SEAN H. LANE, Bankruptcy Judge.
Before the Court is the Motion for Relief from the Automatic Stay (the "Motion") [ECF No. 123], filed by Deutsche Bank National Trust Company, as Trustee for FFMLT Trust 2006-FF6, Mortgage Pass-Through Certificates, Series 2006-FF6 ("Deutsche Bank" or the "Movant"). The Motion seeks relief from the automatic stay under Section 362(d) of the Bankruptcy Code for the real property located at 726 E. 219 Street, Bronx, New York 10469 (the "Property"), which is currently owned by Mr. Everton Sterling (the "Debtor").
On February 24, 2006, First Franklin Bank made a mortgage loan to Mr. Howard White, with an original principle sum of $448,000.00 (the "Mortgage"). Mr. White, who is not a party to this proceeding, pledged the Property as security for the underlying note, dated February 24, 2006 (the "Note"). See Note and Mortgage, Exhibit A to the Motion [ECF No. 123-1]. First Franklin Bank was the original holder of the Note and Mortgage, before assigning them to Deutsche Bank on May 1, 2008 via the Mortgage Electronic Registration System, which acted as a nominee for Howard White. See Assignment of Mortgage, Exhibit B to the Motion [ECF No. 123-2]. Mr. White was the owner of the Property and was the mortgagee at the time of the assignment. Id.
Howard White subsequently defaulted under the terms of the Note and Mortgage, as he failed to make any payments beginning at least in March of 2008. See Affidavit of Ami McKernan, Exhibit E to the Motion [ECF No. 123-5]. As a result, Deutsche Bank commenced a foreclosure action by filing a Complaint and Notice of Pendency of Action on June 24, 2008, in the Bronx County Supreme Court [Index No. 381213/2008]. See Foreclosure Judgement, Exhibit A to the Reply Affirmation. That court entered a Judgement of Foreclosure and Sale on May 19, 2010 (the "Foreclosure Judgement"). Id.
On or about June 27, 2008, the original borrower, Howard White, executed a deed purporting to grant ownership of the Property to the Debtor, Everton Sterling. See Deed of Property, Exhibit C to the Motion [ECF No. 123-3]. This was three days after Deutsche Bank commenced the foreclosure action and almost four months after Mr. White's earliest recorded missed payment in March, 2008. The Debtor is not an obligor on the Note or Mortgage but took title to the Property subject to the terms of the recorded Mortgage. Reply Affirmation ¶ 4; see also Note and Mortgage, Exhibit A to the Motion; Deed of Property, Exhibit C to the Motion. The Debtor is in default, having not made any payments on the Mortgage since accepting ownership of the Property subject to its terms. See Worksheet by Ami McKernan, Exhibit D to the Motion [ECF No. 123-4]; see also Affidavit of Ami McKernan, Exhibit E to the Motion. As of June 9, 2017, the total amount outstanding on the Mortgage, including principal, interest and miscellaneous charges, was $918,794.47, and there have been not less than 112 missed payments. See Worksheet by Ami McKernan, Exhibit D to the Motion.
On September 15, 2014, the Debtor filed a petition under Chapter 7 of the Bankruptcy Code, which imposed an automatic stay under the Bankruptcy Code.
Section 362(d)(1), provides, in relevant part, that "[o]n request of a party in interest and after notice and a hearing, the court shall grant relief from the [automatic] stay . . . for cause, including the lack of adequate protection of an interest in property of such party in interest. . . ." 11 U.S.C. § 362(d)(1).
"[G]ranting or denying a stay relief motion is not and should not be considered a determination of the ultimate enforceability or unenforceability of the note and lien at issue. Conversely, a lift stay motion cannot be brought by a stranger to the case." In re Escobar, 457 B.R. 229, 236 (Bankr. E.D.N.Y. 2011). Under Section 362(d), therefore, a request to lift the automatic stay must be made by "a party in interest." In re Lippold, 457 B.R. 293, 296 (Bankr. S.D.N.Y. 2011). While the term "party in interest" is not defined by the Bankruptcy Code, the Second Circuit has stated 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." In re Mims, 438 B.R. 52, 55 (Bankr. S.D.N.Y. 2010) (citing In re Comcoach, 698 F.2d 571, 573 (2d Cir.1983)).
