In Re Escobar
457 B.R. 229
Bankr. E.D.N.Y.2011Background
- Escobar and Fredericks each filed Chapter 7 petitions, with ASC and Chase (servicers for HSBC and Fannie Mae respectively) seeking relief from the automatic stay to continue prepetition foreclosures.
- Movants claimed standing as holders or assignees of the promissory notes and mortgages, with possession of the original notes endorsed in blank and original mortgages.
- The Trustee objected narrowly, arguing the MERS chain could render the mortgage unenforceable or that the movants lacked the debtholder rights to foreclose.
- The court analyzed whether movants have standing to seek stay relief under 11 U.S.C. § 362(d) and the level of proof required to show a colorable right to enforce the debt.
- Under New York law, the note holder’s possession and the mortgage’s collateral lien transfer rights govern foreclosure standing, not mere mortgage assignment by MERS.
- The court held that movants demonstrated holder status by possession of the original notes endorsed in blank and original mortgages, justifying stay relief.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to seek stay relief | Fredericks/Escobar: holder status via note possession | Trustee: challenged lien enforceability via MERS chain | Movants have standing to seek stay relief |
| Level of proof for standing | Veal/Mims standard: colorable claim suffices | Need stronger proof of enforceable lien | Colorable claim and possession suffice to establish standing |
| New York foreclosure standing standard | Holder of note and mortgage may seek relief | MERS assignments may render liens unenforceable | Proof of note possession plus mortgage ownership supports stay relief |
| Effect of MERS on enforceability | MERS authority not dispositive; proper proof of note/mortgage suffices | MERS lack of direct note ownership undermines enforceability | Agard distinctions do not defeat movants’ standing given the facts |
Key Cases Cited
- Bank of N.Y. v. Silverberg, 86 A.D.3d 274 (N.Y. App.Div.2011) (foreclosure standing requires holder of note and mortgage at commencement)
- Veal, 450 B.R. 897 (9th Cir. B.A.P.2011) (colorable claim and real party in interest merged standard for standing)
- Mims, 438 B.R. 52 (Bankr.S.D.N.Y.2010) (foreclosure requires debtholder rights; mortgage assignment absent debt transfer nullifies)
- Agard, 444 B.R. 231 (Bankr.E.D.N.Y.2011) (MERS authority to assign mortgages; holder of the note must be shown)
- Tender Loving Care Health Svcs., 562 F.3d 158 (2d Cir.2009) (claims bar and relief standards in bankruptcy context)
- Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522 (2d Cir.1994) (automatic stay scope and effect)
- In re 48th St. Steakhouse Inc., 835 F.2d 427 (2d Cir.1987) (stay avoidance principles and voiding post-petition actions)