Saving Your Home or Investment Real Estate in Chapter 13

Much of my practice today consists of consulting with clients who are interested in saving their real estate from foreclosure using Chapter 13 of the Bankruptcy Code. The discussions breakdown into two different categories - real estate that is used as a principal residence and real estate that is not used as a principal residence.

The typical principal residence in South Florida today has two mortgages -- what they used to called 80-20 mortgages. That is, two mortgages with the first mortgage in a amount of 80% of the value of the home and the second in an amount of 20% of the value of the home. As most real estate values in South Florida have dramatically declined, the homeowner is "upside-down" or "underwater." For example, $400,000 is owed on the first mortgage and $100,000 owed on the second mortgage and the real estate is now valued at $375,000. Upon the filing of the appropriate motions in Chapter 13, the Bankruptcy Court may hold that the second mortgage is wholly unsecured by property and therefore is an "unsecured claim" and its mortgage lien "avoided". An order is obtained from the Bankruptcy Court and recorded in the county public records to evidence that the mortgage lien has been avoided. It should be noted, that as to a principal residence, the second mortgage must generally be wholly unsecured in order to be avoidable. That is, there cannot be even one dollar of collateral value to secure its claim. But is it possible that the holder of the second mortgage might reduce its mortgage by agreement due to today's market conditions. In chapter 13, the first mortgage on a principal residence is generally not modifiable, although a homeowner is free to try to reach a voluntary modification with the mortgage company.

The rules are different as to non-principal residential real estate property or investment real estate. As with principal residential property, second mortgages can be wholly avoided. But in addition to being wholly avoided, second mortgage on non-principal residential property can be partially avoided or "stripped down". Usually though in today's market there is no difficulty in wholly avoiding a second mortgage. Although most first mortgages on principal residential real estate cannot be modified in Chapter 13, first mortgage on non-principal residential real estate may be modified. For example, take an investment property valued at $100,000 with a $150,000 first mortgage and $50,000 second mortgage. The second mortgage would be held as wholly unsecured and avoided. The first mortgage could be avoided to the extent the first mortgage exceeds the value of the property in the amount of $50,000. The question would then be how the remaining $100,000 first mortgage would be paid off. There are a few alternatives under the Bankruptcy Code and there are further alternatives that may be reached by agreement with the mortgage holder. The mortgage holder may be especially amenable to an agreement in today's market. One alternative may be to pay interest only on the $100,000 - for say four years - with the property to be sold or refinanced before the four years is over. Another would be to reamortize the the $100,000 secured claim mortgage at a new interest rate over fifteen to thirty years.

We are in a unique situation in South Florida today and the case law and procedures for addressing mortgages in Chapter 13 is dynamic, especially as to non-principal residential mortgages.

Countrywide Drama Also Opens in Florida

The Countrywide drama also opened on June 30, 2008 in Florida.

The Drama of Countrywide Financial Corporation Opens in Los Angeles and Chicago

The drama of Countywide Financial Corporation is now playing in the Superior Court of the State of California in and for the County of Los Angeles and the Circuit Court of Cook County, Illinois.

The California Attorney General's website summarizes the allegations against Countywide as follows:

• Encouraging borrowers to refinance or obtain financing with complicated mortgage instruments like hybrid adjustable rate mortgages or payment option adjustable mortgages

• Marketing complex loan products by emphasizing a very low “teaser” rate while misrepresenting the steep monthly payments, increased interest rates and risk of negative amortization

• Dramatically easing underwriting standards to qualify more people for loans

• Using low or no-documentation loans which allowed no verification of stated income

• Hiding total monthly payment obligations by selling homeowners a second mortgage in the form of a home equity line of credit

• Making borrowers sign a large stack of documents without provider time to read the paperwork

• Misrepresenting or hiding the fact that loans had prepayment penalties

Federal Criminal Conduct with Regard to Mortgage Loans

A review of recent federal indictments provides a overview of some of the types of conduct in the mortgage origination process that may be regarded as criminal.

Materially false and fraudulent mortgage loan applications and related documents such as the uniform residential loan application

False employment verification

False verification of income and funds on deposit

False rent verification

False assertions such as living in the property as a primary residence

False assertions of amount of funds on deposit in the bankStraw buyer and identity theft

Concealment of material information

Misrepresentation of price

Concealment of "kicker fees"

The following are some of the federal statutory provisions that may be involved:

18 U.S.C. 1343 - wire fraud

18 U.S.C. 1344 - financial institution fraud

18 U.S.C. 1349 - conspiracy to commit wire and financial institution fraud

18 U.S.C. 1028 (A)(1) and (2) - aggravated identity theft

19 U.S.C. 981, 982, and 21 U.S.C. 853 - forfeiture

Court Considers Income of Chapter 7 Debtor's Non-Filing Spouse

The Court in the case of In re Coup, 2008 WL 2388114 (Bankr.N.D.Ohio)(Whipple, J.) recently examined the issue as the degree that a non-filing spouse's income is taken into consideration when only one spouse files for Chapter 7 relief in the context of a motion to dismiss as an "abuse" based on the "totality of the circumstances." Section 707(b)(3)(B). In this case although the debtor passed the "means test", the UST moved to dismiss the case based on the "totality of the circumstances." The Court ordered the case dismissed unless the Debtor converted the case to chapter 13.

The Court set forth the following factors in makings its determination: the neediness of the debtor, the ability to repay debts out of future earnings, the enjoyment of a stable source of future income, eligibility for Chapter 13, the availability of state remedies, relief obtainable through private negotiations, the ability to lower expenses, and the ability to fund a Chapter 13 plan. The Court found that the debtor and his wife enjoyed a stable source of income and that he was eligible for Chapter 13 relief. The Court also found that although the debtor's budget in schedules I and J reflected a negative monthly cash flow, that the debtor now had a monthly surplus which could be applied t repay a portion of his unsecured debt.

Significantly, the Court noted that there are differing opinions as to the degree of relevance of the non-filing spouse's income. The Court stated that some of the varying opinions are that the non-filing spouse's income is only taken into consideration only to the degree that it is regularly contributed to the household expenses, that it should be considered only if it is so substantial that it would raise the debtor's standard of living to the excess, and that it should be taken into consideration only to the extent of the debtor's living expenses that benefit the non-filing spouse. The Court decided that the most persuasive position is that the non-filing spouse's income must be reviewed to determine what degree a debtor's daily living expenses are shared as co-obligations of the non-debtor spouse or are assumed completely by the non-filing spouse. But the Court made clear that the non-filing spouse's income is not being rendered liable for the debts of the debtor, but is being considered in determining whether the debtor has available discretionary income by virtue of the fact that the debtor and non-filing spouse share a joint household. The Court noted that the case of In re Falke, 284 B.R. 133 (Bankr.D.N.D.1991) held that although Congress did not express an intention to require a non-filing spouse to assist the debtor in paying his debtor, that the non-fling spouse's income should be reviewed in determining whether there is discretionary income available to a debtor. The Falkecourt opined that a court should assume that both parties to a relationship share equally in the family living expenses and that the appropriate measure of a debtor's income for purposes of Section 707(b) would be the debtor's sole income less one-half of the family living expenses.

