## Facts

- The debtor obtained a $376,000 purchase-money loan secured by a deed of trust on a Las Vegas residence.
- The original lender endorsed and transferred the promissory note to IndyMac, and the deed of trust was assigned to IndyMac.
- IndyMac retained physical possession of the original note and acted as loan servicer, but sold the beneficial interest in the note to Freddie Mac in connection with securitization; Freddie Mac likely resold the beneficial interest to unidentified third parties.
- The debtor defaulted and later filed a Chapter 7 petition; the residence became estate property subject to the deed of trust.
- After IndyMac Bank failed and the FDIC created IndyMac Federal, IndyMac Federal moved for relief from the automatic stay under 11 U.S.C. § 362(d) to foreclose.
- The motion relied on IndyMac Federal’s possession of the original, properly endorsed note and asserted that it was the note “holder” entitled to enforce.
- The note’s beneficial owner (Freddie Mac or a securitization trustee/investor) did not appear, ratify, or join the stay-relief motion and was not identified.
- On reconsideration of an earlier denial, the court accepted that IndyMac Federal was the note’s holder but again denied stay relief on federal procedural grounds.

## Issues

1. Whether a loan servicer that possesses and can enforce the note, but does not own the beneficial interest, is the real party in interest required to prosecute a stay-relief motion under Federal Rule of Civil Procedure 17 (via Bankruptcy Rule 7017).
2. Whether the unidentified current owner of the note’s beneficial interest is a required party that must be joined (or must ratify/participate) under Federal Rule of Civil Procedure 19 in a stay-relief motion.

## Decision

- The court granted reconsideration and held that IndyMac Federal, as possessor of the original, properly endorsed note, was a “holder” with a right to enforce under applicable state commercial law.
- The court nevertheless held that IndyMac Federal was not the Rule 17 real party in interest because it did not own the beneficial interest in the claim.
- The court held that the note’s beneficial owner (typically the securitization trustee) was a required party under Rule 19 and had to be joined or otherwise participate.
- The court denied the motion for relief from the automatic stay due to noncompliance with Rules 17 and 19, despite IndyMac Federal’s ability to enforce the note.

## Legal Principles

- Possession of the original, properly endorsed promissory note generally confers “holder” status and a right to enforce the instrument under applicable state law.
- Federal Rule of Civil Procedure 17 requires litigation to be prosecuted in the name of the real party in interest, identified as the party holding the beneficial ownership of the claim.
- Federal Rule of Civil Procedure 19 may require joinder of the beneficial owner of a securitized mortgage claim where the owner’s absence risks prejudice or inconsistent obligations.
- In stay-relief litigation, the right to enforce a note under nonbankruptcy law and the federal procedural requirements governing who must prosecute the motion are distinct inquiries.

## Conclusion

The bankruptcy court concluded that the movant servicer could enforce the note as a holder, but denied stay relief because the servicer did not own the beneficial interest and failed to join (or obtain participation from) the note’s beneficial owner as required by Rules 17 and 19.


In re Hwang, 396 B.R. 757 (Bankr. C.D. Cal. 2008)