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New York bankruptcy judge throws foreclosure bank out of court

In a case out of The Bronx, a bankruptcy judge refused to allow the mortgage servicer to proceed with foreclosure. In re Mims (Bankr. SDNY Bk 10-14030; Judge Glenn; decision Oct. 27, 2010; decision attached below).

Wells Fargo moved the bankruptcy court for permission to start a foreclosure against the debtor's residence (a "lift stay" motion, asking for the automatic stay of Bankruptcy Code Sect. 362 to be lifted.) The debtor did not oppose the motion, nor did the bankruptcy trustee. Never the less, the court denied the motion, apparently on its own initiative.

The mortgage was originated in 2004, when Lend America recorded a first mortgage against the debtor's house (technically, the mortgage was recorded by MERS, or Mortgage Electronic registration System, as 'nominee' for Lend America.) The mortgage note was endorsed to Washington Mutual, a bank later taken over by the FDIC and its assets sold to Chase. There was no evidence that the mortgage note was ever assigned to Wells Fargo.

Wells Fargo may have been the "title owner" of the mortgage itself (that is, the security interest.) Seven days before the lift stay motion was filed, the mortgage but not the note was assigned by MERS to Wells Fargo. The bankruptcy court concluded that Wells Fargo was not a party in interest, as it had not shown that it was the owner or holder of the mortgage note. Wells Fargo could not bring a foreclosure in New York State unless it owns the note being foreclosed. There was no written assignment of the note, and Wells Fargo was not in physical possession of the original note (in New York, a note can be assigned by physical delivery of the original note to a new owner.)

The court was also troubled by the timing of the mortgage assignment, seven days before the motion, with no "credible explanation, describing how, when and from whom Wells Fargo derived its rights." (Decision, page 8.) The court also noted that the Assignment from MERS was signed by an officer residing in Florida, his signature was notarized in South Carolina. The attorney for Wells Fargo was unable at the motion hearing to verify where the document was actually signed.

This decision adds to the uncertainty surrounding foreclosures caused by missing paperwork and other problems (see my three blogs posted Oct. 23, 2010 under the topic Mortgages and Mortgage Foreclosures.) That the court denied the lift stay motion of Wells Fargo on its own initiative shows that some courts in New York are examining all manner of foreclosure proceedings closely, even absent objection from opposing parties. The motion was denied without prejudice, so Wells Fargo may be entitled to relief in the future if it can overcome the court's difficulties with its paperwork. The attorney for Wells Fargo in this motion was the Law Office of Steven J. Baum, PC, of Amherst NY.

My appreciatuion to attorney Kevin Bambury of Rochester for bringing this case to my attention.

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