Based on the application of these principles, the Court found that the debtor's Chapter 7 case was an "abuse" and the case was ordered dismissed unless the debtor converted the case to Chapter 13 within 30 days.

Ninth Circuit Court of Appeals Rejects Approaches of Hardacre and Jass

The Ninth Circuit Court of Appeals issued its decision in In re Kagenveama, 2008 WL 2278681 (Ninth Circuit, June 5, 2008)(Silver, J. sitting by designation) and upheld the Arizona Bankruptcy Court's decision that "projected disposable income" means "disposable income" projected over the "applicable commitment period" and that the five-year "applicable commitment period" was inapplicable as the debtor's "projected disposable income" was a negative number. The court rejected the trustee's argument that the phrase "projected disposable income" indicates a "forward looking concept" that uses the "disposable income" calculation only as a starting point. The debtor in this case was an above-median income debtor. The debtor's schedules I and J reflected a net surplus amount of about $1,500.00 but the debtor's Form B22C showed a "disposable income" of -$4.04. The debtor proposed a chapter 13 plan paying $1,000.00 a month for 36 months.

The court noted that "projected disposable income" is not a defined term in the Bankruptcy Code but that "disposable income" is defined in section 1325(b)(2). The court stated that reading the statute as requiring "disposable income" to be projected out over the "applicable commitment period" to derive the "projected disposable income" amount is the "most nature reading of the statute."

The court rejected the In re Hardacre and In re Jass lines of authority. The Hardacre court held that the calculation of "projected disposable income" must be based on the debtor's anticipated income during the term of the plan and that "projected disposable income" is not related to "disposable income". In re Hardacre, 338 B.R. 718 (Bankr. N.D. Tex. 2006). The Jass court held that the calculation of section 1325(b)(2) for "disposable income" was merely a presumptively correct starting point for deriving "projected disposable income" that can be rebutted or supplemented by other evidence of historical or future finances to arrive at "projected disposable income." In re Jass, 340 B.R. 411 (Bankr. D. Utah 2006).

Although the court agreed with the chapter 13 trustee that the term "applicable commitment period" is a temporal measure of the time in which the debtor is required to pay his unsecured creditors, the court held that if the debtor's "projected disposable income" is zero or below, the "applicable commitment period" requirement is not applicable. The court held that only "projected disposable income" is subject to the "applicable commitment period" requirement. The funds that the debtor proposed to pay over the proposed 36 month plan were not "projected disposable income." The court stated that there is no provision in the Bankruptcy Code that requires a chapter 13 plan to be held open for the entire "applicable commitment period" and that the "applicable commitment period" is not a plan length requirement but that its purpose is solely to perform the section 1325 (b)(1)(B) calculation of the amount required to be paid to unsecured creditors. The court noted that the Eight Circuit BAP's decision in In re Frederickson, 375 B.R. 829 (2007) supports its interpretation.

The court did note that if the debtor's income increases after confirmation of the plan, a trustee may seek plan modification under section 1329.

City of Vallejo California Files for Chapter 9 Bankruptcy

On May 23, 2008, the City of Vallejo filed for chapter 9 municipal bankruptcy relief in the Eastern District of California, Sacramento Division in case #08-26813. Vallejo, a city of about 120,000 people, is located about 30 miles northeast of San Francisco. Vallejo is the largest California city to file for bankruptcy relief.

Vallejo's bankruptcy filing was widely anticipated in the media since February as tax revenues fell and employee labor costs remained high. The LA Times reports that "eighty percent of the city's budget goes to police and firefighters, far above the norm for most California cities." The largest creditor listed is the California Public Employees Retirement System for retirement health benefits for about $135 million and unfunded pension plan benefits for about $84 million. The City requested the court to set June 9, 2008 as the deadline for objections to its bankruptcy filing.

The city has set up a website to provide information on its bankruptcy filing.

Jeferrson County and City of Vallejo Consider Chapter 9 Municipal Bankruptcy

It was reported this week that Jefferson County, Alabama reached a two week extension with its Wall Street bankers to avoid a default on its outstanding debt of $4.6 billion. Jefferson County is reported to be one of the most indebted municipalities in the United States due to its expensive overhaul of its sewage system. It has been reported that the county could face chapter 9 municipal bankruptcy.

Earlier this month it was reported that the City Council of Vallejo California voted to file for chapter 9 municipal bankruptcy due to unaffordable labor contracts and unfunded pension liabilities. Its reported that the Chapter 9 bankruptcy filing is expected any day. Vallejo was once a prosperous city of 117,000 and is facing police, fire and staffing costs in excess its ability to pay. Today's Daily Business Review reports that the case has become a national bellwether [sic] for financially shaky local governments considering the pitfalls of filing Chapter er9 municipal bankruptcy."

The city reportedly faces a $16 million deficit for the upcoming fiscal year due to a decrease in tax revenues as property values have fallen. Vallejo has a population of 117,000 people.

An example of a recent municipal chapter 9 bankruptcy case was that filed in December, 2001 by the City of Desert Hot Springs California in the Bankruptcy Court of the Central District of California. The city of about 17,000 people was $8 million in debt including $6 million owed on a Fair Housing Act lawsuit. Another notable municipal bankruptcy was that of Bridgeport, Connecticut in 1991. The largest municipal bankruptcy filed to date was that of Orange County, California which filed for chapter 9 bankruptcy in 1994. In 1975 New York City teetered on the edge of filed for bankruptcy and appealed to the federal government for a bailout. In the end, New York City with assistance from Washington, including the creation of the Municipal Assistance Corporation, was able to avoid bankruptcy.

The Daily Business Reivew also reports that "San Diego, the nation's eight largest city, has been on the brink of a financial abyss for several years."

The first municipal bankruptcy legislation was enacted in 1934 during the Great Depression. A revised Municipal Bankruptcy Act was enacted in 1937 which has been amended several times. Under chapter 9 bankruptcy, the municipality is protected from its creditor while it negotiates a plan to adjust its debts. There is no provision in chapter 9 for the liquidation of the assets of a municipality.

