Standing-Lacking Banksters Take Another Hit In Federal Bankruptcy Appeals Ruling

In a 46-page opinion, the Bankruptcy Appellate Panel of the U.S. Court of Appeals for the 9th Circuit handed the bankster industry its latest drubbing in an Arizona case, finding that the banksters in question failed to establish that, given the facts of the case, they both:

• lacked standing to seek relief from the automatic stay, and
• lacked standing to file a proof of claim.

In addition to setting forth the facts in the case, the opinion discusses the issues as it breaks down as follows:

• A. Standing in Mortgage Cases:
  
  1. Constitutional Standing
  2. Prudential Standing
  3. Prudential Standing and the Real Party in Interest Doctrine
  4. Real Party in Interest Status and Its Policies
  
  B. The Substantive Law Related to Notes Secured by Real Property
  
  1. Applicability of UCC Articles 3 and 9
  2. Article 3 of the UCC and the Concept of a “Person Entitled to Enforce” a Note
  3. Article 9 and Transfers of Ownership and Other Interests in a Promissory Note
  
  C. Wells Fargo’s Lack of Standing to Seek Relief from the Automatic Stay
  
  1. Standing to Seek Relief from Automatic Stay
  2. Wells Fargo’s Argument Regarding Standing
  3. Wells Fargo’s Lack of a Connection to the Note
  
  D. AHMSI’s Lack of Standing To File Proof of Claim
  
  1. The Lack of Findings on Central Issues
  2. Analysis of the Record and AHMSI’s Status as a “Person Entitled to Enforce” the Note

As referenced earlier, the opinion is 46 pages, so for those who are interested in this kind of stuff, you'll need to set aside some time to digest this ruling.(1)

For the ruling, see Veal v. American Home Mortgage Servicing, Inc. (In re Veal), BAP Nos. AZ-10-1055-MkKiJu, AZ-10-1056-MkKiJu, Bk. No. 09-14808 (9th Cir. BAP June 10, 2011).

Thanks to Mike Dillon at GetDShirtz. com and Deontos for the heads-up on the ruling.

(1) In the following selected excerpt, the court identifies one of the problems that, while it may not have directly impacted on the court's ruling, exists in many cases throughout the country: an assignment of mortgage that doesn't also assign the promissory note (while, in most jurisdictions, the general rule is that a mortgage follows the note that has been assigned, the note does doesn't follow the mortgage when only the latter is assigned) (bold text is emphasis contained in the ruling):

• The purported assignment from Option One to Wells Fargo was different, however, and more limited. It purported to transfer
  
  the following described mortgage, securing the payment of a certain promissory note(s) for the sum listed below, together with all rights therein and thereto, all liens created or secured thereby, all obligations therein described, the money due and to become due thereon with interest, and all rights accrued or to accrue under such mortgage.
  
  Thus, unlike the assignment from GSF to Option One, the purported assignment from Option One to Wells Fargo does not contain language effecting an assignment of the Note. While the Note is referred to, that reference serves only to identify the Mortgage. Moreover, unlike the first assignment, the record is devoid of any indorsement of the Note from Option One to Wells Fargo. As a consequence, even had the second assignment been considered as evidence, it would not have provided any proof of the transfer of the Note to Wells Fargo. At most, it would have been proof that only the Mortgage, and all associated rights arising from it, had been assigned.7

In footnote 7 of its ruling, the court elaborated on the foregoing with this observation, one which may be helpful to those trying to convince a trial judge that a mortgage assignment doesn't operate to transfer the promissory note it secures unless the language of the assignment explicitly provides for such a transfer (bold text is my emphasis):

• One might argue that the clauses in the assignment which follow the italicized appositive phrase are broad enough to pick up the Note, and thus effect a transfer of it. They do, after all, purport to transfer “all rights therein and thereto, . . . all obligations therein described, [and] the money due and to become due thereon with interest.”
  
  But given the carve out of the Note at the beginning of the sentence, the relative pronouns “therein,” “thereto,” and “thereon” more naturally refer back to the obligations contained in the Mortgage itself, such as the obligation to insure the Property, and not to an external obligation such as the Note. It would be odd indeed if, after referring to the Note but not explicitly making it the object of the transfer (as the initial assignment from GSF did), the words were made to curl back and pick up the Note just because the Mortgage mentioned the Note among its many terms. Although the clauses might be sufficiently vague to permit parol evidence to clarify their intended meaning, no such evidence was offered or requested.