In re Veal

Decision Date10 June 2011
Docket Number Bankruptcy No. 09–14808., BAP Nos. AZ–10–1055–MkKiJu,AZ–10–1056–MkKiJu (Related Appeals)*
Citation11 Cal. Daily Op. Serv. 7989,2011 Daily Journal D.A.R. 9592,450 B.R. 897
PartiesIn re Howard Richard VEAL, Jr., and Shelli Ayesha Veal, Debtors.Howard Richard Veal, Jr.; Shelli Ayesha Veal, Appellants,v.American Home Mortgage Servicing, Inc.; Wells Fargo Bank, N.A., as Trustee for Option One Mortgage Loan Trust 2006–3 Asset–Backed Certificates, Series 2006–3, and its successor and/or assignees, Appellees.
CourtU.S. Bankruptcy Appellate Panel, Ninth Circuit


Trucly D. Pham of John Joseph Volin, P.C., argued for Appellants Howard Richard Veal, Jr. and Shelli Ayesha Veal.Kevin Hahn of Malcolm Cisneros argued for Appellees American Home Mortgage Servicing, Inc. and Wells Fargo Bank, N.A., as Trustee for Option One Mortgage Loan Trust 2006–3 Asset–Backed Certificates, Series 2006–3, and its successors and/or assignees.Before: MARKELL, KIRSCHER and JURY, Bankruptcy Judges.


MARKELL, Bankruptcy Judge:

                ¦Table of Contents¦
                I.  INTRODUCTION                                                        902
                II. FACTS                                                               902
 A. AHMSI's Proof of Claim and the Veals' Claim Objection                  903
                   B. Wells Fargo's Relief from Stay Motion and the Veals' Response          904
                   C. Joint Hearing on the Claim Objection and the Relief from Stay Motion   905
                III. DISCUSSION                                                         906
 A. Standing in Mortgage Cases                                     906
         1.  Constitutional Standing                                    906
                         2.  Prudential Standing                                        906
                             Prudential Standing and the Real Party in Interest
                         3.  Doctrine                                                   907
                         4.  Real Party in Interest Status and Its Policies             907
 B. The Substantive Law Related to Notes Secured by Real Property   908
         1.  Applicability of UCC Articles 3 and 9                      908
                             Article 3 of the UCC and the Concept of a “Person Entitled
                         2.  to Enforce” a Note                                         910
                         3.  Article 9 and Transfers of Ownership and Other Interests   912
                             in a Promissory Note
 C. Wells Fargo's Lack of Standing to Seek Relief from the Automatic Stay   913
         1.  Standing to Seek Relief from Automatic Stay                913
                         2.  Wells Fargo's Argument Regarding Standing                  915
                         3.  Wells Fargo's Lack of a Connection to the Note             915
 D. AHMSI's Lack of Standing To File Proof of Claim                918
         1.  The Lack of Findings on Central Issues                     919
                         2.  Analysis of the Record and AHMSI's Status as a “Person     920
                             Entitled to Enforce” the Note
                IV. CONCLUSION                                                          922


In the first of these two related appeals, debtors and appellants Howard and Shelli Veal (the Veals) challenge the bankruptcy court's order granting relief from the automatic stay under § 362(d) 1 to appellee Wells Fargo Bank, N.A., as Trustee for Option One Mortgage Loan Trust 2006–3, Asset–Backed Certificates Series 2006–3 (Wells Fargo).2 In the second appeal, the Veals challenge the bankruptcy court's order overruling their objection to a proof of claim filed by appellee American Home Mortgage Servicing, Inc. (AHMSI). This proof of claim relates to the same obligation that is the focus of Wells Fargo's motion for relief from the automatic stay.

In each appeal, the issue presented is whether the appellee established its standing as a real party in interest to pursue the relief it requested. With respect to Wells Fargo's request for relief from the automatic stay, we hold that a party has standing to seek relief from the automatic stay if it has a property interest in, or is entitled to enforce or pursue remedies related to, the secured obligation that forms the basis of its motion. With respect to AHMSI's proof of claim, we hold that a party has standing to prosecute a proof of claim involving a negotiable promissory note secured by real property if, under applicable law, it is a “person entitled to enforce the note” as defined by the Uniform Commercial Code.

Applying these holdings, in the relief from stay appeal, we determine that the record does not support the bankruptcy court's finding that Wells Fargo had standing. We thus REVERSE the bankruptcy court's relief from stay order. In AHMSI's claim objection appeal, the bankruptcy court did not make findings necessary to determine AHMSI's standing as a person entitled to enforce the Veals' obligations, so we must VACATE the claim objection order and REMAND for further proceedings.


