IN RE ANIEL

• Decision Date: 21 April 2010
• Docket Number: No. 09-30452DM.,09-30452DM.
• Citation: 427 B.R. 811
• Parties: In re Fermin Solis ANIEL and Erlinda Aribas Aniel aka Erlinda Jose Abibas, Debtors.
• Court: U.S. Bankruptcy Court — Northern District of California

427 B.R. 811

In re Fermin Solis ANIEL and Erlinda Aribas Aniel aka Erlinda Jose Abibas, Debtors.

No. 09-30452DM.

United States Bankruptcy Court, N.D. California.

April 21, 2010.

Fermin Solis Aniel, pro se.

MEMORANDUM DECISION REGARDING ORDER DENYING EMERGENCY MOTION TO RECONSIDER (PERSIA AVENUE PROPERTY)

DENNIS MONTALI, Bankruptcy Judge.

In this chapter 11 case the pro se debtors have steadfastly and repeatedly resisted motions for relief from stay, while at the same time steadfastly and repeatedly refusing to make payments pending resolution of their disputes about the standing of those secured creditors to seek such relief.

The court is sympathetic with any debtor who finds it difficult, if not sometimes seemingly impossible, to wade through the maze of transferred notes, assigned deeds of trust, ethereal beneficiaries, and information and belief allegations about what some predecessor loan servicing agent did with the original note and deed of trust. But it is equally unsympathetic with debtors shedding crocodile tears about making adequate protection payments while at the same time claiming all the benefits the bankruptcy law provides them. If you want to gamble in the casino and hope to hit the jackpot, you can't expect to win by using house money. You've got to put a "little skin in the game"¹. Because these debtors have refused to do so, relief from stay could hardly be more appropriate.

On February 11, 2010, Fermin and Erlinda Aniel ("Debtors") filed an "Opposition to Motion for Relief from Stay Supplements; Emergency Motion for Reconsideration on the Order for Relief from Automatic Stay; Objection to Claim" ("Emergency Motion for Reconsideration") regarding the motion for relief from stay ("MRS") filed by Deutsche Bank National Trust Company, as Trustee for HarborView Mortgage Loan Trust Mortgage Loan Pass-Through Certificates, Series 2007-5, its assignees and/or successors and the servicing agent American Home Mortgage Servicing, Inc. ("Creditor") as to certain rental property on Persia Avenue in San Francisco (the "Property"). The court entered an order denying the Emergency Motion for Reconsideration on February 17, 2010. This memorandum decision explains the reasoning that led to the February 17 order.

FACTS

I. Background Facts

On January 25, 2009, Debtors filed their chapter 11² petition. According to their Amended Schedule A filed on August 31, 2009, Debtors hold an ownership interest in seven single family residences in San Francisco County and San Mateo County. One of these properties is Debtors' home; the remaining six are rental properties. Debtors have been collecting the rents on the rental properties since the petition date but have not made any postpetition payments on the debts secured by various deeds of trust against the properties.³ According to various proofs of claim and motions for relief from stay filed in this case, Debtors owe significant prepetition arrearages on the various notes secured by the properties.⁴

Ms. Aniel admitted at a chapter 11 status conference on January 14, 2010, that Debtors have been using the rental proceeds without obtaining authorization to use cash collateral; Debtors have used the proceeds to, among other things, pay the costs of litigation against many of the alleged deed of trust holders. Debtors have opposed the motions for relief from stay and many of the proofs of claims filed by these lenders for, among other theories, lack of standing. Notwithstanding these objections and oppositions, Ms. Aniel has admitted on the record that Debtors do not dispute executing the various notes and deeds of trust. She has also stated that Debtors do not intend to make any adequate protection payments on these various notes.

II. History of the Emergency Motion for Reconsideration

On November 20, 2009, Creditor filed the MRS. Debtors opposed the MRS on the grounds of standing and purported violations of the Fair Debt Collections Act ("FDCA"), state consumer protection laws, and the California Penal Code by Creditor and Creditor's counsel in filing a proof of claim and the MRS. The court held a hearing on the MRS on December 10, 2009, and took the matter under submission. On December 16, 2009, the court entered an order overruling the FDCA and California Penal Code objections⁵ but permitting the automatic stay to remain in effect as long as Debtors tendered adequate protection payments pending resolution of the standing issue. The adequate protection payments were to be held by Creditor's counsel in an interest-bearing trust account; if Debtors ultimately prevailed on their standing defenses, the adequate protection payments plus accrued interest would be returned to them.

