This case involves an an increasingly common fraud on creditors known as “hijacking.” That is a scheme of issuing a grant deed purporting to transfer an interest in property from a borrower to a debtor in bankruptcy, so as to implicate the automatic stay of Section 362(a) and thereby stop a foreclosure of the borrower’s property.
Typically the debtor in a hijacked case has been chosen at random, and is not aware of the scheme. Sometimes even the borrowers themselves are not aware of the scheme: the borrowers retain someone (an “Agent”) who claims to be able to stop the foreclosure by some legitimate means, such as negotiations with the mortgage holder, but then that Agent forges the borrowers’ signatures on a grant deed to a random debtor and transmits the deed to the foreclosing mortgage holder with a demand to halt the foreclosure sale.
Most mortgage holders in such situations call off or reschedule the foreclosure sale because, if the debtor actually does have an interest in the property and the automatic stay applies, penalties for violating the stay can be substantial. See, e.g., Section 362(a)(3) & (k). Some Agents even persuade the borrowers to make monthly payments to them, instead of the foreclosing mortgage holder.
The borrower in this case alleges that a scenario substantially like the one outlined above is what happened to him. He asserts that he is entirely innocent of any participation in this scheme. For this reason, he argues, this court should not grant relief from the automatic stay to proceed with foreclosure, even though he is hopelessly behind in his mortgage payments.
The borrower also asserts that this Bankruptcy Court lacks jurisdiction over the subject property because the debtor has expressly disclaimed any interest in the property. Therefore, he argues, this court cannot grant relief from the automatic stay that will continue to be effective notwithstanding any future bankruptcy cases involving the property (sometimes called “in rem” or “ex parte” relief). If the borrower is correct then all Bankruptcy Courts would be powerless to prevent repeated hijacking, with or without borrowers’ participation.
In or around August 2005, the borrowers (“Borrowers”) executed a note and deed of trust in favor of Washington Mutual Bank (together with all assignees and/or agents, “Creditor”), in connection with their purchase of real property (the “Property”). Borrowers fell behind in their mortgage payments.
In or around May 2012, Borrowers allegedly sought and retained the services of Borrowers’ Agent to assist them in working out a loan modification in connection with the Property. Under that arrangement, Borrowers allegedly began sending their monthly mortgage payments directly to their Agent’s wife’s bank account.
Borrowers assert that since May 2012, they made aggregate payments of $67,750.00 to their Agent. It is undisputed that Creditor did not receive any of the $67,750.00 and that Borrowers’ Agent did not undertake any efforts to facilitate a loan modification.
As a result of Borrowers’ default, Creditor initiated foreclosure proceedings. But their Agent successfully slowed down those proceedings, allegedly without Borrowers’ participation.
Borrowers’ Agent allegedly forged an unauthorized grant deed (the “Grant Deed”) purporting to transfer a 5% ownership interest in the Property to the debtor in this bankruptcy case (“Debtor”). The Grant Deed is dated January 18, 2016 (i.e., before the commencement of this bankruptcy case, although the Grant Deed might well be back-dated).
In any event, on January 20, 2016, Debtor filed a voluntary petition under chapter 13 of the Bankruptcy Code. On January 21, 2016, Creditor received a facsimile containing the Grant Deed and a cover sheet notifying Creditor of this case, which implicated the automatic stay and succeeded in causing Creditor to halt the foreclosure process.
On August 28, 2017, Creditor filed a motion for relief from the automatic stay. In support of the R/S Motion, Creditor presented undisputed evidence demonstrating multiple transfers of partial interests in the Property without Creditor’s consent or court approval, as well as multiple bankruptcy filings affecting the Property. Creditor seeks relief that will be effective notwithstanding any future bankruptcy cases, pursuant to Section 362(d)(1) and (d)(4). One of the Borrowers filed an opposition to the R/S Motion.