The U.S. Court of Appeals for the Sixth Circuit has held that as the assignee of a debtors’ mortgage loan, a bank’s security interest was superior to the Chapter 13 Trustee’s interest as a judicial lien creditor. The ruling in Rogan v. Bank One, National Association (In re Cook), 457 F.3d 561 (6th Cir. 2006) affirmed the holdings of two lower courts. In December 2000, the debtors entered into a loan transaction with NCS Mortgage Lending Company (“NCS”), which was secured by a properly recorded mortgage. NCS’ interest in the mortgage and note subsequently were assigned to First Greensboro Home Equity, Inc. (“First Greensboro”). First Greensboro executed an Assignment of Note but left the space for the name of a future assignee blank. The mortgage and note subsequently were assigned a number of times, ultimately ending up in a securitized trust of mortgage loans for which Bank One acted as Trustee.
An Assignment of Mortgage to Bank One, as Trustee, was not recorded, however, until after the debtors filed their petition for relief in bankruptcy, even though the actual transfer occurred pre-petition.
The debtors listed Bank One as a secured creditor on their bankruptcy schedules and Bank One thereafter filed a proof of claim in the debtors’ bankruptcy case. In his capacity as the bankruptcy trustee, Rogan objected to the proof of claim on the ground that Bank One did not have a perfected security interest and that Rogan’s interest as judicial lien creditor therefore was superior.
Bank One responded by amending its proof of claim and changing the name of the interest holder to Bank One National Association, as Trustee for ARC 2001-BC6 Trust, and submitting copies of the original promissory note and NCS mortgage, various assignments, and an affidavit from Bank One’s agent that the debtors’ note and mortgage were assigned to Bank One, as Trustee.
Rogan then filed an adversary proceeding in which he sought a declaratory judgment that Rogan’s security interest as a judicial lien creditor was superior to Bank One’s interest. In response, the attorney for Bank One, as Trustee, filed an affidavit in which she averred that she was in possession of the original note.
The Sixth Circuit held that when First Greensboro used a blank endorsement on the note, the interest became payable to the bearer pursuant to Kentucky law. Because Bank One averred that it had possession of the original note, Bank One had priority over other lien holders. The court also held that Bank One did not need to file an assignment of mortgage to perfect its interest because the recordation of the original mortgage by NCS was sufficient constructive notice that a mortgage lien existed on the debtors’ real property.
The court further held that Bank One’s postpetition recordation of the assignment of mortgage did not violate the automatic stay because Bank One did not attempt to transfer legal title to the property, but only recorded evidence of its equitable interest in the property, which is not an interest that belonged to the debtors.