HON.ROBERT D. DRAIN, UNITED STATES BANKRUPTCY JUDGE
The debtor herein (the "Debtor") has objected to a claim filed in this case by Wells Fargo Bank, NA ("Wells Fargo"), Claim No. 1-2, dated September 29, 2010 (amending Claim No. 1-1), on the basis that Wells Fargo is not the holder or owner of the note and beneficiary of the deed of trust upon which the claim is based and therefore lacks standing to assert the claim.
The Court has jurisdiction over this contested matter pursuant to 28 U.S.C. §§ 157(a)-(b) and 1334(b). Under 28 U.S.C. § 157(b)(2)(B) this is a core proceeding which the Court may determine by final order.
On July 15, 2010, Wells Fargo filed its first proof of claim in this case, Claim No. 1-1, asserting indebtedness of $170,072.60, including prepetition arrears of $38,163.16. The proof of claim attached a copy of a 30-year
Claim No. 1-1 also attached a Deed of Trust made out to Malcom D. Gibson, as trustee, and an Assignment of Rents, both dated October 30, 2000, which secure the Note with the Debtor's interest in the real property located at 2523 Crenshaw Drive, Round Rock Texas 78664 and the other collateral described therein (the "Property"). There is no real dispute that the Deed of Trust and related security documents were properly filed and recorded under Texas law; they bear the November 16, 2000 file stamp of the County Clerk of Williamson County, Texas.
Also attached to Claim No. 1-1 was an Assignment of Deed of Trust by ABN Amro, dated June 20, 2002, pursuant to which ABN AMRO assigned "all beneficial interest in" the Deed of Trust securing the Note, together with the Note, to Mortgage Electronic Registration System ("MERS") "as nominee for Washington Mutual Bank, FA," which bears the Williamson County Clerk's June 28, 2002 file stamp.
Claim No. 1-1 also attached (a) a Loan Modification Transmittal Form, (b) a Loan Modification Agreement signed by the Debtor and an officer of Wells Fargo, dated February 12, 2008, and (c) an unsigned form, with the heading "Freddie Mac," addressed to an officer of Wells Fargo, which states that Freddie Mac has approved Wells Fargo's request to consider a loan modification pertaining to the Debtor on certain conditions.
Finally, Claim No. 1-1 attached an Assignment of Mortgage pursuant to which MERS assigned to Wells Fargo "a mortgage" (neither rights under the Deed of Trust, nor the Note) made by the Debtor pertaining to the Note. This Assignment of Mortgage is dated July 12, 2010, which is three days before the date of Claim No. 1-1, and is executed on behalf of MERS "as nominee for Washington Mutual Bank, FA" by John Kennerty, Assistant Secretary, presumably of MERS.
In the Claim Objection, the Debtor's counsel has represented without dispute that after reviewing Claim No. 1-1 she contacted Wells Fargo's then counsel, who had signed Claim No. 1-1 on Wells Fargo's behalf, with questions regarding Wells Fargo's standing to assert the claim and followed up on July 26, 2010 with a qualified written request under RESPA, 12 U.S.C. § 2605, and a borrower's request under TILA, 15 U.S.C. §§ 1601, et seq. Wells Fargo responded to these requests in a letter, dated August 18, 2010, in which it stated that Freddie Mac owned the Note, which Freddie Mac had already represented to the Debtor's counsel in a July 27, 2010 email. See Exhibits N and O, respectively, to the Claim Objection.
Neither the email from Freddie Mac, the letter from Wells Fargo, nor anything else offered by Wells Fargo's then counsel dealt with the two key issues raised by
Before the expiration of the bar date in this case, though, Wells Fargo filed another proof of claim, amended Claim No. 1-2, dated September 23, 2010, which was the same as Claim No. 1-1 in all respects except one: the copy of the Note attached to Claim No 1-2 had a second indorsement. In addition to the specific, or special indorsement from Mortgage Factory Inc. to ABN Amro, it also had a blank indorsement, signed by Margaret A. Bezy, Vice President, for ABN Amro.
Presumably, Claim No. 1-2 was intended to satisfy the Debtor's questions about Wells Fargo's standing to assert a claim: as discussed below, under Texas law a person in possession of a note indorsed in blank may enforce the note and a related deed of trust or mortgage even if the noteholder does not have a valid assignment of the mortgage or deed of trust. Nevertheless, the Debtor filed the Claim Objection, asserting several reasons why Claim No. 1-2 should be disallowed under 11 U.S.C. § 502 and Fed. R. Bankr.P. 3007, although since that time she actively pursued only two.
