Look Out For The Ole Lien Stripping Service Traps

Lien stripping cases are replete with potential traps for the careless or inexperienced debtor. Perhaps the most significant of these traps is improper service. Without proper service on the parties to a lien stripping case, any order is subject to challenge and a motion to set aside.

What exactly is a lien? You can read the definition of a property lien here for a better understanding of what it is and how it can apply to you.

So to be clear, federal law (including, but not limited to, Rule 60(b)(4), FRCP and Rule 9024, FRBP) allows a party to challenge any court order as void if the order was obtained as a result of insufficient service of process. According to Wikipedia, “service of process” means:

Service of process is the procedure by which a party to a lawsuit gives an appropriate notice of initial legal action to another party (such as a defendant), court, or administrative body in an effort to exercise jurisdiction over that person so as to enable that person to respond to the proceeding before the court, body, or other tribunal. (source)

So, what this means is, if the Court grants a lien stripping motion that is not properly served, the party who is purportedly bound by the order may challenge it, the court may set aside the judgment as void, and the lien may remain valid.

Service must be made on the Chapter 13 trustee, the senior lienholder, the affected junior lienholder, any servicing agent for the affected junior lienholder, and all other parties asserting a lien against the property. Generally speaking, the more service, the better.

The Basics of Service in a Lien Stripping Case

Rule 9014(b) of the Federal Rules of Bankruptcy Procedure provides that a motion in a contested matter must be served in accordance with the manner of service provided for service of a summons and complaint under Rule 7004. The relevant parts of Rule 7004, FRBP states:

(b) Service by First Class Mail. Except as provided in subdivision (h), in addition to the methods of service authorized by Rule 4(e)–(j) F.R.Civ.P., service may be made within the United States by first class mail postage prepaid as follows:

. . .

1. Upon a domestic or foreign corporation or upon a partnership or other unincorporated association, by mailing a copy of the summons and complaint to the attention of an officer, a managing or general agent, or to any other agent authorized by appointment or by law to receive service of process and, if the agent is one authorized by statute to receive service and the statute so requires, by also mailing a copy to the defendant.

. . .

(h) Service of Process on an Insured Depository Institution. Service on an insured depository institution (as defined in section 3 of the Federal Deposit Insurance Act) in a contested matter or adversary proceeding shall be made by certified mail addressed to an officer of the institution unless—

1. the institution has appeared by its attorney, in which case the attorney shall be served by first class mail;
2. the court orders otherwise after service upon the institution by certified mail of notice of an application to permit service on the institution by first class mail sent to an officer of the institution designated by the institution; or
3. the institution has waived in writing its entitlement to service by certified mail by designating an officer to receive service.

Pitfalls in Service

If an attorney has appeared for the creditor in the case, serve the creditor by serving its attorney of record. See, e.g., Rule 7005, FRBP; Rule 5(b)(1), FRCP; Rule 7004(h)(1), FRBP. Note also that when a corporation is served to the attention of an agent for service of process, a copy of the motion must also be served on the corporation. Service on the registered agent alone is insufficient.

See Rule 7004(b)(3), FRBP. Service to the “attention of an officer, a managing or general agent” under Rule 7004(b)(3), FRBP, requires that the movant “determine the name of the president or other officer and make sure the envelope is addressed to him or her, by name.” Service to “Attn: Officer” is insufficient. See In re Schoon, 153 B.R. 48, 49 (Bankr. N.D. Cal. 1993). Accord In re Pittman Mechanical Contractors, Inc., 180 B.R. 453, 457 (Bankr. E.D. Va. 1995).

If the lienholder has filed a claim, all papers shall be mailed to the address shown on the proof of claim. Service of an objection to a proof of claim is governed by Rule 3007, FRBP, not Rule 7004, FRCP. Therefore, service of an objection on the person designated on the proof of claim as the notice recipient is sufficient. See In re State Line Hotel, Inc., 323 B.R. 703 (9th Cir. BAP2005), vacated and remanded as moot, 242 Fed. Appx. 460 (9th Cir. 2007).

The last billing statement is an excellent source (and proof) for obtaining a proper address. Additionally, the official website of the Federal Deposit Insurance Corporation has a “Bank Find” search feature (located at http://research.fdic.gov/bankfind/), which allows the searcher to determine if a financial institution is an “insured depository.”

For instance BAC Home Loans is a fictitious business name of Bank of America, N.A. If an institution is an “insured depository” then the institution must be served in accordance with the provisions of Rule 7004(h), FRBP. If the party being served has failed to properly update his or her address, service on the old address of record is proper. See In re Cossio, 163 B.R. 150 (9th Cir. BAP 1994), aff’d 56F.3d 70 (9th Cir. 1995).

The identity of a junior lienholder may be made by making a RESPA demand seeking information. See 12 U.S.C. § 2605(k)(1)(D). RESPA requires servicers to respond to “Qualified Written Requests,” or QWR’s, seeking information relating to the servicing of a mortgage loan. See 12 U.S.C. § 2605(e). Many servicers provide a different address for mailing a QWR, which should be sent by certified mail. The servicer must provide information under RESPA, including:

1. A request for the complete name and address of the entity that owns the mortgage note; and
2. A request for a copy of the front and back of the mortgage note, including endorsements and assignments.

Finally, many states also provide online public access to agents designated to receive service of process (“registered agents”) through the secretary of state website. The registered agent must also receive service.