Challenging lien AFTER discharge

[Savoy]

Chapter 7 debtor listed lender as undisputed secured creditor. Debtor was underwater so value of claimed homestead exemption was $0. Then debtor received discharge. Case will be closed soon. Is it too late to challenge the lien in bk court as being void (for lack of standing...not lien stripping)? That is, has the property left the bk estate so the bk court now lacks subject matter jurisdiction? (i'm pretty sure it has left).

Can the property be brought back into bk estate by having the debtor file a motion to revoke the discharge based in frcp 60 "mistake"?...or must the debtor now take up the issue in state court and risk dealing with the defense of res judicata/judicial admission?

[despritfreya]

Sorry, but are you nuts? You want to have the bk court revoke your discharge so that you can assert your mortgage lender does not have standing? Standing to do what? Seek relief from the automatic stay? Has it filed such a motion?

Please explain exactly what you are trying to accomplish. Remember, the “show me the note” stuff is pretty much dead and I trust you are not a “Neil Garfield disciple”.

Des.

[justbroke]

I must absolutely agree with Des, and especially ask, just what are you trying to do? Most Bankruptcy Court judges don't want to make any sort of rulings on "standing" or other issues regarding Mortgages and Notes except within the bankruptcy context. In fact, the bankruptcy court only has jurisdiction in certain cases, and this appears to be a jurisdictional question. Any smart bankruptcy court would not allow you to re-open and would send you back to State non-bankruptcy court anyhow, since this is where this belongs.

As for the "show me the note"... they apparently are showing them now, so that is all moot at this point. What is this "res judicata" issue you mention? What would be "res"... the fact that you listed the lender in your petition as the owner of the security instrument on Schedule E (Creditors holding secure claims)? That may be more an issue of estoppel.

[AngelinaCat]

Sorry to welcome you to the forum this way, Savoy, but you have gotten responses from two of our most informed members--one of whom IS a BK attorney. So I think your idea is dead on start-up. But welcome anyway.

[Savoy]

Hmmm...as I research the issue, it looks like the discharge affects only "in personam" liability while the lien issue is an "in rem" issue. Therefore, revoking the discharge would seem like a crazy thing to do (whether generally or in this case in particular). Agreed.

Regarding "standing", we allege that the trust (who claims to own the lien) was never really created (and therefore doesn't have standing to foreclose either by seeking relief from the autostay during bk, or by foreclosing after the bk). So the thing we want to accomplish is to quiet title in favor of the Debtor.

With regard to "show me the note", not only is it not really viable in Texas, they actually have the note.

[justbroke]

Regarding "standing", we allege that the trust (who claims to own the lien) was never really created (and therefore doesn't have standing to foreclose either by seeking relief from the autostay during bk, or by foreclosing after the bk). So the thing we want to accomplish is to quiet title in favor of the Debtor.

This is not going to get any traction in the bankruptcy court, especially since "Relief From Stay" is moot after the discharge is entered (or the Trustee abandoned the property). If you want to quiet the title, get back into State non-bankruptcy court.

In any event, with the facts you lay out, I don't see how you get a "quiet title" if the only defect in the foreclosure action is that it's the wrong entity foreclosing. In other words, the debtor DID pledge the property to SOME entity and that Promissory Note has not been satisfied (and the mortgage not released). If the only question is who is showing up with the actual endorsed Promissory Note, and they have it in their possession, I don't think you can get to a quiet title. If you saw the Note, is it endorsed in blank or to some bank?

Again, I don't see this as an issue in or under the jurisdiction of the Bankruptcy court. And, don't forget the estoppel issue I mentioned earlier.

[Savoy]

Given that I'm probably headed to state court, will anything which took place in the bk case have an impact? Regarding listing the bank as a secured creditor on the the original schedules, estoppel seems more appropriate than res judicata. However, in our favor, the schedules were amended (after the discharge but before case closed) and indicate a 100% homestead exemption to which the "secured creditor" didn't object (and the time to do so under BR4003b and BR4003d has long since gone). Thoughts?

[Savoy]

Agreed...bk court is not an option. With regard to foreclosure, if the wrong entity forecloses, that is a BIG problem...foreclosure must only be conducted by a party with the right to do so (or their agent). Normally, possession will overcome any chain-of-title issues; however, if you think of the trust as a unicorn (because the trust doesn't exist), then "the trust" can't have an agent. So even if it's "agent" claims possession (because the agent has no greater rights than its principle), possession is moot... even if the Note were indorsed in-blank. (The "agent" possessing the Note should find the real owner and give THEM possession).

