Daniel Benyamin and Lucy Benyamin

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
DANIEL BENYAMIN
a/k/a DANIEL BENYAMINOV
d/b/a BENYAMIN CONSTRUCTION &
REMODELING, LLC
and
LUCY BENYAMIN
d/b/a BENYAMIN CONSTRUCTION &
REMODELING, LLC
Debtors.
FOR PUBLICATION
Case No. 17-12677 (MG)
Chapter 11
MEMORANDUM OPINION AND ORDER SUSTAINING DEBTORS’
OBJECTION TO PROOF OF CLAIM # 5-1
A P P E A R A N C E S:
KORNFELD & ASSOCIATES, P.C.
Attorneys for Debtors Daniel Benyamin and Lucy Benyamin
240 Madison Avenue, 8th Floor
New York, NY 10016
By: Randy M. Kornfeld, Esq.
RAS BORISKIN LLC
Attorneys for Ditech Financial LLC
900 Merchants Concourse
Westbury, NY 11590
By: Michael A. Samuels, Esq.
MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
Pending before the Court is the objection (the “Objection,” ECF Doc. # 29) filed by the
debtors Daniel Benyamin and Lucy Benyamin (the “Debtors”) to Claim # 5-1 (the “Claim”) filed
by Ditech Financial LLC (“Ditech”) for $455,424.72. The issue here is important and
straightforward. The Debtors signed the promissory note, a New York Fixed Rate Note, on
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December 3, 2003, in favor of IndyMac Bank, F.S.B. (“IndyMac”), secured by a mortgage on
their condominium located at 319 East 105 Street, Unit # 5E, New York, New York 10029 (the
“Property”). At some time thereafter, IndyMac endorsed the note in blank. IndyMac failed on
July 11, 2008 and was taken over by the Federal Deposit Insurance Corporation (the “FDIC”).
The FDIC sold most of IndyMac’s assets to OneWest Bank (“OneWest”), which was acquired
by CIT Group (“CIT”) in July 2014. No evidence has been offered that Ditech or Green Tree
Servicing, LLC (“Green Tree”), with which Ditech merged in 2015, acquired assets from or had
any contractual relationship with IndyMac, OneWest or CIT. No evidence has been offered to
show who is in possession of the original note endorsed in blank.
New York law is clear that in order to have standing to file a proof of claim, or to
foreclose on a mortgage, the holder of the note endorsed in blank must offer competent proof
that it possesses the note. Ditech filed the Claim on December 26, 2017, without producing any
proof that Ditech has the original note endorsed in blank. Despite multiple requests over many
months by Debtors’ counsel to Ditech and its counsel to provide evidence that Ditech holds the
note, Ditech has failed to provide any proof thereof. Ditech’s standing issue had been raised at a
March 19, 2018 conference before this Court. Ditech’s counsel filed a notice of appearance in
this case on April 18, 2018 (ECF Doc. # 23) and filed on the same day a letter (the “Letter,” ECF
Doc. # 24) advising the Court “of an apparent standing dispute” with respect to Ditech’s Claim,
and that counsel “had requested Ditech to provide the original collateral file for the subject loan.”
The Debtors’ counsel filed the Objection on May 3, 2018, noticed for hearing on June 19, 2018,
with a response deadline of June 12, 2018. Ditech’s counsel was served with notice of the
Objection but did not file a timely response, and neither did Ditech’s counsel appear at the June
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19, 2018 hearing. The Court took the matter under submission.1
As discussed below, the Court laid out the legal requirements for an alleged mortgagee to
establish standing to file a proof of claim in In re Minbatiwalla, 424 B.R. 104 (Bankr. S.D.N.Y.
2010). The requirements have not changed since that decision. Ditech failed to meet those
requirements. For the reasons explained below, the Court sustains the Debtors’ Objection to the
Claim.
