John T. Brooks

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re 	: 	Chapter 13
J OHN T. B ROOKS , 	:
Debtor. 	: 	Case No. 07-10611 	(JKF)
________________________________
MEMORANDUM OPINION
BY: 	J EAN K. F ITZ S IMON
United States Bankruptcy Judge
Two matters are currently before the Court: the Debtor’s Objection to the
Amended Proof of Claim of Litton Loan Servicing, L.P., as Servicer for the
Mortgagee of Record, and the Amended Motion of Litton Loan Servicing, L.P. as
Servicer for the Mortgagee of Record for Relief from the Automatic Stay.
Because currently there is no record before the Court that Litton Loan Servicing,
L.P. owns or services the Debtor’s mortgage, the Court will deny the Amended
Motion for Relief from the Automatic Stay. The Debtor’s Objection to the
Amended Proof of Claim will be sustained, but the current owner of the Debtor’s
mortgage will have fifteen (15) days from the date that this opinion is issued to
amend the proof of claim. If the proof of claim is amended within this 15 day
period, it will relate back to this proof of claim filed by Residential Funding
Company on March 20, 2007 and will be considered timely filed.
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I. BACKGROUND
John T. Brooks filed a Chapter 13 Bankruptcy Petition in this Court on
February 2, 2007. The Debtor’s Amended Schedule A lists property located at
4266 Parkside Avenue, Philadelphia, worth $198,000 (the “Property”). Testimony
and evidence submitted at a hearing before the Court on July 20, 2007 (the
“Bankruptcy Court Hearing”) demonstrate that a total of three mortgages were
taken out on the Property by the Debtor: 1) a mortgage in the amount of $65,700
in the name of John and Gloria Brooks, in favor of FHB Funding Company,
executed on August 19, 1996 (the “FHB Mortgage”); 2) a mortgage in the amount
of $81,750 in the name of John and Gloria Brooks in favor of Gelt Financial
Corporation, executed on October 30, 1996 which refinanced the FHB Mortgage
(the “First Gelt Mortgage”); and 3) a mortgage in the amount of $99,000 in the
name of John and Gloria Brooks, also in favor of Gelt Financial Corporation,
executed on August 25, 1997, which refinanced the First Gelt Mortgage (the
“Second Gelt Mortgage”). The Second Gelt Mortgage was assigned to Altegra
Credit Company (“Altegra”) on September 18, 1997. Mr. Brooks acknowledged
at the July 20, 2007 hearing that he executed and signed the FHB Mortgage, but
denies having any knowledge of, or intent to execute the other two mortgages
described.
Altegra won a foreclosure judgment on the Second Gelt Mortgage against
the Debtor in Pennsylvania state court with regard to the Property. (See Debtor’s
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As the Debtor points out, Litton initially incorrectly filed two proofs of claim for the identical
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am ount in the Debtor’s bankruptcy case. Claim num ber 2 does not list Mr. Brooks’ nam e on it as the
Debtor (it lists Troy Douglas Carter and Kim berly Renee Carter as the debtors). This claim appears
clearly to be filed in error in this case. Therefore, claim num ber 2 will be disallowed in its entirety. Claim
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Statement of Financial Affairs.) The lawsuit, which was decided on February 22,
2006, resulted in a judgment being entered against Mr. Brooks in the amount of
$196,611.68 plus interest, and a sheriff’s sale being scheduled for February 6,
2007 (the “State Court Judgment”). The State Court entered an in rem
foreclosure judgment; that is, it found that the Debtor and his wife, Gloria Brooks,
had defaulted on the mortgage of $99,000 which was executed in August 1997
with Gelt Financial Corporation and transferred to Altegra Credit Company in
September 1997. A Motion for Reconsideration by the Debtor was denied by the
state court judge on April 7, 2006. The Debtor’s appeal to the Superior Court was
also dismissed on or about July 11, 2006, as was a second appeal by the Debtor
on or about January 17, 2007. (See docket of proceedings in the state court,
submitted as Exhibit M1 at the Bankruptcy Court Hearing). Therefore, the State
Court Judgment remains a final judgment on the merits.
W hat became of the Brooks’ Second Gelt Mortgage after it was assigned
to Altegra in 1997 is the source of much confusion to this Court. Initially, Litton
Loan Servicing, L.P. (“Litton”) alleged it represented Residential Funding
Company (“Residential”), as owner of the mortgage, in this bankruptcy and filed a
motion to lift the stay and a proof of claim on its behalf. (See, docket entry #49;
proof of claim # 3-1, filed March 21, 2007, the “Original Claim 	”). The Original1
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#3-1, the Original Claim , properly listing Mr. Brooks as the Debtor, was the first claim at issue here.
