Simeon Moreno

In re
SIMEON MORENO,
Debtor
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
EASTERN DIVISION
Chapter 13
Case No. 08-17715-FJB
MEMORANDUM OF DECISION ON
MOTION OF PROPERTY ASSET MANAGEMENT, INC.
FOR RELIEF FROM THE AUTOMATIC STAY
In the Chapter 13 case of debtor Simeon Moreno, Property Asset Management, Inc.
(“PAM”), claiming to be the assignee of a mortgage originally given by the debtor to Mortgage
Electronic Registration Systems, Inc. (“MERS”) as nominee for lender GE Money Bank, moved
for relief from the automatic stay to foreclose the mortgage. Moreno initially opposed the motion
but then withdrew his objection, whereupon the Court granted the relief requested. Months
later, at Moreno’s request, the Court vacated the order granting relief from stay and scheduled
an evidentiary hearing on the Motion for Relief from Stay for the limited purpose of
reconsidering whether PAM had an interest in the mortgage it sought to foreclose and, to that
extent, standing to seek relief from stay.1 Having held the evidentiary hearing and received
proposed findings and conclusions, the Court now enters the following findings of fact and
conclusions of law.
Findings of Fact and Procedural History
On January 23, 2007, Moreno executed a promissory note in the principal amount of
$492,000, payable to lender GE Money Bank. GE subsequently endorsed the note in blank,
whereupon possession of the note was transferred through a series of holders and ultimately to
Lehman Brothers Holdings, Inc. (“LBHI”), who held the note when PAM filed its Motion for Relief
1 All other issues were resolved upon entry of the original order granting relief from stay. No
cause has been adduced to revisit any but the narrow issue of standing.
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from Stay and continues to hold it now. 2 LBHI, through one of its employees and through
LBHI’s attorney, who not coincidentally also is PAM’s attorney in the present matter, produced
the original note at the evidentiary hearing. PAM is not now a holder of the note or an entity for
whose benefit another has held the note.
To secure the promissory note, Moreno gave a mortgage on the real property at 5 Maple
Street, West Roxbury, Massachusetts (the “Property”) to MERS as nominee for GE (the
“Mortgage”). The Mortgage specifies that MERS “is a separate corporation that is acting solely
as a nominee for [GE] and [GE’s] successors and assigns. MERS is the mortgagee under this
security instrument.” The Mortgage further provides that Moreno
does hereby mortgage, grant and convey to MERS (solely as
nominee for [GE] and [GE’s] successors and assigns) and to the
successors and assigns of MERS, with power of sale, the
[Property]. . . . Borrower understands and agrees that MERS
holds only legal title to the interests granted by Borrower in this
Security Instrument, but, if necessary to comply with law or
custom, MERS (as nominee for [GE] and [GE’s] successors and
assigns) has the right: to exercise any or all of those interests,
including, but not limited to, the right to foreclose and sell the
Property; and to take any action required of [GE] including, but not
limited to, releasing and canceling this Security Instrument.
The Mortgage was duly recorded.
MERS administers an electronic registry to track the transfer of ownership
interest and servicing rights in mortgage loans. With respect to certain loans of which its
members are the beneficial owners, MERS also serves as mortgagee of record and holds legal
2 Moreno contends that LBHI, which is in bankruptcy proceedings of its own, may have sold its
interest in the note through a court-approved sale in its bankruptcy case. However, Moreno does not
contend that possession of the note has passed from LBHI to the alleged purchaser (or any nominee of
the purchaser), and therefore the alleged possible sale is irrelevant, as possession undisputedly remains
in LBHI. In any event, Moreno attempted to establish the fact of the alleged sale by designating certain
documents on the docket of the LBHI case and asking the Court to take judicial notice of these and then to
find them on its own and to determine from them whether the promissory note in question was among the
assets transferred. Having found the alleged sale to be irrelevant, the Court declined to take judicial
notice of the bankruptcy documents. However, the proffer also failed for two additional reasons: first, that
Moreno did not take a position as to whether a sale did occur, only that the Moreno note may have been
among those transferred in the sale; and second, even if the court had taken judicial notice as requested,
it remained Moreno’s obligation, which he has not fulfilled, to produce the documents in question and to
explain in the first instance how one would conclude from them that the asset in question was among
those transferred.
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title to the mortgages in a nominee capacity. MERS remains the mortgagee of record when
beneficial ownership interests or servicing rights are sold from one member of the MERS
system to another. When the beneficial interest in a mortgage loan is transferred from one
member of the MERS system to another, MERS tracks the transfer through its internal records.
When rights are transferred from a member of the MERS system to a non-member, MERS
executes and records an assignment from MERS to the non-member.
To facilitate the execution of the assignments from MERS, MERS designates “certifying
officers,” who are typically employees of MERS member firms. MERS authorizes these
employees, through formal corporate resolutions, to execute assignments on behalf of MERS.
