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Jeffrey S. Sabin |
Bingham McCutchen LLP
Consumer
Messy Mortgage
Muddles: Recurring
Mortgage Claim
Issues in Consumer
Bankruptcy
Committee
Educational Session
Hon. Wendelin I. Lipp | U.S. Bankruptcy Court (D. Md.); Greenbel t
David P. Leibowitz | Lakel aw/Lei bowi tz Law Center
Waukegan, I l l .
Kirk B. Burkley | Bernstei n Law Fi rm, PC; Pi ttsburgh
Consumer
Messy Mortgage Muddles: Recurring
Mortgage Claim Issues in Consumer
Bankruptcy
758
29TH ANNUAL SPRING MEETING
759
Ameri can Bankruptcy Insti tute

Mortgage Muddle in Chapter 13 Cases
Prepared for Consumer Law Committee
American Bankruptcy Institute
Annual Spring Meeting 2011

David P. Leibowitz
Lakelaw
Chicago Skokie Waukegan Kenosha
www.lakelaw.com

2011


There were more foreclosure filings, as well as bank repossessions, in 2010 than any
other year on record, with a total of 3,825,637 filings and 2,871,891 repossessions. This means
that one foreclosure was filed every 8 seconds and one house was foreclosed every 11 seconds.
This corresponds to one bankruptcy case filed every 20 seconds during 2011.
As a result, foreclosure is frequently a root cause of bankruptcy. And as a concomitant
result, the bankruptcy court is frequently called upon to address issues which were not resolved
in the foreclosure court prior to bankruptcy.
Todays session is intended to introduce the participants to a range of issues with which
bankruptcy courts and attorneys on both the debtors and creditors side must struggle when
foreclosure collides with bankruptcy.
Rooker-Feldman Doctrine Issue Preclusion
The Rooker-Feldman doctrine, derived from two United States Supreme Court
decisions, Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923) and District of Columbia Court of
760
29TH ANNUAL SPRING MEETING
Appeals v. Feldman, 460 U.S. 462 (1983), "precludes lower federal courts from exercising
appellate jurisdiction over final state-court judgments because such appellate jurisdiction rests
solely with the United States Supreme Court." Madera v. Ameriquest Mortgage Co. (In re
Madera), 586 F.3d 228, 232 (3d Cir. 2009) (remarking that the doctrine applies "equally to
federal bankruptcy courts").
The Supreme Court has cited multiple decisions in which the Rooker-Feldman doctrine
applied to preclude subject matter jurisdiction over previously adjudicated state court actions,
including previously adjudicated foreclosure actions. Exxon Mobil Corp. v. Saudi Basic Ind.
Corp., 544 U.S. 280, 284 (2005) (holding that the Rooker-Feldman doctrine applies to "cases
brought by state-court losers complaining of injuries caused by state-court judgments rendered
before the district court proceedings commenced and inviting district court review and rejection
of those judgments"); Madera, 586 F.3d 228, 232 (holding that plaintiffs attempt to utilize
adversary proceeding in bankruptcy to re-adjudicate state court foreclosure proceedings stripped
the court of subject matter jurisdiction).
In Edwards v. New Century Mortgage Corp., et al. (In re New Century TRS Holdings,
Inc.), Adv. Pro. No. 08-50000 (KJC) (February 2, 2010), plaintiff filed an adversary proceeding
against the banks, individuals, and Court he held responsible for the foreclosure on his home.
Defendants filed motions to dismiss for lack of subject matter jurisdiction, asserting that
the Rooker-Feldman doctrine applied, and arguing that the complaint failed to state a claim upon
which relief may be granted. Since Edwards was a state-court loser directly attacking the state
courts judgment, the Court held that the Rooker-Feldman doctrine applied and the Court lacked
subject matter jurisdiction over the matter.
761
Ameri can Bankruptcy Insti tute
Appeals v. Feldman, 460 U.S. 462 (1983), "precludes lower federal courts from exercising
appellate jurisdiction over final state-court judgments because such appellate jurisdiction rests
solely with the United States Supreme Court." Madera v. Ameriquest Mortgage Co. (In re
Madera), 586 F.3d 228, 232 (3d Cir. 2009) (remarking that the doctrine applies "equally to
federal bankruptcy courts").
The Supreme Court has cited multiple decisions in which the Rooker-Feldman doctrine
applied to preclude subject matter jurisdiction over previously adjudicated state court actions,
including previously adjudicated foreclosure actions. Exxon Mobil Corp. v. Saudi Basic Ind.
Corp., 544 U.S. 280, 284 (2005) (holding that the Rooker-Feldman doctrine applies to "cases
brought by state-court losers complaining of injuries caused by state-court judgments rendered
before the district court proceedings commenced and inviting district court review and rejection
of those judgments"); Madera, 586 F.3d 228, 232 (holding that plaintiffs attempt to utilize
adversary proceeding in bankruptcy to re-adjudicate state court foreclosure proceedings stripped
the court of subject matter jurisdiction).
In Edwards v. New Century Mortgage Corp., et al. (In re New Century TRS Holdings,
Inc.), Adv. Pro. No. 08-50000 (KJC) (February 2, 2010), plaintiff filed an adversary proceeding
against the banks, individuals, and Court he held responsible for the foreclosure on his home.
Defendants filed motions to dismiss for lack of subject matter jurisdiction, asserting that
the Rooker-Feldman doctrine applied, and arguing that the complaint failed to state a claim upon
which relief may be granted. Since Edwards was a state-court loser directly attacking the state
courts judgment, the Court held that the Rooker-Feldman doctrine applied and the Court lacked
subject matter jurisdiction over the matter.
Nevertheless, the Rooker-Feldman Doctrine does not apply if the matter arrives at the
bankruptcy court before the issue is finally adjudicated in the state court. It doesnt matter that
the plaintiff is losing in the state court. What matters is that the plaintiff has not yet become a
state court loser with his only remaining rights being the right to appeal to a higher court.
In Hodges v. CIT Group (In re Hodges) 06 A 683 (Bankr. ND IL Oct 4, 2006), CIT
moved for judgment on the pleadings in a Truth in Lending Act complaint in the bankruptcy
court on the ground that the state court had already found plaintiff to be liable on the promissory
note. However, the state court action had not ended. It was still pending. The bankruptcy case
was filed prior to the time of foreclosure sale, the time in Illinois where plaintiffs rights would
have been extinguished. See Colon v. Option One Mortgage Corp., 319 F.3d 912, 920-21 (7th
Cir.2003) (holding that once an Illinois foreclosure sale occurs, a chapter 13 debtor loses the
right under section 1322(b) of the Code to cure mortgage defaults while maintaining current
mortgage payments).
After first explaining the origin and application of the Rooker-Feldman doctrine, the
bankruptcy court stated:
Rooker-Feldman does not deprive this court of jurisdiction over Hodges adversary
proceeding because the state mortgage foreclosure action against Hodges had not ended
when he filed his adversary complaint. The state court had entered a judgment of
foreclosure, true enough. But a judgment of foreclosure does not end a mortgage
foreclosure case in Illinois. Upon entry of such a judgment, the Illinois Mortgage
Foreclosure Law provides for the sale of the property once periods for reinstatement and
redemption have expired. 735 ILCS 5/15-1507(a) (2004). After the sale, the person who
conducted it makes a report to the court, 735 ILCS 5/1508(a) (2004), and, upon motion,
the court holds a hearing to confirm the sale, 735 ILCS 5/1508(b) (2004). At the hearing,
a defendant can contest the sales validity, though on limited grounds. Id.; see Colon,
319 F.3d at 915, 921. Only after confirmation of the sale and payment of the purchase
price can the purchaser obtain a deed. 735 ILCS 5/15-1509(a) (2004). Although the
Illinois Mortgage Foreclosure Law employs the term judgment of foreclosure, see, e.g.,
735 ILCS 15/1506(a)(2) (emphasis added), a foreclosure judgment does not conclude the
762
29TH ANNUAL SPRING MEETING
case and is not final. A judgment ordering the foreclosure of a mortgage is not final and
appealable until the court enters orders approving the sale and directing the distribution.
It is important for the practitioner to be aware of the time a judgment becomes final and
appealable. This varies from state to state. For example, in Wisconsin, the defendant still has
rights in the property cognizable in chapter 13 until the time of confirmation of sale. However,
the time when a judgment becomes final for purposes of appeal is at the time of entry of the
judgment of foreclosure, and not at the time of confirmation of sale which is deemed to be a
post-judgment act in aid of judgment.
Where Lhe lenders had Lhe legal rlghL Lo foreclose on Lhe morLgage loan and has been deLermlned ln
sLaLe courL, cannoL be reconsldered by a federal courL. !"" Sherk v. CounLrywlde Pome Loans, lnc, 2009
u.S. ulsL. LLxlS 68628 (L.u. a. 2009), where Lhe plalnLlffs aLLempLed Lo asserL a clalm under Lhe luCA
agalnsL Lhe asslgnees of Lhe morLgage afLer Lhelr federal sLaLuLory clalms under 1lLA was barred by Lhe
sLaLuLe of llmlLaLlons. CourL granLed Lhe lender's moLlon Lo dlsmlss Lhe borrower's complalnL alleglng
luCA vlolaLlons because Lhelr clalms perLalned Lo Lhe lender's sLaLe courL morLgage foreclosure
[udgmenL and was Lherefore barred by res [udlcaLa and 8ooker-leldman docLrlnes.

