Bankruptcy Judge sitting in Brownsville Texas rules that if debtors can show mortgage loan not transferred into securitied trust until after it closed, New York law considers transfer to trust is void

In a recent case decided by U.S. Bankruptcy Judge Marvin Isgur, JPMorgan Chase Bank, N.A. (Chase) and Deutsche Bank National Trust Company (Deutsche Bank) had filed a motion to dismiss a complaint brought by Gilberto and Sandra Saldivar in bankruptcy court.

Among other issues, the Saldivars had alleged that Chase and Deutsche Bank were not noteholders and therefore didn't have the right to file a claim against them, because their mortgage note was not timely transferred to the securitized trust that was set up to hold it.

Many if not most mortgages are now "securitized" or wrapped up into pools of loans and made into securities that are sold on Wall Street. But they must follow the rules of the governing documents, one of which is a "Pooling and Servicing Agreement."

The bankruptcy court found that New York law governed this transaction. Judge Isgur also held that under New York law, if the transfer of the note to the trust was after the closing date it was void. So he denied the defendants' motion to dismiss, holding that the Saldivars could go on with their lawsuit. Of course the Saldivars would have to continue to try to prove their claims, but at least their case was not dismissed or thrown out in the early stages. In re Saldivar, Bankr. Court, SD Texas 2013.