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Although it may be cited for whatever persuasive value it may

have, FRAP 32.1, it has no precedential value. See 9th Cir. BAP

Rule 8013-1.

District of California, sitting by designation.

In re: ) BAP No. AZ-10-1368-DMkMa

)

KIRAN SARDANA, ) Bk. No. 08-12830-CGC

)

Debtor. )

______________________________)

)

KIRAN SARDANA, )

)

Appellant, )

)

)

BANK OF AMERICA, N.A., )

)

Appellee. )

______________________________)

Argued and Submitted on May 13, 2011

at Phoenix, Arizona

Filed - June 7, 2011

Appeal from the United States Bankruptcy Court

for the District of Arizona

Honorable Charles G. Case, Bankruptcy Judge, Presiding

Appearances: Trucly Pham Swartz of John Joseph Volin, P.C.

argued for Appellant;

Leonard McDonald, Jr. if Tiffany & Bosco, P.A.

argued for Appellee

JUN 07 2011

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references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and

all "Rule" references are to the Federal Rules of Bankruptcy

Procedure, Rules 1001-9037. The Federal Rules of Civil Procedure

are referred to as "Civil Rules."

-2-

Debtor and appellant Kiran Sardana ("Ms. Sardana") appeals

the bankruptcy court's order granting relief from stay to

appellee Bank of America, N.A. ("Bank of America"). We VACATE

and REMAND to the bankruptcy court to conduct an evidentiary

hearing.

FACTS

bankruptcy petition. On her Schedule A - Real Property,

Ms. Sardana listed her residence in Chandler, Arizona

("Property"), as having a value of $249,000 and secured claims

against it in the amount of $342,001.12. In her Schedule D,

Ms. Sardana stated that Bank of America had undisputed claims

secured by the Property in the amounts of $288,619.18 and

$53,381.94, respectively. Based on Ms. Sardana's valuation of

the Property, Bank of America had a secured claim on its first

trust deed ("Trust Deed") in the amount of $249,000, with the

balance of $39,619.18 unsecured, and Bank of America's line of

credit second lien on the Property, in the amount of $53,381.94,

was wholly unsecured.

On April 13, 2010, Bank of America filed a motion for relief

from stay ("Motion") requesting an order granting relief from the

stay of § 362(a) to permit Bank of America to foreclose its Trust

Deed and obtain possession and control of the Property. In the

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Motion, Bank of America alleged that Ms. Sardana had signed a

promissory note ("Note") secured by the Trust Deed on the

property. Copies of the Note and Trust Deed were attached as

Exhibits "A" and "B" to the Motion. Bank of America is

identified as the "Lender" in both the Note and the Trust Deed.

In the Trust Deed, Bank of America, as "Lender," is identified as

the "beneficiary under this Security Instrument." Bank of

America alleged that it had a secured claim against Ms. Sardana

and a secured interest in the Property by virtue of the Note and

Trust Deed.

In the Motion, Bank of America further alleged that

Ms. Sardana was in default of her Note obligation in that she had

failed to pay the postpetition maintenance payments to Bank of

America for January through April, 2010, for a total postpetition

default of $6,617.02, after a setoff of funds in suspense.

Ms. Sardana filed a response ("Response") to the Motion on

or about April 27, 2010. In her Response, Ms. Sardana did not

dispute that she was in postpetition default of her payment

obligations under the Note and Trust Deed. Her sole defense was

her argument that Bank of America did not hold the original Note

and thus was not a real party in interest, lacking standing to

file the Motion. Ms. Sardana alleged that, as opposed to being

the current "owner and holder" of the Note, "Bank of America is

only a servicer, a sub-servicer or a default servicer of the debt

pursuant to a pooling and servicing agreement with the actual

holder. . . ."

The bankruptcy court held a preliminary hearing

("Preliminary Hearing") on the Motion on May 27, 2010. At the

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Preliminary Hearing, counsel for Ms. Sardana advised the

bankruptcy court that based on a preliminary investigation, it

appeared that the Note had been assigned to Fannie Mae, and

counsel assumed that Bank of America just retained servicing

rights. Counsel for Ms. Sardana requested about 60 days to

investigate the situation further and offered that Ms. Sardana

was prepared to make an adequate protection payment to Bank of

America.