A "municipality" that may file for relief under chapter 9 is defined in the bankruptcy code as a "political subdivision or public agency or instrumentality of a State." This definition is broad enough to include cities, counties, townships, school districts, public improvement districts, bridge authorities, highway authorities, and gas authorities. In order to be eligible to file for chapter 9 the municipality must be "insolvent" as defined in the bankruptcy code. An interesting distinction in chapter 9 is that the clerk of the court does not assign the case to a particular judge. Instead the chief judge of the circuit's court of appeals designates the bankruptcy judge to conduct the case. The Bankruptcy Code allows objections to the chapter 9 petition and the court may dismiss the petition if it determines it was not filed in good faith.

The bankruptcy court's powers over the operations and revenue of the municipality are limited under the bankruptcy code. These restrictions avoid the possibility that the court may substitute its control over the governmental affairs for that of the elected officials.

Loan Modifications May Be More Difficult Due to Securitization

As is well known, many home mortgages were sold and packaged into securitizied pass-through vehicles, usually trusts, known as REMICs (Real Estate Mortgage Investment Conduits) which in turn sold certificates to investors around the world. Although securitization presented borrowers with new financing opportunities, it brought with it a set of restrictions due to the Internal Revenue Code requirements that make it difficult for mortgage servicers and their trusts to modify mortgages if the homeowner falls into financial difficulties.

REMICs are tax-preferred entities that hold the securitized mortgages for the investor certificate-holders. The REMIC provisions are contained in Part IV of subchapter M of Chapter 1 of the Internal Revenue Code (sections 860A-860G). The REMIC provisions provide for a pass-through entity that issues multiple classes of interests representing undivided ownership interests in pools of residential and commercial mortgage loans. The certificates are of different levels of investment risk. The income from the mortgage loans in the REMIC is taxed to the holders of the interest in the REMIC.

In order to maintain its tax-preferred status, a REMIC must meet certain requirements of the Internal Revenue Code. REMICs, which are generally trusts, are typically not subject to federal income taxation. If REMICs engage in certain activities they may lose their status as a REMIC and may in some instances be subject to taxation, such as a 100% prohibited transaction tax.

After securitization, the REMIC's master servicer is responsible for collecting payments from the homeowners. The master servicer's responsbilities and authority are provided for a pooling and servicing agreement ("PSA") between the trustee of the REMIC and the master servicer. PSAs provide that the master servicer not take any action that will result in the loss of the REMIC's tax-preferred status. As a result, any request by a borrower for a modification of a mortgage held by a REMIC must be considered in view of the continued preferred tax status of the REMIC. A modification that may be otherwise desirable may be denied due to a necessity of maintaining REMIC tax-preferred status.

The IRS recently released proposed regulations that would expand the circumstances under which modifications of mortgage loans held by REMICs would be permitted.

Assignment of a Mortgage Note Without the Mortgage in Florida and Vice Versa

In today's financial world, the law regarding the transfer of mortgage notes and mortgages in the secondary mortgage market is quite a relevant topic. Issues may arise of the effect of the assignment of a mortgage note without the assignment of the related mortgage. One may also question the effect of the assignment of a mortgage without the assignment of the related mortgage note.

It appears to be the general rule in Florida that the transfer of a mortgage note transfers with it the related mortgage. The mortgage note is regarded as the principal item with the mortgage being regarded as a mere accessory. 6 Fla. Jur. 2nd, Bills and Notes, Section 123. Hence the adage "the mortgage follows the note." The Restatement (Third) of Property: Mortgages provides a general rule that is accordance with the apparent general rule in Florida but specifically provides an exception to this rule if the parties to the transfer of the mortgage note agree otherwise. The Restatement (Third) of Property: Mortgages section 5.4(a) (1997) provides that "[a] transfer of an obligation secured by a mortgage also transfers the mortgage unless the parties to the transfer agree otherwise." The stated objective of the Restatement is to avoid economic waste to the lender and a windfall to the borrower if the note and mortgage are split rendering the mortgage note as a practical matter unsecured. The Restatement cites the case of Carpenter v. Longan, 83 U.S. 271 (1827) which held that "[a]ll the authorities agree that the debt is the principal thing and the mortgage an accessory."

It is interesting to note that this question of law is not nothing new under the sun. A digest of California law published in 1916 provides various entries that reflect case law that the transfer of a note operates as an equitable assignment of the mortgage or deed of trust given to secure it, in the absence of any provision to the contrary. Vol. 6 The New Complete Digest of the Decisions of the Supreme Court and the District Courts of Appeal of the State of California and of all the Federal Decisions Dealing with California Law, Mortgages V section 111, James M. Kerr (1916).

The Restatement further provides that the recordation of a mortgage assignment is not necessary to the effective transfer of the mortgage note, although an assignee would be "well advised" to record the mortgage assignment.

The Restatement's exception provides that a transfer of a mortgage note is possible without the transfer of the mortgage if the parties so agree, but the effect of such a transfer would be to make it impossible to foreclose the mortgage unless the transferor of the mortgage note is made the assignee's agent or trustee with authority to foreclose on the behalf of the assignee of the mortgage note.

The opposite situation would be presented if a mortgage is transferred without the transfer of the mortgage note. The apparent rule in Florida is that an assignment of a mortgage without an assignment of the related mortgage note is deemed a nullity and creates no right in the assignee because a mortgage is a mere lien incidental to the obligation it secures. 37 Fla. Jur. 2nd, Mortgages, Section 511. See e.g., Sobel v. Mutual Development, Inc., 313 So.2d 77 (Fla. 1st DCA 1975). Vance v. Fields, 172 So.2d 613 (Fla. 1st DCA 1965).

A further provision in the Restatement would appear to inherently agree with Florida's position, but avoids its result in some situations by providing that unless otherwise required by the U.C.C. or otherwise agreed, the transfer of a mortgage also transfers the mortgage note obligation. "Except as otherwise required by the Uniform Commercial Code, a transfer of a mortgage also transfers the obligation the mortgage secures unless the parties to the transfer agree otherwise." Restatement (Third) of Property: Mortgages section 5.4(b).

It would appear that this rule of the Restatement may often only apply to mortgages secured by non-negotiable instruments as the Restatement's exception to its application would apparently apply to mortgages secured by negotiable instruments as section 3-203 of the U.C.C. provides for the enforcement of negotiable instruments only by delivery of the instrument itself to the transferee.

