by Where the evidence showed assignment of the mortgage to U.S. Bank, but did not show that the underlying promissory note was likewise assigned, U.S. Bank was not a party-in-interest in the debtor’s chapter 7 bankruptcy and its servicer was not entitled to relief from stay. In re Garcia, No. 18-10229, 2018 Bankr. LEXIS 1352 (Bankr. S.D. N.Y. May 8, 2018).
In this case, Bankruptcy Judge Martin Glenn bemoaned the sloppy work of both Miguel Garcia’s chapter 7 counsel and the counsel for U.S. Bank’s servicer, Rushmore Loan Management Services (Rushmore). But it was Rushmore’s failure to include sufficient evidence in its motion that ruled the day.
Arguing that the homeowner’s exemption along with various fees and taxes, eliminated the equity in Mr. Garcia’s residential property, Rushmore moved for relief from stay under section 362(d)(2) to clear the way for U.S. Bank to foreclose. With the motion, Rushmore submitted documents evidencing the assignment of mortgage from Wells Fargo to U.S. Bank. However, the promissory note memorializing the underlying debt was endorsed in blank by Wells Fargo and Rushmore presented no evidence that U.S. Bank was the holder of the note.
The case turned on standing. Only a party in interest may obtain relief from stay. In New York, a mortgage passes with the underlying note, but the reverse is not true, and a mortgage passing without the note is a “nullity.” The court found that in the absence of evidence that U.S. Bank had been assigned the note or had physical possession of it, Rushmore failed to establish standing to bring the motion for relief from stay. In so holding, the court expressed frustration at having “repeatedly emphasized that this fundamental error by Rushmore’s counsel cannot support standing to lift the automatic stay to continue a foreclosure action.”
Having decided that threshold issue, the court went on to note that even if standing had been established, Rushmore failed to present adequate evidence that there was insufficient equity in the property to withstand the motion. Rushmore’s reliance on a Broker Price Opinion was misplaced as the court found the BPO not competent evidence of the property’s value.
The court denied the motion without prejudice.