Brown v. Ameriquest Funding II, LLC et al

UNITED STATES BANKRUPTCY COURT
FOR THE
DISTRICT OF MASSACHUSETTS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
In re
ALEXANDER V. BROWN, 	Chapter 13
Debtor 	Case No. 07-12746-JNF
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
ALEXANDER V. BROWN,
Plaintiff
v. 	Adv. P. No. 08-1191
AMERIQUEST FUNDING II, LLC,
CITI RESIDENTIAL LENDING, INC.,
DEUTSCHE BANK, AS TRUSTEE OF
AMERIQUEST MORTGAGE SECURITIES,
INC. ASSET BACKED PASS THROUGH
CERTIFICATES, SERIES 2006-M3 UNDER
THE POOLING AND SERVICING
AGREEMENT DATED AS OF SEPTEMBER 1,
2006, ARGENT MORTGAGE COMPANY, LLC,
AND AMC MORTGAGE SERVICES, INC.,
Defendants
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
MEMORANDUM
I. INTRODUCTION
There are several matters before the Court: 1) the Motion of Deutsche Bank National
Trust Company as Trustee of Ameriquest Mortgage Securities, Inc. Asset Backed Pass
Through Certificates Series ARSI 2006-M3 under the Pooling and Servicing Agreement
Dated as of September 1, 2006 (“Deutsche Bank”) for Leave to Amend Proof of Claim No.
10 and the Objection filed by Alexander V. Brown (the “Debtor”); and 2) the Motion of
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Deutsche Bank and Citi Residential Lending, Inc. (“Citi Residential”) for Summary
Judgment and the Debtor’s Objection. The issue presented is whether this Court should
permit Deutsche Bank to amend a proof of claim filed by “AMC Mortgage Services, Inc.
as loan servicer for Secured Creditor Argent Mortgage Company, LLC,” where AMC
Mortgage Services, Inc. failed to attach a copy of either the note or the mortgage to the
proof of claim. See Fed. R. Bankr. P. 3001(c) and (d).
The parties have filed numerous documents in support of their respective positions.
Deutsche Bank, in particular, has submitted a number of affidavits and supporting
documents. It concedes, however, that “a thread of sloppiness and inattention to detail
accompanied both the filing of the original claim and the Transfers of Claim subsequently
filed in connection with such claim,” adding that “[t]his has worked to the significant
detriment of Deutsche Bank and its efforts to pursue its remedies under its loan
documents.” 	It adds that “[i]t is difficult to conceive, however, of any prejudice to the
Debtor in this particular case” because “[t]he Debtor claims to have tendered one payment
toward the beginning of his case to AMC Mortgage Services, Inc. which payment, Debtor
asserts, was returned to him.”
The Debtor does not agree with Deutsche Bank’s assessment. In his Objections to
Deutsche Bank’s Motions, he argues that affidavits in support of Deutsche Bank’s position
constitute hearsay, and genuine issues of material fact exist warranting a trial. In his First
Amended Complaint, he seeks disallowance of the claim and a declaration that the security
interest affecting his property be declared void. In the alternative, he seeks a complete
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accounting of his obligations under the note and mortgage, together with his attorney’s fees
and costs.
The Court finds that Deutsche Bank’s position that the Debtor has not been
prejudiced is without merit. The Debtor had every right to object to the proof of claim filed
by AMC Mortgage Services, Inc. as loan servicer for Argent Mortgage Company, LLC,
which was unaccompanied by the note, mortgage or a “chain of title.” Indeed, Deutsche
Bank, in its filings with the Court, recognized that the original proof of claim was not
entitled to prima facie validity. See In re Kirkland, 572 F.3d 838 (10th Cir. 2009). 1
1 In Kirkland, the Tenth Circuit set forth the applicable law with respect to the
requirements for a valid proof of claim in the context of a Chapter 7 case as follows:
The Bankruptcy Code provides that “[a] creditor . . . may file a proof of
claim.” 11 U.S.C. § 501(a). Because the code does not define “proof of
claim,” we look to the Federal Rules of Bankruptcy Procedure. “A proof of
claim is a written statement setting forth a creditor’s claim. . . . [It] shall
conform substantially to the appropriate Official Form.” Fed. R. Bankr. P.
