United States Bankruptcy Court. Northern District of California ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

Size: px

Start display at page:

Download "United States Bankruptcy Court. Northern District of California ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )"

Allan Riley
6 years ago
Views:

1 Marc Voisenat (CSB# 0 0 Broadway, Suite Oakland, Ca. Tel: ( - Fax: ( - Attorney for Debtors Richard Souza Caporale Isabel Ann Caporale United States Bankruptcy Court Northern District of California In re: RICHARD SOUZA CAPORALE ISABEL ANN CAPORALE Debtors. RICHARD CAPORALE AND ISABEL CAPORALE Plaintiffs, vs. SAXON MORTGAGE SERVICES INC., DEUTSCHE BANK NATIONAL TRUST COMPANY, AS TRUSTEE FOR MORGAN STANLEY, MSAC 0-NC AND DOES 1- Defendants. Case No.: 0- Adv. No MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF EMERGENCY APPLICATION FOR A TEMPORARY RESTRAINING ORDER. Date: Time: Room: - 1

2 1. Argument: a. Plaintiffs are Entitled to an Injunction Under USC i. Legal Standard The bankruptcy court's injunctive power is not limited by the delineated exceptions to the automatic stay, nor confined to civil proceedings. In re Robert Gruntz, F.d (th.cir.00. To be entitled to an injunction under USC, Plaintiff must meet the requirements of FRCP, as applied to adversary proceedings by Federal Rule of Bankruptcy Procedure ( FRBP 0. Generally, a decision to grant a preliminary injunction is discretionary with the court. Briggs v. Sullivan, F.d, - (th Cir. ; Sierra Club v. Marsh, F.d, 1-. (th Cir.. Federal courts have traditionally required that the party seeking a preliminary injunction meet the following criteria: (1 that the moving party has a strong likelihood of success on the merits; ( that the balance of irreparable harm tips in favor of the moving party; and ( that the public interest favors granting the injunction. American Motorcyclist Assn. v. Watt, F.d, (th Cir. ; see also Churchwell v. Robertson, F. Supp., (D.Idaho 0; Upper Snake River Chapter of Trout Unlimited v. Hodel, 0 F. Supp., (D.Idaho, aff'd, F.d (th Cir. 0. The Court can also exercise its equitable powers to issue a preliminary injunction if Plaintiff demonstrates "either [1] a combination of probable success on the merits and the possibility of irreparable injury without such injunction, or [] that serious questions [going to the merits] are raised and the balance of hardships tips sharply in the moving party's favor." This is commonly referred to as the Ninth Circuit's "sliding scale" test. California Cedar Products Co. v. Pine Mountain Corp., F.d, 0 (th Cir. ; Briggs v. Sullivan, F.d at (quoting Hunt v. National Broadcasting Co., F.d, (th Cir.. The above alternatives are not two separate tests; rather, each alternative is the extreme end of a continuum. Sierra Club v. Marsh, F.d, - (th Cir. ; American Motorcyclist Assn. v. -

3 Watt, F.d, (th Cir.. See Churchwell v. Robertson, F. Supp., (D.Idaho 0 (applying the traditional test. Under this "sliding scale" standard or test, "the required degree of irreparable harm increases as the probability of success decreases." Briggs v. Sullivan, F.d at, quoting United States v. Odessa Union Warehouse Co-op, F.d, (th Cir.. Bankruptcy courts are courts of law as well as courts of equity. See Butner v. United States, 0 U.S., -, S.Ct., -, L.Ed.d (; Johnson v. First Nat'l Bank of Montevideo, Minn., F.d 0, (th Cir., cert. denied, U.S., S.Ct., L.Ed.d (. Section (a of the Bankruptcy Code provides bankruptcy courts with broad general powers to grant such relief as is necessary to effectuate the provisions of the Bankruptcy Code. U.S.C. (a. These equitable powers, though broad, have limitations: such powers must be exercised consistent with the provisions of the Bankruptcy Code. Johnson, F.d at ; Collier on Bankruptcy.0, at - (th ed.. A bankruptcy court has the power to enjoin actions that threaten an asset of an estate. In re Energy Coop., Inc., F.d (th Cir. N.L.R.B v. Superior Forwarding Inc., F.d th Cir. b. Likelihood of Success on the Merits Plaintiffs seek relief on two different issues. First, they allege that defendants lack possession of the original promissory note. As a result, defendants failed to perfect their security interest in the deed of trust which rendered them unsecured creditor subject to the plaintiff discharge. Secondly, plaintiffs contend that newly enacted Civil Code. required the defendants to contact the plaintiffs to try to reach an agreement regarding the default before publishing a Notice of Trustee Sale. /// /// -

