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Full Opinion
MEMORANDUM OF DECISION ON DEBTOR’S OBJECTION TO CLAIM OF WELLS FARGO BANK, NA
The debtor herein (the “Debtor”) has objected to a claim filed in this case by Wells Fargo Bank, NA (‘Wells Fargo”), Claim No. 1-2, dated September 29, 2010 (amending Claim No. 1-1), on the basis that Wells Fargo is not the holder or owner of the note and beneficiary of the deed of trust upon which the claim is based and therefore lacks standing to assert the claim.
Jurisdiction
The Court has jurisdiction over this contested matter pursuant to 28 U.S.C. §§ 157(a)-(b) and 1334(b). Under 28 U.S.C. § 157(b)(2)(B) this is a core proceeding which the Court may determine by final order.
Background
On July 15, 2010, Wells Fargo filed its first proof of claim in this case, Claim No. 1-1, asserting indebtedness of $170,072.60, including prepetition arrears of $38,163.16. The proof of claim attached a copy of a 30-
Claim No. 1-1 also attached a Deed of Trust made out to Malcom D. Gibson, as trustee, and an Assignment of Rents, both dated October 30, 2000, which secure the Note with the Debtor’s interest in the real property located at 2523 Crenshaw Drive, Round Rock Texas 78664 and the other collateral described therein (the “Property”). There is no real dispute that the Deed of Trust and related security documents were properly filed and recorded under Texas law; they bear the November 16, 2000 file stamp of the County Clerk of Williamson County, Texas.
Also attached to Claim No. 1-1 was an Assignment of Deed of Trust by ABN Amro, dated June 20, 2002, pursuant to which ABN AMRO assigned “all beneficial interest in” the Deed of Trust securing the Note, together with the Note, to Mortgage Electronic Registration System (“MERS”) “as nominee for Washington Mutual Bank, FA,” which bears the Williamson County Clerk’s June 28, 2002 file stamp.
Claim No. 1-1 also attached (a) a Loan Modification Transmittal Form, (b) a Loan Modification Agreement signed by the Debtor and an officer of Wells Fargo, dated February 12, 2008, and (c) an unsigned form, with the heading “Freddie Mac,” addressed to an officer of Wells Fargo, which states that Freddie Mac has approved Wells Fargo’s request to consider a loan modification pertaining to the Debtor on certain conditions.
Finally, Claim No. 1-1 attached an Assignment of Mortgage pursuant to which MERS assigned to Wells Fargo “a mortgage” (neither rights under the Deed of Trust, nor the Note) made by the Debtor pertaining to the Note. This Assignment of Mortgage is dated July 12, 2010, which is three days before the date of Claim No. 1-1, and is executed on behalf of MERS “as nominee for Washington Mutual Bank, FA” by John Kennerty, Assistant Secretary, presumably of MERS.
In the Claim Objection, the Debtor’s counsel has represented without dispute that after reviewing Claim No. 1-1 she contacted Wells Fargo’s then counsel, who had signed Claim No. 1-1 on Wells Fargo’s behalf, with questions regarding Wells Fargo’s standing to assert the claim and followed up on July 26, 2010 with a qualified written request under RESPA, 12 U.S.C. § 2605, and a borrower’s request under TILA, 15 U.S.C. §§ 1601, et seq. Wells Fargo responded to these requests in a letter, dated August 18, 2010, in which it stated that Freddie Mac owned the Note, which Freddie Mac had already represented to the Debtor’s counsel in a July 27, 2010 email. See Exhibits N and O, respectively, to the Claim Objection.
Neither the email from Freddie Mac, the letter from Wells Fargo, nor anything else offered by Wells Fargo’s then counsel dealt with the two key issues raised by
Before the expiration of the bar date in this case, though, Wells Fargo filed another proof of claim, amended Claim No. 1-2, dated September 23, 2010, which was the same as Claim No. 1-1 in all respects except one: the copy of the Note attached to Claim No 1-2 had a second indorsement. In addition to the specific, or special indorsement from Mortgage Factory Inc. to ABN Amro, it also had a blank indorsement, signed by Margaret A. Bezy, Vice President, for ABN Amro.
Presumably, Claim No. 1-2 was intended to satisfy the Debtor’s questions about Wells Fargo’s standing to assert a claim: as discussed below, under Texas law a person in possession of a note indorsed in blank may enforce the note and a related deed of trust or mortgage even if the noteholder does not have a valid assignment of the mortgage or deed, of trust. Nevertheless, the Debtor filed the Claim Objection, asserting several reasons why Claim No. 1-2 should be disallowed under 11 U.S.C. § 502 and Fed. R. Bankr.P. 3007, although since that time she actively pursued only two.
