Opinion
NOT FOR PUBLICATION
Date: March 16, 2011.
MEMORANDUM DECISION RE MOTION FOR RELIEF FROM AUTOMATIC STAY
MARGARET M. MANN, JUDGE, United States Bankruptcy Court.
I. Introduction
Debtor Silvia Jimenez ("Jimenez") filed her Chapter 11 petition on or about October 9, 2010. Jimenez, together with her husband Juan Carlos, owns the real property located at 410 Montgomery Street in Chula Vista, California (the "Property"). The Property has three units. According to the Operating Reports, Jimenez resides in one unit, her father resides in another, and a tenant resides in the third. Currently the monthly rent received from the Property is $ 1, 750.
The Property is encumbered by a deed of trust ("DOT") securing a promissory note ("Note") payable on its face to Alliance Bancorp, executed in connection with a $740,000.00 loan made by Alliance. A copy of the Note is endorsed as payable to U.S. Bank National Association ("US Bank"), as Trustee for Washington Mutual Mortgage Pass through Certificate for WMALT Series 2006-AR7 Trust. The original monthly payment was $2,380.13, however this amount has increased incrementally and U.S. Bank now asserts the monthly payment is $4,197.40.
At some point after the increase in monthly payments, Jimenez fell behind and requested a loan modification. On April 15, 2010, Jimenez received a Trial Loan Modification Agreement from Chase Home Finance, LLC ("Chase"), as "Lender." The Trial Loan Modification Agreement, attached to Jimenez' Opposition to Motion for Relief from Automatic Stay ("Opposition") as "Exhibit A, " provided that Jimenez make three monthly payments of $996.20 each, beginning on May 1, 2010 and continuing until July 1, 2010. The Trial Loan Modification states, "[a]fter successful completion of the Trial Period Plan, CHASE will send you a Modification Agreement for your signature which will modify the Loan as necessary to reflect this new payment amount, " and "[i]f all payments are made as scheduled, we will consider a permanent workout solution for your Loan."
JPMorgan Chase Bank and Chase Home Finance, LLC are collectively referred to as "Chase."
After the bankruptcy was filed, U.S. Bank brought a Motion for Relief from Automatic Stay ("Motion"), supported by a declaration filed by Chase. Jimenez filed her Opposition, arguing U.S. Bank does have standing to bring the Motion, and relief should not be granted because the loan modification remains in dispute. Jimenez claims U.S. Bank is not the real party in interest, and does not have standing to bring the Motion. She asserts that she has only been in contact with Chase, and it was her belief that Chase is the owner of the secured loan.
Jimenez also claims her monthly payment was modified and reduced from $4,197.40 a month to $996.20 a month commencing on May 1, 2010. In support, Jimenez submitted a copy of the Trial Loan Modification agreement with Chase. Jimenez asserts she made the pre-petition payments to Chase by cashier's checks, and attached evidence supporting withdrawal of the funds and mailings to Chase as "Exhibit B" to her Opposition.
According to Jimenez, she spoke with Chase representatives on several occasions during the modification process, who were unresponsive and uninformed, and who provided conflicting information regarding the status of her loan modification request. After receiving the Trial Loan Modification, and hearing that her application for a permanent modification was in front of an underwriter who would make the final decision, she was apparently told she needed to resubmit the entire application on September 23, 2010. Then, on September 30, 2010, Jimenez received a denial letter in the mail, seven days after Chase told her it would take up to 30 days to review her application. The denial letter, Exhibit "C" to the Opposition, claimed Jimenez elected "not to proceed with the modification either because you (Jimenez) notified us that you wish to cancel your request, or you failed to accept the offer materials within the required time period."
Jimenez has not made any monthly post-petition payments to U.S. Bank, even in the potentially modified amount of $996.20. These are listed in her monthly operating reports as unpaid and disputed.
The Court took the Motion under submission at the hearing held on March 16, 2011, and rules as follows.
II. Analysis
The Court looks first to whether U.S. Bank had standing to bring the Motion, and then to whether relief should be granted.
A. Standing to Bring Motion
Due to the limited scope of a relief from stay proceeding, the standing requirement is not a difficult one to meet. Section 362(d) of the Bankruptcy Code provides that stay relief may be granted to a "party in interest, " and any party affected by the stay should be entitled to seek relief. Johnson v. Righetti (In re Johnson), 756 F.2d 738, 740 (9th Cir. 1985), overruled on other grounds by Travelers Cas. & Sur. Co. v. Pac. Gas & Elec. Co., 549 U.S. 443 (2007); 3 Collier on Bankruptcy ¶ 362.07[2] (3d ed. rev. 2010); see also First Fed. Bank of Cal. v. Robbins (In re Robbins), 310 B.R. 626, 631 (B.A.P. 9th Cir. 2004).
