Case 10-31903-lbr

Doc 64

Entered 06/07/11 17:22:47

Page 1 of 10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

KEVIN HAHN #9821 MALCOLM CISNEROS, A Law Corporation 608 South 8th Street Las Vegas, Nevada 89101 (702)382-1399 Phone (702)382-0925 Fax Attorneys for Secured Creditor, PHH MORTGAGE CORPORATION UNITED STATES BANKRUPTCY COURT DISTRICT OF NEVADA LAS VEGAS DIVISION ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

E-filed June 7, 2011

Bankruptcy Case No. 10-31903-lbr

In re

Chapter 13 RESPONSE TO DEBTORS AMENDED OBJECTION TO PROOF OF CLAIM FILED BY J.P. MORGAN HEARING DATE: DATE: June 15, 2011 TIME: 10;30 AM ROOM: LBR- Courtroom 1

JOAN MARIA ANDERSON, and TODD J. SHELLY,

Debtors.

TO THE HONORABLE LINDA B. RIEGLE, UNITED STATES BANKRUPTCY COURT JUDGE, THE DEBTORS, DEBTORS COUNSEL, THE CHAPTER 13 TRUSTEE, AND ALL OTHER INTERESTED PARTIES: PLEASE TAKE NOTICE that PHH Mortgage Corporation (PHH), as servicer for J.P. Morgan Mortgage Acquisition Corp. (J.P. Morgan) hereby responds to Debtors Amended Objection to Proof of Claim Filed by J.P. Morgan and Opposition to Motion for Relief From Automatic Stay Filed by PHH Mortgage Corporation filed on May 11, 2011. FACTUAL BACKGROUND On June 18, 2007, Joan M. Anderson (Debtor) borrowed $680,800.00 from PHH Mortgage Corporation and signed a Fixed/Adjustable Rate Rider (Note) secured by a Deed of

1 RESPONSE TO DEBTORS OBJECTION TO PROOF OF CLAIM FILED BY J.P. MORGAN

Case 10-31903-lbr

Doc 64

Entered 06/07/11 17:22:47

Page 2 of 10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Trust (Deed), which was executed on the same day. A true and correct copy of the Note is attached to the Lawrence Riggs Declaration in Support of PHHs Response to Debtors Amended Objection to Proof of Claim Filed by J.P. Morgan (Declaration) as Exhibit 1. The copy of the original Note includes an Allonge to Note transferring interest from PHH to Bishops Gate Residential Mortgage Trust (Bishops) without recourse. (See Declaration, Exhibit 1, Page 7). Evidence of J.P. Morgan Mortgage Acquisition Corps interest in the Note is reflected in the Allonge to Note on Page 8 of the Note. The Allonge to Note was executed by PHH, an

administrative agent for Bishops and in blank and without recourse. (See Declaration, Exhibit 1, Page 8). J.P. Morgan currently has possession of the Note. The Deed identified PHH Mortgage Corporation as the Lender and Mortgage Electronic Registration System as the Nominee and Beneficiary. Under the terms of the Deed, the Debtor granted and conveyed to the Trustee, in trust with power of sale, the real property located at 8570 West La Madre Way, Las Vegas, Nevada 89149 (Property) as security for the Note. By

executing the Deed, the Debtor acknowledged that MERS had the right to exercise and or all of those interests, including, but not limited to, the right to foreclose and sell the Property. (See Declaration, Exhibit 2, Page 3). On April 19, 2010, MERS executed an Assignment of Deed of Trust (Assignment) on behalf of its successors or assignees. The assignment granted, assigned, and transferred interest under the Note and Deed to J.P. Morgan Mortgage Acquisition Corp. The Assignment was recorded in Clark County on May 18, 2010. (See Declaration, Exhibit 3). On January 31, 2011, PHH filed its Proof of Claim in the secured amount of $738,399.51 with arrears totaling $54,259.89. The Creditor was identified as J.P. Morgan Mortgage Acquisition Corp (J.P. Morgan). Attached to the Proof of Claim were the Note, Deed, and Assignment, evidencing J.P. Morgans interest in the Note. DEBTORS OBJECTION AND OPPOSITION The crux of Debtors objections to the proof of claim is that the debt is unenforceable against the Debtors and Debtors Property, because MERS does not have standing to execute an Assignment of Deed of Trust, J.P. Morgan has not shown that it is the holder of the Note and on