I. BACKGROUND
On September 25, 2017 (the “Petition Date”), the Debtors filed their voluntary petition
under chapter 11, and have since been managing their property as debtors in possession. (Obj. ¶
5.) The Debtors are the owners of the Property. The Debtors’ Schedule A lists the value of the
Property as ranging from $700,000 to $750,000. (ECF Doc. # 12-1 at 3.) According to the
Debtors’ Schedule D, the Property is subject to a lien held by IndyMac for a disputed claim in
the amount of $400,000. (ECF Doc. # 12-3 at 1.) Schedule D lists IndyMac’s claim as a
contractual claim incurred in 2003. (Id.) Schedule E/F lists “Indymac Federal Bank” as having a
$410,000 disputed claim. (ECF Doc. # at 2.) Ditech is listed on the creditors’ list for “notice
purposes only.” (Id.)
On December 26, 2017, Ditech filed a proof of claim in this case for money loaned in the
amount of $455,424.72, including interest and prepetition arrears, secured by the Property. (See
Claim at 12.) Ditech’s Claim includes (i) the Debtors’ loan payment history from June 2008 to
November 2017 (id. at 415), (ii) a copy of the note, dated December 15, 2003, whereby the
Debtors promised to pay the principal amount of $247,500.00 (the “Note,” Claim Part 2 at 13),
1 On June 26, 2018, Ditech’s counsel filed an untimely response (the “Response,” ECF Doc. # 51), which
will be disregarded by the Court, other than to note that the Response still offers no proof that Ditech holds the
original note endorsed in blank.
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(iii) the recordation of lien on the Property (id. at 4), (iv) the mortgage (the “Mortgage,” id. at
523), and an affidavit (id. at 25) and a certificate of merger (id. at 26) stating that Green Tree
was merged into DT Holdings LLC and Ditech Mortgage Company and that such merger
resulted in the entity Ditech as of August 31, 2015.
On March 19, 2018, the Court held a case management conference during which the
Debtors’ counsel raised the issue of Ditech’s standing to file the Claim. On April 18, 2018,
Ditech’s counsel filed a notice of appearance (ECF Doc. # 23), and a letter advising the Court
“of an apparent standing dispute” with respect to Ditech’s Claim (ECF Doc. # 24). The letter
stated that Ditech’s counsel “has requested Ditech to provide the original collateral file for the
subject loan to my office.” (Id.) The letter further explained “[u]pon receipt of the file, my
office is agreeable to coordinate with the Debtors’ counsel to arrange a reasonable opportunity
for the Debtors’ counsel to review the file at our office.” (Id.) Ditech’s counsel has not provided
proof that Ditech has the original note endorsed in blank.
On May 3, 2018, the Debtors objected to Ditech’s Claim, arguing that Ditech had
“produced no documentation, be it the original note and mortgage or an assignment of same
permitting them to have standing to assert its claim.” (Decl. at 1.) The Debtors submit that they
have no liability to Ditech, and that Ditech’s Claim should be expunged. (Obj. Ex. A.)
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II. LEGAL STANDARD
As explained below, New York law and bankruptcy law are clear that standing to file a
proof of claim in the bankruptcy court, or to permit foreclosure of a borrower’s property in state
court, requires that the lender or its agent (usually a loan servicer) holds the promissory note on
which the mortgage is based. Standing to file a proof of claim or to lift the automatic stay to
permit foreclosure involve largely the same analysis.
A. Standing to File a Proof of Claim
To file a proof of claim, a claimant must be a “creditor or the creditor’s authorized
agent.” FED. R. BANKR. P. 3001(b). A “creditor” is an “entity that has a claim against the debtor
that arose at the time of or before the order for relief concerning the debtor.” 11 U.S.C. §
101(10)(A). A claim is a “right to payment” or a “right to an equitable remedy for breach of
performance if such breach gives rise to a right to payment.” 11 U.S.C. § 101(5)(A) and (B). “A
claim or interest, proof of which is filed under section 501 of this title, is deemed allowed, unless
a party in interest . . . objects.” 11 U.S.C. § 502(a).
