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In re Harms

United States Bankruptcy Appellate Panel of the Ninth Circuit

July 9, 2019


          Argued and Submitted on June 20, 2019 at Sacramento, California

          Appeal from the United States Bankruptcy Court for the Northern District of California Honorable Charles D. Novack, Chief Bankruptcy Judge, Presiding.

          James T. Imperiale argued for appellant;

          Erin M. McCartney of Zieve, Brodnax & Steele, LLP argued for appellee.

          Before: SPRAKER, TAYLOR, and BRAND, Bankruptcy Judges.


          SPRAKER, Bankruptcy Judge.


         Chapter 13[1] debtor Dale Norman Harms appeals from an order granting the motion of the Bank of New York Mellon ("BONYM") for relief from the automatic stay and permitting BONYM to proceed with a nonjudicial foreclosure proceeding. BONYM completed its foreclosure and argues that the appeal is now moot. Even though BONYM is correct that reversal of the bankruptcy court's order would not affect the completed nonjudicial foreclosure, the relief from stay order also permitted BONYM to pursue unlawful detainer proceedings to recover possession of the property from Harms and his spouse. Because there is nothing in the record to establish that BONYM already has exercised its unlawful detainer remedy, we may afford some relief to Harms if we were to reverse the relief from stay order and reinstate the automatic stay. Accordingly, this appeal is not moot.

         On appeal, Harms disputes BONYM's standing. But BONYM sufficiently proved its standing in the bankruptcy court. Its agents presented the bankruptcy court with a copy of the subject promissory note indorsed in blank. The agents also presented evidence that the original of the note was within their custody and control and specified the address where the original note is kept. Harms presented no contrary evidence regarding possession of the original note. Nor was there any evidence indicating that anyone else has asserted a competing right to enforce the note. Under these circumstances, we AFFIRM.


         A. The Underlying Dispute Between The Parties.

         The dispute between the parties arose from a promissory note in the principal amount of $392, 000.00 and a deed of trust, both dated April 14, 2005. The note and the deed of trust identify Harms and his wife Laurie as the borrowers and Ampro Mortgage Corporation as the lender. The deed of trust further identifies Ampro as the trustee under the deed of trust. Mortgage Electronic Registration Systems, or MERS, is identified as the beneficiary under the deed of trust "solely as nominee" for Ampro, its successors and assigns.

         The deed of trust states that it secures repayment of the loan memorialized in the note. The collateral for the loan is a single-family residence on West Cypress Road in Oakley, California. The deed of trust was recorded on April 22, 2005, in the Contra Costa County Recorder's Office. In April 2010, MERS assigned to BONYM its beneficial interest under the deed of trust.

         As for the note, the copy presented to the bankruptcy court has three indorsements affixed on the reverse side of the last page: (1) an indorsement by Ampro in favor of Countrywide Document Custody Services; (2) an indorsement by Countrywide Document Custody Services in favor of Countywide Home Loans, Inc.; and (3) an indorsement in blank by Countywide Home Loans, Inc.

         B. Harms' History Of Bankruptcy Filings And His Transfer Of The Property.

         The underlying bankruptcy was the fourth involving Harms, his spouse, and the property within an eight-year time span. In July 2010, Harms and his spouse commenced a chapter 13 bankruptcy case. That case was dismissed in October 2010. In October 2015, Harms commenced a chapter 7 bankruptcy case. Harms received a discharge in that case in January 2016. That case was closed the day after the court entered its discharge order. In September 2016, Harms' spouse commenced a chapter 7 bankruptcy case. Harms' spouse received a discharge in that case in December 2016. That case also was closed the day after the court entered its discharge order. Harms and his spouse commenced their current chapter 13 bankruptcy case in April 2018.

         Meanwhile, in September 2013, Harms and his spouse transferred the property to an entity known as "The Resting Place Eleemosynary Trust." In their current bankruptcy schedules, Harms and his spouse identified themselves as co-trustees of this trust and claimed that they only hold legal title to the property for the trust's benefit.

         C. BONYM's Motion For Relief From Stay.

         In August 2018, BONYM moved for relief from the automatic stay. BONYM sought modification of the stay to permit it to exercise its remedies under state law to foreclose on and recover possession of the property.

         Along with its relief from stay motion, BONYM presented the court with copies of the note, the deed of trust, the assignment of the deed of trust, and the deed the Harms executed to transfer title to the property from themselves to the Resting Place trust. BONYM also presented the court with a relief from stay cover sheet, which provided basic information regarding the property and the loan. The cover sheet indicated that the loan was 104 months in arrears prepetition and 4 months in arrears postpetition. The cover sheet further indicated that the aggregate balance of the loan was $548, 848.47, whereas the value of the property securing the loan was only $435, 128.00.

         BONYM's moving papers also included the declaration of Katisha Gill. Gill identified herself as a bankruptcy case manager for Shellpoint Mortgage Servicing. According to Gill, Shellpoint subserviced the loan on behalf of BONYM. Gill stated she had personal knowledge of the types of business records Shellpoint maintained in the ordinary course of business and the procedures Shellpoint followed in creating those records, including those records maintained for the subject loan. Gill explained that the information set forth in her declaration was derived from Shellpoint's business records. As Gill put it, the records were made by persons with personal knowledge of the information contained in the records or from information transmitted by persons with personal knowledge.

         In relevant part, Gill stated that BONYM had confirmed that it was in possession of the original promissory note. A copy of the note was attached to the declaration as Exhibit 1. Gill further stated that BONYM confirmed that the original note was housed at Bank of New York Fullerton on Burning Tree Road in Fullerton, California. But Gill did not specify how BONYM confirmed this information, other than her general reference to her knowledge derived from Shellpoint's business records.

         Harms opposed the relief from stay motion. Harms disputed every aspect of the alleged loan transaction. Among other things, he claimed that Ampro never loaned him any money. He also denied he signed the note and the deed of trust. Alternately, Harms claims that the alleged loan transaction actually was an "investment contract" and that he is entitled to a share of the proceeds from the investment vehicle in which his note was invested. As a result, Harms maintains that BONYM is indebted to him, "not the other way around."

         Harms further contended that BONYM has not and cannot establish that it has any rights, interests or entitlements under the note or the deed of trust. Specifically, he argued that BONYM had not presented admissible or sufficient evidence to support its claim that it possessed the original note or otherwise was entitled to enforce the note. In particular, Harms contended that Gill's declaration testimony regarding possession of the original note did not qualify for the business records exception to the hearsay rule and hence was inadmissible.

         On September 21, 2018, the bankruptcy court held a hearing on the relief from stay motion. Neither of the parties to this appeal have provided us with a transcript from this hearing. However, the bankruptcy court's hearing minutes entered on the bankruptcy docket indicate that the court directed BONYM to file a supplemental declaration "satisfying the federal rules of evidence" to support its relief from stay motion. The court also provided Harms with an opportunity to submit evidentiary objections, if any, to BONYM's supplemental declaration.

         On September 28, 2018, BONYM filed the required supplemental declaration. The declarant, Nichole Renee Williams, identified herself as an Assistant Vice President for Bank of America, N.A. Williams identified Bank of America as the servicing agent for BONYM with respect to the subject note ...

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