Source: http://updates.mwbllp.com/2014_11_23_archive.html
Timestamp: 2019-04-19 22:40:10+00:00

Document:
The U.S. Bankruptcy Court for the District of Colorado recently held that the reopening of a closed chapter 7 bankruptcy did not automatically reimpose the automatic stay. The Bankruptcy Court further held that, for a motion for relief from stay, a creditor is only required to show a “colorable claim” to an interest in the property.
In November 2006, the borrower (“Debtor”) obtained a loan secured by a deed of trust as to the subject property (the “Deed of Trust”). The Debtor stopped making payments in 2010, resulting in the assignment of the Deed of Trust by MERS to Foreclosure Trustee and commencement of a non-judicial foreclosure.
Shortly thereafter, Debtor filed a chapter 7 bankruptcy but did not disclose the existence of any claims or potential claims arising out of the loan or Foreclosure Trustee’s non-judicial foreclosure. In April 2012, the Debtor received a discharge in bankruptcy and the case was closed. As stated in the order closing the case, all nonexempt property listed by Debtor and not administered by her bankruptcy case were deemed abandoned to Debtor pursuant to 11 U.S.C. § 554(c).
Following the close of her bankruptcy case, Debtor filed a lawsuit in federal court alleging that Foreclosure Trustee lacked standing to foreclose because the Deed of Trust was not properly signed or notarized (the “Federal Action”). The district court dismissed the lawsuit, finding that Debtor was not the real party in interest with respect to her claims which were not scheduled in her bankruptcy case and therefore not abandoned to her when the case was closed. Additionally, the court found her request for injunctive relief was moot because Foreclosure Trustee had dismissed its non-judicial foreclosure. Debtor sought reconsideration of the dismissal.
In the meantime, Foreclosure Trustee brought a judicial foreclosure action and the Debtor moved to dismiss. Relying on Irvine v. Minshull, 152 P. 1150, 1154 (Colo. 1915), the court applied the well-established law that mere possession of negotiable paper payable to order, indorsed in blank, raises a legal presumption of ownership in the holder.
Because Foreclosure Trustee had tendered the original promissory note signed by Debtor and bearing a blank indorsement, the court denied Debtor’s motion to dismiss. The court further held that Debtor did not have standing to bring her claims for damages because her claims belonged to the bankruptcy estate. The Debtor’s pending claims were dismissed and Trustee’s judicial foreclosure was set for trial.
In response, Debtor filed a motion to reopen her bankruptcy pursuant to 11 U.S.C. § 350(b), but the motion did not request a stay of any proceedings in any court. Foreclosure Trustee then filed a motion requesting relief from automatic stay to proceed with the foreclosure sale. Debtor objected, arguing that the documents Foreclosure Trustee submitted to the court in the judicial foreclosure were forgeries or counterfeits.
Foreclosure Trustee could not present the original loan documents to the Bankruptcy Court because the state court refused to release the documents in its possession. In lieu of the original note and Deed of Trust, the Bankruptcy Court allowed Foreclosure Trustee to present certified copies of the documents held by the state court.
In ruling on the motion for relief from stay, the first issue before the Bankruptcy Court was whether the reopening of Debtor’s bankruptcy case reimposed the automatic stay as to the property. Relying on In re Burke, 198 B.R. 412 (Bankr. S.D. Ga. 1996) and In re Trevino, 78 B.R. 29 (Bankr. M.D. Pa. 1987), the Court held that reopening a chapter 7 bankruptcy case did not reimpose the automatic stay because only the filing of a petition imposes an automatic stay.
Notably, the Court acknowledged that a bankruptcy court could decide to impose a stay after reopening under 11 U.S.C. § 105, but no such stay was requested by the Debtor.
The Bankruptcy Court further held that even if the automatic stay did apply to the property, Trustee established that it was entitled to relief from stay under 11 U.S.C. § 362(d).
Debtor also argued that Foreclosure Trustee is required to present the original note under Miller. As you may recall, a party must have standing in order to obtain relief from stay. See, e.g., In re Miller, 666 F.3d 1255 (10th Cir. 2012). In Miller, the Tenth Circuit Court of Appeals held that a standing determination made in a non-judicial foreclosure proceeding had no preclusive effect, and that a creditor seeking relief from stay in order to proceed with foreclosure must produce evidence of a right to payment, such as an original note. Id. at 1262-63. When the creditor in Miller failed to present evidence showing that it had possession of the original note, the Tenth Circuit held that the bankruptcy court erred in granting relief from stay. Id.
