In re Woodberry

• Decision Date: 04 February 2008
• Docket Number: C/A No. 07-05024-DD.
• Citation: 383 B.R. 373
• Court: U.S. Bankruptcy Court — District of South Carolina
• Parties: In re Patricia Ann WOODBERRY, Debtor(s).

383 B.R. 373

In re Patricia Ann WOODBERRY, Debtor(s).

C/A No. 07-05024-DD.

United States Bankruptcy Court, D. South Carolina.

February 4, 2008.

John R. Cantrell, Jr., Cantrell Law Firm. PC, Goose Creek, SC, Susan Pringle Ingles, South Carolina Legal Services, Greenville, SC, for Debtor.

ORDER ON MOTION FOR RELIEF FROM STAY

DAVID R. DUNCAN, Bankruptcy Judge.

THIS MATTER is before the Court on the motion of America's Servicing Co., as servicer for U.S. Bank National Association, as Trustee for the Structured Asset Investment Loan Trust, 2005-8, and its successors and/or assigns ("ASC") seeking relief from the automatic stay. A hearing was held in this matter on January 15, 2008. Both Debtor and. ASC appeared at the hearing by and through counsel. The issue to be decided is whether ASC has standing to seek relief from the automatic stay.

Facts

1. Patricia Ann Woodberry ("Debtor") gave a promissory note dated June 21, 2005 in the amount of $68,400.00 to SouthStar Funding, LLC.

2. Debtor secured her promise to pay with a mortgage encumbering her home, located at 107 Waterman Avenue, Florence, SC ("Property").

3. The "Lender" recited in the Mortgage, is SouthStar Funding, LLC. The "Mortgagee" recited in the mortgage is Mortgage Electronic Registration Systems, Inc ("MERS").

4 There is an attachment to the original note entitled "Allonge to Note," containing a blank endorsement as follows: "pay to the order of without recourse," An allonge is a "paper annexed to a negotiable instrument, for endorsements too numerous or lengthy to be contained in the original."¹

5. There were no recorded assignments of the Mortgage prior to the date of filing the motion for relief from stay.

6. Wells Fargo Bank, N.A. does business as America's Servicing Co. ("ASC") and is the servicer for U.S. Bank National Association pursuant to the "SECURITIZATION SUB SERVICING AGREEMENT" dated September 1, 2005. See Movant's Exhibit 2.

7. US Bank National Association is trustee for Structured Asset Investment Loan Trust Mortgage Pass — Through Certificates, Series 2005-8 ("Trust").

8. Debtor filed a petition for relief under chapter 7 of the Bankruptcy Code on September 8, 2007. Debtor listed ASC on her schedule of secured creditors and did not report any dispute concerning the debt.

9. ASC filed its Motion on October 25, 2007 requesting relief from stay pursuant to 11 U.S.C. § 362(d)(2)²

10. There is no equity in the property that is the subject of this motion.

11. While the Debtor raises issues concerning the cause of some missed payments, she does not dispute that as of the date the Motion was filed she was 2 months behind, in her mortgage payments.

12. Debtor filed an objection to ASC's Motion on November 5, 2007.

13. A preliminary hearing was held in this matter on December 11, 2007. At the hearing Debtor argued that ASC failed to provide adequate documentation with its Motion establishing that ASC is the proper "party in interest."

14. After the preliminary hearing, the Court entered an order on December 21, 2007. The order required proof that ASC was a "party in interest" at the time of filing the Motion.

15. The final hearing was originally scheduled for January 8, 2008, but was Continued until January 15, 2008. The sixty (60) day time limitation imposed by § 362(e)(2)(A) was extended pursuant to § 362(e)(2)(B)(ii) so that the Court could give this matter due consideration.

16. At the final hearing ASC offered the testimony of Erin Hirzel ("Ms.Hirzel"), a "default litigation specialist" employed by Wells Fargo Bank, N.A. She is a records custodian of ASC.

17. Ms. Hirzel testified that Wells Fargo Bank, N.A. d/b/a ASC uses a computer based system from which she determined the ownership of this particular note and mortgage. She stated that by using a number of "screens" she was able to track ownership of the note and mortgage to the Securitization Subservicing Agreement dated September 1, 2005.

18. The original signed note and mortgage were introduced in evidence; they have been and are in possession of ASC at the Fort Mill, SC office of Wells Fargo Bank, N.A.

19. The Securitization Subservicing Agreement provides that Wells Fargo Bank, N.A. d/b/a ASC is custodian for U.S. Bank National Association and that all documents held by ASC are held in trust for U.S. Bank National Association.

20. The Securitization Subservicing Agreement provides that the servicer, among other things, will collect payments due under the terms of the notes and mortgages that are the subject of the agreement and will foreclose on properties in the event of defaults in payment.

