Nelson v. Nationstar Mortg. LLC (In re Nelson)

Decision Date31 July 2019
Docket NumberAP NO. 18-80037-CRJ-13,CASE NO. 15-83360-CRJ-13
Citation607 B.R. 685
Parties In the MATTER OF: Russell NELSON, SSN: XXX-XX-XXXX, Deborah Nelson, SSN: XXX-XX-XXXX, Debtor(s). Russell Nelson, Deborah Nelson, Plaintiff(s), v. Nationstar Mortgage LLC (dba) Mr. Cooper, Defendant(s).
CourtU.S. Bankruptcy Court — Northern District of Alabama

Russell Nelson, Madison, AL, pro se.

Deborah Nelson, Madison, AL, pro se.

Michael McCormick, McCalla Raymer Padrick Cobb Nichols &, Roswell, GA, for Defendant.


Clifton R. Jessup, Jr., United States Bankruptcy Judge

This Adversary Proceeding is before the Court upon the Third Amendment to Plaintiffs' Complaint Objecting to Claim No. 17 and all Amendments to that Claim (hereinafter "Third Amended Complaint").1 Although Russell Nelson and Deborah Nelson (hereinafter the "Plaintiffs") are represented by competent legal counsel in their underlying Chapter 13 bankruptcy case, the Plaintiffs elected to file this Adversary Proceeding pro se, objecting to the proof of claim filed by Nationstar Mortgage, LLC (DBA) Mr. Cooper (hereinafter "Nationstar") without assistance from or representation by any counsel. Throughout this Adversary Proceeding, the Court repeatedly cautioned the Plaintiffs regarding the difficulty with proceeding pro se in such a complex legal case and strongly encouraged the Plaintiffs to seek the assistance of legal counsel, but to no avail.

While the Plaintiffs are both highly educated and have committed an enormous amount of time and energy in researching the law and filing pleadings challenging Nationstar's proof of claim and asserting their legal position in this case, the Third Amended Complaint lacks clarity and contains a wide range of theoretical, technical allegations. The Third Amended Complaint encompasses thirty-seven pages and includes 155 number paragraphs, pursuant to which the Plaintiffs assert various disjointed claims under Alabama and federal law, including but not limited to, claims of fraud, misrepresentation, and violations of the Fair Debt Collection Practices Act (the "FDCPA").2 According to a liberal reading of the Third Amended Complaint, the Plaintiffs apparently seek: (i) a declaratory judgment that the promissory note executed by the Plaintiffs with Southbank in 2007 (hereinafter the "Note") is no longer secured by their residence; (ii) an order voiding the claim filed by Nationstar; (iii) actual damages of $76,437; (iv) future damages of $295,000; (v) damages related to their postpetition Loan Modification Agreement with Nationstar; and (vi) punitive damages. These are the basic issues which the Plaintiffs attempted to prove by their evidence at the trial.

Commencing on February 13, 2019, the Court conducted a two-day, seventeen hour trial on the issues alleged in the Third Amended Complaint. Each of the parties was given a full day to present their evidence. On February 15, 2019, the Court entered an Order Requiring Post-Trial Briefs, directing the parties to specifically address how the documents, testimony and other evidence presented during the trial relates to each element of the Plaintiffs' various claims. On April 1, 2019, the parties timely submitted their respective Post-Trial Briefs. On April 2, 2019, Nationstar moved for leave to file an amended or corrected Post-Trial Brief.3 Thereafter, the Court entered an Order Denying Motion for Leave to File Amended Post-Trial Memorandum. At that time the record in this case was closed. The Court then took this matter under advisement.

The Court has now carefully considered all of the exhibits offered into evidence, testimony given and other evidence presented at trial, the Post-Trial Briefs, and the applicable law, and based on all the facts and the law, finds that Nationstar, being in physical possession of the Plaintiffs' Note at trial, with an affixed endorsement in blank, is the holder of a negotiable instrument under the Alabama Uniform Commercial Code. Accordingly, Nationstar had standing to file a proof of claim in the Plaintiffs' bankruptcy case and to enforce the Note. The Court further finds that the Plaintiffs (i) failed to establish by competent evidence that Nationstar made any misrepresentations either pre-petition or during the post-petition loan modification process regarding Nationstar's ability to foreclose, (ii) failed to establish that Nationstar's proof of claim is materially defective, and (iii) failed to establish that their Loan Modification Agreement is unenforceable.4 The relief requested in the Third Amended Complaint is therefore denied.


