Editor: David Reiss
Brooklyn Law School

May 10, 2013

Bankruptcy Court for the District of Massachusetts Finds Bank had Failed to Prove it was Present Title Holder of the Mortgage, Denies Relief from Automatic Stay

By Joseph Kelly

In In re Moreno, 08-17715-FJB, 2010 WL 2106208 (Bankr. D. Mass. May 24, 2010), the Bankruptcy Court for the District of Massachusetts found that creditor/Property Asset Management, Inc. (“PAM”) had failed to prove its burden that it had standing to foreclose on the property in question. Accordingly, the court denied PAM’s motion for relief from the automatic stay without prejudice.

Debtor, Simeon Moreno, had originally executed a promissory note with GE Money Bank. GE endorsed the note in blank and transferred it ultimately to Lehman Brothers Holdings, Inc. (“LBHI”), who held the note when PAM filed its motion for relief from the stay. LBHI continued to hold the note throughout the case. PAM was never a holder of the note or an entity for whose benefit another held the note. Aurora Bank (formerly known as Lehman Brothers) requested that Litton transfer the loan from MERS to PAM in anticipation of this foreclosure. However, PAM adduced no evidence that Litton had any specified connection to the loan at the time they assigned it.

There was no evidence Litton was the servicer of the loan for Aurora Bank, nor was there evidence that Litton was registered as servicer of the loan for MERS. The only evidence produced was from Scott Drosdick, a vice-president of LBHI, who testified that Aurora’s instruction to Litton to transfer the mortgage to PAM was later “ratified by LBHI.” The court found the evidence “too vague to have any definite meaning” and gave it no weight. The court also noted how Litton’s proof of claim did not mention PAM or indicate in any way that the mortgage securing the claim was held by anyone other than LBHI.

The parties were arguing over the split-note theory; however the court found it was unnecessary to address the merits of this argument as PAM had presented no proof it was even the present title holder of the mortgage. The court noted there was no evidence that the MER’s employee who assigned the mortgage had any relationship to Litton. Nor was there evidence that Litton was the servicer for Aurora Bank. The court also clarified that it did not find that Aurora Bank had failed to retain Litton as its servicer, but “there [was] simply no evidence on the issue.” Since the burden was on PAM, and they had adduced no evidence, the court denied their motion for relief from the automatic stay without prejudice.

| Permalink