“[The] Bankruptcy Code and Fed. R. Civ. P. 17 each have liberal standing provisions,
designed to allow a party to appear as long as it has a direct stake in the litigation under the
particular circumstances.” In re Conde–Dedonato, 391 B.R. 247, 250 (Bankr. E.D.N.Y. 2008)
(citation and internal quotation marks omitted). “A servicer of a mortgage is clearly a creditor
and has standing to file a proof of claim against a debtor pursuant to its duties as a servicer.” Id.
(citing In re Viencek, 273 B.R. 354, 359 (Bankr. N.D.N.Y. 2002); Greer v. O’Dell, 305 F.3d
1297, 1302 (11th Cir. 2002); Bankers Trust (Delaware) v. 236 Beltway Inv., 865 F. Supp. 1186,
1191 (E.D. Va. 1994); In re Tainan, 48 B.R. 250, 252 (Bankr. E.D. Pa. 1985) (determining that a
mortgage servicer was a party in interest for purposes of a relief from stay proceeding)). In
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Conde–Dedonato, the court determined that where the loan servicer “provided an affidavit
attesting that it is the servicer of the note and mortgage, has provided the original note and
mortgage, was listed on the Debtor’s Schedules as having a claim against the estate, and was
provided for in the Debtor’s Chapter 13 Plan,” and where “[t]he Debtor d[id] not dispute that
[servicer was] the servicer . . . it [was] clear that [servicer] is the servicer of the note and
mortgage and it ha[d] standing to file a proof of claim against the Debtor.” 391 B.R. at 250.
An assignee of a note and mortgage also has standing to file a proof of claim. Id. at 251.
In New York, assignments can be effected solely by the transfer of the relevant note and
mortgage. See N.Y. Real Property Law § 244 (“A grant takes effect, so as to vest the estate or
interest intended to be conveyed, only from its delivery; and all the rules of law, now in force, in
respect to the delivery of deeds, apply to grants hereafter executed.”); see also Deutsche Bank
Nat’l Tr. Co. v. McRae, 27 Misc.3d 247, 250 (N.Y. Sup. Ct. 2010) (citation omitted) (“A
mortgage can be assigned in two ways—by delivery of the bond and mortgage by the assignor to
the assignee with the intention that all ownership interests thereby transferred, or by a written
instrument of assignment.”). Thus, an assignee can demonstrate standing by attaching the note
and the mortgage to a proof of claim; it does not need to attach a written assignment to the proof
of claim. Conde–Dedonato, 391 B.R. at 251 (“Thus, a mortgage and note can be transferred by
delivery, and do not have to be evidenced by a written assignment.”).
B. Standing to Obtain an Order Lifting the Automatic Stay
Courts require an affidavit from someone with personal knowledge establishing facts
supporting standing, or possession of the original note and mortgage to establish standing in a
state court foreclosure action and in a motion to lift the automatic stay in bankruptcy court under
11 U.S.C. § 362(d). See Mortg. Elec. Registration Sys., Inc. v. Coakley, 41 A.D.3d 674 (2d
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Dep’t 2007) (applying UCC 3–104 and 3–204 analysis to find that transfer of promissory note
was sufficient to establish plaintiff as lawful holder of note); HSBC Bank USA, N.A. v. Cherry,
2007 WL 4374284, at *1 (N.Y. Sup. Ct. Dec. 17, 2017) (requiring multiple affidavits and a valid
power of attorney from alleged assignee to demonstrate standing).
New York law invariably requires possession of the original note underlying the
mortgage for a claimant to assert standing to file a proof of claim in the bankruptcy court or to
foreclose on a mortgage in state court. This Court has repeatedly reminded purported mortgagee
that, under New York law, the mortgage follows the note, and the assignment of the mortgage
without the note is not sufficient to have standing to pursue state law remedies on the note. For
instance, in In re Lippold, U.S. Bank National Association (“U.S. Bank”) moved to lift the stay
to be allowed to proceed with foreclosure on the debtor’s property. 457 B.R. 293, 294 (Bankr.
S.D.N.Y. 2011). Aegis Funding Corporation (“Aegis”), the original holder of the note and
mortgage, had conferred its right as mortgagee, but not with respect to the note, to Mortgage
Electronic Registration Systems, Inc. (“MERS”), solely in its capacity as “nominee” for Aegis.