First, the Debtor contended that Wells Fargo lacked standing to assert the claim because it admittedly did not own the loan upon which it was based yet filed the claim on its own behalf, not as agent or servicer for Freddie Mac. See In re Unioil, Inc., 962 F.2d 988, 992 (10th Cir.1992) (proof of
Second, the Debtor contended that the blank indorsement that appeared for the first time on the form of Note attached to Claim No. 1-2 was as improper as the purported July 12, 2010 Assignment of Mortgage to Wells Fargo executed on behalf of the assignor/nominee by an employee of Wells Fargo. As alleged by the Claim Objection, the blank indorsement was forged in response to problems with the documentation of Wells Fargo's right to enforce the Note, just, as the Debtor contended, the July 12, 2010 Assignment of Mortgage was manufactured three days before Claim No. 1-1 was filed in order to falsely lead the Debtor and the Court to think that Wells Fargo had an independent right to enforce a mortgage on the Property.
Wells Fargo retained new counsel,
The Court therefore denied the Debtor's summary judgment motion for an order declaring that Wells Fargo lacked standing to assert Claim No. 1-2. Because discovery with respect to the bona fides of the all-important blank indorsement appearing on the version of the Note attached to Claim No. 1-2, was not complete, however, the Court scheduled an evidentiary hearing on that issue.
After the completion of discovery, which included the depositions of Mr. Kennerty and Mr. Kyle N. Campbell — the third witness offered by Wells Fargo to corroborate its possession of the Note attached to Claim No. 1-2 and the propriety of the blank indorsement — the Court held an evidentiary hearing in which it took testimony from Mr. Campbell and the Debtor. The parties earlier agreed to the admission of Mr. Kennerty's deposition transcript in lieu of his testimony, as well as to the admission into evidence of the exhibits attached to Claim Nos. 1-1 and 1-2, as well as the original of the Note with the blank ABN Amro indorsement, a copy of which was attached to Claim No. 1-2.
Based on the Court's review of the original of that document, the blank ABN Amro indorsement has been stamped on the last page of the Note, although it is not discernable whether Margaret A. Bezy's signature was separately written in on the signature line or was part of the stamp. See December 3, 2013 Trial Transcript ("Trial Tr."), at 5-6 (The Court: "So this is the second endorsement, the blank endorsement, then is a file stamp? It's a stamp?" Mr. Dunn: "I have no personal
While agreeing to the admission of the original version of the Note, the Debtor did not, of course, agree to the validity of the blank ABN Amro indorsement, continuing to assert that it was forged. The Debtor also objected to the admission of certain other proposed exhibits printed from Wells Fargo's computer file for the loan at issue, which Wells Fargo offered as business records under Fed.R.Evid. 803(6).
After post-trial briefing on the Debtor's objection to the exhibits' admission, the Debtor also moved to reopen the record to take further discovery of Wells Fargo based on the contention that she had unearthed withheld evidence consisting of a Wells Fargo attorney manual that supported her contention that Wells Fargo had an "indorsement team" that improperly added the blank indorsement to the Note.
The Court granted this motion, provided that the additional discovery would pertain only to the loan and Note at issue. Several months passed until, after the Court's inquiry, the parties replied that they were not going to present any more evidence and wanted a ruling on the merits of the Claim Objection on the basis of the evidence previously submitted.
Because it is undisputed that (a) the Debtor signed the Note (and received the loan proceeds)
Wells Fargo's right to enforce the Note, and thus its standing to assert Claim No. 1-2, derives from the Note's status as a negotiable instrument under Texas' version of the U.C.C. See Tex. Bus. & Com. Code § 3.104(a). The Debtor has not disputed that the Note is negotiable, and the Note in any event satisfies the requirements of a negotiable instrument under Texas law, as it is "an unconditional promise... to pay a fixed amount of money ... payable to ... order at the time it [was] issued; ... payable ... at a definite time; and does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money" except as permitted by the statute. Id. See also Farkas v. JP Morgan Chase Bank, 2012 U.S. Dist. LEXIS 190194, at *6-7 (W.D.Tex. June 22, 2012), aff'd, 544 Fed.Appx. 324 (5th Cir.2013), cert. denied, ___ U.S. ___, 134 S.Ct. 628, 187 L.Ed.2d 411 (2013); Steinberg v. Bank of Am., N.A., 498 B.R. 391, ___-___, 2013 WL 2351797, *3-4, 2013 Bankr.LEXIS 2230, at *12-14 (10th Cir. BAP May 30, 2013).
