In re Donaghy

IN RE: AMY CHRISTINE DONAGHY, Debtor.

Bky. No. 18-15459 ELF

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF PENNSYLVANIA

April 4, 2019

Chapter 13

MEMORANDUM

I. INTRODUCTION

Presently before the court is the motion for relief from the automatic stay pursuant to 11 U.S.C. §362(d)(1) ("the Motion"), filed by HSBC Bank USA, National Association as Trustee for Wells Fargo Asset Securities Corporation, Mortgage Pass-Through Certificates, Series 2007-7 ("HSBC"). HSBC seeks relief in order to resume foreclosure proceedings against the Debtor's residential real property, 3 East Spring Oak Circle, Media, PA ("the Property").

The Debtor's sole defense to the Motion is based on what she describes as HSBC's "inconsistent and contrary averments of possession of the note [that] raise a genuine issue of fact regarding that creditor's standing to seek relief from automatic stay." (Debtor's Memorandum at 2).

In support of its standing to prosecute the Motion, HSBC points to the pre-petition judgment in mortgage foreclosure that it holds against the Debtor and the Property.

For the reasons stated below, I conclude that HSBC has standing. The Motion will be granted.

II. PROCEDURAL AND FACTUAL BACKGROUND

A.

The Debtor commenced this bankruptcy case by filing a petition under chapter 13 of the Bankruptcy Code on August 17, 2018. She filed her bankruptcy schedules on September 20, 2019 and a chapter 13 plan on September 21, 2018.

The Debtor's Schedule D, filed on September 20, 2018, referred to the holder of the mortgage on the Property as "Wells Fargo Home Mortgage."

In her chapter 13 plan, rather than invoking any of the Code-based methods available for treating a secured claim in a chapter 13 plan,¹ the Debtor proposed to address the Wells Fargoclaim by pursuing a loan modification.² The plan also stated:

If the modification is not approved by 11/30/18, Debtor shall either (A) file an amended Plan to otherwise provide for the allowed claim of the Mortgage Lender; or (B) Mortgage Lender may seek relief from the automatic stay with regard to the collateral and Debtor will not oppose it.

(Plan §7(d)) (Doc. # 44).³

On October 3, 2019, HSBC filed a proof of claim asserting a claim in the amount of $980,883.99, with prepetition arrears of $439,918.20, secured by a mortgage on the Property.⁴

On December 18, 2018, after the expiration of the loan modification deadline set in the initial chapter 13 plan, HSBC filed the Motion. In the Motion, HSBC asserted that "cause" exists for stay relief because the Debtor failed to make post-petition instalment payments on theloan secured by the mortgage on the Property.

On January 14, 2019, after HSBC filed a certification that there was no response to the Motion, the Debtor filed an untimely response, denying that she failed to make post-petition payments. (Debtor's Response to Motion ¶8) (Doc. # 62).⁵ In the response, the Debtor also contends that HSBC is not the holder of the underlying promissory note and is not the creditor to whom the debt is due. (Id. ¶¶ 5, 10).

On March 5, 2019 and March 26, 2019, the Debtor filed an Amended Plan and Second Amended Plan. (Doc. #'s 77, 89). Both amended plans deleted the loan modification provision previously set forth in the initial plan. In fact, both amended plans make no reference at all to HSBC or Wells Fargo.

B.

At a hearing on the Motion held on March 5, 2019,⁶ the Debtor conceded that she has not entered into a loan modification agreement and that she has not made all of the monthly payments falling due on mortgage loan. She continued to maintain, however, based on what she deems as HSBC's conflicting statements regarding its possession of the underlying note made in this court and in prior state court state court proceedings, that HSBC may not have possession of the underlying note and therefore, is not the creditor with the authority to collect the subjectloan.⁷ Consequently, the Debtor asserted that the court should hold an evidentiary hearing at which HSBC should be required to establish its standing to prosecute the Motion.

HSBC's position was that if an evidentiary hearing were necessary, the March 5, 2019 hearing should be continued further to give HSBC the opportunity to bring out-of-town witnesses to court. The Debtor had no objection to this and the March 5, 2019 hearing was continued to April 30, 2019.

However, the new hearing date was scheduled subject to a further determination as to its necessity. At the March 5, 2019 hearing, the Debtor also conceded, that HSBC holds a pre-petition judgment in mortgage foreclosure against her and the Property. The judgment was entered by consent on June 30, 2015 in the Court of Common Pleas, Delaware County, at No. 2012-000866.⁸

The Debtor argued that the existence of the judgment did not conclusively establish HSBC's standing. Of course, HSBC disagreed. In its view, the existence of the judgment established its standing and no further hearing on the issue was necessary. As a result, I gave the parties the opportunity to submit memoranda on the issue whether HSBC's standing to prosecute a motion for relief from the automatic stay under 11 U.S.C. §362(d) was established by the entry of the pre-petition foreclosure judgment in its favor.

