Sericing Agents Forewarned: Becoming a “Real Party in Interest” when Filing 362(d) Motions
Determining exactly which parties have the right to request relief from the automatic stay in bankruptcy has long been a challenging and contentious issue for the courts. Recently, in In re Jacobson, the Bankruptcy Court for the Western District of Washington held that a “servicing agent” was not a “real party in interest” for the purpose of filing a section 362(d) motion, which when granted entitles a party to relief from an automatic stay. Substantiated evidence proving standing in bankruptcy court is necessary to allow parties to bring such motions. In denying UBS AG’s (“UBS”) motion, the court upheld important notions of prudential standing, which require, even within the context of a federal bankruptcy forum, strict adherence and awareness of pertinent state requirements.
In In re Jacobson, UBS, a “servicing agent” who is a third party to a loan that provides oversight and management of ongoing financial activities, filed a motion to lift the automatic stay so it could enforce a note that allegedly had been assigned to ACT Properties, LLC (“ACT”), although the note was in the possession of Wells Fargo Document Custody (as part of the MERS process). The court focused on whether UBS was a “real party in interest,” which, if true, would allow UBS to assert relief from the automatic stay in its own right. The court relied on a principle in In re Hwang where a bankruptcy court there stated that status as an agent solely for the purpose of bringing suit, which is typically the role of a “servicing agent,” did not automatically confer standing upon a party.
The In re Jacobson court then focused on UBS’s prudential standing rather than constitutional standing. Prudential standing requires the court to look into state substantive law. Under Washington law, an agent is entitled to enforce a negotiable instrument if, among other reasons, the agent is “a person not in possession of the instrument who is entitled to enforce the instrument.” UBS argued the business records provided by the company showed that it was indeed a “servicing agent” and that such a title gave it standing to enforce an instrument even without possession. The court disagreed noting that business records are hearsay unless supported by a “qualified expert.” Here, the boiler-plate assertions in an affidavit by a “bankruptcy specialist” employed by UBS were not sufficient. However, even if the records had been admitted, the court noted that UBS would have still lost the motion, as they never actually properly asserted its entitlement to enforce the note. Finding that prudential standing was lacking, the court held UBS was not a “real party in interest” and therefore had no right to file a 362(d) motion.
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