAP 2011). In Veal, the Ninth Circuit BAP explained that standing is an independent inquiry that must be made in all federal litigation, and must be determined prior to consideration of the substantive rights of the parties. Id. at *13-14. In Veal, American Home Mortgage, Inc. (AHMI) filed a proof of claim in the Veals’ bankruptcy. Id. at *1. The debtor objected to the proof of claim, arguing that AHMI was not the real party in interest, nor an agent for the real party in interest, and therefore lacked standing to file the proof of claim. Id. at *2. The bankruptcy court overruled the Veals’ objection. Id. at *4. The BAP concluded that once the Veals had challenged AHMI’s standing, AHMI had an affirmative obligation to show that it was a real party in interest, or that party’s agent. Id. at *16. Because AHMI had provided no evidence at all on the issue, the BAP vacated the bankruptcy court’s order and remanded. id. at *16, 18. PARTY NEED ONLY SHOW THEY HAVE A “COLORABLE CLAIM TO BRING ACTION”

In this Chapter 13 case the ostensible agent for Wells Fargo Bank could not establish that Wells Fargo had possession of the note or had other right to payment. This lengthy opinion is a thorough stand-alone discourse on the key elements required for standing to foreclose (and hence assert a claim in bankruptcy), and draws an important distinction between assignment of the mortgage and assignment of the note.

Wrote the court: “We hold that a party has standing to seek relief from the automatic stay if it has a property interest in, or is entitled to enforce or pursue remedies related to, the secured obligation that forms the basis of its motion.”

“Thus, unlike the assignment from GSF to Option One, the purported assignment from Option One to Wells Fargo does not contain language effecting an assignment of the Note. While the Note is referred to, that reference serves only to identify the Mortgage. Moreover, unlike the first assignment, the record is devoid of any endorsement of the Note from Option One to Wells Fargo. As a consequence, even had the second assignment been considered as evidence, it would not have provided any proof of the transfer of the Note to Wells Fargo. At most, it would have been proof that only the Mortgage, and all associated rights arising from it, had been assigned.”

“Here, the Veals allege that neither Wells Fargo nor AHMSI have shown they have any interest in the Note or any right to be paid by the Veals. They seek to invoke prudential standing principles which generally provide that a party without the legal right, under applicable substantive law, to enforce an obligation or seek a remedy with respect to it is not a real party in interest.”

” .. while the failure to obtain the endorsement of the payee or other holder does not prevent a person in possession of the note from being the “person entitled to enforce” the note, it does raise the stakes. Without holder status and the attendant presumption of a right to enforce, the possessor of the note must demonstrate both the fact of the delivery and the purpose of the delivery of the note to the transferee in order to qualify as the “person entitled to enforce.”

“As to Wells Fargo, it had to show it had a colorable claim to receive payment pursuant to the Note, which it could accomplish either by showing it was a “person entitled to enforce” the Note under Article 3, or by showing that it had some ownership or other property interest in the Note.”

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

“In the context of a claim objection, both the injury-in-fact requirement of constitutional standing and the real party in interest requirement of prudential standing hinge on who holds the right to payment under the Note and hence the right to enforce the Note. “With respect to Wells Fargo’s request for relief from the automatic stay, we hold that a party has standing to seek relief from the automatic stay if it has a property interest in, or is entitled to enforce or pursue remedies related to, the secured obligation that forms the basis of its motion.”

” … the purported assignment from Option One to Wells Fargo does not contain language effecting an assignment of the Note. While the Note is referred to, that reference serves only to identify the Mortgage. Moreover, unlike the first assignment, the record is devoid of any endorsement of the Note from Option One to Wells Fargo.”

“As a consequence, even had the second assignment been considered as evidence, it would not have provided any proof of the transfer of the Note to Wells Fargo. At most, it would have been proof that only the Mortgage, and all associated rights arising from it, had been assigned.

Cervantes vs Countrywide Home Loan, Inc. 2011 WL 3911031 (9th Cir., September 7, 201 This is a putative class action challenging origination and foreclosure procedures for home loans maintained within the Mortgage Electronic Registration System (MERS). The plaintiffs appeal from the dismissal of their First Amended Complaint for failure to state a claim. In their complaint, the plaintiffs allege conspiracies by their lenders and others to use MERS to commit fraud. They also allege that their lenders violated the Truth in Lending Act (TILA), 15 USC. § 1601 et seq., and the Arizona Consumer Fraud Act, Ariz. Rev. Stat. § 44-1522, and committed the tort of intentional infliction of emotional distress by targeting the plaintiffs for loans they could not repay. The plaintiffs were denied leave to file their proposed Second Amended Complaint, and to add a new claim for wrongful foreclosure based upon the operation of the MERS system.

In re Matson, BAP NO. Az-101-1433 (Bankr. 9th Cir. June 7 2011) The debtors, David and Deborah Matson, appeal the bankruptcy court’s decision to grant Citibank, N.A. (“Citibank”) relief from stay as to their home in Gilbert, Arizona.3 On appeal, the debtors contend that the bankruptcy court abused its discretion in granting Citibank relief from stay because Citibank did not have standing to request such relief as it was not a real party in interest. We AFFIRM.