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Claim attaches to it the Second Gelt Mortgage, leading to the conclusion that
Residential was asserting itself to be the assignee and owner of this mortgage.
However, when the Court asked for proof of assignment from Altegra to
Residential, Litton instead simply began bringing pleadings generically in the
name of “Litton Loan Servicing, L.P., as servicer for the Mortgagee of Record.”
(See, e.g., docket entry #78.) On December 13, 2007, the Court suggested to
Litton at a hearing in open court that in order for it to maintain standing in this
matter it would need to submit evidence of an assignment of the Brooks’
mortgage. The Court told attorneys for the Debtor and Litton that the record on
these matters would be closed as of January 3, 2008.
The attorney who represented Litton in this bankruptcy soon filed a
“Praecipe to Amend Record for Filing of Chain of Assignments.” (Docket entry
#106.) This pleading makes no mention of Litton, but is filed in the name of “RFC
Homecomings Financial, Assignee of National City Home Loan Services, F/K/A
Altegra Credit Company, Assignee of Gelt Financial Corporation” (Id.). The
document attached is an assignment of the Second Gelt Mortgage from National
City Home Loan Services (formerly known as Altegra Credit Company) to
Homecomings Financial, LLC (“Homecomings”) on May 13, 2004. No motion has
been filed by Homecomings in this bankruptcy case. Thus, the proof of
assignment filed cannot aid in the ordering of any relief.
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W ith regard to Litton, who has sought relief in this Court, two unresolved
pleadings remain. First, the Debtor objects to the Proof of Claim of Litton Loan
Servicing, L.P., as Servicer for the Mortgagee of Record. (See Claim #3-2, filed
October 18, 2007, the “Amended Claim.”) The claim at issue is an amended
secured claim for $193,592 and is allegedly secured by a mortgage on the
Debtor’s Property. This claim amended the Original Claim, claim #3-1, for the
same amount, which was filed by Litton on behalf of Residential on March 20,
2007. The Debtor objects to the Amended Claim because it was untimely filed
and because no ownership of the Debtor’s mortgage has been established. (See
Objection, docket #91).
The second unresolved matter is an Amended Motion of Litton Loan
Servicing, LP as Servicer for the Mortgagee of Record for Relief from the
Automatic Stay. (The “Amended Motion to Lift the Stay” or “Amended Motion,”
see docket #78.) The Debtor filed a summary response to the Amended Motion,
asserting that Litton lacks standing and that the underlying mortgage has been
satisfied. (See docket # 80.) Prior to this, the Debtor had submitted a more
detailed “Memorandum in Opposition to Residential Funding’s Motion for Relief,
Memorandum in Support of Debtor’s Objection to POC filed by Residential
Funding” in response to the Original Claim and Motion for Relief from Stay filed
by Litton on behalf of Residential. (See docket # 66, the “Memorandum”.)
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II. THE AMENDED MOTION TO LIFT THE STAY
WILL BE DENIED
As the above discussion of the history of this case demonstrates, it is, to
say the least, less than perfectly clear who currently owns the Second Gelt
mortgage, and when and by whom that mortgage was assigned. To re-cap,
Residential, with Litton as its servicer, initially asserted ownership of the Debtor’s
Second Gelt Mortgage. (See docket entry #57.) Once the Court asked for proof
of Residential’s assignment, an amended motion and proof of claim were filed in
the name of “Litton Loan Servicing, L.P., as servicer for the Mortgagee of
Record.” (See docket entry #78.) Residential is no longer a party in this matter.
W ithout explanation, the mortgagee now appears to be “RFC Homecomings
Financial (“RFC”), Assignee of National City Home Loan Services, F/K/A Altegra
Credit Company, Assignee of Gelt Financial Corporation.” (See docket entry
#106.) Litton, which filed the pending pleadings, has not been heard from for a
while and its attorney is now representing RFC. Understandably, the Court does
not have a clear picture of who currently owns the Debtor’s mortgage, who is
representing whom, and who is asking for what relief. By denying the Amended
Motion, the Court eliminates the risk of granting relief where it is not deserved.
