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)
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STATEMENT OF REASONS IN SUPPORT
OF ORDER DATED JULY 31, 2008
This 31st day of July 2008, upon consideration of Homecomings Financial,
LLC’s, f/k/a Homecomings Financial Network, Inc., Assignee of National City Home
Loan Services, f/k/a Altegra Credit Company, Assignee of Gelt Financial Corporation
(“Homecomings”) Brief as to Validity of State Court Judgment and in Support of Motion
for Relief (the “Brief”) and the Debtor’s Response thereto;
AND a hearing with witnesses being held in this matter on May 8, 2008 (the
“May 8th Hearing”);
AND the Debtor having filed for Chapter 13 bankruptcy protection on February 2,
2007;
AND the Debtor owning property located at 4266 Parkside Avenue in
Philadelphia (the “Property”);
AND, as more fully discussed in a Memorandum Opinion issued by this Court on
February 13, 2008 (the “Opinion”) (see docket entry no. 109), Altegra Credit Company,
which was assigned a mortgage on the Property in the original amount $99,000 from
Gelt Financial Company on September 18, 1997 (the “Gelt Mortgage”), having sued
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The Exhibits were subm itted at the May 8th Hearing and were m oved into evidence without
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objection.
Per the Opinion and accom panying Order, this claim was deem ed tim ely filed due to the fact that
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it was an am endm ent to proof of claim num ber two, which was filed on March 21, 2007 (prior to the bar
date).
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Debtor and his spouse in 2001 (the “State Court Proceeding”) and won a foreclosure
judgment in Pennsylvania state court on February 22, 2006 in the amount of $196,611
(the “State Court Judgment”) (see Opinion, pgs. 2-3);
AND Mr. Brooks having lost a Motion for Reconsideration and two appeals
thereof in state court, the State Court Judgment remains a final judgment on the merits;
AND, on May 13, 2004, during the pendency of the State Court Proceeding, the
Gelt Mortgage being assigned from the entity formerly known as Altegra Credit
Company, National City Home Loan Services, to Homecomings Financial, LLC. (see
Exhibit M1);1
AND the Gelt Mortgage being assigned from Homecomings back to National City
Home Loan Services on April 14, 2008 (see Exhibit D2);
AND Homecomings having filed a Motion for Relief from the Automatic Stay
based on the Gelt Mortgage on March 14, 2008 (see docket entry no. 118) (the “Motion
for Relief”), to which the Debtor has objected (see docket entry no. 121);
AND Homecomings having filed a proof of claim on February 28, 2008 in the
amount of $193,592, (the “Proof of Claim”) to which the Debtor has objected (see2
docket entry no. 116) (the “Objection to the Claim”);
AND the Proof of Claim being based on the Gelt Mortgage and not on the State
Court Judgment, as is evidenced by the fact that the Proof of Claim only attaches
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W hile the Proof of Claim does not attach copies of the State Court Judgm ent, it does note on its
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face that a court judgm ent was obtained in Septem ber 2006 (see item no. 3 on the Proof of Claim ). W hen
a proof of claim does not adhere to the requirem ents of Rule 3001 by providing the docum ents necessary
to support the claim , it should not necessarily be disallowed, but rather is denied prima facie validity. In re
Kinkaid, 388 B.R. 610, 614 (Bankr. E.D. Pa. 2008). Yet because the Objection to the Claim raised the
issue of the validity of the State Court Judgem ent and Hom ecom ings has had am ple opportunity before
and during the May 8th Hearing to supplem ent the Proof of Claim with docum entation of the State Court
Judgm ent, and has not done so, it is now appropriate to find that the Proof of Claim has failed to m eet the
requirem ent of Rule 3001(c) and was therefore not based on the State Court Judgm ent.