Id. at 295. MERS then purported to assign the mortgage and the note to U.S. Bank. Id. at
29596. However, as the Court noted, Aegis had not conferred any rights with respect to the
note to MERS. Id. at 296. Accordingly, it was beyond MERS’s authority to assign the note, and
U.S. Bank otherwise provided no evidence that it received physical delivery of the note, or that it
was in possession of the note. Id. at 299. The Court found “[u]nder New York law, a plaintiff
has standing to commence a mortgage foreclosure action ‘where it is both the holder or assignee
of the subject mortgage and the holder or assignee of the underlying note at the time the action is
commenced.’” Id. at 29697 (citing Bank of N.Y. Silverberg, 926 N.Y.S.2d 532, 536 (2d Dep’t.
2011) (citing cases)). Importantly, the Court held that “foreclosure of a mortgage may not be
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brought by one who has no title to it and absent transfer of the debt, the assignment of the
mortgage is a nullity.” Id. at 297 (citing Kluge v. Fugazy, 145 A.D.2d 537, 538 (2d Dep’t. 1988)
(citing cases); HSBC Bank USA, Nat. Ass’n v. Miller, 26 Misc.3d 407, 41112 (N.Y. Sup. Ct.,
Sullivan County 2009)); see also In re Escobar, 457 B.R. 229, 23940 (Bankr. E.D.N.Y. 2011)
(“New York law has long recognized that assignment of the mortgage carries with it no rights to
enforce the debt.”). Accordingly, because U.S. Bank had failed to provided satisfactory evidence
that it owned or held the note at issue, the Court concluded that U.S. Bank had failed to establish
its standing to lift the automatic stay. Id. at 299. Likewise, in Mims, this Court held that Wells
Fargo Bank, N.A. lacked standing to seek relief from the automatic stay because it failed to
advance proof that it was the owner of a promissory note given with a mortgage, as it did not
provide evidence that “the Note was physically delivered or assigned pursuant to a written
agreement.” 438 B.R. 52, 56 (Bankr. S.D.N.Y. 2010). The Court followed a “rule of law
[which] dates back over one hundred forty years,” holding that “[u]nder New York law,
‘foreclosure of a mortgage may not be brought by one who has no title to it and absent transfer of
the debt, the assignment of the mortgage is a nullity.’” Id. (citing Kluge, 145 A.D.2d at 538
(citing cases); HSBC Bank, 26 Misc.3d at 41112).
In In re Idicula, the Court again outlined the requirements for establishing standing to
foreclose on property, including where the note is endorsed in blank. 484 B.R. 284, 28789
(Bankr. S.D.N.Y. 2013). There, the movant, servicing agent Select Portfolio Servicing, Inc.,
argued that U.S. Bank held the right to enforce a promissory note securing the property at issue
because the note was transferred to U.S. Bank by way of an allonge. Id. at 286. The Court held
that the purported allonge could not support U.S. Bank’s standing because the allonge was never
submitted in evidence. Id. at 288. The Court also noted that the note included two endorsements
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not mentioned in the arguments in support of U.S. Bank’s motion. Id. at 286. The second
endorsement provided as follows:
PAY TO THE ORDER OF
WITHOUT RECOURSE
AEGIS MORTGAGE CORPORATION
Trymeka McCoy
TRYMEKA McCOY
ASSISTANT SECRETARY
Id. The Court explained that “the Note was endorsed in blank (i.e., a result of the blank space
between ‘PAY TO THE ORDER OF’ and ‘WITHOUT RECOURSE’ in the second
endorsement).” Id. at 28687. And the Court held that when a note is endorsed in blank, “[u]nder
New York law, delivery of the original Note endorsed in blank is effective to transfer ownership
of the Note.” Id. at 287. Because U.S. Bank produced no evidence that “delivery and possession
of the original note endorsed in blank is the legal basis for the authority of U.S. Bank (and Select
Portfolio Servicing on its behalf) to lift the automatic stay,” the Court concluded that U.S. Bank
had failed to show it had standing to foreclose on the debtor’s property. Id. at 287, 289; see also
Green Tree Servicing LLC v. Christodoulakis, 136 F. Supp. 3d 415, 42829 (E.D.N.Y. 2015)
(“[P]laintiff’s physical possession of the Note, containing an indorsement ‘in blank,’ at the time
the action was commenced . . . was sufficient to confer standing upon it to commence this action
seeking to enforce payment of the Note.”) (omitting citation); Wells Fargo Bank, NA v. Ostiguy,
127 A.D.3d 1375, 1376 (N.Y. App. Div. 2015) (“Holder status is established where the plaintiff
possesses a note that, on its face or by allonge, contains an indorsement in blank or bears a special
indorsement payable to the order of the plaintiff.”) (omitting citation).
