Opinion
Case No. 03-52010-JS.
September 7, 2007
MEMORANDUM OPINION OVERRULING DEBTOR'S OBJECTIONS TO CLAIM OF JP MORGAN CHASE MANHATTAN BANK
The matters before the Court are the debtor's objections to the claim of JP Morgan Chase Manhattan Bank. For the reasons stated, the objections will be overruled.
FINDINGS OF FA CT
1. On June 8, 1990, Paul Charles Bird, Sr. (the "debtor," or "Bird"), and Brenda Lee Armstrong financed the purchase of 3416 Hopkins Avenue, Baltimore County, Maryland 21227 ("the real property"), by signing a promissory note secured by a deed of trust in favor of Union Federal Savings Bank ("Union Federal") in the amount of $111,481.00. The loan was insured by the Federal Housing Administration ("FHA"). The deed of trust was recorded among the Land Records of Baltimore County in Liber No. 8504, folio 533. On August 26, 1996, Union Federal assigned the note to the Secretary of the U.S. Department of Housing and Urban Development ("HUD"). The assignment was recorded among the Land Records of Baltimore County in Liber No. 11787, folio 097. On October 27, 1997, an allonge to the note was executed by HUD to Ocwen Federal Bank, FSB ("Ocwen"). On the same date, HUD assigned the deed of trust to Ocwen by an assignment duly recorded among the Land Records of Baltimore County in Liber 12679, folio 507.
The FHA, part of the U.S. Department of Housing and Urban Development ("HUD"), is a Federal agency that was created in 1934 to foster and increase home ownership. FHA-insured loans enable lenders to make available to qualified purchasers low-cost mortgages with interest rates and down payments that are lower than conventional loans.
The assignment indicated that the Federally-insured loan was purchased by HUD because Bird and Armstrong were nine months in arrears at the time and the assignment enabled them to avoid foreclosure by enrolling in a HUD-sponsored forbearance program. There is no evidence in the record that specifies the precise terms of the program.
An allonge is a paper attached to a promissory note on which the parties write an indorsement, if there is no room on the instrument itself. Milestone v. David, 251 Ga. App. 832 (2001); U.C.C. § 3-202(2).
2. On November 15, 2000, Ocwen assigned the deed of trust to JP Morgan Chase Manhattan Bank as trustee c/o Residential Funding ("JP Morgan"), and executed an allonge that contained an open indorsement ("The Assignment of Deed of Trust Note").
Ocwen also executed an undated instrument entitled " Allonge to Promissory Note" payable to the order of JP Morgan.
3. On December 20, 2000, after it transferred the claim to JP Morgan, Ocwen executed a lost note affidavit to Homecomings Financial Network ("Homecomings"). The affidavit of Karen Kettle, a servicing officer of Ocwen, contained the following statement:
That the Note, a copy of which is attached hereto as "Exhibit A," executed by PAUL CHARLES BIRD BRENDA LEE ARMSTRONG in the original principal sum of $111,481.00, payable to the order of UNION FEDERAL SAVINGS BANK was lost and/or destroyed and neither the affiant herein nor, to the best of affiant's knowledge, any of the directors, officers, or employees of Ocwen have any knowledge of the location or whereabouts of said Note and the related endorsements and, to the best of affiant's knowledge after inquiry and investigation, said Note has not been paid, satisfied, transferred, assigned, pledged, or hypothecated in any way.