It is also worth noting that Hom ecom ings’ argum ent in its Brief that this Court can alter or am end
the State Court Judgm ent per Pennsylvania Rule of Civil Procedure 3118(a) is incorrect. This Rule states
that “after notice and a hearing, the court in which a judgment has been entered m ay, before or after the
issuance of a writ of execution, enter an order against any party or person. . .” (em phasis added). Yet this
Court is not the court in which the State Court Judgm ent was entered. Rather, the judgm ent was entered
in the Pennsylvania state court. Further, the Rooker-Feldman doctrine prevents “‘inferior’ federal courts
from sitting as appellate courts for state court judgm ents.” In re Knapper, 407 F.3d 573, 580 (3d Cir.
2005). See also Desi’s Pizza, Inc. v. City of W ilkes-Barre, 321 F.3d 411, 419 (3d Cir. 2003). This Court
would essentially be sitting as an appellate court to a state court - in contradiction of the Rooker-Feldman
doctrine - if it were to review or revise the State Court Judgm ent.
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copies of the Gelt Mortgage and Assignment of Mortgage from National City Home
Loan Services to Homecomings. No copy of the State Court Judgment is attached to
the Proof of Claim. See Claim no. 9. See also Fed. R. Bankr. P. 3001(c) (“[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.”);3
AND, it being the case that the State Court Judgment was a foreclosure
judgment entered with regard to the Gelt Mortgage on February 22, 2006, the “terms of
the mortgage [became] merged into a foreclosure judgment and thereafter no longer
provide the basis for determining the obligations of the parties.” In re Stendardo, 991
F.2d 1089, 1095 (3d Cir. 1993). See also In re A&P Diversified Tech. Realty, Inc., 467
F.3d 337 (3d Cir. 2006);
AND Homecomings therefore being unable to base its Proof of Claim (originally
filed on March 21, 2007) on the Gelt Mortgage, which was no longer in existence
following the entry of the State Court Judgment (on February 22, 2006). See In re
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W hile the m erger doctrine allows that a foreclosure judgm ent is a “new and higher obligation” to
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a m ortgage and that “the rights and obligations that are based on the judgm ent are substituted in their
place,” the discussion of the ownership interest of the Gelt Mortgage is nonetheless provided due to the
fact that the subject was the focus of both the Proof of Claim and the May 8th Hearing. In re Phillips
Group, Inc., 382 B.R. 876, 883 (Bankr. W .D. Pa. 2008) (citations om itted).
Sheila Hall, Bankruptcy Specialist for Litton Loan Servicing, L.P. (“Litton”), servicer of the Gelt
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Mortgage, testified that Sharon Robinson m ay have told Mr. Brooks that Hom ecom ings did not have an
active m ortgage on the Property because Hom ecom ings is not itself servicing the loan. Ms. Hall’s
testim ony is unconvincing for three reasons: 1) Ms. Hall works for Litton, not for Hom ecom ings; 2) she
adm itted that she would not know if Hom ecom ings had a record of ownership or not; and 3)
Hom ecom ings did not supplem ent Ms. Hall’s testim ony with any written docum ent.
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Stendardo, 991 F.2d 1089, 1095 (3d Cir. 1993) (“[a]s a result of . . . merger, there is no
longer a mortgage”);
AND at the May 8th Hearing, two documents being admitted into evidence,
without objection, showing that Homecomings is no longer the owner of the Gelt
Mortgage, namely: (1) a March 19, 2008 letter from Sharon Robinson of Homecomings4
stating that “we currently have no active mortgage on the above referenced property or
any active account information listed under the social security number for John Brooks
(see Exhibit D-1); and (2) a recorded assignment of mortgage on the Property from
Homecomings to National City Home Loan Services, dated April 14, 2008 (see Exhibit
D-2);
AND Homecomings offering no direct rebuttal at the May 8th Hearing to the
Debtor’s evidence that Homecomings lacks a mortgage interest in the Property;5
AND the Court not being able to take into account Homecomings’ contention in
its post-trial Brief that, on April 14, 2008, the loan was reassigned from Homecomings
to National City “in error” (pg. 2) and the Gelt Mortgage was reassigned back to
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Hom ecom ings’ Brief attaches no supporting docum entation or proof of assignm ent of the Gelt
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Mortgage from National City back to Hom ecom ings on May 16, 2008.
