BANKRUPTCY CORNER
BANKRUPTCY CORNER
State Law Governs Note and Mortgage Claims in Bankruptcy
JASON S. RIGOLI
Bankruptcy provides many pitfalls for the unwary. There are deadlines for making certain filings to protect or enforce certain rights. Properly and timely filing a proof of claim to participate in distributions from a bankruptcy estate is one potential pitfall. The 11th Circuit articulated this point in its recent opinion Bay United Holdings, LLC v. INXS 7, LLC( In re Aegis Asset Mgmt.,
LLC),-- F. 4th--, 2026 U. S. App. LEXIS 22092, 2026 WL 2131679( 11th Cir. July 24, 2026).
Aegis Asset Mgmt involved a number of interested parties. Simply stated, the Chapter 7 trustee sold certain real estate free and clear of all liens, claims, and encumbrances. 2026 U. S. App. LEXIS 22092 at * 1-2. The sale was approved with all liens, claims, and encumbrances to attach to the sale proceeds and required proofs of claim against the proceeds to be filed within 30 days of the order. Id. at * 2. There were three proofs of claim filed by Cloud 9 Properties, LLC. Id. The documents attached to Cloud 9’ s proofs of claim, however, identified entities other than Cloud 9 as the mortgagee. Id. at * 3.
On appeal, the 11th Circuit stated,“[ i ] n bankruptcy, when an entity ' s claim for payment is based on a writing, the entity must attach a copy of the writing to its proof of claim.” Id. at * 7( citing Fed. R. Bankr. P. 3001( c)( 1)).“[ A ] proof of claim, filed in compliance with the bankruptcy rules, is presumed valid until a party in interest objects.” Id.( citing 11 U. S. C. § 502( a); Fed. R. Bankr. P. 3001( f)). In Aegis Asset Mgmt., a party in interest objected to Cloud 9’ s proofs of claim because Cloud 9 was not the mortgagee on the attached writing.
“ State law governs the validity of a claim in bankruptcy, and a claim is not allowed in bankruptcy if the same claim would not be enforceable outside of bankruptcy.” Id. at * 8( internal citations and quotation marks omitted).“ Outside of bankruptcy, a note attached to a mortgage is enforced by foreclosing on that mortgage.” Id.( citations omitted). That means in this case, Florida law applied. Id. Florida law requires the party seeking to foreclose on property to be the owner or holder of the note. Id. The 11th Circuit held, therefore, those same requirements“ extend to enforce a note via [ a ] bankruptcy claim.” Id. The 11th Circuit affirmed the district court’ s affirmance of the bankruptcy court’ s decision to disallow Cloud 9’ s proofs of claim.
A Note on Objecting to Claims
A recurring issue in these cases is that the simple lack of a writing is not enough to support an objection to a claim, especially where the moving party has no other basis to challenge the validity of a claim. The 11th Circuit squarely addressed what is required for a proper objection:
[ An ] objection must contain some substantial factual basis to support its allegation of impropriety, evidence at least equal in probative force to that offered by the proof of claim that refutes at least one of the allegations that is essential to the claim ' s legal sufficiency. Proper objections include specific and detailed allegations that place the claim into dispute and legal arguments, based upon the contents of the claim and its supporting documents, in which evidence is presented to bring the validity of the claim into question. A claim does not have prima facie validity without minimal supporting documentation. Where a proper objection is made, the entity asserting the claim loses the presumption of validity and instead must establish the validity of its claim. If the entity fails to meet that burden, its claim is properly disallowed.
Id. at * 7-8( internal citations and quotation marks omitted).
There are procedures by which a properly and timely filed claim can be assigned to a third party to avoid losing the claim. The creditor’ s analysis involves consideration of state law, the Bankruptcy Code, and
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Federal Rules of Bankruptcy Procedure to ensure that the creditor’ s rights are preserved and enforceable.
This article was submitted by GrayRobinson Shareholder Jason S. Rigoli, a member of the firm’ s Bankruptcy Section and located in the Boca Raton office. Jason can be reached at Jason. Rigoli @ gray-robinson. com or 561.368.3808.
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