On or about January 6, 2005, MERS, through a document entitled Corporate Resolution and
issued by its board of directors, authorized Denise Bailey, an employee of Litton Loan Servicing
L.P. (“Litton”), a member of MERS, to execute such assignments on behalf of MERS. In the
language of the authorizing document (the “MERS Authorization”), 3 Ms. Bailey was authorized
to, among other things, “assign the lien of any mortgage loan naming MERS as the mortgagee
when the Member [Litton] is also the current promissory note-holder, or if the mortgage loan is
registered on the MERS System, is shown [sic] to be registered to the Member”4
; and Ms. Bailey
was further authorized to “take any such actions and execute such documents as may be
necessary to fulfill the Member’s servicing obligations to the beneficial owner of such mortgage
loan (including mortgage loans that are removed from the MERS System as a result of the
transfer thereof to a non-member of MERS).” In each instance, Bailey’s authority to act is
dependent on the existence of a specified relationship of Litton, the MERS member for whom
she is employed, to the loan in question.
3 MERS Corporate Resolution, attached to Bailey Affidavit as Exhibit 1.
4 The grammatical difficulty in this second clause is native to the authorizing document.
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The Moreno loan was entered into the MERS tracking database in the ordinary course of
business. Thereafter, MERS tracked the beneficial interest in the loan. The beneficial interest
was transferred from G.E. Money Bank to WMC Mortgage Corporation; then, on September 19,
2007, from WMC Mortgage Corporation to Aurora Bank FSB (formerly known as Lehman
Brothers Bank FSB), and then, on July 30, 2008, from Aurora Bank FSB to LBHI. Aurora Bank
was at all relevant times a wholly-owned subsidiary of LBHI.
With respect to the Moreno Mortgage, MERS remained the mortgagee of record until, on
or about April 30, 2008, MERS, acting through Denise Bailey, assigned the Mortgage to PAM.
At the time, Aurora Bank FSB was the beneficial owner of the loan. In executing the MERS
assignment to PAM, Ms. Bailey purported to be acting under her MERS Authorization.
The MERS Authorization limited Ms. Bailey’s authority to act for MERS to matters with
respect to which Litton was involved in at least one of the ways specified in the above-quoted
language from the MERS Authorization. There is evidence, and I find, that Aurora Bank FSB
had requested that Litton transfer the loan from MERS to PAM in anticipation of foreclosure.
However, PAM has adduced no evidence that Litton had any specified connection to this loan at
the time it executed this assignment. There is no evidence that Litton was then (or at any time)
the servicer of the loan for Aurora Bank or that Litton was registered as servicer of the loan in
the MERS system.5 (PAM does not contend that Litton was the holder of the promissory note or
5 The original affidavit of Scott Drosdick includes the following two sentences:
By Master Servicing Agreement dated February 1, 1999, LBHI engaged
Aurora Bank FSB (f/k/a Lehman Brothers Bank FSB), to master service,
among other things, the Loan [the Moreno loan]. In turn, Aurora Bank
FSB engaged Litton pursuant to a Flow Subservicing Agreement dated
October 1, 2007, to service the loan.”
By an amendment to the affidavit and in testimony, Drosdick later amended his affidavit to correct this
passage by striking Aurora Bank FSB from the first sentence and in its place inserting Aurora Loan
Services LLC. Drosdick did not expressly change the second sentence, but that sentence, which begins
with the critical words “in turn,” would be nonsensical unless the same substitution—Aurora Loan Services
LLC for Aurora Bank FSB—were also made in the second sentence. Therefore, though the second
sentence might perhaps be read in isolation as evidence that Litton was servicing the loan for Aurora Bank
FSB at the time when Bailey executed the assignment, that sentence cannot credibly be so construed.
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the owner of the beneficial interest in the loan.)
Scott Drosdick, a vice-president of LBHI and witness for PAM at the evidentiary hearing,
testified that Aurora Bank’s instruction to Litton to transfer the mortgage to PAM was later
“ratified by LBHI.” Drosdick did not explain what he meant by this, precisely how and when this
ratification occurred. Absent such evidence and clarification, this testimony is too vague to have
any definite meaning; accordingly I give it no weight.
By a master servicing agreement dated February 1, 1999, LBHI engaged Aurora Loan
Services, Inc., now known as Aurora Loan Services LLC (“ALS”), as master servicer of certain
loans, including eventually the present Moreno loan. In turn, ALS engaged Litton to service
certain loans, including eventually this same loan.
After Bailey executed the MERS assignment to PAM, Bailey executed another
assignment of the same mortgage from MERS to LBHI. This second assignment was never
recorded; nor is there evidence that it was ever delivered by MERS to LBHI.
Moreno filed a petition for relief under Chapter 13 of the Bankruptcy Code on October
13, 2008, commencing the present bankruptcy case. On November 13, 2008, LBHI, acting
through its servicer Litton Loan Servicing, LP, filed a proof of claim in this case; the proof of
claim asserts a claim, secured by real estate, in the total amount of $530,168.04, the same
secured claim as PAM now seeks relief from stay to enforce by foreclosure. On the proof of
claim form itself, Litton actually identifies the creditor claimant as simply “Litton,” but on an
explanatory document attached to the proof of claim form, Litton states that the claim is filed by
“Litton Loan Servicing, LP, as Servicing Agent for Lehman Brothers Holdings Inc.” The proof of
claim does not mention PAM or indicate in any way that the mortgage securing the claim is held
by anyone other than LBHI.
