NOT FOR PUBLICATION
MEMORANDUM AND ORDER
DC No. GJH-3.
CHRISTOPHER D. JAIME, Bankruptcy Judge.
This memorandum and order is entered following an evidentiary hearing held on April 17, 2017. Appearances on behalf of debtor Trina Gold ("Debtor"), the chapter 7 trustee ("Trustee"), the debtor's non-filing spouse and only objecting party Damon Gold ("Mr. Gold"), Wells Fargo Bank, National Association, as Trustee for Banc of America Funding Corporation, Mortgage Pass-Through Certificates, Series 2007-E, its assignees and/or successors ("WFB"), by and through its servicing agent Nationstar Mortgage, LLC ("Nationstar"), were stated on the record.
The evidentiary hearing was set on a motion initially filed by the Trustee for authorization to make a final distribution of proceeds from the sale of real property located at 3149 W. Lake Blvd., Tahoe City, California ("Tahoe Property") to the secured creditors with senior and junior liens on the property.
The court continued the evidentiary hearing to May 16, 2017, to announce its decision. However, upon further consideration the court has elected to enter a written decision in this memorandum and order in lieu of an oral decision placed on the record. This memorandum and order constitutes the court's findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a) applicable by Federal Rules of Bankruptcy Procedure 7052 and 9014(c).
On or about July 25, 2007, the Debtor and Mr. Gold signed a promissory note in the original principal amount of $850,000.00 payable to Bank of America N.A. ("BofA"). The note provided for interest only from 2007 through 2017 with an initial fixed-interest rate of 6.875% through August 1, 2012, at which time the interest rate would change to the average 1-year LIBOR rate plus 2.250% with similar annual interest rate adjustments through 2017. So, from loan origination in 2007 through July 1, 2012, monthly interest-only payments were fixed at $4,869.79.
The note was secured by a deed of trust on the Tahoe Property which also named BofA as the beneficiary. The deed of trust was recorded with the Placer County Recorder on July 30, 2007. A copy of the deed of trust is attached as Nationstar's Exhibit 2 to dkt. 140 and is admitted into evidence without objection.
An assignment of the beneficial interest of the deed of trust from BofA to WFB dated January 25, 2012, was recorded with the Placer County Recorder on or about February 9, 2012. A copy of the assignment is attached as Nationstar's Exhibit 3 to dkt. 140 and is admitted into evidence without objection.
When the Trustee sold the Tahoe Property, it appeared from recorded documents and a title report that the property was encumbered by a senior and a junior lien.
Mr. Gold asserts that neither WFB nor Nationstar are the proper payee(s) or recipient(s) of the Tahoe Property sale proceeds because neither hold a claim secured by that property. He concedes that the principal balance owed on the note is $823,000.00.
The Evidentiary Hearing and the Production of the Original Promissory Note Endorsed Payable to WFB
Asserting that it is the proper payee and recipient of Tahoe Property sale proceeds for the benefit of WFB, Nationstar brought with it to court what its witness, Gene Mays ("Mr. Mays"), described as Nationstar's "collateral file." The documents in the collateral file consisted of original loan documents for BofA's 2007 loan to the Debtor and Mr. Gold. Those documents included an original promissory note endorsed by BofA payable to WFB (the "Original Endorsed Note"). The court inspected all documents in the collateral file as did Mr. Gold and his attorney, the Debtor and her attorney, and the Trustee and his attorney.
Nationstar moved to admit the Original Endorsed Note into evidence and Mr. Gold objected on the basis that the Original Endorsed Note is not a business record and it was not properly authenticated. The court reserved its ruling on Mr. Gold's objection. For reasons explained below, the court now overrules Mr. Gold's objection and admits the Original Endorsed Note into evidence for its full probative value.
Mr. Gold cites and relies primarily on
The promissory note in
Commercial paper is self-authenticating under Federal Rule of Evidence 902(9).
Regarding the self-authentication and admissibility of an original promissory note, the court considers
Attempting to rebut Nationstar's prima facie showing of authenticity by the production of the Original Endorsed Note, Mr. Gold maintains that the Original Endorsed Note differs from the copy of the note that Nationstar produced as its Exhibit 1 at dkt. 140. The purported difference is that the former is endorsed by BofA payable to WFB whereas the latter is endorsed in blank. Mr. Mays testified that except for the endorsements, the two notes are the same. The court finds Mr. Mays' testimony credible and believes Mr. Mays over the unsupported and unsubstantiated claim of Mr. Gold's attorney.
Mr. Gold's attorney also stated that Mr. Gold did not sign the Original Endorsed Note. Nationstar's attorney objected to counsel testifying on Mr. Gold's behalf and the court sustained that objection. Mr. Gold was present in the courtroom throughout the evidentiary hearing and his attorney could have easily called him as a witness to testify about his signature on the Original Endorsed Note. Mr. Gold's attorney neglected to call Mr. Gold as a witness. As a result, Mr. Gold did not testify and there is no other evidence that Mr. Gold's signature and the Original Endorsed Note are other than authentic.
In short, Mr. Gold has produced no evidence to rebut Nationstar's authentication of the Original Endorsed Note based upon its in-court production during the evidentiary hearing. Therefore, to re-iterate what the court stated above, Mr. Gold's objection to the admission of the Original Endorsed Note on the basis of authentication is overruled and his objection to the admission of that original note on the basis it is not a business record is overruled as moot. The Original Endorsed Note is admitted into evidence for its full probative value.