3001(a). The relevant form is Official Form 10, which requires a claimant
to “[a]ttach redacted copies of any documents that support the claim, such
as promissory notes, purchase orders, invoices, itemized statements of
running accounts, contracts, judgments, mortgages, and security
agreements.” Fed. R. Bankr. P. Official Form 10. Form 10 also instructs a
claimant that “[i]f the documents are not available, please explain.” Id.
When a proof of claim is executed and filed in accordance with the
provisions of Rule 3001 (including Official Form 10), it “constitutes prima
facie evidence of the validity and amount of the claim.” Fed. R. Bankr. P.
3001(f).
572 F.3d at 840. See also In re Minbatiwalla, __ B.R. __, 2010 WL 694166 at *6-*7 (Bankr.
S.D.N.Y. Mar. 1, 2009); 11 U.S.C. § 502(a) and (b). There is a considerable body of case
law concerning the contents of and attachments to proofs of claim. There are proposed
amendments to the provisions of Federal Rules of Bankruptcy Procedure 3001 and a
new rule has been proposed, Rule 3002.1, to implement 11 U.S.C. § 1322(b)(5) which
permits Chapter 13 debtors to cure a default and maintain payments of home
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The conduct of Deutsche Bank and its predecessors, their inattention to detail and
sloppiness has burdened both the Debtor and this Court. 	Nevertheless, in view of the
various documents submitted by Deutsche Bank establishing that it is now both the holder
of the note and mortgage originally executed by the Debtor, the Court concludes that a trial
on the merits would serve no useful purpose, further increase the costs associated with the
Debtor’s three-year old Chapter 13 case, and would merely delay consideration of the
ultimate issue in the case, namely, whether the Debtor’s Chapter 13 plan can be confirmed.
With those considerations in mind, and based on the entire record of proceedings
in this case, in particular the List and Summaries of Exhibits Attached to Deutsche Bank’s
Motion for Leave to Amend Proof of Claim, the Court finds the following pertinent facts.
II. BACKGROUND
The Debtor filed a voluntary Chapter 13 petition on May 2, 2007. On Schedule A-
Real Property, the Debtor listed his residence in Dorchester, Massachusetts, as well as
property located at 31 Downer Ave., Dorchester, Massachusetts (the “property”) with a
value of $420,000. On Schedule D-Creditors Holding Secured Claims, the Debtor listed
Argent Mortgage Company, LLC as the holder of a “Mortgages on 31 Downer Ave” in the
total amount of $420,000. 2 On Schedule G-Executory Contracts and Unexpired Leases, the
Debtor listed two leases at the property to two tenants.
mortgages.
2 The Debtor executed two mortgages in favor of Argent Mortgage Company,
LLC.
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On May 2, 2007, the Court issued a notice setting September 17, 2007 as the deadline
for filing proofs of claim. 	On August 24, 2007, AMC Mortgages Services, Inc., as loan
servicer for Argent Mortgage Company, LLC, filed a proof of claim (No. 10) in the sum of
$354,425.38. 3 It noted that the claim was secured and that there existed a prepetition
arrearage of $18,795.74. Although it referenced three exhibits, a Promissory Note, Deed of
Trust and “Certificates of Assistant Secretary,” none of the exhibits were attached to the
proof of claim.
Less than four months after the Debtor filed his Chapter 13 case, on August 13, 2007,
Deutsche Bank filed a Motion for Relief from the Automatic Stay with respect to the
property in which it represented it was the holder of the mortgage. 	It attached, as an
exhibit to its motion for relief from the automatic stay, a copy of the mortgage that the
Debtor granted to Argent Mortgage Company, LLC on July 14, 2006 in the sum of
$336,000.4
3 It also filed a proof of claim (No. 11) in the amount of $89,137.68 with a different
account number. On February 18, 2009, Prodovis Mortgage LLC withdrew that proof of
claim, which it stated it obtained by assignment dated July 14, 2006.