Section 101(10) of the Bankruptcy Code defines a "creditor" 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." 11 U.S.C. § 101(10)(A). A "claim" is, in turn, defined as a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured." 11 U.S.C. § 101(5)(A). Courts in this jurisdiction have stated that a party can demonstrate a right to payment by showing that it holds the ability to seek the state law remedy of foreclosure. See Mims, 438 B.R. at 56 (citing Johnson v. Home State Bank, 501 U.S. 78, 84 (1991) (finding that a mortgage foreclosure was a "right to payment" against the debtor)); see also Escobar, 457 B.R. at 239 ("[T]he evidence necessary to establish standing to seek stay relief to commence or continue a foreclosure action should include a demonstration that the movant has the right under applicable state law to enforce the mortgage; however, standing should not require evidence which would be necessary to prevail over a claim objection or to prevail in an adversary proceeding asserting that the claimant does not hold a valid, perfected and enforceable lien.").
"Under New York law, a plaintiff has standing to commence a mortgage foreclosure action `where it is both the holder or assignee of the subject mortgage and the holder or assignee of the underlying note at the time the action is commenced.'" Lippold, 457 B.R. at 296-97 (quoting Bank of N.Y. v. Silverberg, 926 N.Y.S.2d 532, 536 (2d Dep't 2011)). "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.'" Lippold, 457 B.R. at 297 (quoting Silverberg, 926 N.Y.S.2d at 537); see also Escobar, 457 B.R. at 240 ("New York law has long recognized that the rights under a mortgage lien are beneficially transferred to the assignee of a promissory note, without the execution of a written assignment of the mortgage, and even without a written assignment of the mortgage.").
"Under New York law, [a] Movant can prove that [it] is the holder of the Note by providing the Court with proof of a written assignment of the Note, or by demonstrating that [it] has physical possession of the Note endorsed over to it." Escobar, 457 B.R. at 240 (quoting In re Agard, 444 B.R. 231, 246 (Bankr. E.D.N.Y. 2011)); see also Mims, 438 B.R. at 56. Proper endorsement of a note can be accomplished through an allonge firmly affixed to the note. See Deutsche Bank Trust Co. Ams. v. Codio, 943 N.Y.S.2d 545, 546 (2d Dep't 2012); see also HSBC Bank USA v. Thomas, 999 N.Y.S.2d 671, 674 (Sup. Ct. Kings County 2014) ("The endorsement must be made either on the face of the note or on an allonge so firmly affixed to the note as to become a part thereof.") (citing U.C.C. Section 3-202(2)).
The Movant here has established standing to lift the automatic stay as to the Property. The Movant has provided the Court with proof of the written Note and Mortgage. See Note and Mortgage, Exhibit A to the Motion. Specifically, a photocopy of the Note was presented as an exhibit to the Motion. See id. Movant also provided evidence of its possession of the original Note, through an affirmation from Nicholas J. Raab. See Exhibit A to the Supplemental Affirmation. Movant has also provided evidence that reflects the assignment of the Note and Mortgage from First Franklin Financial Corporation to Deutsche Bank on May 1, 2008. See Assignment of Mortgage, Exhibit B to the Motion. Signed by witnesses Carla Robinson and RayAnn Reidell, the assignment document states, "the full benefit of all the powers and of all the covenants and Provisions therein contained, and the said Assignor hereby grants and conveys Unto the said Assignee, the Assignor's beneficial interest under the Mortgage." Id. Movant produced copies of the assignment documents, Note, and Mortgage to the Court in its July 7, 2017 filing of the Motion. See Motion. Movant further filed the Affirmation by Nicholas J. Raab confirming that Deutsche Bank had been in possession of the Note since March 22, 2006. Affirmation of Nicholas J. Raab ¶ 7, Exhibit A to Supplemental Affirmation.
The Debtor has requested certain discovery, such as the Note itself and the retention agreement between Deutsche Bank and its counsel.