First, the Debtor contended that Wells Fargo lacked standing to assert the claim because it admittedly did not own the loan upon which it was based yet filed the claim on its own behalf, not as agent or servicer for Freddie Mac. See In re Unioil, Inc., 962 F.2d 988, 992 (10th Cir.1992) (proof of
Second, the Debtor contended that the blank indorsement that appeared for the first time on the form of Note attached to Claim No. 1-2 was as improper as the purported July 12, 2010 Assignment of Mortgage to Wells Fargo executed on behalf of the assignor/nominee by an employee of Wells Fargo. As alleged' by the Claim Objection, the blank indorsement was forged in response to problems with the documentation of Wells Fargo’s right to enforce the Note, just, as the Debtor contended, the July 12, 2010 Assignment of Mortgage was manufactured three days before Claim No. 1-1 was filed in order to falsely lead the Debtor and the Court to think that Wells Fargo had an independent right to enforce a mortgage on the Property-
Wells Fargo retained new counsel,
The Court therefore denied the Debtor’s summary judgment motion for an order declaring that Wells Fargo lacked standing to assert Claim No. 1-2. Because discovery with respect to the bona fides of the all-important blank indorsement appearing on the version of the Note attached to Claim No. 1-2, was not complete, however, the Court scheduled an evidentiary hearing oh that issue.
After the completion of discovery, which included the depositions of Mr. Kennerty and Mr. Kyle N. Campbell — the third witness offered by Wells Fargo to corroborate its possession of the Note attached to Claim No. 1-2 and the propriety of the blank indorsement — the Court held an evi-dentiary hearing in which it took testimony from Mr. Campbell and the Debtor. The parties earlier agreed to the admission of Mr. Kennerty’s deposition transcript in lieu of his testimony, as well as to the admission into evidence of the exhibits attached to Claim Nos. 1-1 and 1-2, as well as the original of the Note with the blank ABN Amro indorsement, a copy of which was attached to Claim No. 1-2.
Based on the Court’s review of the original of that document, the blank ABN Amro indorsement has been stamped on the last page of the Note, although it is not discernable whether Margaret A. Bezy’s signature was separately written in on the signature line or was part of the stamp. See December 3, 2013 Trial Transcript (“Trial Tr.”), at 5-6 (The Court: “So this is the second endorsement, the blank endorsement, then is a file stamp? It’s a stamp?” Mr. Dunn: “I have no personal
While agreeing to the admission of the original version of the Note, the Debtor did not, of course, agree to the validity of the blank ABN .Amro indorsement, continuing to assert that it was forged. The Debtor also objected to the admission of certain other proposed exhibits printed from Wells Fargo’s computer file for the loan at issue, which Wells Fargo offered as business records under Fed.R.Evid. 803(6).
After post-trial briefing on the Debtor’s objection to the exhibits’ admission, the Debtor also moved to reopen the record to take further discovery of Wells Fargo based on the contention that she had unearthed withheld evidence consisting of a Wells Fargo attorney manual that supported her contention that Wells Fargo had an “indorsement team” that improperly added the blank indorsement to the Note.
The Court granted this motion, provided that the additional discovery would pertain only to the loan and Note at issue. Several months passed until, after the Court’s inquiry, the parties replied that they were not going to present any more evidence and wanted a ruling on the merits of the Claim Objection on the basis of the evidence previously submitted.
Discussion
Because it is undisputed that (a) the Debtor signed the Note (and received the loan proceeds)
Wells Fargo’s right to enforce the Note, and thus its standing to assert Claim No. 1-2, derives from the Note’s status as a negotiable instrument under Texas’ version of the U.C.C. See Tex. Bus. & Com. Code § 3.104(a). The Debtor has not disputed that the Note is negotiable, and the Note in any event satisfies the requirements of a negotiable instrument under Texas law, as it is “an unconditional promise ... to pay a fixed amount of money ... payable to ... order at the time it [was] issued; ... payable ... at a definite time; and does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money” except as permitted by the statute. Id. See also Farkas v. JP Morgan Chase Bank, 2012 U.S. Dist. LEXIS 190194, at *6-7 (W.D.Tex. June 22, 2012), aff'd, 544 Fed.Appx. 324 (5th Cir.2013), cert. denied, — U.S.-, 134 S.Ct. 628, 187 L.Ed.2d 411 (2013); Steinberg v. Bank of Am., N.A., 498 B.R. 391, 2013 WL 2351797, *3-4, 2013 Bankr.LEXIS 2230, at *12-14 (10th Cir. BAP May 30, 2013).