4 i. Defendants Failed To Perfect Their Security Interest and Their Degt was Discharged In the absence of bankruptcy law, the legal obligations of the parties are determined by the applicable non-bankruptcy law, which is usually state law. See, e.g., United States v. Butner, 0 U.S., - (. In the United States, the law of promissory notes is not unified at the federal level. Instead, each state has its own law on promissory notes. However, every state has adopted a version of the UCC to govern negotiable promissory notes. The substantive California law that governs negotiable instruments is Cal Commercial Code Division (the California version of UCC Article. See CComC (a. A negotiable instrument (or more briefly, for Division purposes, an "instrument" typically takes one of two forms: a promissory note (designated as a "note", or a draft (such as a check. This case involves a note secured by a deed of trust. In Matter of Staff Mortg. & Inv. Corp., 0 F.d (th Cir., the Ninth Circuit outlined the procedure to perfect a security interest in promissory notes secured by trust deeds under 0 and 0 of the California Commercial Code. Section 0(1 of the California Commercial Code states: "A security interest in chattel paper or negotiable documents may be perfected by filing. A security interest in instruments... can be perfected only by the secured party's taking possession,...." (emphasis added. Promissory notes and deeds of trust are instruments, and a security interest in them can be perfected only by possession. See Matter of Staff Mortgage and Investment Corp., 0 F.d, 0 (th Cir.. Merely recording the transaction does not perfect defendant s security interest. In re Bruce Farley Corp., F.d, ( th.cir. 0. -

5 If the owner of the promissory does not have actual possession of the original promissory they are deemed unsecured. In re Major Funding Corp., B.R., (S.D. Tex.. In the case at bar, on February, 0, CAPORALE executed a promissory note in favor of New Century Mortgage. (Dec Richard Caporale Exhibit 1. This note was secured by a Deed of Trust in favor of New Century Mortgage which was recorded on March, 0. (Complaint Exh A On August, 0, Mortgage Electronic Registration Systems, as nominee for New Century Mortgage Corporation transferred its interest in the Deed to Saxon Mortgage Services, Inc. (Richard Caporale Exh. On August, 0, Saxon Mortgage Services, Inc. transferred its interest in the Deed to Deutsche Bank National Trust Company, as Trustee for Morgan Stanley, MASC 0-NC. (Richard Caporale Exh. On October, 0, the assignment from MERS as nominee for New Century Mortgage Corporation assigning the underlying Deed to Saxon Mortgage Services, Inc. dated August, 0 was recorded in the office of the Santa Clara County Recorder. On December, 0, CAPORALE filed a bankruptcy under chapter of the United States Bankruptcy Code. On April, 0, Saxon transferred its interest in the Deed to Deutsche Bank Trust Company Americas formerly known as Banker s Trust Company, as Trustee and Custodian for Morgan Stanley, MASC 0-NC: BY Saxon Mortgage Services, Inc. F/K/A/ Meritech Mortgage Services, Inc. as its attorney-in-fact. (Richard Caporale Exh. On August, 0, the assignment from Saxon Mortgage Services, Inc. to Deutsche Bank National Trust Company, as Trustee for Morgan Stanley, MSAC 0-NC dated August, 0, was recorded in the office of the Santa Clara County Recorder. On December, 0, plaintiffs received their discharge. -

6 On January, 0, plaintiff s requested a copy of the promissory note from defendant Deutsche. Deutsche provide a copy of the promissory note but the promissory note did not contain any endorsement or allonge evidencing defendants were the holders of the Note. In fact, there is no indication that MERS ever had the authority to transfer the original note. This issue is not new to defendants. On December, 0, the plaintiffs filed an Opposition to the Relief from Stay filed by Saxon Mortgage contesting issue of who owned the note. (RJN Exh Saxon never responded to that opposition. The court never had the opportunity to rule on the issue as the chapter case was closed rendering the relief from stay motion moot. If the underlying promissory note was unperfected then the claims of defendants were discharged in December 0 and any attempt to collect that debt is barred by section of the bankruptcy code. The discharge injunction discharge "provides for a broad injunction against not only legal proceedings, but also any other acts to collect a discharged debt as a personal liability of the debtor". This includes garnishments, attachments, self-help and all other means of collection. Espinosa v. United States, F.d, (th Cir. 0. Defendants attempt to foreclose on a discharged debt is just the type of self help prohibited by the discharge injunction. ii. Defendant s Have Failed to Comply with the State Mandate To Attempt Workout Options With Their Borrowers Before Foreclosing Due to the astronomical foreclosure taking place in California, the State of California enacted emergency legislation in an attempt to stem the tide of foreclosure taking place in the state of California. On or about January 1, 0, the legislature enacted new foreclosure procedures to be followed. These new procedures are set forth in Civil Codes sections., -

