VARGAS Mers Gets Kicked Good CA2008[1]

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I CT 2 22008 ICLERK U.S. BANKRUPTCY COURTCENTRAL. CISTRICT OF CALIFORNIABY: o"puty Clerk.. ' FILED

8 UNITED STATES BANKRUPTCY COURT9 CENTRAL DISTRICT OF CALIFORNIA

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11 In re:12 RAYMOND VARGAS,13 Debtor.14

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I. IntroductionMovant Mortgage ElectronicRegistration Systems, Inc. ("MERS") supportsthis relief from stay motion solely withevidence from a low level clerk whose onlyfunction is to compare the financial numbers

on his evidentiary declaration with those on acomputer screen. After trial, the court findsthat the clerk is not competent to testify as toanything relevant to the motion, under theapplicable evidentiary rules, and that MERShas presented no admissible evidence insupport of its motion. In consequence, thecourt denies the motion. In addition, the courtfinds that sanctions should be imposed on the

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Case No.: LA08-17036SBChapter 7MERS RELIEF FROM STAY MOTION:FINDINGS OF FACT AND CONCLUSION OFLAWDate:Time:Ctrm:Floor:

September 30, 20089:30 a.m.157515th

law firm under Rule 9011' for bringing themotion with no evidentiary support.In addition, MERS purports to join asmoving parties "its assignees and/orsuccessors in interest." The court finds thatthis is an improper effort to obtain relief fromstay for undisclosed parties, and that themotion must be denied also on these grounds.

11. Relevant Facts

Unless otherwise indicated, all chapter,section and rule references are to theBankruptcy Code, 11 U.S.C.A. 101-1532(West 2008) and to the Federal Rules ofBankruptcy Procedure, Rules 1001-9036.

Case 4:09-ap-00024-EWH Doc 15-2 Filed 04/23/09 Entered 04/23/09 17:51:35 Desc

Exhibit MERS v Vargas Page 1 of 9


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Debtor Raymond Vargas is an 83-yearold retired World War II veteran, whosemonthly income consists of approximately$1,004 in social security payments and aunion pension of $308. Debtor purchased anew home in 1971, and fully paid themortgage thereon in approximately 1993.His wife became ill in approximately 2000, andsuffered multiple ailments that led to her deathin December 2004.Debtor obtained a reverse mortgagefrom Wells Fargo Bank in December 2003 forapproximately $320,000 to pay for his wife'smedical care and expenses. In opposition tothe motion, debtor also submitted loandocuments for two other loans, in 2004 and in2005, which appeared to bear his signaturebut which he did not recall making. He wasphysically debilitated and wheel-chair bound atthe time these loans were purportedly made.None of these loans is at issue in this case.There purport to be two loans in 2006.One was made on May 12 for $650,000 withCountrywide Bank. The other, which underliesthis motion for relief from the automatic stay,was purportedly made with Freedom HomeMortgage ("FHM") on October 3 for $630,000.In addition, there is another October 3 loan for$150,500, also with FHM. Debtor asserts thatnone of these documents bears his signatureand that each signature is invalid and forged.The documents submitted with thismotion include an adjustable rate promissorynote, in which FHM is the promisee, in theamount of $630,000 with an initial interest rateof 1.75% per annum. The note is supportedby a deed of trust, showing FHM as thelender. The deed of trust shows that MERS isthe beneficiary under the deed of trust "actingsolely as a nominee for lender and lender'ssuccessors and assigns."No evidence is provided as to anyadjustments in the interest rate, whetherproper or improper, pursuant to the adjustmentclause. Debtor denies having signed eitherthe promissory note or the deed of trust andasserts that the signatures are forged.The debtor filed this case originallyunder chapter 13 on May 21,2008. On July 7,2008, the case was converted to a case under

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chapter 7. MERS filed its motion for relieffrom the automatic stay on July 30, 2008.The movant, as stated in the motion, is"Mortgage Electronic Registrations System,Inc. (MERS), its assignees and/or successorsin interest."The motion includes a declaration byRobert Turner, an employee of CountrywideHome Loans, Inc. ("Countrywide"), ''which isa duly authorized servicing agent of theMovant." The declaration states that Turner isa custodian of the books, records and files of"Movant," that he knows that these documentswere prepared in the ordinary course ofbusiness of "Movant" and that he has abusiness duty to record accurately the eventsdocumented in those records. However,neither the declaration nor the testimony at

trial gives any hint as to how Turner hascustody of any books, records or files ofMERS, or as to any connection between himand MERS.Turner appeared and testified onSeptember 30, 2008 on this motion. From histestimony the court finds that he is a low levelclerk for Countrywide responsible for some500 loan defaults per week in SouthernCalifornia. His principal responsibility is toreview draft motions for relief from stay, tomake sure that the numbers in paragraphs 62and 83 of his declaration agree with thenumbers that appear on the Countrywidecomputer screen at his desk. He testified that