Regarding jx under the bk court, I know that normally a bk court has jx to hear 506d challenges to secured creditor status. What issue in MY case would cause the bk court to lose jx?...Is it because the home is no longer considered "property of the estate" because of the discharge? But doesn't the discharge simply permit the bank to pursue state court remedies (i.e., lift the stay) or does the discharge also remove the home from "property of the estate"? (Perhaps it's the closing of the case which removes the home from "property of the estate" and ends jx?...Note: I happen to be in the gap period between discharge and the close of the case.)

[despritfreya]

I have to ask. . . when you say the "trust" does not exist, exactly what kind of "trust" are you talking about?

Des.

[justbroke]

I'm guessing, but they are probably trying to go after a REMIC Trust... the so-called asset backed securities trusts of the 2000s. At least in Florida, even if the Trust has issues, that doesn't mean the debtor did not "mortgage" the home by pledging it as security to the holder of the Promissory Note. In some cases, Judges have opined, and I agree, that even if the Trust is invalid and/or doesn't exist, that's really a tax issue and not one that gets a debtor a free house. The only way to get a free house is to prove the Promissory Note and Security Instrument were bifurcated at the beginning of the process.

Yes, the court can hear Security issues under 11 USC 506(d), but these are usually used where there is a claim in the bankruptcy and trying to determine the secured status of the claim. I don't now of many Judges that will entertain you, with most sending the case back to where it belongs... State non-bankruptcy court. I can't tell you if you'd find one that would. I don't see how this belongs in the Bankruptcy court.

As for the homestead exemption, that will only protect the BK Estate, should it be re-opened, if you are successful with having the security be void and receiving clean title. No secured creditor would challenge the homestead exemption since it does not apply to a secured creditor to the extent that the property is encumbered.

[HHM]

These are "pretender" defenses.

People keep "repeating" the same bad advice that has existed for 3 years all stemmed form ONE rogue judicial opinion that no other court follows.

Good luck, but you are wasting your time.

[Savoy]

It's a common law trust. Although it purports to be a REMIC, we don't care about tax status and that's not the angle. The angle is that a common law trust exists only if the parties who created it actually did what they promised in the agreement/contract creating the trust (i.e., the Pooling and Servicing Agreement). That is, if "Party A" and "Party B" execute an agreement with the prospective trustee whereby "Party B" is supposed to deposit mortgages into the trust, but "Party A" ends up assigning them, then, in fact, the trust was never created and the purported assignments from "Party A" are void (at least under New York State law which governs this PSA).

By the way, y'all have been very helpful. I appreciate the opportunity to confer with you!

[HHM]

It's a bogus defense.

The right to foreclose arises from the mortgage note and the security instrument. If the borrower is in default, that is pretty much it.

As JustBroke alluded, the issue you are raising is between the parties to the trust agreement, NOT The Borrower, and in the context you are discussing, it is not even clear there is a good argument that the borrower is 3rd party beneficiary that would give the borrower standing to raise issues related to the PSA. The problem with the standing argument related to the trust is that many courts reverse the standing argument and hold that the borrower has no standing to raise claims and defenses related to the PSA and Trust Law. The issue with the trusts relates to who gets the money from foreclosure, not the right to foreclose. Sorry to rain your parade...rightly or wrongly, the vast majority of courts and policy makers are side stepping this issue for expediency. Also, despite the over promises of "pretender" foreclosure attorneys and a few rogue cases, the assignments, the notes, etc, are not the issue. Those were actually done correctly in most cases.

The real issue, but very few are pursuing it, because it involves real litigation (gathering evidence and proving facts) is that the calculation of the arrears and pay-offs supplied to borrowers in default were inaccurate (e.g. breach of contract and fraud). That is the real issue that is being pursued by the OCC (office of the comptroller or currency) and its consent order with the banks to review foreclosures from 2009 to mid 2010. But most attorneys in this field have no idea how to do this sort of litigation and most borrowers don't have the resources because it is much more time consuming.

[despritfreya]

I have to agree with HHM. Just another spin to the "delay tactics" taking place throughout the Country. A loser in the end - but, I guess the "plaintiff" will continue to reside rent free in the home for a while longer.

Des.