The bankruptcy court noted that,

There are a number of cases from the Arizona - from the

District of Arizona - district judges who say Arizona

is not a quote, "Show me the note state." A conclusion

with which I happen to agree.

May 27, 2010 Hrg. Tr. at 10: 17-20. However, the bankruptcy

court further stated its willingness to grant a short continuance

based upon Ms. Sardana making adequate protection payments. The

bankruptcy court also stated that during the time before a final

hearing, the ownership of the Note could be explored, but its

greater concern was who was the beneficiary under the Trust Deed.

Ms. Sardana submitted discovery requests to Bank of America,

Fannie Mae and the chapter 13 trustee. In the Appendix to

Appellant's Reply Brief, Ms. Sardana included a copy of a Motion

to Compel Discovery ("Motion to Compel") and attached exhibits

prepared and served on or about August 20, 2010, alleging that

Bank of America had not responded to Ms. Sardana's

Interrogatories and Requests for Production of Documents.

Nothing in the record on appeal informs us of the disposition of

the Motion to Compel.

A further hearing ("Final Hearing") on the Motion was held

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"In compliance with the court's order, Appellant made the

required adequate payment to Appellee." Appellant's Opening

(continued...)

-5-

on September 14, 2010. At the Final Hearing, counsel for Bank of

America argued that Bank of America was the originator of the

Note and Trust Deed and that they had not been transferred. Bank

of America's counsel further reported that Ms. Sardana had made

some discovery requests "demanding to see the original note and

deed of trust." Bank of America had refused to provide access to

the original Note and Trust Deed but had provided copies on three

separate occasions. Counsel for Bank of America confirmed that

the Trust Deed had been recorded. Bank of America's counsel

concluded, "Again, they're parked in this 13 and not making

payments. And we'd like relief from stay." September 14, 2010

Hrg. Tr. at 3: 12-13.

Counsel for Ms. Sardana confirmed that Ms. Sardana did not

dispute that Bank of America was the original holder of the Note,

but argued there was conflicting evidence as to whether Bank of

America or Fannie Mae was the current holder of the Note.

However, counsel for Ms. Sardana confirmed that there was no

record of transfer of the Trust Deed. Ultimately, counsel for

Ms. Sardana offered to present evidence that Fannie Mae was the

current owner of the Note. The bankruptcy court did not receive

that evidence because, "It doesn't sound like there's any dispute

as to that." September 14, 2010 Hrg. Tr. at 4: 13-14. Counsel

for Ms. Sardana did not dispute that she was behind on her

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Brief at 6. However, there is no evidence in the record before

us of any payment(s) made by Ms. Sardana postpetition, except for

one payment that Ms. Sardana's husband advised the bankruptcy

court at the Preliminary Hearing had been made to Bank of

America's counsel. Bank of America's counsel confirmed receipt

of one payment in the amount of $1,938.50.

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After hearing the arguments of counsel, the bankruptcy court

stated its findings and conclusions orally on the record. After

noting that a motion for relief from stay is an "interim

proceeding," the bankruptcy court stated that the beneficiary

under a recorded deed of trust is entitled to proceed with

foreclosure under Arizona state law.

It is my view that the production of the original note

is not necessary. Even if the note has been

transferred the right to foreclose the deed of trust,

among other people, remains with the beneficiary of

record.

September 14, 2010 Hrg. Tr. at 5: 13-16. Since Bank of America

was "indisputably the beneficiary of record it seems to me that

they are entitled to bring this motion for relief from stay."

Id. at 5: 17-19. Accordingly, the bankruptcy court overruled

Ms. Sardana's argument that Bank of America was not the real

party in interest and lacked standing to prosecute the Motion.

The bankruptcy court then determined that since there was no

dispute that Ms. Sardana was behind on her postpetition payments

under the Trust Deed obligation, there was "cause" to grant

relief from stay. The bankruptcy court concluded by ordering

that the stay was lifted.