The Bankruptcy Court disagreed with Debtor’s standing argument, distinguishing Miller as the preclusive effect of a standing determination made in a non-judicial proceeding has no applicability to a standing determination made in a judicial foreclosure proceeding. See Colo. R. Civ. P. 105(a). Because the state court determined that Foreclosure Trustee held the original note in the judicial foreclosure, the Bankruptcy Court refused to review the document to make a contrary determination while the documents remained in the custody of the state court. Moreover, the Bankruptcy Court noted that relief from stay was appropriate because it would allow the state court, in its discretion, to further review the document at issue.
Therefore, the Bankruptcy Court held that relief from stay did not require Foreclosure Trustee to prove by the preponderance of the evidence that it was the holder of the original note. Instead, Foreclosure Trustee was only required to show a “colorable claim” to an interest in the property, and it did so by presenting evidence of its interest in the note and right to enforce the Deed of Trust.
Finally, turning to the merits of the motion for relief, the Bankruptcy Court concluded that Foreclosure Trustee had shown cause for relief because no payments have been made since 2010, and Debtor had neither maintained insurance on the property nor paid applicable property taxes.
Accordingly, the Bankruptcy Court granted Foreclosure Trustee’s Motion for Relief from Stay.
The Ohio Court of Appeals, Ninth Judicial District, recently reversed a trial court’s order granting a mortgagee’s motion for summary judgment in a foreclosure action, because the affidavits submitted in support of the motion did not attach the business records referenced in the affidavits.
In so ruling, the Appellate Court held that the submission of affidavits containing conclusory assertions of personal knowledge does not satisfy the burden of proof for a motion for summary judgment. Rather, a moving party is required to submit any documents the affidavit refers to unless the nature of the facts averred to, combined with the affiant’s identity, creates a reasonable inference that he or she has personal knowledge of the affidavit’s facts.
In 2007, Defendant borrowers (“Borrowers”) executed a promissory note (the “Note”) secured by a mortgage (collectively the “Subject Loan”). Borrowers subsequently defaulted on the Note and the plaintiff note holder (“Note Holder”) initiated foreclosure proceedings alleging it was the holder of the Note. Note Holder then moved for summary judgment.
In support of its motion for summary judgment, Note Holder submitted two affidavits. The first of the two affidavits at issue was executed by the vice president of the mortgage servicer in charge of collecting monthly mortgage payments from Borrowers. Specifically, the vice president averred that her company collects regular payments from Borrowers, and based upon her review of its electronic records keeping system, Borrowers had defaulted on the Subject Loan (the “Servicer’s Affidavit”).
The second affidavit was executed by a document control officer who averred that Note Holder was in possession of the Note at the time the foreclosure was initiated, and that Note Holder had been in continuous possession of the Note since then (the “Document Officer’s Affidavit”).
Based upon the above, the trial court determined Note Holder had standing to foreclose, was entitled to judgment, and thus granted the motion for summary judgment. This appeal followed.
On appeal, Borrowers argued that Note Holder failed to demonstrate it had standing to foreclose because it failed to show that it was the holder of the Note at the time it filed its complaint to foreclose.
As you may recall, “to succeed on a summary judgment motion, the movant bears the initial burden of demonstrating that there are no genuine issues of material fact concerning an essential element of the opponent’s case.” Dresher v. Burt, 75 Ohio St.3d 280, 292 (1996). “If the movant satisfies this burden, the nonmoving party ‘‘must set forth specific facts showing that there is a genuine issue for trial.’” Id. at 293, quoting Civ.R. 56(E).
“Affidavits submitted in support of or in opposition to motions for summary judgment ‘shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated in the affidavit.’” Maxum Indemn. Co. v. Selective Ins. Co. of S.C., 9th Dist. Wayne No. 11CA0015, 2012-Ohio-2115, ¶ 18, quoting Civ.R. 56(E).
Rule 56(E) of the Ohio Rules of Civil Procedure states that “sworn or certified copies of all papers or parts of papers referred to in an affidavit shall be attached to or served with the affidavit.” (“Civ.R.56(E)”).
Moreover, the “mere assertion of personal knowledge satisfies the personal knowledge requirement of Civ.R. 56(E) if the nature of the facts in the affidavit combined with the identity of the affiant creates a reasonable inference that the affiant has personal knowledge of the facts in the affidavit.” Bank One, N.A. v. Lytle, 9th Dist. Lorain No. 04CA008463, 2004-Ohio-6547, ¶ 13.
