GUY R. HUMPHREY, Bankruptcy Judge.
The mortgage at issue in this proceeding is subject to a pooling and servicing agreement which governs the terms of a securitization trust. The trust relates to certain pooled residential mortgages, and the promissory notes underlying those mortgages. The principal issue to be determined is the effect of this pooling and servicing agreement upon the standing of an entity in physical possession of a note that is an asset of that trust to enforce it through its proof of claim. Also at issue is the effect of the debtors' modified Chapter 13 plan on the treatment of such a claim. The court determines that Bank of New York Mellon, Trustee, being in physical possession of the note with an affixed endorsement in blank, is the holder of a negotiable instrument under the Ohio Uniform Commercial Code and, therefore, had standing to file a proof of claim and is the real party in interest. The court further determines that this claim is governed by the terms of the debtors' modified Chapter 13 plan.
Robert and Patricia Smoak filed a Chapter 13 bankruptcy petition and plan (docs. 1 & 7). The Smoaks own a home in a Dayton suburb (the "Property"). The Smoaks scheduled Ocwen Loan Servicing ("Ocwen") as having a claim (the "Claim") secured by the Property; however, the record clarified that Ocwen, as its full name suggests, is only the loan servicer. The Smoaks' Chapter 13 plan proposed to address the Claim through a special plan provision (See doc. 7). According to this provision, the loan was to be paid in full by April 1, 2009 with a balloon payment in the amount of $93,714 due on that date. As the note matured during the time period covered by the Smoaks' Chapter 13 plan, the Smoaks proposed to pay the entire Claim within the time period of their plan.
Subsequently the Smoaks moved to modify their plan (doc. 57). The modification, among other things, sought to fix the amount of the Claim at $76,000 and set a 10 year amortization schedule for payments within the plan and, consistent with the prior plan, provided for full payment of the Claim within the time period covered by the modified plan. The Smoaks intend to satisfy these requirements by making the monthly amortized payments during the life of the plan until they can obtain a new loan to pay the balance of the Claim.
"The Bank of New York Mellon, as Trustee on behalf of the registered certificateholders of GSAMP Trust 2004-SEA2, Mortgage Pass-Through Certificates, Series 2004-SEA2" ("Bank of NY Mellon" or "Trustee of the Securitization Trust") filed a proof of claim in the amount of $96,608.65 (Proof of Claim No. 1). The proof of claim was filed as secured and attached a copy of a mortgage (the "Mortgage") and note (the "Note") reflecting Bank One, NA as the lender. Ocwen, as the servicer of the loan, filed the proof of claim and was to collect all the payments (See claim 1-1). The Smoaks objected to the Claim (docs. 24 & 25), arguing that "[s]ince Creditor's claim references no documents showing either Ocwen or the Creditor as the owner or assignee, the claim must be disallowed under § 502 and Rule 3001(c). Debtors assert that documentation of ownership of the claim is particularly important since the entity listed on the Note, Bank One N.A., has been purchased by another financial entity and Bank of NY Mellon is identified as a securitized trust." Ocwen, on behalf of Bank of NY Mellon, responded only that the proof of claim "is correct in all respects" and attached documentation purportedly showing the ownership of the loan (doc. 30).
The court ultimately held a hearing on the objection to the Claim. Following the hearing on the Claim, the parties entered into a stipulation which, as will be explained, narrowed the dispute to whether noncompliance with the pooling and servicing agreement which governed the securitization trust to which the Note was purportedly transferred affects Bank of NY Mellon's standing and the allowance of the Claim. Before addressing those issues, and in order to place the effect of the pooling and servicing agreement in its proper context, the court will review the timing and circumstances of the original signing of the Note and granting of the Mortgage and the transfer of the Note and Mortgage.
As evidenced by the Note (Exhibit A), on March 8, 1999 the Smoaks borrowed
The parties agreed at the hearing that Bank One merged with JP Morgan Chase and that the Bank of New York subsequently purchased certain assets from JP Morgan Chase, which included the Note. Additionally, the evidence shows Ocwen had the authority to act as agent to file the proof of claim on behalf of Bank of New York Mellon and to service the loan on behalf of Bank of NY Mellon. See Exhibit F. However, the Smoaks have consistently asserted that Bank of NY Mellon, and Ocwen as its servicer, do not have standing and the authority to pursue a claim in their bankruptcy case because: a) the 2009 Allonge does not comply with Ohio's version of the Uniform Commercial Code (the "UCC") codified in Ohio Revised Code Chapter 1301 et seq.; and b) the parties to the pooling and servicing agreement (the "PSA") did not comply with the terms of the PSA.
