Kang Jin Hwang

OCR transcription for search; preserved printed pages are authoritative

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AUTHENTI
U.S. GOVER
INFORMA}

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(“IndyMac Federal’) brings this motion
for relief from the automatic stay as the
loan servicer for creditor Freddie Mac,
and with respect to real property
belonging to debtor Kang Jin Hwang.
IndyMac Federal, is the successor to
IndyMac Bank F.S.E. (“IndyMac”) formerly
the holder of the note, has sold the note to
Freddie Mac, but continues to service the
loan for Freddie Mac — or whomever else
invests in the note. Freddie Mac has not
joined and is not a party to this motion.

TED
ENT
IPN
GPO

In re:
KANG JIN HWANG,
Debtor. )

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Il. INTRODUCTION
IndyMac Federal Bank

SEP 10 2008

NKRUPTCY COURT

CLERK US. BA
CENTRAL UBiarme? oF Sfoepuly eh

UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA

Case No.: LA0Q8-15337SB
Chapter 7

OPINION DENYING LIFT STAY
FOR FAILURE TO JOIN REAL PARTY
IN INTEREST

Date: August 26, 2008
Time: 9:30 a.m.
Ctrm: 1575

IndyMac now argues that as servicer on
the loan, it is a party in interest with
standing to seek relief under § 362(d) of
the Bankruptcy Code.

Although IndyMac may be a “party
in interest” as contemplated by § 362(d) of
the Bankruptcy Code, the court holds that
IndyMac is not the real party in interest
pursuant to Rule 17 of the Federal Rules
of Civil Procedure, in that it lacks the legal
right to enforce the obligation secured by
this mortgage. The motion cannot be
granted, therefore, on procedural grounds.
Pursuant to Fed. R. Civ. P. 17(a)(3),
the hearing on this motion is continued

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until August 26, 2008, to allow the real
party in interest either to join in, ratify, or
substitute into the motion. This opinion
explains the reasons for not granting relief
at this time, as well as the procedure
required for loan servicers such as
IndyMac to successfully move for relief
from the automatic stay.

ll. RELEVANT FACTS

Kang Jin Hwang filed this chapter
7 case on April 22, 2008. Hwang's
residence in Las Vegas, Nevada is
encumbered by a first deed of trust,
recorded on February 1, 2007, supporting
a promissory note in the amount of
$376,000. The lender on the deed of trust
is identical to the payee on the promissory
note, identified on both instruments as
“Mortgageit, Inc.” This note has since
been endorsed over to IndyMac Bank,
F.S.E., which has now been taken over by
the Federal Insurance Depository
Corporation and operates under the name
IndyMac Federal. The deed of trust
names MERS as “the beneficiary under
this Security Instrument” and “a separate
corporation that is acting solely as a
nominee for Lender and _ Lender's
successors and assigns.” An
Assignment of Deed of Trust dated
January 29, 2008 is included with the
motion, which indicates that MERS
assigned and transferred to IndyMac all
beneficial interest under the Deed of
Trust.

' MERS, Inc. is an entity whose sole purpose
is to act as mortgagee of record for mortgage
loans that are registered on the MERS
System. This system is a national electronic
registry of mortgage loans, itself owned and
operated by MERS, Inc.’s parent company,
MERSCORP, Inc.

Page 2 of 11

lll. DISCUSSION

Pursuant to Local Rule 9013-
1(a)(13)(A), the court issued an order
requiring that IndyMac bring to court each
declarant for whom a declaration had
been submitted in support of its motion,
for the purpose of presenting testimony to
support the declaration. A similar order
has been issued by this court in other
motions for relief from the automatic stay
since the beginning of this year because
this court has taken notice of recent cases
and academic studies that reveal the
inaccuracy of payment records in the
mortgage industry.

In addition, since January of this
year — and for reasons entirely distinct
from this court's concern over the
accuracy of payment records — this court
has required moving parties on relief from
stay motions based on a promissory note
to bring to court for inspection the original
promissory note.* This requirement
applies because developments in the
secondary market for mortgages (and
other security interests) have caused the
court to lack confidence that presenting a
copy of a promissory note is sufficient to
show that a movant has the right to
enforce the note, or that it otherwise
qualifies as a real party in interest (as
required by Rules 7017 and 9014).