7 .,. and.. In essence the new procedures would require a lender to make contact with borrowers before filing a notice of default and if a default already existed, contact the borrower before publishing a notice of trustee sale. As part of the new legislation, the State of California made the following findings: SECTION 1 The Legislature finds and declares all of the following: (a California is facing an unprecedented threat to its state economy and local economies because of skyrocketing residential property foreclosure rates in California. Residential property foreclosures increased sevenfold from 0 to 0. In 0, more than, properties were lost to foreclosure in California, and, loans went into default, the first step in the foreclosure process. (b High foreclosure rates have adversely affected property values in California, and will have even greater adverse consequences as foreclosure rates continue to rise. According to statistics released by the HOPE NOW Alliance, the number of completed California foreclosure sales in 0 increased almost threefold from 1,0 in the first quarter to, in the fourth quarter of that year. Those same statistics report that, foreclosure sales, almost double the number for the prior quarter, were completed just in the month of January 0. More foreclosures means less money for schools, public safety, and other key services (d It is essential to the economic health of California for the state to ameliorate the deleterious effects on the state economy and local economies and the California housing market that will result from the continued foreclosures of residential properties in unprecedented numbers by modifying the foreclosure process to require mortgagees, beneficiaries, or authorized agents to contact borrowers and explore options that could -

8 avoid foreclosure. These changes in accessing the state's foreclosure process are essential to ensure that the process does not exacerbate the current crisis by adding more foreclosures to the glut of foreclosed properties already on the market when a foreclosure could have been avoided. Those additional foreclosures will further destabilize the housing market with significant, corresponding deleterious effects on the local and state economy. (g This act is necessary to avoid unnecessary foreclosures of residential properties and thereby provide stability to California's statewide and regional economies and housing market by requiring early contact and communications between mortgagees, beneficiaries, or authorized agents and specified borrowers to explore options that could avoid foreclosure and by facilitating the modification or restructuring of loans in appropriate circumstances. Section. of the Civil Code now provides: (a(1 A mortgagee, trustee, beneficiary, or authorized agent may not file a notice of default pursuant to Section until 0 days after contact is made as required by paragraph ( or 0 days after satisfying the due diligence requirements as described in subdivision (g. ( A mortgagee, beneficiary, or authorized agent shall contact the borrower in person or by telephone in order to assess the borrower's financial situation and explore options for the borrower to avoid foreclosure. During the initial contact, the mortgagee, beneficiary, or authorized agent shall advise the borrower that he or she has the right to request a subsequent meeting and, if requested, the mortgagee, beneficiary, or authorized agent shall schedule the meeting to occur within days. The assessment of -

9 the borrower's financial situation and discussion of options may occur during the first contact, or at the subsequent meeting scheduled for that purpose. In either case, the borrower shall be provided the toll-free telephone number made available by the United States Department of Housing and Urban Development (HUD to find a HUD-certified housing counseling agency. Any meeting may occur telephonically. (c If a mortgagee, trustee, beneficiary, or authorized agent had already filed the notice of default prior to the enactment of this section and did not subsequently file a notice of rescission, then the mortgagee, trustee, beneficiary, or authorized agent shall, as part of the notice of sale filed pursuant to Section f, include a declaration that either: (1 States that the borrower was contacted to assess the borrower s financial situation and to explore options for the borrower to avoid foreclosure. ( Lists the efforts made, if any, to contact the borrower in the event no contact was made. In this case, at the time the new act went into effect, defendants had already recorded a notice of Default. In its Notice of Trustee Sale, defendants state they attempted to contact Richard Caporale on October, 0 while Mr. Caporale s bankruptcy case was pending. Mr. Caporale denies this statement and learned that on October, 0, defendants were in the process of foreclosing on his residence without obtaining relief from the automatic stay. It appears that sale was rescinded since a new Notice of Trustee Sale was recorded in February 0 just after Mr. and Mrs. Caporale requested a copy of their promissory note. This was clearly not the scenario intended under the new emergency legislation. Irreparable Harm Plaintiff stands to lose their home if the real property is foreclosed upon. As real property is unique, Plaintiff has established irreparable harm. -

10 Conclusion: Plaintiff has shown they are entitled to an injunction. The balance of hardships favors Plaintiff in that they will suffer irreparable harm if the injunction is denied. The granting of the injunction will not prejudice defendants who need only produce evidence that they have the right to foreclose. Otherwise, defendants had an unsecured claim that has been discharged. Dated: February, 0 /s/ Marc Voisenat Marc Voisenat, Attorney for Plaintiffs -

Information & Instructions: Response to a Motion To Lift The Automatic Stay Notice and Proof of Service

Defense Or Response To A Motion To Lift The Automatic Stay Information & Instructions: Response to a Motion To Lift The Automatic Stay Notice and Proof of Service 1. Use this form to file a response to