Use Of Undated Allonge May Sink Mortgage Lender's Claim In Homeowner's Bankruptcy Case; Vermont Judge Says Bank Must Have Standing On Filing Date

A U.S Bankruptcy Court in Vermont recently denied a mortgage lender's motion for summary judgment in an adversary proceeding brought against it by debtor/homeowner Barry Alton Parker, in which Parker claimed that the bank lacked standing to enforce the mortgage note against him.

The bank tripped itself up in this case by using an undated allonge to the mortgage note. The court interpreted Vermont law as requiring a creditor to have standing on the date the bankruptcy case is commenced, and that a defect in standing at that time cannot be cured, thereby making the date the allonge was endorsed as the critical date in determining whether the bank has standing enforce the note and file a proof of claim.

The court concluded its ruling by saying that unless the parties present undisputed evidence showing the date the allonge was executed, it will set a trial date to determine whether the bank had standing to file the proof of claim.(1)

For the ruling, see In re Parker, Case No. 09-10186, Adversary Proceeding No. 09-1022 (Bankr. D. Vt. March 18, 2011).

(1) The relevant excerpt of the ruling follows:

• This raises the question of when the allonge was endorsed, as the allonge endorsed by Mr. Brown is not dated. The Bank argues that the timing of the endorsement is immaterial to the question of whether the Bank is the holder of the Note because regardless of when the Note was endorsed, it is now endorsed and in the Bank's possession. See In re Wilson, 442 B.R. 10, 15, 2010 Bankr. LEXIS 4252, * 9-11 (Bankr. D. Mass. Nov. 29, 2010).
  
  However, under relevant Vermont jurisprudence pertaining to foreclosure actions, "[i]n order to enforce a mortgage note, a plaintiff must show that it was the holder of the note at the time the Complaint was filed." U.S. Bank Nat'l Assoc. as Trustee for RASC 2005 AHL1 v. Kimball, No. 6-1-09 Gicv (Vt. Super. Ct. Oct. 27, 2009) (Joseph, J.) (on appeal) (citing In re Gilpin, No. 09-10696 (Bankr. D. Vt. Oct. 7, 2009)) (emphasis added); see also In re Foreclosure Cases, 521 F.Supp.2d 650, 653 (S.D. Ohio 2007) ("[t]o show standing . . . the plaintiff must show that it is the holder of the note and the mortgage at the time the complaint was filed"); In re Hwang, 396 B.R. 757 (Bankr. C.D. Cal. 2008), reversed on other grounds, 438 B.R. 661 (C.D. Cal. 2010); U.S. Bank Nat'l Assoc. v. White, 880 N.Y.S.2d 227 (Table), 2009 N.Y. Slip Op. 50100(U) (N.Y. Super. Ct. Jan. 23, 2009).
  
  Another recent Vermont case addressed the "propositions that a party must have standing at the outset of litigation, and that a defect in standing at that time cannot be cured," Deutsche Bank Nat'l Trust Co. v. Parisella, No. S0758-09, 2010 Vt. Super. LEXIS 59, *5 (Vt. Super. Ct. Oct. 25, 2010) (Toor, J.). There, the state court took great pains to thoroughly articulate the requirements of both constitutional and prudential standing, and concluded that "a plaintiff seeking foreclosure lacks standing unless it can show it was entitled to enforce the mortgage at the time it filed its complaint for foreclosure." Id. at *6-10.
  
  Notably, the Vermont Rule of Civil Procedure governing foreclosure proceedings likewise imposes this requirement:
  
  The plaintiff shall attach to the complaint copies of the original note and mortgage deed and proof of ownership thereof, including copies of all original endorsements and assignments of the note and mortgage deed. The plaintiff shall plead in its complaint that the originals are in the possession and control of the plaintiff or that the plaintiff is otherwise entitled to enforce the mortgage note pursuant to the Uniform Commercial Code.
  
  Vt. R. Civ. P. 80.1(b)(1).
  
  Here, the document the creditor has filed to enforce its rights is a proof of claim, rather than a complaint or motion, and the seminal date for analysis and allowance of a proof of claim, including the question of standing, is the date the bankruptcy case was commenced. See Official Form 10. Therefore, the critical inquiry is whether the Bank was the holder of the Note as of the date of Debtor's bankruptcy filing. Since the date the Note was endorsed is a material fact essential to the determination of whether the Bank is entitled to judgment as a matter of law, and since the record of undisputed material facts does not include any information about the date of the endorsement, the Court cannot adjudicate this issue on summary judgment.
  
  For the reasons set forth above, the Bank's motion for summary judgment is denied. Unless the parties present undisputed evidence showing the date the allonge was executed, the Court will set a trial date to determine whether the Bank had standing to file the proof of claim.

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A notable piece of trivia here is that the U.S. Bank Nat'l Assoc. v. White case cited above is an example of the 'handiwork' belonging to Kings County (Brooklyn), New York Supreme Court Justice Arthur M. Schack that continues to 'permeate' the court rulings in this area of law around the country.