NOW THEREFORE, for and in consideration of Homecomings Financial Network, Inc. ("Homecomings") and its successors and/or assigns, accepting this Lost Note Affidavit and Indemnification Agreement in lieu of the original Note and the related endorsements, Ocwen does hereby agree to defend, indemnify and hold harmless Homecomings, its respective transferees and their respective assigns, officers, directors, employees, agents, attorneys and representatives (collectively, the "Indemnified") from and against any and all loss or damage, together with all reasonable costs, charges, expenses (whether or not a lawsuit is filed) (collectively the "Loss") incurred by reason of any claim, demand, suit, cause of action or proceeding by a third party arising out of the Indemnified's inability to enforce the Note according to its terms or the inability to receive any related insurance proceeds due to the lack of an original Note and/or the related endorsements or any claim of ownership by a third party or negotiation or attempted negotiation of the original Note by a third party; provided however, Loss shall not include indirect or consequential damages. Ocwen shall pay any such Loss upon demand provided that Ocwen is notified of any such Loss in writing at the following address: 1675 Palm Beach Lakes Blvd, West Palm Beach, FL 33401; Attention: Secretary; with copy to 1665 Palm Beach Lakes Blvd, West Palm Beach, FL 33401; Attention: Arthur J. Castner; and further provided that Ocwen is given full opportunity to direct or assist, at Ocwen's option, the defense or settlement of any such Loss. Ocwen does hereby agree that should the original Note ever be found by it, it will promptly notify Homecomings and upon receipt by Ocwen of the Note, will endorse to Homecomings, or its designee without recourse such original Note and promptly forward said Note to Homecomings or its designee.
Executed this 20th day of December, 2000.
OCWEN FEDERAL BANK FSB
By: /s/__________________ Karen Kettle Servicing Officer 4. On January 3, 2002, through its servicer, Fairbanks Capital Corp. ("Fairbanks"), Homecomings executed an affidavit of lost note to Homecoming's Substitute Trustees, Howard N. Bierman, Esquire, Jacob Geesing, Esquire and Carrie Ward, Esquire.5. On February 6, 2003, Bird filed the instant Chapter 13 bankruptcy case (Case No. 03-52010-JS) in this Court. On March 7, 2003, Fairbanks filed a secured claim in the amount of $41,504.15 [Claim No. 1], representing past due arrearage on a deed of trust securing the real property. On April 16, 2003, Bird filed an objection [P. 7] to the claim. The sole basis of the objection was stated as follows:
[4.] That the debtor asserts that the secured Proof of Claim is incorrect as the records and payment history that the Debtor has in his possession dispute the arrearage amount filed in the Claimant's Proof of Clam.
Id. While the objection was pending, Fairbanks assigned the claim to Homecomings by assignment [P. 11] dated August 1, 2003.
6. By order [P. 18] dated September 29, 2003, this Court sustained the objection and disallowed Claim No. 1. On October 7, 2003, Homecomings filed a motion for reconsideration [P. No. 20.] on the ground that service of the objection was improper. On January 21, 2004, the motion was granted after a hearing by order [P. 44], and a hearing was scheduled on the objection.
7. In the meantime, on November 13, 2003, Bird filed a complaint for damages pro se against Homecomings (Adversary Proceeding No. 03-5833-JS), in which he asserted that Homecomings had violated the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692, et. seq. The complaint was dismissed on December 18, 2003 on the ground that proper service had not been made and because the complaint was not in proper form, Bird having identified himself in the caption as the defendant.
8. On February 18, 2004, Bird filed a second, identical complaint against Homecomings (Adversary proceeding No. 04-1145-JS). On July 26, 2004, Homecomings filed an answer and a motion to dismiss [PP. 11 and 12].
9. On September 22, 2004, Homecomings filed a motion for relief from the automatic stay [P. 60] against Bird and Brenda Lee Armstrong as co-debtor, in which it claimed to be owed $145,025.55, representing unpaid postpetition arrearages dating from August 1, 2004. The grounds asserted for granting the motion were (1) for cause due to the debtor's failure to tender postpetition payments, (2) a lack of equity in the property and (3) a lack of adequate protection. On October 12, 2004, Bird filed a pro se response, in which he denied that a default existed while reiterating his allegation that the movant had violated the FDCPA. He also argued that the lost note affidavit submitted by Homecomings was not sufficient evidence of the fact that Homecomings was the holder of the promissory note. All pending matters, including the motion for relief from stay, the debtor's objection to claim and the pending adversary proceeding came on for hearing on December 13, 2005, before the Honorable Russell A. Eisenberg, sitting by designation.
