The Court in In re Kemp 2010 WL 4777625 (Bankr. D. N.J. November 10, 2010) held that a claim filed by a mortgage servicer would be disallowed when that creditor did not have possession of the note and the note was not endorsed to the creditor at the time the claim was filed. The bankruptcy court cited New Jersey’s Uniform Commercial Code in disallowing the creditor’s claim because Countrywide Home Loans, Inc. d/b/a America’s Wholesale Lender could not prove that it was the holder in possession of the note; Non-holder in possession; nor Non-holder not in possession of the note. Here in California we have similar codes under the California Commercial Code (“CCC”).
What this case means for debtors is that debtors must be clearly prepared to challenge claims asserted by their mortgage lenders and/or servicers. When debtor’s counsel produce clear records of creditor’s failures to document the chain of custody and assignments of promissory notes debtors will successfully knock out these claims. Debtors counsel must cross-examine witnesses; propound opposing parties for admissible evidence and demonstrate the creditor’s failure to follow the CCC.
Once successful in opposing the Proof of Claim filed by the Creditor, the Debtor can then file an Adversary Proceeding (lawsuit) against the creditor to determine the extent, priority and/or validity of the lien as the motion to disallow the claim does not address this issue.
Attorneys representing debtors must be prepared to demand proof of authority and ownership of the note and challenge the effectiveness of any attempt to assign or transfer the note or deed of trust after the bankruptcy case was filed or on the eve of trial because these action not only violate the automatic stay in some cases; they may also violate the securitized trust pooling and servicing agreement.