Under Texas law, a person entitled to enforce a negotiable instrument such as the Note includes "the holder of the instrument," Tex. Bus. & Com.Code § 3.301(i), and "a holder is `the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.'" Nguyen v. Fannie Mae, 958 F.Supp.2d at 787-88 (quoting Tex. Bus. & Com.Code § 1.201(b)(21)(A)).
Under Texas' U.C.C.,
Tex. Bus. & Com.Code § 3.205. See generally Venegas v. U.S. Bank, Nat'l Ass'n, 2013 WL 1948118, at *3, 2013 U.S. Dist. LEXIS 66000, at *7 (W.D.Tex. May 9, 2013):
As discussed above, Wells Fargo's counsel provided the original Note to the Court at the evidentiary hearing, and it was admitted into evidence with the sole caveat that the Debtor disputes the bona fides of ABN Amro's blank indorsement that appears on it. Trial Tr. at 4-7. Thus, it is uncontroverted that the Note is in Wells Fargo's possession. In accordance with the foregoing sections of Texas' U.C.C., therefore, if the blank ABN Amro indorsement is bona fide, Wells Fargo is the holder of the Note, entitled to enforce it. Trimm v. U.S. Bank, N.A., 2014 WL 3535724, at *4, 2014 Tex.App. LEXIS 7880, at *13; Das v. Deutsche Bank Nat'l Trust Co., 2014 WL 1022385, at *3, 2014 Tex. App. LEXIS 2541, at *6 ("An instrument containing a blank endorsement is payable to the bearer and may be negotiated by transfer of possession alone."). On the other hand, if the indorsement is forged, it is not valid, and — the only other indorsement on the Note being a specific indorsement to ABN Amro — Wells Fargo could not rely on the foregoing statutory provisions to establish that it is the holder of the Note. See In re Pastran, 2010 WL 2773243, at *3, 2010 Bankr.LEXIS 2237, at *10 ("[S]ince [claimant] is in possession of a promissory note endorsed in `blank,' it is, by definition, a `holder' under section 3.201(a). This, of course, assumes that all of the indorsements on the Note are authentic and authorized.").
Texas' U.C.C. provides that, although Wells Fargo has the ultimate burden of proof, the indorsements on the Note, including ABN Amro's all-important blank indorsement by Margaret A. Bezy, Vice President, are presumed to be authentic:
Tex. Bus. & Com.Code § 3.308(a) (emphasis added).
Texas' U.C.C. defines "presumed" as follows: "Whenever this title creates a `presumption' with respect to a fact, or provides that a fact is `presumed,' the trier of fact must find the existence of the fact unless and until evidence is introduced that supports a finding of its nonexistence." Id. § 1.206(a). In re Pastran, 2010 WL 2773243, at *3, 2010 Bankr.LEXIS 2237, at *10-11 ("Thus, [the claimant] is not required to prove that the indorsements on the Note are valid and authentic unless and until the Debtor overcomes the presumption by putting on evidence that supports a finding that the indorsements on the Note were somehow forged or unauthorized.").
"The presumption rests upon the fact that in ordinary experience forged or unauthorized signatures are very uncommon, and normally any evidence is within the control of, or more accessible to, the defendant."
While Tex. Bus. & Com.Code §§ 3.308(a) and 1.206(a) provide that the presumption of an authentic signature applies "unless and until evidence is introduced that supports a finding of nonexistence," they do not state the quantum of evidence to overcome the presumption. The Official Comment to § 3.308, however, refers to "some evidence" and to "some sufficient showing of the grounds for the denial before the plaintiff is required to introduce evidence," and then states, "[t]he defendant's evidence need not be sufficient to require a directed verdict, but it must be enough to support the denial by permitting a finding in the defendant's favor." Off. Cmt. 1 to § 3.308.