Hom ecom ing also failed either to attach evidence of ownership of the State Court Judgm ent or
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to rebut the Debtor’s evidence at the May 8th Hearing which dem onstrated that Hom ecom ings no longer
had possession of the Gelt Mortgage.
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Homecomings on May 16, 2008 (Id.) because these alleged facts were offered by6
Homecomings for the first time after the May 8th Hearing. Evidence introduced after a
trial or hearing may not be taken into account. See In re Gibson, 249 B.R. 645, 652-3
(Bankr. E.D. Pa. 2000) (“‘evidence’ not admitted into a hearing or trial record cannot be
considered”) (quoting In re Greenfield Dry Cleaning & Laundry, Inc., 249 B.R. 634, 641
(Bankr. E.D. Pa. 2000). See also Hopkins v. Texas Mast Climbers, L.L.C., 2005 WL
3435033, at *1 n.1 (S.D. Tex. Dec. 14, 2005);
AND Homecomings therefore having failed to meet its burden of production with
regard to the Motion for Relief by failing to show that “the obligation is secured by a
valid security interest.” In re Fund Raiser Products Co., Inc., 163 B.R. 744, 748 (Bankr.
E.D. Pa. 1994);
AND Homecomings having failed to meet its “ultimate burden of persuasion” with
regard to the Proof of Claim due to the fact that its claim is based on the Gelt Mortgage,
which had previously been extinguished, according to the doctrine of merger, upon the
entry of the State Court Judgment. 	In re Kincaid, 388 B.R. 610, 614 (Bankr. E.D. Pa.7
2008);
AND though it being true that the Opinion held that the State Court Judgment is
res judicata in Mr. Brooks’ bankruptcy case, at this point no party has filed a motion or
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The Third Circuit has determ ined that, “following the entry of a foreclosure judgm ent, the lender
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continues to have a ‘security interest’” on the property which survives bankruptcy. First National Fidelity
Corp. v. Perry, 945 F.2d 61, 64 (3d Cir. 1991). That is, “‘the security interest or lien against the property
continues to be the product of the consensual arrangem ent between debtor and lender. . . The Code’s
definition provides that a security interest is a ‘lien created by an agreem ent.’” 	Midlantic Nat’l Bank v.
DeSeno, 17 F.3d 642, 645 n.3 (3d Cir. 1994) (citing Perry and 11 U.S.C. § 101(51)) (em phasis in original).
Liens pass through bankruptcy unaffected. In re Mansaray-Ruffin, 530 F.3d 230, 235 (3d Cir. 2008).
Perry, which held that 11 U.S.C. § 1322(b)(2) precluded m odification of a secured claim that had been
reduced to a foreclosure judgm ent pre-petition, has been overruled by statue. Sections 1322(c)(1) and (2)
now perm it the cure of a secured claim following a foreclosure judgm ent as long as the petition is filed
before the foreclosure sale occurs. However, the discussion in Perry regarding the nature of the security
interest following a foreclosure judgm ent has not been affected by this change in the law. See also In re
Gelletich, 167 B.R. 370, 376 (Bankr. E.D. Pa. 1994) (“the scope of a m ortgagee's security interest is not
changed by the entry of a foreclosure judgm ent in the m ortgagee's favor.”); In re Laws, 163 B.R. 449, 152
(Bankr. E.D. Pa. 1994) (“a m ortgagee's security interest was not changed by a foreclosure judgm ent.”).
Therefore, the State Court Judgm ent has becom e the m ortgagee’s security interest on the Debtor’s
Property. That interest has not yet been extinguished in his bankruptcy. If Mr. Brooks fails to deal with the
State Court Judgm ent in his bankruptcy, this security interest will survive the discharge even though the
m ortgage claim has been disallowed.
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claim in this Court based on a clear right to the State Court Judgment or on a valid8
mortgage interest in the Property;
Accordingly, an order will be entered denying the Motion for the Relief and
sustaining the Objection to the Claim.
_______________________________
HONORABLE J EAN K. FITZ S IMON
United States Bankruptcy Judge
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