2 RESPONSE TO DEBTORS OBJECTION TO PROOF OF CLAIM FILED BY J.P. MORGAN

Case 10-31903-lbr

Doc 64

Entered 06/07/11 17:22:47

Page 3 of 10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

those bases, neither PHH, as servicer, nor J.P. Morgan, as the holder of the Note and Deed of Trust, have standing to file its proof of claim in this bankruptcy case. First, as discussed below, an adversary proceeding is required to determine the validity, extent, and priority of J.P. Morgans lien. Debtors have failed to file such adversary proceeding and are seeking to have this debt be deemed unenforceable without doing so. This is contrary to the Bankruptcy Rules and Bankruptcy law. Notwithstanding, Debtors contentions in the Amended Objection are without merit and the exhibits set forth in the Amended Objection are objectionable as hearsay and lacking sufficient foundation. J.P. Morgan holds an enforceable Note and Deed of Trust which is secured on the Property. PHH, as the servicer for J.P. Morgan, is authorized to file the Proof of Claim on behalf of J.P. Morgan. The Objection must be overruled. PHHS RESPONSE TO OBJECTION TO CLAIM I. AN ADVERSARY IS REQUIRED Bankruptcy Rule 3007 provides that an objection to the allowance of a claim shall be in writing and filed. A copy shall be mailed or delivered to the claimant. If an objection to a claim is joined with a demand for relief of a kind specified in Rule 7001, it becomes an adversary proceeding. Rule 3007(b) provides that a demand for relief requiring an adversary proceeding may not be included in an objection to claim. Bankruptcy Rule 7001(2), in turn, provides that an adversary proceeding is required for an action challenging the validity, priority or extent of a lien. Thus, if Debtors objection to a secured claim is combined with a challenged to the lien, an adversary proceeding is required. In re Kleibringk, 346 B.R. 734, 749 (Bankr. N.D.Tex. 2006). In this case, Debtors request, despite their admissions that they borrowed the monies under the Note secured by the Deed of Trust, that the debt be unenforceable against them or their property. This is clearly an attempt to challenge the validity, priority and extent of the lien PHH Mortgage Corporation. The Objection states various bases to object to the PHH claim, including lack of documentation and failure to provide evidence that J.P. Morgan held an interest in the note and deed of trust. II. EVIDENTIARY OBJECTIONS TO EXHIBITS TO DEBTORS AMENDED OBJECTIONS

3 RESPONSE TO DEBTORS OBJECTION TO PROOF OF CLAIM FILED BY J.P. MORGAN

Case 10-31903-lbr

Doc 64

Entered 06/07/11 17:22:47

Page 4 of 10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Debtors attach two exhibits to their Amended Objection: (1) Exhibit A Transfer of Beneficial Rights to Member Investors; and (2) Exhibit B MERS Commercial Terms and Conditions. PHH objects to these exhibits as hearsay (FRE 801, 802), lacking authentication (FRE 901) and lacking foundation. Such exhibits should be stricken and not considered by this Court. III. J.P. MORGAN IS THE HOLDER OF THE NOTE As set forth herein and in the Declaration of Lawrence Riggs, J.P. Morgan is the current holder of the Note. PHH Mortgage Corporation was the original holder of the Note executed by the Debtor. The Allonge to Note transferred interest From PHH to Bishops, then from Bishops in blank. (See Declaration, Exhibit 1). MERS, as nominee of PHH Mortgage Corporation, assigned the

Note to J.P. Morgan. (See Declaration, Exhibit 3). Nevada Revised Statute (NRS) 104 3205 states, When endorsed in blank, an instrument becomes payable to bearer and may be negotiated by transfer of possession alone until specially endorsed. Pursuant to NRS 104 3201, Negotiation means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder. As evidenced in 5 of the Declaration, J.P. Morgan is the current holder and possessor of the Note, and the Note includes an Allonge to Note that was executed in blank. (See Declaration, Page 2, 5). The Note has been transferred from PHH to Bishops and from Bishops to J.P. Morgan. As such, J.P. Morgan has met the minimum requirement to enforce the Note executed by Debtor. IV. MERS AND ITS CAPABILITIES Debtors arguments that MERS did not have any rights to transfer the Note and Deed of Trust are not supported. The parties documented their intention to appoint MERS as the agent for the Lender, its successors and assigns, through the plain language of the Deed of Trust. The Deed of Trust identifies MERS as the nominee for the Lender, and its successor and assigns (Declaration, Exhibit 2, page 2, paragraph (E)). Additionally, page 3 of the Deed of Trust provides that the beneficiary of this Security Instrument is MERS (solely as nominee for Lender and Lenders successor and assigns) and the successors and assigns of MERS. (See Declaration, Exhibit 2, page 3). The Deed of Trust goes on to further define MERS role as mortgagee and MERS

