Sonya D. Huggins

In re
SONYA D. HUGGINS
f/k/a SONYA D. HICKS,
Debtor
U NITED STATES BANKRUPTCY COURT
D ISTRICT OF MASSACHUSETTS
Chapter 13
Case No. 05-18826-RS
MEMORANDUM OF DECISION
REGARDING MOTION FOR RELIEF FROM STAY
(MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.)
Before the Court is a stay relief motion seeking leave to foreclose a mortgage on the
Debtor’s residence. The Debtor opposes the motion. At issue is whether the
entity seeking relief has the standing to do so and, if so, whether relief should be granted.
Procedural Status
On September 21, 2005, the Debtor commenced this Chapter 13 case. On
December 30, 2005, Mortgage Electronic Registration Systems, Inc., acting as nominee for Full
Spectrum Lending, Inc. (“MERS”) (“Spectrum”), filed a stay relief motion seeking leave to
foreclose a mortgage on the Debtor’s residence ( “Property”). The Debtor opposed the motion.
After notice and hearing, the Court denied the motion but required the Debtor to make monthly
adequate protection payments to Spectrum (“Adequate Protection Order”).
On September 12, 2006, MERS filed a second stay relief motion, again seeking to
foreclose the mortgage on the Property and again acting as nominee of Spectrum. Once again,
the Debtor opposes the motion. The Court held a non-evidentiary hearing on the motion on
October 12, 2006, took it under advisement and now renders its decision on the issue of
standing.
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Background
a. 	The Note and Mortgage
The Debtor executed a promissory note and related mortgage, each dated April 22, 2003
(“Note”) (“Mortgage”). The Note is in the original principal amount of $335,000 and matures
on May 1, 2033. Spectrum is the payee of the Note and continues to hold it.
The Mortgage secures the Note. The Mortgage identifies MERS as mortgagee acting
solely as nominee for Spectrum. In that capacity, as nominee mortgagee, and under the express
terms of the Mortgage, MERS is granted full mortgage rights in respect of the Property,
including the power of sale.
b. 	MERS’s Position
MERS contends that the Note balance is $405,000 (comprised of principal, interest and
charges) and that the Residence has a fair market value of $328,379 and a liquidation value of
$306,625. MERS and the Debtor agree that the pre-petition arrearage on the Note is $53,401.
They differ as to the post-petition arrears. MERS further contends that stay relief is warranted
because (a) there is a lack of adequate protection and (b) the Debtor does not have an equity in
the Property and the Property is not necessary to an effective reorganization.
c. 	The Debtor’s Position
The Debtor disputes certain components of the Note balance (such as bankruptcy,
foreclosure and inspection charges and fees), the amount of the post-petition arrears, and the
value of the Property, which she claims may be worth as much as $436,000. The Debtor does
not dispute the underlying loan obligation, the delivery, validity and enforceability of the Note
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and Mortgage, or her pre-petition default. 	The Debtor does contend that stay relief is not
warranted because (a) MERS lacks standing to seek it and (b) the Property is irrebuttably
presumed necessary for an effective reorganization. The Debtor does not expressly contend that
she has an equity in the Property. However, a claim of equity may reasonably be inferred from
the valuation amount she advances, and I draw that inference from the debt and valuation
numbers proferred.
Discussion
a. 	Grella
The framework and scope of stay relief proceedings are well-established in this
jurisdiction. See Grella v. Salem Five Cents Sav. Bank, 42 F.3d 26 (1st Cir. 1994). Stay relief
implicates “the adequacy of protection for the creditor, the debtor’s equity in the property, and
the necessity of the property to an effective reorganization.” Stay hearings “do not involve a full
adjudication on the merits of claims, defenses or counter-claims, but simply a determination as to
whether a creditor has a colorable claim to property of the estate.” Grella at 42 F.3d at 31, 32;
11 U.S.C. §362(d).
b. 	Standing
The Debtor contends that MERS, not having a property or ownership interest in the rights
of Spectrum, is not the real party in interest, consequently cannot collect the Note or enforce the
Mortgage outside bankruptcy, and thus lacks standing in bankruptcy to seek relief to do so.
These contentions misapprehend what MERS does, its rights under the Mortgage, the import of
the Massachusetts foreclosure statute and the directive of Grella.
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MERS also acts as assignee of notes and mortgages on its own account. See Mortgage
Electronic Registration Systems v. Mahler, 928 So. 2d 470 (Fla. 2006).