2 Paragraph 6 of the form declaration requiresthat the movant state the following informationabout the loan at issue: the amount ofprincipal, accrued interest, late charges, costs,advances, and the total claim.3 Paragraph 8 requires that the movant statethe current interest rate, the contractualmaturity date, the amount of the currentmonthly payments, the number of unpaidprepetition and postpetition payments, thedate of postpetition default, the date of the lastpayment received, the date of recording of anotice of default and a notice of sale, the dateof the scheduled foreclosure, and the amountsof future payments coming due (including thelate charge, if the payment is not timely).




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he spends about five minutes on this task foreach relief from stay motion. He furthertestified that, apart from checking thesenumbers, he gives no consideration toanything else contained in such a declaration,and that he gave no consideration to anythingelse but the numbers in paragraphs 6 and 8 ofthe declaration before the court.

111. AnalysisThe motion for relief from stay mustbe denied on two separate grounds. First,it purports to include unidentified movingparties, who are intended to benefit from therelief from stay order. Second, Turner isaltogether incompetent to give any testimonyrelevant to this motion.

A. Names of the PartiesMERS purports to join as movingparties "its assignees and/or successors ininterest," which are otherwise unidentified.No such unidentified parties are permitted in amotion before the court.Rule 10(a) of the Federal Rules ofCivil Procedure provides in relevant part:"Caption; Names of Parties. Every pleadingmust have a caption . . . . The title of the

complaint must name all of the parties.'"While there is no comparable rule in theFederal Rules of Bankruptcy Procedure,Local Rule 1002-1(a)(8) fills in this gap byspecifying what must be stated on the title(or first) page of all papers filed in this court.Rule 1002-1(a)(8)(D) states: "The names ofthe parties shall be placed below the title ofthe court and to the left of center . . . .For a relief from stay motion, themovant must use local form 4001-1M.RP.See Local Rule 1002-1(d)(9) ("Motions forrelief from stay shall be made using thoseforms designated for mandatory use in the F4001-1 series of the court-approved forms."). This provision also prohibits the addition ofa "John Doe" defendant (i.e., an unidentifieddefendant whose name may be provided at alater date).

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Like Rule 1002-1 (d)(8), the form requires thatthe name of the movant be stated on thesecond line below the line stating, "Notice ofMotion and Motion for Relief from theAutomatic Stay." Thus, each movant in amotion for relief from stay must be named onthe first page of the motion.The identification of the movantserves several important functions. First,it links the motion to the Schedule A list of realproperty owned by the debtor. Second, thisidentification links the motion to the ScheduleD list of creditors holding secured claims.Third, this identification permits the judge todetermine whether the judge must recusebased on the Code of Conduct for UnitedStates Judges (requiring recusal in a variety ofcircumstances based on the judge'srelationship, if any, to the moving party)'"The exclusion of these unidentifiedparties is particularly important in thisproceeding. It is highly unlikely that FHM haskept the promissory note: most likely, it soldthe note into the market for mortgagesecuritization. In consequence, it is quiteunlikely that MERS is an authorized agent ofthe holder of the note here at issue.By adding these unidentified movants, MERSis trying to obtain relief from the automatic stayfor the current note holders without disclosingto the court their existence, identities or thesource of MERS's authority to act on theirbehalf. This is improper.A secured promissory note traded onthe secondary mortgage market remainssecured because the mortgage follows thenote. CAL. CIV. CODE 2936("The assignment of a debt secured by

5 As of this date, I still do not know whethermy recusal may be required in this case. See, e.g., James R. Barth et aI., A ShorlHistory of the Subprime Morlgage MarketMeltdown 5 fig.2 (Milken Institute 2008),available at http://www.milkeninstitute.org/publications/publications.taf?function=detail&1D=38801038&cat=Papers (showing thatapproximately 85% of all home mortgagesoriginated in 2006 and 2007 were securitized).