It is important to keep in mind, however, that if the presumption is overcome, the ultimate burden of proof under Tex. Bus. & Com.Code §§ 3.308(a) and 1.206(a) is on Wells Fargo. See People v. Richetti, 302 N.Y. 290, 298, 97 N.E.2d 908 (1951) ("A presumption of regularity exists only until contrary substantial evidence appears.... It forces the opposing party (defendant here) to go forward with proof but, once he does go forward, the presumption is out of the case."). Thus, in In
What is the Debtor's evidence that the blank ABN Amro indorsement was forged or unauthorized, and is it sufficient to overcome the presumption under Tex. Bus. & Com.Code §§ 3.308(a) and 1.206(a)?
The Debtor first points out that the version of the Note attached to Wells Fargo's initial proof of claim, Claim No. 1-1, did not contain the blank ABN Amro indorsement. Besides observing that the penalty for filing a false proof of claim, as stated in Official Form 10, can be substantial, the Debtor also observes that, with the exception of the versions of the Note attached, Claim Nos. 1-1 and 1-2 were otherwise identical and included copies of most if not all of the potentially operative documents from Wells Fargo's files, which, she argues, strongly suggests that Claim No. 1-1 was not merely sloppily prepared but, rather, reflected a thorough review of the files, thus suggesting a nefarious reason why the form of Note with the blank ABN Amro indorsement was not attached to that proof of claim but was attached to Claim No. 1-2.
Were this the Debtor's only evidence, the Court might nevertheless hold that she had not overcome the presumption in Tex. Bus. & Com.Code §§ 3.308(a) and 1.206(a). That was the result in In re Phillips, 491 B.R. at 273,
In addition, however, the Debtor relies on the Assignment of Mortgage from MERS, "as nominee for Washington Mutual Bank, FA" having been executed by Mr. Kennerty, an officer of Wells Fargo (the assignee), on behalf of the assignor. Even more tellingly, it appears clear from the date of the Assignment — only three days
It appears from Mr. Kennerty's deposition transcript, although his testimony on this point was at times quite evasive, that during the period in question in 2010 he signed on average between 50 and 150 original documents a day in connection with Wells Fargo's administration and enforcement of defaulted loans. Deposition Transcript, dated October 15, 2012, of Herman John Kennerty ("Dep.Tr.") at 89-92. This was part of his duties as the Wells Fargo manager in charge of "default documents." Id. at 44. In other words, on a daily basis Mr. Kennerty and his team, members of which he also testified signed a like number of documents each day, id., processed a large volume of loan documents for enforcement with very little thought about what they were doing. It is not clear that Mr. Kennerty fully understood the legal consequences of signing these documents; for example, he testified when shown the Assignment of Mortgage that he executed it not on behalf of the assigning party but, rather, on behalf of the party "in getting the assignment," although he also testified that "I'm — I'm not an attorney, but the way I understand this document, it was assigning the mortgage, taking it out of MERS' name and putting into Wells Fargo Bank's name." Id. at 93-4. It is clear, however, that he pretty much signed whatever outside counsel working on the default put in front of him and that these documents often included assignments, including the Assignment of Mortgage, drafted by Wells Fargo's out-side enforcement counsel to fill in missing gaps in the record.
Thus, in describing the work of his "assignment team" Mr. Kennerty stated, "[I]f there was not an assignment in there [that is, in Wells Fargo's loan file] then they would — excuse me, they would advise the attorney that we did not have it, that they would need to draft the — the appropriate assignment." Id. at 116. See also id. at 76 ("[I]f the assignment needed to be created they would have advised the attorney, the requesting attorney to — that we did not have the assignment in the collateral file, then they needed to draw up the appropriate document."); id. at 121 ("Once it [that is, the collateral file] was received then they would check to see if it was something that could be used or not used; and, if it's something that was in the file, but couldn't be used then they would advise the requesting attorney to go ahead and draft the actual document.").
Because Wells Fargo does not rely on the Assignment of Mortgage to prove its claim, the foregoing evidence is helpful to
Moreover, Mr. Kennerty's testimony does not stop at describing manufactured mortgage assignments. He also testified that his "assignment team's" duties were not limited to processing assignments, including, when determined necessary, creating them; in addition, the "assignment team" included people tasked with endorsing notes. Id. at 136. His testimony on this issue is critical and will be quoted at length:
Id. at 129-31.
Mr. Kennerty then testified about the process for receiving such requests from outside enforcement attorneys and how one or two people in his department had
He then testified as follows:
Id. at 135-36 (emphasis added).
