by A debt-buyer was out of luck when he could not establish the chain of title between himself and the original lender. Marx v. DeConne (In re DeConne), No. 15-175 (S.D. N.Y. Sept. 2, 2015). Ronald and Karin DeConne incurred two debts originating with Bank of New York: one was a $400,000 line of credit, and the other was a mortgage loan in the amount of $430,000, both secured by the debtors’ residence. The loans were allegedly transferred from Bank of NY to JP Morgan Chase Bank, to Linear Mortgage Group and, finally, to Craig Marx. When the DeConnes later filed for bankruptcy, Marx filed proofs of claim for the debts. The DeConnes filed an adversary complaint maintaining that Marx lacked standing to assert the proofs of claim. After an evidentiary hearing the bankruptcy court found that Marx had failed to prove that Chase ever owned the debt and therefore the chain of title from Bank of New York to Mr. Marx was broken. It disallowed and expunged the proofs of claim.
On appeal the district court began with the question of whether Mr. Marx had established the link between Bank of NY and Chase through evidence of a merger between the two entities. It disregarded exhibits of a press release and a purchase and assumption agreement demonstrating that the two banks had merged because the bankruptcy court had found the evidence inadmissible and Mr. Marx did not challenge that evidentiary ruling. Furthermore, Mr. Marx’s evidence from the Office of the Comptroller of the Currency that Chase had acquired some of Bank of NY’s assets did not establish a merger. Rather, the court found that the continued separate existence of the two companies contradicted any evidence of merger.
Marx next argued that because he possessed the Notes and there were no competing claims to them, the burden was on the debtors to prove that he was not the owner. The court rejected this burden-shifting argument as having been waived by Mr. Marx’s failure to raise it earlier, and, more importantly, as lacking in legal authority.
Finally, the court rejected Marx’s argument that he is a possessor of the Notes with the rights of a holder. The Notes were not indorsed and, therefore, none of the entities in the alleged chain were “holders.” Under New York law, “[a] nonholder in possession must ‘account for his possession of the unindorsed paper by proving the transaction through which he acquired it. Proof of a transfer to him by a holder is proof that he has acquired the rights of a holder.’” Marx’s argument foundered on the principle that transfer of the Note gives the transferee the same rights as those held by the transferor. Here, Marx failed to show that Bank of NY ever transferred the Note to Chase giving Chase the rights of a holder. Because the chain of title was broken between Bank of NY and Chase, any transfer thereafter could not confer the rights of a holder.
The district court thus affirmed the disallowance and expungement of the claims.
[…] Broken Chain of Title and Disallowed Claims […]