MARTIN GLENN, UNITED STATES BANKRUPTCY JUDGE.
Throughout this case Ditech Financial
Following the expungement of its claim, Ditech filed a motion to reconsider the order expunging the claim.
At the end of the August 28, 2018 hearing, the Court granted the Motion for Reconsideration, directed counsel to take discovery, if necessary, and said the matter would be set down for an evidentiary hearing to determine if Ditech had standing to file the proof of claim. (Id. at 26.) Because of delays occasioned by Ditech's repeated failure to timely respond to discovery, the evidentiary hearing did not occur until February 6, 2019. In the Joint Pre-Trial Conference Order, Ditech identified a single witness, Bradford Hardwick, to testify at the hearing. (ECF Doc. # 80, entered January 31, 2019.) That order provided that "No witness not identified herein shall be permitted to testify on either party's case in chief absent good cause shown." (Id. at 3.) On February 5, 2019, the day before the evidentiary hearing, Ditech tried to substitute a different witness in place of Hardwick (who Debtors' counsel had deposed). (ECF Doc. # 85.) At the start of the February 6 evidentiary hearing the Court refused to permit Ditech to substitute a new witness for Hardwick. Both sides were permitted to designate portions of Hardwick's deposition transcript and those were admitted in evidence. (ECF Doc. ## 86, 87.) The only witness to testify at the hearing for both direct and cross-examination was Daniel Benyamin. In addition to the witness testimony, exhibits were introduced in evidence.
As explained below, Ditech failed to establish that it had standing to file the proof of claim, either as the servicer of the note or as the holder of the note. Accordingly, the Debtors' Objection is sustained and Ditech's proof of claim is
In 2003, the Debtors signed a promissory note in favor of IndyMac Bank, F.S.B. ("IndyMac") that was secured by the
On December 26, 2017, Ditech filed a proof of claim in this case allegedly secured by the Property. The proof of claim states that Ditech is the current creditor and servicer of the Note, and that the claim has not been acquired from someone else. ("Proof of Claim," Claim 5-1, at 1 and 4.) Ditech's Proof of Claim also attaches, inter alia, a copy of the Note with an endorsement in blank. (Id.) The Proof of Claim is self-contradictory in the sense that it states that Ditech did not acquire its claim from someone else even though Ditech is not a party to the attached Note (IndyMac is identified in the Note as the lender) and the Note was endorsed in blank. Also, as explained further below, the Proof of Claim is inconsistent with Ditech's ultimate view of the case. At trial Ditech claimed that the Note was owned by the Freddie Mac and that Ditech was the servicer of the Note.
On May 3, 2018, the Debtors objected to Ditech's Proof of Claim, arguing that it lacked standing to file the Proof of Claim. The Debtors' Claim Objection to Ditech's Proof of Claim set a response deadline of June 12, 2018 and a hearing date of June 19, 2018. (ECF doc. # 29.) Ditech did not file a timely response and did not appear at the June 19, 2018 hearing. Benyamin, 587 B.R. at 244.
Ditech filed an untimely response to the Debtors' objection on June 26, 2018. (The "Response," ECF Doc. # 51). It purported to attach assignments of the mortgage (but not of the Note) from OneWest to Ocwen, from Ocwen to Residential Capital Solutions, Inc. ("Residential Capital"), and from Residential Capital to Ditech. (Id. ¶ 8-10.) Each assignment was dated in either March or April of 2017. (Id.) The Response also attached a Possession Statement by a Ditech Employee, stating that Ditech's document custodian came into possession of the original Note on December 7, 2015. (Response, Ex. D.) That so-called Possession Statement is based on inadmissible hearsay.
On July 2, 2018, this Court issued its Opinion and Order expunging Proof of Claim # 5-1 because Ditech failed to establish standing. Benyamin, 587 B.R. at 253. The Opinion provided that Ditech could seek relief from the Order expunging the Proof of Claim if it promptly sought relief under 11 U.S.C. 502(j). Id.
Two weeks after the Opinion was issued, Ditech moved the Court to reconsider. (Motion for Reconsideration.) The Court held a hearing on the Motion for Reconsideration on August 28, 2018. At the hearing, even though the Proof of Claim stated that Ditech was the creditor, and the Response attached documentation showing that Ditech was the owner of the mortgage, Ditech's counsel argued that Freddie Mac, not Ditech, is the "investor" in the Note. (August 28 Transcript, at 8:1-2.) Counsel described Ditech as the servicer and the holder of the Note. (Id. at 10:2-3). Ditech's counsel, for the first time, showed the Court the "wet-ink" original of the Note. (Id. at 20:5-14.) Counsel stated that "physically the note was held by BNY Mellon as a custodian." (Id. at 10:9-10.)