However, “if particular averments contained in an affidavit suggest that it is unlikely that the affiant has personal knowledge of those facts, then something more than a conclusory averment that the affiant has knowledge of the facts is required.” Bank One, N.A. v. Swartz, 9th Dist. Lorain No. 03CA008308, 2004-Ohio-1986, ¶ 14.
The Court began its analysis of whether Note Holder had standing to foreclose by examining the sufficiency of the Document Officer’s Affidavit. The Court explained that any information the document officer averred to in her affidavit was obtained by reviewing business records as opposed to information she gained through personal observation.
However, the only documents attached the Document Officer’s Affidavit were copies of the Note, Mortgage, Assignment of Mortgage, and a “Demand Letter.” The Court determined that these documents failed to indicate when, or even if, Note Holder had possession of the Note, and whether it had possession at the time the foreclosure complaint was filed. The Court held the Document Officer was “averring to the content of business records that are not attached to her affidavit,” and thus was impermissible hearsay. See, e.g., State v. Cicerchi, 182 Ohio App.3d 753, 2009-Ohio-2249, ¶ 52.
Accordingly, the Court determined the Document Officer’s Affidavit did not support Note Holder’s claim that it had standing to foreclose.
The Court next examined whether the Mortgage Servicer’s Affidavit established that Note Holder had possession of the Note at the time of filing the foreclosure complaint. Similar to its determination concerning the Document Officer’s Affidavit, the Court held the Mortgage Servicer’s Affidavit failed to establish that Note Holder had possession of the Note at the time it initiated the foreclosure action. The Court again determined the documents attached to the Mortgage Servicer’s Affidavit did not establish whether Note Holder had possession of the Note at the time it initiated foreclosure.
Furthermore, the Court explained that the Mortgage Servicer’s Affidavit failed to identify what entity was actually in possession of the Note as the affidavit merely stated that “Plaintiff, directly or through its agent,” was in possession of the Note prior to and at the time the foreclosure action was filed.
Note Holder argued that the subject affidavits required “reasonable minds to come to but one conclusion, that Note Holder was in possession of the Note at the time it filed its complaint.” However, the Court rejected Note Holder’s argument stating it failed to cite any case law to support its position.
Accordingly, the Court held the materials submitted by Note Holder in support of its motion for summary judgment failed to “demonstrate an absence of a dispute of fact that it had legal standing at the time it filed its complaint,” and reversed the trial court’s granting Note Holder’s motion for summary judgment.
The California Court of Appeal, Fifth District, recently held that a creditor waived its right to a deficiency judgment, because it violated the security first principle in Cal. Code Civ. P. § 726(a) by releasing its interest in a part of its collateral without the consent of all debtors and before foreclosing on the remaining parcel.
A bank (“Bank”) filed a judicial foreclosure action to collect a loan secured by two parcels of real estate. The loan was made to a husband and wife and, after the husband died, the loan went into default. Bank and wife agreed to a short sale of one of the parcels that was her separate property. Afterward, Bank foreclosed on the remaining parcel and obtained a deficiency judgment against the representatives of the husband’s estate (“Appellants”) only, as a deficiency judgment was not allowed against the wife because of her bankruptcy.
As you may recall, California generally does not allow deficiency judgments after most residential foreclosures. See Cal. Code Civ. P. § 580b. Creditors seeking deficiency judgments must first exhaust all real property security to qualify for a deficiency judgment, and such exhaustion of the real property collateral must be through a single judicial foreclosure lawsuit. See Cal. Code Civ. P. § 726. These requirements in section 726 are referred to as the “one form of action” rule.
The consequence of not following the “one form of action” rule is a waiver of the creditor’s rights to a deficiency judgment. Additionally, if any of the real property collateral is exhausted through any other means, such as a private sale without the consent of the debtors, a deficiency judgment is barred. See, e.g., Pacific Valley Bank v. Schwenke (1987) 189 Cal.App.3d 134, 145.
Additionally, California protects debtors liable for deficiency judgments from low bids at the judicial foreclosure auction, by limiting the amount of the deficiency judgment to the difference between the fair value of the property and the amount of the indebtedness. See Cal. Code Civ. P. § 726(b). A second protection is the right to redeem the property based on the foreclosure sale price, not the amount of the secured debt. See Cal Code Civ. P. § 726(e).
On appeal, Appellants argued that the trial court erred by holding them liable for a deficiency judgment because Bank waived its right to a deficiency when it violated the “security first” rule. By agreeing to a short sale of the second parcel without their consent, the Appellants argued that Bank deprived them of the protections they would have had if the second parcel had been included in the judicial foreclosure action. The Appellate Court agreed.
