Here is well written brief on allonge attachment issue for whoever needs this. Judge has not ruled on this yet.
William Roper Jr., I'd love to hear your opinion on this...
BRIEF IN OPPOSITION TO MOTIONS FOR RELIEF FROM AUTOMATIC STAY
COMES NOW Vladislav Khomutov and Michiko Khomutov, (“Debtors”), by and through the law firm of Shelley D. Krohn, Ltd., and files this Opposition to the Brief filed by Prime Asset Fund II, LLC, (“Secured Creditor"), by and through the Cooper Castle Law Firm, (Docket Entry No. 184).
In January of 2007, the Debtors purchased three parcels of real estate and M & I Bank handled the financing of the three loans. The properties were all located in Las Vegas, Nevada with the following mailing addresses: 6033 Shenandoah Avenue, 6255 Mt. McKinley Avenue, and 60l2 Bryce Canyon Avenue. The Debtors made payments on the loans
until late in 2008 when they sought a loan modification from M & I Bank. The loan modification was approved but for whatever reason cannot be finalized until early 2009. The Debtor notices errors on the loan modification documents and seeks clarification. At this point, what had once been an amicable relationship between the Debtors and M & I Bank, begins to deteriorate. The Debtors request information and documents and M & I Bank refuses to produce anything. The Debtors receive notification in December of 2009 that their loans have been transferred. In December of 2009 and again in
February of 2010, demand letters are sent by the Debtor to the new servicing entity for an opportunity to review the note and deed of trust. Ultimately, the Debtor has to hire counsel to request an opportunity to review the notes and deeds of trust. This demand is made in May of 2010 but also goes unanswered. The bottom line is, neither M & I Bank nor the Secured Creditor ever comply with the Debtors’ reasonable request to review the notes, deeds and trusts and assignments.
Finally, on August 12, 2010, the Debtors file for Chapter 13 relief. The automatic stay is imposed as to all of the Debtors’ real property. The Debtors’ requests for proof of the transfer of the notes and deeds of trust from M & I Bank to the Secured Creditor continues. At a hearing before this Court in the Fall of 2010, the Secured Creditor finally produces the original notes and deeds of trust for the Debtors to inspect. However, there were no endorsements or allonges produced at that time. See Declaration of Vladislav Khomutov. The first time that the three (3) separate Endorsements and Allonges to Promissory Note (collectively referred to as “Endorsements”) were produced by the Secured Creditor to the Debtor’s counsel were on February 14, 2011 (one day before the continued Motion to Lift Stay Hearing). These three Endorsements were not attached to the original notes. In fact, they were separately stored in a express mail envelope, as if they had just been over—night mailed to Secured Creditor’s counsel. See Declaration of Shelley D. Krohn.
The issue before this Court is whether the Secured Creditor is the proper party to be seeking relief from the automatic stay. Debtor has argued from the beginning of his case that Secured Creditor did not have standing to terminate the automatic stay. Secured Creditor has now supplied a Brief that states because it has the notes, the deeds of trust and finally the endorsements and allonges, it is, in fact, the proper party to be seeking stay relief. The problem with the Secured Creditor’s position is that the endorsements are invalid under Nevada’s UCC laws and allonges are only permissible if there is
no blank space remaining on the negotiable instrument for endorsement.
A. The Endorsements are Invalid under NRS §104.3204.NRS §lO4.3204(l) states:
“Endorsement" means a signature, other than that of a singer as maker, drawer or acceptor, that alone or accompanied by
other words is made on an instrument for the purpose of negotiating the instrument, . . JC For the purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is a part of the instrument." (Emphasis added).
In the present situation the Endorsements are neither made on the notes nor are they affixed to the note. See Declarations of Khomutov and Krohn. The Endorsements are even attached as separate Exhibits to Secured Creditor’s Brief (See Exhibits G, H and T.) No attempt is ever made by the Secured Creditor to affix the Endorsements to the respective notes. Thus, under NRS §lO4.3204(l), the endorsements are invalid to transfer the notes from M & I Bank to the Secured Creditor.