Later in his deposition, Mr. Kennerty was shown the two forms of the Note attached to Claim Nos. 1-1 and No. 1-2, respectively, and testified that he did not know how or when the indorsements were placed on them. Id. at 142-44. He did have this to say, however:
Id. at 143-44. Mr. Kennerty said nothing more that was relevant to the issue of whether Wells Fargo forged the blank ABN Amro indorsement, with the exception of stating that "I am not familiar with Margaret Bezy," id. at 143, who has not been identified as ever having been an employee of Wells Fargo and presumably was an employee of ABN Amro.
I conclude that the foregoing evidence cumulatively shifts the burden to Wells Fargo under Tex. Bus. & Com.Code §§ 3.308(a) and 1-206(a) to show the authenticity of the blank ABN Amro indorsement to establish its status as a holder of
Reading Mr. Kennerty's testimony carefully, it is conceivable that all of Wells Fargo's newly created mortgage assignments and newly created indorsements were proper, that, for example, the only time the indorsement processors wrote in or stamped new note indorsements (when, as Mr. Kennerty testified, they were not already on the note) or prepared new mortgage assignments was when endorsing notes from Wells Fargo to some other entity, whether as principal or agent, filling in the blank indorsements to itself, or properly, with due authorization, assigning mortgages to it from a third party. However, that interpretation certainly does not leap out from Mr. Kennerty's testimony. By no means did he qualify his testimony to make it clear that his assignment team and indorsement processers were limited by such restrictions. Frankly, it does not appear that he understood the difference between preparing legitimate assignments and indorsements by Wells Fargo and improper assignments and indorsements to Wells Fargo.
Moreover, it is widely recognized that an agent or servicer can enforce a note and mortgage on behalf of its principal. See, e.g., Martins v. BAC Home Loans Servicing, L.P., 722 F.3d 249, 255 (5th Cir.2013); see also In re Minbatiwalla, 424 B.R. 104, 108-09 (Bankr.S.D.N.Y. 2010) (servicer has standing to file proof of claim). It also is widely recognized, as discussed above, that a holder of a note can enforce the note and mortgage even if it does not "own" the loan, and, of course, that the holder of a note indorsed in blank does not have to fill in the blank with its own name in order to enforce it. Thus, why would Wells Fargo's defaulted document enforcement group be creating new assignments and adding indorsements on a regular basis from itself to, effectively, itself? It would not need to. Similarly, why would Mr. Kennerty's group — Wells Fargo's defaulted document group — on a regular basis be creating new documents and adding indorsements from itself to true third parties for the third parties' benefit? True third parties were not enforcing the documents; Wells Fargo was.
Wells Fargo has not carried that burden. To do so, it offered only Mr. Campbell's testimony and, through him, certain exhibits copied from Wells Fargo's loan file. That testimony was not helpful to it. Mr. Campbell was not involved in the administration
As noted above, the Debtor objected to Mr. Campbell's testimony to the extent that it was intended to establish a business records exception to Fed.R.Evid. 802. Because the loan file described by Mr. Campbell was an electronic record
In large measure, Mr. Campbell was not up to that task (and Wells Fargo offered no other evidence to meet that standard, were the Court to impose it). Mr. Campbell did not know whether there was any person overseeing the accuracy of how the records in the system were stored and maintained. Id. at 32, 40, 42-3. He did not know who controlled access to the system or the procedure for limiting access, except to say "[A]ccess is granted as needed." Id. at 40-1. He did not know of any procedures for backing up or auditing the system. Id. at 42. He stated, "I am not a technology person" and was not able to answer what technology ensures the accuracy of the date and time stamping of the entry of documents into the imaging system. Trial Tr. at 22. In his deposition, he testified that he did not know whether the dates and times of the entry of documents in the system could be changed, but at trial he stated that, after his deposition, "I attempted to look into this, and, to my knowledge, I am not aware of any way to change or remove attachments into the imaging system," id. at 43, which, given his general lack of knowledge about how the system works and failure to explain the
Mr. Campbell also undermined his credibility when he supported his statement that he is a custodian of Wells Fargo's electronic record files by stating, "I review and maintain them, yes," id. at 38, a remarkable contention in light of his other testimony discussed above. And, indeed, it became clear when pressed on this issue that Mr. Campbell was not using the word "maintain" in its normal sense of ensuring that the system runs properly or even of auditing it by monitoring its inputs and outputs, but, rather, simply that he "asserts" its accuracy: "I review and maintain that they're accurate, yes.... I have the ability to access and maintain records. I can upload documents into an imaging system." Id. at 38. That is (and his other testimony clearly corroborated this), Mr. Campbell vouched for the system based only on the facts that he and other people associated with Wells Fargo regularly use it and he can find documents on it that match originals that counsel has shown him, id. at 33, 36, although he does not know who originated them and put them there and how, and perhaps exactly when, they were put there. Id. at 39-40, 43-5.