21. Supervisory personnel employed by ASC instruct other employees, including Ms. Hirzel, to have attorneys for ASC seek protective orders concerning trade secrets, proprietary information, and confidential information allegedly contained in the Securitization Subservicing Agreement when moving it into evidence.

22. The Securitization Subservicing Agreement is recorded with the Securities Exchange Commission and is readily available via the Internet.

23. The uncontradicted testimony is that ASC holds the note and mortgage for the benefit of U.S. Bank National Association.

24. MERS assigned the mortgage to U.S. Bank National Association, as Trustee for the Structured Asset Investment Trust 2005-8 by instrument dated January 9, 2008.

Conclusions of Law

The filing of a petition in a bankruptcy case operates as a broad stay of action. § 362(a). This stay continues in effect until property subject to the stay leaves the estate, the bankruptcy case is closed or dismissed, a discharge is granted or denied, or by operation of law in cases preceded by another case or cases of the same debtor filed within the previous year. § 362(c). The court is directed to grant relief from the stay under certain circumstances. § 362(d). This relief is granted only to and on request of a party, in interest.

Party in Interest Standard

Debtor argues that in order for ASC to be a party in interest it "must both hold the Note and must either be named as the original mortgage holder or possess a valid, recorded assignment of the mortgage as of the time that the creditor seeks relief from stay." We turn to state law to ascertain the status of ASC and ownership of the mortgage. Applicable state law does not require both possession of the note and a written assignment of the mortgage to prove ownership as suggested by Debtor.

When a negotiable note payable to order is indorsed generally by the payee the note and its incidents pass in the commercial world by delivery. Dearman v. Trimmier, 26 S.C. 506, 2 S.E. 501; Carpenter v. Longan, 83 U.S. 271, 16 Wall. 271, 21 L.Ed. 313 (1872); Bailey v. Seymour, 42 S.C. 322, 20 S.E. 62 (1894); Patterson v. Rabb, 38 S.C. 138, 17 S.E. 463, 19 L.R.A. 831; Bank v. Chambers, LI Rich. 657. . . . There is no law in this State that requires assignments of mortgages to be recorded.

Union Nat'l Bank v. Cook, 110 S.C. 99, 96 S.E. 484 (S.C.1918). The "Allonge to Note" converts the note at issue to a bearer instrument. Code of Laws of South Carolina § 36-3-204(2) (2003)³. As such, ownership passes with delivery of the instrument and proof of ownership can be made by possession. No written assignment of the mortgage is required under state law.

While this Court's prior order stated that "an accurate chain of title is essential when transferring mortgages so that ownership can readily be. determined . . .", this was not stated as a holding or a requirement for transfer of notes and mortgages but rather to express a general rule that would alleviate problems such as the one presently before the Court⁴. To prevail ASC must prove that it has standing as a "party in interest" to seek relief from the stay and that it is entitled to relief. ASC has provided sufficient evidence as to the ownership of the note and mortgage.

Ms. Hirzel testified that Wells Fargo Bank, N.A. d/b/a ASC is in possession of the note and mortgage. She identified the note and mortgage. She testified that the note and mortgage have been in possession of ASC and were held for the benefit of U.S. Bank National Association. Possession of a bearer instrument is prima facie evidence of ownership. See Talbert v. Talbert, 97 S.C. 136, 143, 81 S.E. 644 (S.C.1914)(quoting Coleman v. Dunlap, 18 S.C. 591, 594 (S.C.1883)) ("[W]hen a note was payable to bearer, and plaintiff stated he was the owner of the note, that inasmuch as he had possession of the note, which itself was prima facie evidence of ownership, such statement was admissible, and was all that was necessary to sustain the action"). That the testimony is by an agent and the note is held in trust for another is of no significance.

Wells Fargo Bank, N.A. d/b/a ASC has possession of the note and mortgage. ASC is servicer and custodian for U.S. Bank. National Association pursuant to the Securitization. Subservicing Agreement dated September 1, 2005. US Bank National Association is Trustee for the Trust. Since ASC was in possession of the note and mortgage at the time it filed the Motion it has made a prima facie case that it owns the note and mortgage, albeit as custodian for the Trust. Debtor has offered no evidence to rebut this evidence of ownership. Debtor has only alleged that ASC was not a party in interest entitled, to seek relief from stay pursuant to § 364(d).

The Bankruptcy Code does not define "party in interest" but uses the term. often⁵. In another context, appearance in chapter 11 cases, we know that "party in interest" includes a debtor, the case trustee; a creditor's committee, an equity committee, a creditor, an equity holder, and an indenture trustee. § 1109(b). Thus "party in interest" is not restricted to creditors. The determination of status as "`a party in interest' under section 362(d) must be determined on a case by case basis with reference to the interest asserted and how said interest is affected by the automatic stay." In...