The Note and Deed of Trust are not Split
The Original Endorsed Note is endorsed by BofA payable to WFB making WFB the payee. Based on the February 2012 recorded assignment, WFB is also the beneficiary of the deed of trust on the Tahoe Property.
How or when WFB acquired both interests under the Original Endorsed Note and the deed of trust is immaterial. The Ninth Circuit bankruptcy appellate panel explained in
The critical point here is that one entity, i.e., WFB, holds both interests under the original promissory note and the deed of trust on the Tahoe Property. Not only are those interests unified, but, the unity of those interests makes the obligation on the note a secured claim in this bankruptcy case. Therefore, Mr. Gold's objection that the obligation on the note is not a secured claim and that there is no creditor to whom proceeds from the sale of the Tahoe Property may be distributed in satisfaction of a claim secured by a lien on the Tahoe Property that transferred to the proceeds from the sale of that property are overruled.
Then Who Gets the Tahoe Property Sale Proceeds?
With the Original Endorsed Note now admitted into evidence and the obligation on that note a secured claim in this bankruptcy case, the question becomes whether Nationstar is a proper payee and recipient of the Tahoe Property sale proceeds as it asserts that it is. The answer to that question depends on whether Nationstar is "a person entitled to enforce the note" under California Commercial Code § 3-301 and that answer is found in
The appellate panel in
Nationstar has actual physical possession of the Original Endorsed Note. It produced that original note in court. Nationstar has thus established the fact of delivery of the original note.
Nationstar has also established the purpose of delivery or, in other words, the reason it has possession of the Original Endorsed Note. Mr. Mays testified that Nationstar has possession of that original note in order to service it for and on behalf of WFB. When asked about Nationstar's specific obligations as they pertain to its role as WFB's loan servicer, Mr. Mays testified that Nationstar is authorized to: (1) receive and post the Tahoe Property sale proceeds on behalf and for the benefit of WFB; (2) disburse those sale proceeds to WFB upon receipt; and (3) as servicer in fact, execute and record with the county recorder a release of the lien created by the deed of trust on the Tahoe Property. Mr. Gold did not offer any testimony or other evidence to the contrary. Again, the court finds Mr. Mays' testimony credible.
In short, Nationstar has established both a transfer of the Original Endorsed Note and the purpose of that transfer. Accordingly, Nationstar has established that it is a nonholder in possession with rights of a holder and, as such, it is a person entitled to enforce the Original Endorsed Note.
Then How Much is Payable to Nationstar?
WFB and Nationstar were largely uncooperative with the Trustee's numerous requests over an extended period of time for information regarding loan payment history and loan payoff amount. Nevertheless, using information available in documents filed in this bankruptcy case, the Trustee was able to construct a payoff figure to satisfy the senior lien on the Tahoe Property of up to $1,117,424.00.
As noted above, Nationstar does not dispute the $1,117,424.00 cap and Mr. Gold concedes that $823,000.00 of the principal balance remains owing. Mr. Gold's concession is based on his Exhibit A which is the final report the chapter 13 trustee filed in case no. 11-45279 on August 16, 2012. According to Mr. Gold, that report reflects that on or about August 16, 2012, and as part of the closing of the chapter 13 case, the chapter 13 trustee made a lump-sum payment of $27,000.00 towards the $850,000.00 principal balance owed on the note. Even assuming Mr. Gold is correct, the court can ascertain that the balance owed on the note would nevertheless exceed $1,117,424.00.
Mr. Mays testified that the loan went into default in October 2009. Accepting Mr. Gold's argument that the $27,000.00 stated in the trustee's final report was a distribution in the form of a lump-sum, principal-reducing payment by the chapter 13 trustee on or about August 16, 2012, that does not affect unpaid interest that accrued on the $850,000.00 principal balance up to that point. At 6.875 — or $4,869.79 monthly — from the October 2009 default through the last month before the LIBOR interest rate adjustment, i.e., July of 2012, there would have been an additional $165,572.86 in interest owed in addition to the $823,000.00 principal. So based on Mr. Gold's argument, the balance due on the note after the chapter 13 trustee purportedly made a principal reducing payment in August of 2012 would have been $998,572.86 ($823,000.00 + $165,572.86).
Additionally, that $998,572.86 loan balance would also have to take into account subsequent required LIBOR interest rate adjustments which were to begin on August 1, 2012. That additional interest also went unpaid from August 2012 through the date the petition in this chapter 7 case was filed on February 2, 2015. The amount of interest on an $823,000.00 principal that accrued and went unpaid during that period would have been sufficient to push the loan payoff balance over the $1,117,424.00 threshold. How much over that threshold is immaterial because, as a person entitled to enforce the Original Endorsed Note, Nationstar has consented to accept no more than $1,117,424.00 in full satisfaction of the obligation on that note.
Therefore, based on all the foregoing:
IT IS ORDERED that the Trustee is authorized to distribute $1,117,424.00 of the Tahoe Property sale proceeds to Nationstar, as WFB's loan servicer, in full satisfaction of a secured claim based on WFB's senior lien on the Tahoe Property which transferred to the Tahoe Property sale proceeds upon the sale of that property.
IT IS FURTHER ORDERED that upon receipt of a $1,117,424.00 from the Trustee and the posting of those funds, Nationstar shall cause to be recorded with the Placer County Recorder a full, complete, and unconditional lien release that releases the senior lien on the Tahoe Property and the proceeds from the sale of the Tahoe Property.
IT IS FURTHER ORDERED that the continued hearing set for May 16, 2017, at 9:30 a.m. is VACATED.