noLe however, Lhe 1hlrd ClrculL may noL apply Lhe 8ooker-leldman docLrlne where Lhe record of Lhe
sLaLe courL acLlon ls sparse. aLeLLa v. Wells largo 8ank, nA, 2010 u.S. ulsL. LLxlS 47233 (u.n.!. 2010),
clLlng Koynok v. Lloyd, 328 Fed.Appx. 133, 137 (3d Cir. 2009).

uocLrlne ls ofLen ralsed as a defense Lo 1lLA clalms ln ChapLer 13 cases. uebLors may have Lhe rlghL Lo
flle chapLer 13 cases afLer a foreclosure [udgmenL ln sLaLe courL buL before sale, and whlle Lhe 1lLA clalm
LheoreLlcally exlsLs so long as Lhe borrower has an lnLeresL ln Lhe properLy, many courLs hold LhaL 1lLA
cases cannoL be pursued afLer Lhe sLaLe courL enLers a [udgmenL of foreclosure slnce Lhe 1lLA clalm
could have been ralsed ln Lhe sLaLe courL foreclosure proceedlng. (#$%. ln re Cooley (Cooley v. Wachovla
MorLgage CorporaLlon), 363 8.8. 464 (8ankr.L.u.a. 2007, Madera v. AmerlquesL MorLgage Co (ln re
Madera) 363 8.8. 718 (8ankr.L.u.a. 2007), 8andall v. 8ank Cne naLlonal AssoclaLlon (ln re 8andall)338
8.8. 143 (8ankr.L.u.a.2006), lausL v. ueuLsche 8ank naLlonal 1rusL Company (ln re lausL), 333 8.8. 94
(8ankr.L.u.a 2006).

8ecause a clalm for resclsslon under 1lLA could essenLlally undo a sLaLe courL morLgage foreclosure
[udgmenL, Lhe clalm ls sald Lo be lnexLrlcably lnLerLwlned wlLh Lhe foreclosure cases for purposes of Lhe
8ooker-leldman analysls. A unlque lssue for bankrupLcy courLs ls wheLher a 1lLA case for resclsslon or
sLaLuLory damages ls a core or non-core proceedlng. Cases whlch have consldered Lhls have reached
boLh concluslons (&'()*+" ln re Lucas (Mcuonald v. Cash Advance, lnc), 312 8.8. 407 (8ankr.u.nev.
2004)(core proceedlng where ChapLer 13 LrusLee flles clalm agalnsL credlLor for purposes of ob[ecLlng Lo
clalm) ,-./ ln re uerlenzo (Schwab v. Sears, 8oebuck and Co)., 234 8.8. 334 (8ankr. M.u.a.) ln re
8ozell, 337 8.8. 638 (8ankr.n.u.Ala. 2006) (non core proceedlng).
763
Ameri can Bankruptcy Insti tute
case and is not final. A judgment ordering the foreclosure of a mortgage is not final and
appealable until the court enters orders approving the sale and directing the distribution.
It is important for the practitioner to be aware of the time a judgment becomes final and
appealable. This varies from state to state. For example, in Wisconsin, the defendant still has
rights in the property cognizable in chapter 13 until the time of confirmation of sale. However,
the time when a judgment becomes final for purposes of appeal is at the time of entry of the
judgment of foreclosure, and not at the time of confirmation of sale which is deemed to be a
post-judgment act in aid of judgment.
Where Lhe lenders had Lhe legal rlghL Lo foreclose on Lhe morLgage loan and has been deLermlned ln
sLaLe courL, cannoL be reconsldered by a federal courL. !"" Sherk v. CounLrywlde Pome Loans, lnc, 2009
u.S. ulsL. LLxlS 68628 (L.u. a. 2009), where Lhe plalnLlffs aLLempLed Lo asserL a clalm under Lhe luCA
agalnsL Lhe asslgnees of Lhe morLgage afLer Lhelr federal sLaLuLory clalms under 1lLA was barred by Lhe
sLaLuLe of llmlLaLlons. CourL granLed Lhe lender's moLlon Lo dlsmlss Lhe borrower's complalnL alleglng
luCA vlolaLlons because Lhelr clalms perLalned Lo Lhe lender's sLaLe courL morLgage foreclosure
[udgmenL and was Lherefore barred by res [udlcaLa and 8ooker-leldman docLrlnes.

noLe however, Lhe 1hlrd ClrculL may noL apply Lhe 8ooker-leldman docLrlne where Lhe record of Lhe
sLaLe courL acLlon ls sparse. aLeLLa v. Wells largo 8ank, nA, 2010 u.S. ulsL. LLxlS 47233 (u.n.!. 2010),
clLlng Koynok v. Lloyd, 328 Fed.Appx. 133, 137 (3d Cir. 2009).

uocLrlne ls ofLen ralsed as a defense Lo 1lLA clalms ln ChapLer 13 cases. uebLors may have Lhe rlghL Lo
flle chapLer 13 cases afLer a foreclosure [udgmenL ln sLaLe courL buL before sale, and whlle Lhe 1lLA clalm
LheoreLlcally exlsLs so long as Lhe borrower has an lnLeresL ln Lhe properLy, many courLs hold LhaL 1lLA
cases cannoL be pursued afLer Lhe sLaLe courL enLers a [udgmenL of foreclosure slnce Lhe 1lLA clalm
could have been ralsed ln Lhe sLaLe courL foreclosure proceedlng. (#$%. ln re Cooley (Cooley v. Wachovla
MorLgage CorporaLlon), 363 8.8. 464 (8ankr.L.u.a. 2007, Madera v. AmerlquesL MorLgage Co (ln re
Madera) 363 8.8. 718 (8ankr.L.u.a. 2007), 8andall v. 8ank Cne naLlonal AssoclaLlon (ln re 8andall)338
8.8. 143 (8ankr.L.u.a.2006), lausL v. ueuLsche 8ank naLlonal 1rusL Company (ln re lausL), 333 8.8. 94
(8ankr.L.u.a 2006).

8ecause a clalm for resclsslon under 1lLA could essenLlally undo a sLaLe courL morLgage foreclosure
[udgmenL, Lhe clalm ls sald Lo be lnexLrlcably lnLerLwlned wlLh Lhe foreclosure cases for purposes of Lhe
8ooker-leldman analysls. A unlque lssue for bankrupLcy courLs ls wheLher a 1lLA case for resclsslon or
sLaLuLory damages ls a core or non-core proceedlng. Cases whlch have consldered Lhls have reached
boLh concluslons (&'()*+" ln re Lucas (Mcuonald v. Cash Advance, lnc), 312 8.8. 407 (8ankr.u.nev.
2004)(core proceedlng where ChapLer 13 LrusLee flles clalm agalnsL credlLor for purposes of ob[ecLlng Lo
clalm) ,-./ ln re uerlenzo (Schwab v. Sears, 8oebuck and Co)., 234 8.8. 334 (8ankr. M.u.a.) ln re
8ozell, 337 8.8. 638 (8ankr.n.u.Ala. 2006) (non core proceedlng).