10. At the hearing, the parties reached a global settlement of their differences. Based upon their stipulation, Adversary Proceeding No. 04-1145-JS was dismissed without prejudice by order [P. 53] on December 16, 2005. Homecomings agreed to produce evidence demonstrating satisfactory title to the promissory note within 30 days, whereupon Bird agreed to remit all arrearages to Homecomings within 30 days. The motion for relief from automatic stay was denied without prejudice, with Homecomings reserving the right to renew its request for relief at a later time. The settlement order was supposed to be drafted and submitted to the Court within two days. No such order was submitted and neither party sought relief from the Court within two days as required by Judge Eisenberg.
On December 13, 2005, Bird stated that he had been making all mortgage payments to the Chapter 13 trustee, who was holding the payments in trust pending resolution of the issue. 03-52010-JS, In re Paul C. Bird Sr., P. No. 7, Transcript of Decision, Page 10, Line 18-22.
11. On April 21 and 22, 2006, Bird filed two more objections [PP. 108 and 109] against Claim No. 1. Bird alleged that Homecomings had failed to produce any evidence to support a chain of title, as required by Judge Eisenberg. In the second objection, Bird alleged that Homecomings was not a bona fide holder of the note. In response, Homecomings claimed that Bird failed to sign the proposed settlement order, and that the lost note affidavit submitted was sufficient evidence of its claim.
12. On May 24, 2006, this Court issued a notice of hearing [P. 114] to be scheduled on June 28, 2006, to decide the objections to claim.
13. Prior to the hearing, both parties filed pleadings that changed the nature of the dispute. On June 15, 2006, JP Morgan filed Claim No. 2, which amended Claim No. 1 by substituting itself as the claimant in place of Homecomings and by increasing the amount claimed from $41,504.15 to $138,796.80. On the same day, JP Morgan filed a line [P. 116] that amended the motion for relief from stay by substituting JP Morgan for Homecomings as the movant. On June 27, 2006, one day before the hearing, Bird filed yet a third complaint pro se for violation of the FDCPA against Homecomings (Adversary Proceeding No. 06-1508-JS). On January 10, 2007, Bird filed a motion to dismiss the complaint with prejudice, and the Court granted the motion on February 12, 2007.
Claim No. 1 stated the amount due for the arrearage as of March 2003. Claim No. 2 accelerated the total amount due under the note, inclusive of the amount of the arrearage. As of the date of this opinion, the debtor has not objected to Claim No. 2.
14. At the hearing, Bird agreed that JP Morgan was the true claimant. Marie T. McDonnell, a witness for Bird, articulated the chain of title that was evidenced by the documents admitted into evidence at trial. She stated (1) that because the first allonge contained a blank endorsement, it was unknown who received the note; (2) because the second allonge was undated, its date of execution could not be determined; and (3) that there were problems associated with the timing of the lost note affidavit in favor of Homecomings after Ocwen's assignment to JP Morgan. Counsel for JP Morgan argued that the documents were evidence of the validity of the transfer from Ocwen.
This Court did not qualify Ms. McDonnell as an expert witness, but allowed her to testify as a fact witness regarding the history of the claim assignments.
The second allonge was not considered in the Court's reconstruction of the chain of title of the promissory note because it was undated. Therefore, the Court was unable to determine when the allonge was executed.
15. The parties submitted post-hearing memoranda. In his memorandum, Bird presented two arguments: (1) that JP Morgan had not filed a lost note affidavit or any other document evidencing its right to enforce the note; and (2) that although the deed of trust and the allonge were executed the same day, Ocwen intended to bifurcate the note from the deed of trust because the two documents were signed by two different officers and the allonge was executed in blank.
CONCLUSIONS OF LAW
1. Claim No. 1 was improperly filed. Because Fairbanks had no right to assign the claim to Homecomings, Fairbanks had no right to file Claim No. 1 on behalf of Homecomings. However, the debtor's objection to Claim No. 1 is moot, because Claim No. 2, which was filed by JP Morgan, amended and superseded Claim No. 1. Because the parties now agree that JP Morgan is the proper party asserting the secured claim, the debtor's objection will be overruled, and the secured claim of JP Morgan will be allowed in the full amount of $138,796.80, plus accrued amounts that have come due postpetition since the claim was filed.