Under Texas law, a person entitled to enforce a negotiable instrument such as the Note includes “the holder of the instrument,” Tex. Bus. & Com.Code § 3.301(f), and “a holder is ‘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.’ ” Nguyen v. Fannie Mae, 958 F.Supp.2d at 787-88 (quoting Tex. Bus. & Com.Code § 1.201(b)(21)(A)).
Under Texas’ U.C.C.,
(a) If an indorsement is made by the holder of an instrument, whether payable to an identified person or payable to bearer, and the indorsement identifies a person to whom it makes the instrument payable, it is a ‘special indorsement.’ When specially indorsed, an instrument becomes payable to the identified person and may be negotiated14 only by the indorsement of that person ....
(b) If an indorsement is made by the holder of an instrument and it is not a special indorsement, it is a ‘blank indorsement.’ When indorsed in blank, an instrument becomes payable to bearer and may be negotiated by transfer of possession alone until specially indorsed.
Tex. Bus. & Com.Code § 3.205. See generally Venegas v. U.S. Bank, Nat’l Ass’n, 2013 WL 1948118, at *3, 2013 U.S. Dist. LEXIS 66000, at *7 (W.D.Tex. May 9, 2013):
Under Texas law, a holder is ‘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.’ Tex. Bus. & Com.Code § 1.201(b)(21)(A). ‘A person can become the holder of an instrument when the instrument is issued to that person, or he can become a holder by negotia*43 tion.’ Martin v. New Century Mortg. Co., 377 S.W.3d 79, 84 (Tex.App. Houston 2012) (citing Tex. Bus. & Com'.Code § 3.201 cmt. 1). When the instrument is payable to an identified entity, ‘negotiation requires transfer of possession of the instrument and its indorsement by the holder.’ Id. (quoting Tex. Bus. & Com.Code § 3.201(b)). An instrument is payable to bearer when it is indorsed in blank. Tex. Bus. & Com.Code § 3.205(b).
As discussed above, Wells Fargo’s counsel provided the original Note to the Court at the evidentiary hearing, and it was admitted into evidence with the sole caveat that the Debtor disputes the bona tides of ABN Amro’s blank indorsement that appears on it. Trial Tr. at 4-7. Thus, it is uncontroverted that the Note is in Wells Fargo’s possession. In accordance with the foregoing sections of Texas’ U.C.C., therefore, if the blank ABN Amro indorsement is bona fide, Wells Fargo is the holder of the Note, entitled to enforce it. Trimm v. U.S. Bank, N.A., 2014 WL 3535724, at *4, 2014 Tex.App. LEXIS 7880, at *13; Das v. Deutsche Bank Nat’l Trust Co., 2014 WL 1022385, at *3, 2014 Tex. App. LEXIS 2541, at *6 (“An instrument containing a blank endorsement is payable to the bearer and may be negotiated by transfer of possession alone.”). On the other hand, if the indorsement is forged, it is not valid, and — the only other indorsement on the Note being a specific indorsement to ABN Amro — Wells Fargo could not rely on the foregoing statutory provisions to establish that it is the holder of the Note. See In re Pastran, 2010 WL 2773243, at *3, 2010 Bankr.LEXIS 2237, at *10 (“[S]inee [claimant] is in possession of a promissory note endorsed in ‘blank,’ it is, by definition, a ‘holder’ under section 3.201(a). This, of course, assumes that all of the indorsements on the Note are authentic and authorized.”).
Texas’ U.C.C. provides that, although Wells Fargo has the ultimate burden of proof, the indorsements on the Note, including ABN Amro’s all-important blank indorsement by Margaret A. Bezy, Vice President, are presumed to be authentic:
In an action with respect to an instrument, the authenticity of, and authority to make, each signature on the instrument are admitted unless specifically denied in the pleadings. If the validity of a signature is denied in the pleadings, the burden of establishing validity is on the person claiming validity,' but the signature is presumed to be authentic.
Tex. Bus. & Com.Code § 3.308(a) (emphasis added).