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C. Evidence Required to Support Proofs of Claim
Unless a proof of claim is properly executed and filed in accordance with the rules, the
proof of claim does not constitute prima facie evidence of the validity and amount of the claim.
See FED. R. BANKR. P. 3001(f).
1. Burden of Proof of Claim
Bankruptcy Rule 3001(f) provides that “a proof of claim executed and filed in accordance
with these rules shall constitute prima facie evidence of the validity and amount of the claim.”
FED. R BANKR. P. 3001(f). Bankruptcy Rule 3001 requires a claimant to attach supporting
documentation to a proof of claim in a bankruptcy case. Bankruptcy Rule 3001(c) provides that
[W]hen a claim, or an interest in property of the debtor securing the claim,
is based on a writing, the original or a duplicate shall be filed with the proof
of claim. If the writing has been lost or destroyed, a statement of the
circumstances of the loss or destruction shall be filed with the claim.
FED. R. BANKR. P. 3001(c)(1). “Section (c)(1) requires that, if the claim is based on a writing,
that writing must be attached or the circumstances of its unavailability must be explained.” In re
Gorman, 495 B.R. 823, 831 (Bankr. E.D. Tenn. 2013). Bankruptcy Rule 3001(d) provides that
“[i]f a security interest in property of the debtor is claimed, the proof of claim shall be
accompanied by evidence that the security interest has been perfected.” FED. R. BANKR. P.
3001(d). In addition, Item 7 on Official Bankruptcy Form B 10, sets forth the content and format
for proofs of claim and instructs creditors as follows:
Attach redacted copies of any documents that support the claim, such as
promissory notes, purchase orders, invoices, itemized statements of running
accounts, contracts, judgments, mortgages, and security agreements. You
may also attach a summary. Attach redacted copies of documents providing
evidence of perfection of a security interest. You may also attach a
summary.
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Failure to attach the documentation required by Bankruptcy Rule 3001 will result in the
loss of the prima facie validity of the claim. In re Lundberg, 2008 WL 4829846, at *78 (Bankr.
D. Conn. Oct. 27, 2008) (“If . . . the claimant fails to allege facts in the proof of claim that are
sufficient to support the claim, e.g., by failing to attach sufficient documentation to comply with
Fed. R. Bankr. P. 3001(c), the claim is . . . deprived of any prima facie validity which it could
otherwise have obtained.”); see also In re Hight, 393 B.R. 484, 493 n.7 (Bankr. S.D. Tex. 2008)
(“[F]ailure to comply with Rule 3001(c) merely renders a claim to not constitute ‘prima facie
evidence of the validity and amount of the claim.’”) (internal citation omitted). However, failure
to attach the required documentation does not automatically render the claim invalid. Hight, 393
B.R. at 493 n.7 (“[W]hile the Objection to Claim properly states that failure to comply with Rule
3001(c) is ‘improper,’ the Court notes that such a failure does not automatically render a claim
invalid.”).