An order ("Order") granting the Motion was entered by the

bankruptcy court on September 20, 2010. Ms. Sardana timely

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no standing to prosecute the Motion, the bankruptcy court has no

jurisdiction to consider the Motion, is derived from

Ms. Sardana's base argument that Bank of America has no standing

to begin with.

-7-

appealed the Order.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C.

§§ 1334 and 157(b)(2)(A) and (G). We have jurisdiction under

28 U.S.C. § 158.

ISSUE

Did the bankruptcy court err when it determined that Bank of

America had standing to pursue the Motion?

STANDARDS OF REVIEW

Standing is a legal issue that we review de novo. Loyd v.

Paine Webber, Inc., 208 F.3d 755, 758 (9th Cir. 2000); Kronemyer

v. Am. Contractors Indem. Co. (In re Kronemyer), 405 B.R. 915,

919 (9th Cir. BAP 2009). De novo review requires that we

consider a matter anew, as if it had not been heard before, and

as if no decision had been rendered previously. United States v.

Silverman, 861 F.2d 571, 576 (9th Cir. 1988); B-Real, LLC v.

Chaussee (In re Chaussee), 399 B.R. 225, 229 (9th Cir. BAP 2008).

DISCUSSION

Although Ms. Sardana divides her argument into two parts,

the only issue before us in this appeal is whether Bank of

I. General Standing Principles

Standing considerations involve both "constitutional

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-8-

limitations on federal court jurisdiction and prudential

limitations on its exercise." Warth v. Seldin, 422 U.S. 490, 498

(1975). Constitutional standing concerns whether a claimant's

stake in a matter is sufficient to create a "case or controversy"

to which the federal judicial power under Article III of the

Constitution may extend. Id. at 498-99; Pershing Park Villas

Homeowners Assoc. v. Unified Pac. Ins. Co., 219 F.3d 895, 899

(9th Cir. 2000); Lujan v. Defenders of Wildlife, 504 U.S. 555,

559-60 (1992).

In Appellant's Opening Brief, Ms. Sardana admits that Bank

of America has constitutional standing because the Note "is

payable to Appellee," and Ms. Sardana was in default of her

postpetition payment obligations under the Note when the Motion

was filed. Appellant's Opening Brief at 10.

However, Ms. Sardana asserts that Bank of America does not

have prudential standing because it is not the "real party in

interest" to prosecute the Motion. In analyzing prudential

standing requirements, the Supreme Court has held:

"[T]he plaintiff generally must assert his own legal

rights and interests, and cannot rest his claim to

relief on the legal rights or interests of third

parties." Warth v. Seldin, 422 U.S. [at 499].

Valley Forge Christian College v. Americans United for Separation

of Church and State, Inc., 454 U.S. 464, 474 (1982). Ms. Sardana

argues that "[t]he real party in interest in a Motion for Relief

is a party entitled to enforce the right being asserted under

applicable substantive law." Appellant's Opening Brief at 11.

The moving party bears the burden of proof to establish its

standing to prosecute a motion for relief from stay. See In re

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Wilhelm, 407 B.R. 392, 399-400 (Bankr. D. Id. 2009), citing Lujan

v. Defenders of Wildlife, 504 U.S. at 561.

II. Standing to File a Motion for Relief from Stay

When a bankruptcy petition is filed, § 362(a) automatically

imposes a very broad injunction, the "automatic stay," on

collection and enforcement activities against the debtor, the

debtor's property, and property of the estate. § 362(a)(3)

specifically stays "any act to obtain possession of property of

the estate or of property from the estate or to exercise control

over property of the estate."

Under § 362(d), a "party in interest" may request relief

from the automatic stay. Section 362(d)(1) authorizes relief

from stay "for cause, including the lack of adequate protection

of an interest in property of such party in interest."

