In re Benyamin

• Decision Date: 02 July 2018
• Docket Number: Case No. 17–12677 (MG)
• Citation: 587 B.R. 243
• Parties: IN RE: Daniel BENYAMIN a/k/a Daniel Benyaminov d/b/a Benyamin Construction & Remodeling, LLC and Lucy Benyamin d/b/a Benyamin Construction & Remodeling, LLC Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

587 B.R. 243

IN RE: Daniel BENYAMIN a/k/a Daniel Benyaminov d/b/a Benyamin Construction & Remodeling, LLC

and

Lucy Benyamin d/b/a Benyamin Construction & Remodeling, LLC Debtors.

Case No. 17–12677 (MG)

United States Bankruptcy Court, S.D. New York.

Signed July 2, 2018

KORNFELD & ASSOCIATES, P.C., By: Randy M. Kornfeld, Esq., Attorneys for Debtors Daniel Benyamin and Lucy Benyamin, 240 Madison Avenue, 8th Floor, New York, NY 10016.

RAS BORISKIN LLC, By: Michael A. Samuels, Esq., Attorneys for Ditech Financial LLC, 900 Merchants Concourse, Westbury, NY 11590.

MEMORANDUM OPINION AND ORDER SUSTAINING DEBTORS' OBJECTION TO PROOF OF CLAIM # 5–1

MARTIN GLENN UNITED STATES BANKRUPTCY JUDGE

Pending before the Court is the objection (the "Objection," ECF Doc. # 29) filed by the debtors Daniel Benyamin and Lucy Benyamin (the "Debtors") to Claim # 5–1 (the "Claim") filed by Ditech Financial LLC ("Ditech") for $455,424.72. The issue here is important and straightforward. The Debtors signed the promissory note, a New York Fixed Rate Note, on December 3, 2003, in favor of IndyMac Bank, F.S.B. ("IndyMac"), secured by a mortgage on their condominium located at 319 East 105 Street, Unit # 5E, New York, New York 10029 (the "Property"). At some time thereafter, IndyMac endorsed the note in blank. IndyMac failed on July 11, 2008 and was taken over by the Federal Deposit Insurance Corporation (the "FDIC"). The FDIC sold most of IndyMac's assets to OneWest Bank ("OneWest"), which was acquired by CIT Group ("CIT") in July 2014. No evidence has been offered that Ditech or Green Tree Servicing, LLC ("Green Tree"), with which Ditech merged in 2015, acquired assets from or had any contractual relationship with IndyMac, OneWest or CIT. No evidence has been offered to show who is in possession of the original note endorsed in blank.

New York law is clear that in order to have standing to file a proof of claim, or to foreclose on a mortgage, the holder of the note endorsed in blank must offer competent proof that it possesses the note. Ditech filed the Claim on December 26, 2017, without producing any proof that Ditech has the original note endorsed in blank. Despite multiple requests over many months by Debtors' counsel to Ditech and its counsel to provide evidence that Ditech holds the note, Ditech has failed to provide any proof thereof. Ditech's standing issue had been raised at a March 19, 2018 conference before this Court. Ditech's counsel filed a notice of appearance in this case on April 18, 2018 (ECF Doc. # 23) and filed on the same day a letter (the "Letter," ECF Doc. # 24) advising the Court "of an apparent standing dispute" with respect to Ditech's Claim, and that counsel "had requested Ditech to provide the original collateral file for the subject loan." The Debtors' counsel filed the Objection on May 3, 2018, noticed for hearing on June 19, 2018, with a response deadline of June 12, 2018. Ditech's counsel was served with notice of the Objection but did not file a timely response, and neither did Ditech's counsel appear at the June 19, 2018 hearing. The Court took the matter under submission.¹

As discussed below, the Court laid out the legal requirements for an alleged mortgagee to establish standing to file a proof of claim in In re Minbatiwalla , 424 B.R. 104 (Bankr. S.D.N.Y. 2010). The requirements have not changed since that decision. Ditech failed to meet those requirements. For the reasons explained below, the Court sustains the Debtors' Objection to the Claim.

I. BACKGROUND

On September 25, 2017 (the "Petition Date"), the Debtors filed their voluntary petition under chapter 11, and have since been managing their property as debtors in possession. (Obj. ¶ 5.) The Debtors are the owners of the Property. The Debtors' Schedule A lists the value of the Property as ranging from $700,000 to $750,000. (ECF Doc. # 12–1 at 3.) According to the Debtors' Schedule D, the Property is subject to a lien held by IndyMac for a disputed claim in the amount of $400,000. (ECF Doc. # 12–3 at 1.) Schedule D lists IndyMac's claim as a contractual claim incurred in 2003. (Id. ) Schedule E/F lists "Indymac Federal Bank" as having a $410,000 disputed claim. (ECF Doc. # at 2.) Ditech is listed on the creditors' list for "notice purposes only." (Id. )

On December 26, 2017, Ditech filed a proof of claim in this case for money loaned in the amount of $455,424.72, including interest and prepetition arrears, secured by the Property. (See Claim at 1–2.) Ditech's Claim includes (i) the Debtors' loan payment history from June 2008 to November 2017 (id. at 4–15), (ii) a copy of the note, dated December 15, 2003, whereby the Debtors promised to pay the principal amount of $247,500.00 (the "Note," Claim Part 2 at 1–3), (iii) the recordation of lien on the Property (id. at 4), (iv) the mortgage (the "Mortgage," id. at 5–23), and an affidavit (id . at 25) and a certificate of merger (id. at 26) stating that Green Tree was merged into DT Holdings LLC and Ditech Mortgage Company and that such merger resulted in the entity Ditech as of August 31, 2015.

