In re Tandala MIMS aka Tandala Williams

Decision Date27 October 2010
Docket NumberNo. 10-14030 (MG).,10-14030 (MG).
Citation438 B.R. 52
PartiesIn re Tandala MIMS aka Tandala Williams, Debtor.
CourtU.S. Bankruptcy Court — Southern District of New York

OPINION TEXT STARTS HERE

Steven J. Baum, P.C., by Phillip Mahony, Esq., Amherst, NY, for Secured Creditor, Wells Fargo Bank, N.A.

Lamonica Herbst & Maniscalco, LLP, by Salvatore Lamonica, Esq., Wantagh, NY, Chapter 7 Trustee.

Law Office of David Brodman, by David Brodman, Esq., Bronx, NY, for Debtor Tandala Mims.

MEMORANDUM OPINION AND ORDER DENYING WELLS FARGO BANK, N.A.'S MOTION FOR TERMINATION OF THE AUTOMATIC STAY

MARTIN GLENN, Bankruptcy Judge.

Wells Fargo Bank, N.A. (Wells Fargo) moves the Court for an order lifting the automatic stay with regard to 1167 Grenada Place, Bronx, N.Y. 10466 (the “Property”) pursuant to section 362(d) of the Bankruptcy Code (the “Motion”). Wells Fargo desires to exercise its rights under a mortgage (the “First Mortgage” or “Mortgage”) and promissory note (the “Note”), including, but not limited to, the foreclosure of the Property. (ECF Doc. # 9.) The Court held a hearing on the Motion on October 20, 2010 and took the matter under submission. The Court denies Wells Fargo's motion to lift the automatic stay for the reasons enumerated below.

BACKGROUND

Tandala Mims, a/k/a Tandala Williams (the Debtor), filed a voluntary petition under chapter 7 of the Bankruptcy Code on July 27, 2010. (ECF Doc. # 1.) Wells Fargo contends that it is a secured creditor of the Debtor by an assignment of mortgage dated September 13, 2010, in the principal amount of $374,037.00 (the “Assignment”). The property is subject to two mortgages. The First Mortgage to Wells Fargo, dated May 10, 2004, indicates that the lender was Lend America, and was recorded in the name of Mortgage Electronic Registration Systems (“MERS”), as nominee for Lend America. 1 Wells Fargo claims that the Debtor owes $355,398.13 on the First Mortgage. The Debtor also has a second mortgage with M & T Bank (the “Second Mortgage”), which when combined with the First Mortgage and lien, totals $389,647.13. In support of its standing to bring the Motion, Wells Fargo attaches (1) loan documents, including the First Mortgage and accompanying Note; (2) a copy of the Debtor's Schedules A and D (the “Schedules”), 2 in which the Debtor lists Wells Fargo as a secured creditor with respect to the Property and (3) a lift-stay worksheet, dated September 16, 2010, pursuant to Local Rule 4001-1(c) (the “Worksheet”).

The Note attached to the Motion was originally made payable to Lend America. The last page of the Note, however, contains a stamped endorsement, “Paid to the Order of Washington Mutual Bank, FA, Without Recourse Lend America.” (ECF Doc. # 9, at Ex. 1.) No evidence is offered that Washington Mutual Bank ever assigned or transferred the Note to Wells Fargo or to any other party. Washington Mutual Bank was taken over by the FDIC on September 25, 2008, and its assets were sold to J.P. Morgan Chase (“Chase”) on that same date. Press Release, Fed. Deposit Ins. Corp., JPMorgan Chase Acquires Banking Operations of Washington Mutual (Sept. 25, 2008) (on file with FDIC). There is nothing in the record to indicate whether Chase acquired the Note and whether Chase, in turn, subsequently transferred the Note to Wells Fargo.

The Worksheet reflects that the Debtor's total pre-petition and post-petition indebtedness to Wells Fargo on the Property, as of the petition date, was $355,398.13; that the Debtor's last payment was received on June 4, 2010 (but was placed in a suspense account); and that the Debtor has missed six payments, from April 1, 2010 to September 1, 2010. In support of its claim that the Debtor lacks any substantial equity in the property, Wells Fargo attaches the Debtor's Schedule A and Schedule D, which list the current value of the Property as $430,000. Assuming the accuracy of this figure, the Debtor would have exempt equity in the property. 3 The Debtor's Schedules claim the property as exempt and states the Debtor's intention to retain the property.

The signature on the Worksheet indicates that it was prepared by Craig C. Zecher, a Wells Fargo legal process specialist. Despite the fact that Wells Fargo did not obtain an assignment of the Mortgage until September 13, 2010, seven days before the lift-stay motion was filed on September 20, 2010, the Worksheet provides information about payment defaults dating back to April 1, 2010. Wells Fargo's ability to certify the accuracy of the information provided in the Worksheet is questionable given its only recently acquired interest in the First Mortgage. 4 Neither the Debtor's counsel nor the chapter 7 trustee filed anything in response to the lift-stay motion.