4 RESPONSE TO DEBTORS OBJECTION TO PROOF OF CLAIM FILED BY J.P. MORGAN

Case 10-31903-lbr

Doc 64

Entered 06/07/11 17:22:47

Page 5 of 10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

relationship with the Lender and its successors and assigns as nominee: Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but if necessary to comply with law or custom, MERS (as nominee for Lender and Lenders successors and assigns), has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property, and to take any action required of Lender, including, but not limited to, releasing or cancelling this Security Instrument (See Declaration, Exhibit 2, Deed of Trust, Page 3). The Deed of Trust identifies MERS as the agent for PHH Mortgage Corporation, or its successors or assigns and grants MERS the authority to foreclose. MERS relationship as nominee for PHH Mortgage Corporation, and its successors and assigned is consistent with the ordinary legal definition of nominee. A nominee is defined as [a] person designated to act in place of another, usu[ally] in a very limited way or a party who holds bare legal title for the benefit of others. Blacks Law Dictionary, 1149 (9th ed. 2009). Thus, through the appointment of MERS as nominee for PHH Mortgage Corporation, and its successors and assigns, the parties created written evidence of the agency relationship of MERS with PHH Mortgage Corporation. Though MERS never held the Note, it could by virtue of its nominee status, transfer the Mortgage on behalf of the Note Holder. Although the Assignment contains language purporting to assign both the Note and Mortgage, MERS lacked the assignable interest in the Note. While this surplusage evidences poor drafting, it does not affect the validity of MERSs assignment of the Deed of Trust. In re Kiah, 2010 U.S. Dist. LEXIS 121252, 2010 WL 4781849. In re Huggins, 357 B.R. at 183. Contrary to Debtors assertion that the assignment split the Deed and the Note, which would render the debt unenforceable, courts have recently found that MERS has the capacity to assign instruments. Furthermore, these courts have determined that the mere language of MERS on the Deed was not sufficient to split the Note from the Deed. See Hubert v. Metlife Home Loans, et al., A-10-620408. (D. Nevada, 2010) (holding that MERS does not split the mortgage and the note, or render the mortgage invalid); Cosgrave v. American Home Mortgage Corp., MERS, et al., A-10623894-C. (D. Nevada. 2010) (holding that the presences of MERS on the security instrument does not in and of itself cause the note and mortgage to be split or separated and does not invalidate the mortgage). Based upon the above, it is clear that MERS has the authority to assign the Deed and that
5 RESPONSE TO DEBTORS OBJECTION TO PROOF OF CLAIM FILED BY J.P. MORGAN

Case 10-31903-lbr

Doc 64

Entered 06/07/11 17:22:47

Page 6 of 10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

the debt encumbered by the Debtors is enforceable and should not be disallowed and Debtors request should be denied. V. ENFORCEABLE DEBT Notwithstanding the attempted technical arguments contended by Debtors to try to wipe out the debt on the Property, the debt is enforceable against the Debtors and Debtors property. Pursuant to Code Section 502(a), a claim shall be deemed allowed unless an objection is filed. Even when an objection is filed, the claim shall be allowed, except to the extent that it is disallowed on one of the grounds provided by Section 502(b). 11 U.S.C. 502(b). Section 502(b) provides the sole grounds on which a party can object to a proof of claim. In re Heath, 331 B.R. 424, 435 (B.A.P. 9th Cir. 2005)(citing Dove Nation v. eCast Settlement Corp., 318 B.R. 147, 150-52 (B.A.P. 8th Cir. 2004)). An objection to claim must raise sufficient legal or factual grounds on which to disallow or reduce the claim. A Proof of Claim that does not actually contest Debtors liability or the amount of the debt is insufficient to disallow a proof of claim, even if the Proof of Claim lacks the documentation required by Rule 3001(c). In re Campbell, 336 B.R. 430, 432 (B.A.P. 9th Cir. 2005). While a creditor may have an obligation to respond to an objection to claim that is sufficiently specific about the information required, the Heath Court noted that such an objection should not be inconsistent with sworn schedules that concede all or some portion of the debt. In re Heath, 331 B.R. 436-437, n.6; see also In re Lasky, 364 B.R. 385, 389-390 (Bankr. C.D. Cal. 2007). In the

event sufficient legal or factual grounds are raised, the Court would then turn to the usual burdens of proof associated with claims litigation, including the admissions contained in the bankruptcy schedules, as well as any relevant documentation provided by the claimant. In re Campbell, 336 B.R. at 436. In this case, even if the contentions in Debtors objection could be considered to raise sufficient legal or factual grounds to come within Section 502(b), PHHs claim is entitled to prima facie validity. The Debtors cannot overcome the presumption by filing objections that do not actually dispute the liability of amount of the claim. Rule 3001(f) provides that a claim filed in accordance with the rules shall constitute prima facie evidence of the validity and amount of the claim. Fed. R. Bankr. P. 3001(f); Diamant v.