2. Level of Documentation Required of Creditor for Prima Facie
Validity of a Claim
This Court’s opinion in Minbatiwalla, 424 B.R. 104, a case in which a proof of claim was
expunged, analyzed at length the level of documentation required to establish the prima facie
validity of a claim which had purportedly been assigned. See id. at 112. Noting that state law
principles and the Uniform Commercial Code governed what is required to effectuate an
assignment, the Court reviewed cases interpreting the requirements for claims associated with
secured mortgage claims, as is the case here; it also reviewed cases associated with credit card
receivables and promissory notes that the Court found “illustrative” and from which “it took
guidance.” Id. at 11213. The Court concluded:
[I]n the mortgage context, the creditor may initially attach only a summary
of its claim, containing the debtor’s name, account number, the prepetition
account balance, interest rate, and a breakdown of the interest charges,
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finance charges and other fees that make up the balance of the debt. If the
creditor is an assignee, it must also provide an affidavit attesting to the
assignment of the note and mortgage. Upon request of the debtor, the
creditor has an obligation to provide an additional documentation
underlying its summary and affidavit (such as the original note and
mortgage, or a written assignment), within two weeks after dispatch or
communication of such a request, or the debtor can file an objection based
on a lack of adequate documentation.
Id. at 117.
D. Effect of a Claim Lacking Prima Facie Validity
Minbatiwalla also thoroughly examined the legal effect of a claimant’s failure to attach
appropriate documentation to its proof of claim and failure to respond to a debtor’s request for
information. 424 B.R. at 11819. The Court explained that
Bankruptcy Code § 502(b) prescribes nine categories of claims which will
be disallowed, including that ‘(1) such claim is unenforceable against the
debtor and property of the debtor, under any agreement or applicable law
for a reason other than because such claim is contingent or unmatured.’
Section 502(b) does not identify ‘insufficient documentation’ as a basis to
disallow a claim.
Id. at 118 (citing 11 U.S.C. § 502(b)). The Court observed, however, that “[c]ourts in this
Circuit have sustained ‘insufficient documentation objections’ resulting in the disallowance of
claims.” Id. at 11819 (citing In re Porter, 374 B.R. 471, 480 (Bankr. D. Conn. 2007) (“[U]nder
some circumstances lack of [documentation required by Bankruptcy Rule 3001(c)] followed by a
creditor’s failure to appear or otherwise response to an objection . . . made on the grounds of
insufficient annexed documentation may result in a disallowance of the claim on procedural (i.e.
default) grounds.”)). The Court concluded that:
This Court agrees with the rationale of Judge Weil in Porter, 374 B.R. 471,
that in certain circumstances claims can be disallowed for failure to support
the claim with sufficient evidence, even if this is not a specifically
enumerated reason for disallowance under 11 U.S.C. § 502(b), because
absent adequate documentation, the proof of claim is not sufficient for the
objector to concede the validity of a claim.
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Id. at 119.
Even where the claimant fails to attach sufficient documentation to its proof of claim,
where the debtor schedules a claim that is substantially similar to the claim at issue by the
purported assignee but to the benefit of a different creditor, courts have used the debtor’s
acknowledgment in schedules that a lien exists against the property to sustain a lack of sufficient
documentation objection, but have permitted the filing of new proofs of claim. In re Parrish,
326 B.R. 708, 71819 (Bankr. N.D. Ohio 2005). The Parrish court sustained a debtor’s
objection to a proof of claim based on lack of sufficient documentation, but because the debtor
acknowledged the debt was owed to some entity, and presumed there was still a lien on the real
estate at issue, the court gave the entity that filed a proof of claim “or whoever actually [held] or
[serviced] the claim against the debtor,” twenty days from the date of the order sustaining the
objection “to file a proof of claim calculated in accordance with the factual findings made” by
the court. Id. at 718–19. The court directed that if the entity that filed the proof of claim held the
note and mortgage, it needed to affix documents to the proof of claim establishing that
relationship. Id. at 721–22. Alternatively, if the entity that filed the proof of claim was not the
holder, it was “to give notice to the holder of this [twenty-day] deadline and [wa]s to file a notice
with the court that such notice [had] been given.” Id. at 722. The debtor had twenty days after
the proof of claim was filed to file an objection to it, if any. Id.