On March 19, 2018, the Court held a case management conference during which the Debtors' counsel raised the issue of Ditech's standing to file the Claim. On April 18, 2018, Ditech's counsel filed a notice of appearance (ECF Doc. # 23), and a letter advising the Court "of an apparent standing dispute" with respect to Ditech's Claim (ECF Doc. # 24). The letter stated that Ditech's counsel "has requested Ditech to provide the original collateral file for the subject loan to my office." (Id. ) The letter further explained "[u]pon receipt of the file, my office is agreeable to coordinate with the Debtors' counsel to arrange a reasonable opportunity for the Debtors' counsel to review the file at our office." (Id. ) Ditech's counsel has not provided proof that Ditech has the original note endorsed in blank.

On May 3, 2018, the Debtors objected to Ditech's Claim, arguing that Ditech had "produced no documentation, be it the original note and mortgage or an assignment of same permitting them to have standing to assert its claim." (Decl. at 1.) The Debtors submit that they have no liability to Ditech, and that Ditech's Claim should be expunged. (Obj. Ex. A.)

II. LEGAL STANDARD

As explained below, New York law and bankruptcy law are clear that standing to file a proof of claim in the bankruptcy court, or to permit foreclosure of a borrower's property in state court, requires that the lender or its agent (usually a loan servicer) holds the promissory note on which the mortgage is based. Standing to file a proof of claim or to lift the automatic stay to permit foreclosure involve largely the same analysis.

A. Standing to File a Proof of Claim

To file a proof of claim, a claimant must be a "creditor or the creditor's authorized agent." FED. R. BANKR. P. 3001(b). A "creditor" is an "entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor." 11 U.S.C. § 101(10)(A). A claim is a "right to payment" or a "right to an equitable remedy for breach of performance if such breach gives rise to a right to payment." 11 U.S.C. § 101(5)(A) and (B). "A claim or interest, proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest ... objects." 11 U.S.C. § 502(a).

"[The] Bankruptcy Code and Fed. R. Civ. P. 17 each have liberal standing provisions, designed to allow a party to appear as long as it has a direct stake in the litigation under the particular circumstances." In re Conde–Dedonato , 391 B.R. 247, 250 (Bankr. E.D.N.Y. 2008) (citation and internal quotation marks omitted). "A servicer of a mortgage is clearly a creditor and has standing to file a proof of claim against a debtor pursuant to its duties as a servicer." Id. (citing In re Viencek , 273 B.R. 354, 359 (Bankr. N.D.N.Y. 2002) ; Greer v. O'Dell , 305 F.3d 1297, 1302 (11th Cir. 2002) ; Bankers Trust (Delaware) v. 236 Beltway Inv. , 865 F.Supp. 1186, 1191 (E.D. Va. 1994) ; In re Tainan , 48 B.R. 250, 252 (Bankr. E.D. Pa. 1985) (determining that a mortgage servicer was a party in interest for purposes of a relief from stay proceeding) ). In Conde–Dedonato , the court determined that where the loan servicer "provided an affidavit attesting that it is the servicer of the note and mortgage, has provided the original note and mortgage, was listed on the Debtor's Schedules as having a claim against the estate, and was provided for in the Debtor's Chapter 13 Plan," and where "[t]he Debtor d[id] not dispute that [servicer was] the servicer ... it [was] clear that [servicer] is the servicer of the note and mortgage and it ha[d] standing to file a proof of claim against the Debtor." 391 B.R. at 250.

An assignee of a note and mortgage also has standing to file a proof of claim. Id. at 251. In New York, assignments can be effected solely by the transfer of the relevant note and mortgage. See N.Y. Real Property Law § 244 ("A grant takes effect, so as to vest the estate or interest intended to be conveyed, only from its delivery; and all the rules of law, now in force, in respect to the delivery of deeds, apply to grants hereafter executed."); see also Deutsche Bank Nat'l Tr. Co. v. McRae , 27 Misc.3d 247, 250, 894 N.Y.S.2d 720 (N.Y. Sup. Ct. 2010) (citation omitted) ("A mortgage can be assigned in two ways—by delivery of the bond and mortgage by the assignor to the assignee with the intention that all ownership interests thereby transferred, or by a written instrument of assignment."). Thus, an assignee can demonstrate standing by attaching the note and the mortgage to a proof of claim; it does not need to attach a written assignment to the proof of claim. Conde–Dedonato , 391 B.R. at 251 ("Thus, a mortgage and note can be transferred by delivery, and do not have to be evidenced by a written assignment.").

B. Standing to Obtain an Order Lifting the Automatic Stay

Courts require an affidavit from someone...