Tax refunds being used to pay for bankruptcy filings Some Americans spend their tax refunds on high-tech gadgets and long-awaited vacations. Others use the cash to file for bankruptcy. More than 200,000 money-strapped households will use their tax refunds this year to pay for bankruptcy filing and legal fees, says a new study by the … Read more Related posts:

1. Muselman v. Deutsche Bank, U.S. Bankruptcy Court | A Valentine from Chief United States Bankruptcy Judge Karen S. Jennemann on Feburary 14, 2012
2. MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., Appellant, v. LISA MARIE CHONG, LENARD E. SCHWARTZER, BANKRUPTCY TRUSTEE
3. Misbehavior and Mistake in Bankruptcy Mortgage Claims

Last week, Hawaii homeowners at risk of foreclosure had reason to be pleased.  Not ecstatic… not jubilant… and certainly not electrified, as other bloggers have intimated might be appropriate.  The decision is not cause for any of those emotions… there’s no curtain lifting on a big show, if you will.

 

District Court Judge J. Michael Seabright ruled in favor of a Hilo homeowner, dismissing a complaint filed by Deutsche Bank as Trustee, who was seeking to foreclose.  According to the court’s ruling, the plaintiff failed to establish that it was validly assigned the Mortgage and Note and therefore lacked standing to foreclose on the defendant’s property.

 

The court’s decision was very straightforward and should be easy to understand.

 

Basically, Deutsche Bank produced an assignment from Home 123/New Century Mortgage on January 13, 2009… but Home 123 was in bankruptcy liquidation as of January 13, 2009, having filed for bankruptcy in 2007, and a liquidation plan was confirmed in July 2008 as part of the bankruptcy of New Century Mortgage.  So, obviously that assignment was not valid.

 

Deutsche then claimed that it was assigned the loan in 2007 through the Pooling & Servicing Agreement (“PSA”), dated January 1, 2007.  Judge Seabright, however, pointed out that although the plaintiff MIGHT have been assigned the Mortgage and Note through this PSA, the plaintiff offered no evidence for the record establishing which mortgages were included in the PSA.

 

In a nutshell, all the judge said is that he wants some admissible evidence of the transfer of the loan to Deutsche Bank.  The 2009 assignment was obviously not valid… and if it was assigned through the PSA in 2007, then Deutsche Bank needed to present some evidence of that fact… and they didn’t… this time around anyway.

 

As such, the judge granted the homeowner’s motion to dismiss Deutsche’s complaint, but he did so “with prejudice,” which means that he left the door open for Deutsche Bank to come back to court with evidence of the assignment, and re-file the foreclosure complaint.

 

Of course, some people will say that Deutsche Bank won’t be able to produce a valid assignment of the loan, while others will say that’s just wishful thinking.  If you want my vote… I’d have to say that Deutsche will be back for sure, so this decision will likely represent a delay, which I’d have to say is something short of extraordinary, as far as ramifications are concerned.

 

The better question really is… when they return to foreclose, what will they bring with them in the way of an assignment?

 

What if they lost the note?

 

If Deutsche Bank can’t find the original note it doesn’t mean that they can’t foreclose… there are a number of other ways the bank could establish that they have the right to foreclose.

 

Judge Seabright left it open as to what would constitute acceptable evidence of the assignment, so it doesn’t necessarily have to be the note itself, rather it could be a schedule of loans that accompanied the PSA… it could be a lost note affidavit, or an affidavit by the custodian of records, or some sort of acknowledgement of receipt.

 

This is a court of equity, and it’s not giving away free houses as a reward for being delinquent on a mortgage just because the foreclosing party doesn’t have the actual note.

 

In fact, the Uniform Commercial Code (“UCC”) sets forth conditions related to enforcing lost, destroyed or stolen instruments in section 3-309, subsection (b) as shown below.

 

§ 3-309. ENFORCEMENT OF LOST, DESTROYED, OR STOLEN INSTRUMENT.

 

• (a) A person not in possession of an instrument is entitled to enforce the instrument if (i) the person was in possession of the instrument and entitled to enforce it when loss of possession occurred, (ii) the loss of possession was not the result of a transfer by the person or a lawful seizure, and (iii) the person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process.

 

• (b) A person seeking enforcement of an instrument under subsection (a) must prove the terms of the instrument and the person’s right to enforce the instrument. If that proof is made, Section 3-308 applies to the case as if the person seeking enforcement had produced the instrument. The court may not enter judgment in favor of the person seeking enforcement unless it finds that the person required to pay the instrument is adequately protected against loss that might occur by reason of a claim by another person to enforce the instrument. Adequate protection may be provided by any reasonable means.

 

What a difference a day makes…

 

According to Massachusetts attorney Glenn Russell (one of the lead attorneys in the now famous Ibanez decision), if Deutsche Bank did in fact buy the loan from New Century in 2007, the precise date of the assignment they present to the court is going to matter… a lot.

 

Here’s why…

 

The PSA that Deutsche presented to the court was dated January 1, 2007.  But according to the transcript of the First Day Hearing of the New Century bankruptcy, dated April 03, 2007, at the time of New Century’s bankruptcy, the company only owned 2,000 loans, and their internal term for these loans was LNFA, which stood for: “Loans Not Financed Anywhere.” 

 

And, these loans, by the way, were sold to Ellington Capital Management Group LLC Capital, and the servicing rights were sold to Carrington.  So, because the closing date for the PSA would be sometime in March of ’07, the date of the assignment of this loan to Deutsche would have to be sometime in March ’07, but before April 3, 2007.

 

To see for yourself… here are links to the Exhibit documents from the New Century bankruptcy proceedings.

Exhibit F – Opening Day Hearing of New Century Bankruptcy

Exhibit H – Amended Disclosure, February 2, 2008

 

The End.

 

So, that’s as far as it goes for the Deutsche v. Williams decision.  It’s not exactly the second coming, but it is reason to be pleased.  It’s probably worth noting that this decision seems to have gone the way it did because of the transfer from a company that was in bankruptcy… that seems to be what led Judge Seabright to his ultimate conclusion.

 

Also, you can’t assume that this decision will carry over into your state.  In California, for example, this wouldn’t have been a problem because California state law says that the deed automatically follows the note, you can’t separate the two.

 

According to Honolulu attorney, Gary Dubin, Hawaii state law is unclear as to whether the mortgage automatically follows the note.  I spoke to him, and he was nothing short of thrilled at the court’s decision.  (Watch for a podcast with Gary as my guest coming up soon.)

Gary has been fighting foreclosures and various other mortgage improprieties in Hawaii for a long time… in fact, when he started his practice, I don’t even think the Big Island was above sea level yet.  (Kidding, just kidding… I love Gary… I just couldn’t help myself.)

 

I understand why Gary was so excited by the decision… he even told me that he’s fought for this same sort of outcome in Hawaii’s state courts on numerous occasions only to find the courts all to willing to disregard anything but the borrower’s delinquent status, and I do understand how frustrating that can be and often still is for foreclosure defense lawyers all over the country.

The Notes Are NOT Lost…

 

Florida foreclosure defense attorney Matt Weidner