DISCUSSION

The Court concludes that Wells Fargo lacks standing to request relief from the automatic stay.

A. Wells Fargo is Not a Party in Interest” And Therefore Lacks Standing to Request Relief From the Automatic Stay

Section 362(a) of the Bankruptcy Code imposes an automatic stay on all litigation against the Debtor, as well as “any act to create, perfect, or enforce any lien against property of the estate.” 11 U.S.C. § 362(a). Section 362(d) of the Bankruptcy Code provides that [o]n request of a party in interest and after notice and a hearing, the court shall grant relief from the stay....” 11 U.S.C. § 362(d) (emphasis added). The term party in interest” is nowhere defined in the Bankruptcy Code. However, the Supreme Court has suggested that when an undefined term is used in bankruptcy law, [i]n determining the term's scope-and its limitations-the purposes of the Bankruptcy Act ‘must ultimately govern.’ Kokoszka v. Belford, 417 U.S. 642, 645, 94 S.Ct. 2431, 41 L.Ed.2d 374 (1974) (citing Segal v. Rochelle, 382 U.S. 375, 379, 86 S.Ct. 511, 15 L.Ed.2d 428 (1966)).

Though courts have interpreted “the purposes of the Bankruptcy Act differently, the Second Circuit explained in In re Comcoach, 698 F.2d 571, 573 (2d Cir.1983), [b]ankruptcy courts were established to provide a forum where creditors and debtors could settle their disputes....” The Comcoach court went on to find that in order to invoke the court's jurisdiction to obtain relief from the automatic stay, the moving party had to be either a creditor or a debtor. 5 Id. In support of this assertion, the court cited to the Bankruptcy Code's legislative history “which suggests that, notwithstanding the use of the term party in interest,’ [sic] it is only creditors who may obtain relief from the automatic stay.” Id. (citing H.R.Rep. No. 95-595, (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 6136 (“Creditors may obtain relief from the stay if their interests would be harmed by continuance of the stay.”)). It follows from the Second Circuit's analysis that unless Wells Fargo qualifies as a “creditor,” it does not have standing to request relief from the automatic stay.

Section 101(10) of the Bankruptcy Code defines a “creditor” as an:

(A) entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor;

(B) entity that has a claim against the estate of a kind specified in section 348(d), 502(f), 502(g), 502(h) or 502(i) of this title; or

(C) entity that has a community claim.

11 U.S.C. § 101(10). This definition requires consideration of what constitutes a “claim,” which conveniently is also a defined term in section § 101(5) of the Bankruptcy Code.

Section 101(5)(A) of the Bankruptcy Code defines a “claim” as the “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured.” Even under this broad definition, Wells Fargo has not demonstrated its “right to payment” because, as discussed more fully below, it lacks the ability to seek the state law remedy of foreclosure. Johnson v. Home State Bank, 501 U.S. 78, 84, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991) (finding that a mortgage foreclosure was a “right to payment” against the debtor).

B. Wells Fargo Lacks Standing to Exercise any State Law Remedies

Within the context of a bankruptcy proceeding, state law governs the determination of property rights. See Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979) (noting that absent an actual conflict with federal bankruptcy law, Congress “has generally left the determination of property rights in the assets of a bankrupt's estate to state law”); In re Morton, 866 F.2d 561, 563 (2d Cir.1989). Under New York law “foreclosure of a mortgage may not be brought by one who has no title to it and absent transfer of the debt, the assignment of the mortgage is a nullity.” Kluge v. Fugazy, 145 A.D.2d 537, 538, 536 N.Y.S.2d 92 (2d Dept.1988) (citing cases); see also HSBC Bank USA, Nat. Ass'n v. Miller, 26 Misc.3d 407, 411-12, 889 N.Y.S.2d 430 (N.Y.Sup.Ct., Sullivan County 2009). As the courts in Kluge and HSBC have recognized, this rule of law dates back over one hundred and forty years, when the New York Court of Appeals held:

[a]s a mortgage is but an incident to the debt which it is intended to secure the logical conclusion is that a transfer of the mortgage without the debt is a nullity, and no interest is acquired from the debt, and exist independently of it. This is the necessary legal conclusion, and recognized as the rule by a long course of judicial decisions.

Merritt v. Bartholick, 36 N.Y. 44, 45 (1867). Because Wells Fargo has not offered evidence that it owns the original Note, Wells Fargo lacks standing to foreclose on the Mortgage and has therefore failed to demonstrate it is the holder of a “claim.”

According to N.Y. Real Property Law § 244, assignments in New York state may be effectuated by the delivery of the relevant note and mortgage. An assignment need not be evidenced by a written assignment. In re Conde-Dedonato, 391 B.R. 247, 251 (Bankr.E.D.N.Y.2008) (citing Flyer v. Sullivan, 284 A.D. 697, 699, 134 N.Y.S.2d 521 ...

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