Nevertheless, Wells Fargo did not have to meet the heightened standard asserted by the Debtor for admission of electronic records under Fed.R.Evid. 803(6). In the Second Circuit, application of the business records exception, including to electronic records, requires only that a qualified witness testify that the document was kept in the course of a regularly conducted business activity and that the making of such record was the regular practice of that activity. United States v. Komasa, 767 F.3d 151, 156 (2d Cir.2014);
Here, Mr. Campbell credibly testified that Wells Fargo widely and regularly used its electronic imaging system, Trial Tr. at 13-15, 17, and that he was sufficiently familiar with it to use it himself on a regular basis. Id. at 15-16, 52-3. He also testified that generally documents were entered into the system substantially contemporaneously with their receipt or preparation. Id. at 16-17, 20-1. Mr. Kennerty corroborated Wells Fargo's reliance on regularly kept loan files, Dep. Tr. at 73-4, 118-19, 148-49, 150 and 154, which is certainly reasonable considering that such files may be used to administer and enforce a large number of loans. Accordingly, the Debtor's objection to the admission of Mr. Campbell's testimony and Wells Fargo's proposed exhibits A through G should be overruled and those exhibits admitted into evidence.
This of course leaves open whether, in the light of Mr. Campbell's testimony and Wells Fargo's Exhibits A through G, as well as the other evidence admitted suggesting forgery, Wells Fargo has carried its burden to substantiate the authenticity of the blank ABN Amro indorsement.
The evidence ultimately is not helpful to Wells Fargo. As noted above and acknowledged by both Mr. Campbell and Wells Fargo's counsel, the primary purpose of his testimony was to show that the image of the version of the Note bearing the blank Wells Fargo indorsement appears in the loan file before the preparation of either of the two proofs of claim filed by Wells Fargo in this case. Trial Tr. at 49-50 (Mr. Campbell: "I was looking for the earliest copy of the note that had all the endorsements on it and that took me back to the [sic] December 28th of 2009."); id. at 68 (Mr. Dunn: "[T]he question is whether the note in that form was in the possession of Wells Fargo prior to the time the amended proof of claim, or the original proof of claim, was filed, so the screenshot and the fact that it does appear and the witness was able to view it and verify it as an entry on the date identified back in 2009 is an indicator that it was, in fact, so indorsed.").
That fact, however, at best merely muddies the picture. As stated by Mr. Campbell in ¶ 1 of his Affidavit, dated July 2, 2013 ("Campbell Aff."), which, pursuant to the Court's direction was submitted in lieu of his direct testimony, "In February 2007 certain rights in and with respect to the loan at issue in this proceeding were transferred to Wells Fargo.... The transfer of the Note and Mortgage to Wells Fargo in February 2007 was reflected in Wells Fargo's computerized business records, accessible on an `AQN1' screen, which reflects Wells Fargo's acquisition of the loan."
Id. ¶ 2. What Mr. Campbell avoids saying here (but is clear from his admission during the evidentiary hearing that the first time the Note with the blank ABN Amro indorsement appears in Wells Fargo's records is December 28, 2009 (Trial Tr. at 49-50)), is that when the loan was transferred to Wells Fargo, Wells Fargo did not receive the Note with the blank indorsement, only the Note with a special indorsement that Wells Fargo could not enforce.
Apparently, Mr. Campbell's reference in ¶ 2 of his Affidavit to the "origination file" was intended to provide a rationale for why an allegedly outdated copy of the Note was the only version logged into Wells Fargo's records between the transfer of the loan to it and December 28, 2009, the date identified by Mr. Campbell as the first appearance in the file of the enforceable version with the blank ABN Amro indorsement. Mr. Campbell's basis for stating that the Note without the blank indorsement was part of the "origination file" is shaky, however. The index of documents entered into Wells Fargo's electronic file for this loan, attached as Exhibit G to the Campbell Aff., does designate, at page 9 of 10, a 51-page batch of documents logged in on March 27, 2007 as "Origination;" however, the Note (presumably with only the special indorsement) is separately logged in on that date solely as a "Note." Ex. G, at 9 of 10.
