April 27, 2009

Lenders Must Prove Standing to Be Granted Relief from the Automatic Stay

Loans and mortgages are often sold and resold on the market. This can be confusing to a borrower who takes out a loan from one lender, just to end up having to make their mortgage payments to a different lending institution or loan servicer.

In bankruptcy, when a lender wants to be able to proceed with a home foreclosure in spite of the bankruptcy filing, it must file a motion for relief from the Automatic Stay and be granted such relief. Often, such motions are filed in the name of “Mortgage Electronic Registration Systems, Inc. (MERS) as nominee for [fill in the blank] Bank.” Debtors are often puzzled by this and contend that they don’t have a mortgage with MERS and don’t know who MERS is. (MERS is a company that acts as nominee in the county land records for the lender and servicer. One of its goals is to streamline the mortgage process by using electronic commerce to eliminate paper.) Lately, courts are scrutinizing such parties as MERS, and are requiring them to prove that they (or the lender that nominated them) have standing to be granted relief from the Automatic Stay.

In one such case, the court found that MERS did not have standing to seek relief from the Automatic Stay because it had not proven that it represented a party in interest who had standing to be granted such relief. See In re Sheridan, Darrell R. and Sherry A., 19 CBN 569 (Bankr. D. Idaho 2009).

This case is notable because it gives debtors and their attorneys another tool in their arsenal to prevent a lender from lifting the Automatic Stay. Debtors and their attorneys should carefully scrutinize any party who has filed a motion to lift the Stay, and bring it to the Court’s attention that such a party may not have standing to seek such relief.