Because the term "party in interest" is not defined in the

Bankruptcy Code, whether a moving party, such as Bank of America,

has the status of a party in interest under § 362(d) is a fact

intensive matter to be determined on a case-by-case basis, taking

into account the claimed interest and the impact of the stay on

that interest. In re Kronemyer, 405 B.R. at 919. A "party in

interest" can include any party that has a pecuniary interest in

the case, a practical stake in the resolution of the matter, or

is impacted by the stay." Brown v. Sobczak (In re Sobczak),

369 B.R. 512, 517-18 (9th Cir. BAP 2007).

Motions for relief from the stay are contested matters. See

Rules 4001(a) and 9014(a). Rule 9014(c) provides that Rule 7017

is applicable in contested matters. Rule 7017, in turn,

incorporates Civil Rule 17. Civil Rule 17(a) provides that "[a]n

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-10-

action must be prosecuted in the name of the real party in

interest. . . ." Given the application of these various rules,

proceedings to decide motions for relief from stay are

nonetheless very circumscribed matters.

Given the limited grounds for obtaining a motion for

relief from stay, read in conjunction with the

expedited schedule for a hearing on the motion, most

courts hold that motion for relief from stay hearings

should not involve an adjudication on the merits of

claims, defenses, or counterclaims, but simply

determine whether the creditor has a colorable claim to

the property of the estate.

Biggs v. Stovin (In re Luz Int'l), 219 B.R. 837, 842 (9th Cir.

BAP 1998) (emphasis added). See, e.g., Johnson v. Righetti

(In re Johnson), 756 F.2d 738, 740-41 (9th Cir. 1985).

Cornell University Law School's Legal Information Institute

defines a "colorable claim" in a straightforward manner as:

A plausible legal claim. In other words, a claim

strong enough to have a reasonable chance of being

valid if the legal basis is generally correct and the

facts can be proven in court. The claim need not

actually result in a win.

Resolving a motion for relief from stay involves

consideration of the specific grounds for granting relief from

stay set forth in § 362(d), i.e., generally whether "cause,"

including a lack of adequate protection of the moving party's

interest, is established; whether the debtor has any equity in

the subject property; and/or whether the subject property is

necessary to an effective reorganization of the debtor's affairs.

It generally is not an appropriate context for a definitive

ruling on the merits of the underlying claims between the

parties. In re Johnson, 756 F.2d at 740-41 ("Hearings on relief

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-11-

from the automatic stay are . . . handled in a summary fashion.

[citation omitted] The validity of the claim or contract

underlying the claim is not litigated during the hearing.").

[I]t is analogous to a preliminary injunction hearing,

requiring a speedy and necessarily cursory

determination of the reasonable likelihood that a

creditor has a legitimate claim or lien as to a

debtor's property. If a court finds that likelihood to

exist, this is not a determination of the validity of

those claims, but merely a grant of permission from the

court allowing that creditor to litigate its

substantive claims elsewhere without violating the

automatic stay.

Grella v. Salem Five Cent Sav. Bank, 42 F.3d 26, 33-34 (1st Cir.

1994). See In re Vitreous Steel Prod. Co., 911 F.2d 1223, 1234

(7th Cir. 1990) ("Questions of the validity of liens are not

generally at issue in a § 362 hearing, but only whether there is

a colorable claim of a lien on property of the estate.")

(Emphasis in original.)

The Eleventh Circuit has concluded that "[a] servicer is a

party in interest in proceedings involving loans which it

services." Greer v. O'Dell (In re O'Dell), 305 F.3d 1297, 1302

(11th Cir. 2002). In her Reply Brief, Ms. Sardana agrees that in

some circumstances, loan servicers may have standing to prosecute

a motion for relief from stay. Appellant's Reply Brief at 5-6.

III. The Record Before the Bankruptcy Court

In this case, Ms. Sardana raised questions as to Bank of

America's ownership of the Note, and indeed established to the

bankruptcy court's satisfaction that Fannie Mae owned the Note.

However, the bankruptcy court focused on who was the beneficiary

under the Trust Deed. The Trust Deed was before the bankruptcy

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attached as exhibits to the Motion. On remand, for their

admission as evidence, copies or originals of the Note and Trust

Deed will need to be properly authenticated as required by the

Federal Rules of Evidence. See Rule 901, Federal Rules of

Evidence.