4 The Debtor objected to the Motion, noting, inter alia, that Deutsche Bank had not
filed a proof of claim in his case. On October 9, 2007, the Court entered an order
granting Deutsche Bank’s Motion for Relief from the Automatic Stay, effective
December 4, 2007. One day later, Deutsche Bank moved for relief from the automatic
stay with respect to the second mortgage on the property, reciting the same book and
page number for the mortgage as it had set forth in its initial motion for relief from stay.
On March 2, 2008, Deutsche Bank filed a Motion to Amend the Court’s Order of
October 9, 2007, noting that in its first motion for relief from stay it inadvertently
referenced the book and page number of the second mortgage. It also withdrew its
motion for relief from stay with respect to the second mortgage which it had amended.
It subsequently withdrew its second motion for relief from stay noting that Ameriquest
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On July 17, 2008, the Debtor commenced the above-captioned adversary proceeding
and objected to the proof of claim filed by AMC Mortgage Services, Inc. On September 11,
2008, the Court consolidated the adversary proceeding with the Debtor’s Objection to
Claim. 	On July 20, 2009, Deutsche Bank filed its Motion for Leave to Amend Proof of
Claim No. 10, to which it attached an amended proof of claim listing itself as the creditor
and Ameriquest Home Mortgage Servicing, Inc. as its loan servicer. 	Additionally, it
reduced the amount of the prepetition arrearage from $18,795.74 to $15,614.39 and reduced
the amount of its secured claim from $354,425.38 to $348,589.94, although in an Addendum
attached to the amended proof of claim, it listed the total debt as of May 2, 2007 in a
different amount, namely $348,447.12, a difference of $142.82 which is not explicable with
respect to the accrual of late charges.
Deutsche Bank referenced the following documents in its Motion for Leave to
Amend:
1) the Note executed by the Debtor on July 14, 2006 endorsed in blank by
Argent Mortgage Company, LLC;5
2) the Mortgage executed by the Debtor on July 14, 2006 endorsed in blank
by Argent Mortgage Company, LLC;
3) an Unrecorded Assignment of the Debtor’s Mortgage in blank from Argent
Funding II, LLC was the holder of the second mortgage. But see note 3, supra. The
confusing sequence of motions for relief from stay, amendments, and withdrawals
unequivocally support the view that Deutsche Bank’s sloppiness and inattention to
detail affected more than just the filing of Claim No. 10.
5 Sam Marzouk, President and Gregory F. Hanson, C.F.O. endorsed the Note in
blank and without recourse.
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Mortgage Company LLC;
4) an Assignment from Argent Mortgage Company by Citi Residential
Lending Inc. as Attorney in Fact to Deutsche Bank signed by Tamara Price-
Vice President on February 20, 2008;
5) an Incumbency Certificate, dated October 23, 2007, pursuant to which
Kathleen Wood-Wagner, the Secretary of Citi Residential Lending Inc.
certified that Tamara Price, among others, was authorized to transact on
behalf of Citi Residential Lending Inc.;
6) a Limited Power of Attorney granted to Citi Residential Lending, Inc. by
Argent Mortgage Company LLC, dated December 5, 2008 and effective
September 1, 2007, signed by Diane E. Tiberend, Secretary of Argent
Mortgage Company, LLC, which was recorded on December 19, 2008;6
7) a Confirmatory Corporation Assignment of Deed of Trust/Mortgage from
Argent Mortgage Company, LLC to Deutsche Bank dated August 12, 2008,
signed by Eileen Driscoll Rubens, Sr. Counsel, which was recorded on
August 14, 2008;
8) a “Joint Notification Letter, Notice of Assignment, Sale or Transfer of
Servicing Rights,” dated July 17, 2006, to the Debtor, advising him that the
servicing rights with respect to his loan had been transferred from Argent
Mortgage Company, LLC to AMC Mortgage Services, Inc., effective July 14,
2006;
9) a “Joint Notification , Notice of Assignment, Sale or Transfer of Servicing
Rights,” dated September 14, 2007, to the Debtor, advising him that the
6 This Limited Power of Attorney provides:
The undersigned gives said Attorney-in-fact full power and authority to
execute such instruments and to do and perform all and every act and
thing necessary and proper to carry into effect the power or powers
granted by or under this Limited Power of Attorney as fully as the
undersigned might or could do, and hereby does ratify, and confirm to all
that said Limited Power of Attorney shall be effective as of September 1,
2007. The undersigned does hereby ratify any and all actions heretofore
taken by Servicer within the scope of the power or powers granted by or
under this Limited Power of Attorney from and after September 1, 2007.
