In re Walker

• Decision Date: 13 February 2012
• Docket Number: No. 10–12592 ELF.,10–12592 ELF.
• Citation: 466 B.R. 271,76 UCC Rep.Serv.2d 818
• Parties: In re Janice WALKER, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

466 B.R. 271

76 UCC Rep.Serv.2d 818

In re Janice WALKER, Debtor.

No. 10–12592 ELF.

United States Bankruptcy Court, E.D. Pennsylvania.

Feb. 13, 2012.

Stephen J. Ross, Ross & Schnarrs, P.C., Pottstown, PA, for Debtor.

William C. Miller, Philadelphia, PA, Trustee.

United States Trustee, Philadelphia, PA.

OPINION

ERIC L. FRANK, Bankruptcy Judge.

I. INTRODUCTION

In this chapter 13 bankruptcy case, Debtor Janice Walker has filed an objection (“the Objection”) to the secured proof of claim (“the Proof of Claim”) of the Certificateholders CWALT, Inc., Alternative Loan Trust 2005–J14 Mortgage Pass Through Certificates (“the Trust”). The Trust filed the Proof of Claim through its trustee, the Bank of New York Mellon (“BNYM”).¹

The Debtor's primary challenge to the validity of BNYM's claim is based on alleged defects in the process by which the underlying mortgage loan was “securitized” ² and became an asset of the Trust. The Debtor's contends that:

(1) BNYM did not strictly comply with the pooling and servicing agreement (“the PSA”) that governs the Trust and the Trust's acquisition of the note and mortgage on which the subject Proof of Claim is based; (2) the failure to comply with the PSA deprives BNYM, in its capacity as trustee of the securitized trust, of the right to enforce the underlying loan note; and

(3) without the right to enforce the note, BNYM lacks a “right to payment,” mandating that its proof of claim be disallowed.

As explained below, I conclude that:

(1) the underlying loan note is a negotiable instrument under Pennsylvania's version of article 3 of the Uniform Commercial Code;

(2) BNYM's right to enforce the note is governed by the Pennsylvania version of the Uniform Commercial Code, 13 Pa.C.S. §§ 1101–9710 (“the Pa. UCC”), and not exclusively by the PSA;

(3) BNYM has proven that it has the right to enforce the note under the Pa. UCC; and

(4) because, as the maker of the note, the Debtor has the right of “discharge by payment” under Pa. UCC § 3602, the Debtor lacks standing to object to the Proof of Claim on the ground that the assignment of the note to BNYM was defective due to lack of compliance with the PSA.

Consequently, I will overrule the Objection.

II. PROCEDURAL HISTORY

The Debtor commenced this chapter 13 bankruptcy case on March 31, 2010. The Debtor's proposed chapter 13 plan provides for the Debtor to make post-petition payments on her residential mortgage and to cure the pre-petition delinquency on the mortgage through her chapter 13 plan payments to the chapter 13 trustee. (Debtor's Amended Plan ¶¶ 5–6) (Doc. # 35). See 11 U.S.C. § 1322(b)(5).³

On September 17, 2010, BNYM filed a secured proof of claim in the amount of $264,855.72 (“the Proof of Claim”). BNYM filed the Proof of Claim through its agent, BAC Home Loans Servicing LP. The Proof of Claim also stated that the pre-petition arrears are $31,703.63.

The Debtor filed the Objection to the Proof of Claim on November 16, 2010. (Doc. # 50). After a number of continuances, a hearing on the Objection was scheduled on April 7, 2011. Following a colloquy in which the parties and the court canvassed the legal and factual issues raised by the Debtor, BNYM requested the opportunity to file a motion for summary judgment. See Fed. R. Bankr.P. 9014(c) (providing that Fed. R. Bankr.P. 7056, which incorporates Fed.R.Civ.P. 56, applies in contested matters). I granted that request and entered an order setting deadlines for filing BNYM to file a summary judgment motion (“the Motion”) and the Debtor to respond. (Doc. # 97). BNYM subsequently filed the Motion, the Debtor responded and briefing was completed on July 22, 2011.

In her response to the Motion, the Debtor agreed there are no disputed issues of material fact and asserted that she is entitled to summary judgment disallowing the Proof of Claim. As requested by the Debtor, I will treat her response as a cross-motion for summary judgment (“the Cross–Motion”). See, e.g., Western World Ins. Co. v. Reliance Ins. Co., 892 F.Supp. 659, 661 (M.D.Pa.1995) (the weight of authority is that summary judgment may be granted in favor of a responding party even though the respondent has not filed formal cross-motion under Rule 56).

III. STATEMENT OF UNDISPUTED FACTS

1. The Debtor is the owner of the residential real property located at 63 Buttonwood Drive Exton, PA 19341 (“the Property”).