III. DISCUSSION
In this case, Ditech has known for months that its proof of claim was deficient in failing
to attach proof that it holds the Note. It has had ample time to provide proof but it has failed to
do so. As a result, Ditech failed to make a prima facie showing of the validity of its Claim, and
it failed to demonstrate that it has standing to assert the Claim against the Debtors. For these
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reasons, the Debtors’ Objection is sustained and Ditech’s Claim is expunged.
A. Ditech Has Not Demonstrated Its Standing to Bring the Claim
Ditech has not demonstrated that it has standing to assert its Claim against the Debtors.
Ditech’s Claim asserts a claim against the Debtors for money loaned in the amount of
$455,424.72, including interest and prepetition arrears, secured by the Property. (See Claim at
12.) Ditech’s Claim attached the Debtors’ loan payment history, the Note, endorsed in blank,
the recordation of lien on the Property, and the Mortgage. The original payee of the Note was
IndyMac. Because Ditech is not the original holder of the Note, to establish its standing as an
assignee, Ditech was required under New York law to provide proof of an assignment, or by
demonstrating that it has physical possession of the Note endorsed in blank. See, e.g., Conde-
Dedonato, 391 B.R. at 251 (“Thus, a mortgage and note can be transferred by delivery, and do
not have to be evidenced by a written assignment.”) Some courts have also recognized standing
where the creditor has filed one or more affidavits from individuals with personal knowledge
establishing facts supporting standing. See, e.g., HSBC Bank USA, 2007 WL 4374284, at *1
(requiring multiple affidavits and a valid power of attorney from alleged assignee to demonstrate
standing).
But Ditech failed to satisfy any of these requirements. Ditech failed to produce either the
original Note, an assignment thereof, or any affidavit supporting its standing; and any effort by
Ditech to prove standing through proof of assignment of the Mortgage alone would similarly fail.
“[F]oreclosure of a mortgage may not be brought by one who has no title to it and absent transfer
of the debt, the assignment of the mortgage is a nullity.” Lippold, 457 B.R. at 297 (omitting
citation). Instead, the Note shows an assignment in blank from IndyMac as follows:
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PAY TO THE ORDER OF
WITHOUT RECOURSE
INDYMAC BANK F.S.B.
Vincent Dombrowski
VINCENT DOMBROWSKI
[illegible]
(Note at 3.) The assignment in blank (as a result of the blank space between “PAY TO THE
ORDER OF” and “WITHOUT RECOURSE”) from IndyMac required Ditech to prove it had
possession and was the holder of the Note. See, e.g., Idicula, 484 B.R. at 287 (holding that
delivery and possession of the original note endorsed in blank is the legal basis for the authority
of claimant to lift the automatic stay). Ditech did not provide any evidence of such possession.
Moreover, Ditech filed its Claim as “Ditech Financial LLC fka Green Tree Servicing
LLC”; the Claim includes a certificate of merger stating that Green Tree was merged into DT
Holdings LLC and Ditech Mortgage Company, and the merger resulted in the entity Ditech. But
no evidence was provided of any relationship between IndyMac (the original payee on the Note),
OneWest, which acquired most of IndyMac’s assets from the FDIC, or CIT, which acquired
OneWest, on the one hand, and Ditech or Green Tree, on the other hand. IndyMac endorsed the
Note in blank, but no evidence has been provided as to what happened to the Note after IndyMac
endorsed it in blank.
Ditech’s counsel learned about the standing dispute no later than March or April 2018.
One thing that is clear is Ditech has not provided any proof of what happened to the Note, or that
Ditech ever owned it. Therefore, Ditech has failed to present evidence to demonstrate that it has
standing to assert its Claim.
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B. Ditech Has Not Satisfied Its Prima Facie Burden to Support Its Proof of Claim
Ditech has not met its evidentiary burden under the Bankruptcy Code and Rules to
substantiate its Claim. Only properly prepared and supported proofs of claim constitute prima
facie evidence of the validity and amount of a claim. See FED. R. BANKR. P. 3001(f).
