2932.5 ruling

25 Sep

Deutsche Bank National Trust Company (Deutsche Bank),

as Trustee for WaMu Series 2007-HEl Trust, its assignees

and/or successors (HEl Trust), moved for relief from the

automatic stay to proceed with foreclosure proceedings on

Debtors’ residence (Property). It is undisputed that the

claim asserted by Deutsche Bank on behalf of HEl Trust

exceeds the fair market value of the Property. The Debtors

filed no opposition and have indicated an intention to

surrender the Property. The Trustee opposed the motion on

the grounds that Deutsche Bank lacks standing in that

Deutsche Bank had failed to establish that it or HEl Trust,

the party represented thereby, held a perfected security

interest in the Property.

Because the Court finds that Deutsche Bank has failed

to provide evidence that it, let alone HEl Trust, has a

security interest in the Property, the Court denies the

motion for relief from stay without prejudice.

This Court has subject matter jurisdiction over the

proceeding pursuant to 28 U.S.C. § 1334 and General Order

No. 312-D of the United States District Court for the Southern

District of California. This is a core proceeding under

28 U.S.C. § 157(b) (2) (A) & (G).

BACKGROUND

On or about November 8, 2006, Debtors borrowed money from

WAMU and executed a promissory note in favor of WAMU of the same

date (Note). Debtors also executed a deed of trust granting

WAMU a security interest in the Property (Deed of Trust). On

December 17, 2007 Debtors filed a petition commencing this

bankruptcy case. According to Debtors’ schedules, the value of

the Property ($863,931.00) was less than the amount owed on the

Note and secured by the Deed of Trust ($998,016.00). Debtors’

schedules list WAMU as the secured creditor on the Property.

Debtors indicated their intention to surrender the Property.

On January 25, 2008, Deutsche Bank, “as Trustee for” HE1

Trust, moved for relief from stay to proceed with foreclosure on

the Property. In support of the motion Deutsche Bank submitted a

declaration of Lori Brecheen – an officer of WAMU “as Servicing

Agent for Movant.” The declaration included a copy of the Deed

of Trust and the Note. The Deed of Trust lists WAMU as the

beneficiary and “California Reconveyance Company” as the

“Trustee.” The Promissory Note lists WAMU as the Lender and

payee.

As noted, the Debtors did not oppose the motion, but the

Trustee did on the ground that Deutsche Bank failed to establish

that it had standing to bring the motion because it had failed to

prove that it had a perfected lien against the Property.

In the Reply to the Trustee’s opposition, Deutsche Bank

asserts that it is the “current beneficiary of a promissory note

and deed of trust by way of assignment … ” In a subsequent

declaration, Ms. Brecheen declared that WAMU “transferred the

NOTE and DEED OF TRUST to DEUTSCHE BANK.” She went on to explain

that since transferring the Note and Deed of Trust, WAMU has

acted as servicing agent for Deutsche Bank on the loan. As agent

for Deutsche Bank, WAMU was in possession of the Note, as

endorsed to Deutsche Bank. Attached to the supplemental

declaration was a copy of the Note with an added page with what

Ms. Brecheen contends is the endorsement. As discussed below, it

is simply a stamp signed by a vice president of WAMU reading “Pay

to the order of ” – the space for payees is left blank.

The Court held a hearing on the matter and took it under

submission.

DISCUSSION

It is undisputed that the subject Property is, as the saying

goes, underwater. All parties seem to agree that the claim

secured by the Property exceeds the value of the Property. The

Debtors are prepared to abandon the Property. The only issue

before the Court is whether Deutsche Bank is in a position to

seek relief from the stay.

Bankruptcy Code section 362(d) provides for relief from stay

on request of a “party in interest.” Party in interest for the

purposes of a motion for relief from stay is not defined.

However, the Court agrees with the court in In re Maisel, that

“[a] party seeking relief from the automatic stay to exercise

rights as to property must demonstrate at least a colorable claim

to the property.” 378 B.R. 19, 21 (Bankr.D.Mass. 2007) (citing In

re Huggins, 357 B.R. 180, 185 (Bankr.D.Mass. 2006). That is,

since Deutsche Bank seeks relief from stay to proceed against the

Property, it must establish that it, or more accurately the party

it represents, HE1 Trust, has a security interest in such

property. As movant, Deutsche Bank has the responsibility to

convince the Court that the party seeking relief from the stay

with respect to the Property has an interest in the Property.

Deutsche Bank has failed to do so.

In support of the motion, Deutsche Bank has provided the

copies of the original Note and Deed of Trust. However, both the

undisputed that WAMU held a security interest in the Property by

virtue of the Deed of Trust, Deutsche Bank has provided no

evidence at all that any interest in the Deed of Trust was ever

assigned from WAMU to Deutsche Bank, or to anyone else for that

matter. In her supplemental declaration Ms. Brecheen declares

that the Deed of Trust was “transferred” to Deutsche Bank.

