Last week, New Jersey Bankruptcy court judge, the Hon. Judith Wizmur granted debtor John Kemp’s application to expunge Countrywide’s proof of claim. Countrywide’s successor Bank of New York filed a proof of claim in Kemp’s bankruptcy, which is typical in a bankruptcy proceeding. However, borrowers and their bankruptcy counsel are becoming more aggressive in scrutinizing the chain of title on the mortgage loan docs and if necessary, bringing a challenge to the lender’s claim.
Again, the MERS problem struck. Countrywide’s successor doesn’t appear to have possession of the promissory note. Instead, they had an a Pooling Services Agreement which required Countrywide to deliver possession of the Note and endorse it “in blank.” MERS recorded an assignment of the mortgage with the county records to Bank of New York–but as we all know by know, the security follows the debt and the debt (Promissory Note) was still sitting in Countrywide’s possession.
Here’s where things get interesting. A few weeks before trial, Countrywide found the Note, they signed an “Allonge” to endorse it to Bank of New York, and even more interesting, a former Countrywide employee stated that Countrywide often retained possession of the original note. The strangest part is that that while the endorsement had been completed belatedly, apparently possession of the Note never made it to Bank of New York.
The Court gave a fairly technical recital of the New Jersey Uniform Commercial Code, and ultimately concluded that Bank of New York might now have “ownership” of the loan, but was never actually the holder of the note, and not at the time that the proof of claim had been filed.
This of course begs the questions, would the result have been different if Countrywide had transferred possession of the note the day before the proof of claim had been filed? It still would have been years after the purported sale of the loan, but I think perhaps that would have “perfected” the transfer of the loan. The assignment of the deed of trust would have created a “springing” interest or executory contract and delivery of the actual would have been performance of the contract. Then the questions would have been, who had the right to collect the payments until the delivery of the Note?