The last of the parties' respective memoranda was filed on March 27, 2019. The issue is ready for decision.

III. DISCUSSION

A.

11 U.S.C. §362(d)(1) provides that the automatic stay may be terminated upon request of a party in interest "for cause, including the lack of adequate protection of an interest in property of [a] party in interest."

Based on the undisputed facts, (and assuming, for the moment, that HSBC has standing), HSBC is entitled to relief from the automatic stay under §362(d)(1) for two (2) independent reasons.

First, the Debtor has not made post-petition monthly payments under the mortgage note and has not proposed any other means of adequately protecting HSBC's interest in the secured property.

It is well established that evidence of a debtor's post-petition default in mortgage payments meets a mortgagee's initial burden of production in establishing "cause" for relief. The burden then shifts to the debtor to rebut the creditor's prima facie case, such as by establishing that the creditor's interest is "adequately protected." E.g., In re Stuart, 402 B.R. 111, 122 (Bankr. E.D. Pa. 2009) (citing cases); see also In re Heath, 79 B.R. 616, 618 (Bankr. E.D. Pa. 1987).

Here, the Debtor neither made post-petition instalment payments on the mortgage note nor proposed to provide adequate protection to HSBC in any other way. Her current, proposed chapter 13 plan makes no reference to the subject secured debt. Nor has she proposed to provideHSBC with some form of adequate protection in her response to the Motion. Thus, she has not rebutted HSBC's prima facie case and cause exists to grant relief from the automatic stay. E.g., In re Jones, 284 B.R. 92, 98 (Bankr. E.D. Pa. 2002), aff'd, 308 B.R. 223 (E.D. Pa. 2003); In re Wright, Egan & Assocs., 60 B.R. 806, 807 (Bankr. E.D. Pa. 1986).

Second, the Debtor's filing amended chapter 13 plan that does not provide for the subject secured debt also establishes a prima facie case for relief from the automatic stay. See, e.g., In re Thorpe, 2019 WL 262197, at *6 (Bankr. E.D. Pa. Jan. 17, 2019) (citing cases) (as a general rule, if the holder of a secured claim is not provided for in a chapter 13 plan, the creditor is entitled to relief from the automatic stay under §362(d)).

B.

The Debtor does not specifically contest HSBC's contention that cause exists for stay relief. Rather, her sole defense to the Motion is that HSBC lacks standing to obtain judicial relief from this court.

In In re Alcide, 450 B.R. 526 (Bankr. E.D. Pa. 2011), I analyzed, at some length, the legal principles governing the determination whether a party has standing to obtain relief from the automatic stay to enforce a claim secured by a mortgage against a debtor's property. Those key principles are:

• a party must have some legally protected interest that either has been adversely affected (thereby warranting judicial relief) or that is in actual danger of being adversely affected (if relief is not granted); and

• to have the "legally protected interest" that makes a moving creditor asserting mortgagee status a "party in interest," the movant must be the party that has authority to enforce the mortgage under applicable nonbankruptcy law.

450 B.R. at 536-37.

I summarized the standing issue in stay relief motions as follows:

Reduced to its essence, to establish its status as a party in interest entitled to seek relief from the automatic stay under 11 U.S.C. § 362(d) in order to enforce legal remedies for a default under a mortgage, a mortgage servicer must demonstrate that:

(1) the initiation of the stay relief motion in the bankruptcy court is within the scope of authority delegated to the servicer by its principal and

(2) the principal itself is a party in interest (i.e., its principal is a party with the right to enforce the mortgage).

Id. at 539.

In Alcide, I denied the motion for relief because the movant, which was the mortgagee's servicer rather than the mortgage holder, failed to establish that enforcement of the mortgage through foreclosure proceedings was within the scope of its servicing agreement with the mortgage holder. Id.

In the present matter, the movant, HSBC, is not a mortgage servicer, but the mortgage holder itself. HSBC is the trustee for what appears to be a securitized trust that holds the beneficial interest in the subject mortgage (while HSBC holds the legal interest in the mortgage). Thus, to have standing, HSBC need establish only that it has the right to enforce the mortgage under Pennsylvania law.

C.

In Pennsylvania, the purpose of the legal proceeding known as an action in mortgage foreclosure, is to determine whether a creditor secured by a mortgage may realize its collateral bysubjecting the secured property to sheriff's sale. See, e.g., ...