Rogan v. Litton Loan Servicing, L.P. (In Re Collins)
456 B.R. 284
6th Cir. BAP2011Background
- Debtor Elizabeth Collins granted two mortgages to Wilmington Finance on the same property (first $135,200; second $33,800); both recorded February 4, 2005.
- Debtor filed Chapter 7 bankruptcy on March 25, 2010; the trustee challenged liens and sought priority over creditors under 11 U.S.C. § 544(a)(1).
- First mortgage history: Wilmington Finance assigned to MERS on February 5, 2005; MERS assignment recorded June 16, 2005; MERS assigned the mortgage to Bank of New York Mellon (as successor to JPMorgan Chase) on March 26, 2010, recorded April 7, 2010; as of filing, neither Bank of New York nor Litton Loan Servicing held the first mortgage.
- Note history: the note had indorsements from Wilmington Finance to Popular Financial Services and from Popular ABS to JPMorgan Chase; an allonge dated May 25, 2010 attempted to transfer to Bank of New York, but the note evidence was contested.
- Litton Loan Servicing sought relief from stay; the trustee objected to the lack of a properly indorsed note; Litton/N.Y. later produced the relevant documents; the bankruptcy court granted relief from stay subject to proceeding, and later Litton/BNY moved to dismiss the § 544 claims against them.
- GMAC Mortgage’s second mortgage: GMAC asserted possession of the note and mortgage and requested dismissal for failure to state a claim; no proof of claim or original note produced; trustee argued no indebtedness evidenced by the second mortgage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the trustee stated a viable §544 claim against GMAC Mortgage. | Trustee argues no evidence of indebtedness; without a properly indorsed note, GMAC lacks enforceable mortgage on filing date. | GMAC contends the note and mortgage were properly perfected, giving GMAC priority. | The claim survives Rule 12(b)(6); plausibly, GMAC lacks enforceable debt as of filing. |
| Who held the first mortgage on the petition date and whether perfected status governs priority against the trustee. | Trustee seeks priority as hypothetical lien creditor if the first mortgage was unperfected. | Litton/BNY argue proper chain and perfection; record unclear; may be prepetition transfer to MERS. | Remand required to determine who held the first mortgage on filing date and whether proper chain of title exists. |
| Whether the bankruptcy court erred in vacating the default judgment against Wilmington Finance. | Trustee argued Wilmington Finance had a stake; vacatur prejudices creditors. | Litton argues Wilmington Finance was predecessor and vacatur proper to preserve Litton/BNY rights. | Affirmed; vacatur and implicit dismissal as to Wilmington Finance proper under Rule 60(b)(6). |
Key Cases Cited
- In re Cook, 457 F.3d 561 (6th Cir. 2006) (recognizes postpetition mortgage transfers may occur; stay issue distinct from §544 analysis)
- In re Murray, Inc., 392 B.R. 288 (6th Cir. BAP 2008) (finality of orders; appeal standards for adversary proceedings)
- Travel Agent Comm'n Antitrust Litig., 583 F.3d 896 (6th Cir. 2009) (pleading standard under Twombly; plausible claims required)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (Supreme Court 2007) (pleading standard: plausible claim required)
- Rogan v. Deutsche Bank N.A., --- (6th Cir. (cited for context)) (relevance of indorsement and possession issues in liens)
- Wells Fargo Fin. Ky., Inc. v. Thomer, 315 S.W.3d 335 (Ky. Ct. App. 2010) (undergirds debt requirement for enforceable mortgage)
- Prime Fin. Servs., LLC v. Vinton, 761 N.W.2d 699 (Mich. App. 2008) (assignment of mortgage cannot exceed rights in the note)