Texas’ U.C.C. defines “presumed” as follows: “Whenever this title creates a ‘presumption’ with respect to a fact, or provides that a fact is ‘presumed,’ the trier of fact must find the existence of the fact unless and until evidence is introduced that supports a finding of its nonexistence.” Id. § 1.206(a). In re Pastran, 2010 WL 2773243, at *3, 2010 Bankr.LEX-IS 2237, at *10-11 (“Thus, [the claimant] is not required to prove that the indorse-ments on the Note are valid and authentic unless and until the Debtor overcomes the presumption by putting on evidence that supports a finding that the indorsements on the Note were somehow forged or unauthorized.”).
“The presumption rests upon the fact that in ordinary experience forged or unauthorized signatures are very uncommon, and normally any evidence is within the control of, or more accessible to, the defen
While Tex. Bus. & CormCode §§ 3.308(a) and 1.206(a) provide that the presumption of an authentic signature applies “unless and until evidence is introduced that supports a finding of nonexistence,” they do not state the quantum of evidence to overcome the presumption. The Official Comment to § 3.308, however, refers to “some evidence” and to “some sufficient showing of the grounds for the denial before the plaintiff is required to introduce evidence,” and then states, “[t]he defendant’s evidence need not be sufficient to require a directed verdict, but it must be enough to support the denial by permitting a finding in the defendant’s favor.” Off. Cmt. 1 to § 3.308.
It is important to keep in mind, however, that if the presumption is overcome, the ultimate burden of proof under Tex. Bus. & Com.Code §§ 3.308(a) and 1.206(a) is on Wells Fargo. See People v. Richetti 302 N.Y. 290, 298, 97 N.E.2d 908 (1951) (“A presumption of regularity exists only until contrary substantial evidence appears .... It forces the opposing party (defendant here) to go forward with proof but, once he does go forward, the presumption is out of the case.”). Thus, in In
What is the Debtor’s evidence that the blank ABN Amro indorsement was forged or unauthorized, and is it sufficient to overcome the presumption under Tex. Bus. & Com.Code §§ 3.308(a) and 1.206(a)?
The Debtor first points out that the version of the Note attached to Wells Fargo’s initial proof of claim, Claim No. 1-1, did not contain the blank ABN Amro in-dorsement. Besides observing that the penalty for filing a false proof of claim, as stated in Official Form 10, can be substantial, the Debtor also observes that, with the exception of the versions of the Note attached, Claim Nos. 1-1 and 1-2 were otherwise identical and included copies of most if not all of the potentially operative documents from Wells Fargo’s files, which, she argues, strongly suggests that Claim No. 1-1 was not merely sloppily prepared but, rather, reflected a thorough review of the flies, thus suggesting a nefarious reason why the form of Note with the blank ABN Amro indorsement was not attached to that proof of claim but was attached to Claim No. 1-2.
Were this the Debtor’s only evidence, the Court might nevertheless hold that she had not overcome the presumption in Tex. Bus. & Com.Code §§ 3.308(a) and 1.206(a). That was the result in In re Phillips, 491 B.R. at 273,
In addition, however, the Debtor relies on the Assignment of Mortgage from MERS, “as nominee for Washington Mutual Bank, FA” having been executed by Mr. Kennerty, an officer of Wells Fargo (the assignee), on behalf of the assignor. Even more tellingly, it appears clear from the date of the Assignment — only three days
It appears from Mr. Kennerty’s deposition transcript, although his testimony on this point was at times quite evasive, that during the period in question in 2010 he signed on average between 50 and 150 original documents a day in connection with Wells Fargo’s administration and enforcement of defaulted loans. Deposition Transcript, dated October 15, 2012, of Herman John Kennerty (“Dep.Tr.”) at 89-92. This was part of his duties as the Wells Fargo manager in charge of “default documents.” Id. at 44. In other words, on a daily basis Mr. Kennerty and his team, members of which he also testified signed a like number of documents each day, id., processed a large volume of loan documents for enforcement with very little thought about what they were doing. It is not clear that Mr. Kennerty fully understood the legal consequences of signing these documents; for example, he testified when shown the Assignment of Mortgage that he executed it not on behalf of the assigning party but, rather, on behalf of the party “in getting the assignment,” although he also testified that “I’m — I’m not an attorney, but the way I understand this document, it was assigning the mortgage, taking it out of MERS’ name and putting into Wells Fargo Bank’s name.” Id. at 93-4. It is clear, however, that he pretty much signed whatever outside counsel working on the default put in front of him and that these documents often included assignments, including the Assignment of Mortgage, drafted by Wells Fargo’s outside enforcement counsel to fill in missing gaps in the record.
