CIVIL PROCEDURE: REAL PARTY IN INTEREST EXPLAINED

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EDITOR’S NOTE: Finding that lawyers and judges are confused about the meaning and use of terms like “real party in interest” and “standing,” it hardly comes as a surprise that pro se litigants and other homeowners are confused as well. These concepts, which have been used and abused for years now, lie at the crux of the foreclosures and the reason why they should not be allowed to proceed.

In plain language only someone who has suffered a loss resulting from something that someone else did. The caveat is that just because you suffer some injury doesn’t mean you can sue. You can only sue if the other party who “DONE YOU WRONG” had some LEGAL DUTY to you. If somebody is being murdered and the method used is throwing them off a roof, their estate cannot be sued by the person upon whom they landed down below.

In the case of mortgages and notes it is very simple. ONLY the person who is losing money is entitled to relief. And they are ONLY entitled to relief from those people who promised them money. With a conventional old-style mortgage we wouldn’t be having this discussion. Common sense would tell you that if you borrow money from 1st National bank and don’t pay it, they are going to lose money unless you pay them. If you don’t pay them they will lose money unless they get to sell the collateral you offered to guarantee the loan. In the case of a mortgage, the collateral is the house. 

The real parties in interest are present in the above example — the actual borrower who received the benefit of borrowing the money and the actual lender who dug into their pockets and lent you their money or their credit. In such a transaction the real parties in interest are the debtor and creditor. If there is a dispute and the creditor must seek relief in court then they must allege the above facts which gives them “legal standing” — i.e., they are the creditor who is losing money because they have not been repaid as per the agreement between debtor and creditor (borrower and lender).  ONLY THE REAL CREDITOR MAY SUBMIT A CREDIT BID AT AUCTION BECAUSE ONLY THE CREDITOR IS OWED MONEY FROM THE DEBTOR. ALL OTHERS MUST PAY CASH. 

The problems start when the original loan closing did not involve the real parties in interest. A table funded loan is one in which the lender hides behind a curtain while another party pretends to be the lender. In so-called securitized loans there is a genuine issue of fact and law as tow ether the original loan documents represent a transaction that was table funded or whether such documents represent a separate fictitious transaction altogether. Either way the real party in interest on the lender side is not present at the table nor named in the closing documents.

In the event of a dispute, the pretender lender, not a real party in interest, lacks legal standing to allege anything to enforce the borrower’s obligation UNLESS the pretender can state that it is the agent of the real lender (real party in interest) and show that such agency existed at the time of the loan closing and/or at the present time. Whatever the pretender does must be done in the name of the real party in interest or there is no party with legal standing on the creditor side.

Similarly, the real lender, although a real party in interest, lacks standing unless it can show that the closing documents were done in the name of the real lender with proper agency relationships documented and recorded between the pretender lender and the real lender. If such documents existed, the loan would no longer be table-funded, nor would it be susceptible to a claim that the documents described a fictitious transaction. If such documents are not in existence, then the real party in interest (real lender) has a problem. They really loaned the money but they are not named in any document.

And in the case of the mortgage meltdown, they really loaned the money, but they were never disclosed — so the borrower is in the position of having a party in his documents stated as “lender” without standing and without rightful claim to being the real party in interest, on the one hand, and a party who says they really loaned the money, but has nothing to prove it from the closing documents.

In fact, the real lender received a wholly different set of documents in which many promises to pay or guarantee were made by parties who were involved in a direct transaction with the investor (real lender) — but the borrower never saw nor signed those documents.  Thus the real lender may have some claim,  but it is against multiple parties that MIGHT include the homeowner, but which do not include enforcement of the original loan documents — because the investor-lender was not party to those documents and therefore was not and is not a real party in interest in relation to the original documents.