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servicing rights with respect to his loan had been transferred from AMC
Mortgage Services, Inc. to Citi Residential Lending, Inc., effective October 1,
2007;
10) a letter dated January 23, 2009, advising the Debtor that American Home
Mortgage Servicing, Inc. had obtained the servicing rights to his loan from
Citi Residential Lending, Inc., effective February 11, 2009;
11) the Affidavit of Angela Sallworth, Bankruptcy Team Leader of American
Home Mortgage Servicing, Inc.
Based upon the foregoing documents, the Court finds at the time the Debtor filed
his bankruptcy petition AMC Mortgage Services, Inc. was the loan servicer and that
Deutsche Bank was the holder of the note. Deutsche Bank now holds both the note and the
mortgage and has standing to enforce its rights under the note and mortgage it holds. See
generally In re Samuels, 415 B.R. 8 (Bankr. D. Mass. 2009).
III. DISCUSSION
As noted above, the issue in this case is whether Deutsche Bank should be permitted
to amend the proof of claim originally filed by AMC Mortgage Services, Inc. Section 502(j)
provides in relevant part the following:
(j) A claim that has been allowed or disallowed may be reconsidered for
cause. A reconsidered claim may be allowed or disallowed according to the
equities of the case. Reconsideration of a claim under this subsection does not
affect the validity of any payment or transfer from the estate made to a
holder of an allowed claim on account of such allowed claim that is not
reconsidered, but if a reconsidered claim is allowed and is of the same class
as such holder’s claim, such holder may not receive any additional payment
or transfer from the estate on account of such holder’s allowed claim until the
holder of such reconsidered and allowed claim receives payment on account
of such claim proportionate in value to that already received by such other
holder. . . .
11 U.S.C. § 502(j). In In re Breaux, 410 B.R. 236 (Bankr. W.D. La. 2009), the court addressed
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the issue of whether an amended claim filed after the bar date is untimely and must be
disallowed under 11 U.S.C. § 502(b)(9). It observed the following:
Neither the Bankruptcy Code nor the Federal Rules of Bankruptcy Procedure
expressly provide for amended claims. However, courts generally recognize
the right of a creditor to file an amended claim. See, e.g., [Highlands Ins. Co.,
Inc. v. Alliance Operating Corp. (In re] Alliance Operating Corp.[)], 60 F.3d
[1174]at 1175 [(5th Cir. 1995)](citing In re Kolstad, 928 F.2d 171, 175 (5th
Cir.1991)); In re Delmonte, 237 B.R. 132, 135 (Bankr. E.D. Tex. 1999). In
Kolstad, the Fifth Circuit explained that amendments to proofs of claim
should be freely allowed where the purpose is “to cure a defect in the claim
as originally filed, to describe the claim with greater particularity or to plead
a new theory of recovery on the facts set forth in the original claim.”
Breaux, 410 B.R. at 238-39. The court added:
Some courts and commentators have based the right to amend claims on a
court’s authority to reconsider claims under 11 U.S.C. § 502(j). See, e.g., In re
Lane, 374 B.R. 830, 837 (Bankr. D. Kan. 2007); In re Disney, 386 B.R. 292,
302-303 (Bankr. D. Colo.2008); Keith M. Lundin, Chapter 13 Bankruptcy 3d
Ed. at Section 284.1 (2000 & 2004 Supp.) (“Amendment might be included in
the notion of ‘reconsideration’ of the allowance or disallowance of a claim
under 11 U.S.C. Section 502(j) and Bankruptcy Rule 3008.”). . . . Other courts
base the right to amend proofs of claim on Rule 15 of the Federal Rules of
Civil Procedure, which governs the amendment of pleadings. See, e.g., In re
Unroe, 937 F.2d 346 (7th Cir.1991) (creditor could amend a claim if it satisfies
the “relation back” test in Rule 15); United States v. Johnston, 267 B.R. 717,
721-722 (N.D. Tex. 2001). While amended proofs of claim are freely allowed
prior to the bar date, amendments after the bar date are more closely
scrutinized to ensure that the amended claim is not an attempt to assert a
new claim after the bar date. See Alliance Operating Corp., 60 F.3d at 1175
(“Bar dates . . . are not to be vitiated by amendments, and the courts must
ensure that the amendments do not introduce wholly new grounds of
liability.”).