The Restatement comments that the "otherwise agreed" exception to this rule would apply in the context of institutional purchasers of mortgage loans in the secondary market where a mortgage originator assigns a mortgage to an appointed third party servicer while the mortgage note is transferred to the actual investor. In this situation, the agreement and intent of the parties is for the investor to be the owner of both the mortgage and mortgage note despite the assignment of the mortgage to the servicer.

Modify Mortgage During Chapter 13 Bankruptcy

One possible avenue to save your home from foreclosure may be to file for Chapter 13 bankruptcy relief and then to negotiate with the mortgage servicer for a mortgage modification while the Chapter 13 bankruptcy is pending. The filing of the bankruptcy stops the progress of the foreclosure action and may give the homeowner many months to negotiate a modification. Perhaps the mortgage company may be more willing to allow a mortgage modification if faced with the alternative of a Chapter 13 bankruptcy plan.

As an example, a mortgage company recently modified the mortgage for one of this firm's clients to add the $50,000.00 arrearage to the back of the mortgage and changed the interest rate from an adjustable rate mortgage presently at 11% to a 7% fixed rate.

Home Foreclosure in Miami by Miami Bankruptcy Lawyer Jordan E. Bublick

If a homeowner falls behind with his mortgage payments, the mortgage company will usually declare a default and begin a mortgage foreclosure case. The foreclosure cases for homes in Miami-Dade County are usually filed in the Circuit Court of the 11th Judicial Circuit in and for Miami-Dade County located in downtown Miami at 73 W. Flagler Street.

The foreclosure case is started with the filing of a "complaint". The mortgage holder or its servicer is usually the plaintiff in the case and the defendants are the homeowner and any other entities that may have an interest in the real estate such as junior mortgage holders, judgment holders, and even tenants. Often the foreclosure complaint will complain numerous defendants if the homeowner has a common name as the mortgage company needs to include all potential judgments against the homeowner and it is unable to distinguish whether the named person is actually the homeowner.

The complaint may contain one or more "counts" for relief, such as for foreclosure, for a judgment on the note, and to reestablish a lost instrument. The count for foreclosure asks the court to determine that the homeowner is in default and that the mortgage company is entitled to have the home sold to satisfy the mortgage debt. Often the mortgage company will add a count to reestablish a lost instrument if it is unable to find the original mortgage note. Furthermore, sometimes the mortgage company will add a county for a money judgment for the amount of the mortgage note.

Does Your Mortgage Company Really Own Your Mortgage?

One of the major issues in the foreclosure arena today is whether the foreclosing mortgage company really owns the mortgage. In many states, the foreclosure action may be pursued by the mortgage loan servicing company or the actual purported holder of the mortgage. Since many mortgages have been sold to securitized trusts and the paperwork is often in disarray, there is often a question of who actually holds the mortgage note.

Very often a review of the public records does not reflect that the purported mortgage company actually was assigned the mortgage note. Often the mortgage note has been indorsed "in blank", that is transferred to the bearer or holder of the note. Often the assignment of the mortgage lien does not exist or has not been recorded in the public records.

Many courts around the country have recently dismissed foreclosure action due to failure of mortgage companies to properly prove that they hold the mortgage note and mortgage. One should note though, that usually the dismissals are "without prejudice" which means that the foreclosures may be refiled once the mortgage company gets their paperwork in order.

Mortgage Securitization Glossary

Asset-Backed Security (ABS) - securities backed by specific assets, payments on which derived from cash flows of underlying assets, such as auto loans, credit card receivables, home equity loans, and student loans.

Bankruptcy Remote Structure- technique used to isolate assets or loans from the bankruptcy risk of the company financing or selling them. For example, a loan originator may transfer its loans to a special purpose entity (SPE) which which issue securities backed by the loans. The transfer of the loans to the SPE is designed to be a "true sale" to place them outside of the originator's bankruptcy estate if it end up in bankruptcy.

Collateralized Mortgage Obligation(CMO) - series of securities created by dividing the cash flows from a pool of mortgage loans into various serially maturing tranches of securities.

Conforming Mortgage Loan - a mortgage loan that satisfies the guidelines of Fannie Mae or Freddie Mac. Generally are of prime quality and below the threshold amount set each year by the federal government.

Credit Enhancement - techniques used to improve the credit quality of a security to obtain a high rating. Securitizations use credit enhancement to obtain AAA ratings for their senior classes of securities. One technique is overcollateralization, the par amount of securities issued is less than the total amount of the underlying assets being securitized. Another is a guarantee by a bond insurer.

Credit Rating - an evaluation of the credit quality of a security generally expressed with symbols such as "AAA" or Aaa". The best known are Moody's, S&P, and Fitch.

Mortgage Backed Security (MBS) - securities backed by a pool of mortgage loans. Payments on the MBSs are derived from the cash flows produced by the underlying mortgage loans.

Negative Amortization - a loan where the principal balance increases over time as the monthly payment is not sufficient to fully cover the accrued interest.

Originator - originators of mortgage loans that sell them to other companies that pool them into securities.

REMIC - Real Estate Mortgage Investment Conduit, a tax classification applicable to CMOs under the Internal Revenue Code

Retained Interest - the most subordinated claim in a pool of securitized assets, generally retained by the sponsor of the securitization.

Securitization - financing tool in which a company raises money by issuing securities backed by specific assets such as mortgage or car loans. The cash flow from the underlying assets is the source of the funds for the issuer to make payments on the securities.

Servicer - an entity that collects payments on securitized assets such as mortgages and administers securitization transactions. Various types of servicers are the primary servicer, the master servicer, the sub-servicer, and the special servicer.

Special Purpose Vehicle - an entity formed to hold the assets being securitized.

Subprime Borrowers - borrowers with credit histories with significant delinquencies, defaults, or bankruptcies. Distinguished from "prime-quality" borrowers.

Tranche - from the French meaning "slice", refers to one of the various classes of securities issued in securitization.

Who is Who in Mortgage Securitization

Seller - usually the first entity that sells a portfolio of mortgage loans to the Depositor. Often the Seller originated the mortgage loans or buys them from other originators.

Depositor - a "special purpose entity" established to buy portfolios of mortgage and sells them into trusts. It sells the bonds or certificates (securities) issues to investment bank underwriters. The special purpose entity is a "bankruptcy-remote" entity.

Underwriter - when the trust purchases a mortgage loan pool from the Depositor, it issues bonds or certificates representing ownership interests in the trust to the Depositor. The Depositor sells these securities to the investment bank Underwriters who then sell them to investors.