While the Debtors' Claim Objection was pending, the Debtors filed an application to sell the Property free and clear of all liens and encumbrances pursuant to section 363 of the Bankruptcy Code. (ECF Doc. # 49.) The Court granted the application, found that the purchasers of the Property constituted good faith purchasers within the meaning of section 363(m) of the Bankruptcy Code, but ordered that the sale proceeds be held in escrow by Debtors' counsel until further order of the Court. (Id.)
To file a proof of claim, a claimant must be a "creditor or the creditor's authorized agent." FED. R. BANKR. P. 3001(b). A "creditor" is 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 a "right to payment" or a "right to an equitable remedy for breach of performance if such breach gives rise to a right to payment." 11 U.S.C. § 101(5)(A) and (B). "A claim or interest, proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest ... objects." 11 U.S.C. § 502(a). "[The] Bankruptcy Code and Fed. R. Civ. P. 17 each have liberal standing provisions, designed to allow a party to appear as long as it has a direct stake in the litigation under the particular circumstances." In re Conde-Dedonato, 391 B.R. 247, 250 (Bankr. E.D.N.Y. 2008) (citation and internal quotation marks omitted).
A mortgage servicer has standing to file a proof of claim against a debtor pursuant to its duties as a servicer. Id. (citing In re Viencek, 273 B.R. 354, 359 (Bankr. N.D.N.Y. 2002); Greer v. O'Dell, 305 F.3d 1297, 1302 (11th Cir. 2002); Bankers Trust (Delaware) v. 236 Beltway Inv., 865 F.Supp. 1186, 1191 (E.D. Va. 1994); In re Tainan, 48 B.R. 250, 252 (Bankr. E.D. Pa. 1985) ). To establish standing as a servicer, the claimant must show that it is an authorized agent of an entity that has the right to enforce the note. In re Veal, 450 B.R. 897, 920 (B.A.P. 9th Cir. 2011) ("When debtors ... challenge an alleged servicer's standing to file a proof of claim regarding a note governed by Article 3 of the UCC, that servicer must show it has an agency relationship with a `person entitled to enforce' the note that is the basis of the claim."); see also In re Parrish, 326 B.R. 708, 720 (Bankr. N.D. Ohio 2005).
An assignee of a note and mortgage also has standing to file a proof of claim. Id. at 251. For an assignee to establish standing, the assignee must provide proof of assignment of the note to the assignee or must demonstrate that the note has been endorsed in blank and that the assignee has physical possession of the note. Benyamin, 587 B.R. at 251 (citing In
Bankruptcy Rule 3001(f) provides that "a proof of claim executed and filed in accordance with these rules shall constitute prima facie evidence of the validity and amount of the claim." FED. R. BANKR. P. 3001(f). Bankruptcy Rule 3001 requires a claimant to attach supporting documentation to a proof of claim in a bankruptcy case. Bankruptcy Rule 3001(c) provides that:
FED. R. BANKR. P. 3001(c)(1). Failure to attach the documentation required by Bankruptcy Rule 3001 will result in the loss of the prima facie validity of the claim. In re Minbatiwalla, 424 B.R. 104, 119 (Bankr. S.D.N.Y. 2010) ("[I]n certain circumstances claims can be disallowed for failure to support the claim with sufficient evidence, even if this is not a specifically enumerated reason for disallowance under 11 U.S.C. § 502(b), because absent adequate documentation, the proof of claim is not sufficient for the objector to concede the validity of a claim."); In re Lundberg, 2008 WL 4829846, at *7-8 (Bankr. D. Conn. Oct. 27, 2008) ("If ... the claimant fails to allege facts in the proof of claim that are sufficient to support the claim, e.g., by failing to attach sufficient documentation to comply with Fed. R. Bankr. P. 3001(c), the claim is ... deprived of any prima facie validity which it could otherwise have obtained."); In re Hight, 393 B.R. 484, 493 n.7 (Bankr. S.D. Tex. 2008) ("[F]ailure to comply with Rule 3001(c) merely renders a claim to not constitute `prima facie evidence of the validity and amount of the claim.'") (internal citation omitted). However, failure to attach the required documentation does not automatically render the claim invalid. Hight, 393 B.R. at 493 n.7 ("[W]hile the Objection to Claim properly states that failure to comply with Rule 3001(c) is `improper,' the Court notes that such a failure does not automatically render a claim invalid.").