The court held a hearing on this
motion on July 15, 2008, in order for
IndyMac to present the original note and
present the testimony of Erica A.

? See Katherin M. Porter, Misbehavior and
Mistake in Bankruptcy Mortgage Claims,
{November 6, 2007), University of lowa
College of Law Legal Studies Research Paper
Series Available at SSRN:
hitp://ssrn.com/abstract-102796.

* Production of the note is excused only under
circumstances such as those provided in
Evidence Code Rule 1004 or Cal. Comm.
Code § 3301 (as shown by competent
evidence).

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Johnsen-Sect, a Vice President of
IndyMac. While the court was satisfied
with the declarant’s testimony on the
accuracy of the payment records, her
passing mention of the note’s “investors”
led the court to inquire as to whether
IndyMac had ever sold the note to a third
party. It was in response to the court’s
question that Ms. Johnson-Sect admitted
IndyMac no longer owned the note, but
had sold it to Freddie Mac. Ms Johnson-
Sect, evidently unaware that “owner” and
“holder” are effectively synonymous,
maintained that IndyMac is still the holder
of the note, although Freddie Mac now
owns it. Freddie Mac has not joined and
is not a party to this motion.

A. The Real Party in Interest
Requirement

A motion for relief from the
automatic stay, must satisfy both
substantive and procedural requirements.
The substantive requirements are
provided by § 362(d). The procedural
requirements, on the other hand, are
imposed by the United States Constitution
and the Federal Rules of Bankruptcy
Procedure (which mostly incorporate the
Federal Rules of Civil Procedure).

In the context of relief from the
automatic stay, these two sets of
requirements are often confused because
of the similarity in language between §
362(d) and Rule 17 of the Federal Rules
of Civil Procedure. Section 362(d)
provides that relief from stay shall be
granted “[O]n request of a party in
interest.” § 362(d). This is a substantive
requirement, and it is relatively broad:
many parties are parties in interest for the
purposes of § 362(d).

But a party that seeks relief from
stay must also be “the real party in
interest.” The real party in interest

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requirement is imposed by Fed. R. Civ. P.
17(a)(1).*

The route to the real party in
interest rule for relief from stay motions is
complex. Rule 4001 provides: “A motion
for relief from an automatic stay . . . shall
be made in accordance with Rule 9014,”
which provides procedural rules for
contested matters.

Rule 9014 provides, in turn that
many of the rules for adversary
proceedings apply (with exceptions not
relevant here} to contested matters.
Among the adversary proceedings rules
incorporated by reference in Rule 9014 is
Rule 7017, which provides: “Rule 17
F.R.Civ.P. applies in adversary
proceedings ... .” We thereby arrive at
Rule 17, the first sentence of which states:
“Every action shall be prosecuted in the
name of the real party in interest.”

Under Ninth Circuit law, the real
party in interest is the party with the right
to sue or enforce a claim under the
applicable substantive law. See, e.g., U-
Haul Int, inc. v. Jartran, Inc., 793 F.2d
1034, 1038 (9th Cir. 1986); Alistate ins.
Co. v. Hughes, 358 F.3d 1089, 1094 (9th
Cir. 2004); American Triticale, Inc. v.
Nytco Services, Inc., 664 F.2d 1136, 1141
(9th Cir. 1981).

The term “real party in interest” is
easy to confuse with the term “party in
interest.” “Party in interest” is a very
broad concept in bankruptcy. It includes
the debtor, creditors, employees, officers
of a corporation, professionals active in
the case, and many others. In general, a
party in interest, in the bankruptcy context,

“ Fed. R. Civ. P. 17 applies in alt adversary
proceedings pursuant to Fed. R. Bankr. P.
7017. Fed. R. Bankr. P. 7017, in turn, applies
in all contested matters pursuant to Fed. R.
Bankr. P. 9014. A motion for relief from stay
is a contested matter, and therefore, must be
brought by a real party in interest pursuant to
Fed. R. Civ. P. 17(a)(1).