-12-

Bank of America as the "Lender" and further defined the "Lender"

as the beneficiary under the Trust Deed. At the Final Hearing,

the bankruptcy court confirmed that the Trust Deed had been

recorded properly, and counsel for Ms. Sardana admitted that

there had been no change of record to the Trust Deed.

As noted by the bankruptcy court, under Arizona state law,

the beneficiary of a trust deed is entitled to proceed with

foreclosure. Arizona Revised Statutes ("A.R.S") § 33-807, in

relevant part, provides:

A. . . . At the option of the beneficiary, a trust deed

may be foreclosed in the manner provided by law for the

foreclosure of mortgages on real property in which

event chapter 6 of this title governs the proceedings.

The beneficiary or trustee shall constitute the proper

and complete party plaintiff in any action to foreclose

a deed of trust. . . .

B. The trustee or beneficiary may file and maintain an

action to foreclose a deed of trust at any time before

the trust property has been sold under the power of

sale. . . .

(Emphasis added.) Accordingly, under Arizona law, a trust deed

beneficiary, whether it is the holder of the related promissory

note or the agent for such holder, along with the trustee under

the deed of trust, is generally a party with standing to

prosecute a foreclosure action.

In addition to, and as a complement to, the statutory

authority of the Trust Deed beneficiary under A.R.S. § 33-807 to

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as follows:

Acceleration; Remedies. Lender shall give notice to

Borrower prior to acceleration following Borrower's breach of any

covenant or agreement in the Security Instrument (but not prior

to acceleration under Section 18 unless Applicable Law provides

otherwise). The notice shall specify: (a) the default; (b) the

action required to cure the default; (c) the date, not less than

30 days from the date the notice is given to the Borrower, by

which the default must be cured; and (d) that failure to cure the

default on or before the date specified in the notice may result

in acceleration of the sums secured by the Security Instrument

and sale of the Property. The notice shall further inform

Borrower of the right to reinstate after acceleration and the

right to bring a court action to assert the non-existence of a

default or any other defense of Borrower to acceleration and

sale. If the default is not cured on or before the date

specified in the notice, Lender at its option may require

immediate payment in full of all sums secured by this Security

Instrument without further demand and may invoke the power of

sale and any other remedies permitted by Applicable Law. Lender

shall be entitled to collect all expenses incurred in pursuing

the remedies provided in this Section 22, including, but not

limited to, reasonable attorneys' fees and cost of title

evidence.

If Lender invokes the power of sale, Lender shall give

written notice to Trustee of the occurrence of an event of

default and of Lender's election to cause the Property to be

sold. Trustee shall record a notice of sale in each county in

which any part of the Property is located and shall mail copies

of the notice as prescribed by applicable law to Borrower and to

the other persons prescribed by Applicable Law. After the time

required by applicable law and after publication and posting of

(continued...)

-13-

initiate a foreclosure action with respect to the Property, the

Trust Deed by its terms provides that the Lender/beneficiary has

authority to initiate a nonjudicial foreclosure sale in the event

of Ms. Sardana's default of her obligations secured by the Trust

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the notice of sale, Trustee, without demand on Borrower, shall

sell the Property at public auction to the highest bidder for

cash at the time and place designated in the notice of sale.

Trustee may postpone sale of the Property by public announcement

at the time and place of any previously scheduled sale. Lender

or its designee may purchase the Property at any sale.

-14-

But that is not all that is required under Arizona law in

this context. A.R.S. § 33-801(1) defines "Beneficiary" under a

trust deed as "the person named or otherwise designated in a

trust deed as the person for whose benefit a trust deed is given,

or the person's successor in interest." A.R.S. § 33-817 further

provides that, "The transfer of any contract or contracts secured

by a trust deed shall operate as a transfer of the security for

such contract or contracts." Accordingly, if the holder of the

beneficial interest in the Note changes, even if the named

beneficiary under the Trust Deed remains the same, the

beneficiary's right to enforce the Note obligation and foreclose

the Trust Deed must be based on some further agreement with the

new owner or holder of the Note. See Hill v. Favour, 52 Ariz

561, 568, 84 P.2d 575, 578 (1938):

The law seems to be well settled that the mortgage is a

mere incident to the debt and that its transfer or

assignment does not transfer or assign the debt or the

note. The mortgage goes with the note. If the latter

is assigned, the mortgage automatically goes along with

the assignment or transfer.