Subsequent to the evidentiary hearing, the parties stipulated that Bank of NY Mellon is in physical possession of the Note, along with a blank indorsement in the form of an allonge affixed to the note dated March 31, 2004 (the "2004 Allonge") (doc. 94).
As noted, the Bank of NY Mellon is the Trustee for the Securitization Trust. For purposes of this decision, a pooling and servicing agreement is an agreement creating a trust that defines the terms under which promissory notes and their related mortgages are placed into the trust, describes how the notes and mortgages and related loan documents are transferred by and between the parties to the trust, and sets forth the various responsibilities of the parties to the trust. The promissory notes, mortgages or deeds of trust, and related loan documents are the trust res. Through the securitization process, the beneficial or ownership interests in the trust are held by investors. See Exhibit 1.
The PSA states that the "mortgage loans" would be purchased from Bank One and Bank One would make "certain representations and warranties relating to the mortgage loans." (Exhibit 1, p. 13 of 274). Under the PSA terminology, Bank One is the "responsible party." (Exhibit 1, p. 35 of 274). The closing date for the Securitization Trust was "on or about June 29, 2004" (Exhibit 1, p. 11 of 274). As of June 30, 2004 Ocwen was to act as the primary servicer for the loans (Exhibit 1, p. 14 of 274). GSMC is the depositor of the mortgage loans. The mortgages were acquired by Goldman Sachs Mortgage Company (which acted as an affiliate for the depositor) from the responsible party, Bank One. The PSA also provides for the transfer of the mortgage loans to encompass various documents including the original note, original mortgage, original or certified copies of guaranties, mortgage assignments and other relevant documents (Exhibit 1, p. 45 of 274). Generally, the PSA provides that if certain documents are not in proper order after review by the Trustee of the Securitization Trust, the responsible party could be required to repurchase a mortgage loan (Exhibit 1, p. 47 of 274).
The court held a hearing on the Smoaks' objection to the Claim on April 26, 2011 (doc. 81). At the hearing, the parties stipulated to the admission of the Smoaks' only exhibit, being the PSA (Exhibit 1), and all of Bank of NY Mellon's exhibits: the Note (Exhibit A); the Mortgage (Exhibit B); the Assignment of the Mortgage from the Bank of New York to the Bank of NY Mellon (Exhibit C); the Agreement of Merger between Bank One and JP Morgan Chase Bank (Exhibit D); a Form 8-K relating to a set of transactions between Bank of New York and JP Morgan Chase completed on October 1, 2006 (Exhibit E); and the power of attorney granting Ocwen authority to act as the agent for Bank of NY Mellon (Exhibit F). All of these documents were admitted into evidence. The remainder of the hearing consisted of counsels' argument concerning the legal effect of the documents which were admitted.
Following the hearing, the parties stipulated that Bank of NY Mellon "is in physical possession of the subject mortgage note as a holder of said note pursuant to the blank indorsement contained in the allonge affixed to said note" and reserved for determination the issue of "the applicability of the Pooling and Servicing Agreement ("PSA") and any effect said PSA may or may not have regarding Creditor's legal entitlement to enforce the Note as a secured or unsecured claim" (doc. 94). Following the filing of the stipulation, the court took the matter under advisement.
This court has jurisdiction pursuant to 28 U.S.C. § 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B) and (O). Venue of the contested matter has not been contested.
With certain exceptions not relevant, Bankruptcy Code § 502(b)(1) states
Federal Rule of Civil Procedure 17, which is applicable to this contested matter through Bankruptcy Rules 7017 and 9014(c), requires the real party in interest to file a proof of claim. See Veal v. Amer. Home Mtge. Servicing, Inc. (In re Veal), 450 B.R. 897, 907 (9th Cir. BAP 2011); In re Hwang, 438 B.R. 661, 665 (C.D.Cal.2010). The real party in interest with respect to a mortgage proof of claim and enforcement of the rights of a mortgagee in a bankruptcy is the party entitled to enforce the note and its accompanying mortgage. In re Agard, 444 B.R. 231, 245 (Bankr.E.D.N.Y.2011); Hwang, 438 B.R. at 665. In order to determine the real party in interest, the court must look to applicable non-bankruptcy law, in this instance Ohio law, because bankruptcy law does not address the enforcement of promissory notes. See Butner v. United States, 440 U.S. 48, 54-55, 99 S.Ct. 914, 59 L.Ed.2d 136(1979); Nuvell Credit Corp. v. Westfall (In re Westfall), 599 F.3d 498, 502 (6th Cir.2010).