CJ

er

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is anyone who is entitled to express a

view with respect to a matter before the

court.

In contrast, a “real party in interest”
is a far narrower group, and is usually
limited to a single party. The real party in
interest is “the person who, according to
the governing substantive law, is entitled
to enforce the right.”

It is also important to distinguish
the “real party in interest” requirement
from standing. Standing is constitutional
requirement, grounded in Article IlI.° The
“real party in interest” requirement, on the
other hand, is generally regarded as one
of many “prudential” considerations that
have been “judicially engrafted onto the
Article Ill requirements for standing.” See,
e.g., In re Village Rathskeller, 147 B.R.

5 “Article Ill of the Constitution limits the
“judicial power” of the United States to the
resolution of “cases” and “controversies.”
Valley Forge Christian Coll. v. Ams. United for
Separation of Church and State, 454 U.S.
464, 484, (1982); see also Morrow v. Microsoft
Corp. 499 F.3d 1332, 1339 (9th Cir. 2007).
This constitutional restriction is enforced by
the minimum requirement that a “party who
invokes the court’s authority...show that he
suffered some actual or threatened injury,”
Matter of Village Rathskeller, Inc., 147 B.R. at
668 (citing Valley Forge, 454 U.S. at 464), that
the injury be “fairly traceable to the
defendant's allegedly unlawful conduct and
likely to be redressed by the requested relief.”
Morrow, 499 F.3d at 1339 (citing Hein v.
Freedom Religion Found., Inc., --- US. —--,
127 S.Ct, 2553, 2555-56, 168 L.Ed.2d 424
(2007)). “These requirements have been
described as the injury in fact, traceability, and
redressability inquiries.” Id. “An actual or
threatened injury exists when a party's
pecuniary interest may be affected by the
outcome of a determination.” Matter of Village
Rathskeller, 147 B.R. at &68 (citing United
States v. Little Joe Trawlers, Inc., 780 F.2d
158, 161 (1st Cir. 1986).

665, at 668 (Bankr. S.D.N.Y. 1992).° To
seek relief in federal court, a party “must
meet both constitutional and prudential . .
. requirements.” Morrow v. Microsoft
Corp. 499 F.3d 1332, 1339 (9th Cir.
2007); see also In re Village Rathskeller,
Inc., 147 B.R. at 668 (citing Warth v.
Seidin, 422 U.S. 490, 498 (1975) for the
proposition that “[t]he concept of standing
subsumes a blend of constitutional
requirements and prudential
considerations”). To satisfy one does not
necessarily mean that the other is
satisfied: a party may have standing —
having suffered an “injury in fact” — but
this may not make it the real party in
interest. See, e.g., Whelan v. Abell, 953
F.2d 663, 672 (D.C. Dir. 1992).
Conversely, a party may be the real party
in interest, but lack standing. See, e.g.,
Davis v. Yageo Corp., 481 F.3d 661 (9th
Cir. 2007).

8 Of these considerations, two are of particular
relevance to a party who invokes a court's
authority to grant relief from the automatic stay
under 11 U.S.C. § 362(d). See id. at 668-69.
First, the party seeking relief “must assert his
own legal rights and interests, and cannot rest
his claim to relief on the legal rights or
interests of third parties.” Valley Forge, 454
U.S. at 760 (citing Warth v. Seldin, 422 US.
490, 501 (1975); Gladstone, Realtors v.
Village of Bellwood, 441 U.S. 91, 100 (1979);
Duke Power Co. v. Carolina Environmental
Study Group, Inc., 438 U.S. 59, 80 (1978);
Singleton v. Wulff, 428 U.S. 106, 113-114
{1976)). Second, “the plaintiffs complaint
[must] fall within ‘the zone of interests to be
protected or regulated by the statute or
constitutional guarantee in question.” Valley
Forge, 454 U.S. at 475 (citing Association of
Data Processing Service Orgs. v. Camp, 397
U.S. 150, 153 (1970); Gladstone, 441 U.S. at
100; Duke Power Co., 438 U.S. at 80). Both
of these considerations are incorporated into
Rule 17’s requirement that an action be
prosecuted “in the name of the real party in
interest.” See Ensley v. Cody Resources,
Inc., 171 F.3d 316, 320 (5th Cir. 1999).