Lien Stripping
Lien stripping in chapter 13 has become a contentious issue. Real estate has declined so
markedly in value that many junior mortgages are now fully unsecured. It is well established
that a fully unsecured mortgage may be re-characterized as an unsecured claim in chapter 13 and
upon completion of the chapter 13 plan, the lien of that junior mortgage might be stripped off
and treated as a fully unsecured claim. In re Lane, (George Lane, et. al v. Western Interstate
Bancorp), 280 F.3d 663 (6th Cir. 2002). See Pond v. Farm Specialist Realty (In re Pond), 252
F.3d 122 (2nd Cir. 2001); McDonald v. Master Fin., Inc.(In re McDonald), 205 F.3d 606 (3d
Cir. 2000), cert. denied, 531 U.S. 822, 121 S.Ct. 66, 148 L.Ed.2d 31 (2000); Bartee v. Tara
Colony Homeowners Assn (In re Bartee), 212 F.3d 277 (5th Cir.2000); Zimmer v. PSB Lending
Corp. (In re Zimmer), 313 F.3d 1220, (9th Cir. 2002); Tanner v. FirstPlus Fin., Inc. (In re
Tanner), 217 F.3d 1357 (11th Cir. 2000).
Some courts hold that lien stripping is not allowed in Chapter 13. In re Loban, 426 B.R.
805 (Bankr. D.Minn. April, 2010) (since mortgage is an allowed claim secured by a lien, debtors
cannot strip off wholly unsecured, residential mortgages in chapter 13). This is a distinctively
minority position.
Section 506(a)(1) explains bifurcation (division) of an allowed claim into secured and
unsecured partsthe secured part being secured by the collaterals value, the unsecured part
being the remaining amount of the claim in excess of the collaterals value. The process of lien
stripping might be invoked in a chapter 13 case by motion or adversary proceeding, depending
on the practice in the particular area. There is no uniformity of practice. While it is theoretically
possible that the lien stripping process might be invoked simply by so providing in a plan, this is
764
29TH ANNUAL SPRING MEETING
not best practice, particularly in light of Espinosa. Due process suggests that the procedural
protections afforded by a contested matter motion or an adversary proceeding are necessary in
order to affect the substantive rights of a lien holder. The practitioner should be aware of the
service requirements of Rule 7004(h) when applicable.
Practice on lien stripping raises several interesting questions. First and foremost, who is
the lienholder? Is it enough to simply serve the lienholder of record? The lienholder of record
may not be the entity to which the debtor has been making mortgage payments. The lienholder
of record might be Mortgage Electronic Registration Systems. Does one serve the MERS
registrant to be ascertained on MERS website? Does MERS website have any legal
justification for consideration compared, for example, to the official keeper of real estate
records? Does one serve the servicer to whom the debtor has been making payments? How
about the attorney who has been handling the foreclosure? How about the securitized trust or
other plaintiff who is named in the pleadings? When in doubt, it is probably best to serve
everyone. This naturally leads to the questions of standing which is addressed in the next section
of these materials.
The motion or adversary proceeding must allege the value of the property in question, the
amount of senior liens, establish that the junior lien is fully unsecured by competent appraisal
evidence or affidavit. This might lead to a trial or contested hearing on the question of valuation.
However, in due course, the court will determine whether or not the junior lien is wholly
unsecured. The order stripping the lien will be entered but contingent at the very minimum on
the debtors having successfully completed his plan.
765
Ameri can Bankruptcy Insti tute
not best practice, particularly in light of Espinosa. Due process suggests that the procedural
protections afforded by a contested matter motion or an adversary proceeding are necessary in
order to affect the substantive rights of a lien holder. The practitioner should be aware of the
service requirements of Rule 7004(h) when applicable.
Practice on lien stripping raises several interesting questions. First and foremost, who is
the lienholder? Is it enough to simply serve the lienholder of record? The lienholder of record
may not be the entity to which the debtor has been making mortgage payments. The lienholder
of record might be Mortgage Electronic Registration Systems. Does one serve the MERS
registrant to be ascertained on MERS website? Does MERS website have any legal
justification for consideration compared, for example, to the official keeper of real estate
records? Does one serve the servicer to whom the debtor has been making payments? How
about the attorney who has been handling the foreclosure? How about the securitized trust or
other plaintiff who is named in the pleadings? When in doubt, it is probably best to serve
everyone. This naturally leads to the questions of standing which is addressed in the next section
of these materials.
The motion or adversary proceeding must allege the value of the property in question, the
amount of senior liens, establish that the junior lien is fully unsecured by competent appraisal
evidence or affidavit. This might lead to a trial or contested hearing on the question of valuation.
However, in due course, the court will determine whether or not the junior lien is wholly
unsecured. The order stripping the lien will be entered but contingent at the very minimum on
the debtors having successfully completed his plan.
In light of amendments to the Bankruptcy Code in 2005, the question now arises whether
the debtor must also be entitled to a discharge in order to strip a wholly unsecured lien. Thats
because Section 1328(f)(1) limits a debtor to a discharge in chapter 13 for a period of 2 years
after a prior chapter 13 discharge and 4 years after a prior chapter 7 discharge. Section
1325(a)(5)(B)(i)(I)(bb) of the Bankruptcy Code requires that each allowed secured claim
provided by the plan requires that the holder of such claim retains the lien until discharge under
section 1328. Does this preclude lien stripping without discharge? The courts are split on this
point.
One line of reasoning holds that a lien which is wholly unsecured simply cannot be an
allowed secured claim. Thats because the creditors interest in the debtors interest in the
property is zero. So therefor, discharge under Section 1328 is irrelevant to stripping that lien.
On the other hand, courts denying lien stripping without discharge conclude that Section
1325(a)(5)(B)(i)(I)(bb) must have suggested Congress intent not to allow lien stripping without
discharge.
This has generated a split of authority among cases arising in the so-called chapter 20
context a chapter 13 case which follows a prior chapter 7 case in which the debtor has already
obtained a discharge of the underlying debts at least on an in personam basis whereas the
secured creditor has retained a lien.
Several courts have suggested that a subsequent chapter 13 case after a chapter 7
discharge has been granted connotes bad faith. This has been rejected by many courts as well.
Cases which permit lien stripping in chapter 13 absent a discharge include: In re Tran, 431 B.R.
230 (Bankr. SD CA 2010); In re Grignon, 2010 Bankr. LEXIS 4279 (Bankr. D. Or. Dec. 7,
766
29TH ANNUAL SPRING MEETING
2010)(overruling trustees objection and confirming chapter 13 plan stripping off wholly
unsecured junior lien in no discharge chapter 13) and In re Coryell, (Bankr. ED MI No. 09-
54760).
Cases which deny lien stripping in chapter 13 absent a discharge include:
In re Jarvis, 390 B.R. 600 (Bankr. C.D. Ill. 2008); In re Trujillo, 2010 WL 4669095
(Bankr. M.D. Fla. Nov. 10, 2010); In re Colbourne, 2010 WL 4485508 (Bankr. M.D. Fla. Nov.
8, 2010); In re Mendoza, 2010 WL 736834 (Bankr. D. Colo. Jan. 21, 2010); and In re Blosser,
2009 WL 1064455 (Bankr. E.D. Wis. Apr. 15, 2010).
The Jarvis line of cases has been cited more frequently than the Tran line of cases
however the Jarvis line of cases does not address the legal theories raised in the Tran line of
cases.
It is the authors view that the Tran line is cases is the better reasoned. The author also is
in the midst of litigating this issue in the matter of Lindskog v M & I Bank (Case No. 10-02278-
jes, Bankr. ED WI). It is expected that this matter and a companion case will be appealed both to
the District Court and the Seventh Circuit Court of Appeals
Further reference is made to Chapter 13 Lien Stripping, Thompson, R. H. available at:
http://www.abiworld.org/committees/newsletters/consumer/vol8num2/selected.pdf and Lien
Stripping from A to Z from the 2010 Detroit Consumer Bankruptcy Conference available at:
http://www.abiworld.org/AM/Template.cfm?Section=Home&CONTENTID=62376&TEMPLA
TE=/CM/ContentDisplay.cfm

767
Ameri can Bankruptcy Insti tute
2010)(overruling trustees objection and confirming chapter 13 plan stripping off wholly
unsecured junior lien in no discharge chapter 13) and In re Coryell, (Bankr. ED MI No. 09-
54760).
Cases which deny lien stripping in chapter 13 absent a discharge include:
In re Jarvis, 390 B.R. 600 (Bankr. C.D. Ill. 2008); In re Trujillo, 2010 WL 4669095
(Bankr. M.D. Fla. Nov. 10, 2010); In re Colbourne, 2010 WL 4485508 (Bankr. M.D. Fla. Nov.
8, 2010); In re Mendoza, 2010 WL 736834 (Bankr. D. Colo. Jan. 21, 2010); and In re Blosser,
2009 WL 1064455 (Bankr. E.D. Wis. Apr. 15, 2010).
The Jarvis line of cases has been cited more frequently than the Tran line of cases
however the Jarvis line of cases does not address the legal theories raised in the Tran line of
cases.
It is the authors view that the Tran line is cases is the better reasoned. The author also is
in the midst of litigating this issue in the matter of Lindskog v M & I Bank (Case No. 10-02278-
jes, Bankr. ED WI). It is expected that this matter and a companion case will be appealed both to
the District Court and the Seventh Circuit Court of Appeals
Further reference is made to Chapter 13 Lien Stripping, Thompson, R. H. available at:
http://www.abiworld.org/committees/newsletters/consumer/vol8num2/selected.pdf and Lien
Stripping from A to Z from the 2010 Detroit Consumer Bankruptcy Conference available at:
http://www.abiworld.org/AM/Template.cfm?Section=Home&CONTENTID=62376&TEMPLA
TE=/CM/ContentDisplay.cfm

