Lift Stay Denied Because US Bank Cannot Prove Ownership

Here is a very recent case out of the Southern District of NY where the Bankruptcy Court rightly decided that the Movant in a lift stay action could not win since it was not a “party in interest.”  Specifically, the Court cited the definition of the term creditor:  ”

Section 101(10) of the Bankruptcy Code defines a “creditor,” in part, as an “entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor.” 11 U.S.C. § 101(10)(A) (emphasis added). A “claim” is a “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, legal, equitable, secured or unsecured.” Id. § 101(5)(A) (emphasis added).

Despite the Bankruptcy Code’s broad definition of a “claim,” U.S. Bank “has not demonstrated its ‘right to payment’ because . . . it lacks the ability to seek the state law remedy of foreclosure.” Mims, 438 B.R. at 56 (citing

 

Johnson v. Home State Bank, 501 U.S. 78, 81 (1991) (finding that a mortgage foreclosure was a “right to payment” against the debtor)).”

This decision and others like it point out the continuing legal problems which so called mortgage lenders have when they try to foreclose and someone challenges their right to foreclose as they cannot prove ownership of the debt.  This issue is a result of the whole trading process in mortage backed securities as all of those transfers of bundled mortgages can often not be documented.

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