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B. The Right to Enforce a Note
and Mortgage

Since the “real party in interest” is
that party with the right to enforce a claim
under the applicable substantive law, it is
to that law that we must now turn. = In
particular, since a party that seeks relief
under § 362(d) does so in order to enforce
rights that have been stayed by § 362(a),
it is also necessary to consider the
substantive law that underlies those
rights. This means that for relief from stay
motions based on a promissory note, the
court must look to the substantive law that
governs promissory notes.

1. Who May Enforce the Note

The court assumes without
deciding that the note here at issue is a
negotiable instrument, as defined in
California Commercial Code (“CCC”) §
3104(a), (b) and (e). It is on a standard
printed form that is used in the finance
industry for notes that are freely bought
and sold in a manner inconsistent with
treating it is a non-negotiable note. In
California, the substantive law that
governs negotiable instruments, such as
promissory notes, is CCC Article 3. See
id. § 3-102(a).

It is important to distinguish
between the “holder” of a note and the
possessor of a note. A note may be in the
possession of an agent, who has
possession on behalf of a principal. For
example, where an officer of a bank is in
possession of a note on behalf of the
bank, the bank is the holder of the note
notwithstanding the possession by the
officer.

In this case, IndyMac Federal is in
possession of the note, and produced the
original of the note at trial. Nonetheless,
according to the testimony at trial,
IndyMac Federal is the loan servicing
agent for Freddie Mac, the owner, and
thus the holder, of the note. IndyMac’s

Page 5 of 11

possession of the note is the same as a
bank officer's possession — it is on behalf
of Freddie Mac, the owner of the note and
its real holder.

The only person entitled to enforce
a note (with minor exceptions not relevant
to this case) is the “holder” of the note.
See CCC § 3-301(a). Thus, the real party
in interest rule requires the holder of the
note to bring the motion for relief from
stay.

Transfer of the note bears with it
the right to enforce the note. Indeed,
unlike the ownership of contractual
obligations — which can generally be
transferred by an assignment — the right of
enforcement for a negotiable instrument is
only transferable by delivery of the
instrument itself. § 3-203. This follows
from the principle that only the holder of a
note is entitled to enforce the note.

2. The Mortgage Follows the Note

In the real estate context, it is
typical for a promissory note to be
secured by a mortgage on real property.
The security is carried by a separate
instrument — either a mortgage or, in
California and some other states, a deed
of trust — which must be recorded in the
county records. The note represents the
borrower's obligation on the debt, while
the mortgage or deed of trust represents
the security. The latter offers its bearer
legal remedies in the event of default,
while the former offers equitable remedies
against the property. The two together
may be referred to as a “mortgage loan.”

In the primary mortgage market, a
lender originates a loan to a borrower,
who in turn issues the lender a note and
deed of trust. This is the scenario in
which the governing law developed, but is
has become increasingly rare. More often
now, the primary mortgage market gives
way almost immediately to what is
commonly termed the secondary
mortgage market, in which the lender —

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having completed the primary transaction
- immediately sells the loan to an
investor. (Even more complex and
sophisticated arrangements involve the
pooling of loans into portfolios which are
then securitized to form Mortgage Backed
Securities — an alchemy that is little
understood by the general public, much
less the wizards who practice it these
days, and which need not concern us
here.)