Standing
The question of standing is frequently raised by debtors in the context of either a motion
for relief from automatic stay or in connection with a proof of claim in chapter 13. Put bluntly,
the debtor is not merely saying that he or she doesnt owe something on the debt. Rather, the
debtor is saying Who are you to say that I owe you, in particular, any money? And beyond
that Unless you can prove to the courts satisfaction that you have the rights you say you do,
why should the bankruptcy court grant any relief to you whatever?
Ford Elsaesser recently wrote a paper entitled Paperless Pipedream Rule 9011 and
Standing Issues in the E-Bankruptcy World available here:

http://www.abiworld.org/committees/newsletters/consumer/vol8num8/pipedream.pdf

This paper included the following in its introduction:

Standing has both constitutional and prudential (i.e. self-imposed) requirements.
The real party in interest question is the prudential component of the overall standing
analysis, while injury-in-fact is a constitutional requirement, and the moving party must
meet both requirements before a court can grant relief from the automatic stay. In
addition, a party also has standing to seek relief if it has the authority to act on behalf of
an entity that has standing. Therefore, a nominee or agent will have to prove both (1) it is
an agent with the authority to act on behalf of the principal, and (2) the principal has both
constitutional standing and prudential standing. However, even if a party has standing in
its own right, the agent or nominee must prosecute the action in the name of the real party
in interest and not in its own name.

The standing requirement is an essential and unchanging part of the case-or-
controversy requirement of Article III. This constitutional doctrine requires that a
claimant must present an actual or imminent injury that is fairly traceable to the
defendants conduct and redressable by a favorable ruling. The standing question is a
threshold issue, required before a court may entertain a suit. Thus, if a litigant cannot
prove standing, the court has no authority to hear the case and it must dismiss the action.
768
29TH ANNUAL SPRING MEETING

Rule 17 of the Federal Rules of Civil Procedure (FRCP) requires [a]n action
must be prosecuted in the name of the real party in interest. The purpose is to ensure the
party bringing forth the action is the party who possesses the substantive right being
asserted under the applicable law. The real party in interest . . . is whoever is entitled to
enforce the obligation sought to be enforced. This reflects the fact that the federal
judiciary also adheres to certain prudential principles concerning standing. The real party
in interest inquiry is one of the prudential considerations the judiciary self-imposes to
limit the role of courts in democratic society. Because FRCP 17 applies to contested
matters, parties must adhere to FRCP 17 in order to seek relief from automatic stay.
(footnotes and citations omitted).

Any analysis of standing of mortgage related plaintiffs must begin with Judge Boykos
decision in the Northern District of Ohio in In re Foreclosure Cases.
1
In these cases, the
plaintiffs asserted rights in the name of various securitized trusts. However, in each case, the
notes and mortgages attached to the complaint were in the name of the original lenders. The
district court dismissed each case without prejudice, holding:
Further, the plaintiff bears the burden of demonstrating standing
and must plead its components with specificity. Coyne, 183 F. 3d
at 494; Valley Forge Christian College v. Americans United for
Separation of Church & State, Inc., 454 U.S. 464 (1982). The
minimum constitutional requirements for standing are: proof of
injury in fact, causation, and redressability. Valley Forge, 454 U.S.
at 472. In addition, the plaintiff must be a proper proponent, and
the action a proper vehicle, to vindicate the rights asserted.
Coyne, 183 F. 3d at 494 (quoting Pestrak v. Ohio Elections
Commn, 926 F. 2d 573, 576 (6th Cir. 1991)). To satisfy the
requirements of Article III of the United States Constitution, the
plaintiff must show he has personally suffered some actual injury
as a result of the illegal conduct of the defendant. (Emphasis
added). Coyne, 183 F. 3d at 494; Valley Forge, 454 U.S. at 472.

What was worse, from the courts standpoint, was that the purported assignments from
the Originators to the Trusts were dated after the commencement of the complaint and executed

1
No. 1:07-cv-02282 (N.D.Ohio Oct. 31, 2007)
769
Ameri can Bankruptcy Insti tute

Rule 17 of the Federal Rules of Civil Procedure (FRCP) requires [a]n action
must be prosecuted in the name of the real party in interest. The purpose is to ensure the
party bringing forth the action is the party who possesses the substantive right being
asserted under the applicable law. The real party in interest . . . is whoever is entitled to
enforce the obligation sought to be enforced. This reflects the fact that the federal
judiciary also adheres to certain prudential principles concerning standing. The real party
in interest inquiry is one of the prudential considerations the judiciary self-imposes to
limit the role of courts in democratic society. Because FRCP 17 applies to contested
matters, parties must adhere to FRCP 17 in order to seek relief from automatic stay.
(footnotes and citations omitted).

Any analysis of standing of mortgage related plaintiffs must begin with Judge Boykos
decision in the Northern District of Ohio in In re Foreclosure Cases.
1
In these cases, the
plaintiffs asserted rights in the name of various securitized trusts. However, in each case, the
notes and mortgages attached to the complaint were in the name of the original lenders. The
district court dismissed each case without prejudice, holding:
Further, the plaintiff bears the burden of demonstrating standing
and must plead its components with specificity. Coyne, 183 F. 3d
at 494; Valley Forge Christian College v. Americans United for
Separation of Church & State, Inc., 454 U.S. 464 (1982). The
minimum constitutional requirements for standing are: proof of
injury in fact, causation, and redressability. Valley Forge, 454 U.S.
at 472. In addition, the plaintiff must be a proper proponent, and
the action a proper vehicle, to vindicate the rights asserted.
Coyne, 183 F. 3d at 494 (quoting Pestrak v. Ohio Elections
Commn, 926 F. 2d 573, 576 (6th Cir. 1991)). To satisfy the
requirements of Article III of the United States Constitution, the
plaintiff must show he has personally suffered some actual injury
as a result of the illegal conduct of the defendant. (Emphasis
added). Coyne, 183 F. 3d at 494; Valley Forge, 454 U.S. at 472.

What was worse, from the courts standpoint, was that the purported assignments from
the Originators to the Trusts were dated after the commencement of the complaint and executed

1
No. 1:07-cv-02282 (N.D.Ohio Oct. 31, 2007)
by the attorney for the plaintiff and thereby belie Plaintiffs assertion they own the Note and
Mortgage by means of a purchase which pre-dated the Complaint by days, months or years.
Subsequently, Judge Boykos opinion was cited and followed by the Southern District of Ohio
2

which held that the plaintiff had the burden of pleading that it was the holder of the note and
mortgage at the time the mortgage foreclosure case is commenced.

Standing in the Bankruptcy Courts
Any discussion of standing of mortgage related parties in the bankruptcy court must
begin with Judge Buffords decision in In re Hwang.
3
There, IndyMac Federal Bank sought
relief from the automatic stay in a chapter 7 case to enforce a note and mortgage which it had
sold to Federal Home Loan Mortgage Corporation (Freddie Mac) and which Freddie Mac,
almost certainly, sold to someone else pursuant to a securitized trust. Even after trial and
extensive briefing, nobody before the court could answer to the courts satisfaction the question
who owns the note?
The bankruptcy court held that even though IndyMac was the holder of the Note and
entitled to enforce the note in accordance with its terms, it nevertheless was not the real party in
interest within the meaning of Rule 17 of the Federal Rules of Civil Procedure. Moreover,
joinder of the real party in interest was required by rule 19 of the Federal Rules of Civil
Procedure. Both Rules 17 and 19 are incorporated within the Federal Rules of Bankruptcy
Procedure.