Trust - holds the mortgage loan portfolio. Its issues the bonds or certificates that are sold by the investment bank Underwriters to investors.

Trustee - the person appointed to administer the trust. It holds the loans in his capacity as trustee on behalf of the trust.

Master Servicer - oversees the mortgage sub-servicers and accounts for the remittance payments to the Trustee or directly to the investors. Often the Originator will retain the servicing rights after securitization.

Servicer - a sub-servicer appointed by the Master Servicer. Popular servicers include Litton Loan Servicing, Select Portfolio Servicing, and America's Servicing Company.

Certificate or Bond Insurer - issue credit enhancement, such as a surety bond, for the pools of mortgages to enhance their credit rating. This lowers the cost of securitization and the return demanded by the investors in the bonds or certificates sold to the investors.

Rating Agencies - agencies such as Standard and Poor's, Moody's, or Fitch that assess the leval of risk posed by various tranches of bond or certificates sold to investors.

Correcting Your Credit Report:

Credit bureaus may generally report accurate negative information on your credit report for up to seven years and bankruptcy information for up to ten years. Under the law, credit bureaus are also called "credit reporting agencies.". You may obtain a free copy of your credit report once every 12 months from each of the three major credit bureaus at www.annualcreditreport.com.

A consumer has the right to dispute inaccurate or outdated information on his credit report under the Fair Credit Reporting Act. The credit bureau and the provider of the information (such as the credit card company or other lender) have the duty to correct inaccurate or outdated information. You may dispute the information on the credit report with both the credit bureau and the provider of the information.
The credit bureau must generally investigate the disputed item within 30 days. When the investigation is complete, the credit bureau must give a person the written results.

Chapter 13 Bankruptcy in Miami: Use to Save Home from Foreclosure

One of the popular uses for Chapter 13 bankruptcy is to save a person's home from a mortgage foreclosure case. In most cases, the filing of a Chapter 13 bankruptcy imposes the "automatic stay" that stops the mortgage company from proceeding with its mortgage foreclosure action.

Under Chapter 13 bankruptcy, a person is allowed to propose a Chapter 13 plan proposing to catch his mortgage up-to-date over a period of time up to five years. As part of this plan, a person pays part of his mortgage arrearage each month in addition to making his regular monthly mortgage payment. Interest is generally not charged on the back due payments.

The Chapter 13 bankruptcy automatic stay also stops most other creditors from proceeding with their collection efforts. This includes holders of credit cards and personal loans. As part of the Chapter 13 plan, these unsecured creditors receive what is usually a small percentage dividend on their claims.

The Twice Assigned Florida Mortgage: Who Prevails?

The case of Am. Bank of the S. v. Rothenberg, 598 So. 2d 289 (Fla. 5th DCA 1992) presented a situation of competing claims to ownership of a mortgage. A mortgage company first delivered the actual mortgage note and an assignment of note and mortgage to one party as collateral for a line of credit. Then the mortgage company sold the mortgage note and mortgage to a second party and delivered to it an assignment and a mere photocopy of the mortgage note. Before the first party recorded its assignment of note and mortgage, the second party recorded its assignment of note and mortgage. Upon the property owner's default, the second party began a foreclosure action against the property owner and also claimed priority over the first party who possessed the actual mortgage note. The second party argued that it had priority over the first party as it recorded its assignment of note and mortgage first even though the second party held the actual mortgage note.

The second party claimed priority over the first party based on Florida's recording statute which provides in part that "[n]o assignment of a mortgage upon real property or of any interest therein, shall be good or effectual in law or equity, against creditors or subsequent purchasers, for a valuable consideration, and without notice, unless the assignment is contained in a document which, in its title, indicates an assignment of mortgage and is recorded according to law." Section 701.02 (1), Florida Statutes (1991).

The court rejected the second party's argument and held that the case was governed by negotiable instrument law found in the U.C.C. and not by the recording statute. The court found that the recording statute was enacted to protect a creditor or subsequent purchaser of land who relied on a recorded satisfaction of mortgage which had actually already been assigned to another party who failed to record it. The court refused to extend the application of the recording statute to successive assignments of mortgages.

The court found that first party prevailed over the second party as it possessed a valid assignment of mortgage and was a holder in due course of the original mortgage note. See Vance v. Fields, 172 So. 2d 613 (Fla. 1965). The court held the mortgage note to be a negotiable instrument pursuant to Section 673.104, Florida Statutes (1991) and that the first party was a holder in due course which took the negotiable instrument free from all claims on the part of any person. Section 673.305, Fla. Stat. (1991).

Florida Homestead Exemption Does Not Apply Extraterritorially

The court in In re Adams, 375 B.R. 532 (Bkrtcy.W.D.Mo. 2007)(Dow, J.) held that the Florida homestead exemption does not have extraterritorial effect. Although the debtors filed for chapter 7 bankruptcy in Missouri, they were required to apply the Florida exemptions as they had not been domiciled in Missouri for the entire 730 days prior to the bankruptcy filing and were domiciled in Florida for the greater part of the 180 days prior to such 180 day period 11 U.S.C. Section 522(b)(3)(A).

The court noted that the Florida homestead exemption found in Florida's constitution at Art. X Section 4 does not specifically provide whether it has extraterritorial effect. The court found that the Florida courts agree with the courts that hold as a general proposition that where the homestead law is silent, it does not have extraterritorial effect. See e.g. In re Sanders, 72 B.R. 124 (Bankr.M.D.Fla.1987)(mobile home located in Tennessee not exempt under Florida law as not located within the State of Florida), In re Schlackman, 2007 WL 1482011 (Bankr.S.D.Fla.2007)(Florida courts construe the Florida constitutional homestead provision to require that the homestead be located within the State of Florida for the homestead exemption to be applicable).

The court refused to follow the case of In re Drenttel, 309 B.R. 320 (8th Cir.BAP2004) which allowed the application of the Minnesota homestead exemption to exempt the debtors' home in Arizona. The court distinguished Drenttel as being based on the interpretation of specific Minnesota exemption statutes and the state's public policy. Furthermore the court suggested that the Drenttel court reached its result in an effort to avoid the inequity of the debtors not being able to claim either state's exemptions. The court noted that BAPCPA added the right for a debtor to claim the federal exemptions if the effect of the domiciliary requirements of section 522 is to render them ineligible for any exemption.

Short Sale in Miami - The Chapter 13 Bankruptcy Way

A very hot topic in Miami is the "short sale". This usually involves a sale to another person with your mortgage company agreeing to satisfy its mortgage with a payment of less than the full amount due. A variation on the short sale is the "short refinance." In a short refinance, a person tries to refinance his mortgage with a new mortgage for less than the full amount owed on his existing mortgage with the existing mortgage company agreeing to take less than a full payoff.