Notes traded on the secondary
mortgage market remain secured because
the mortgage follows the note. Cal. Civ.
Code § 2936 (“The assignment of a debt
secured by mortgage carries with it the
security”). California codified this principle
in 1872, and this has long been the law in
all the United States, too: when a note
secured by a mortgage is transferred,
“transfer of the note carries with it the
security, without any formal assignment or
delivery, or even mention of the latter.”
Carpenter v. Longan, 83 U.S. 271, 275
(1872). This is an equitable principle, in
that “if [the security is] not assignable at
law, it is clearly so in equity.” Id. Clearly,
the objective of this principle is “to keep
the obligation and the mortgage in the
same hands unless the parties wish to
separate them.” Restatement (Third) of
Property (Mortgages) § 5.4 (1997). The
principle is justified, in turn, by reasoning
that the “the debt is the principal thing and
the mortgage an accessory.” Id.
Consequently, “[e]quity puts the principal
and accessory upon a footing of equality,
and gives to the assignee of the evidence
of the debt the same rights in regard to
both.” Id.7

” Some authorities have followed a similar
rationale in holding that the transfer of the
mortgage likewise transfers the obligation
which it secures, if a court can infer the intent
to keep the mortgage and the note together.
See Restatement (Third) of Property
(Mortgages) § 5.4 (1997). These authorities,
however, predate the adoption of the Uniform

Page 6 of 11

3. The Mortgage Cannot Be Separated
From the Note

Given that “the debt is the principal
thing and the mortgage an accessory,” the
Supreme Court reasoned long ago that as
a corollary, “the mortgage can have no
separate existence.” Carpenter, 83 U.S.
at 274. (Hence the legal maxim cited by
the Court: accessonum non ducit,
sequitur principalem,® the accessory does
not lead, but rather foliows the principal.
Id. at 276.) In arriving at this conclusion,
the Court observed that “there is
considerable discrepancy in the
authorities,” and cited from among these
one holding of the Supreme Court of Ohio
— “a case marked by great ability and
fulness of research” — in which the Ohio
court held that while notes are made
negotiable by statute, “there is no such
statutory provision as to mortgages, and
that hence the assignee takes the latter as
he would any other chose in action,
subject to all the equities which subsisted
against it while in the hands of the original

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Commercial Code in all fifty of the United
States. Today, courts that would otherwise be
inclined to follow this inverse rule will likely be
forced to disregard it if they are to give effect
to UCC §§ 3-203, 3-301(a). This is because
mortgage obligations are almost universaily
negotiable notes, whose right of enforcement
is available only to the holder, and only
transferable by delivery of the note itself to the
transferee, as mentioned above. Id.

® Co. Litt. 152, a, 151, b. This maxim cited by
the Supreme Court in Carpenter, is ancient,
and arises from the principle of accessio in
Roman Law. The principle appears in various
forms throughout antiquity’s legal sources.
See, eg., Dig. 34.2.19 (accessio cedit
principali, the accessory gives way to the
principal); other variations include
accessorium sequitur naturam sui principalem,
res accessoria sequifur principalem, ef in
accessoriis, praestanda sunt quae in
principal, sublatoprincipali, tollitur et
accessorium,

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holder.” Id. at 275, citing Baily v. Smith et
al., 14 Ohio State 396 (1863).

A chose in action, at first glance,
does indeed appear similar to a mortgage,
insofar as it is a “right to
recover...persona! property by a judicial
proceeding,” and insofar as it is
transferable like personal property.
Cal.Civ.Code § 953; see also McClain v.
Buck, 73 Cal. 320 (1887) (‘the right to
take possession of personal property is a
thing in action”); U.S. v. Stonehill, 83 F.3d
1156 (9th Cir. 1996) (chose in action is
transferable personal property). The
Supreme Court, however, disagreed,
holding that ‘[t]here is no analogy
between this case and one where a chose
in action standing alone is sought to be
enforced.” Carpenter, 83 U.S. at 275.
The “controlling consideration” that led the
Court to this conclusion was __ its
observation of the “dependent and
incidental relation” that a mortgage has
with the obligation it secures: “[w]hen the
note is paid the mortgage expires. It
cannot survive for a moment the debt
which the note represents.” Id.
Consequently, a mortgage is unlike any
other right to take possession of property
that, like a chose in action, can stand
alone, and “where no such relation of
dependence exists.” Id. at 276. For this
reason, “an assignment of the note carries
the mortgage with it, while an assignment
of the latter alone is a nullity.” Id. at 274.
While the note is “essential,” the mortgage
is only “an incident’ to the note. Id.

