By Ryan C. Wood
Over and over again during the mortgage meltdown and now even years after the mortgage meltdown I have potential clients still wanting to argue that they owe nothing on their primary residence because of some issue with the loan, recording or assignment of the loan. Do not get me wrong. There is an exception to every statement anyone makes like this, but it is rare. What I can prove to you is state court lawsuit after state court lawsuit getting dismissed after you the homeowner were lied to about your chances of actually being successful at arguing you owe nothing even though you did not pay the loan off in full. I can also prove to you relief from stay after relief from stay granted by bankruptcy courts when someone files for bankruptcy protection and is behind on their mortgage payments then tries to argue I owe nothing. Since there still seems to be some confusion let me be clear.
If you do not pay your mortgage payment each month at some point your mortgage company will seek foreclosure and if you have filed for bankruptcy protection and do not pay your mortgage on time your mortgage or loan company will get relief from stay to start the foreclosure process in the real world. Hopefully the following provides some more detailed information about why to not argue you do not owe any money on your house. I do not think bankruptcy attorneys mislead potential bankruptcy clients about this topic but state court litigation attorneys still do.
A recent Ninth Circuit Bankruptcy Appellate Panel case from the Central District really highlights the issues with this argument and applicable law in the bankruptcy world. See BAP CC-18-1015-FLS.
Mortgage Company Can Assign or Transfer the Right of Collection of the Note Secured by the Recorded Deed of Trust
In this particular case here is the list of secured creditors for the bankruptcy filer regarding his deed of trust for his house in chronological order.
1. November 2014: GMAC Mortgage Corporation DBA ditech.com is the original loan company with recorded deed of trust for $315,000 and provides Mortgage Electronic Registration Systems, Inc. (“MERS”), as “nominee” for GMAC and its successors and assigns, was the beneficiary under the Deed of Trust;
2. June 2010: Through nominee MERS GMAC assigns deed of trust to GMAC Mortgage, LLC;
3. January 2011: The borrower and bankruptcy filer entered into a loan modification with MERS, nominee for the then-current holder of the Note, GMAC Mortgage, LLC;
4. May 2013: GMAC Mortgage, LLC assigned the Deed of Trust to Green Tree Servicing, LLC;
5. February 2016: Green Tree Servicing, LLC (which was then known as Ditech Financial LL) recorded the notice of default when mortgage payments were not made;
6. December 2017: Ditech Financial assigned the deed of trust to U.S. Bank Trust, N.A., as Trustee for LSF9 Master Participation Trust 13801; Servicer Caliber Home Loans, Inc. as its attorney in fact.
The assignments continued even after the borrower defaulted on payments and filed for bankruptcy protection under Chapter 13 of the Bankruptcy Code. Ditech Financial filed the proof of claim in the bankruptcy case but U.S. Bank and Caliber as the servicer filed the motion for relief from the bankruptcy automatic stay for permission to continue to enforce their state court rights outside of bankruptcy. The bankruptcy filer and/or borrower unfortunately argued U.S. Bank/Caliber had no standing or no right to request relief from stay and that he was current with all post-bankruptcy filing mortgage payments.
The Motion For Relief From Stay
U.S. Bank/Caliber sought relief from the automatic stay under Section 362(d)(1) for cause alleging the borrower and bankruptcy filer failed to make over $19,000 in mortgage payments after the chapter 13 bankruptcy case was filed. First the borrower/bankruptcy filer argued that U.S. Bank/Caliber was not the “real party in interest.” Second that the Deed of Trust was defective at its inception given the original lender was listed as “GMAC Mortgage Corporation dba ditech.com,” but only “GMAC Mortgage Corporation” is registered in the state of Pennsylvania, while the fictional name “ditech.com” is not. Third, the borrower/bankruptcy filer claimed that the January 2011 modification agreement was invalid.
1. Real Party In Interest
In the bankruptcy world the key term regarding this issue “colorable claim” to enforce an alleged debt/claim. A claim is extremely broadly defined and I have written about this issue in a prior article. But a mere colorable claim is all that is required in the bankruptcy world.
See Arkinson v. Griffin (In re Griffin), 719 F.3d 1126, 1128 (9th Cir. 2013) (citing In re Veal, 450 B.R. at 915); see Edwards v. Wells Fargo Bank, N.A. (In re Edwards), 454 B.R. 100, 105 (9th Cir. BAP 2011)
“A party seeking stay relief need only establish that it has a colorable claim to the property at issue.” A party filing a motion for relief from stay or movant must have a colorable claim sufficient to bestow upon it standing to prosecute a motion under § 362 if the party/movant either: (a) owns or has another form of property interest in a note secured by the debtor’s (or the estate’s) property; or (b) is a ‘person entitled to enforce’ . . . such a note under applicable state law”). The borrower and bankruptcy filer argues that the stamp signature on one of the loan documents invalidates the documents. There does not need to be a lengthy discussion about this issue given an endorsement of a negotiable instrument does not require a “live” or “wet” signature. See U.C.C. § 3-204(a) and U.C.C. § 1-201 providing “signed” includes any symbol executed or adopted with present intention to adopt or accept a writing. Or more commonly known as “make your mark” for a valid signature or endorsement of a document. The alleged “stamp” signature argument fails.
2. Failure to Registered a Fictitious Business Name
This is an interesting argument. The borrower and bankruptcy filer also argues that GMAC Mortgage Corporation dba ditech.com did not register or fill out and file a fictitious business for ditech.com. The problem is that cannot invalidate a lender’s ability to make and enforce thousands upon thousands of dollars of loans…..
The borrower and bankruptcy filer then attempts to argue the various assignments between the parties listed above are invalid. This issue has been analyzed before, see: Veal v. Am. Home Mortg. Servicing, Inc. (In re Veal), 450 B.R. 897, 906 (9th Cir. BAP 2011). The Ninth Circuit provides a service has standing to seek relief from the automatic stay when the borrower files for bankruptcy protection.
3. I Did Pay All The Alleged Missed Mortgage Payments
Finally the borrower and bankruptcy filer argues he made all of the post-petition mortgage payments in a declaration but failed to provide any proof the mortgage payments were paid. As a bankruptcy attorney trying to help someone prevent relief from stay being granted this has to be the most frustrating thing to deal with. If mortgage payments are paid there has to be proof of the payment readily available. If you are behind on your mortgage payments most likely the only thing that can prevent relief from stay being granted is a plan the mortgage company will accept to pay back the missed mortgage payments and that means ALL of the missed mortgage payments up to when the motion for relief from stay is filed within a reasonable time. As a side note; most motions for relief from stay are filed for cause or missed mortgage payments regardless of the amount of equity a property has. Cause exists for relief from stay is you missed mortgage payments and cannot pay them back within a reasonable amount of time there is not much anyone can do for you.