Having found that the Movant has standing to seek relief from the automatic stay, the Court turns to the merits of the Motion. The Movant argues that it lacks adequate protection due to the failure of the Debtor to make post-petition payments. See 11 U.S.C. § 362(d)(1) (court shall grant relief from the automatic stay for cause). "[T]he failure to make mortgage payments constitutes `cause' for relief from the automatic stay and is one of the best examples of a `lack of adequate protection' under Section 362(d)(1) of the Bankruptcy Code." In re Schuessler, 386 B.R. 458, 480 (Bankr. S.D.N.Y. 2008); see also Campora v. HSBC Bank USA, N.A. (In re Campora), 2015 WL 5178823, at *5 (E.D.N.Y. Sept. 3, 2015) ("A debtor's failure to make postpetition mortgage payments constitutes sufficient cause to modify an automatic stay."); In re Elmira Litho, Inc., 174 B.R. 892, 903 (Bankr. S.D.N.Y. 1994) ("Without quantifying the decline in value, the creditor can often establish its prima facie case by demonstrating that the debtor has completely failed, or substantially failed, to make post-petition payments."). In this case, no payments of any kind have been made on the Mortgage since at least March 1, 2008. See Worksheet by Ami McKernan ¶ 13, Exhibit D to the Motion. The Debtor has not provided any evidence of postpetition payments, or any payments at all, on the Mortgage, and no evidence has been presented that the Movant is adequately protected. See generally Hr'g Tr. (Sept. 13, 2017); Opposition Motion.
When determining whether "cause" exists to grant relief from the automatic stay for pre-petition litigation, courts in this jurisdiction consider the following factors (the "Sonnax Factors"):
Sonnax Indus., Inc. v. Tri Component Prods. Corp. (In re Sonnax Indus., Inc.), 907 F.2d 1280, 1286 (2d Cir. 1990). Not all of the Sonnax Factors are relevant in every case, and "cause" is a broad and flexible concept that must be determined on a case-by-case basis. Spencer v. Bogdanovich (In re Bogdanovich), 292 F.3d 104, 110 (2d Cir. 2002) (citing Mazzeo v. Lenhart (In re Mazzeo), 167 F.3d 139, 143 (2d Cir. 1999)).
The Court finds that the majority of the Sonnax Factors that are applicable to this case support granting relief from the automatic stay for the Movant to proceed with the Foreclosure Judgement.
Additionally, the balance of the harms clearly tips in the Movant's favor, due to a long history of non-payment on the Property. See, e.g., Thompson v. JP Morgan Chase Bank, N.A. (In re Thompson), 2012 WL 739384, at *6 (E.D.N.Y. Mar. 8, 2012) (in considering the Sonnax Factors, finding cause where the debtor was not making mortgage payments, secured creditor had begun foreclosure proceedings in state court, and secured creditor continued to expend money for taxes and insurance on the property in question). Indeed, no payments have been made towards the Mortgage on this Property since at least March of 2008. See Worksheet by Ami McKernan, Exhibit D to the Motion. The ongoing Chapter 7 case (which began more than three years ago in September of 2014) and related adversary proceedings have continued to delay Deutsche Bank from moving forward with the Foreclosure Judgement it obtained in state court over seven years ago, thus increasing the harm to the Movant. See Foreclosure Judgement, Exhibit A to the Reply Affirmation. Therefore, given the applicable Sonnax Factors, it is appropriate to grant relief from the automatic stay in this case.
The Debtor makes many arguments in opposing the Motion. Most of the arguments are irrelevant to the Motion, speculative or ill-founded. The Debtor's main argument appears to be a general challenge to Movant's standing based on the documentation, an issue addressed above. The Debtor also alleges fraudulent misrepresentation, criminal fraudulent transfer under 18 U.S.C. § 2314, and unclean hands by the Movant. But none of the arguments asserted by the Debtor provide a basis to deny the relief requested.
As an initial matter, the Debtor's arguments must be rejected given the New York state court Foreclosure Judgment. Where a Movant has obtained a valid state court foreclosure judgement establishing a bank's status as a secured creditor, the Bankruptcy Court is not permitted to rule again on the status of that creditor under the Rooker-Feldman doctrine (or, in the alternative, res judicata). See Agard v. Select Portfolio Servicing, Inc., 2012 WL 1043690 at *4 (E.D.N.Y. Mar. 28, 2012). In this case, like in Agard, Deutsche Bank had already obtained a Foreclosure Judgement from the Bronx County Supreme Court before the matter came before this Court. See Foreclosure Judgement, Exhibit A to the Reply Affirmation. Thus, the Rooker-Feldman doctrine is a bar to this Court revisiting an issue already decided by the state court. See Agard, 2012 WL 1043690 at *4.