Bankruptcy Rule 3001(c) required that Ditech attach either the original or the duplicate of the
Note. See FED. R. BANKR. P. 3001(c); see also Lundberg, 2008 WL 4829846, at *2 (“If,
however, the claimant fails to allege facts in the proof of claim that are sufficient to support the
claim, e.g., by failing to attach sufficient documentation to comply with Fed. R. Bankr. P.
3001(c), the claim is not automatically disallowed; rather, it is merely deprived of any prima
facie validity which it could otherwise have obtained.”). While Ditech’s Claim attached a
photocopy of the Note endorsed in blank, no evidentiary support was provided that at any point
in time the original of the Note endorsed in blank was delivered to Ditech and that it possesses
that original today. As this Court explained in Minbatiwalla,
Upon request of the debtor, the creditor has an obligation to provide an
additional documentation underlying its summary and affidavit (such as the
original note and mortgage, or a written assignment), within two weeks after
dispatch or communication of such a request, or the debtor can file an
objection based on a lack of adequate documentation.
424 B.R. at 117.
Debtors’ counsel repeatedly requested that Ditech produce documentation establishing its
standing. As discussed above, the standing issue was raised with the Court in March and April
2018, and Ditech’s counsel filed a letter stating that it had requested Ditech to provide the
collateral file. (ECF Doc. # 24.) Ditech’s counsel represented that it would file such
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documentation on the docket.2
C. The Debtors’ Claim Objection is Sustained and the Claim is Expunged
Because Ditech has not satisfied its burden demonstrating that it has standing to assert its
Claim, and did not make a prima facie showing that it is the holder of the Note, the Debtors’
Objection is sustained. See Minbatiwalla, 424 B.R. at 119–20 (holding that “in certain
circumstances claims can be disallowed for failure to support the claim with sufficient evidence
. . . because absent adequate documentation, the proof of claim is not sufficient for the objector
to concede the validity of a claim”).
However, it appears that a lien exists on the Property. Although Ditech does not
demonstrate that it holds the Note, the original Mortgage was recorded against the Property. The
Debtors’ schedules list the Property as being subject to a lien held by IndyMac for a disputed
claim of $400,000 (ECF Doc. # 12-3 at 1); and IndyMac is listed as having a disputed
contractual claim incurred in 2003. (Id.) The Debtors signed the Note to IndyMac in 2003.
Ditech asserts the Claim for approximately the same amount as IndyMac’s disputed claim listed
by the Debtors. See Parrish, 326 B.R. at 71819 (holding that even where a creditor fails to
attach sufficient documentation to its proof of claim, where the debtor schedules a claim that is
substantially similar to the claim at issue by the purported assignee, but to the benefit of a
2 Remedies exist under New York law for a claimant who is unable to produce the instrument on which its
claim is based. New York State’s lost note provision provides a means of recovery on instruments that are lost,
destroyed, or stolen. Section 3-804 of the New York Uniform Commercial Code states:
The owner of an instrument which is lost, . . . may maintain an action in his own name
and recover from any party liable thereon upon due proof of his ownership, the facts
which prevent his production of the instrument and its terms. The court shall require
security, in an amount fixed by the court not less than twice the amount allegedly unpaid
on the instrument, indemnifying the defendant, his heirs, personal representatives,
successors and assigns against loss, including costs and expenses, by reason of further
claims on the instrument, but this provision does not apply where an action is prosecuted
or defended by the state or by a public officer in its behalf.
N.Y. U.C.C. § 3-804. But no such relief has been sought in this case.
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different creditor, the debtor’s acknowledgment in schedules that a lien exists against the
property enable the court to sustain the objection but permit the filing of new proofs of claim).
While the Objection is sustained and the Claim is expunged, Ditech may seek relief under 11
U.S.C. § 502(j) if it acts promptly. See Minbatiwalla, 424 B.R. at 11920.
IV. CONCLUSION
For the reasons explained above, the Debtors’ Objection to the Claim is SUSTAINED
and the Claim is EXPUNGED.
IT IS SO ORDERED.
Dated: July 2, 2018
New York, New York
_____Martin Glenn____________
MARTIN GLENN
United States Bankruptcy Judge
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