544 B.R. 1
Bankr. N.D.N.Y.2016Background
- Hilton and his wife executed a $73,850 promissory note and mortgage (June 2004); mortgage recorded in Rensselaer County. U.S. Bank received the loan documents in Aug. 2004 and has maintained physical possession of the original note, mortgage, and an undated allonge since then.
- The loan was pooled into a securitization trust (Series 2004-19XS); LaSalle initially trustee, U.S. Bank successor trustee; Citi later became servicer.
- Defendants obtained a state foreclosure judgment in 2009, then entered a Forbearance Agreement with Hilton; judgment was vacated after the agreement. Hilton was in arrears when he filed Chapter 13 in Jan. 2014.
- Citi filed a proof of claim (secured) attaching the note, mortgage, and an indorsed-in-blank allonge; Hilton objected in an adversary proceeding, challenging Defendants’ standing, the authenticity/attachment of the allonge, and the amount of the claim.
- The court considered admissibility of affidavits: struck portions of plaintiff counsel’s affidavit for lack of personal knowledge; admitted the servicer employee’s affidavit as business-record-based personal knowledge.
- On summary judgment, the court concluded U.S. Bank is a transferee/holder by physical possession and proved chain-of-custody to the last holder; therefore U.S. Bank holds the note and the mortgage follows the note; Defendants’ proof of claim and lien were allowed in full.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to enforce note / holder status | Allonge not affixed; indorsements forged or improper; U.S. Bank not holder | U.S. Bank possesses original note and indorsed allonge; physical delivery and records confer transferee/holder rights | U.S. Bank shown to be transferee/holder by physical delivery and records; Hilton failed to raise admissible factual dispute; Defendants have standing |
| Attachment/authenticity of allonge | Allonge not physically affixed to note so indorsements invalid under N.Y. UCC §3-202 | Even if allonge not affixed, transfer by physical delivery to U.S. Bank suffices to vest holder rights | Allonge’s lack of physical attachment defeats negotiation theory, but U.S. Bank proved transfer-by-delivery to establish holder rights |
| Right to enforce mortgage (lien validity) | Separation of note and mortgage invalidates mortgage rights | Under NY law mortgage follows the note; holder of note owns mortgage unless parties agree otherwise | Because U.S. Bank holds the note, the mortgage follows and Defendants’ lien is valid |
| Amount of proof of claim | Fees related to foreclosure are inflated or not owed (mortgage doesn’t permit attorney fees) | Forbearance Agreement obligates Hilton to pay foreclosure-related fees; proof of claim properly filed | Hilton failed to produce admissible evidence to rebut amount; Forbearance Agreement supports fees; claim allowed in full |
Key Cases Cited
- Rajamin v. Deutsche Bank Nat. Tr. Co., 757 F.3d 79 (2d Cir. 2014) (prudential standing to challenge trust/chain issues limited for mortgagor)
- Butner v. United States, 440 U.S. 48 (U.S. 1979) (property rights in bankruptcy governed by state law)
- Carpenter v. Longan, 83 U.S. 271 (U.S. 1872) (the note and mortgage are inseparable; assignment of note carries mortgage)
- Aurora Loan Servs., LLC v. Taylor, 25 N.Y.3d 355 (N.Y. 2015) (physical delivery can effectuate transfer of ownership/rights in note)
- Bank of N.Y. v. Silverberg, 86 A.D.3d 274 (N.Y. App. Div. 2011) (transferee must prove predecessor held note; chain-of-custody required when holder status not evident on instrument)