6 RESPONSE TO DEBTORS OBJECTION TO PROOF OF CLAIM FILED BY J.P. MORGAN

Case 10-31903-lbr

Doc 64

Entered 06/07/11 17:22:47

Page 7 of 10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Kasparian (In re Southern California Plastics, Inc.), 165 F.3d 1243 (9th Cir. 1999). When the claim is based upon a writing, a copy of the writing shall be filed with the claim. Fed. R. Bankr. P. 3001(c). Noncompliance with Rule 3001(c) is not a statutory ground for disallowance. Debtors cannot claim that the claim is unenforceable against the Debtors and the property of the Debtors because the debt is in fact, owing. Except for evidence that the security interest has been perfected, as required by Rule 3001(d), the rules do not require any other evidence be attached to the proof of claim. In re Garner, 246 B.R. 617, 621 (B.A.P. 9th Cir. 2000). In this case, the claim was accompanied by both the Note, the writing on which the claim is based, a recorded copy of the Deed of Trust securing the Note, and an Assignment transferring interest in the Deed of Trust and Note from PHH to J.P. Morgan. Therefore, the burden is on the Debtors to produce sufficient evidence to rebut the validity of the claim. Debtors state that the promissory note attached to the Proof of Claim is devoid of any endorsements. However, PHH has provided an Allonge to Note, which is by definition, "[a] piece of paper annexed to a bill of exchange or promissory note, on which to write endorsements for which there is no room on the instrument itself." Black's Law Dictionary (rev. 4th ed. 1968). The original Proof of Claim did not include the Allonge to Note, but will be amended to include the Allonge to Note. The Debtors do not dispute the amount of the debt that is owed under the Note nor do the Debtors deny that they owe the underlying debt. The Debtors have failed to provide probative evidence to rebut the prima facie validity of PHHs claim. Fullmer vs. United States, 962 F.2d 1463 (10th Cir. 1992) (holding that claims are presumed to be valid on prima facie basis and presumption can be overcome only if the objection party offers equally probative evidence to the contrary). Although the Debtors assert numerous case laws that are comparable to their situation, they do not support their assertions with any viable or probative evidence. Therefore, Debtors request that the Proof of Claim be unenforceable should be denied. VI. PHH AND ITS SERVICING RIGHTS PHH Mortgage Corporation is the servicer for J.P. Morgan Mortgage Acquisition Corp. (See Declaration, Page 2, 6) Federal Rule of Bankruptcy Procedure 3001(b) states in pertinent part