Relying on Schwenke, the Appellate Court held that the security first principle in section 726(a) barred any liability for deficiency because Bank, without consent of the Appellants, released part of the security for the note when it allowed the wife to sell the second parcel in a private sale.
In short, the Appellate Court concluded that a creditor and one of the debtors should not be able to modify the contractual obligations of the co-debtors without the co-debtor’s consent to that modification.
Bank presented an alternate argument that did not involve the co-debtor’s consent, contending that “security” for purposes of the “security first” principle is determined at the time of the filing of the action, not when the loan was executed. Bank supported its argument by citing Bank of America v. Graves (1996) 51 Cal.App.4th 607, which held that where the value of the security has been lost through no fault of the creditor, the creditor may bring a personal action on the debt on the theory that if the security become valueless at the time the action is commenced, the debt is no longer secured.
The argument was rejected by the Appellate Court for two reasons. First, the security for the loan, which included two parcels, had not been lost or became valueless at the time Bank commenced its foreclosure. A judicial foreclosure action on the remaining parcel rather than a personal action on the debt was appropriate. Second, the parcel sold in the short sale was not exhausted or lost through no fault of Bank. Instead, Bank released its deed of trust pursuant to its agreement with the wife, without the consent of the Appellants. For these reasons, the Appellate Court held that the principles in Grave regarding valueless or lost security did not apply.
Accordingly, the Appellate Court reversed the trial court’s order granting the motion for summary adjudication and the related decree for judicial foreclosure and writ of sale, and remanded the matter to the superior court with instructions to enter an order denying the motion for summary adjudication.
The California Court of Appeal, Fourth District, recently affirmed the decertification of a class action lawsuit where a lender allegedly monitored telecommunications with its borrowers, finding individual issues regarding putative class members’ objectively reasonable expectations of privacy predominated.
After class certification, Lender successfully moved for summary adjudication on the section 632 claim. The trial court found as a matter of law a company does not violate the statute when one of its supervisory employees secretly monitors a conversation between a customer and another company employee, reasoning that two employees are a single “person” within the meaning of the statute.
In a prior appeal, the Fourth District reversed the trial court’s order granting summary judgment, and held that the statute applies even if the unannounced listener is employed by the same company as the known recipient of the conversation, concluding the trial court's statutory interpretation was inconsistent with section 632's language and purpose.
Based upon the Fourth District’s prior appellate decision, Lender moved to decertify the class, arguing that the issue of whether any particular class member can satisfy this reasonable-expectation test requires an assessment of numerous individual factors, and these individual issues predominate over any remaining common issues, making a continued class action unmanageable.
Lender’s decertification motion focused on the circumstances surrounding each of the named borrower’s telephone conversations with Lender’s employees. This evidence showed that each borrower had different experiences regarding the timing, extent, and nature of the monitored calls and of the Call Monitoring Disclosure, and had different prior experiences with business communications.
The Fourth District affirmed the trial court’s decertification order, and held that whether its prior ruling constituted “new” law or a clarification of existing law as applied to the facts of this case, it constituted a reasonable and sufficient ground for the trial court to conclude that reevaluation of class certification was necessary.
As you may recall, the “one-way intervention” issue arises when a trial court rules on the substantive merits before reaching a final conclusion on class certification. Fireside Bank v. Superior Court (2007) 40 Cal.4th 1069, 1078-1084.
In rejecting the borrowers’ argument, the Fourth District noted that the certification-before-merits rule is not an “iron-clad standard.” The Fourth District found that “[i]t would be both unduly rigid and unjust to force the maintenance of [a class] action [after a ruling on the merits] even when there is a proper reason for decertification . . . .” citing Fireside Bank, 40 Cal.4th at p. 1081. The Fourth District explained that decertification generally requires changed circumstances, but courts retain inherent authority (and in fact have the affirmative duty) to decertify a class if a merits ruling makes clear that individual issues will engulf the litigation such that the class litigation becomes unmanageable and/or will substantially interfere with one or both of the parties' due process rights.
Based upon these principles, the Fourth District held that the trial court’s decertification order was not precluded by the certification-before-merits rule.
The borrowers also argued that decertification was improper because the trial court erred in concluding that the existence of individual issues regarding the existence of “confidential communication[s]” precluded the case from going forward as a class action.
Finally, the borrowers argued that decertifying the class because of the existence of individual issues on the “confidential communication” issue is inconsistent with the strong public policy underlying section 632 that seeks to protect individual privacy rights. The borrowers maintained that without a class action, it will not be economically feasible for borrowers to enforce their right to telephone privacy under section 632.

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 § 726
 § 580
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