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mortgage carries with it the security.").California codified this principle in 1872.Similarly, this has long been the lawthroughout the United States: when a notesecured by a mortgage is transferred, "transferof the note carries with it the security, withoutany formal assignment or delivery, or evenmention of the latter." Carpenter v. Longan,83 U.S. 271, 275 (1872). Clearly, theobjective of this principle is "to keep theobligation and the mortgage in the samehands unless the parties wish to separatethem." RESTATEMENT (THIRD) OF PROPERTY(MORTGAGES) 5.4 (1997). The principle isjustified, in turn, by reasoning that the"the debt is the principal thing and themortgage an accessory." Id. Consequently,"[e]quity puts the principal and accessory upona footing of equality, and gives to the assigneeof the evidence of the debt the same rights inregard to both." Id. Given that "the debt is theprincipal thing and the mortgage anaccessory," the Supreme Court reasoned that,as a corollary, "[t]he mortgage can haveno separate existence." Carpenter, 83 U.S.at 274. For this reason, "an assignment of thenote carries the mortgage with it, while anassignment of the latter alone is a nullity."Id. at 274. While the note is "essential," themortgage is only "an incident" to the note. Id.

Thus, if FHM has transferred the note,MERS is no longer an authorized agent of theholder unless it has a separate agencycontract with the new undisclosed principal.MERS presents no evidence as to who ownsthe note, or of any authorization to act onbehalf of the present owner.In consequence, because thesepurported movants are not identified, themotion must be denied on these groundsalone.B. Competence of WitnessThe purposesubmitted with thea mandatory form in

of the declarationmotion, which isthe Central District

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of California,7 is to provide competentevidence supporting the motion for relief fromthe automatic stay. Competent evidence isrequired so that "the truth may be ascertainedand proceedings justly determined." FED R.EVID. 102. Questions concerning theadmissibility of evidence are determined bythe court. See id. 104(a).While the form of the declaration ismandatory, a moving party is required tomodify and supplement it (and show themodifications) to present admissible evidenceon every item covered by the declaration. It ismanifest that, except for the numbers inparagraphs 6 and 8, Turner made no attemptwhatever to assure the accuracy of thedeclaration.The general rule is that a witness mayonly testify as to matters within the personalknowledge of the witness: "A witness may nottestify to a matter unless evidence isintroduced sufficient to support a finding thatthe witness has personal knowledge of thematter." Id. 602. MERS has failed tointroduce evidence of any kind sufficient toshow that Turner has personal knowledge oris otherwise competent to testify as to anymatter relevant to the motion before the court.

1. Payments and Amount OwingHearsay evidence is not admissibleunless an exception to the hearsay ruleapplies: "Hearsay is not admissible except asprovided by these rules . . . . " Id. 802.Hearsay is "a statement, other than one madeby the declarant while testifying at the trialor hearing, offered in evidence to provethe truth of the matter asserted." Id. 801 (c).In his declaration, Turner presented thenumbers in paragraphs 6 and 8 for their truth.This evidence was hearsay, and is notadmissible unless an exception to the hearsayrule is applicable.The declaration in a real propertyrelief from stay motion is required to state inparagraph 6 the amount of movant's claimwith respect to the property, including the

7 See Local Rule 1002-1 (d)(9).




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principal owing on the loan, the amount ofaccrued interest, the amount of late charges,any advances such as for property taxes orinsurance, and the total amount of the claim.The declarant must further attach a true andcorrect copy of the promissory note and thedeed of trust, and the declarant must becom petent to testify as to the authenticity ofthese documents. The form further requiresthat the declarant state in paragraph 8 thecurrent rate of interest, the number andamount of unpaid prepetition payments, thenumber and amount of postpetition payments,the date of the recording of any notice ofdefault or notice of sale, and furtherinformation on the foreclosure process.The declaration must also state the fair marketvalue of the property and the basis for thisdetermination. A number of other itemsrelating to the promissory note, the lien andthe status of debtor's payments are alsorequired.FHM apparently relies on Rule 803(6)for the admissibility of this hearsay evidence.

