Sleepless In Sacramento

alarm clockA really good bankruptcy law conference leaves you unable to sleep the next night.

If you don’t learn something that scares you sleepless about how you practice, you weren’t paying attention.

Service of lien strip motions tops my worry list after  last weekend’s  Northern California Bankruptcy Conference in Sacramento.

Lien strips may be the biggest dollar value thing we do in a Chapter 13 and the one with the longest impact on the debtor.

Most of my lien strips are being granted without a squeak from the other side.  Nice.

I guess.

Then one of the judges reported rumors that debt buyers are buying up underwater mortgages for collection as real estate values increase.

And another judge wouldn’t speak to the question of whether service on the servicer was sufficient to bind the holder of the note (assuming there really is a note and that some court cares).

And a third judge added that the real arbiter of the sufficiency of our efforts may be the title companies or title insurers, when it comes time to sell the affected property.

How does that sound to you?  A couple of well funded organizations dedicated to finding the chinks in your lien stripping procedures.

Who owns the note?

My distress level rose when another judge repeatedly offered that it wasn’t that hard to figure out who really owned a note.  Huh?  I hope I kept my voice down when I asked my partner what planet he came from.

One of the most satisfying things about the Sacramento forum is the final afternoon judges panel where they take questions and engage, to the extent possible, in a dialogue with the bar.  We got to kick around how we might use discovery to flush out the identity of the real party in interest for an underwater lien.

There was a fun exchange when one new judge, a consumer bankruptcy lawyer til last year when he took the bench, recounted that he used to resent the judge who bounced his lien strip orders for improper service.  Now, that challenge to the sufficiency of service seems like a boon to him, saving him from a train wreck later.

Hide the ball

Hank Hildebrand added to the sense of gamesmanship in this area when he reported that it was only when Bank of America sued him in his capacity as trustee that he learned that BAC Home Loans is a fictitious business name of Bank of America, N.A.

And what do we know about serving federally insured depository institutions?  Certified mail,  addressed to an officer.

(h) Service of process on an insured depository institution.
Service on an insured depository institution (as defined in section 3 of the Federal
Deposit Insurance Act) in a contested matter or adversary proceeding shall be
made by certified mail addressed to an officer of the institution unless—
(1) the institution has appeared by its attorney, in which case the attorney
shall be served by first class mail;
(2) the court orders otherwise after service upon the institution by
certified mail of notice of an application to permit service on the
institution by first class mail sent to an officer of the institution designated
by the institution; or
(3) the institution has waived in writing its entitlement to service by certified mail
by designating an officer to receive service.

Judge Keith Lundin chimed in, hoping that some lawyer would bring a motion under 342 to require servicers and note holders to designate an address at which they can be served.

The consensus seemed to be to serve as many entities as have been involved, with care.

Next time I’ll layout my action items for lien strips going forward.

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  1. Mark Markus says

    Do you record the lien avoidance order after discharge has been granted in your cases? I was hoping that would be sufficient for a title company. If not, I suppose that would be a good basis to reopen the bankruptcy case and then serve whoever the new pretend entity is….

  2. My thought is that if you served the mortgagee (MERS?) last recorded at the registry of deeds you should be ok (but, maybe not). The discharge will eliminate the note holder. Please be advised that this in Massachusetts.