4, Only the Holder of the Note May
Enforce the Mortgage

It follows further from this that “a
mortgage may be enforced only by, or in
behalf of, a person who is entitled to
enforce the obligation that the mortgage
secures.” Restatement (Third) of Property
(Mortgages) § 5.4 (citing Carpenter v.
Longan). The Restatement supports this
rule by analogy to the UCC’s definition of

a security interest as an “interest in
personal property or fixtures which
secures payment or performance of an
obligation.” UCC § 1-201(b)(35). As the
Restatement notes, “[c]ase law construing
the Code holds that a security interest is
unenforceable in the absence of its
underlying obligation.” Id., citing Bank of
Lexington v. Jack Adams Aircraft Sales,
570 F.2d 1220 (5th Cir. 1978); In re G.O.
Harris Financial Corp., 51 B.R. 100
(Bankr. S.D.Fla. 1985) (“in order for a
creditor to have lien rights in the property
of a debtor, the creditor must hold an
enforceable obligation against the
debtor’), see also In re Belize Airways
Ltd., 7 B.R. 604, 606 (Bankr. $.D. Fla.
1980) {“[tlo allow the assignee of a
security interest [who did not also acquire
the note] to enforce the security
agreement would expose the obligor to a
double liability, since a holder in due
course of the promissory note clearly is
entitled to recover from the obligor’).

5. Only the Holder of the Note is the
“Real Party in Interest.”

At the court's hearing on_ this
motion, IndyMac argued that as the
noteholder’s loan servicer, it has the right
to seek relief from stay under § 362(d).
The court agrees that if IndyMac is duly
authorized to enforce the note and
mortgage as agent of the noteholder,
IndyMac would have the right to enforce
the mortgage on the holder’s behalf. The
authority to enforce the mortgage on the
holder's behalf may be granted to an
agent. Alternatively, if the noteholder’s
agent has been assigned the mortgage,
the holder of the note may cause the
holder of the mortgage to foreclose the
mortgage, but only if the latter is an agent
of the former. The authority can be
express or implied, and the Restatement
advises that “[cJourts should be vigorous
in seeking to find such a relationship,
since the result is otherwise likely to be a

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windfall for the mortgagor” as well as a
“frustration” of the mortgagee’s
“expectation of security.” Restatement
(Third) of Property (Mortgages) § 5.4,
Comment e.

The right to enforce the mortgage
on behalf of the noteholder does not,
however, render the noteholder’s agent
into the real party in interest. “As a
general rule, a person who is an attorney-
in-fact or an agent solely for the purpose
of bringing suit is viewed as a nominal
rather than a real party in interest and will
be required to litigate in the name of his
principal rather than in his own name.”
Wright & Miller, 6A Federal Practice &
Procedure Civ. 2d § 1553. Consequently,
even if a court finds that a proper agency
relationship exists between the holder of a
note and the party seeking to enforce its
security, this does not excuse the agent
from the requirement that an action be
prosecuted in the name of the noteholder,
who is the real party in interest. Fed. R.
Civ. P. 17(a)(1).

For the purpose of seeking relief
from the automatic stay under § 362(d) of
the Bankruptcy Code, this means that
loan servicers may not seek relief from
stay in their own name, if the relief sought
is based on a promissory note, and if that
note is held by another. Rather, only the
holder of the note is the real party in
interest. The loan servicer may still be a
“party in interest” under § 362(d), and
have suffered some injury in fact that
would grant it standing to seek relief under
§ 362(d). There may be other parties, too
- apart from the holder of the note — who
suffer some injury in fact and constitute
parties in interest when a homeowner
defaults on a note’s obligations and files
for bankruptcy. Without ownership of the
note, however, none of these parties
possess the right to enforce either the
note or the mortgage under the applicable
substantive law. Only the holder the note
possesses this right, and qualifies,
therefore, as the real part in interest.