7 RESPONSE TO DEBTORS OBJECTION TO PROOF OF CLAIM FILED BY J.P. MORGAN

Case 10-31903-lbr

Doc 64

Entered 06/07/11 17:22:47

Page 8 of 10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

that, A proof of claim shall be executed by the creditor or the creditors authorized agent. Section 501(a) of the Bankruptcy Code also states that a creditor may file a proof of claim. A servicer of a mortgage is a creditor pursuant to its duties as a servicer, and therefore, has standing to file a proof of claim. In re Conde-Dedonato, 391 B.R. 247, 250 (Bankr. E.D.N.Y. 2008); In re Minbatiwalla, 424 B.R. 104, 109 (Bankr. S.D.N.Y. 2010); In re Woodberry, 383 B.R. 373, 379 (Bankr. D.S.C. 2008); see also Bankers Trust v. 236 Beltway Inv., 865 F. Supp. 1186, 1191 (E.D. Va. 1994); In re Tainan, 48 B.R. 250, 252 (Bankr. E.D. Pa. 1985). A servicer has standing to bring a claim because it has a tangible interest in the estate, and its pecuniary interest was derived from its servicing activities, for which it received compensation. In re Viencek, 273 B.R. 354, 356 (Bankr. N.D.N.Y. 2002); In re Conde-Dedonato, 391 B.R. at 250. Numerous courts have held that a servicer, pursuant to their duty as a servicer, is a party in interest in proceedings involving loans which it services [holding that a servicer was allowed to defend a proof of claim on behalf of its principal]. In re O'Dell, 268 B.R. 607, 618 (N.D.Ala.2001) aff'd, 305 F.3d 1297, 1302 (11th Cir. 2002). The loan servicers interest in the note is by virtue of its servicing activities for which it receives compensation. In re Viencek, 273 B.R. 354, 357-58 (Bankr. N.D.N.Y. 2002)). It has been held that mortgage servicers are parties in interest with standing by virtue of their pecuniary interest in collecting payments under the terms of the notes and mortgages they service. In re: Henry Lopez, 2011 Bankr. LEXIS 476, *16, (Bank. E.D. Mass. 2011). This is further support that PHH has standing because it has a right to payment pursuant to its duties as a servicer on a loan and it can be injured by a Debtor when it loses it servicing fees as a result of the Debtors nonpayment of the loan. PHH has shown that it is the servicer for J.P. Morgan and has standing to file a proof of claim on behalf of J.P. Morgan. The proof of claim that was filed on January 31, 2011 identifies the Name of the Creditor, the person or other entity to whom the debtor owes money of property, as J.P. Morgan. As the Court explained in the case of In re Henry, a party in interest need only demonstrate a colorable claim to property of the estate, Id., at 18, citing Grella v. Salem Five Cent Sav. Bank 42 F.3d, 26, 32 (1st Cir. 1994), which PHH has done by providing the chain of title from PHH to J.P.

8 RESPONSE TO DEBTORS OBJECTION TO PROOF OF CLAIM FILED BY J.P. MORGAN

Case 10-31903-lbr

Doc 64

Entered 06/07/11 17:22:47

Page 9 of 10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Morgan. In this case, the Debtors do not dispute the amount of the claim or that it is owing. As set forth herein, PHH is currently the servicer of the Note and Deed of Trust and is entitled to file a proof of claim as the servicer for J.P. Morgan. As a result of its servicing rights and compensation as a servicer, J.P. Morgan has a tangible interest in the Note and Deed. Based upon this, it is clear that PHH is entitled to execute the Proof of Claim on behalf of J.P. Morgan. CONCLUSION PHH has provided substantial evidence and has shown that it is entitled to file a Proof of Claim on behalf of J.P. Morgan. For the foregoing reasons, PHH respectfully request the Court overrule Debtors Objection to Claim and Deny Debtors Opposition to Motion for Relief from Automatic Stay. Furthermore, PHH respectfully requests that the Court allow PHH to amend their Motion for Relief from Automatic Stay in order show the name of the correct party in interest. DATED: June 7, 2011 Respectfully Submitted, MALCOLM CISNEROS, A Law Corporation /s/Kevin Hahn KEVIN HAHN Attorney for Secured Creditor, PHH MORTGAGE CORPORATION

9 RESPONSE TO DEBTORS OBJECTION TO PROOF OF CLAIM FILED BY J.P. MORGAN

Case 10-31903-lbr

Doc 64

Entered 06/07/11 17:22:47

Page 10 of 10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 STATE OF CALIFORNIA COUNTY OF ORANGE ) ) )

PROOF OF SERVICE ss.

I am employed in the County of Orange, State of California. I am over the age of eighteen and not a party to the within action; my business address is: 2112 Business Center Drive, Second Floor, Irvine, California, 92612. On June 7, 2011, I served the following document described as RESPONSE TO DEBTORS AMENDED OBJECTION TO PROOF OF CLAIM FILED BY J.P. MORGAN on the interested parties in this action by placing a true copy thereof enclosed in a sealed envelope with postage thereon fully prepaid in the United States mail at Irvine, California (and via telecopy or overnight mail where indicated), addressed as follows: Joan Maria Anderson Todd J Shelly 8570 W. La Madre Las Vegas, NV 89149 Arun Gupta 800 N. Rainbow Blvd., #208 Las Vegas, NV 89107 Jeffrey J. Whitehead 1700 W. Horizon Ridge Pky #201 Henderson, NV 89102 Rick A. Yarnall 701 Bridger Ave. #820 Las Vegas, NV 89101 I declare under penalty of perjury that the foregoing is true and correct. Executed on June 7, 2011, at Irvine, California. /s/ Kathleen Tran KATHLEEN TRAN

10 RESPONSE TO DEBTORS OBJECTION TO PROOF OF CLAIM FILED BY J.P. MORGAN