Thus, in describing the work of his “assignment team” Mr. Kennerty stated, “[I]f there was not an assignment in there [that is, in Wells Fargo’s loan file] then they would — excuse me, they would advise the attorney that we did not have it, that they would need to draft the — the appropriate assignment.” Id. at 116. See also id. at 76 (“[I]f the assignment needed to be created they would have advised the attorney, the requesting attorney to — that we did not have the assignment in the collateral file, then they needed to draw up the appropriate document.”); id. at 121 (“Once it [that is, the collateral file] was received then they would check to see if it was something that could be used or not used; and, if it’s something that was in the file, but couldn’t be used then they would advise the requesting attorney to go ahead and draft the actual document.”).
Because Wells Fargo does not rely on the Assignment of Mortgage to prove its claim, the foregoing evidence is helpful to
Moreover, Mr. Kennerty’s testimony does not stop at describing manufactured mortgage assignments. He also testified that his “assignment team’s” duties were not limited to processing assignments, including, when determined necessary, creating them; in addition, the “assignment team” included people tasked with endorsing notes. Id. at 136. His testimony on this issue is critical and will be quoted at length:
Q. Okay. Did your department endorse notes?
A. Yes.
Q. Okay. And how was it that your department would come to endorse notes?
A. I don’t recall the specific process, but to the best of my recollection there’s usually a — in—usually a — blank endorsement on — on the notes and there would — -and then based on that they would complete the endorsement.
Q. So when you say they would complete the endorsement, who is they?
A. I’m sorry. There was a — there— there were some processors that would perform that task.
Q. Okay. When you say complete the endorsement, what do you mean by that?
A. They would execute a note endorsement, a new note endorsement if there was a blank one on there.
Q. And they would do that with the original note from the collateral file?
A. To the best of my recollection, yes.
Q. Okay. And at whose request would the processors perform that function?
A. Again, to the best of my recollection, it would be done at the — either the foreclosure attorney’s requést or the bankruptcy attorney’s request.
Id. at 129-31.
Mr. Kennerty then testified about the process for receiving such requests from outside enforcement attorneys and how one or two people in his department had
He then testified as follows:
Q. And the actual procedure for endorsing an original note, if you could just walk me through that process. What would the processor do?
A. To the best of my recollection, they would — the request would come in. Again, we would check to see if we had the collateral file. If we — if we had it and depending on the status of the — of the loan itself, if we had the note then we could check to see, you know, what was actually on the note to see what needed to be done. If we did not have the collateral file then they would work — that processor would work with the collateral file ordering team to reach out with the appropriate attorney or, I’m sorry, the appropriate custodian to obtain the collateral file. And then they would look to — once the file came in they would look to ensure that the original note was in there and check to see if there was any endorsement on the back of the note.
Q. Okay. And if there wasn’t how would they go about — how would the processor go about endorsing the note ?
A. I don’t recall specifically how they completed that particular task.
Q. Was it a rubber stamp? Was it somebody signing? How was it?
A. To the best of my recollection, a stamp was involved but then it had to be signed.
Q. Okay. And if an endorsement was coming from an entity that no longer existed how would it be signed?
A. I do not recall.
Id. at 135-36 (emphasis added).
Later in his deposition, Mr. Kennerty was shown the two forms of the Note attached to Claim Nos. 1-1 and No. 1-2, respectively, and testified that he did not know how or when the indorsements were placed on them. Id. at 142-44. He did have this to say, however:
Q. Now, if any one of these endorsements were a rubber stamp and produced by your department would there be a record of that somewhere?
Mr. Cromwell: Objection; misstates his testimony.
Witness. I — the term rubber stamp is a — not accurate because although the — a stamp to produce the ‘pay to order of was used, the term to me, use of a rubber stamp, means it was signed, there was a signature on the — on the stamp itself and that — to my recollection, that was not the case.
Id. at 143-44. Mr. Kennerty said nothing more that was relevant to the issue of whether Wells Fargo forged the blank ABN Amro indorsement, with the exception of stating that “I am not familiar with Margaret Bezy,” id. at 143, who has not been identified as ever having been an employee of Wells Fargo and presumably was an employee of ABN Amro.
I conclude that the foregoing evidence cumulatively shifts the burden to Wells Fargo under Tex. Bus. & Com.Code §§ 3.308(a) and l-206(a) to show the authenticity of the blank ABN Amro indorsement to establish its status as a holder of