2
In re Foreclosure Cases, 521 F. Supp. 2d 650 (S.D. Ohio 2007) (J. Rose) (lack of
standing/proof of ownership of mortgage)
3
396 BR. 757 (Bankr. CD CA 2008).
770
29TH ANNUAL SPRING MEETING
Although IndyMac remained the holder of the note and mortgage, it contended that it
held the note as servicer for a securitized trust, the identity of which it could not ascertain.
Neither could it present to the Court any agreement pursuant to which it purported to be the
servicer of the note or mortgage or for whom it purported to be servicing.
Even though IndyMac could enforce the note in accordance with its terms under state law
as the holder, within the meaning of federal law, it was not the real party in interest whose
joinder as a necessary party was held to be mandatory.
Critically, the court held that after a mortgage and note is securitized, the real party
interest is the securitized trust.
4
The court went on to state:
The right to enforce a note on behalf of a noteholder does not
convert the noteholder's agent into a real party in interest. "As a
general rule, a person who is an attorney-in-fact or an agent solely
for the purpose of bringing suit is viewed as a nominal rather than
a real party in interest and will be required to litigate in the name
of his principal rather than in his own name." 6A WRIGHT
1553. Consequently, even if the court had found that a proper
agency relationship exists between the holder of the note and the
party seeking to enforce its security, this does not excuse the agent
from the requirement that an action be prosecuted in the name of
the noteholder, who is the real party in interest

The court was also careful to distinguish between the concept of party in interest which
is incorporated by Bankruptcy Code section 362, 11 USC 362, and the prudential concept of
real party in interest. Just because a person has suffered economic consequences by an act or
omission does not make it the real party in interest for purposes of Article III standing. The court
concluded that even though IndyMac had the legal right to enforce the note it held, it was
nevertheless not the real party in interest and failed to join the real party in interest. Failure to

4
See LaSalle Bank N.A. v. Nomura Asset Capital Corp., 180 F.Supp.2d 465, 469-71
(S.D.N.Y.2001) ("LaSalle-Nomura"); accord, LaSalle Bank N.A. v. Lehman Bros. Holdings,
Inc., 237 F.Supp.2d 618, 631-34 (D.Md.2002)("LaSalle-Lehman").
771
Ameri can Bankruptcy Insti tute
Although IndyMac remained the holder of the note and mortgage, it contended that it
held the note as servicer for a securitized trust, the identity of which it could not ascertain.
Neither could it present to the Court any agreement pursuant to which it purported to be the
servicer of the note or mortgage or for whom it purported to be servicing.
Even though IndyMac could enforce the note in accordance with its terms under state law
as the holder, within the meaning of federal law, it was not the real party in interest whose
joinder as a necessary party was held to be mandatory.
Critically, the court held that after a mortgage and note is securitized, the real party
interest is the securitized trust.
4
The court went on to state:
The right to enforce a note on behalf of a noteholder does not
convert the noteholder's agent into a real party in interest. "As a
general rule, a person who is an attorney-in-fact or an agent solely
for the purpose of bringing suit is viewed as a nominal rather than
a real party in interest and will be required to litigate in the name
of his principal rather than in his own name." 6A WRIGHT
1553. Consequently, even if the court had found that a proper
agency relationship exists between the holder of the note and the
party seeking to enforce its security, this does not excuse the agent
from the requirement that an action be prosecuted in the name of
the noteholder, who is the real party in interest

The court was also careful to distinguish between the concept of party in interest which
is incorporated by Bankruptcy Code section 362, 11 USC 362, and the prudential concept of
real party in interest. Just because a person has suffered economic consequences by an act or
omission does not make it the real party in interest for purposes of Article III standing. The court
concluded that even though IndyMac had the legal right to enforce the note it held, it was
nevertheless not the real party in interest and failed to join the real party in interest. Failure to

4
See LaSalle Bank N.A. v. Nomura Asset Capital Corp., 180 F.Supp.2d 465, 469-71
(S.D.N.Y.2001) ("LaSalle-Nomura"); accord, LaSalle Bank N.A. v. Lehman Bros. Holdings,
Inc., 237 F.Supp.2d 618, 631-34 (D.Md.2002)("LaSalle-Lehman").
join the real party in interest was held to be fatal to its motion for relief from stay a defect
which the court was not only free to raise sua sponte, but which the court had the obligation to
raise sua sponte.
Judge Bufford also decided In re Vargas
5
wherein he rather forcefully illustrated the
infirmities with the types of affidavits customarily employed by mortgage lenders and their
servicers. He pointed out the standards required for authentication of records, business record
exception to hearsay and proper foundation for computer related evidence. Following these
standards, he denied the relief sought by the lender in Vargas.
Hwang was immediately cited with approval by the bankruptcy court in In re Jacobson.
6

There, the court denied relief from the automatic stay over the objection of the pro se debtor
where the servicer, UBS AG, failed to introduce any evidence as to its authority to act as servicer
for the true owner of the note and mortgage. Absent authority to act for whoever actually holds
the note, UBS AG had no constitutional standing to pursue relief from the automatic stay. A
necessary party, namely the owner of the note and mortgage, was a real party in interest and was
missing from the proceedings. UBS AG tried to salvage its motion with an affidavit by someone
supposedly in charge of the records. However, the court found the affidavit to be legally
insufficient, stating,even if all of the deficiencies were overlooked or resolved in Movant's
favor, one emerges from the syntactical fog into an impassable swamp. The affidavit of a
California Bankruptcy Specialist for UBS AG purported to state that it was the servicing agent
for ACT Properties LLC and/or its successors or assigns This was far too indefinite for the
court.

5
396 BR 511 (Bankr. C.D. CA 2009)
6
402 BR 359 (Bankr. WD WA 2009)
772
29TH ANNUAL SPRING MEETING
Later in 2009, the Bankruptcy Court for the District of Idaho considered the question of
standing again in the context of a chapter 7 trustees motion for relief from the automatic stay in
In re Wilhelm
7
and companion cases. In the lead case, the chapter 7 trustee opposed the relief
requested. In another case, the chapter 7 trustee stipulated to relief. In a third, the chapter 7
trustee remained silent. And in the fourth, the chapter 7 trustee filed a statement of non-
opposition.
Yet the bankruptcy court denied relief from the stay in each of these cases because each
movant had failed to establish standing to seek relief from the automatic stay. As a prefatory
comment, Judge Myers tries to put his reasoning in context of prior decisions rendered by his
court and others on the question of standing as follows:
Before delving into the specifics of these cases, it is worth
reiterating that changes in mortgage practices during the past
several years including, most prominently, the serial assignment
of mortgage obligations have complicated the factual situations
to which the standing analysis applicable to stay relief motions
must be applied. See In re Sheridan, 09.,1 I.B.C.R. 24, 2009 WL
631355, at *1 (Bankr.D. Idaho 2009). Several bankruptcy courts
including this Court, in In re Sheridan have been required to
issue decisions explaining who does (and who does not) have
standing to seek stay relief. See, e.g., In re Jacobson, 40,2 B.R.
359 (Bankr.W.D.Wash.2009); In re Vargas, 39,6 B.R. 511 (Bankr.
C.D.Cal.2008); In re Hwang, 39,6 B.R. 757
(Bankr.C.D.Cal.2008); In re Mitchell, 200,9 WL 1044368, at *2-6
(Bankr.D.Nev. Mar.31, 2009).
In In re Sheridan, for example, this Court explained that a stay
relief motion "must be brought by one who has a pecuniary interest
in the case and, in connection with secured debts, by the entity that
is entitled to payment from the debtor and to enforce security for
such payment." 09.1 I.B.C.R. at 25, 2009 WL 631355, at *4. In
hundreds of stay relief motions, including many post-Sheridan,
creditors are providing adequate documentation and explanation to
meet the requisite standing requirements. These Movants, all of