However, Deutsche Bank has provided no authority (and the Court

is aware of none) for the apparent proposition that transfer of

the Deed of Trust without assignment, let alone recordation, is

sufficient to give Deutsche Bank or HEl Trust a security interest

in the Property. As it stands on the record before the Court,

the Deed of Trust remains in the name (and possession) of WAMU. 1

Nothing in the Deed of Trust as written or in the way in which it

has been handled gives any indication that Deutsche Bank or HEl

Trust has a security interest in the Property. Not surprisingly

therefor, Deutsche Bank focuses the Court’s attention on the

Note.

The Note too runs solely in favor of WAMU. The copy of the

Note produced in connection with the Motion gave no indication

that anyone but WAMU had an interest therein. In response to the

Trustee’s opposition, Deutsche Bank eventually produced a copy of

the Note with an additional, unnumbered, undated page attached,

which appears to been endorsement by WAMU. However, the “Pay to

the order of” line of the endorsement is blank. There is no

indication from the face of the Note as endorsed that it was

endorsed to Deutsche Bank and/or HEl Trust.

The sole evidence that Deutsche Bank provides which would

indicate to the Court that Deutsche Bank might have any interest

at all in the Property, is the supplemental declaration of

Ms. Brecheen that the Note had been transferred to Deutsche Bank.

Assuming for the sake of argument that this “transfer” amounts to

an “assignment,” such an assignment of the Note appears to be

sufficient under California to give Deutsche Bank a security

interest in the Property.

California Civil Code § 2932.5 provides:

Where a power to sell real property is given to a

mortgagee, or other encumbrancer, in an instrument

intended to secure the payment of money, the power is

part of the security and vests in any person who by

assignment becomes entitled to payment of the money

secured by the instrument. The power of sale may be

exercised by the assignee if the assignment is duly

acknowledged and recorded.

The Court is aware of no California case law interpreting this

section. However, it appears to indicate that a security

interest runs with the obligation – in terms of the case at hand,

that is, an assignment of the Note amounts to an assignment of

the Deed of Trust. 2 However, as indicated, Deutsche Bank has

provided no convincing evidence that the Note was ever assigned

to Deutsche Bank. Furthermore, even if the Note was assigned to

Deutsche Bank, Deutsche Bank is not the party asserting a

security interest in the Property. Rather, the motion is brought

by Deutsche Bank as Trustee for HEI Trust. The record is devoid

of any further assignment to HEI Trust.

In summary, the only question before this Court is whether

Deutsche Bank and/or HEI Trust has an interest in the Property.

The Court holds that Deutsche Bank has failed to provide evidence

that it, let alone HEI Trust, has a security interest in the

Property. 3 Accordingly, the motion is denied.

The Trustee argues that based upon the last line of § 2932.5 Deutsche Bank may not

foreclose on the Property because the assignment was not recorded. That may well be.

However, that is an issue the Trustee can raise with the state court if relief from stay is ultimately

granted.

Both parties allotted much ink and paper to the issue of whether Deutsche Bank has a

perfected security interest in the Note. The Court finds this discussion beyond the scope of the

motion before it. Deutsche Bank has moved for relief from stay to proceed against the Property.

Whether or not it holds a security interest in the Note is irrelevant. Since we are not concerned

with a security interest in the Note, all talk of a “perfected lien” on the Note is beside the point.

CONCLUSION

For the reasons set forth above Deutsche Bank’s motion for

relief from stay is denied without prejudice.

IT IS SO ORDERED.

DATE: JUN – 9 2008

PE ER W. BOWIE, Chief Judge

United States Bankruptcy Court

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3 Responses to “2932.5 ruling”

  1. Zinger September 25, 2010 at 9:40 am #

    Very interesting … thank you for posting this. There are many that are in BK seeing what is effective in countering the motion to lift stay. I don’t understand this all but am glad you posted it for reference.

  2. Jimmy Rivera September 27, 2010 at 11:25 am #

    I am so grateful (as I am sure all your readers are); but is it me, or are the gray letters difficult to read?

  3. Law Offices of Bruce Francis Kennedy May 20, 2011 at 11:13 am #

    I have read with interest your analysis of Civil Code section 2932.5. I filed an injunctive relief proceeding against GMAC after GMAC commenced non-judicial foreclosure proceedings on real property subject to probate proceedings. I obtained a TRO and later during an escrow opened to sell the property it was discovered that there was no record of an assignment of the beneficial interest under the note and deed of trust to GMAC from the only assignee of record of the beneficial interest, namely, Wells Fargo Bank. The attorneys for GMAC now claim that they have “found” the assignment from Wells Fargo. Nevertheless, GMAC commenced the exercise of a power of sale without compliance with the provisions of Civil Code section 2932.5. That is, their newly found assignment from Wells Fargo was not recorded before they commenced non-judicial foreclosure. I do not see how they can cure this defect in the current non-judicial foreclosure action by now recording the deed of trust. It seems to me that the existing foreclosure proceeding must be abandoned and that GMAC must start the process over again. I cannot see how one can read the statute in any other way. As many California courts have stated, a non-judicial foreclosure sale is a creature of statute, and there is absolutely no ambiguity in the language of section 2932.5. I may have to obtain a ruling from the court in the matter because there appears to be no California case directly in point.

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