Under Ohio law, the holder of a negotiable instrument, including a promissory note, has the right to enforce it. Ohio Revised Code § 1303.31(A)(1) [UCC 3-301]; In re Foreclosure Cases, 521 F.Supp.2d 650, 653 (S.D.Ohio 2007); Nat'l City Mtge. Co. v. Piccirilli, 2011 WL 3819795 (Ohio Ct.App. Aug. 24, 2011).
The Smoaks raise concern as to their payments on the Note going to the wrong entity and because "[a]ny challenge by an investor in the Trust assets will impinge or place a cloud on title as to the mortgage deed ..." and, therefore, "[t]heir rights will be affected by noncompliance by the parties identified as having responsibilities and duties under the Trust." Brief of Robert K. and Patricia E. Smoak for Objection Hearing (doc. 93), pp. 4-5. However, because it has been established that Bank of NY Mellon is the holder of the Note, the Smoaks, as the maker of the Note,
While the Smoaks assert that Bank of NY Mellon does not have standing as the Trustee of the Securitization Trust to enforce the Note because the terms of the PSA were not complied with, the PSA does not change that Bank of New York Mellon is the holder of the note under the Ohio UCC. The arguments made by the Smoaks that noncompliance with the PSA vitiates the standing of lenders to enforce notes and mortgages have been made by other debtors and rejected. In Correia v. Deutsche Bank Nat'l Trust Co. (In re Correia), 452 B.R. 319 (1st Cir. BAP 2011), the court affirmed the bankruptcy court's determination that the debtors lacked standing to raise violations of the pooling and servicing agreement involved in that case, and following In re Almeida, 417 B.R. 140, 149 n. 4 (Bankr.D.Mass.2009), the court held that the debtors, as makers of the notes, were not parties or thirdparty beneficiaries to the pooling and servicing agreement and, therefore, lacked standing. See also Bittinger v. Wells Fargo Bank NA, 744 F.Supp.2d 619, 625-26 (S.D.Tex.2010) (obligor cannot sue for breach of contract based upon a pooling and servicing agreement to which it is not a party) and Livonia Property Holdings, L.L.C. v. 12840-12976 Farmington Road Holdings, L.L.C., 717 F.Supp.2d 724, 748 (E.D.Mich.2010), aff'd 399 Fed.Appx. 97 (6th Cir.2010) (similar). Based upon the undisputed facts of this contested matter, the PSA does not relate to who is the "person entitled to enforce" the Note under the Ohio UCC.
In addition, the Smoaks cannot attack the transfer of the Mortgage because, under long established Ohio law, a mortgage is an incident of the underlying debt, in this instance the Note. Gemini Svcs., Inc. v. Mortgage Elec. Regis. Sys., Inc. (In re Gemini Svcs., Inc.), 350 B.R. 74, 82 (Bankr.S.D.Ohio 2006); U.S. Bank Nat'l Ass'n v. Marcino, 181 Ohio App.3d 328, 908 N.E.2d 1032, 1038 (2009). As the makers of the Note, the Smoaks cannot challenge the security for the Note based on a defect in its assignment, as long as the holder has provided evidence that the makers granted the Mortgage to secure the obligations owed on the Note. See Noland v. Wells Fargo Bank N.A. (In re Williams), 395 B.R. 33, 44 (Bankr. S.D.Ohio 2008) (defects in assignments of a mortgage may affect subsequent bona fide purchasers of the mortgage, but not the original mortgagor). Bank of NY Mellon has provided such evidence and the Smoaks have not disputed it. See Exhibit B (Mortgage on the Property granted to Bank One NA by the Smoaks).
Even if the Smoaks had standing to raise issues pertaining to noncompliance with the PSA, noncompliance with the PSA does not affect a holder's ability to enforce a promissory note against the maker of the note or deprive the holder from having standing in a bankruptcy case to file a proof of claim and collect on it. The Smoaks argue that the parties to the PSA which governs the Securitization Trust did not comply with the contractual terms of the PSA and, therefore, the Note was never properly transferred to the Securitization Trust or to the Securitization Trustee.
