April 5, 2013
Massachusetts Bankruptcy Court Holds that Mortgagee has Standing to Request Relief from Stay Because Homeowner Lacked Equity in his Property
In In re Lopez, 446 B.R. 12 (Bankr. D. Mass. 2011), the court granted Mortgagee’s Motion for Relief .
On October 28, 2004, Henry Lopez—the Debtor—executed a note in the amount of $360,000 to Shelter Mortgage Company, LLC. To secure that obligation, Lopez also granted a mortgage to MERS as nominee for Shelter. MERS subsequently assigned the Mortgage to Aurora Loan Services, LLC, and recorded it in the Registry on April 13, 2008.
Lopez filed a skeletal Chapter 13 petition on January 17, 2009. On September 3, 2010, Aurora filed a Motion for relief from stay asserting that Lopez was three post-petition payments in arrears, the promissory note was in default, the Property was not necessary for an effective reorganization, and Lopez lacked equity in the Property. Lopez argued that a Chapter 13 debtor’s home is necessary for an effective reorganization. He also asserted that Aurora could not seek relief from stay solely based on missed or reduced payments during the modification process.
For Aurora to have standing to bring a Motion for Relief, Aurora had to be “a party in interest.” In Massachusetts, a Mortgagee with a power of sale is a party in interest. Here, Aurora presented documents illustrating that MERS, as nominee for Shelter, was the original Mortgagee who assigned the Mortgage to Aurora. Thus, Aurora established a colorable claim to the Property as Mortgagee.
Lopez asserted that the Mortgage Assignment without the note was a nullity. But under Massachusetts law, “where a mortgage and the obligation secured thereby are held by different persons, the mortgage is regarded as an incident to the obligation, and, therefore, held in trust for the benefit of the owner of the obligation.” Even though MERS never had possession of the Note, it legally held the Mortgage in trust for the Note holder. Lopez also contended that MERS, as nominee of Shelter, could not assign the Mortgage to Aurora. But even though MERS never held the Note, it had nominee status and thus could transfer the Mortgage on behalf of the Note holder.
In determining whether relief from stay was warranted, Aurora had to show that their interest in Lopez’s Property was not adequately protected pursuant to 11 U.S.C. § 362(d)(1), or show Lopez’s lack of equity in the Property pursuant to 11 U.S.C. § 362(d)(2). Because Lopez’s total indebtedness was $389,615.16. The court held that his property value did not exceed his indebtedness. Thus, Lopez lacked equity in the Property.
Lopez also claimed that as a Chapter 13 debtor, there was an irrebuttable presumption that his home was necessary for an effective reorganization even though there is no equity in the Property. The court held that even if there was an irrebuttable presumption, it would still grant relief from stay because of Lopez’s post-petition arrears and the declining value of the Property in comparison to the increasing claims. Lopez then claimed that he had arrears because he was wrongly denied a modification under the Home Affordable Modification Program (HAMP). HAMP is supposed to help homeowners avoid foreclosure by obtaining loan modifications that reduce their monthly mortgage payments to sustainable levels. Borrowers seeking modifications under HAMP must satisfy a variety of eligibility requirements. Here, Lopez had not stated any theory through which he could assert standing to obtain the relief he sought. Thus, the court granted Aurora’s Motion for Relief.
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