2. On August 31, 2005, the Debtor entered into a loan transaction (“the Loan”) with Allied Mortgage Group, Inc. (“Allied”).

3. The Debtor executed a note (“the Note”) in the amount of $248,000.00 payable to Allied (Ex. A).⁴

4. The Note provides for the Debtor to repay the loan of $248,000.00 by making monthly payments of $1,567.53 beginning on November 1, 2005 and ending on October 1, 2035. ( Id. ¶ 3).

5. Paragraph 4 of the Note states that the Debtor may prepay principal at any time, but requires the Debtor “to tell the Note Holder in writing that [she is] doing so.” (Id. ¶ 4)

6. The Note also makes reference to an accompanying mortgage as follows:

In addition to the protections given to the Note Holder under this Note, a Mortgage, Deed of Trust or Security Deed (the ‘Security Instrument’), dated the same date as this Note, protects the Note Holder from possible losses which might result if I do not keep the promises which I make in this Note. That Security Instrument describes how and under what conditions I may be required to make immediate payment in full of all amounts I owe under this Note.

( Id. ¶ 10).

7. On August 31, 2005, in connection with the Loan, the Debtor also executed a mortgage on the Property in favor of Allied (“the Mortgage”). (Ex. B).

8. The Mortgage provides, inter alia, that for purposes of securing repayment of the Note, the Debtor granted a mortgage to MERS ⁵ (solely as nominee for Lender and Lender's successors and assigns). ( Id., Transfers of Rights in Property).

9. The last page of the Note contains an undated endorsement signed by Shantanu Roy Chowdhury, as President of Allied, which states: “Pay to the Order of ______ Without Recourse.” (Ex. A).

10. BNYM is the Trustee of the Trust under a PSA dated November 1, 2005. ( See Ex. C).⁶

11. In November 2005, Countrywide Home Loans Servicing, LP (“Countrywide”), acting in the capacity as servicer of the Loan, purported to transfer the Loan into the Trust.⁷ ( Id.).

12. Pursuant to the PSA, Countrywide also was appointed as the “Master Servicer” on behalf of the Trust. ( Id.).⁸

13. The PSA established a “Closing Date” of November 30, 2005. ( Id. at I–5).

14. The original Note has been in the possession or control of BNYM since January 6, 2006. (Ex. G).⁹

15. On June 17, 2009, David Perez, Assistant Vice President of MERS, executed an Assignment of Mortgage (“the Assignment”), transferring the Mortgage from MERS, as nominee for Allied, to BNYM, as Trustee for the Trust. The Assignment states that its effective date is April 15, 2009. (Ex. F).

16. The Assignment was recorded in the Office of the Chester County Recorder of Deeds on July 8, 2009. ( Id.).

17. The Debtor commenced this chapter 13 bankruptcy case on March 31, 2010.

18. In both Schedule D of her bankruptcy schedules and in her amended chapter 13 plan filed on October 11, 2010, the Debtor identified the creditor holding the mortgage on the Property as “Countrywide Home Lending.” (Docs. 1, 35).

IV. LEGAL STANDARD ON SUMMARY JUDGMENT

Pursuant to Federal Rule of Civil Procedure 56(c), summary judgment should be granted when the “pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). The standard for evaluating a summary judgment motion is well established and has been stated in numerous written opinions in this district.¹⁰

Before a motion for summary judgment may be granted, the court must find that the motion alleges facts that, if proven at trial, would require a directed verdict in favor of the movant. See Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115 (11th Cir.1993). If the movant meets this initial burden, the responding party may not rest on his or her pleadings, but must designate specific factual averments through the use of affidavits or other permissible evidentiary material that demonstrate a triable factual dispute. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247–50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Such evidence must be sufficient to support a factfinder's factual determination in favor of the nonmoving party. Id. Evidence that merely raises some metaphysical doubt regarding the validity of a material facts is insufficient. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

In considering the evidentiary matter submitted in support of and in opposition to a summary judgment motion, the court's role is not to weigh the evidence, but only to determine whether there is a disputed, material fact for determination at trial. Anderson, 477 U.S. at 247–50, 106 S.Ct. 2505. A dispute about a “material” fact is “genuine” only if the evidence is such that a reasonable factfinder could return a verdict for the non-moving party. Id. at 248, 106 S.Ct. 2505. All reasonable inferences must be drawn in favor of the nonmoving party and against the movant. U.S. v. 717 S. Woodward St., 2 F.3d 529, 533 (3d Cir.1993).

The parties' respective burdens of proof also play a role in determining the merits of a summary judgment motion.

[W]here the movant is the defendant, or the party without the burden of proof on the underlying claim, the movant still has the initial burden of showing the court the absence of a genuine issue of material fact, but ... this does not require the movant to support the motion with affidavits or other materials that negated the opponent's claim....