Moreover, in addition to the fact that the specially indorsed version of the Note appears on its own in the file on March 27, 2007, and not as part of an "origination file," Wells Fargo has offered no explanation, let alone evidence, of who else, if not Wells Fargo, held the original of the Note with the blank ABN Amro indorsement before December 28, 2009, if, in fact, such a version then existed. The file provided by the transferor should have included it, if it did exist during that period, because Washington Mutual Bank, FA would not have been able to enforce the Note, either, without the blank indorsement, and the Assignment of Deed of Trust attached to the proofs of claim states that both the
Why would the Note with the blank ABN Amro indorsement have appeared in Wells Fargo's file only on December 28, 2009, twenty-two months later? Wells Fargo has not provided an explanation, supported by evidence, replying only that the question is irrelevant. All that matters, Wells Fargo contends, is that the enforceable document was imaged into its records before the Debtor's counsel started raising questions about Claim No 1-1. What is, in fact, at least equally pertinent, however, is that the loan went into default well before the appearance of the blank-indorsed Note in the file. Thus, Wells Fargo would at that time have started to focus on the enforcement of its rights; thus the "default documents" team would then have become involved; thus, recognizing the absence of an enforceable Note, someone on Wells Fargo's behalf responsible for enforcement should then, consistent with Mr. Kennerty's testimony, have seen fit to add the necessary indorsement.
In fact, the loan went into default twice — first in October, 2007 (see Ex. C to Campbell Aff., consisting of an October 15, 2007 default letter from Wells Fargo to the Debtor) and then in November 2008. Fairly soon after the first default, the parties entered into a Loan Modification agreement, on February 11, 2008. Campbell Aff. ¶ 6. The Debtor then defaulted under the loan modification agreement, however, starting in November, 2008, and remained in default thereafter, making only sporadic payments. Id. ¶¶ 7-8. It appears both from several entries on Exhibit G to the Campbell Aff. and the Debtor's testimony that workout discussions continued between Wells Fargo and its counsel, on the one hand, and the Debtor, on the other, after this second default, including until shortly before the Debtor commenced her bankruptcy case. Ex. G at 2 of 10; Trial Tr. at 100-101. It is reasonable to assume from the Debtor's testimony, however, that during this period she appeared less likely to be able to perform a new loan modification agreement that would be acceptable to Wells Fargo (she acknowledged that her financial condition worsened, she moved out of the Property, and there was storm damage to it during that period, Trial Tr. at 99-100), and that those responsible for enforcing the loan would then have seen the need for a blank indorsement on the Note and had it forged.
It is not conclusively proven that this is what happened, but, as discussed above, in the light of the evidence submitted by the Debtor Wells Fargo has the burden to show that the indorsement was genuine, and its only argument, based on the timing of the appearance of the blank-indorsed Note in the file record, does not address the reasonable contrary inference that Wells Fargo forged it when the Debtor became seriously in default. Nor is there any evidence that anyone at ABN AMRO caused the original of the Note to be stamped and signed with the blank indorsement, nor any evidence that anyone from Washington Mutual Bank, FA or MERS on its behalf held that version, let alone forwarded it to Wells Fargo after
Finally it is also worth noting that, unless the Debtor successfully invokes a separate power to transfer the Property free and clear, the Property is still encumbered by the Deed of Trust assigned to MERS as nominee for Washington Mutual Bank, FA, even if Wells Fargo has not sought to independently rely on it or the Assignment of Mortgage; in other words, there is a serious limitation to the notion that the Debtor now has a "free house." On the other hand, there are certain bare minimums to proving one's claim. The failure to timely file a claim in this case would have precluded the enforcement of an otherwise allowable claim against the Debtor, notwithstanding the Debtor's receipt of the money that formed the ultimate basis for the claim. Wells Fargo's failure to establish that it is the holder of the Note similarly requires the Claim Objection to be granted and Claims 1-2 and 1-1 disallowed.
For the foregoing reasons, the Claim Objection is granted. Counsel for the Debtor should submit a proposed order to chambers consistent with this Memorandum of Decision.
