Is there any way to challenge a bank's standing/claim in a Chapter 7 case?

[SimplyMickey]

Filed a chapter 7 to stop a foreclosure. Entered loss mitigation and got a modification trial plan, but my client still wants to challenge the bank's ownership of the mortgage. Can I do this is a Chapter 7 or do I have to convert to a Chapter 13?

[justbroke]

I don't know what to say. In my district, the court sends all of these back down to State non-bankruptcy court. Did the creditor even file a claim in the Chapter 7? Did the creditor file relief from the automatic stay? What would you be fighting, that they do not have standing to file a claim? The automatic stay would end on discharge anyhow.

What the motion practice like in your District? Have you looked at other cases in your District where this was attempted? Are you admitted to practice in the U.S. Bankruptcy Court? Maybe call the judge's clerk to see if your judge likes these motions or sends them to State non-bankruptcy court (literally taking a pass on them).

[despritfreya]

Not sure why anyone would file a Chapter 7 to stop a foreclosure if there was an intent to attempt to save the home. Chapter 7s do not assist debtors in that regard. Case probably should have been filed as a 13. Having said that, bankruptcy courts in general are tired of the "show me the note" arguments. Your client is most likely not going to survive a Motion for Relief From Stay especially if post petition payments are not being made. IMHO, such "show me the note" arguments are simply a delay tactic whereby the borrower gets to live rent free for, sometimes, years - but it won't be years in the context of a bk.

Further, your client cannot have it both ways. Why does your client believe he/she can seek a loan mod and, at the very same time, claim that the alleged creditor is not the "holder of the note"? Why would one try to modify a loan if one does not believe the alleged creditor is entitled to payment?

I recommend that the debtor find him/her self a good bk attorney and discuss the general state of affairs of the bk court in his/her jurisdiction relative to such matters.

Des.

[justbroke]

Des, I wrote something similar to what you wrote, erased it, and simplified my post. I actually wrote something to the affect of, client entered into a modification with a creditor that client does not believe is their creditor... and client signed something for the modification trial from that non-creditor...

The courts here, at least in the Middle District, send all these back to the State non-bankruptcy court with a pat on the back and a "good luck" to both parties.

[SimplyMickey]

I appreciate your candor. But, I don't actually agree. The Chapter 7 stopped the foreclosure and the loss mitigation gave the client a modification, all without making any payments. The case would have been over if the client didnt want to contest standing. If a Chp 13 was filed, the client would have to proffer and plan and make post petition payments without being sure that she would get a modification. She owes too much in arrears to proffer a workable plan, so a Chp 13 wouldve been useless. In any event, in our district you can convert to a chapter 7 as of right so that was always an option, if needed. Also, the bank cannot move to be relieved from the stay during loss mitigation. This strategy is called lawyering.

The problem now is that the client wants to contest standing based on prodding from an attorney family member. The only way I know how to do that is in a Chapter 13 when the bank files a proof of claim and then I object. My question was whether anyone knew of any other way. Can I file a proof for the bank in a Chp 7 (no)?? Is conversion the only way to proceed??? BTW, the client has not accepted the modification yet. I advised her to make trial payments but reserve her right to reject the modification explicitly on the check.

[despritfreya]

the bank cannot move to be relieved from the stay during loss mitigation.

Is that some sort of local rule? If it is not, unfortunately, the statement is wrong.

The only way I know how to do that is in a Chapter 13 when the bank files a proof of claim and then I object. My question was whether anyone knew of any other way. Can I file a proof for the bank in a Chp 7

A debtor can file a POC for a creditor pursuant to Bankruptcy Rule 3004. Your client needs to follow Rule 3004 if he/she is going down that path.

As to the Chapter 7, the mortgage lender is not likely to file a POC. Regardless, in the context of a Chapter 7, your client most likely has no standing to object to a Proof of Claim unless there is a solvent estate.

So, if your client wants to go down the ill fated path of “show me the note” the 13 is the way to go. If you are an attny and are planning on arguing this matter by way of an objection to the POC, I hope you are charging by the hour and are getting a large retainer. The argument is a loser but, subject to Rule 11, you certainly can run up the bill very nicely - assuming you actually get paid for your work before the case gets reconverted to a 7.

My recommendation. . . client continues down the modification path and hopes for a loan mod he/she can afford. If not, client walks away.

Des.

[justbroke]

The dreaded Rule 11. I have personally dragged a client and their attorney into a show cause under Rule 11 (9011) which led to a settlement.