Now this is an interesting situation.
Remember, MERS has protested repeatedly that it has standing. Well, maybe not. This is the Fieldstone Bankruptcy Decision, which I will highlight portions of, and embed the full document for those who want to read the wonkish legal stuff.
First, what led to the ruling…
On October 16, 2008, the subject motion for relief from stay was filed. See Doc. No. 21 (the “Motion”). It was filed by “Mortgage Electronic Registration Systems, Inc. as nominee HSBC Bank USA, National Association, as Indenture Trustee of the Fieldstone Mortgage Investment Trust Series 2006-3.” Id. at 1 (the “Movant”).6 The Movant characterized itself as a “secured creditor and Claimant.” Id. The Motion further alleges that Debtors were indebted at filing “to Movant” and that the debt arose out of a promissory note and a deed of trust dated September 20, 2006 “naming Movant as beneficiary.” Id.
We’ve seen this one before, right? MERS asserts (when it feels like it) that it has standing to file foreclosures or, in this case, it claims standing in a Bankruptcy. As we shall see, that argument gets demolished….
While the term “party in interest” is not defined by the Code, this Court has held that such a party must have a “pecuniary interest” in the outcome of the dispute before the Court.
Yep. No interest or harm, no standing. End of discussion. (This is pretty-basic stuff.)
Jacobson notes that its moving party, who claimed to be a servicer for the holder of the note, “neither asserts beneficial interest in the note, nor that it could enforce the note in its own right.” 2009 WL 567188 at *4. It concluded that Fed. R. Civ. P. 17 applied, requiring the stay relief motion to be brought in the name of the real party in interest.
That entity is the real party in interest. It must bring the motion or, if the motion is filed by a servicer or nominee or other agent with claimed authority to bring the motion, the motion must identify and be prosecuted in the name of the real party in interest.11
Now we get to the meat of it. That is, The Trust must bring the action, either through an agent or by itself. But as soon as it does, it is then burdened with showing that it actually has the note, and thus has received conveyance.
Remember that little issue of conveyance I’ve been talking about? Yeah, that one. Well gee, who would have thought that a Judge would actually expect people to show up with proof that they have standing so they can perfect their security interest?
The Motion was filed by MERS “as nominee [for] HSBC Bank USA, National Association, as Indenture Trustee of the Fieldstone Mortgage Investment Trust Series 2006-3.” Even assuming that MERS as a “nominee” had sufficient rights and ability as an agent to advance its principal’s stay relief request, there remains an insuperable problem. The Motion provides no explanation, much less documentation or other evidence, to show that the Fieldstone Mortgage Investment Trust Series 2006-3 (as an entity) or HSBC Bank USA (as that entity’s “indenture trustee”) has any interest in the subject Note or the subject Deed of Trust.13
Ding ding ding ding ding!
You must provide strict proof that you own a thing when you assert it in court. That is subject to the rules of evidence and challenge by the other side. You cannot simply say “Joe owes me $150,000” and then demand that a court perfect that security interest! To permit that would be to permit raw acts of theft and subversion of the entire legal system.
This District’s Local Bankruptcy Rule 4001.2 requires copies of “all documents evidencing the obligation and the basis of perfection of any lien or security interest.” The sole documentation provided with the Motion here evidences the interests in the Note and Deed of Trust held by Fieldstone Mortgage Company, a Maryland corporation. This submission does not answer the key question — Who was the holder of the Note at the time of the Motion? Several movants for stay relief have argued that the holder of a note secured by a deed of trust obtains the benefit of the deed of trust even in the absence of an assignment of the deed of trust, on the theory that the security for the debt follows the debt. Under this theory, it would appear that when bankruptcy intervenes, and somewhat like a game of Musical Chairs, the then-current holder of the note is the only creditor with a pecuniary interest and standing sufficient to pursue payment and relief from stay.15
The Motion here certainly suggests that the Fieldstone Mortgage Investment Trust Series 2006-3 (or perhaps HSBC Bank USA in its capacity as indenture trustee for that trust) was the holder of the note on the June 24, 2008, petition date. But at the time of the final § 362(e) evidentiary hearing herein, the parties discussed and Movant ultimately conceded that (I) the Note contained nothing indicating its transfer by Fieldstone Mortgage Company, (ii) the Motion was devoid of allegations regarding the details of any such transfer, and (iii) the record lacked any other documents related to the issue.
Oh, you shredded or burned the security instrument and can’t show a chain of assignment? That sucks my friend, because you have to show your work!
In this case the Court has a problem – there’s nothing in the record that shows a chain of assignments proving that Fieldstone or HSBC holds the paper!
Subsequent to the closing of the hearing and after the Court took the dispute under advisement, Movant filed a “supplemental affidavit” of its counsel. See Doc. No. 28 (filed January 2, 2009). This affidavit alleges that Movant’s counsel obtained on such date the “original” Note and that the same contains an indorsement. Counsel states that his “affidavit is presented to supplement the record herein and for the Court’s consideration in the pending motion[.]” Id. at 2.
The filing and consideration of this supplemental affidavit are improper for several reasons.
First, the record was closed, and the Court did not authorize the reopening of that record, nor did it indicate any post-hearing submissions would be accepted.
Yeah, it’s called trying to prove up a case without giving the other side the benefit of challenging your so-called “evidence.” Only in a banana republic is this sort of crap allowed.
Second, Trustee did not have the opportunity to address this “newly obtained” document at hearing, and nothing shows his consent to the post hoc supplementation of the evidentiary record.
Third, disputed factual issues in contested matters may not be resolved through testimony in “affidavits” but rather require testimony in open court. See Fed. R. Bankr. P. 9014(d). Under the circumstances, the identity of the holder of the Note certainly appears to be a fact in dispute falling within the ambit of this rule.
Gee, the court says “We’re not a banana republic. Due process of law, jackass!”
Fourth, the affidavit is insufficient to establish that counsel, as affiant, has the ability to testify regarding or lay the foundation required to admit the document. See Esposito v. Noyes (In re Lake Country Invs., LLC), 255 B.R. 588, 594-95 (Bankr. D. Idaho 2000).16 The assertion that the newly possessed note is the “original” appears to be based not on the affiant’s (counsel’s) personal knowledge but on the assertions of someone else.
Robo, meet Judge.
Fifth, the proffer of this “new” note as the “original” note directly contradicts Movant’s prior representations that the Note attached to the Motion was “true and correct” and the operative document in this matter. See Doc. No. 21 at 1.
You mean someone committed perjury? That’s a polite way of saying it – they realized they had blown it and tried to cover up the fact that they lied originally. Oops.
Sixth, even were it considered, the “new” Note’s asserted indorsement states: “Pay To The Order Of [blank] Without Recourse” and then purports to be signed by Fieldstone Mortgage Company through a named assistant vice president. There is no date nor indication of who was or is the transferee. Fieldstone Mortgage Company may have indorsed the Note in blank, but this document does not alone establish that either HSBC Bank USA or Fieldstone Mortgage Investment Trust is the Note’s holder.17
Ding ding ding ding ding!
Maybe they are and maybe they aren’t, and maybe – just maybe – they weren’t at the time they were supposed to be, and are trying to cover up the fact that they violated the IRS REMIC rules by taking the transfer after the closing date of the trust.
See the games these jackasses play?
The judge did.