On December 23, 2009, Debtors filed a motion to reconsider or amend the December 16 order on the MRS. On December 31, 2009, this court entered an order granting, in part, this motion for reconsideration (the "December 31 Order"). The December 31 Order provided:

Debtors have a right to assert their substantive standing defense to the MRS, but they must provide adequate protection of Creditor's asserted security interest pending resolution of the issue, particularly as no equity exists in this rental property and no payments have been made for ten months postpetition. 11 U.S.C. §§ 361 and 362(d). . . . To continue the automatic stay, however, the court requires Debtors to make the regular monthly payments for December, 2009, and January, 2010, in the total amount of $4,865.04, no later than January 11, 2010, and $2,432.52 per month thereafter, on the first business day of each month. All payments must be made to Creditor's counsel, who shall hold these payments in an interest-bearing trust account pending further order of the court. If Debtors ultimately prevail, these payments plus accrued interest may be returned to them. If Debtors default in making the January 11, 2010 payment and the monthly payments thereafter, Creditor shall provide written notice to Debtors of the nature of the default. If Debtors fail to cure the default within ten days of the date of the notice, Creditor may file an ex parte declaration of default and upload an order granting it full relief from the automatic stay. Upon receipt of any declaration of default from Creditor, the court may grant full relief from the stay without further hearing.

On February 2, 2010, Creditor filed a declaration of default (at Docket No. 139) stating that Debtors did not make the January 11 payment, even after Creditor's counsel sent Debtors a notice of default on January 13, 2010.⁶ Therefore, on February 4, the court entered an order granting Creditor's MRS.

On February 11, 2010, Debtors filed their Emergency Motion for Reconsideration because, inter alia, Creditor has not established a chain of title showing that it is an assignee of the underlying deed of trust. The December 31 Order directed Creditor to file, no later than February 5, a supplement to its MRS to demonstrate the chain of title. Creditor filed a supplement on February 2, 2010, but that supplement does not show how and when Creditor acquired its rights in the deed of trust.⁷

Nonetheless, because Debtors failed to make any effort to tender the adequate protection payment on January 11, the court entered the February 17 order denying the Emergency Motion for Reconsideration. The February 17 order specifically states that it does not preclude Debtors from challenging in state court the Creditor's right to pursue remedies under the deed of trust and note and that it does not preclude Debtors from filing a separate objection to Creditor's proof of claim in this chapter 11 case.⁸

DISCUSSION

In the past year or two, several bankruptcy courts have published decisions regarding the standing of creditors and servicing agents acting on the creditors' behalf to prosecute motions for relief from stay. See, e.g., In re Wilhelm, 407 B.R. 392 (Bankr.D.Id.2009); In re Jacobson, 402 B.R. 359 (Bankr.W.D.Wash.2009); In re Hwang, 396 B.R. 757 (Bankr. C.D.Cal.2008). In general, these cases apply Federal Rule of Civil Procedure 17(a)(1) (incorporated by Rule 7017, which is in turn made applicable to motions for relief from stay by Rules 4001(a)(1) and 9014), which provides that an action "must be prosecuted in the name of the real party in interest." The real party in interest in a relief from stay motion is a party entitled to enforce the right being asserted under applicable law. Jacobson, 402 B.R. at 366.

Addressing the principles of "real party in interest" and standing in the context of motions for relief from the automatic stay, the Wilhelm court held that movants must show that they have "an interest in the relevant note" and they have been "injured by debtor's conduct (presumably through a default on the note)." Wilhelm, 407 B.R. at 398. "Beyond that, movants must also show they have the right, under applicable substantive law, to enforce the notes." Id. The court identified two threshold questions for establishing standing: (1) Has the movant established an interest in the relevant promissory note? (2) Is the movant entitled to enforce the notes? Id.

To resolve these threshold questions of standing, the courts have looked to the state law governing negotiable instruments Hwang, 396 B.R. at 762. In California, section 3301 of the Commercial Code governs who is entitled to enforce a note:

"Person entitled to enforce" an instrument means (a) the holder of the instrument, (b) a nonholder in possession of the instrument who has the rights of a holder, or (c) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3309 or subdivision (d) of Section 3418. A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

Cal. Comm.Code § 3301. A "holder" of a note is "the person in possession of a negotiable instrument...