In re Sardana, BAP No. AZ-101-1368 (Bankr. 9th Cir. June 2011) Even so, as counsel for Bank of America admitted at oral argument, to be a “real party in interest” for standing purposes to prosecute a motion for relief from stay, the moving party must have a right to enforce the subject obligation under Arizona law. See, e.g., BAC Home Loans Servicing, L.P. v. Zitta (In re Zitta), 2011 WL 677289 (Bankr. D. Ariz. Jan. 25, 2011); In re Weisband, 427 B.R. 13 (Bankr. D. Ariz. 2010); and In re Hill, 2009 WL 1956174 (Bankr. D. Ariz. July 6, 2009). With Ms. Sardana having made an offer of proof, which the bankruptcy court apparently accepted but disregarded, that the Note had been assigned to Fannie Mae, Bank of America needed to establish that it retained the right to enforce the Note obligation in order to establish its standing to prosecute the Motion. It did not meet its burden of proof to make that showing. Accordingly, we determine that it is appropriate to vacate the Order and remand to the bankruptcy court to conduct an evidentiary hearing on the issue of Bank of America’s standing as a real party in interest to prosecute the Motion and on such other matters as the bankruptcy court determines to be appropriate.
CONCLUSION For the foregoing reasons, we VACATE the Order and REMAND to the bankruptcy court to conduct an evidentiary hearing.

In re Weisband, 4:09-bk-05175-EWH (memorandum decision 3/29/10) GMAC failed to provide evidence of standing to bring motion for relief.

Some Arizona cases:

Silving, et al. v. Wells Fargo Bank, N.A., 2011 WL 2669246 (D. Ariz. July 7, 2011) challenging trustee sales – 11 causes of action (fraud, etc)

Bridgeman v.CitiMortgage Inc., et al., Defendants. No. CV11-1106-PHX DGC. (District Court, D. Arizona., September 1, 2011) challenging standing of MERS, etc.

Gasprom, Inc v. Fateh, et al. (In re Gasprom, Inc) CC-12-1567-KuKiTa , (9th Cir. BAP 10/29/13) Ruling: Foreclosure of real property was in violation of automatic stay where chapter 7 trustee abandoned real property but bankruptcy case was still open and creditor had not obtained relief from stay.

The bankruptcy court here concluded that the August 1, 2012 foreclosure sale had not violated the automatic stay. The bankruptcy court reasoned that the Trustee’s abandonment of the Gas Station earlier that same day had fully terminated the stay as to the Gas Station. We disagree. By operation of law, the August 1, 2012 Abandonment Order only terminated one aspect of the stay, the aspect protecting the Gas Station as “property of the estate.” Upon abandonment, the Gas Station no longer was property of the estate; title to the Gas Station reverted to Gasprom. See Catalano v. Comm’r, 279 F.3d 682, 685 (9th Cir. 2002). Hence, the aspect of the stay protecting estate property no longer applied. See § 362(c)(1).

But the abandonment did not by operation of law terminate the aspect of the stay arising from § 362(a)(5), which protects “property of the debtor.” Absent a ruling by the court granting relief from stay under § 362(d) so as to permit foreclosure to occur, § 362(a)(5) continued to protect the Gas Station from foreclosure, at least until the bankruptcy court closed Gasprom’s bankruptcy case on August 16, 2012. See § 362(c)(2).

Yes, if there is insurance.  The insurance company remains on the hook despite the debtor’s discharge. The plaintiff does a stay lift to file the suit against the debtor with a provision that it is only for purposes of collecting on the insurance. The plaintiff cannot sue the insurance company directly. See the procedure described in Stallings v. Spring Meadows Apartment Complex Ltd. Partnership, 185 Ariz. 156, 913 P.2d 496 (Ariz., 1996).  In Stallings the Arizona Supreme Court reversed the Arizona Court Of Appeals. Stallings v. Spring Meadows Apartment Complex Ltd. Partnership, 886 P.2d 1373, 180 Ariz. 617 (Ariz. App. Div. 1, 1994) . The dissent in the Arizona Court of Appeals (which turned out to be correct) stated: most courts hold that a discharge in bankruptcy does not preclude an action against a discharged debtor as the nominal defendant where he is insured against liability for negligence. See, e.g., In re Edgeworth, 993 F.2d 51 (5th Cir.1993); First Fidelity Bank v. McAteer, 985 F.2d 114 (3rd Cir.1993); Green v. Welsh, 956 F.2d 30, 35 (2nd Cir.1992); In re Fernstrom Storage and Van Co., 938 F.2d 731, 733-34 (7th Cir.1991); In re Jet Florida Sys., Inc., 883 F.2d 970, 976 (11th Cir.1989); In re Beeney, 142 B.R. 360, 362-63 (Bankr. 9th Cir.1992); In re Greenway, 126 B.R. 253, 255 (Bankr.E.D.Tex.1991); In re Peterson, 118 B.R. 801, 804 (Bankr.D.N.M.1990); In re Traylor, 94 B.R. 292, 293 (Bankr.E.D.N.Y.1989); In re Lembke, 93 B.R. 701, 702-03 (Bankr.D.N.D.1988); In re White, 73 B.R. 983 (Bankr.D.D.C.1987); In re Mann, 58 B.R. 953, 958 (Bankr.W.D.Va.1986). A discharge in bankruptcy does not extinguish the debt itself; it merely releases the debtor from personal liability for the debt. Edgeworth, 993 F.2d at 53. Section 524(e) 10 of the Bankruptcy Code specifies that the debt still exists and can be collected from any other entity that may be liable. Edgeworth, 993 F.2d at 53. Thus, courts have held that the scope of a section 524 injunction does not prevent a proceeding against the discharged debtor to establish a claim against the debtor’s liability insurer. Id. at 54.