Rule 803(6), providing for the admission ofrecords of regularly conducted activity(fomnerly known as the "business recordsrule"), states:Records of regularly conductedactivity. Amemorandum, report,record, or data compilation, in anyfomn, of acts, events, conditions,opinions, or diagnoses, made at ornear the time by, or from informationtransmitted by, a person withknowledge, if kept in the course of aregularly conducted business activity,and if it was the regular practice ofthat business activity to make thememorandum, report, record or datacompilation, all as shown by thetestimony of the custodian or otherqualified witness, or by certificationthat complies with Rule 902(11),Rule 902(12), or a statute permittingcertification, unless the source ofinformation or the method orcircumstances of preparation indicatelack of trustworthiness. The term"business" as used in this paragraph

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"The basic elements for the introduction ofbusiness records under the hearsay exceptionfor records of regularly conducted activity allapply to records maintained electronically."In re Vinhnee, 336 B.R. 437, 444 (BAP. 9thCir. 2005). Vinhnee also states therequirements for qualification as businessrecords: "Such records must be: (1) made ator near the time by, or from infomnationtransmitted by, a person with knowledge;(2) made pursuant to a regular practice of thebusiness activity; (3) kept in the course ofregularly conducted business activity; and(4) the source, method, or circumstances ofpreparation must not indicate lack oftrustworthiness." Id. (citing FED. R. EVID.803(6); United states V. Catabran, 836 F 2d453, 457 (9th Cir. 1988)).

The admission of computer recordsrequires that movant provides an 11-stepfoundation:1. The business uses a computer.2. The computer is reliable.3. The business has developed a procedurefor inserting data into the computer.4. The procedure has built-in safeguards toensure accuracy and identify errors.5. The business keeps the computer in agood state of repair.6. The witness had the computer readoutcertain data.7. The witness used the proper proceduresto obtain the readout.8. The computer was in working order at thetime the witness obtained the readout.9. The witness recognizes the exhibit as thereadout.10. The witness explains how he or sherecognizes the readout.11. If the readout contains strange symbols orterms, the witness explains the meaning of thesymbols or terms for the trier of fact.

includes business, institution,association, profession, occupation,and calling of every kind, whether ornot conducted for profit.




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MERS has not presented any evidence on thissubject. Indeed, the debtor vigorously conteststhe authenticity of the note in this case. Giventhe lack of evidence on the part of MERS,authentication of the note is altogether missingfrom its evidence in this case.

ii, Right to Enforce the NoteIn addition to authenticating the note,MERS must show that it is entitled to enforcethe note. Only the holder of a negotiablepromissory note (with minor exceptions notrelevant in this case) is entitled to enforce thenote. See CAL. COM. CODE 3301.The holder enforces the note by making ademand for payment. See id. 3501 (a).

The person making a demand shows its rightto enforcement by showing the original of thepromissory note. See id. 3501 (b)(2).MERS has not brought to court thenote here at issue, and makes no pretensethat it holds the note. Indeed, MERS is not inthe business of holding promissory notes."Its business is only to hold deeds of trust asan agent for the holder of the note.This status for MERS is disclosed in the deedof trust here at issue, which states that MERSis "acting solely as a nominee [a type of agent]for lender and lender's successors andassigns."In addition, there is no evidencebefore the court as to who is the holder of thepromissory note and is entitled to enforce it.MERS contends that Countrywide acts asagent for MERS. However, MERS does notpurport to be the holder of the promissorynote. Under California law, only the holder ofa note is entitled to enforce it (with minorexceptions not relevant herein). See CAL.COM. CODE 3301.

10 MERS, Inc. is an entity whose sole purposeis to act as mortgagee of record for mortgageloans that are registered on the MERSSystem. This system is a national electronicregistry of mortgage loans, itself owned andoperated by MERS, Inc.'s parent company,MERSCORP, Inc.

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The court finds that MERS hasaltogether failed to show that it is entitled toenforce the note here at issue in this case.b. Deed of TrustA deed of trust is normallyauthenticated by showing that it is a publicrecord under Rule 901 (b )(7)." Extrinsicevidence of authenticity is not required as acondition precedent to admissibility withrespect to a certified copy of a public recordsuch as a deed of trust. 12

11 Rule 901(b) provides in relevant part:(b) Illustrations.By way of illustration only, and not byway of limitation, the following areexamples of authentication oridentification conforming with therequirements of this rule:(7) Public records or reports. Evidencethat a writing authorized by law to berecorded or filed and in fact recorded orfiled in a public office, or a purportedpublic record, report, statement, or datacompilation, in any form, is from thepublic office where items of this natureare kept.

