In re Miller

In April 2006, Mark and Jamileh Miller (debtors) executed a promissory note in favor of IndyMac Bank, F.S.B. The note was secured by a deed of trust in the Millers’ residence. The note allegedly came to be held by Deutsche Bank National Trust Company (Deutsche Bank) (creditor). After the Millers failed to make required payments on the note, Deutsche Bank filed a foreclosure action in Colorado state court, seeking an order authorizing sale (OAS) for the Millers’ residence. The state court found that Deutsche Bank had sufficiently shown that it was an interested person entitled to an OAS. The state court based its finding on a copy of the note that contained a blank endorsement by IndyMac. Under Colorado law, a blank endorsement made a note payable to the bearer and allowed the note to be negotiated by transfer of possession to a person who thereby became the note’s holder. Colorado law generally required actual physical possession of a note to establish possession for purposes of holder status. Colorado law also allowed enforcement of a note by the transferee of the note, if that transferee had received physical delivery of the note. After the state court entered the OAS for Deutsche Bank, the Millers filed for Chapter 13 bankruptcy. Deutsche Bank moved for relief from the Bankruptcy Code’s automatic stay so that the foreclosure could continue. Deutsche Bank claimed to be the current owner of the note and gave the bankruptcy court a copy of the note with the blank endorsement. The Millers objected, asserting that Deutsche Bank was not a party in interest that could seek relief from the stay because Deutsche Bank had not produced the original note or proved that it had possession of the original note. Deutsche Bank’s lawyer told the court that although Deutsche Bank did not have the original note, counsel had requested the original note. Based on that representation, the bankruptcy court found sufficient grounds to lift the stay. The bankruptcy appellate panel (BAP) affirmed, and the Millers appealed to the Tenth Circuit.