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1. 	What MERS Does
As noted by several courts, MERS administers an electronic registry to track the transfer
of ownership interests and servicing rights in mortgage loans, serving as mortgagee of record and
holding legal title to mortgages in a nominee capacity. See Mortgage Elec. Reg. Sys. v. Nebraska
Dept. of Banking, 270 Neb. 529, 530, 704 N.W.2d 784, 785 (Neb. 2005); Taylor, Bean and
Whitaker Mortg. Corp. v. Brown , 276 Ga. 848, 583 S.E. 2d 844 (Ga. 2003); In re Gemini
Services, Inc., 350 B.R. 74, 82-83 (Bankr.S.D.Ohio 2006).1
2. 	MERS’s Rights Under the Mortgage
The Mortgage contains two specific and ultimately dispositive provisions relating to
MERS. First, the Mortgage states that “MERS is a separate corporation that is acting solely as
nominee for [Spectrum] and [Spectrum’s] successors and assigns. MERS is the mortgagee under
this Security Instrument.” A nominee is generally understood as a person designated to act in
place of another. See Black’s Law Dictionary (8th ed. 2004). See also Kolakowski v. Finney,
1983 Mass. App. Div. 360, 363 (1983) (elaborating on nominee definition); and Lee v. Ravanis,
212 N. E. 2d 480 (1965) (giving legal effect to action by and role of a nominee in a contract for
the sale of real estate). Second, the Mortgage states that the Debtor “does hereby mortgage, grant
and convey to MERS (solely as nominee for [Spectrum] and [Spectrum’s] successors and assigns)
and to the successors and assigns of MERS, with power of sale . . . [the Property.]” MERS then
has the customary rights of a mortgagee under a Massachusetts mortgage and may act under the
Mortgage on Spectrum’s behalf.
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3. 	Massachusetts Foreclosure
In Massachusetts, mortgage foreclosure may be effectuated (a) by entry or action or (b) by
sale. See G.L. c. 244 § 1 et seq. Foreclosure under power of sale is governed by Section 14 of
Chapter 244, which provides as follows: “The mortgagee . . . or a person authorized by the power
of sale . . . may, upon breach of condition and without action, do all the acts authorized or
required by the powers.” G.L. c. 244, § 14 (“Section 14”). Thus, MERS as the mortgagee named
in a recorded mortgage (albeit in a nominee capacity) is authorized to conduct a foreclosure by
power of sale under Section 14.
4. 	Against MERS
As noted, the Debtor’s position is that MERS cannot seek stay relief in bankruptcy
because it has no rights that it may enforce in respect of the Mortgage outside bankruptcy.
A recent New York state court decision provides ostensible support for the Debtor’s
position that MERS, as nominee, lacks standing to enforce the mortgage outside of bankruptcy.
LaSalle Bank Nat. Ass’n v. Lamy, Slip Copy, 12 Misc. 3d 1191(A), 2006 WL 2251721 (N.Y.
2006). In that case, the court denied a foreclosure action by an assignee of MERS on the grounds
that MERS had no ownership interest in the underlying note and mortgage but rather acted as
nominee and thus did not have the power or right to assign. The court observed that
this court and others have repeatedly held that a nominee of the
owner of the note and mortgage, such as Mortgage Electronic
Registration Systems, Inc. (“MERS”), may not prosecute a
mortgage foreclosure action in its own name as nominee of the
original lender because it lacks ownership of the note and mortgage
at the time of the prosecution of the action.
Lamy, 12 Misc.3d at 1191. In support of this observation, the court cites four cases, none of
which holds that MERS as nominee mortgagee named in a recorded mortgage may not prosecute
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There is support for the proposition that, under New York law, a foreclosing assignee of
the mortgage who is not also the holder or assignee of the underlying debt cannot sustain a
foreclosure action. See Merritt v. Bartholick, 36 N.Y. 44 (N.Y. 1867).
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a foreclosure action on behalf of a noteholder: Mortgage Elec. Registration Systems, Inc. v.