12 IRu e 902 provides in relevant part:Extrinsic evidence of authenticity as acondition precedent to admissibility isnot required with respect to thefollowing:(4) Certified copies of public records.A copy of an official record or reportor entry therein, or of a document

authorized by law to be recorded orfiled and actually recorded or filed ina public office, including datacompilations in any form, certified ascorrect by the custodian or otherperson authorized to make thecertification, by certificate complyingwith paragraph (1), (2), or (3) of thisrule or complying with any Act of




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The deed of trust in this case givesthe appearance of being a certified copy of theoriginal recorded deed. However, thepurported certification is defective. It statesonly: "I HEREBY CERTIFY THAT THIS IS ATRUE AND EXACT COPY OF THEORIGINAL", followed by the signature ofMartha J. Urquijo.A certified copy of a public recordmust be made "by the custodian or otherperson authorized to make the certification . . .

FED. R. EVID. 902(4). In addition, thecertification of a domestic document mustcomply with paragraph (1) (for documentsunder seal) or (2) (for documents not underseal) of Rule 902. If the document is notunder seal (as appears in this case), thesignature must be "in the official capacity of anofficer or employee" of a governmental entityqualifying under paragraph (1). Finally, thecertification must include a certification underseal, made by "a public officer having a sealand having official duties in the district orpolitical subdivision of the [certifying] officer oremployee" that the signer "has the officialcapacity and that the signature is genuine."All of this is missing from the purportedcertification. Thus, the court must assumethat Ms. Urquijo has no authority whatever tocertify the deed of trust.

Here, the authenticity of the deed oftrust is disputed by the debtor. Presumably inconsequence thereof, MERS has declined tomove its admission into evidence. '3

Congress or rule prescribed by theSupreme Court pursuant to statutoryauthority.13 The declarant's total lack of competence totestify on this motion raises a serious questionas to the good faith of counsel for MERS underRule 9011. Counsel should have known thatTurner was incompetent to testify as to anythingrelevant to this motion. Thus, counsel shouldnot have filed with the court the declaration inwhich he stated falsely, under penalty of perjury:"I have personal knowledge of the matters setforth in this declaration and, if called upon totestify [as he was], I could and wouldcompetently testify thereto."

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C. Fraudulent Character of Noteand Deed of TrustThe debtor contends that the note anddeed of trust involved in this motion are

fraudulent. The court makes no findings onthis issue. Such a determination requires anadversary proceeding which is not before thecourt. However, the court can deny a motionfor relief from stay pending the determinationof such an adversary proceeding where thedebtor presents serious evidence that the noteand deed of trust are fraudulent. On thesegrounds, also, the court denies the motion.D. Other Defects in MotionThere appear to be other defects inthe motion, that the court does not addressbecause of lack of appropriate admissibleevidence. For example, Freedom HomeMortgage is the payee on the note. There isno evidence before the court as to who is thepresent holder is entitled to enforce the note.The holder must join in the motion for relieffrom stay. See In re Hwang, _ B.R. _(Bankr. C.D. Cal. 2008).

IV. ConclusionThe court concludes that this motionfor relief from stay must be denied on twoseparate grounds. First, the motionimproperly attempts to obtain relief forunidentified parties, in violation of the rulerequiring the disclosure of parties appearingbefore the court. Second, the only evidencesupporting the motion is provided by a witnesswho is incompetent to provide any relevantevidence.

Dated: October 21, 2008




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1 CERTIFICATE OF MAILING2 I certify that a true copy of this MERS RELIEF FROM STAY MOTION: FINDINGS OF FACT3

AND CONCLUSION OF LAW was mailed on OCT 22 2008 to the parties listedbelow:4

Raymond Vargas5 13055 Destino LaneCerritos, California 907036

Marcus Gomez, Esq.7 12749 Norwalk Boulevard

Suite204A8 Norwalk, California 906509 Mark. T. Domeyer, Esq.Miles, Bauer, Bergstrom & Winters, LLP

10 1665 Scenic AvenueSuite 20011 Costa Mesa, California 9262612 John P. Pringle, Trustee13

6055 East Washington Boulevard#60814 Los Angeles, California 90040-2427

U.S. Trustee's Office15 725 South Figueroa StreetSuite 260016 Los Angeles, California 9001717

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19 OCT 22 2008 DEPUTY CLERKDated:2021

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9Case 4:09-ap-00024-EWH Doc 15-2 Filed 04/23/09 Entered 04/23/09 17:51:35 Desc

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VARGAS Mers Gets Kicked Good CA2008[1]