Linda Merritt v.
702 F. App'x 90
| 3rd Cir. | 2017Background
- Linda Merritt defaulted on a mortgage originally made payable to National City; PNC later merged with National City and pursued foreclosure in state court, obtaining a default judgment.
- Merritt filed Chapter 13 bankruptcy and PNC filed a proof of claim listing arrears and attaching a redacted copy of the note and mortgage (redactions removed a Freddie Mac loan identifier).
- Merritt brought an adversary proceeding in bankruptcy alleging fraud, abuse of process, and RESPA violations, arguing PNC lacked standing because Freddie Mac owned the loan; the Bankruptcy Court dismissed those claims (some with prejudice).
- Merritt then objected on the main bankruptcy docket to PNC’s proof of claim, again asserting PNC lacked standing and had committed fraud by redacting documents; the Bankruptcy Court overruled the objection and denied reconsideration.
- The District Court affirmed the denial of reconsideration, finding PNC was the note holder (by merger) and/or the mortgage servicer with authority to file a proof of claim, and that the redactions did not deceive the Bankruptcy Court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to file proof of claim and to foreclose | Merritt: PNC lacked standing because Freddie Mac owned the note/mortgage; PNC therefore could not perfect or enforce the security interest | PNC: It was the holder of the note (via National City merger) and in any event was the servicer authorized to file a proof of claim and pursue foreclosure | Court: PNC had standing as holder and/or as servicer; a prima facie proof of claim was made and Merritt failed to produce evidence negating it |
| Fraud upon the court (redaction of loan identifier) | Merritt: PNC’s redactions misled and deceived the Bankruptcy Court, constituting fraud on the court | PNC: Redactions did not deceive; Bankruptcy Court was not misled and there was no intentional fraud on the court | Court: No fraud; Bankruptcy Court expressly found it was not deceived; fraud claim fails |
Key Cases Cited
- McDowell v. Philadelphia Hous. Auth., 423 F.3d 233 (3d Cir. 2005) (standard for appellate review of bankruptcy orders)
- Cortez v. Trans Union, LLC, 617 F.3d 688 (3d Cir. 2010) (clarifies when appellate court may review orders not specified in notice of appeal)
- In re Allegheny Int’l, Inc., 954 F.2d 167 (3d Cir. 1992) (burden-shifting analysis for prima facie validity of proofs of claim)
- Herring v. United States, 424 F.3d 384 (3d Cir. 2005) (elements required to show fraud upon the court)
- PHH Mortg. Corp. v. Powell, 100 A.3d 611 (Pa. Super. Ct. 2014) (distinguishes owner of loan from holder entitled to enforce the note)
- Greer v. O’Dell, 305 F.3d 1297 (11th Cir. 2002) (authority recognizing servicer may file proof of claim)