7
407 BR 392 (Bankr. ID 2009)
773
Ameri can Bankruptcy Insti tute
Later in 2009, the Bankruptcy Court for the District of Idaho considered the question of
standing again in the context of a chapter 7 trustees motion for relief from the automatic stay in
In re Wilhelm
7
and companion cases. In the lead case, the chapter 7 trustee opposed the relief
requested. In another case, the chapter 7 trustee stipulated to relief. In a third, the chapter 7
trustee remained silent. And in the fourth, the chapter 7 trustee filed a statement of non-
opposition.
Yet the bankruptcy court denied relief from the stay in each of these cases because each
movant had failed to establish standing to seek relief from the automatic stay. As a prefatory
comment, Judge Myers tries to put his reasoning in context of prior decisions rendered by his
court and others on the question of standing as follows:
Before delving into the specifics of these cases, it is worth
reiterating that changes in mortgage practices during the past
several years including, most prominently, the serial assignment
of mortgage obligations have complicated the factual situations
to which the standing analysis applicable to stay relief motions
must be applied. See In re Sheridan, 09.,1 I.B.C.R. 24, 2009 WL
631355, at *1 (Bankr.D. Idaho 2009). Several bankruptcy courts
including this Court, in In re Sheridan have been required to
issue decisions explaining who does (and who does not) have
standing to seek stay relief. See, e.g., In re Jacobson, 40,2 B.R.
359 (Bankr.W.D.Wash.2009); In re Vargas, 39,6 B.R. 511 (Bankr.
C.D.Cal.2008); In re Hwang, 39,6 B.R. 757
(Bankr.C.D.Cal.2008); In re Mitchell, 200,9 WL 1044368, at *2-6
(Bankr.D.Nev. Mar.31, 2009).
In In re Sheridan, for example, this Court explained that a stay
relief motion "must be brought by one who has a pecuniary interest
in the case and, in connection with secured debts, by the entity that
is entitled to payment from the debtor and to enforce security for
such payment." 09.1 I.B.C.R. at 25, 2009 WL 631355, at *4. In
hundreds of stay relief motions, including many post-Sheridan,
creditors are providing adequate documentation and explanation to
meet the requisite standing requirements. These Movants, all of

7
407 BR 392 (Bankr. ID 2009)
whom are represented by attorney Matthew Cleverly ("Counsel"),
are an exception.
Common features in each case considered in Wilhelm were:
None of the notes named a Movant as the payee.
None of the notes were indorsed, either in blank or to a particular payee
None of the declarations in support of the motions show that any of the movants
actually held the notes they sought to enforce
Each mortgage was in favor of MERS rather than any entity that might actually have
an economic interest in the transaction.
The court in Wilhelm made reference to its prior decision in In re Sheridan
8
which
followed the logic and reasoning of the bankruptcy court in Hwang. The court next addressed
the lenders position that it was up to the respondent to the motion to lift stay to rebut the
allegations in its motion, including the allegations in the motion regarding standing. The court
rejected this notion holding that standing was essential to the right to seek relief. It held that a
relaxed standard might be possible in the pleading stage. However, in the event the respondent
objected, then the movant has the burden going forward with evidence to establish its standing.
Addressing Idaho law under the Uniform Commercial Code, the court held that to
establish standing for relief from the automatic stay, the movant had to establish that it was the
holder or otherwise had the rights of a holder by being in possession of the notes. And even had
they established that they were in possession, they also had to establish a transaction by which
means they acquired possession. Of particular note was that the notes purported to have been
assigned to the movants by reason of an assignment from MERS. This was problematic since

8
09.,1 I.B.C.R. at 25, 2009 WL 631355,
774
29TH ANNUAL SPRING MEETING
MERS never had any interest in any of the notes. In fact, at most, MERS was the nominee for
the Originator. Accordingly, MERS had no authority to assign the notes, even assuming that the
MERS assignment was otherwise valid.
9

In In re Relka
10
the bankruptcy court followed the principles of standing set forth above
but found that the movant had established standing since it was supported by a declaration on
behalf of the movant that the movant had retrieved the note from a vault in Nebraska and
obtained possession of it endorsed in blank. Even though it was possible that the movant was
wrongfully in possession of the note, the UCC allows one wrongfully in possession of a note
endorsed in blank to enforce it. The court did not seem troubled that there were four different
versions of the signature page of the note. MERS had assigned the mortgage directly to the
current holder of the note the Trustee of the Securitized Trust. One might refer to this as an A
to D assignment, or an assignment from the Original Mortgagee to the Trust. There was nothing
of record regarding any deposit from the Original Mortgagee to the Sponsor, from the Sponsor to
the Depositor or from the Depositor to the Trust. Similarly, there was no evidence that the Note
was ever transferred from the Originator to the Sponsor, from the Sponsor to the Depositor or
from the Depositor to the Trust. It is possible that these questions simply dont arise on the
occasion of a motion for relief from automatic stay, which is intended to be a summary
proceeding but might be more properly raised in connection with objections to claim.

9
At least two other courts construing similar MERS assignments are in accord. See Saxon
Mortgage Servs. v. Hillery, 2008 WL 5170180, at *5 (N.D.Cal. Dec.9, 2008); Bellistri v. Ocwen
Loan Servicing, LLC, 284 S.W.3d 619, 623-24, 2009 WL 531057, at *3 (Mo.Ct.App.2009). Cf.
also In re Vargas, 39, 6 B.R. at 517 ("MERS presents no evidence as to who owns the note, or of
any authorization to act on behalf of the present owner.")

10
09 -20806 (Bankr. D. WY Dec. 18, 2009)

775
Ameri can Bankruptcy Insti tute
MERS never had any interest in any of the notes. In fact, at most, MERS was the nominee for
the Originator. Accordingly, MERS had no authority to assign the notes, even assuming that the
MERS assignment was otherwise valid.
9

In In re Relka
10
the bankruptcy court followed the principles of standing set forth above
but found that the movant had established standing since it was supported by a declaration on
behalf of the movant that the movant had retrieved the note from a vault in Nebraska and
obtained possession of it endorsed in blank. Even though it was possible that the movant was
wrongfully in possession of the note, the UCC allows one wrongfully in possession of a note
endorsed in blank to enforce it. The court did not seem troubled that there were four different
versions of the signature page of the note. MERS had assigned the mortgage directly to the
current holder of the note the Trustee of the Securitized Trust. One might refer to this as an A
to D assignment, or an assignment from the Original Mortgagee to the Trust. There was nothing
of record regarding any deposit from the Original Mortgagee to the Sponsor, from the Sponsor to
the Depositor or from the Depositor to the Trust. Similarly, there was no evidence that the Note
was ever transferred from the Originator to the Sponsor, from the Sponsor to the Depositor or
from the Depositor to the Trust. It is possible that these questions simply dont arise on the
occasion of a motion for relief from automatic stay, which is intended to be a summary
proceeding but might be more properly raised in connection with objections to claim.

9
At least two other courts construing similar MERS assignments are in accord. See Saxon
Mortgage Servs. v. Hillery, 2008 WL 5170180, at *5 (N.D.Cal. Dec.9, 2008); Bellistri v. Ocwen
Loan Servicing, LLC, 284 S.W.3d 619, 623-24, 2009 WL 531057, at *3 (Mo.Ct.App.2009). Cf.
also In re Vargas, 39, 6 B.R. at 517 ("MERS presents no evidence as to who owns the note, or of
any authorization to act on behalf of the present owner.")

10
09 -20806 (Bankr. D. WY Dec. 18, 2009)

In re Mitchell
11
also addressed standing in the context of motions for relief from the
automatic stay. Mitchell is noteworthy because it rather closely analyzes the nature of MERS and
the legal effect of the manner in which it operates in context of mortgage issues in bankruptcy.
MERS contended that in a non-judicial foreclosure state where no deficiency was being sought,
it didnt matter whether MERS had any interest in the note. The court rejected this contention as
being made out of whole cloth. The court reviewed the manner in which MERS officers are
appointed and also considered the evidentiary problems with the several affidavits in support of
motions for relief from stay and found them wholly inadequate to establish standing to seek
relief from the automatic stay. Mitchell should be read by anyone involved in a motion for relief
from automatic stay which relies on a MERS or MERS related affidavit.
In re Almeida
12
illustrates the quantum of evidence which was held sufficient in face of
objection on a motion for relief from automatic stay to confer standing upon the movant on the
occasion of a motion for relief from automatic stay. There, the movant established to the courts
satisfaction that assignments had been made from the Originator to the Sponsor, from the
Sponsor to the Depositor and from the Depositor to the Trust. The chain of these assignments is
somewhat interesting and questionable as they appear to have been made and executed well after
the fact. The securitization in question was to have occurred in 2005 yet the assignments were
dated in 2008. However, there was no evidence proffered to refute the averments in the movants

11
Case No. BK-S-07-16226-LBR. (Bankr., D. Nevada. March 31, 2009)
12
417 B.R. 140 (Bankr. D. MA 2009)

776
29TH ANNUAL SPRING MEETING
affidavits that the note had been in possession of the movant since as early as 2006. However,
the bankruptcy court quoted with approval the following passage from In re Samuels
13

A failure to follow this protocol such as by direct assignment of
the mortgage from the loan originator to the pool trustee,
bypassing the depositor would, the Debtor contends, constitute
a breach of the PSA, a breach of fiduciary obligations under the
PSA to investors, a breach of federal regulations, and an act giving
rise to unfavorable tax consequences for the investors. The Debtor
argues that because the Confirmatory Assignment is a direct
assignment from Argent to Deutsche Bank that bypasses the
depositor, it must be invalid. This argument falls far short of its
goal. Even if this direct assignment were somehow violative of the
PSA, giving rise to unfavorable tax, regulatory, contractual, and
tort consequences, neither the PSA nor those consequences would
render the assignment itself invalid. In fact, under the Debtor's own
argument, the unfavorable consequences could and would arise
only if, and precisely because, the assignment were valid and
effective.
So at least in the context of a motion for relief from stay, it did the borrower no good to
argue that the assignments were not effectuated in the manner contemplated by the parties to the
securitized trust.