Parties to transactions governed by the UCC can agree to vary the effect of some provisions of the UCC. Thus, Ohio Revised Code § 1301.02(C) [UCC 1-102(3)]
However, the PSA does not and could not vary the essential rules and terminology of the transfer of negotiable instruments to establish the "person entitled to enforce." See Official Comment 2 to UCC 1-102:
Ohio Revised Code § 1301.02(C) (re-codified in Ohio Revised Code 1301.302 (Official Comment 1)) (emphasis added). For example, in interpreting Ohio law, a bankruptcy court determined that Ohio Revised Code § 1301.02 did not permit a party to change the definition of a security interest. In re Homeplace Stores, Inc., 228 B.R. 88, 94 (Bankr.D.Del.1998). Similarly, the PSA does not change who the holder (or other person entitled to enforce) the Note is under Ohio's version of the UCC. Instead, the PSA generally seeks to govern, among many other details, the effect of certain provisions of commercial law and to create certain supplemental obligations between the parties to it.
The holder status of the Trustee of the Securitization Trust is established by Article 3 of the UCC, as codified in Ohio. Article 3, by establishing the "person entitled to enforce" the Note, addresses the proper person to be paid. Veal, 450 B.R. at 909. To the extent the Smoaks are arguing Article 9 of the UCC should apply, Article 9 generally addresses who owns or has other property interests in a negotiable instrument. Id. at 909-10.
In short, even if the assignments and transfers failed to comply with the terms of the PSA, the result is not any different under these facts. The owner of the Note (if it is different than the holder) is not a real party in interest because its rights, if any, would be against a holder or other third party in violation of a contract, not the maker. Hwang, 438 B.R. at 667. Under Rule 19, the owner's rights are not impaired by its inability to protect its interest by filing a proof of claim because it lacks the authority to collect under the Note. See Federal Rule of Civil Procedure 19(a)(1)(B)(i) (applicable by Bankruptcy Rules 7019 and 9014(c)).
The court does not conclude that the status as an owner of a note (or the holding of other interests in a note or in a securitized trust) may never provide standing or that breaches of a pooling and servicing agreement will never be dispositive of the determination of an action, adversary proceeding, or contested matter. Of course, issues as to who may be entitled, under a separate contract, to ultimately receive the mortgage payments collected by the holder of the note, whether recourse obligations between the parties to the pooling and servicing agreement were triggered by the breach of the agreement, and a myriad of other questions relating to a pooling and servicing agreement, securitized trust, and the notes and mortgages could arise. However, the arguments of the Debtors neither require an analysis of any possible error in the transfer of the note to the PSA nor establish their standing under these facts to raise them.
Another issue is the amount of the Claim and its treatment. For the reasons that follow, the court determines that the allowed amount and the treatment of Bank of NY Mellon's claim as Trustee of the Securitization Trust shall be as provided by the Smoaks' modified plan.
Ocwen filed a secured proof of claim on behalf of Bank of NY Mellon as the Trustee of the Securitization Trust in the amount of $96,608.65. Proof of Claim 1. The Smoaks filed an objection to that claim, contending that Ocwen had not established standing and that since the mortgage note became due during the Smoaks' plan period, they could modify the claim both to reduce the interest rate and to reduce the claim to its present value (doc. 25). The Smoaks later filed a motion to modify their confirmed plan (doc. 57). The text of the motion, in pertinent part, states:
Motion for Modification of Plan, p. 1 (doc. 57) (bold in original). The Memorandum In Support of the motion further provided, in pertinent part:
Based upon the above, the Debtors' Plan is modified as follows:
No objection to the motion to modify the plan was filed and the court entered an order approving the modification. In its hearing brief (doc. 77), Bank of NY Mellon argues that the Smoaks' modification is ambiguous because the first page of the motion refers to "full payment" of Bank of NY Mellon's claim while paragraph 2 of the Memorandum in Support provides for reduction of the claim from $96,608.65 to $76,000. The brief further states that:
(doc. 77, p. 9). Thus, Bank of NY Mellon argues that the plan modification is ambiguous because it uses contradictory language, both saying that the claim will be "paid in full" and stating that the claim will be reduced to $76,000 and that this ambiguity must be resolved against the Smoaks as the drafters and proponents of the modification.
