[Aegis] including, but not limited to, releasing and canceling [the Mortgage].
MERS Transferred The Note
Mr. Lippold apparently didn’t make his mortgage payments once the Chapter 7 bankruptcy was filed, so a motion for relief from stay was filed.
Not by Aegis.
Not by MERS.
By U.S. Bank.
That’s right, MERS apparently assigned to U.S. Bank the mortgage and Note. In and of itself, that’s not a problem. There’s just one little issue, and it was of major concern for the New York bankruptcy court judge hearing the case.
MERS Had No Right To Do So
The Assignment from MERS to U.S. Bank transferred MERS’s rights in the Note, but U.S. Bank’s lawyers admitted that other than the Assignment, the record contains no evidence of U.S. Bank’s purported ownership of the Note.
In other words, MERS couldn’t transfer the Note to U.S. Bank because it had no right to do so. And the New York bankruptcy court saw right through the ruse.
Lack of Ownership Means U.S. Bank Can’t Get Relief From The Automatic Stay
Stay with me for a moment because we’re going to get a little technical. But this is important if you’re going to understand why Judge Glenn did what he did. If you don’t get these pieces of the puzzle then you’re not going to see the entire picture.
Under Section 362(d)(2) of the Bankruptcy Code, “[o]n request of a party in interest . . . the court shall grant relief from the stay . . . if—(A) the debtor does not have an equity in such property; and (B) such property is not necessary to an effective reorganization.”
In In re Mims, 438 B.R. 52, 55 (Bankr. S.D.N.Y. 2010), the New York bankruptcy court in Manhattan explained that, “in order to invoke the court’s jurisdiction to obtain relief from the automatic stay, the moving party [must] be either a creditor or a debtor.”
Section 101(10) of the Bankruptcy Code defines a “creditor,” in part, as an “entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor.”
A “claim” is a “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, legal, equitable, secured or unsecured” under Section 101(5)(A) of the U.S. Bankruptcy Code.
Here, Mr. Lippold didn’t owe money to U.S. Bank. Therefore, U.S. Bank was not a creditor. And because U.S. Bank was not a creditor, it could not obtain relief from the automatic stay.
Judge Glenn went a bit further, however, speaking to the fact that the invalid assignment rendered U.S. Bank unable to foreclose on the property in state court as well. If Lippold has a lawyer for his foreclosure defense, this is sure to bring a joyous tear to his or her eye as well.
What’s your take? Did Judge Glenn, in dealing a body blow to the mortgage company, accomplish something of value? Does Mr. Lippold get a free house? Should he be dealing with MERS for his modification attempts? U.S. Bank? Nobody?
And what about when he looks to sell the house at some point in the future? Will he have to start a quiet title action in order to sell the property? Will he get all of the sale proceeds, or will some bank-to-be-later named get a piece of the action?
And given the fact that a Chapter 7 bankruptcy takes only 4-5 months to wind through the court system, does this decision mean only that mortgage lenders will stop filing motions for relief from the automatic stay? Seems like the wisest tactic move, after all. No sense in risking a bad decision from the bankruptcy courts.
The case, for those of you who are interested in reading Judge Glenn’s entire opinion, can be downloaded here.