Page 8 of 11

While some courts have held that
a loan servicer is a real party in interest,
none of these courts have based their
holdings on an analysis of the law
governing promissory notes. In some
cases, the facts simply no not include a
promissory note. In Greer v. O’Dell {In re
O'Dell), for example, the Eleventh Circuit
held that even prior to actual transfer, the
purchaser of consumer credit card debt
was a “real party in interest” for the
purpose of filing a proof of claim pursuant
to its Interim Servicing Agreement with the
transferor. See O'Dell, 305 F.3d 1297,
1302-03 (11th Cir. 2002). Since the
interim agreement delegated to the
purchaser the responsibility for
administering the accounts, the court held
that the purchaser was the party entitled
to enforce the right to payment, even
though the purchaser did not yet possess
the claim itself. Id. The credit card debt in
this case, howéver, was not governed by
the same law that governs promissory
notes. It is for this reason that the court
did not discuss the right to enforcement
under UCC § 3-301, as would have been
necessary in order to determine who the
real party in interest is in a motion for
relief from stay based on a promissory
note. The O'Dell court’s analysis,
therefore, is distinguishable from the
context of this case, because the
substantive law that would determine the
real party in interest is entirely different.

This distinction notwithstanding,
the Greer court states in dicta that “other
courts have held in similar contexts that
mortgage servicers are real parties in
interest,” relying on Myers v. Citicorp
Morigage, Inc., 878 F.Supp. 1553, 1558
(M.D. Ala. 1995), affd 208 F.3d 1011
(11th Cir. 2000) (unpublished table
decision) for this proposition. See O'Dell,
305 F.3d at 1303. But there is no basis
for such a proposition in Myers. Rather,
the holding in Myers is that the
assignment of a mortgage, even if only for
an instant, creates liability in the assignee

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under the Truth in Lending Act, although
not to the same extent as other creditors.
See Myers, 878 F.Supp. at 1558. Indeed,
the Myers opinion contains no discussion
of the real party in interest rule
whatsoever.

The one other case on which
O’Dell depends for the proposition that a
mortgage servicer is a real party in
interest is In re Tainan, 48 B.R. 250
(Bankr. E.D. Pa. 1985). O’Dell is the only
case of which this court is aware in which
a court has held that a mortgage loan
servicer, though not the holder of the note,
is nevertheless a real party in interest to a
motion for relief from the automatic stay.
In re Tainan, 48 B.R. at 252. The court in
Tainan correctly opens its analysis by
noting that “[w]hether a plaintiff is the real
party in interest is to be determined by
reference to the applicable substantive
state law.” Id. at 252 (citing Wright &
Miller J 1543). The Tainan court errs,
however, in its identification of the
applicable substantive law by failing to
consider UCC Article 3 at all. Rather, the
court ignores the substantive law that
applies to promissory notes, and instead
makes the the court makes the somewhat
redundant observation that “[uJnder
Pennsylvania law, a real party in interest
must be in such command of the action as
to be legally entitled to give a complete
acquittal or discharge to the other party
upon performance.” Id. Moreover, the
court's only rationale for holding that the
servicer is a real party in interest is the
servicer's “capacity as representative for
collection purposes,” id. But as this court
has already noted, this agency argument
- the same argument advanced by
Indymac at the hearing on this motion —
fails as a matter of law. See Wright &
Miller § 1553.°

* There are other cases sometimes cited for
the proposition that a loan servicer is a real
party in interest, but in fact, these cases do
not actually go so far as to decide the issue.

Page 9 of 11

IV. CONCLUSION

Consequently, if a loan servicer
wishes to seek relief from the automatic
stay, either as agent or nominee of the

i?)

For example, in Bankers Trust (Delaware) v.
236 Beltway Inv., 865 F.Supp. 1186, 1191
(E.D. Va. 1994), the trustee of a securitized
pool of mortgages brought suit on one of the
pooled notes, something which a trustee —
quite apart from an agent — is fully capable of
doing as a real party in interest. See Wright &
Miller 1548 (“The trustee of an express rtust
may sue in his own name as the real party in
interest...”}. Having acknowledged that the
trustee was a real party in interest, the court
goes on to merely speculate in dicta that “the
servicer, as receiver and collector of moneys
due under the mortgages, may also have
standing to sue for deficiencies,” even though
the servicer was not a party to the action. See
Bankers Trust, 865 F.Supp. at 1191.