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submitted by Hanna LAW:

From In re Sheridan, Idaho 2009

“Hasso v. Mozsgai (In re La Sierra Fin. Servs.),
290 B.R. 718 (9th Cir. BAP 2002), explained that the doctrine of standing encompasses both constitutional limitations on federal court jurisdiction (i.e., the case or controversy requirements of Article III), and prudential limitations on the court’s exercise of that
jurisdiction. Constitutional standing requires an
injury in fact, viz. an invasion of a judicially
cognizable interest. 290 B.R. at 726-27. Prudential
standing requires that the party’s assertions fall
within the zone of interests protected by the statute
and, further, requires that the litigant assert only
its own rights and not those of another party. Id.
at 727 (citing Bennett v. Spear, 520 U.S. 154, 162, 167-68 (1997). The party asserting standing exists has the BURDEN OF PROVING IT. Id. at 726. ……

These same standing requirements were
recently highlighted in a stay relief context by the court in In re Jacobson, ___ B.R. ___, 2009 WL 567188 at Page 8 *5-6 (Bankr. W.D. Wash. Mar. 6, 2009).

2. Real party in interest

Under Rule 9014, which by virtue of Rule 4001(a)(1) governs stay relief requests, certain “Part VII” rules are applicable. See Rule 9014(c). Among those incorporated rules is Rule 7017,
which in turn incorporates Fed.R.Civ.P. 17, and Rule 17(a)(1) provides that “An action must be prosecuted in the name of the real party in interest.”

Jacobson notes that its moving party, who claimed to be a servicer for the holder of the note, “neither asserts beneficial interest in the note, nor that it could enforce the note in its own right.” 2009 WL 567188 at *4. It concluded that Fed.R.Civ.P. 17 applied, requiring the stay relief motion to be brought in the name of the real party in interest. Id. (citing In re Hwang, 396 B.R. 757, 767 (Bankr. C.D. Cal. 2008)); see also In re Vargas, 396 B.R. 511, 521 (Bankr. C.D. Cal. 2008). As Jacobson
summarized:

The real party in interest in relief from stay is
whoever is entitled to enforce the obligation sought to be enforced. Even if a servicer or agent has authority to bring the motion on behalf of the holder, it is the holder, rather than the servicer, which must be the moving party, and so identified in the papers and in the electronic docketing done by the moving party’s counsel.

The upshot of these several provisions of the Code, Rules, local rules and case law is this: to obtain stay relief, a motion must be brought by a party in interest, with standing. This means the motion must be brought by one who has a pecuniary interest in the case and, in connection with secured debts, by the entity that is entitled to payment from the debtor and to enforce security for such payment. That entity is the real party in interest.
It must bring the motion or, if the motion is filed by a servicer or nominee or other agent with claimed
authority to bring the motion, the motion must IDENTIFY and be prosecuted in the name of the real party in interest……………”

The court said in regard to a newly submitted note with an endorsement not on the note originally proferred:
“Sixth, even were it considered, the “new” Note’s asserted indorsement states: “Pay To The Order Of [blank] Without Recourse” and then purports to be signed by Fieldstone Mortgage Company through a named assistant vice president. There is no
date nor indication of who was or is the transferee. Fieldstone Mortgage Company may have indorsed the Note in blank, but this document does not alone establish that either HSBC Bank USA or
Fieldstone Mortgage Investment Trust is the Note’s holder.

Thus, even if a “nominee” such as MERS could properly bring a motion for stay relief in the name of and on behalf of the real party in interest — the entity that has rights in and pecuniary
interest under the Note secured by the Deed of Trust — nothing of record adequately establishes who that entity actually is.
Under the evidence submitted at the § 362(e) final hearing, which consists solely of Exhibit 1, the only entity that MERS could conceivably represent as an agent/nominee would be Fieldstone Mortgage Company. But MERS does not represent that party
according to the Motion and, in fact, its contentions are to the effect that Fieldstone Mortgage Company is no longer a party in interest.[fn18]

At the time of that final hearing, counsel for Movant conceded that he had no documentation provided to him by his “client” which indicated the interests under the Note or Deed of Trust were held by either HSBC Bank USA or the Fieldstone Mortgage
Investment Trust. Counsel filed the Motion and characterized the Movant’s identity therein based solely on undocumented representations made to him. This would appear to be a problematic approach generally.[fn19] And, in this particular case, Trustee’s objection to the Motion put the matter at issue and Movant to its PROOF……………

Tags: borrower, disclosure, foreclosure, foreclosure defense, foreclosure offense, fraud, quiet title, REAL PARTY IN INTEREST, securitization, standing, TILA audit, trustee
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