Daily Development for Monday, October 10, 2005
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

BANKRUPTCY; AUTOMATIC STAY; RELIEF FROM STAY; STATUS OF CREDITOR: In Missouri Chapter 7 bankruptcy, the debtor cannot defend a petition for relief from the automatic stay by a foreclosing mortgagee by arguing that the mortgagee has not produced the note and is not the original mortgagee.

In re Martens, 2005 Westlaw 2417653 (8th Cir. BAP 10/3/05)

The debtor, acting in pro per, perhaps had gotten wind, through the internet, of the problems that MERS is having with foreclosures in Florida.  In the DIRT DD report of 9/16/05, it was noted that a Florida state court judge had dismissed a number of foreclosures where the record did not disclose that the party seeking foreclosure was in fact the mortgagee. 

The debtor in the instant case claimed that the creditor here, a well known secondary market purchaser, was not the original lender who had loaned money to her secured by a mortgage on her home.  She further alleged that the creditor had not produced the note.  She claimed that seeking to foreclose without producing the note is a violation of the Fair Debt Collection Practices Act and also a violation of Missouri law. 

The bankruptcy court held, and the BAP here affirmed, that these defenses were not relevant to an action for relief from the automatic stay.  It noted that the debtor, in its original filing (Debtor at time of filing was represented by counsel), had listed Countrywide as a creditor, had acknowledge that the debt was in default and that there was no equity in her property.  Hence, the debtor’s own acknowledgements made a case for granting relief from the stay under the Bankruptcy Code standards. 

The court went on to note, as dicta, that there is nothing in the FDCPA or Missouri law that requires production of the original note, so long as the mortgagee can show that indeed it is the lawful holder of the right to foreclose the mortgage   Here, of course, the mortgagee had acknowledged that Countrywide was a mortgage creditor.

Comment: Holdings of this sort will move along a lot of bankruptcies that might get held up by this new focus on production of the note as the key to the foreclosure process.  Although, indeed, many lenders do get possession of the note (and MERS did obtain the note in the DD referred to above), it is a fact that many secondary market purchasers move very quickly to move portfolios around very quickly and often do not complete the follow up to obtain the note.  The note may be with the originator, may be with MERS, or may not be anywhere that any knows for sure. 

This holding at least gets the lender past the bankruptcy.  It is also fair warning that the pro se filers are onto the “note thing” and that secondary market mortgage investors are going to have to contend with that issue in a variety of manifestations over the next few months. 

Readers are encouraged to respond to or criticize this posting.

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