A party seeking to enforce a real estate secured loan must demonstrate a colorable claim that it has "an interest in the relevant note, " "the right, under applicable substantive law, to enforce the note[], " and that it has been "injured by debtor's conduct (presumably through a default on the note)." In re Wilhelm, 407 B.R. 392, 398 (Bankr. D. Id. 2009); In re Aniel, 427 B.R. 811, 815 (Bankr. N.D. Cal. 2010).
Section 3301 of the California Commercial Code provides that a "holder" of a note is entitled to enforce it, and the "holder" of a note include "the person in possession of a negotiable instrument that is payable either to bearer or, to an identified person that is the person in possession." Cal. Comm. Code § 1201(b)(21)(A) (Deering 2011). U.S. Bank presented undisputed evidence that it holds the Note, which is endorsed directly to it. As holder of the Note, U.S. Bank has an interest in the Note and has the right to enforce it. U.S. Bank has also been injured by Jimenez not making payments on the Note post-petition. Therefore, the Court finds that, despite the potential presence of unresolved issues regarding the loan modification and the role of Chase, U.S. Bank has presented a prima facie case of its standing to bring this Motion. Aniel, 427 B.R. at 816.
B. Relief From Stay
US Bank seeks relief from stay on two statutory grounds: 11 U.S.C. § 362(d)(1) (2011) (cause, including lack of adequate protection of an interest in property), and 11 U.S.C. § 362(d)(2) (2011) (lack of equity and property not necessary for an effective reorganization).
Because of the variations between Chase's representations and actions regarding the Trial Loan Modification; including not properly following up with Jimenez at the conclusion of the trial period, informing Jimenez that no payments had been received in two years, telling her that a permanent modification was in front of the underwriter, making her resend the whole application, and then issuing a denial letter within a few days of receiving the new application, Jimenez may have valid causes of action to assert against Chase or U.S. Bank. Regardless of whether the federal Home Affordable Mortgage Program provides a separate private right of action for Jimenez, she may have other state law claims. Escobedo v. Countrywide, 2009 U.S. Dist. LEXIS 117017, at * 10 (S.D. Cal. Dec. 15, 2009) (allowing claims for violation of unfair business practices under Cal. Bus. & Prof. Code § 17200); Villa v. Wells Fargo Bank, N.A., 2010 U.S. Dist. LEXIS 23741, at *9 (S.D. Ca. 2010) (allowing an amendment to allege misrepresentation claims); Aceves v. U.S. Bank, N.A., 192 Cal.App.4th 218, 233 (Cal. App. 2d 2011) (allowing promissory estoppel and fraud claims). These claims must be brought in a separate proceeding, however, because they cannot be decided in the context of this Motion. Johnson, 756 F.2d at 740 (emphasis added) ("The validity of the claim or contract underlying the claim is not litigated during the [relief from stay] hearing."); Biggs v. Stovin (In re Luz Int'l), 219 B.R. 837, 842-43 (B.A.P. 9th Cir. 1998) (creditor's claim for setoff improperly decided in relief from stay motion and required filing of separate adversary proceeding).
In the meantime, this dispute does not relieve Jimenez from making monthly adequate protection payments to protect U.S. Bank. United Sav. Ass'n of Texas v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 370 (1988) (adequate protection payments can protect valid interests of creditors); Aniel, 427 B.R. at 817. The Court finds that monthly payments in the amount of $960.20, the amount proposed by U.S. Bank in the Trial Modification Agreement, plus sufficient payments to cure the post-petition default in a reasonable time, would adequately protect U.S. Bank. Aniel, 427 B.R. at 817. If Jimenez fails to offer these payments, or defaults on this obligation, the Court will grant relief from stay under 11 U.S.C. § 362(d)(1).
As to U.S. Bank's alternative ground for relief from stay under section 362(d)(1), it is undisputed that there is no equity in the Property, as Jimenez admits that the fair market value of the Property is $400,000, less than the amount of U.S. Bank's claim. However, the Court must also consider whether the Property is necessary to an effective reorganization. Timbers, 484 U.S. at 375; In re Bialac, 694 F.2d 625, 626 (9th Cir. 1982).
The Property is Jimenez's residence and the Court cannot conclude at this time that she cannot restructure this debt in her Chapter 11 case. The monthly property report shows rental income for the Property of $1,750, which not only provides sufficient income to make the trial monthly payment of $960.20, but also to cure the default and potentially provide additional income which could fund Jimenez's plan of reorganization. The Court therefore finds that the Property is necessary for an effective reorganization and denies relief from stay under 11 U.S.C. § 362(d)(2).
III. Conclusion
The Court denies the Motion, subject to Jimenez submitting for Court approval an adequate protection plan for curing her post-petition default and providing for future monthly payments. This adequate protection proposal should include default remedies. A status conference will be held on this matter on April 28, 2011 at 2.00 p.m. for further proceedings on the adequate protection to be offered. This Memorandum Decision is without prejudice to any issue regarding the loan modification.
Counsel for Jimenez is directed to prepare an order in accordance with this Memorandum Decision within ten (10) days of the date of entry.
IT IS SO ORDERED.