Additionally, the Amended Motion must be denied at this point because -
due again to the many and great variety of pleadings and names on file - there is
currently neither proof that the party who has a motion to lift the stay pending
before the Court has an ownership interest in the Debtor’s Property, nor is there a
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motion pending by Homecomings – the only party to have offered proof of an
assignment of the Debtor’s mortgage. A party who has neither suffered the injury
directly nor has an assignment of a cause of action lacks standing. See, e.g.,
Davis v. Yageo Corp., 481 F.3d 661, 677 (9th Cir. 2007); Triple Tee Golf, Inc. v.
Nike, Inc., 2007 W L 4260489, at *14 (N.D. Tex. Aug. 10, 2007); Solar Time Ltd.
v. XL Specialty Ins. Co., 2004 W L 1683149, at *6 (June 15, 2004). Because
“Litton Loan Servicing, LP as servicer for the Mortgagee of Record” (who filed the
Amended Motion to Lift the Stay) neither owns nor clearly has an assignment of
the Second Gelt Mortgage, it lacks standing to prosecute this Motion. The
Amended Motion will therefore be denied. The proper owner of the Brooks
mortgage is not precluded from bringing a motion to lift the automatic stay at a
later date.
III. THE OBJECTION TO THE AMENDED CLAIM
WILL BE SUSTAINED
For the reasons just discussed, namely that the secured creditor in this
case has created a paper trail nearly impossible to follow, the Debtor’s Objection
to the Amended Proof of Claim will be sustained in part. Because no ownership
of the Debtor’s mortgage has been established by Litton, under whose name the
proof of claim is currently filed, the Debtor’s Claim Objection is granted with
regard to the Proof of Claim as it now stands.
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However, the Court will grant the current holder of the Debtor’s mortgage
fifteen (15) days from the issuance of this Opinion to revise and re-file the
Amended Claim. If the current holder of the Debtor’s mortgage can attach to the
revised Amended Proof of Claim (the “Revised Claim”) documentation showing a
valid and binding chain of assignment to the Second Gelt Mortgage, then the
Revised Claim will relate back to the Original Claim, which was timely filed by
Litton on behalf of Residential on March 20, 2007.
By relating back to the Original Claim, and showing evidence that it relates
to the same mortgage, the Revised Claim will itself be deemed timely. Such
proof is necessary because the Debtor correctly objects that the Amended Claim
(and anything filed after) is technically untimely filed. The deadline to file claims
was July 10, 2007, or 90 days after the date set for the first meeting of creditors.
(See Bankr. Rule 3002(c); docket entry #26). The Amended Claim was filed on
October 18, 2007, and the Court is now allowing the secured creditor until late
February to amend the claim with the correct creditor’s name.
However, because the Amended Claim and the Revised Claim both relate
to the timely proof of claim filed on March 20, 2007 - and are necessary only to
correct the facial error of the secured creditor’s name - they are within the scope
of what courts permit as amendments to timely filed claims. For example, the
Seventh Circuit has held that Rule 3002 operates in conjunction with the relation
back principle of Bankruptcy Rule 7015, which permits a technically untimely filing
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to be deemed timely if it relates back to the same “conduct, transaction or
occurrence.” In re Unroe, 937 F.2d 346, 349 (7th Cir. 1991). See also In re MK
Lombard Group I, Ltd., 301 B.R. 812, 816 (Bankr. E.D. Pa. 2003) (“[t]he trend of
the cases appear to apply Rule 7015 to contested matters”); U.S. v. Johnston,
267 B.R. 717, 721-22 (N.D. Tex. 2001) (“[a]mendments to claims under [Fed. R.
Civ. P. 15(c) are liberally allowed . . . to cure a defect in the claim as originally
filed, to describe the claim with greater particularity or to plead a new theory of
recovery on the facts set forth in the original claim.” (citation omitted); In re
Delmonte, 237 B.R. 132, 136 n.2 (Bankr. E.D. Tex. 1999) (“an amendment will
relate back to the initial filing if it arises out of the same ‘conduct, transaction, or
occurrence.’ This test looks to whether the original claim was sufficient to place
others on notice of the existence of the claim made in the amendment”)(citations
omitted). The decision whether to grant an amendment to a proof of claim is
committed to the discretion of a bankruptcy judge. In re MK Lombard Group I,
Ltd., 301 B.R. 812, 816 (Bankr. E.D. Pa. 2003).