2. "The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity." Waterbury Trust Co. v. Weisman, 94 Conn. 210, 218, 108 A. 550, 553 (1919), quoting Carpenter v. Longan, 83 U.S. (16 Wall.) 271, 274, 21 L.Ed. 313 (1872). In re AMSCO, Inc., 26 B.R. 358, 361 (Bankr. D. Conn. 1982). Even if the assignment was unclear, the general rule is that the obligation will "follow" the mortgage even if not expressly mentioned in any document of transfer. Steinberg v. McGinnis (In re United Home Loans, Inc.), 71 B.R. 885, 889 (W.D. Wash. 1987) (where a mortgage is assigned by document which states that the debt is also being transferred, ownership of the note passes to the assignee, even though the note is not indorsed or delivered.); Restatement of Property 3d. § 5.4(c) (1997).
3. Despite Bird's argument that Ocwen intended to bifurcate the note and deed of trust when it assigned the note, such intention to bifurcate must be expressly agreed to by the parties to the transfer. Id. § 5.4(b) (1997). In the instant case, there is no evidence of such an express agreement between Ocwen, Homecomings and JP Morgan to bifurcate the note and deed of trust.
4. It is equally absurd to assume that such bifurcation was intended because such a bifurcation of the note from the deed of trust would render the debt unsecured. Id., § 5.4(a) (1997). The Assignment of Deed of Trust is a recorded instrument that expressly transferred to JP Morgan the deed of trust and the promissory note, "together with any and all notes and obligations therein described or referred to, the debt respectively secured thereby, and all sums of money due and to become due theron." "Where as here, an assignment of a mortgage also mentions that the debt is being transferred, the transfer of both is complete." United Home Loans, 71 B.R. at 889. Because Ocwen expressly stated its intention to the contrary, the mortgage was not bifurcated from the note.
5. The Assignment of Deed of Trust expressly assigning the note to JP Morgan, coupled with JP Morgan's possession of the allonge with the blank indorsement confirms that a transfer of the deed of trust and the note took place in November 2000. Therefore, the Court concludes that a valid assignment occurred from Ocwen to JP Morgan.
6. In Maryland, an affidavit of lost note is necessary to verify the existence of the original note and to establish its loss by proof that an unsuccessful search was made in the places where it was most likely to be found. Brashears v. State of Maryland, 58 Md. 563 (1882).
7. The lost note affidavit sworn under oath was sufficient to prove the existence and validity of the note, regardless of its recipient. The fact that it was given to Homecomings rather than to JP Morgan is of no moment. The later production of documents that evidenced the chain of title is prima facie evidence of a properly-filed proof of claim.
8. A creditor filing a proof of claim is prima facie evidence of the amount and validity of the claim. In re Anderson, 349 B.R. 448, 461 (E.D. Va. 2006); Fed.R.Bankr.P. Rule 3001(f). After the creditor makes the filing, the burden shifts to the debtor to object to the claim and introduce evidence to rebut the claim's presumptive validity. In re Merry-Go-Round Enterprises, 241 B.R. 124, 134 (1999).
9. The Fourth Circuit has held that "if a debtor carries its burdens, the creditor has the ultimate burden of proving the amount and validity of the claim by a preponderance of the evidence." Stancill v. Harford Sands, Inc. (In re Harford Sands, Inc.), 372 F.3d 637, 640 (4th Cir. 2004). The filing of Claim No. 2 and the introduction of the lost note affidavit by JP Morgan has shifted the burden to Bird. The evidence presented by Bird has not overcome the validity of the claim. Therefore, Claim No. 2 is allowed and JP Morgan would be entitled to ask for relief from the automatic stay imposed by the debtor's filing of the bankruptcy petition.
10. The Court notes, however, that on August 13, 2007, the Chapter 13 trustee filed a line of completion of case which indicated that the debtor has been discharged.
11. Regardless of the fact that the debtor has been discharged, the Court has subject matter jurisdiction to decide objections to claims pursuant to 28 U.S.C. § 157(b), because the opinion holds that disbursements have been properly made to JP Morgan as secured creditor under the terms of the debtor's confirmed Chapter 13 plan. Valley Historic Ltd. Partnership v. Bank of New York, 486 F.3d 831 (4th Cir. 2007).
ORDER ACCORDINGLY.