BKR: Denial of Proof of Claim VOIDS the Lien

This court decided in 2015 that if a party submits a proof of claim in support of a secured debt, the denial of the POC results in voiding the lien. Thus a successful attack in BKR Court on a POC submitted by or on behalf of a party who is a stranger to the debt not only loses the right to be paid in the BKR proceedings but also loses the lien as a matter of law. The express wording of the opinion means that the voiding of the lien survives the BKR proceedings which means it cannot be revived after discharge.

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see In-re-Blendheim – a Non-Allowed POC voids the Lien

Hat tip to Dan Gyurec and the offices of Stephen Lopez, Esq. for bringing this case to my attention.

Voiding the lien means there is no secured transaction and denying the proof of claim measn that the alleged “creditor” does not get paid.

We have all seen how judges in BKR court have allowed foreclosrues to continue based upon a motion for relief from stay. The test for granting such a motion is whether there is any colorable interest in the debt. If so, then the matter is referred back into the state system to determine the rights and obligations of the parties.

But this is different. A so-called mortgage lender or “successor” doesn’t need to file a proof of claim in a BKR proceeding in order for the lien to  survive the discharge. But if the “creditor” does file a proof of claim then the standard of proof is much higher for the creditor and they run the danger of having their proof of claim denied, since the entire claim is predicated, in most cases, on false representations and fabricated documents.

But if the creditor does not file a proof of claim, there is a provision in the rules that allows the debtor to file a proof of claim on behalf of the creditor. That may sound counterintuitive but there is a reason for the rule and it is applied. The debtor is then able to challenge the proof of claim filed on “behalf” of the alleged “Creditor” and the possibility of getting a denial of the proof of claim is increased.

Keep in mind that the “creditor” is in nearly all cases not a creditor as defined by law. It is a party claiming authority to enforce. Hence the proof of claim filed by the debtor for “creditor” would probably be filed on behalf of the party making the claim and potentially the the unknown investors who get notice of the proceeding through notice to the Trustee of the REMIC Trust.

Careful. You don’t want to argue too strongly that notice to an agent is notice to the investors because then you may be arguing and admitting that the claimant does indeed have a representative relationship with the investors, which actually they do not; but you could argue that the investors are only known to the Trustee and thus, even if the Trust was never funded and never acquired an interest in the loan, the investors only path of notice lies through the alleged Trustee.

As you can see from this case, you can raise the stakes and the burden of proof for the “creditor” by elevating the argument from a “motion to lift stay” which is nearly always granted to an objection to the proof of claim where the claim and the debt receive far more scrutiny.

6 Responses

  1. California BK: The servicer (on behalf of the trustee bank for the “holders” of a trust) filed a late claim in my chapter 11 case. I fought it on its merits as well as for late filing. The servicer asked the court to deny its claim for lateness and the court complied. Later, after denying a stay lift the first time, the servicer succeeded in getting the stay lifted on their second try. I objected on the grounds that the stay allowed for foreclosure on property that was security for a denied claim. I lost and the judge specified that foreclosure sale could go forward. The Bankruptcy was dismissed.

    Does that claim dismissal have any use at all, years later?

    I took on an adjustable rate loan modification that carries a deadly balloon payment at the end to safe the home I built (yes, built by personal sweat).

    After previous years of heart-grinding litigation, I fear stepping back into the lion’s den for yet another fight. The last stream of battles took their tole in time, age, and my health. I represented myself most of the time and the few lawyers I hired were worse than ineffective. I cannot completely blame them though. They had no training in this sort of fight and could not believe the dirty tactics the servicer’s lawyers used.

    Does anyone know if a denied claim ruling in a bankruptcy is useful in a later litigation if the bankruptcy in which it occurred was finally dismissed rather than discharged?

  2. In re Blendheim also describes that a proof of claim in BK is comparable to a ‘petition’ or ‘complaint’ being filed by a ‘creditor’ in a federal bankruptcy forum and when a debtor ‘objects’ to a proof of claim is comparable to filing an ‘answer’ or response to a ‘complaint’ or ‘petition’ – when a federal bankruptcy court denies a creditor’s claim it is comparable to the creditor losing a lawsuit (complaint) which fully adjudicates the ‘fight’ – and if the creditor doesn’t appeal – game over and the creditor cannot re-litigate by filing a state court action – it is judicially barred under doctrines of res judicata (claim preclusion, collateral and equitable estoppels, etc.). That lawsuit filed by a creditor whose claim was disallowed in the federal bankruptcy forum (final judgment) puts into motion issues of federal ‘pre-emptions’ – basically federal bankruptcy laws trump state under the doctrine of preemption, which is based on the Supremacy Clause – federal law preempts state law, even when the laws conflict. Thus, a federal court may require a state to stop certain behavior it believes interferes with, or is in conflict with, federal law.