Breaux 410 B.R. at 239. The court also noted that courts are divided as to whether a claim
can be amended after the bar date to assert an unsecured deficiency claim after a secured
creditor has obtained relief from the automatic stay and sold its collateral. It observed:
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Some courts have held that an amended proof of claim that seeks to assert an
unsecured deficiency claim after the liquidation of the creditor’s collateral
amounts to a new claim that cannot be asserted after the bar date. See, e.g., In
re McBride, 337 B.R. 451, 460 (Bankr. N.D.N.Y. 2006). Other courts, however,
have held that a post-bar date amendment to assert an unsecured deficiency
claim is permissible. See Delmonte 237 B.R. 132, 135 (Bankr. E.D. Tex. 1999).
In Delmonte, the court reasoned that the deficiency claim “relates to and
arises out of the same transaction as the original claim.” Id. at 136; see also,
Lundin, Chapter 13 Bankruptcy 3d Ed. at Section 284.1 (noting that “one
common example for appropriate use of an amended claim in a chapter 13
case might be the claim for a deficiency when collateral is repossessed and
disposed of after confirmation.”).
Breaux, 410 B.R. at 239 (agreeing with the position advanced by the creditor). Finally, this
Court has noted that “‘[r]econsideration of both allowed and disallowed claims may occur
at any time before a case is closed, but in such reconsideration the court must weigh the
extent and reasonableness of any delay, or prejudice to any party in interest, the effect on
efficient court administration and the moving party’s good faith.’” Holland v. EMC
Mortgage Corp. (In re Holland), 374 B.R. 409, 428 (Bankr. D. Mass. 2007) (citing Orsini
Santos v. Lugo Mender (In re Orsini Santos), 349 B.R. 762, 769 (B.A.P. 1st Cir. 2006), and
Fryer v. Easy Money Title Pawn, Inc. (In re Fryer), 172 B.R. 1020, 1024 (Bankr. S.D. Ga.
1994)).
In the instant case, Deutsche Bank is not seeking to assert a deficiency claim. 7
Rather, it is correcting deficiencies with respect to the originally filed proof of claim.
Because there is no dispute that the Debtor borrowed money from Argent Mortgage
Company, LLC and secured the loan with a mortgage, the Court concludes that section
7 The Court notes that because the property is not the principal residence of the
Debtor it is not protected by the anti-modification provisions of 11 U.S.C. § 1322(b)(2).
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502(j) permits the amendment of the proof of claim to correct deficiencies in the statement
of ownership set forth in the original claim.
While the Court has determined that Deutsche Bank may amend its claim, the Court
conditions allowance of the amendment on payment of the Debtor’s reasonable attorney’s
fees and costs. Deutsche Bank, by its own admission, has noted “a thread of sloppiness and
inattention to detail” in conjunction with the filing of the original claim, two Transfers of
Claim, not to mention sloppiness in conjunction with its motions for relief from the
automatic stay. 	Under these circumstances, equity requires payment of the Debtor’s
attorney’s fees and costs in conjunction with the Objection Claim and the commencement
of the adversary proceeding.
IV. CONCLUSION
In view of the foregoing, the Court shall enter an order granting Deutsche Bank’s
Motion for Summary Judgment and its Motion for Leave to Amend Proof of Claim No. 10,
without prejudice to the Debtor’s assertion of any objection with respect to the amount of
the amended proof of claim only.
By the Court,
Joan N. Feeney
United States Bankruptcy Court
Dated: April 19, 2010
cc: David G. Baker, Esq., John S. McNicholas, Esq.
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