Applying the principles outlined above to this case, there is no question that
a Revised Claim will arise out of the same transaction and occurrence as the
Original Claim. The claim will be based on the exact same source of debt - the
Second Gelt Mortgage - and will be for the same amount of money, $193,592.
The amendment is only being allowed to correct the facial error of containing the
wrong party’s name and perhaps having insufficient evidence of an assignment
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attached. While the Debtor may cry foul because this claim is filed late, his cries
certainly ring hollow when one considers that he has not been prejudiced in any
way. Mr. Brooks knew of this claim - its amount, if not its exact source - before
his bankruptcy. He cannot now seriously contend that a Revised Claim, filed
prior to the confirmation of his Chapter 13 plan, harms him or changes his
condition is any way. See In re Dietz, 136 B.R. 459, 468-9 (Bankr. E.D. Mich.
1992) (“the type of prejudice which would bar a creditor from amending its proof
of claim typically involves an irrevocable change in position or some other
detrimental reliance on the status quo”) (citations omitted).
Giving the secured creditor who has a proper assignment of the Second
Gelt Mortgage 15 days to revise the claim is both sensible and permissible. The
Court will therefore sustain the Debtor’s Objection to the Amended Proof of
Claim, only to the extent that the claim is facially flawed. The proper party has 15
days to fix and to re-file the claim.
IV. EFFECT OF THE STATE COURT JUDGMENT
It is important to note that one of the reasons the Court has denied the
Amended Motion and given the mortgagee a chance to revise the proof of claim
is that the State Court Judgment remains a binding and valid foreclosure
judgment owned by Altegra or its assignee. At this point in Mr. Brooks’
bankruptcy, because the chain of assignment and ownership is murky, it is
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unclear to whom exactly Mr. Brooks is indebted. But this much is clear:
notwithstanding his steadfast assertion to the contrary, Mr. Brooks is liable for the
Second Gelt Mortgage. That is, despite the remarkable failings by the Debtor’s
mortgagee in promptly and efficiently establishing its ownership of this mortgage,
the Court is unable and unwilling simply to assume - as Mr. Brooks does - that
these logistical difficulties, serious though they may be, somehow absolve the
Debtor from the mortgage debt that he voluntarily incurred and is bound to pay.
In short, Mr. Brooks owes $196,611.68 (the amount of the State Court Judgment)
to someone. The fact that that someone has not satisfactorily identified itself yet
is insufficient reason for Mr. Brooks to walk away from this debt or to continue to
fail to address this debt in his Chapter 13 plan.
Furthermore, this Court cannot entertain arguments from Mr. Brooks
regarding the validity of his mortgage or his duty to pay. Mr. Brooks had a full
and fair opportunity to make any such arguments in state court; in fact, he
appealed his case, and he lost. Res judicata prevents the Debtor from having a
second bite at the apple here; “a final judgment on the merits of an action
precludes the parties or their privies from relitigating issues that were or could
have been raised in that action.” Federated Dept. Stores, Inc. v. Moitie, 452 U.S.
394, 398 (1981) (citations omitted). See also Parkview Assoc. P’ship v. City of
Lebanon, 225 F.3d 321, 329 n.2 (3d Cir. 2000) (citation omitted) (stating that res
judicata “prohibits reexamination not only of matters actually decided in the prior
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Mr. Brooks does this despite his own adm ission on the stand in the state court proceeding that
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he in fact signed the Second Gelt Mortgage. (See transcript of Mr. Brooks state court testim ony at pg.48,
subm itted as Exhibit M2 at the Bankruptcy Court Hearing).
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case, but also those that the parties might have, but did not, assert in that
action.”)