    Many creditors like PHH Mortgage Corporation committed fraud against the U.S. Government when it underwrote GSE (government sponsored entities like “Fannie Mae”) as “DEL” (direct endorsement lenders) and committed “False Claims Acts” against our own government – see have been doing this; ignoring federal laws, including final judgment from a federal bankruptcy court (denied proof of claim) by filing a state court action to obtain a better result knowing that it [PHH example] denied the state court jurisdiction to hear or allow a lawsuit to be filed.

    It’s subtleties like this folks that need to be carefully paid attention to – continue to listen to every show – if you can afford it – splurge for an analysis of something if you don’t have the talent to do it on your own – at least get someone who has their ‘fingers on the pulse’ give you some sample ‘breadcrumbs’ to begin to connect the trail of the deception and illegal conduct. I do not promote anyone that makes a cent on homeowners in this war but I do support rather than buying another monitor to stream Roku – that you at least put together all the breadcrumbs you do know – in order – and share them with someone who understands the game. And despite having a law degree – these are issues and times that are above and below what has been common in our American judicial system – no one – judges, attorneys, paralegals are ‘experts’ because these events never happened in our legal history before – Enron and Madoff are close examples but just snippets – you must do your own extreme probe into every single little action and use your instincts – you didn’t need an attorney to buy a home – and you are still the master of your world and paperwork.

    If you have TILA issues listen to Jesinoski Supreme Court hearing over and over again listen to every word . . . here’s an unofficial but nice way to listen from Puppy Justice . . . its simple but effective https://www.youtube.com/watch?v=8dPghYCG-yo

    Parties like PHH Mortgage Corporation had no concerns about committing fraud on the government – so it cares even less about individuals – they pose no threats until you do . . . these parties all engaged in fraudulent concealment – concealing their own identities and those they engaged with in secret liens and deals – keep digging.

    Go back and read as many articles as you can; and read or listen to as many cases related to your own action as you can – since no one can afford legal counsel – go listen to Gary Dubin – listen to Neil’s shows and every single related hearings on youtube – since so many fighting are better ‘audio’ learners – trouble with reading – so listen and learn . . . and keep fighting; don’t give up and let these nazee bastards win or get off on civil fines that only benefits the bureaucrats and not actual victims …

    Sorry about the rant – I raised this case (In re Blendheim) in 2015 and still believe it is vital, but judicial clusters need to figure it out – we must keep pressing the issues folks – this conduct is 1930’s germany via technology – extermination of humans in habitats jew-gentile – no matter, they don’t care the bottom line is to exploit the one sector for the other to not only survive but excel – the nazees didn’t just extract gold in teeth they took entire fortunes for themselves and had to get rid of those who owned the goods – we must stop this.

  3. Reblogged this on California freelance paralegal and commented:
    This case shows the importance of always timely objecting to any proof of claim that is filed. Make the creditor prove everything. The fact that this case has been ordered published is great news as it can now be cited as binding authority in any State under the jurisdiction of the Ninth Circuit Court of Appeals.

  4. Consumer Rights Defenders stands ready to assist in your attacks in your bankruptcy matters. For years we have been urging the without colorable title [proof of claim must be predicated on this finding] no stay lift is justified. This gets complicated and you’d best get some assistance on this critical defense. Free Consultation on this issue if you call us at 818.453.3585. God Bless Neil for his dedication to the cause!!!

  5. @ ALL

    The Court for the Northern District of Kalifornia was disabused of the notion that filers were abusing the system when pursuing an automatic stay, by the following cite from Blendheim:

    “…with respect to the automatic stay, the court stated: “Although the Chapter 13 filing appears to be motivated by Debtors’ wish to avoid the foreclosure sale of their Residence, the Court does not find that filing for Chapter 13 bankruptcy under those circumstances necessarily
    constitutes bad faith.” It explained, “[m]any Chapter 13 debtors file for bankruptcy on the eve of foreclosure sale as a last resort.” The bankruptcy court did not clearly err in concluding that the Blendheims filed their Chapter 13 petition in good faith on these facts.”

    Hence, filing to purse an automatic stay to avoid a wrongful sale of one’s home is neither bad faith nor an abuse of the system.

    USE IT!!!!

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