Burek, 4 Misc. 3d 1030(A), 798 N.Y.S. 2d 346 (N.Y. 2004) (factual disputes regarding default
and standing); Mortgage Elec. Registration Systems, Inc. v. Bastian, 12 Misc. 3d 1182(A), 2006
WL 1985461 (N.Y. 2006) (factual disputes regarding alleged assignment); Fairbanks Capital
Corp. v. Nagel, 289 A.D. 2d 99, 735 N.Y.S. 2d 13 (N.Y. 2001) (foreclosure by servicing agent
recognized); and Merscorp., Inc. v. Romaine, 24 A.D. 3d 673, 808 N.Y.S. 2d 307 (N.Y. 2005)
(“mortgages, assignments and discharges which name MERS as the lender’s nominee or the
mortgagee of record are acceptable for recording and indexing”).2 Lamy thus rests on a defect in
the title of the assignee, arising from an inability of MERS, as nominee, to transfer the rights of
the owner of the mortgage, not on a defect in the standing of MERS as nominee to foreclose on
behalf of a valid holder of the mortgage note.
Neither Lamy nor Merritt requires a determination of lack of standing. First, MERS is
acting as nominee for Spectrum, which holds the Note, and therefore there is no disconnection
between note and mortgage. Second, MERS is the record mortgagee under the Mortgage with the
powers expressly therein set forth, including the power of sale under Section 14. Third, Section
14 expressly authorizes the exercise of sale powers by a mortgagee or person authorized to sell,
precisely the position occupied by MERS. Fourth, the logic of a denial of MERS’s foreclosure
right as mortgagee would lead to anomalous and perhaps inequitable results, to wit, if MERS
cannot foreclose though named as mortgagee, then either Spectrum can foreclose though not
named as mortgagee or no one can foreclose, outcomes not reasonably or demonstrably intended
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A full adjudication on the merits of that claim is not required in the context of the stay
matter before me, and is not precluded by the decision herein.
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by the parties.
Hence, I am not persuaded that either the reasoning or holdings of Lamy or Merritt
warrant denial of MERS’s mortgage rights and of its standing to assert them in a stay relief
motion.
5. 	Grella
Under Grella, a party seeking relief from the automatic stay to exercise rights as to
property must demonstrate at least a colorable claim to the Property. The Mortgage, the
Massachusetts foreclosure statute, and MERS’s status as nominee mortgagee establish to my
satisfaction that MERS has standing under Massachusetts law to foreclose on Spectrum’s behalf
and therefore at least a colorable claim to the property within the meaning of Grella.3
Accordingly, the Debtor’s objection to the standing of MERS under the Mortgage to seek relief
from the automatic stay in respect of the Property is overruled.
c. 	Relief from Stay
Three matters remain for determination: the adequacy of protection, the Debtor’s equity
in the Property, and the Property’s necessity to an effective reorganization. The parties disagree
on each of these matters, and the record before the Court does not permit an informed
determination of any of them. In particular, the Court notes several areas requiring evidentiary
presentation, including the Debtor’s compliance with the Adequate Protection Order, the current
valuation of the Property, and the extent to which the Debtor’s reorganization is in prospect.
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The Debtor cites Grundy Nat’l Bank v. Stiltner, 58 B.R. 593 (Bankr. Va. 1986).
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In this latter regard, the Court rejects the argument that there is an irrebutable presumption
that the Property is necessary to an effective reorganization. 4 11 U.S.C. §362(d)(2)(b). This
provision of the statute presents two separate elements: first, whether the Property is necessary to
reorganization; and second, whether an effective reorganization is in prospect. As to the first
element, it may be that the Debtor’s sole objective in the Chapter 13 case is the retention of the
Property and that the Property is her sole asset, and thus necessary to her reorganization.
Nonetheless, these facts must be demonstrated and are not presumed. See Lundin, Chapter 13
Bankruptcy, ¶83-9 and ¶83-10, 3d. Edition (2000 and Supp. 2004). As to the second element,
while I am aware of the many formulations of the term “effective reorganization” employed by
various courts, I understand the issue as, and will require evidence on, whether the Debtor has a
reasonable possibility of successful reorganization within a reasonable time. In re Timbers of
Inwood Forest Assocs., Ltd. 484 U.S. 365 (1988). This will require the Debtor to present
evidence that (a) she has proposed a plan rooted in her actual financial experience and condition
and based on a reasonably projected financial performance derived therefrom and (b) this plan is
within the realm of reasonable achievement within a prescribed and discernable period of time.
Accordingly, an evidentiary hearing on the motion for relief from the automatic stay will
be separately scheduled.
Date: December 14, 2006 	_______________________________
Robert Somma
United States Bankruptcy Judge
cc: Amy Lipman-White, Esq., for MERS
David Baker, Esq., for Debtor
Chapter 13 Trustee
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