Chapter 13 bankruptcy reorganization may offer some people results similar to a short refinance. If the value of your home has fallen dramatically, like most real estate has in Miami, you may be able to wipe out or "avoid" your second mortgage. For example, if you owe $400,000 on your first mortgage and $100,000 on your second mortgage and your home has fallen in value to $399,000, you may wipe out or avoid your second mortgage as there it is wholly unsecured. That is, there is no value or equity to "secure" it.

If your foreclosure involves real estate that is not your principal residence, you may be able in Chapter 13 bankruptcy to reduce even your first mortgage down to the value of your home in addition to wiping out your second mortgage. You may also be able to lower your mortgage interest rate.

Foreclosure in Miami: IRS Tax Consequences

A mortgage foreclosure may also have federal income tax consequences. One issue is "discharge of indebtedness income." This can be understood as the IRS's attempt to tax you on money you were loaned but are not going to repay. The mortgage lender may be required to report the amount of the cancelled debt to you and the IRS on a Form 1099-C, Cancellation of Debt. Fortunately though there are various exceptions to this rule and even a recently added exception.

One of the exceptions to discharge of indebtedness income is if the mortgage debt is discharged in bankruptcy, including under chapter 7 or under chapter 13. In order to take advantage of this exception, it may be important to file for bankruptcy before the foreclosure sale.

Another exception to discharge of indebtedness income is the insolvency exception. That means if you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. Insolvency generally means that your total debts are more than the fair market value of your total assets.

The new exception if the Mortgage Forgiveness Debt Relief Act of 2007 which generally allows people to exclude certain discharge of indebtedness from the foreclosure or mortgage restructuring on their principal residence. This new provision applies to debt forgiven in 2007, 2008 or 2009. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately).

Bankruptcy Lawyer Miami - Practice Limited to Bankruptcy

Bankruptcy Lawyer Miami - Practice Limited to Bankruptcy

Jordan E. Bublick Attorney at Law is a Board Certified Specialist in Consumer Bankruptcy Law (American Board of Certification) with offices located at 11645 Biscayne Blvd., Miami, Florida and South Dade Brand at 10700 Caribbean Blvd., Miami, Florida. Jordan E. Bublick limits his practice to person and businesses in Chapter 7, Chapter 13, and Chapter 11 bankruptcy. The firm of Jordan E. Bublick, P.A. was established in 1985. The firm offers a free initial consultation.

Chapter 7 bankruptcy allows a person to discharge most types of debt while keeping his "exempt" property.

Chapter 13 bankruptcy allows a person to propose a plan of reorganization. It is often used to stop a mortgage foreclosure and to catch the mortgage payments up-to-date. Chapter 11 is used by individuals and businesses to reorganize their debt under a chapter 11 plan.

Chapter 13 Bankruptcy in Miami: Wipe Out Second Mortgage

Chapter 13 bankruptcy is often used to save a person's home from foreclosure. Under chapter 13, you are allowed to stop the mortgage foreclosure case and catch your mortgage up-to-date. The chapter 13 plan usually involves paying off the mortgage arrearage over a 3 to 5 year period in addition to making your regular ongoing monthly mortgage payments.

If your home has decreased in value, sometimes you are able to wipe out or "avoid" your second mortgage. For example, if you owe $300,000 on your first mortgage and $100,000 on your second mortgage and your home has gone down in value to $299,000, there is no equity or value to "secure" the second mortgage. Under these circumstances, the chapter 13 plan (and related section 506 motion) may provide to wipe out or avoid the second mortgage lien. The $100,000 debt owed on the second mortgage will be wholly unsecured and usually only receive a small dividend like the credit cards receive -- typically around five cents on the dollar.

A certified copy of the order avoiding the second mortgage may be recorded in the county public records to document that the second mortgage is void.

Florida Home Exempt as Rhode Island Homestead Exemption Applies Extraterritorially

The Bankruptcy Court of the Southern District of Florida recently ruled that a Chapter 7 debtor, who was required to use the Rhode Island exemptions due to his previous domicile in Rhode Island, was allowed to exempt his Florida home under the Rhode Island homestead exemptions. In re Jevne, 2008 WL 906533 (Bankr.S.D.Fla. April 2, 2008)(Hyman, J.).

In this case, pursuant to section 522(b)(3)(A), the debtor was required to use the Rhode Island exemptions as he was not domiciled in Florida for the entire 730 day period prior to his bankruptcy filing and he was domiciled in Rhode Island for the great part of the 180 day period prior to the 730 day period. The court characterized the provisions of section 522(b)(3)(A) as a "choice of law" provision. The court stated that Rhode Island's statutory homestead exemption would apply if it applied extraterritorially. The court noted that while some states homestead statutes' plain language limit their application to property within the state, homestead statutes in other states are "silent" on the propriety of their extraterritorial application. The court concluded that if the language of a state's homestead statute restricts its application to property located within the state, the statute cannot be given extraterritorial effect, but if the homestead statute is silent as to its extraterritorial effect, the court will review that state's case law precedent to determine if the homestead statute can be applied to property outside of the state. See eg In re Dentrell, 403 F.3d 611 (8th Cir. 2005), In re Arrol, 170 F.3d 934 (9th Cir.1999). The court found that the Rhode Island homestead statute was silent as to its extraterritorial effect and that there was an absence of case law as to the issue of its extraterritorial application. Therefore, the court allowed the debtor to apply the $300,000 Rhode Island homestead exemption statute to exempt his Florida residence.

It should be noted that there is a distinction in the court's ruling from that of the Eight Circuit in Dentrell. Here the court held that when the prior state's homestead statute is silent, it would look to the state's case law, including apparently its principles of comity and choice of law, as to whether it may apply extraterritorially. It that sense, there would be a second choice of law consideration after the application of section 522(b)(3)(A)'s initial "choice of law" provision. In contrast, the Dentrell court held that the bankruptcy code incorporates applicable state law exemptions without incorporating the state's comity and choice of law principles.