First, the court finds that the modification is not ambiguous. Upon review of the entirety of the modified plan, the court finds the confirmed modification determined that the secured claim of Bank of NY Mellon to be $76,000; set a 10 year amortization schedule, including interest; required payments during the plan of $796.84 each month and provided the entire secured claim would be paid in full during the plan by refinancing the obligation to Bank of NY Mellon. The language of the Memorandum in Support and the amortization schedule attached as Exhibit A to the motion clearly set forth that the claim would be $76,000, not as filed in the amount of $96,608.65, and amortized over a ten year period.
Second, even if the modification was ambiguous, it was incumbent upon Bank of NY Mellon to object to the modification and to raise any such ambiguity or questions or concerns that it had concerning the terms of the proposed modification at that time so that any such ambiguity could be timely resolved. As this court noted in In re McLemore, 426 B.R. 728, 737 (Bankr.S.D.Ohio 2010), issues as to vagueness or ambiguity of a plan must be raised at the confirmation stage. Such issues cannot be raised later after the plan or modification has become binding under Bankruptcy Code §§ 1327 and 1329. See also United Student Aid Funds, Inc. v. Espinosa, ___ U.S. ___, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010); In re Harvey, 213 F.3d 318, 322 (7th Cir.2000) and In re
As a final note, the amount of a creditor's claim ordinarily would be addressed and resolved through the claims allowance process and not through the Chapter 13 plan confirmation process. However, the Smoaks' loan matured during the plan period and the Smoaks sought to provide different treatment to that claim pursuant to Bankruptcy Code § 1322(c)(2) and there is no dispute that Ocwen and Bank of NY Mellon received adequate notice of the modification motion. Under these particular facts, the mechanism of using the plan modification to resolve the amount of Bank of NY Mellon's claim along with the other terms of the loan and claim is not offensive to procedural due process. See McLemore, 426 B.R. at 741-42 and In re Hudson, 260 B.R. 421, 430-31 (Bankr.W.D.Mich.2001) (secured creditor must object to plan treatment and filed proof of claim cannot serve as substitute for objecting to treatment under a plan). See also Espinosa, 130 S.Ct. at 1380 (creditor cannot use Federal Rule of Civil Procedure 60(b)(4) to vacate a confirmation order when it failed to object to a properly noticed plan). Ordinarily, absent Bankruptcy Code § 1322(c)(2), this claim, as a secured claim on the primary residence, would not be allowed to be modified under Bankruptcy Code § 1322(b)(2). In short, the fundamental issue in the modified plan was not the amount of the claim, but altering the treatment of the claim.
For these reasons, the court finds that the Smoaks' treatment of Bank of NY Mellon's claim provided in their modified plan is binding on Bank of NY Mellon. Bank of NY Mellon, as the Trustee of the Securitization Trust, shall be paid $76,000, based upon an amortization over 10 years, at an interest rate of 4.750%, with a monthly mortgage payment of $796.84, until the unpaid principal balance, as modified under the plan, is paid in full prior to the completion date of the Smoaks' modified plan through refinancing or otherwise.
The proof of claim filed by Ocwen on behalf of Bank of New York Mellon as the Trustee of the Securitization Trust (1-1) did not have the necessary documentation to show standing and was not entitled to prima facie validity pursuant to Bankruptcy Rule 3001. The Smoaks met their initial burden of production to challenge the allowance of the Claim. However, through the belated stipulation concerning the Note and the Allonge, Bank of New York Mellon has met its ultimate burden of persuasion to establish standing as the real party in interest. Therefore, the objection of the Smoaks to the proof of claim of Bank of New York Mellon as relates to the standing of Bank of New York Mellon is
However, this section only addresses the transfers of registered land, or an interest in registered land, and not generally to encumbrances upon real property. Further, the Smoaks fail to explain how the Property is "registered land." See Ohio Revised Code § 5309.01(D) ("`registered land' means any land registered under this chapter or Chapter 5310. of the Revised Code.") The court finds that this section of the Ohio Revised Code is not applicable.
Ohio Revised Code § 1301.302(A) & (B). Although some recent changes to Ohio UCC law are substantive, all the changes noted to various subsections to the Ohio UCC cited in this decision are not substantive. In any event, the changes only apply to transactions entered on or after the bill's effective date of June 29, 2011. See Ohio 2011 Am. H.B. 9, Section 3.