Moreover, the Debtor's allegations don't provide a basis to deny the requested relief. To discuss one example, the Debtor alleges a claim of fraudulent misrepresentation, which requires a party to establish: "(1) a misrepresentation or an omission of material fact which was false and known to be false by the defendant, (2) the misrepresentation was made for purpose of inducing the plaintiff to rely upon it, (3) justifiable reliance by the plaintiff on the misrepresentation or material omission, and (4) injury." Lewis v. Wells Fargo Bank, N.A., 22 N.Y.S.3d 461, 463 (2d Dep't 2015). The Debtor argues that the MERS assignment system was significantly flawed so as to render the assignment invalid, and that First Franklin and Deutsche Bank should have known that MERS was not a valid mortgage assignment system. First and foremost, the Debtor does not explain how an allegation about the Mortgage here is material given that Deutsche Bank holds the Note and the Mortgage follows incident to the Note. See Lippold, 457 B.R. at 297 (quoting Silverberg, 926 N.Y.S. 2d at 537). Moreover, he fails to present any evidence that either party knew of an actual misrepresentation or omission made during this transaction that was false, or intended for him to rely on said misrepresentation. Opposition Motion ¶ 44. The Debtor also does not allege that he relied on any alleged misrepresentation in accepting the Property deed from Mr. White, nor that he was unaware of which bank held the Note at the time Mr. White executed the deed. He has also not claimed any injury that he has suffered because of the manner of assignment of the Property. Indeed, as the Debtor took title to the Property almost two months after the transfer, it would not have made a difference whether First Franklin or Deutsche Bank was the holder of the Note and Mortgage; the same debt would still have been owed in the same amount regardless of which bank held the Note.
Similarly, the Debtor's allegation about violations of criminal law fail. For example, the Debtor claims that the assignment of the Mortgage and Note to Deutsche Bank was a violation of the criminal statute 18 U.S.C. § 2314 because the assignment "[fit] the requisites of a falsely uttered, counterfeit instrument appearing to genuine [sic], and worth more than $5,000.00 in violation of the National Stolen Property Act." Opposition Motion ¶ 21. As this is a criminal statute, the Debtor as a private citizen does not have standing to assert such a claim. In re Application for an Order Pursuant to 28 U.S.C. § 1782 to Conduct Discovery for Use in Foreign Proceedings, 773 F.3d 456, 458 n.4 (2d Cir. 2014) (quoting Linda R.S. v. Richard D., 410 U.S. 614, 619 (1973) ("[A] private citizen lacks a judicially cognizable interest in the prosecution or nonprosecution of another."). In any event, it is entirely unclear how such a statute would be relevant in the matter now before this Court.
The Debtor also argues that Movant's allegedly fraudulent misrepresentation and supposedly criminal actions constitute unclean hands, thus barring them from seeking equitable relief from the automatic stay. Under New York law, "the unclean hands doctrine `bars the grant of equitable relief where the defendant proves: (1) that the plaintiff is guilty of immoral, unconscionable conduct directly related to the subject matter in litigation; (2) that the conduct was relied upon by the defendant; and (3) that the defendant was injured thereby.'" In re Ampal-American Israel Corp., 545 B.R. 802, 810 (Bankr. S.D.N.Y. 2016) (quoting Atl. Cas. Ins. Co. v. Coffey, 548 Fed. App'x 661, 664 (2d Cir. 2013)). For the reasons stated above, the Debtor has not adequately alleged sufficient facts to invoke the unclean hands defense as to the payment obligation that underlies the requested relief, even assuming such a defense could properly be raised before this Court given the existence of the Foreclosure Judgment.
For the reasons set forth above, the Movant's motion for relief from the automatic stay is granted.
The Debtor also filed an involuntary Chapter 7 proceeding against himself in this Court. The case was dismissed on November 22, 2016. In re Everton Sterling, Bankr. S.D.N.Y. Case No. 16-13312 [ECF No. 11]. That dismissal was affirmed on appeal. In re Sterling, 2017 WL 4862791 (S.D.N.Y. Oct. 26, 2017).