In Dentrell, the trustee argued that while the prior state's statute was silent on the issue of extraterritoriality, it should not be applied to real property in the debtor's new state, as states traditionally do not give extraterritorial effect to statutes relating to the ownership of real property. The Dentrell court noted that this general rule is based on state interpretation of state law and that it may not apply with equal force in the context of a federal statute as "[t]raditional concerns respecting the dignity and sovereignty of other states and limiting jurisdiction to the state borders are simply inconsistent with the national effect and supremacy of federal law. In re Drentell, 403 F.3d 611, fn.1. The Dentrell court rejected the trustee's argument which was not based on the state's statutory language but rather on the state's comity and choice of law principles. The court noted that to adopt the trustee's argument, would require it to construe the phrase "the law that is applicable" as used in section 522(b)(2)(A) (now 522(b)(3)(A)) to refer to the whole of the state's law. Furthermoe, the court further noted that if the prior state's principles of comity and conflicts of law were applied, the bankruptcy court would have to consider whether the prior state would apply the new state's homestead exemption law to real property in the new state and in effect reverse the choice of law provision of 522(b)(2)(A).

The court was not persuaded that the phrase "the law that is applicable" of 522(b)(2)(A) invoked state choice of law rules. The court stated that "[r]eferences to state exemption statutes do not invoke the entire law of the state" and that "[c]ongress used state-defined exemptions as part of a federal bankruptcy scheme, while limiting the application of state policies that impair those exemptions." Owen v. Owen, 500 U.S. 305 (1991)(finding no inconsistency in the policy of permitting state-defined exemptions while disfavoring waiver of exemptions and impingement of liens on exemptions), Butner v. United States, 440 U.S. 48 (1979)(acknowledging that property interests normally governed by state law could be analyzed differently if some federal interest requires a different result). The Dentrell court held that the homestead statute of the prior state of domicile would be applied without regard to its choice of law rules and that its choice of law jurisprudence is irrelevant. See Collier on Bankruptcy, 15th Edition Revised, para 522.06 (2008). In short, there is a distinction between the holdings in Jevne and Drentell, as the court in Jevne would look to the state's principles of comity and conflicts of law as to whether a state's homestead statute that is silent on the issue would apply extraterritorially, while the court in Drentell would not apply the state's principles of comity and conflicts of law.

How to File Chapter 7 Bankruptcy - Miami Bankruptcy Lawyer

To start a chapter 7 bankruptcy case, a person needs to file a petition with the United States Bankruptcy Court. Usually the case is filed with the Bankruptcy Court in the district where the person lives. If a person lives in Miami-Dade County, Florida it is usually filed with the Bankruptcy Court in Downtown Miami and if a person lives in Broward County, Florida, the case is usually filed with the Bankruptcy Court in Ft. Lauderdale. The Bankruptcy Court for the Southern District of Florida includes Miami-Dade, Broward, Palm Beach, and other nearby counties.

Besides the bankruptcy petition, the debtor must also file various schedules and statements. Schedule A is a list of a person's real estate, schedule B is a list of the personal property, schedule C lists one's exempt property, schedule D lists the secured debt, schedule E lists priority debt, schedule F lists unsecured debt, schedule G sets forth executory contracts and leases, schedule H lists co-debtors, and schedule I and J set forth income and expenses. A statement of financial affairs setting forth various information is also required.

In order to file for chapter 7, a person usually needs to file a certificate of credit counseling and evidence of payment from employers for the 60 days prior to filing.

Chapter 7 Personal Bankruptcy in Miami: Exempt Property

When a person files for chapter 7 bankruptcy relief in Miami, Florida, he is allowed to exempt certain property from his bankruptcy estate. Exempt property generally means property that a person is allowed to keep free from liquidation by the chapter 7 bankruptcy trustee for distribution to creditors.

If a person has lived and been domiciled for a sufficient period of time in Miami, Florida. the person is allow is claim the exemptions provided for under Florida and federal non-bankruptcy law. Florida exemptions include the homestead exemption provided by Article X Section 4 of the Florida Constitution. The homestead exemption is limited in size but not in value unless one of the new limitions on homestead value applies. Personal property is exempt to the extent of $1,000.00 and a further $4,000.00 in cases where a person does not have a homestead. A vehicle is exempt to the extent of $1,000.00 in value. Certain retirement plans and benefits such as IRAs and 401(k) plans are also generally exempt. Other exemptions include social security benefits and worker's compensation benefits.

A chapter 7 debtor claims his exemptions on schedule C of his bankruptcy schedules. If the chapter 7 bankruptcy trustee or other party does not object to the claim of exemptions, they are deemed allowed.

Miami Bankruptcy Lawyer

Jordan E. Bublick is a Board Certified Consumer Bankruptcy lawyer (American Board of Certification) with offices in Miami, Florida. The law firm was established in 1985. The North Miami office is located at 11645 Biscayne Blvd. with telephone number (305) 891-4055. The South Dade office is located at 10700 Caribbean Blvd. with telephone number (786) 253-0953. Chapter 7 personal bankruptcy is generally used to discharge your dischargeable debt including credit cards, medical bills, and unsecured loans. Chapter 13 bankruptcy is generally used to reorganize your financial affairs while under the protection of the Bankruptcy Court. Chapter 13 bankruptcy is often used to stop a mortgage foreclosure and to catch the payments up-to-date.

Foreclosure Plaintiff Must Prove it is Holder of Note and Real Party in Interest

In the recent case of Everhome Mtge. Co. v. Rowland, 2008-Ohio-1282 (10th Appellate District, March 20, 2008)(Klatt, J.), the Ohio Court of Appeals reversed the trial court order granting the plaintiff's motion for summary judgment for foreclosure and found that there existed a genuine issue of fact whether the plaintiff is the holder of the note and mortgage.

The court held that under Ohio rules of civil procedure, [e]very action shall be prosecuted in the name of the real party in interest.". Civ.R.17(A). The real party in interest in a foreclosure action is the current holder of the note and mortgage. Chase Manhattan Mtge. Corp. v. Smith, Hamilton App. No. C-061069, 2007-Ohio-5874, at para. 18. A party that fails to establish itself as the current holder is not entitled to judgment as a matter of law. First Union Natl. Bank v. Hufford (2001), 146 Ohio App. 3d 673, 677, 679-680.

The court found that the note and mortgage in this case did not identify the plaintiff as the lender, but set forth a different entity as lender. To prove its status as the current holder of the note and mortgage, the plaintiff relied on the affidavit testimony of an officer which merely stated that the attached documents were true copies of the note and mortgage. The court concluded that this affidavit was insufficient to establish that the plaintiff was the current holder of the note as it failed to specify how or when it became the holder of the note and mortgage. The court stated that without evidence demonstrating how it received an interest in the note and mortgage, the plaintiff cannot establish itself as the holder. According, the court found that there was a genuine issue of material fact regarding whether the plaintiff was the real party in interest and reversed the trial court's summary judgment.