Ms. Sardana relies on Arizona UCC law, particularly on

A.R.S. § 47-3301, to argue that the "person entitled to enforce"

instruments, such as the Note, under Arizona law is the holder of

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13) that because she was prepared to present evidence that Fannie

Mae had purchased the Note, the "power of sale" may have been

exercised and the Trust Deed beneficiary changed for purposes of

§ 33-807(b), is disingenuous. No suggestion was made by either

party at the Preliminary Hearing or the Final Hearing that a

nonjudicial foreclosure sale of the Property had occurred.

Indeed, it is logical to assume from this record that Ms. Sardana

opposed the Motion in order to prevent a nonjudicial foreclosure

sale of the Property from taking place.

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§ 47-3301 provides:

"Person entitled to enforce" an instrument means the

holder of an instrument, a nonholder in possession of

the instrument who has the rights of a holder or a

person not in possession of the instrument who is

entitled to enforce the instrument pursuant to

§ 47-3309 or § 47-3418, subsection D. A person may be

a person entitled to enforce the instrument even though

the person is not the owner of the instrument or is in

wrongful possession of the instrument. (Emphasis

added.)

Accordingly, based on the highlighted language of § 47-3301

alone, the statute does not say what Ms. Sardana wants it to say:

Under Arizona law, a party entitled to enforce the Note

obligation is not necessarily required to be the "holder" of the

Note. Indeed, the Arizona district court rejected Ms. Sardana's

argument, albeit in a different context, in Mansour v. Cal-

Western Reconveyance Corp., 318 F. Supp. 2d 1178, 1181 (D. Ariz.

2009), citing A.R.S. § 47-3301. In fact, as noted by the

bankruptcy court at the Preliminary Hearing, there are a number

of decisions from federal district courts in Arizona determining

that Arizona is not a "show me the note" state. See, e.g.,

Levine v. Downey Sav. & Loan F.A., 2009 WL 4282471 (D.Ariz. Nov.

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25, 2009); Garcia v. GMAC Mortgage, LLC, 2009 WL 2782791 (Aug.

31, 2009) (unpublished); Diessner v. Mortgage Elec. Registration

Systems, 618 F. Supp. 2d 1184, 1187 and n.16 (D. Ariz. 2009)

(citing A.R.S. § 33-807); and Mansour v. Cal-Western Reconveyance

Corp., 318 F. Supp. 2d at 1181.

Even so, as counsel for Bank of America admitted at oral

argument, to be a "real party in interest" for standing purposes

to prosecute a motion for relief from stay, the moving party must

have a right to enforce the subject obligation under Arizona law.

See, e.g., BAC Home Loans Servicing, L.P. v. Zitta (In re Zitta),

2011 WL 677289 (Bankr. D. Ariz. Jan. 25, 2011); In re Weisband,

427 B.R. 13 (Bankr. D. Ariz. 2010); and In re Hill, 2009 WL

1956174 (Bankr. D. Ariz. July 6, 2009). With Ms. Sardana having

made an offer of proof, which the bankruptcy court apparently

accepted but disregarded, that the Note had been assigned to

Fannie Mae, Bank of America needed to establish that it retained

the right to enforce the Note obligation in order to establish

its standing to prosecute the Motion. It did not meet its burden

of proof to make that showing. Accordingly, we determine that it

is appropriate to vacate the Order and remand to the bankruptcy

court to conduct an evidentiary hearing on the issue of Bank of

America's standing as a real party in interest to prosecute the

Motion and on such other matters as the bankruptcy court

determines to be appropriate.

CONCLUSION

For the foregoing reasons, we VACATE the Order and REMAND to

the bankruptcy court to conduct an evidentiary hearing.