On March 31, 2009, and at LBHI’s direction, PAM filed the present motion for relief from
the automatic stay, seeking relief from the automatic stay to foreclose and to preserve its rights
as to a potential deficiency. PAM intends and is obligated to remit the proceeds of the intended
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foreclosure sale to Aurora Loan Services LLC, as servicer for LBHI. Regarding ownership of
the note and Mortgage, PAM stated in the motion only that it was the holder of a mortgage
originally given by Moreno to MERS, that the mortgage secured a note given by Moreno to GE,
and that MERS had assigned the mortgage to PAM. PAM did not indicate that LBHI was the
current holder of the note or that it held the mortgage as nominee for the benefit of LBHI or of
any other entity. The motion did not mention LBHI.
Moreno filed a response to the motion, in essence an objection, in which he expressly
admitted PAM’s allegation that his prepetition arrearage was $39,442.49 and, by lack of denial,
tacitly admitted that Moreno was some four months in arrears on his postpetition payments
under the mortgage. By these allegations and admissions, PAM has established that Moreno is
in default on his mortgage loan obligations; the Court rejects Moreno’s request for a finding that
PAM has not established a default. The response made no issue of PAM’s standing to
foreclose or to seek relief from stay and did not dispute PAM’s allegations regarding ownership
of the note and Mortgage. In any event, before a hearing was held on the motion, Moreno,
through counsel, withdrew his objection. Consequently, on April 28, 2009, and without a
hearing or any review of apparent inconsistencies in the bankruptcy record concerning
ownership of the mortgage and note, the court granted PAM relief from the automatic stay to
foreclose and to preserve its rights as to a potential deficiency.
PAM had not yet foreclosed when, on December 2, 2009 and by new counsel, Moreno
filed an adversary complaint against PAM and, with it, a motion for preliminary injunction. The
complaint sought among other things (i) an order invalidating the mortgage on account of
irregularities in its origination and (ii) a declaration that PAM was not the holder of the mortgage
and note. In the motion for preliminary injunction, Moreno asked that the foreclosure be stayed,
or that the automatic stay be reimposed, pending disposition of the adversary proceeding. On
December 7, 2009, after a hearing on the motion for preliminary injunction, the Court found that
the motion was, in part, essentially one to vacate the order granting relief from the automatic
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stay, vacated that order, and scheduled an evidentiary hearing on the motion for relief. The
order specified that the sole issue at the evidentiary hearing would be PAM’s standing to seek
relief from the automatic stay, all other issues under 11 U.S.C. § 362(d) being deemed
established. After discovery, the evidentiary hearing was held on April 8, 2010, and, with the
submission of proposed findings and conclusions, the matter was then taken under advisement.
Discussion
As the party seeking relief from stay to foreclose a mortgage on the debtor’s property,
PAM bears the burden of proving that it has authority under applicable state law to foreclose
the mortgage in question and, by virtue of that authority, standing to move for relief from the
automatic stay to foreclose. PAM contends that it has such authority and standing because,
although it does not hold the promissory note that the mortgage secures, it does have title to the
mortgage itself; and it holds that title as nominee of and for the benefit of the note holder, LBHI,
and is foreclosing for LBHI. In these circumstances, PAM contends, a mortgagee has a right
under Massachusetts law to foreclose for the benefit of the note holder and therefore standing
to move for relief from stay to foreclose. The Debtor objects, arguing (among other things) that
Massachusetts law prohibits foreclosure by one who holds only the mortgage and not the note it
secures. I need not address the merits of this and other objections because, even if the theory
is a valid one, it requires proof that PAM is the present title holder of the mortgage, and PAM
has not carried its burden in this regard.
To show that it presently holds the mortgage, PAM must show a valid assignment of the
mortgage from MERS to itself. PAM contends that it holds the mortgage by assignment from
MERS. Accordingly, PAM must show that the assignment, which was executed for MERS by
Denise Bailey, was within the scope of Bailey’s limited authority to act for MERS.
Ms. Bailey’s authority to act for MERS is defined in the MERS Authorization in seven
enumerated paragraphs. In each, Ms. Bailey’s authority to act is dependent on the existence of
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a specified relationship of Litton, the MERS member by whom she is employed, to the loan in
question. PAM has submitted no evidence of the existence of any such relationship. The
beneficial owner of the loan at the time of the assignment was Aurora Bank FSB, but there is no
evidence that Litton was at the time the servicer of the loan for Aurora Bank FSB or was
registered with MERS as such. The Court does not find that Aurora Bank FSB had not retained
Litton as its servicer; there is simply no evidence on the issue. But the burden is on PAM to
prove that it had, and PAM has not adduced evidence to that effect.
Accordingly, by a separate order, the Court will deny PAM’s motion for relief from the
automatic stay without prejudice to renewal upon proper proof.
Date: May 24, 2010 	_______________________________
Frank J. Bailey
United States Bankruptcy Judge
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