The Veals do not dispute that, in August 2006, Shelli Veal executed a promissory note (the “Note”) in favor of GSF Mortgage Corporation (“GSF”). To secure her payment obligations under the Note, Ms. Veal also executed a mortgage (the Mortgage) in favor of GSF covering certain real property located in Springfield, Illinois (the “Property”).

On June 29, 2009, the Veals filed a chapter 13 bankruptcy. The Veals listed AHMSI on their Schedule D as a secured creditor. This schedule, submitted under penalty of perjury, stated that the Veals owed AHMSI $150,586.92 (the “Veal Loan”), and that AHMSI held security on the Property securing that indebtedness. At no point did the Veals' schedules ever list the Veal Loan as disputed. The Veals similarly referred to AHMSI as a secured creditor in their chapter 13 plan and in their amended chapter 13 plan. At the time this appeal was submitted, the Veals had not confirmed their plan.

A. AHMSI's Proof of Claim and the Veals' Claim Objection

On July 18, 2009, AHMSI filed a proof of secured claim. In the proof of claim, AHMSI stated that it was filing the claim on behalf of Wells Fargo as Wells Fargo's servicing agent.

In addition to an itemization of the claim amounts, AHMSI attached the following documents to the proof of claim:

(1) a copy of the Note, showing an indorsement from GSF to “Option One”;

(2) a copy of the Mortgage;

(3) a copy of a recorded “Assignment of Mortgage” assigning the Mortgage from GSF to Option One Mortgage Corporation (Option One); and

(4) a letter dated May 15, 2008, signed by Jordan D. Dorchuck as Executive Vice President and Chief Legal Officer of AHMSI, addressed to “To Whom it May Concern” (the “Dorchuck Letter”).

On its face, the Dorchuck Letter states that AHMSI acquired Option One's mortgage servicing business.

The Dorchuck Letter is just that; a letter, and nothing more. Mr. Dorchuck does not declare that his statements are made under penalty of perjury, nor does the document bear any other of the traditional elements of admissible evidence. No basis was laid for authenticating or otherwise admitting the Dorchuck Letter into evidence at any of the hearings in this matter. Indeed, the Veals objected to its consideration as evidence.3

On November 5, 2009, the Veals filed an objection to AHMSI's proof of claim. Approximately a month later, the Veals filed a memorandum of points and authorities in support of their claim objection. Among other objections, the Veals contended that AHMSI lacked standing. According to the Veals, AHMSI needed to establish that it was authorized to act as servicing agent on behalf of Wells Fargo, and that either AHMSI or Wells Fargo had to be qualified as holders of the Note, within the meaning of Arizona's version of the Uniform Commercial Code. The Veals argued that the proof of claim exhibits did not establish any of these necessary facts.4

On November 19, 2009, AHMSI filed its opposition to the Veals' claim objection. The opposition contained no legal argument and virtually no evidence. Almost a page long, the opposition simply rehashed the contents of AHMSI's proof of claim. AHMSI also attached to the opposition duplicate copies of some of the same documents that it had previously attached to the proof of claim, again without any apparent compliance with the rules of evidence, as AHMSI provided no declaration authenticating any of the documents attached thereto.

B. Wells Fargo's Relief from Stay Motion and the Veals' Response

Meanwhile, on October 21, 2009, Wells Fargo filed a motion for relief from stay to enable it to commence foreclosure proceedings against the Property. Wells Fargo alleged in the motion that it was a secured creditor pursuant to a first priority mortgage. None of the three exhibits attached to the motion, however, directly supported this allegation: its first exhibit was a copy of the same Mortgage that AHMSI attached to its proof of claim; its second exhibit was an itemization of postpetition amounts due; and its final exhibit was a copy of the Veals' Schedules A and D. Wells Fargo submitted no other documents with its motion. As a result, Wells Fargo presented no evidence as to who possessed the Note and no evidence regarding any property interest it held in the Note.

On November 5, 2009, the Veals responded to the relief from stay motion. They argued that Wells Fargo lacked standing to prosecute the relief from stay motion and that Wells Fargo was not the real party in interest. The Veals also submitted no evidence with their response; rather, they relied on the absence of evidence submitted in support of the relief from stay motion. 5

Wells Fargo did not file a written reply in support of its relief from stay motion. It did, however, file two separate papers, each entitled “Notice of Supplemental Exhibit.” The first notice, filed on November 10, 2009, attached a single exhibit—a copy of the same Note that AHMSI had attached to its proof of claim. The second notice,...

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