Tax Consequences of Foreclosure or Short Sales of Certain Primary Residences

In December, 2007, Congress passed the "Mortgage Forgiveness Debt Relief Act of 2007" to alleviate tax consequence for some homeowners in foreclosure. The new Act excludes from gross income certain cancelled discharged "qualified principal residence indebtedness."

Existing law provides that discharged debt, whether after a foreclosure or short sale, is generally taxable income realized in the year the debt was forgiven, unless an exception applies. Generally only reductions in principal and not forgiveness of interest results in discharge of indebtedness income ("DOI"). Usually a lender is required to issue a Form 1099-C to report the DOI to the IRS. Taxpayers are required to disclose DOI to the IRS whether the lender issues a 1099-C or not. Taxpayers may be able to exclude the DOI from income if an exceptions to DOI applies.

Two existing exceptions to DOI are the insolvency and bankruptcy exceptions. 26 U.S.C. section 108(d). If the borrower is insolvent, DOI is not taxable. If the debt is discharged in bankruptcy, DOI is also not taxable. Another exception is the "purchase price infirmity doctrine". This allows DOI to be excluded from income where the lender agrees to write down the purchase money debt to the true value of the collateral as the purchase price was inflated in the original transaction due to fraud or misrepresentation. Another exception from DOI is when the liability was contested. Pursuant to Zarin v. Comm'r, 916 F.2d 110 (3d Cir.1990), DOI is not income where there is a legitimate basis for the borrower to claim that the debt was never owed or collectible because illegal.

The new Act adds to the existing exceptions from DOI a category of "qualified principal residence indebtedness." Up to $2 million of indebtedness may be excluded if the reason for the discharge is either a decline in the residence's value or the taxpayer's financial condition. It should be noted that debt excluded by the Act reduces the taxpayer's basis and a "short sale" could result in a taxable "gain" which may be taxable as a capital gains.

In order for this new exception to apply, the debt must be "qualified" which includes only acquisition and not home equity indebtedness. Acquisition indebtedness includes funds borrowed to buy, construct, or improve a home. Debt consolidation loans or cash out loans are generally not acquisition indebtedness. The Act only applies to debt discharged between January 1, 2007 and December 31, 2009. Pub.L.No. 110-142 Section 2(d). If acquisition debt is refinance, the refinanced principal amount retains its status as acquisition indebtedness. The excess of the total refinanced loan amount over the refinanced acquisition indebtedness is treated as home equity indebtedness and is not eligible for exclusion from income. Acquisition indebtedness included loans to "substantially improve" the principal residence.

This new exclusion only applies if the debt was discharged due to the borrower's financial condition or a decline in the home's value. A discharged based on the lender's acknowledgment of its wrongdoing or even rescission is not eligible for the qualified principal residence exclusion. Documentationj in any litigation or settlement that one of the required grounds is the basis for the discharge of the debt would be helpful.

The homeowner must apparently elect to take either the qualified principal residental exception or the insolvency exception. The insolvency exception, if elected, is "in lieu of" the qualified principal residence excetion.

Proposed Bankruptcy Legislation

Last month, Senator Durbin (D, IL) introduced the Foreclosure Prevention Act in the Senate (S. 2636). This proposed legislation would help people save their homes from foreclosure by giving Bankruptcy Judges the power to modify the terms of a mortgage loan in a chapter 13 bankruptcy.

Although it is reported that Republicans blocked action on the bill last month, new efforts are underway to try to reach an agreement. The bill is opposed by the financial service industry and the Bush Administration. It is also not embraced by all Democrats.

Mortgage Servicer Qualifies to Move for Stay Relief as Party in Interest and as Real Party in Interest

The recent decision in In re Woodberry, ___ B.R. ___, 2008 WL 677810 (Bkrtcy.D.S.C.)(Duncan, J.) illustrated the issue whether the mortgage servicer qualified to file a motion for stay relief as a "party in interest" and "real party interest." Under the facts of this case, the court held that it was a "party in interest" and "real party in interest" and allowed it to pursue its motion for stay relief.

In this case, there was an original "Lender" and MERS as "Mortgagee". The allonge to the mortgage note contained a blank endorsement. The court explained that an "allonge" is a paper annexed to a negotiable instrument for endorsement too numerous or lengthy to be contained in the original. There was no recorded assignment of the mortgage prior to the filing of the motion. Wells Fargo Bank NA d/b/a America's Servicing Co. ("ASC") was the servicer for US Bank NA as trustee pursuant to a Securitization Sub Servicing Agreement (the "Sub Servicing Agreement"). US Bank NA was trustee for Structured Asset Investment Loan Trust Mortgage Pass-Through Certificates, Series 2005-8.

ASC filed a motion for stay relief in this chapter 7 case. The debtor objected to ASC's motion for stay relief although she did not dispute to being behind in her mortgage payments. The debtor argued that ASC is not the proper "party in interest." ASC offered testimony that it was in possession of the original note and that the Sub Servicing Agreement provides that it would be the custodian for US Bank NA and that its holds the documents in trust for US Bank NA. The Sub Servicing Agreement provides that the servicer collects payments due under the terms of the note and mortgage and will foreclose on the property in the event of a default. The Sub Servicing Agreement is filed with the SEC and is available on the SEC's website. MERS as nominee assigned the mortgage to US Bank NA as Trustee for the Structured Asset Investment Loan Trust Mortgage Pass-Through Certificates, Series 2005-8.

The Debtor argued that for the servicer ASC to be the proper "party in interest", it must hold both the note and be either the mortgagee or the assignee of the mortgage. The court found that applicable state law does not require both possession of the note and an assignment of the mortgage to prove ownership. The court found that when a negotiable note payable to order is indorsed by the payee, the note and its incidents pass in the commercial world by delivery. Dearman v. Trimmier, 26 S.C. 507, 2 S.E. 501. The law in the involved state does not require that assignment of mortgages be recorded. The court found that the allonge to the noted converted the note to a bearer instrument and as such, the ownership passes with delivery of the instrument and proof of ownership can be made by possession. The court noted that possession of a bearer instrument is prima facie evidence of ownership. The fact that the note is held in trust for another is not of significance. It is interesting to note that ASC apparently did not enter the original note into evidence, but only had a "default litigation specialist" and records custodian testify that she determined ownership of the involved note and mortgage by tracking it a computer screen of a computer based system.

The court found that the servicer ASC has standing as a "party interest" to seek relief from the stay as it had provided sufficient evidence as to ownership of the note and mortgage. The cou