Objections to Claims
In re Wells
14
illustrates the analysis in which a bankruptcy court must engage when
considering the standing of a mortgage creditor to assert a proof of claim. There, debtors
objected to a secured mortgage related claim in their chapter 13 case. In particular, debtors posed

13
In re Samuels, 415 B.R. 8 (Bankr. D.Mass.2009)
14
407 BR 873 (Bankr. ND OH 2009)
777
Ameri can Bankruptcy Insti tute
affidavits that the note had been in possession of the movant since as early as 2006. However,
the bankruptcy court quoted with approval the following passage from In re Samuels
13

A failure to follow this protocol such as by direct assignment of
the mortgage from the loan originator to the pool trustee,
bypassing the depositor would, the Debtor contends, constitute
a breach of the PSA, a breach of fiduciary obligations under the
PSA to investors, a breach of federal regulations, and an act giving
rise to unfavorable tax consequences for the investors. The Debtor
argues that because the Confirmatory Assignment is a direct
assignment from Argent to Deutsche Bank that bypasses the
depositor, it must be invalid. This argument falls far short of its
goal. Even if this direct assignment were somehow violative of the
PSA, giving rise to unfavorable tax, regulatory, contractual, and
tort consequences, neither the PSA nor those consequences would
render the assignment itself invalid. In fact, under the Debtor's own
argument, the unfavorable consequences could and would arise
only if, and precisely because, the assignment were valid and
effective.
So at least in the context of a motion for relief from stay, it did the borrower no good to
argue that the assignments were not effectuated in the manner contemplated by the parties to the
securitized trust.

Objections to Claims
In re Wells
14
illustrates the analysis in which a bankruptcy court must engage when
considering the standing of a mortgage creditor to assert a proof of claim. There, debtors
objected to a secured mortgage related claim in their chapter 13 case. In particular, debtors posed

13
In re Samuels, 415 B.R. 8 (Bankr. D.Mass.2009)
14
407 BR 873 (Bankr. ND OH 2009)
the question of what entity was entitled to receive payment on account of pre-petition arrearages.
The bankruptcy court found:
The trustee of the Securitized Trust did not provide documents to establish that it was a
secured creditor of the debtors
The Servicer who filed the proof of claim did so using an undisclosed limited power of
attorney which did not give it the right to file a proof of claim on behalf of the trustee of
the Securitized Trust
The trustee of the Securitized Trust did not come forward with evidence to cure the
deficiencies of its claim at the evidentiary hearing.
The proof of claim was executed by an individual purportedly acting as Quality Control,
Bankruptcy Department without identifying her employer. She purportedly was acting on
behalf of the trustee of the Securitized Trust. Contrary to the requirements of the official proof
of claim form, the signatory did not attach any power of attorney. The claim had the following
information and exhibits appended to it:
Itemization of Claim (no backup)

Payoff Information breaking down principal, interests and fees (no backup)

Prepetition Fee breakdown (no backup)

Mortgage signed by Debtors and naming MERS as the mortgagee as nominee for the
Originating Lender, bearing a contemporaneous recording stamp and no assignment to
anyone else

An Adjustable Rate Note signed by one debtor naming the Originating Lender as the
payee.
Debtor objected to the claim whereupon secured creditor supplemented it with the following
documents:
Assignment of mortgage from MERS to the trustee for the Securitized Trust dated
and recorded about a year prior in 2007
778
29TH ANNUAL SPRING MEETING
An assignment of mortgage dated at about the time of the hearing from the trustee for
the Securitized Trust seemingly from the Bank as trustee for the registered holders of
the Securitized Trust Pass Through Certificates to the same bank as Trustee for the
same registered holders of Securitized Pass Through Certificates.
A limited power of attorney purportedly given by the Trustee Bank to Ocwen Loan
Servicing LLC recorded in Broward County, Florida (note that the land in this case is
located in Ohio)
An Escrow Advance Breakdown, Prior Servicer Fee Breakdown and a Late Charges
Breakdown
Creditors attorney stated that it was in the process of obtaining an allonge
(presumably for a note) and once received, will provide same.
First, the court analyzed the Note. Since it is a negotiable instrument, it might be
enforced by a holder who has physical possession of the note, provided that the note is endorsed
to that person or endorsed in blank.
15
In Ohio, a note can be endorsed by an allonge, a piece of
paper which becomes affixed to the instrument. Transfer of physical possession is necessary to
complete the negotiation of a note.
16
There was no evidence before the bankruptcy court that the
Note had been negotiated from the original lender to the Securitized Trust Trustee Bank which
made the proof of claim.
Much has been written about the allonge and it is beyond the scope of this article.
However, it should be noted that an allonge must be so far affixed to the note as to be
permanently part of the instrument. A separate sheet of paper will not do. Moreover, there are
many cases in many jurisdictions which hold that an allonge is not appropriate where there is
sufficient space on the Note itself whereupon an endorsement might be made.
17


13
uCC 3-301
16
uCC 3-204, 3-201
17
See generally, Adams v. Madison Realty & Development, Inc., 853 F. 2d 163, 167 (3d Cir. 1988).
Courts have held that "stapling is the modem equivalent of gluing or pasting." Lamson v.
Commercial Credit Corp., 187 Colo. 382 (Colo. 1975). See also Southwestern Resolution Corp. V.
779
Ameri can Bankruptcy Insti tute
An assignment of mortgage dated at about the time of the hearing from the trustee for
the Securitized Trust seemingly from the Bank as trustee for the registered holders of
the Securitized Trust Pass Through Certificates to the same bank as Trustee for the
same registered holders of Securitized Pass Through Certificates.
A limited power of attorney purportedly given by the Trustee Bank to Ocwen Loan
Servicing LLC recorded in Broward County, Florida (note that the land in this case is
located in Ohio)
An Escrow Advance Breakdown, Prior Servicer Fee Breakdown and a Late Charges
Breakdown
Creditors attorney stated that it was in the process of obtaining an allonge
(presumably for a note) and once received, will provide same.
First, the court analyzed the Note. Since it is a negotiable instrument, it might be
enforced by a holder who has physical possession of the note, provided that the note is endorsed
to that person or endorsed in blank.
15
In Ohio, a note can be endorsed by an allonge, a piece of
paper which becomes affixed to the instrument. Transfer of physical possession is necessary to
complete the negotiation of a note.
16
There was no evidence before the bankruptcy court that the
Note had been negotiated from the original lender to the Securitized Trust Trustee Bank which
made the proof of claim.
Much has been written about the allonge and it is beyond the scope of this article.
However, it should be noted that an allonge must be so far affixed to the note as to be
permanently part of the instrument. A separate sheet of paper will not do. Moreover, there are
many cases in many jurisdictions which hold that an allonge is not appropriate where there is
sufficient space on the Note itself whereupon an endorsement might be made.
17


13
uCC 3-301
16
uCC 3-204, 3-201
17
See generally, Adams v. Madison Realty & Development, Inc., 853 F. 2d 163, 167 (3d Cir. 1988).
Courts have held that "stapling is the modem equivalent of gluing or pasting." Lamson v.
Commercial Credit Corp., 187 Colo. 382 (Colo. 1975). See also Southwestern Resolution Corp. V.
Next, the court analyzed the Mortgage and the Assignments of Mortgage, both of which
purported to assign both the Note and Mortgage. First, the Court found that the Assignments
were not legally sufficient under any circumstance to transfer ownership or any interest in the
Note. Second, it was obvious that the 2007 assignment was back-dated given that it was
notarized in 2009 and recorded in 2009, during the pendency of the proof of claim litigation.
The court also analyzed the Limited Power of Attorney and found that by its express
terms, it did not authorize Ocwen to act for the particular securitized trust in question. The
power of attorney was strictly construed against the entity or person who granted it.
Since the Proof of Claim did not comply with Bankruptcy Rule 3001, it did not have
prima facie validity. And since there was a legitimate objection to its validity pursuant to
Bankruptcy Code section 502, it was the responsibility of the creditor to come forward with
evidence in support of its claim.
The bankruptcy court not only held that the Bank as Trustee failed to establish its
standing to assert the claim, but that it also failed to establish that it was entitled to enforce the
note and mortgage. Accordingly, the claim asserted was denied.
18


