Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Nye Lavalle
1 Those dockets were held on May 2, May 16, June 12, June 19, and July 26, 2008.
Additional dockets are scheduled for July 10, July 16, and July 18, 2008.
M E M O R A N D U M
TO: All bankruptcy lawyers who file Motions for Relief from Stay
FROM: Judge Pat E. Morgenstern-Clarren
RE: Additional Guidance on Motions for Relief from Stay
DATE: July 9, 2008
****************************************************************************
This memorandum supplements both the court’s memorandum of February 12, 2008
(“Tips for How a Motion for Relief from Stay Can Proceed Smoothly Through the Court”) and
the ongoing dialogue being held with counsel in the special dockets relating to motions for relief
from stay.1 I hope that this additional memo will help to explain the court’s expectations.
For the most part, the motions at issue allege that the movant is entitled to enforce a note
given by the debtor, which note is secured by a mortgage on real estate owned by the debtor. The
motions allege that the debtor is in default under the note and seek relief from stay to pursue state
court remedies, including foreclosure.
As the bar knows, many motions for relief from stay are not opposed by the debtor. The
court’s practice is to sign a default order granting an unopposed motion for relief from stay or to
sign an agreed order if:
(A) the motion has been properly served on the appropriate parties; and
(B) the motion states a prima facie case for relief from stay, meaning that it sets out a
factual and legal basis for the relief requested.
Generally, a prima facie case requires that the movant show that it is entitled to enforce
the note, either because (1) it is the original payee in possession of the original note; or (2) it is
the payee because it is in possession of the original note and the note is endorsed to it; or (3) the
note is endorsed in blank and the movant has possession of the original note; or (4) the movant
has physical possession of the note, without an endorsement, but the movant has the rights of a
holder; or (5) the note is lost but Ohio Revised Code § 1303.38 (“Enforcement of lost, destroyed,
or stolen instrument”) is satisfied. The movant must also show that its lien is properly perfected
(establishing its position as a secured creditor) and that it is entitled to proceed against the
collateral. In addition, the movant must show that the debtor owes money under the note or has
otherwise failed to perform under the note or security agreement.
These comments are intended as an o 2 verview of secured transaction issues.
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If the motion does not state a prima facie case for relief, the court will not sign an order
lifting the stay, whether it is by default or otherwise.
Over the last few years, an increasing number of motions for relief have been filed that do
not state a prima facie case for relief. This causes delay and expense to all parties, and also
consumes a great deal of the court’s time. The court set the special dockets to address these
recurring issues:2
1. Motions filed by an entity that, according to the supporting
documents, has not established standing to file the motion. See In
re Foreclosure Cases, No. 1:07CV2282, 2007 WL 3232430 (N.D.
Ohio Oct. 31, 2007); see also In re Parrish, 326 B.R. 708 (Bankr.
N.D. Ohio 2005).
2. Motions that add attorney fees to the amount due from the debtor
when those fees are not recoverable under Ohio law. See Dollar
Bank v. Petroff (In re Petroff), No. 00-8085, 2001 WL 34041797
(B.A.P. 6th Cir. July 25, 2001); In re Lake, 245 B.R. 282 (Bankr.
N.D. Ohio 2000). A sub-issue is where counsel acknowledges at
the hearing that the fees are not recoverable under Ohio law, but
states that he or she does not have authority from the client to
delete the fees from the amount due. See FED. R. BANKR. P.
9011(b)(2).
3. Motions that include hundreds to thousands of dollars in “costs” or
“other charges” or “advances” lumped together. In many cases, as
the facts are developed, it turns out that amounts are included that
do not fall within the language of the note and mortgage at issue
and/or that are not provided for by statute. See OHIO REVISED
CODE § 5301.233 (“Mortgage may include unpaid balance; lien on
property”). Common examples are charges incurred for the benefit
of third-party investors, such as a filing fee for filing an assignment
of the mortgage to a trust or charges for broker’s price opinions or
charges for a servicer’s activities that “are not for the protection of
the mortgaged premises.” Id.
4. Motions with affidavits attached that contain conflicting statements
as to the entity in possession of the note, with no explanation for
the conflict.
5. Affidavits seeking relief following an alleged default under an
agreed order, which affidavits are deficient because, for example,
(1) they appear to be signed by the affiant in one state and
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notarized in a different state; (2) they do not state the date and
amount of each payment that has not been made; (3) they identify
unpaid payments that were not provided for in the agreed order; or
(4) the affiant has no demonstrated connection to the parties who
entered into the agreed order.
6. Motions alleging that the underlying note is lost, but that attach
“lost note” affidavits that do not comply with Ohio Revised Code
§ 1303.38.
7. Local counsel appearing at hearings on motions for relief from stay
who have not been in direct contact with their clients and who do
not have access to the information needed to move the motion
forward.
8. Motions alleging that the movant is entitled to enforce a note
secured by a mortgage, but the mortgages and assignments of
mortgages attached do not demonstrate that the documents were
recorded with the county recorder’s office.
9. Motions seeking relief from stay with respect to a motor vehicle
without attaching the certificate of title showing that the movant
either owns the vehicle or has a lien on it (or attaching a certificate
of title that is illegible). Increasingly, movants have attached
documents that are apparently obtained from a web site, but that
are not titles, electronic or otherwise.
10. Motions filed without notice being given to other parties with an
interest in the property, such as other lienholders.
11. Failure to add additional information to the motion in bold, as
required by the local rules, that would clarify any irregularities or
the way in which the motion deviates from the form.
12. Motions filed alleging the movant is entitled to enforce a note,
where the note is purportedly “transferred” by assignment rather
than as prescribed by Ohio Revised Code Chapter 1303. See OHIO
REVISED CODE §§ 1303.22(A) and 1301.01(N)).
13. Motions seeking relief in a case where the debtor has no interest in
the property, or where the debtor is not obligated on the note, and
where no other legal basis is stated for seeking relief from stay.
By holding the special dockets and sending this memo, my hope is that the problems will
be corrected so that entities entitled to relief from stay will be able to obtain relief in a more
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efficient manner and also so that debtors who are entitled to keep the stay in place will not have
to needlessly spend time and energy on relief issues.
I will be glad to address any questions at the town hall meeting that Judges Baxter, Harris,
and I will be holding on July 22, 2008 at 8:00 a.m. If you have questions in the meantime, please
feel free to call or email my chambers.
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Moose
In other words:

"We've let this fiasco go on so long that it has now become embarrassing to the judiciary so you foreclosure mills are finally going to have to go back to playing by the real rules - at least until this mess blows over."

Moose





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