Secured Creditor believes it is the holder of the notes. It believes that because it holds the original notes, deeds of trusts
and Endorsements, it now has the appropriate standing to lift the automatic stay. However, the facts in the present case are nearly identical to those in In re Weisband, 427 B.R. 13 (D. Ariz. 2010) and in that case, the creditor was found NOT to have standing. In Weisband, GMAC “. . . attached the Note with Endorsement and DOT as exhibits to the Motion.” Id; at 16. “However, for the Endorsement to constitute part of the note, it must be on ‘on paper affixed to the instrument’." Ig; at 19. Arizona’s UCC is identical to Nevada’s as it also requires an endorsement if not on the original instrument to then be on “a paper affixed to the instrument". See N.R.S. §47—3204 and NRS §104.3204(1). In Weisband, the Court found the evidence did not demonstrate that the Endorsement was attached to the Note. Ig; at 19. The exact same facts are true in this case. At no time were the three Endorsement ever part of the Notes or attached to the Notes. See Declarations of Krohn and Khomutov. There were no staple holes in the Endorsements to indicate that they had ever been attached to any other document. Ig;
The Weisband Court also looked to the Adams v. Madison Realty & Dev., Inc. decision for guidance. The Adams court; stated that:
. . . UCC section 3—202(2) [A.R.S. § 47-3204]: An indorsement must be written by or on behalf of the holder and on the instrument or on a paper so firmly affixed thereto as to become a part thereof. Since the endorsement page . . . was not attached to the note, the court found that the note had not been properly negotiated ....Following this same logic, Weisband found that GMAC did not become the holder of the note due to the improperly affixed Endorsement. Weisband at 19.
Secured Creditor has not introduced any evidence that these three Endorsements meet the requirements of NRS §104.3204. The Endorsements were not made on the actual notes nor were they made on a paper affixed to the notes. Thus, under the plain and unambiguous requirements of Nevada’s UCC and the case law of Weisband and Adams,
the Endorsements fail to properly negotiate the notes from M & I Bank to the Secured Creditor. Consequently, Secured Creditor is not a proper party to be seeking termination of the automatic stay and the motion for relief must be denied.
B. Allonges Are Only Permissible When There is no Blank Space to Permit Endorsement on the Original Note.
The majority view regarding the use of an Allonges provides that the use of an allonge is only permissible when there is no room on the negotiable instrument itself to permit endorsement. Pribus v. Bush, 118 Cal App. 3d 1003, 1011 (1981). In fact, it was this view that was adopted by the California legislature. ld; The general rule is that an instrument could be endorsed only by writing on the instrument itself, but that an exception to the rule allows the use of an attached paper “when the back of the instrument is so covered as to make it necessary." Bishop v. Chase, 56 S.W. 1080 (1900). Thus, the only time an allonge can be used to transfer an negotiable instrument is when the original negotiable instrument contains no blank space to permit any further endorsements. The allonge was created to be a mere exception to the general rule, not an alternative to the general rule.
Clearly the situation in the case presently before the Court demonstrates that the allonge should not be used as an alternative. There is plenty of room on the bottom of the notes for an endorsement such that a separate Allonge was not necessary. See Secured Creditor’s Exhibits G, H and I. There is no credible reason why M & I Bank should not have properly endorsed the notes themselves.
Therefore, the negotiation of the notes is invalid and the Secured Creditor is not the proper party to be seeking relief from the automatic stay.
The Debtors respectfully request that this Court deny the Secured Creditor’s Motion for Relief from the Automatic Stay on all three of the parcels of real estate; to wit: 6033 Shenandoah Avenue, 6255 Mt. McKinley Avenue, and 6012 Bryce Canyon Avenue, and for any other relief this Court deems appropriate.
Dated this 8“ day of March, 2011.
I OCR'd this in a hurry, please check spelling prior to use.
I welcome all comments at: firstname.lastname@example.org