The only reason we know about this is from a New Jersey bankruptcy court. And it’s only because of the people in the field deposing robosigners, piecing together the records, and fighting to get information about what is actually broken in the biggest piece of our stalled economy that we know any of this. Advances like this will disappear if Congress doesn’t allocate the $35 million dollars it is supposed to for legal aid groups, and you can now understand why lawmakers are hoping this request dies quietly. And it also shows why Attorneys General will need to step up to the plate and take over this fight while the public needs to hold federal regulators accountable for their lack of effort.
There was an interesting case out of Oregon Bankruptcy Court. The case is Monk v. LSI Title Company of Oregon (In re Monk), 2011 WL 212381 (Bankr. D. Ore. Jan. 21, 2011).
In this case a Debtor filed Chapter 13 bankruptcy. The alleged mortgage creditor “PCFS Mortgage Company” filed a proof of claim. The Chapter 13 Trustee was not satisfied that PCFS had a secured lien or perfected interest and therefore challenged the Proof of Claim. PCFS failed to respond with any type of opposition and the lien was “disallowed” under Section 506(d) of the Bankruptcy Code. This Section declares:
(d) To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void…….
The Chapter 13 debtor completed their Chapter 13 plan and a discharge was entered (no chapter 13 plan payments were made to PCFS). The Discharge wiped out any debt that remained as it was unsecured debt.
However, after the Bankruptcy discharge, the successor in interest to PCFS Mortgage (Litton Loan) sought to enforce the debt and to foreclose on the property. The debtor filed a motion to reopen the bankruptcy and filed an adversary proceeding to strip the lien, quiet title to the property and seeking an injunction to halt the foreclosure and for sanctions for the discharge violation (Litton should not be trying to collect on a debt that was previously discharged).
Litton responded and sought to dismiss the claims against them and dissolve the injunction. The Court, for the most part, found for the Debtor and upheld the preliminary injunction and the action to strip the lien and quiet title, and for sanctions for discharge violation. Apparently there was a loan modification agreement entered into after the Chapter 13 discharge.
Here is what Litton argued in trying to dismiss the case.
Here is some language from the holding in the case:
Because PCFS’s claim was “disallowed,” it was not an “allowed secured claim,” and the related lien was void pursuant to § 506(d). Defendant’s claim was not of the type described in § 506(d)(1), and its claim was disallowed for reasons other than its failure to file a proof of claim.
Thus, when the discharge order was entered in Debtors’ case, Defendant held a “disallowed” claim and a void lien. Section 1328 provides in part:(a) As soon as practicable after completion by the debtor of all payments under the plan, unless the court approves a written waiver of discharge executed by the debtor after the order for relief under this chapter, the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title, except any debts—(1) provided for under section 1322(b)(5) of this title.
Defendant argues that Debtors did not file an amended Plan after disallowance of its claim and that the Plan continued to provide for ongoing payments to Defendant on the long-term debt and that the Plaintiffs did, in fact, continue to make the ongoing payments to PCFS even after the claim was disallowed.
It follows, argues Defendant, that the debt was not discharged under the exception at § 1328(a)(1).
Defendant’s argument fails for the following reason: The debt was disallowed under section 502 and, as provided by § 1328(a), it was discharged. A “debt” is defined at § 101(12) as “liability on a claim.” A “claim” is defined as a “right to payment ….“ § 101(5)(A). Once the claim was disallowed, PCFS no longer had a right to payment and thus no longer had a “claim” or a “debt.” As it no longer possessed a “debt,” it follows that it did not have a “debt [ ] provided for under section 1322(b)(5),” and cannot use § 1328(a)(1) to except its nonexistent debt from discharge.
This case shows the importance of objecting to proofs of claim in bankruptcy and demanding that the alleged creditor show its legal right to collect the alleged debt owed. We can no longer take it for granted that the banks have dotted their i’s and crossed their t’s and that they are a secured lender just because they say so. Proof of the claim is required. To me, that is an endorsed note from the originator of the loan up to the securitized trustee who claims to own the note. Interesting case for sure.
According to the In re Jacobson court, an agent solely for the purpose of bringing suit is merely a “nominal party” and therefore can only litigate a case in the name of its principal when state law standing requirements have been met. Therefore, a movant cannot file a motion in bankruptcy court and assume that federal standing rules will apply without any consideration of state substantive law
Given what we know about the securitization process, I think we already know what’s happened. I have found out that most loans were not properly transferred into the pools. But in the meantime, where do we get the evidence outside of litigation to support this conclusion?
If you are able to verify that the loan is actually in the pool, what does that mean? Not much, especially if it wasn’t properly conveyed. Just because someone says they own something doesn’t mean they have evidence that they own it. Without a clear chain of assignment, a pool’s claim that they own something is just a claim and any foreclosure would be foreclosure fraud.
A mortgage audit is still a powerful tool when developing a legal strategy and every foreclosure defense lawyer should have a relationship with a good auditor/investigator. The bottom line-is that all you as a borrower really need to know about securitization is that it created one big mess. It’s going to take an investigation to uncover evidence to support your lawsuit and you need to get an securitization audit then hire a lawyer to help you.
We have developed litigation strategies that goes beyond the loan modification and produce the note state court defenses that has been shut down in state civil courts that refuse to grant temporary restraining orders.
We do not believe in presenting foreclosure defense litigation in State courts, and have not found these to be very effective when it comes to requesting temporary restraining orders and in the state of California there is no law that requires lenders to prove anything in order to foreclose on your home. First, the state court judges do not want to learn securities law and have no clue about mortgage backed securitization. Securitization falls under the Federal Securities Laws. Federal and Bankruptcy Court judges are knowledgeable in securities, taxation, securitization and real party in interest litigation and are more willing to hear your arguments.
The use of bankruptcy adversary proceedings against loan servicers has been the main focus on protecting your home from fraudulent foreclosure and claims against your property. Our analyst works with attorneys that use this same “produce the note” concept in bankruptcy court litigation.
FINDING THE EVIDENCE
To challenge a loan servicer’s standing in a bankruptcy court and to make them prove they are the real party in interest you must obtain the (PSA) Pooling & Servicing Agreement.
It is the process of identifying and retrieving information that is necessary to support legal decision making. In it’s broad sense, legal research includes each step of a course of action that begins with an analysis of the facts of the problem and concludes with the application and communication of the results of the investigation. The purpose of legal research is to find “authority” that will aid in finding a solution to a problem. Primary authorities are the rules of laws.
Many courts use the terms of standing and real party in interest interchangeably because the two concepts are closely related, but they do have distinct requirements. The real party in interest question is really the prudential component of the overall standing analysis, while injury-in-fact is a constitutional requirement.
A nominee or agent must prove both (1) that it is an agent with the authority to act o n behalf of the principal and (2) that the principal has both constitutional standing and Prudential standing. However, even if a party has standing, the agent must prosecute the action in the name of the real party in interest and not in its own name.
Prudential requirements also require that a party bringing a motion be the real party in interest.. Rule 17 of the Federal Rules of Civil Procedure requires an 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 “possess the substantive right being asserted under the applicable law. 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.
The discussions in this site illustrate potential standing and real party in interest issues arising in bankruptcy proceedings. While the Mortgage Electronic Registration Systems (MERS) promised to streamline mortgage transactions and cut costs, this service often results in a series of unrecorded transfers or transfers to parties outside the servicers system that can complicate knowing how a note traveled through the system and whether a party really has standing to see foreclosure.