Watson, 964 S.W. 2d 262 (Texas 1997) (holding that an allonge stapled to the back of a promissory
note is valid so long as there is no room on the note for endorsement, but affixed does not include
paperclips.). Numerous cases have rejected endorsements made on separate sheets of paper loosely
inserted in a folder with the instrument and not physically attached in any way. See Town of Freeport
v. Ring, 1999 Me. 48 (Maine 1999); Adams V. Madison Realty & Development, Inc., 853 F. 2d
163 (3d Cir. 1988); Big Builders, Inc. V. Israel, 709 A. 2d 74 (D.C. 1988).
18
To similar effect and on similar reasoning is In re Jones, 07-15662-JNF (Bankr. D. Mass
October 3, 2008).
780
29TH ANNUAL SPRING MEETING
On the other hand, a carefully prepared claim with well-documented evidence can be
sustained in bankruptcy. Such a case is In re Samuels
19
Although the documents presented with
the proof of claim did not entitle the claim to prima facie validity, the creditor presented
documents which, in the courts opinion, were satisfactory to sustain its burden of proof. Even
though the creditor failed to show the entire chain of transfers from the Originator to the
Sponsor, from the Sponsor to the Depositor and from the Depositor to the Trust, the court held
that this was unnecessary from the debtors standpoint.
It remains to be seen whether the Samuels courts willingness to overlook the fact that the
assignment which was actually granted was beyond the authority of the assignor to give.
Perhaps that argument will be made successfully in other courts.
It is not necessary for the purpose of this article to discuss in detail the specific findings
of the court. However, any prudent lender would be wise to observe the detail to which the
creditor went in order to sustain its burden of proof in Samuels.
While beyond the scope of this paper, it is highly instructive to review the decision of the
Massachusetts Supreme Judicial Court in US Bank NA, Trustee (for the Structured Asset
Securiti9es Corporation Mortgage Pass-Through Certificates, Series 2006-Z) v. Ibanez (SJC
10694 Decided January 7, 2011) available at
http://weblinks.westlaw.com/result/default.aspx?action=Search&cnt=DOC&db=MA-ORCS-
WEB&eq=search&fmqv=c&fn=_top&method=TNC&n=1&origin=Search&query=CO(SJCF+S
JCRES+SJCOPJ+APPF+APPRES)+%26+TI(IBANEZ)&rlt=CLID_QRYRLT1.

19
415 BR 8 (Bankr. D. Mass 2009).
781
Ameri can Bankruptcy Insti tute
On the other hand, a carefully prepared claim with well-documented evidence can be
sustained in bankruptcy. Such a case is In re Samuels
19
Although the documents presented with
the proof of claim did not entitle the claim to prima facie validity, the creditor presented
documents which, in the courts opinion, were satisfactory to sustain its burden of proof. Even
though the creditor failed to show the entire chain of transfers from the Originator to the
Sponsor, from the Sponsor to the Depositor and from the Depositor to the Trust, the court held
that this was unnecessary from the debtors standpoint.
It remains to be seen whether the Samuels courts willingness to overlook the fact that the
assignment which was actually granted was beyond the authority of the assignor to give.
Perhaps that argument will be made successfully in other courts.
It is not necessary for the purpose of this article to discuss in detail the specific findings
of the court. However, any prudent lender would be wise to observe the detail to which the
creditor went in order to sustain its burden of proof in Samuels.
While beyond the scope of this paper, it is highly instructive to review the decision of the
Massachusetts Supreme Judicial Court in US Bank NA, Trustee (for the Structured Asset
Securiti9es Corporation Mortgage Pass-Through Certificates, Series 2006-Z) v. Ibanez (SJC
10694 Decided January 7, 2011) available at
http://weblinks.westlaw.com/result/default.aspx?action=Search&cnt=DOC&db=MA-ORCS-
WEB&eq=search&fmqv=c&fn=_top&method=TNC&n=1&origin=Search&query=CO(SJCF+S
JCRES+SJCOPJ+APPF+APPRES)+%26+TI(IBANEZ)&rlt=CLID_QRYRLT1.

19
415 BR 8 (Bankr. D. Mass 2009).
There, the Supreme Judicial Court of Massachusetts explains the securitization process in
detail and held that failure of the lenders to establish strict compliance with the securitization
process was fatal to their ability to foreclose upon mortgages. Such logic would also compel, at
least a Massachusetts bankruptcy court, to deny secured status to a mortgage claim in similar
circumstances. The appellate courts of the various states are still grappling with the impact of
securitization of mortgages on the ability of those concerned to foreclose. It will be the burden
of bankruptcy judges to address these complex issues in the context of chapter 13 cases as
debtors attorneys become more sophisticated and aware of these issues.
l. 8esL racLlces for MorLgage CredlLors' and ALLorneys
a. lnLernal SysLems
l. CverslghL down Lhe llnes (e.g. parLners, supervlsors, sLaff)
1. need engaged aLLorneys and managers execuLlng quallLy conLrol
sysLems on a regular basls
ll. SLandard rocesses: processes documenLed and conLlnuously lmproved and
revlsed as needed.
1. CheckllsLs asslsL processors ln maklng sure proper sLeps are followed
and accounLablllLy creaLed. need Lo Lake care ln developlng Lhe
checkllsLs. erhaps have cllenLs revlew and approve procedures.
2. Make sure all aLLorneys and sLaff know exacLly whaL documenLs and
facLs are requlred before flllng pleadlngs and LhaL Lhey are acLually
lncluded ln Lhe flllng and flle
3. 8egular revlew of flrm's pracLlces and procedures Lo ensure conLlnually
movlng Loward even beLLer" pracLlces.
4. rovlde regular guldance and Lralnlng Lo sLaff ln proper procedure and
meLhods used ln cases, e.g. weekly or monLhly workshops wlLh sLaff
relnforclng Lhe educaLlon.
3. ubllcaLlon of clear aLLorney expecLaLlons ouLllnlng general and speclflc
sLeps aLLorneys should Lake ln varlous slLuaLlons.
lll. Lmphasls on conslsLenL declslon-maklng, frequenL flle noLaLlon and regular
cllenL updaLes
1. Lawyers should acLually revlew and approve pleadlngs Lo be flled, do
noL permlL flllng wlLh only non-lawyer revlew.
2. lnsLlLuLe an orderly sysLem of monlLorlng cllenL reporLs, cllenL audlLs
and revlews. Some cllenLs revlew large number of flles for lmporLanL
check polnLs. Some revlew random sampllng ln greaLer deLall. re-
revlew can lmprove flrm's resulLs and dlsclose shorLcomlngs before Lhe
cllenL sees lL.
3. LlecLronlcally malnLaln documenLaLlon on cases. Lvery evenL or Lask
should be recorded.
782
29TH ANNUAL SPRING MEETING
a. AblllLy Lo polnL Lo documenLaLlon or evldence of phone calls,
conversaLlons and declslon-maklng sLeps
b. Send conflrmaLlon emalls
b. LxLernal SysLems
1. Lncouraglng an aLLorney Lo have frequenL speaklng engagemenLs Lo
varleLy of audlences wlll requlre hlm/her Lo sLay sharp and up on
currenL pracLlces - and defend Lhem.
2. lf Lhe flrm uses local counsel for appearances:
a. Make sure Lhere ls a clear resulLs reporLlng proLocol requlrlng
local counsel Lo reporL speclflc lnsLrucLlons and commenLs from
Lhe CourL resulLlng from any appearances. uon'L puL local
counsel ln Lhe poslLlon of saylng l don'L know, l'm [usL local
counsel"
b. arLners or lawyers from Lhe home offlce" should appear from
Llme Lo Llme Lo see whaL ls really golng on.
3. CerLlflcaLlon and CLL requlremenLs
a. 8oard-cerLlflcaLlon (Amerlcan 8oard of CerLlflcaLlon) requlres
hlgher level of experlence and ongolng scruLlny
b. Lawyers should also recelve ecf noLlces for backup and spoL-
check - do noL slmply delegaLe Lhls Lask Lo sLaff.

Robert J. Keach |
Prof. Jean Braucher |
Michael L. Bernstein |