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Bank of America Sues Nashville Bankruptcy Trustee

bizjournals.comJuly 30, 2012

By Annie Johnson

In a rare legal counter move, Charlotte, N.C.-based Bank of America (NYSE: BAC) has filed a lawsuit against Nashville's Chapter 13 bankruptcy trustee.

It's the first time in recent Tennessee history that a large lender has sued a trustee of the court, according to a local bankruptcy attorney.

The move marks an effort on behalf of the bank to put an end to a common defense tactic used by debtors and foreclosure judges in the aftermath of the mortgage meltdown. Known as "show me the note," the tactic forces a lender to offer up physical documentation that they actually own the mortgage.

It's a method that has been successful in Nashville, where bankruptcy trustee Henry "Hank" Hildebrand has become well known for his efforts to force mortgage companies to produce the original note when filing a claim in bankruptcy proceedings. (Tennessee is a state that doesn't require judicial approval for foreclosures, so the process typically takes place in bankruptcy court.)

But it can be a lofty order for lenders that, following the securitization boom, bundled up millions of home loans, sold them and packaged them into bonds.

Bank of America is fed up.

In mid-May, the bank filed a lawsuit (tucked away as an adversary proceeding in a consumer bankruptcy case) against Hildebrand for taking mortgage payments from the debtors, bypassing the bank and passing the cash along to other creditors.

Hildebrand's defense? Bank of America had the mortgage but couldn't produce the underlying promissory note — often referred to as a "naked" mortgage.

Bank of America fired back, citing cases in other states where original lenders didn't have to file a claim. Courts in Arizona and Massachusetts have recently ruled on the issue, partially siding with the banks.

The rub? Bankruptcy rules in Tennessee still require a timely claim, the mortgage and the original note, rules that Hildebrand has followed to the tee during his tenure.

The bank also charged in court documents that because of Hildebrand's methods, the debtors wouldn't have the chance for a "fresh start."

"The trustee would affirmatively state that the term 'fresh start' is not found in the bankruptcy code, is undefined in the complaint and raises an ambiguous and confusing assertion to which the trustee cannot respond," Hildebrand said in his response to the lawsuit.

An attorney for Bank of America did not immediately return a phone call for comment. Hildebrand declined to discuss the pending lawsuit.


Back to July 2012 Archive

CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

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