In In re Woodberry, 383 B.R. 373
(Bankr. D.S.C. 2008), the court reached the
right conclusion in holding that a loan servicer
who was also the holder of the note was the
real party in interest to move for relief from
stay, but based its holding on a flawed legal
analysis. The court determined — that
ownership of the note could establish that the
servicer was a “creditor” and therefore a “party
in interest" under § 362(d), noting that “[t]he
owner or holder of a note has a right to
payment.” In re Woodberry, 383 B.R. at 378.
When considering whether the servicer was
also a rea! party in interest, however, the court
curiously ignored the substantive law that
would determine this — despite having just
cited it — and instead, concluded its discussion
of real party in interest by conflating it with
standing: “it seems the better view that a loan
servicer, with a contractual duty to collect
payments and foreclose mortgages in the
event of default, has standing to move for
relief from stay in the Bankruptcy Court.” Id.
at 379 (basing its holding on Tainan, Bankers
Trust, and O’Dell). Regardless of its rationale,
the movant in Woodberry was the actual
noteholder, and therefore the real party in
interest.

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noteholder, the servicer may do so only if
the noteholder either joins or ratifies the
motion. Absent joinder or ratification, the
noteholder must substitute into the
servicer’s place, and prosecute the motion
on its own. Fed. R. Civ. P. 17(a)(3)."° If
the servicer has mistakenly failed to seek
relief in the noteholder’s name, the court
must allow a reasonable time for the
noteholder to join or substitute into the
action. ld.

IndyMac, by its own admission,
is not the holder of the note on which
this motion is based, and therefore lacks
the authority to enforce the note. Since it
lacks the authority to enforce the note,
IndyMac also has no _ authority
whatsoever to enforce the mortgage on
Kang Jin Hwang’s Las Vegas residence.

As the servicer on this loan, it is
true that IndyMac may have suffered
some “injury in fact” which would grant it
standing to seek relief from stay. It is
likely, moreover, that IndyMac is a “party
in interest” under § 362(d). The fact
remains, however, that IndyMac does not
possess the rights necessary under Article
3 of the California Commercial Code to
qualify as the real party in interest under
Fed. R. Civ. P. 17(a). If IndyMac wishes
to prosecute this motion on behalf the
note’s current holder or holders, it may do
so only if all real parties in interest join in
this motion, or otherwise ratify it.
Pursuant to Fed. R. Civ. P. 17(a}(3), the
court continues this motion until
August 26, 2008, to provide IndyMac a

1° Rule 17(a)(3) provides:

The court may not dismiss an action
for failure to prosecute in the name of
the real party in interest until, after an
objection, a reasonable time has been
allowed for the real party in interest to
ratify, join, or be substituted inte the
action. After ratification, joinder, or
substitution, the action proceeds as if
it had been originally commenced by
the real party in interest.”

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Page 10 of 11

reasonable time for the real party in
interest to either ratify, join, or be
substituted into this motion.

Dated: September 4, 2008

{|

on/ ame L. Bufior’
nied States Bankruptcy’“Judge

At a et A

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PROOF OF SERVICE

| certify that a true copy of this OPINION DENYING LIFT STAY FOR FAILURE
TO JOIN REAL PARTY IN INTEREST was served oSEP 7 0 209908.

Kang Jin Hwang
1635 4th Street
Los Angeles, California 90019

Robert K. Lee, Esq.

3435 Wilshire Boulevard
Suite 2741

Los Angeles, California 90010

William G. Malcolm, Esq.

Malcolm Cisneros, A Law Corporation
2112 Business Center Drive

2nd Floor

Irvine, California 92612

Sam 5. Leslie, Trustee

6310 San Vicente Boulevard
Suite 320

Los Angeles, California 90048

U.S. Trustee

Department of Justice

725 South Figueroa Street
26h Floor

Los Angeles, California 90017

iI IF

Dated: = hn
SEP 10 2008 DEPUTY CLERK

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CJ