1. The Plaintiffs' allegations challenging the claim filed by Nationstar first came before the Court when the Plaintiffs, also without the assistance of their bankruptcy counsel, filed an Objection to Nationstar's Mortgage Payment Change, challenging Nationstar's escrow analysis ("Objection to Payment Change").5 After holding an extensive Evidentiary Hearing on the Objection to Payment Change on January 25, 2018, the Court determined that Nationstar accurately calculated the payment change.6

2. On January 22, 2018, prior to the scheduled Evidentiary Hearing on the Objection to Payment Change, the Plaintiffs filed an Objection to Proof of Claim #17.7 During a Status Conference on the Objection to Proof of Claim #17, as subsequently amended, the Plaintiffs orally moved to withdraw their objection and stated their intention to proceed, instead, with this Adversary Proceeding.8 Following the Status Conference, the Court entered an Order requiring the Plaintiffs to file an Amended Complaint setting forth a clear statement of their claims and a concise statement of the relief sought.9

3. On April 10, 2018, the Plaintiffs filed an Amended Complaint, asserting numerous claims, including fraud by duress and fraud in the inducement.10 On June 20, 2018, the Adversary Proceeding came before the Court for Status Conference and on Nationstar's Motion to Dismiss Amended Complaint.11

Following the hearing, the Court entered an Order requiring the Plaintiffs again to amend their Complaint to state with specificity any and all facts supporting their allegations of fraud.12

4. On July 20, 2018, the Plaintiffs filed a Second Amended Complaint, totaling thirty-seven pages with 180 numbered paragraphs, in which Plaintiffs challenged Nationstar's servicing of their mortgage and standing to enforce their Note.13 During a Status Conference held on August 14, 2018, the Court provided both parties with a summary in which the Court listed the primary issues asserted in the Second Amended Complaint, as follows: (i) standing; (ii) potential Bankruptcy Code violations; (iii) fraud; and (iv) damages.14 Following the Status Conference, the Court attempted to simplify the trial by hearing the issues in separate phases. The Court then entered an Order scheduling an Evidentiary Hearing first on the limited issue of standing to file the Proof of Claim.15

5. On October 15, 2018, this Adversary Proceeding came before the Court on the Plaintiffs' Motion to Continue Evidentiary Hearing to address various discovery issues. At the hearing, it became apparent that the issues raised by the Plaintiffs are interrelated and should not be separated into separate evidentiary hearings. Following the hearing, the Court entered an Order: (1) Vacating Evidentiary Hearing; (2) Requiring Settlement Conference Regarding Discovery Disputes; and (3) Scheduling Status Conference.16

6. On October 25, 2018, the Court issued a Comprehensive Scheduling, Pre-Trial, and Trial Order, scheduling all issues in this Adversary Proceeding for trial and establishing various deadlines, including a 30-day deadline to file amended pleadings with leave of Court.17 Without seeking leave of Court, on November 26, 2018, the Plaintiffs filed a Third Amended Complaint after the deadline for seeking leave to amend expired.18 Following a hearing on Order to Show Cause Why Third Amendment to Complaint Should not be Disallowed, the Court entered an Order striking paragraphs 142, 151, and 152, but otherwise allowing the Plaintiffs to proceed with the Third Amended Complaint.19

A. The Note and Mortgage

On March 30, 2007, the Plaintiffs refinanced the existing mortgage on their residence located at 120 Dublin Circle, Madison, Alabama (hereinafter the "Property") by signing a promissory note, executed on a Multistate Fixed Rate Note – Single Family Fannie Mae/Freddie Mac Uniform Instrument Form in favor of Southbank in the principal amount of $240,000, with 5.875% interest and initial monthly payments of $1,419.69.21 In relevant part, the Note includes the following provisions:

I understand that the Lender may transfer this Note. Lender or anyone who takes this Note by transfer and who is entitled to receive payments under this Note is called the "Note Holder."
If I am in default, the Note Holder may send me a written notice telling me that if I do not pay the overdue amount by a certain date, the Note Holder may require me to pay immediately the full amount of Principal which has not been paid and all the interest that I owe on that amount. That date must be at least 30 days after the date on which the notice is mailed to me or delivered by other means.
The Note Holder may enforce its rights under this Note against each person individually or against all ... together.22

To secure the Note, the Plaintiffs executed a mortgage on March 30, 2007 in favor of Southbank (hereinafter the "Mortgage").23 On April 6, 2007, Southbank recorded the Mortgage in the Office of the Judge of Probate of Madison County, Alabama, Instrument No. 20070406000245720.24 The Mortgage provides, in part, as follows:

Borrower is the mortgagor under this Security Instrument.
(C) "MERS" is Mortgage Electronic Registration Systems, Inc. MERS is a separate corporation that is

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