Indeed, Mr. Brooks, does not dispute the validity of the State Court
Judgment itself; rather, he disputes the merits of the underlying facts and
arguments that gave rise to that determination. 	This is precisely what res2
judicata precludes him from doing. Any grievances Mr. Brooks has with the State
Court Judgment is simply of no moment now that Mr. Brooks is in federal court;
any and all arguments concerning his foreclosure proceeding should have been
raised in state court prior to the State Court Judgment being entered. See, e.g.,
In re Lee, 2007 W L 1650577, at *1 (Bankr. E.D. Pa. Jun. 5, 2007) (citing In re
Graham, 973 F.2d F.2d 1089, 1093 (3d Cir. 1992)) (stating that res judicata
“applies to claims that ‘were or could have been raised’ in a prior action involving
the ‘parties or their privies’ when the prior action had been resolved by ‘a final
judgment on the merits.’”); In re Highway Truck Drivers and Helpers, Teamsters
Local No. 107, 100 B.R. 209, 215 (Bankr. E.D. Pa. 1989) (“[f]ederal courts apply
[res judicata] to state court proceedings not only to reduce needless litigation, but
also to foster comity between the two systems.”) (citations omitted). See also In
re Ramirez, 283 B.R. 156, 162 (Bankr. S.D.N.Y. 2002) (holding that an order in a
debtor’s previous chapter 13 case was res judicata in current case; “[res judicata]
extinguishes claims even when a plaintiff is prepared to present evidence on
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The sole case cited by the Debtor in the Mem orandum , Pepper v. Litton, 308 U.S. 295, 305
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(1939), has been confined to its facts, and courts since 1939 have determ ined that, contrary to the
assertion of the Debtor, absent highly unusual circum stances not present here, res judicata does apply to
bankruptcy in general and to the bankruptcy claim s process. See, e.g., Heiser v. W oodruff, 327 U.S. 726,
737 (1946) (“[n]either Pepper v. Litton . . . nor the other cases which they cite, sustain the contention that
the bankruptcy court, in passing on the validity of creditors’ claim s, m ay disregard the principle of res
judicata”); In re Genesys Data Tech., Inc., 204 F.3d 124, 129 (3d Cir. 2000) (sam e); In re Audre, Inc., 202
B.R. 490, 497 (Bankr. S.D. Ca. 1996) (“the bankruptcy court’s equitable power to disregard the principle of
res judicata m ay be exercised only where the prior decisions did not address the later allegations of fraud
or collusion”) (citation om itted); In re Nugent, 254 B.R. 14, 32 (Bankr. D.N.J. 1998) (sam e) (citations
om itted).
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grounds or theories of the case not presented in the first action or to seek
remedies or forms of relief not demanded in the first action.” (internal citations
and quotations omitted)); In re Aboud, 237 B.R. 777 (10th Cir. B.A.P. 1999)
(overruling debtor’s objection to claim due, in part, to the preclusive effect of the
state court foreclosure judgment). In other words, any attack the Debtor wished
to make on the State Court Judgment, must have been made in the state court.
Because res judicata applies, the Debtor cannot attack the foreclosure judgement
in this Court. 3
V. CONCLUSION
For the reasons discussed, the Court concludes that, due to the lengthy
trail of motions and confusing string of party names, it is necessary as well as
beneficial - as much as is possible at this point - to clear the record and start
fresh. Therefore, the Amended Motion of Litton Loan Servicing, LP as Servicer
for the Mortgagee of Record for Relief from the Automatic Stay is denied.
Further, the Debtor’s Objection to the Claim of Litton Loan Servicing, L.P. as
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Servicer for the Mortgagee of Record is sustained as to the identity of the
creditor. However, the owner of Mr. Brooks mortgage has fifteen (15) days from
the issuance of this Order to amend the Proof of Claim and have it be deemed
timely filed. As discussed, the Court also has considered the res judicata effect
of the State Court Judgment in reaching this conclusion.
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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re 	: 	Chapter 13
J OHN T. B ROOKS , 	:
Debtor. 	: 	Case No. 07-10611 	(JKF)
________________________________
ORDER
This 13th day of February, 2008, the Debtor’s Objection to the Claim of
Litton Loan Servicing, L.P. as Servicer for the Mortgagee of Record is sustained.
However, the owner of Mr. Brooks’ mortgage has fifteen (15) days from the
issuance of this Order to amend the Proof of Claim to reflect the true owner of the
claim and the authority of any third party to represent the owner and if so, it will
be deemed timely filed. In addition, the Amended Motion of Litton Loan
Servicing, LP as Servicer for the Mortgagee of Record for Relief from the
Automatic Stay is denied. Claim number 2 is dismissed with prejudice.
______________________________
J EAN K. F ITZ S IMON
United States Bankruptcy Judge
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Copies to:
John T. Brooks
4266 Parkside Avenue
Philadelphia, PA 	19104
David A. Scholl, Esquire
Regional Bankruptcy Center of SE PA
Law Office of David A. Scholl
6 St. Albans Avenue
Newtown Square, PA 	19073
Peter Mulcahy, Esquire
Phelan Hallinan & Schmieg, LLP
One Penn Center at Suburban Station
1617 John F. Kennedy Boulevard, Suite 1400
Philadelphia, PA 	19103-1814
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