In the prior Opinion in this case, this Court held that Ditech's Proof of Claim was not entitled to prima facie validity and that the claim should be expunged. In re Benyamin, 587 B.R. at 252. While the Court subsequently granted the Motion for Reconsideration, the Court made clear that Ditech still carried the burden of proof. The Court stated, "the fact that Ditech may now have possession of the note, wet-ink original endorsed in blank, in my view is not in itself sufficient. I want to know the who, what, where, when and why. Title to the note, Ditech's role as servicer, and all of those facts." (August 28 Transcript, at 26:16-20.) The Proof of Claim was not entitled to be treated as prima facie evidence of validity and amount because of the numerous inaccuracies found in the document and the lack of supporting documentation. See In re Milliman, No. 17-10393, 2018 WL 1475937, at *3 (Bankr. D. Kan. Mar. 23, 2018) ("Accurately reporting information on a proof of claim is critical in every case because Fed. R. Bankr. P. 3001(f) accords properly prepared claims the presumption of validity."). Accordingly, Ditech bears the burden of proof in this case.
Under Ditech's view of the case, Freddie Mac obtained the Note at some unidentified time before the Petition Date. Freddie Mac then entered into two agreements, also before the Petition Date. Under the first agreement, Ditech agreed to act as servicer of the Note. Under the second
Ditech cannot show that it was the holder of the Note on the Petition Date. To prove this point, Ditech attempted to introduce into evidence a custodial agreement between Freddie Mac, Ditech, and BNY Mellon. The Debtors objected, arguing that it was inadmissible because the document was undated, unsigned, and Mr. Hardwick testified that he had no personal knowledge of it. The Court sustained the objection. Without the custodial agreement, Ditech failed to show that it was in actual or constructive possession of the Note on the Petition Date. Even if the custodial agreement had been admitted in evidence, the Court would still not have sufficient evidence to find that Ditech was in constructive possession of the Note as of the Petition Date because the custodial agreement is not dated. Furthermore, the document does not refer to the Note or to the Debtors. Thus, constructive possession of the Note, through alleged custodian BNY Mellon, cannot be the basis of Ditech's standing. Actual possession of the note cannot be the basis of Ditech's standing either because Ditech admitted that did not come into actual possession of the Note until BNY Mellon transferred the Note to Ditech in the summer of 2018.
Ditech also argues that it has standing to file a Proof of Claim because it was the servicer of the Note. This argument fails as well. As explained above, a purported servicer of a note must show that it is an authorized agent of an entity that has the right to enforce the note. In re Veal, 450 B.R. at 920. Ditech introduced evidence showing that it is Freddie Mac's agent, but it failed to show that Freddie Mac had the right to enforce the Note. Ditech argued that Freddie Mac had standing to enforce the Note because it had constructive possession of the Note on the Petition Date due to its custodial relationship with BNY Mellon. Ditech was unable to prove the custodial relationship between Freddie Mac and BNY Mellon for the same reasons that Ditech could not prove the custodial relationship between Ditech and BNY Mellon: the custodial agreement was not admitted into evidence, it was not dated, and it does not refer to the Note or the Debtors.
For the foregoing reasons, Proof of Claim 5-1 is
The automatic stay under 11 U.S.C. § 362(a) does not apply to an objection to a claim for recovery asserted by Ditech. Sections 362(a)(1) and (3) refer to actions "against the debtor" and to acts to obtain possession of or exercise control over "property of the estate." Martin-Trigona v. Champion Fed. Sav. & Loan Ass'n, 892 F.2d 575, 577-78 (7th Cir. 1989). "There is, in contrast, no policy of preventing persons whom the bankrupt has sued from protecting their legal rights. True, the bankrupt's cause of action is an asset of the estate; but as the defendant in the bankrupt's suit is not, by opposing that suit, seeking to take possession of it, subsection (a)(3) is no more applicable than (a)(1) is." Id. The Second and Third Circuits have held the automatic stay is applicable only to actions against the bankrupt or to seizures of property of the bankrupt. In re Berry Estates, Inc., 812 F.2d 67, 71 (2d Cir. 1987); Association of St. Croix Condominium Owners v. St. Croix Hotel Corp., 682 F.2d 446, 448 (3d Cir. 1982). Consequently, the automatic stay does not prevent this Court from ruling on the objection to Ditech's claim in this contested matter.