Summary:
The Debtors filed Chapter 7 and indicated on their Statement of Intentions they intended to retain the real property, with an estimated value of $430,000. U.S. Bank sought relief from the automatic stay, asserting that the Debtors owed $639,365.25 in total, with a delinquency of $145,703.92.
Sua sponte, the bankruptcy court held that U.S. Bank (and/or its servicer, Select Portfolio Services) had failed to establish that it owns or has the right to enforce the promissory note secured by the Property. The bankruptcy court noted that while the Motion for Relief asserted, by way of two Affidavits, that U.S. Bank was “ a creditor by virtue of the fact that the note was transferred by way of allonge.”, neither of the Affidavits actually includes such an allonge.
The Promissory Note was stamped with two endorsements, first transferring the note from the original lender, Aegis Mortgage Corporation, to Aegis Lending Corporation and then from Aegis Lending Corporation in blank. While the transfer of the mortgage without the promissory note is a nullity, once a promissory note is transferred from assignor to assignee, “the mortgage passes as an incident to the note.” Kluge v. Fugazy, 145 A.D.2d at 537; see also In re Escobar, 457 B.R. 229, 239 (Bankr. E.D.N.Y. 2011) (Trust, J.). The presence of the endorsement in blank called into question what purpose an allonge would serve, as delivery and possession of the original note would be sufficient to transfer ownership of the Note. Accordingly, despite the broad definition of a “claim,” U.S. Bank “has not demonstrated its ‘right to payment’ because . . . it lacks the ability to seek the state law remedy of foreclosure.” In re Mims, 438 B.R. at 56 (citing Johnson v. Home State Bank, 501 U.S. 78, 81 (1991) (finding that a mortgage foreclosure was a “right to payment” against the debtor)). The Motion for Relief was consequently denied without prejudice to U.S. Bank later showing that it has standing.
For a copy of the opinion, please see:
Idicula- Standing to Seek Relief from the Automatic Stay.pdf
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