458 B.R. 757
Bankr. D. Kan.2011Background
- Debtor Bonnie Lieurance executed a promissory note and mortgage on a homestead secured by Mortgage Electronic Registration Systems (MERS) as nominee for Equitable Mortgage of Nebraska, Inc.
- The Note allegedly bears an undated endorsement from Equitable Mortgage to CitiMortgage, with unclear signer/authority on the endorsement.
- MERS assigned the Mortgage to CitiMortgage on June 1, 2010; the Assignment was recorded on June 7, 2010.
- Debtor filed Chapter 13 in 2010, later converting to Chapter 7; CitiMortgage sought relief from stay and foreclosure, which was granted
- Trustee filed an adversary proceeding seeking avoidance of transfers under §§ 544, 547, 548, and 549, and related relief, plus a stay-violation claim under § 362
- Bankruptcy court granted CitiMortgage’s motion to dismiss Counts II–VII, leaving only Count I to determine whether CitiMortgage is holder of the Note
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is CitiMortgage the holder of the Note? | Trustee questions endorsement validity and agent authority, undermining holder status. | Exhibits show endorsement to CitiMortgage and recorded mortgage/Assignment; CitiMortgage is holder and assignee. | Count I survives as to holder status; genuine issue as to endorsement validity remains. |
| May Counts II–IV be used to avoid transfers under 544/547/548? | Transfers of Note and Mortgage were property of the debtor/estate and thus avoidable. | Note and Mortgage were property of the creditors, not debtor, so avoidance does not apply. | Counts II–IV fail; transfers were not transfers of debtor’s property. |
| Are Counts V–VI, seeking postpetition avoidance and recovery, viable? | Postpetition transfers could be avoided and property recovered for the estate. | Postpetition transfers of a note/mortgage are not property of the estate; not avoidable under § 549/550/551. | Counts V–VI fail; not property of the estate or recoverable. |
| Does Count VII claim of stay violation have merit? | Postpetition Assignment violated the automatic stay. | Assignment occurred prepetition; not a stay violation; perfection occurred when mortgage was recorded. | Count VII fails; no stay violation. |
| What is the impact of Kansas law on mortgage and note ownership for these transfers? | Transfers impact debtor’s property and estate interests; avoidance is appropriate. | Kansas law holds mortgage follows the note; transfers between creditors do not transfer debtor’s property. | Governing law supports that transfers between creditors do not constitute debtor’s property transfers. |
Key Cases Cited
- In re Halabi, Kapila v. Atlantic Mortgage and Investment Corp. (In re Halabi), 184 F.3d 1335 (11th Cir. 1999) (post-perfection mortgage assignments do not transfer debtor property)
- In re Samuels, In re Samuels, 415 B.R. 8 (Bankr. D. Mass. 2009) (postpetition mortgage assignments are assets of creditors, not of debtor)
- Patton, Patton v. State Street Bank (In re Patton), 314 B.R. 826 (Bankr. D. Kan. 2004) (recorded mortgage lien survives despite unrecorded/unreleased prepetition assignments)
- Samuels, In re Samuels, 415 B.R. 8 (Bankr. D. Mass. 2009) ( debtor's property not transferred by note/m mortgage assignments between creditors)
- Sickels, Schnittjer v. Linn Area Credit Union (In re Sickels), 392 B.R. 423 (Bankr. N.D. Iowa 2008) (automatic stay interpretations in postpetition mortgage matters distinguishing recording)
- United States v. Rauer, United States v. Rauer, 963 F.2d 1332 (10th Cir. 1992) (statutory interpretation of property and liens in bankruptcy context)
- Middlekauff v. Bell, Middlekauff v. Bell, 111 Kan. 206 (Kan. 1922) (mortgage follows the note; recordation provides notice to subsequent purchasers)
- Bank Western v. Henderson, Bank Western v. Henderson, 255 Kan. 343 (1994) (notice of lien and recorded mortgage governs priority)