To Bring a Secured Claim, You Must Own the Secured Claim

Key Takeaways

• • Ownership must predate the proof of claim. In In re Aegis Asset Management, LLC, the Eleventh Circuit held that a creditor must own or hold the underlying note and mortgage as of the date the proof of claim is filed; acquiring the instruments after the claim is filed will not make it valid.

  • State law controls claim validity. A claim that would not be enforceable outside bankruptcy is not allowable inside it. Because the properties were in Florida, Florida foreclosure law applied to the validity of the subject claims. Therefore, the claimant had to be the owner or holder of the mortgage prior to the claim being filed.

  • Documentation gaps are fatal, and after-the-fact fixes come too late. Cloud 9's claims attached mortgages and notes naming other parties as the mortgagees, and affidavits explaining an inadvertent failure to transfer the instruments in 2015 did not establish enforceable rights as of the April 28, 2021 claims-filing date.
    

In order for a secured claim to be allowed, the entity filing the secured claim must have acquired the ownership of the underlying security instruments prior to filing the proof of claim; if ownership is acquired after, the claim will likely be disallowed. In bankruptcy, the validity of a claim is governed by state law.[1]

The properties and claims at issue in In re Aegis Asset Mgt., LLC were governed by Florida foreclosure law. In Florida, a party must be the owner or holder of a note to foreclose on the property.[2] In In re Aegis Asset Mgt., LLC, the Eleventh Circuit recently held that in order for a creditor to have a valid secured claim, the claimant must have owned the underlying note and mortgage as of the filing of the proof of claim.[3] In its opinion, the Eleventh Circuit further affirmed the rulings of both the bankruptcy and district court that a proof of claim lacking evidence that the debt is owed to the claimant at the time the claim is filed, an objection is appropriate; absent evidence of note ownership, a claim is properly disallowed.[4]

The debtor, Aegis Asset Management, LLC’s Chapter 11 bankruptcy was converted to Chapter 7 on October 17, 2019. After conversion, the Chapter 7 trustee identified fraudulently transferred properties and ultimately sold 68 of them free and clear of liens to purchaser, INXS VII, LLC (“Purchaser”).[5] A creditor, Cloud 9 Properties, LLC (“Cloud 9”), filed three secured claims against the sale proceeds of three properties on April 28, 2021.[6] However, the Purchaser objected to Cloud 9’s claims because they lacked evidence of debt owed to Cloud 9: the mortgages and notes attached to the claims were in the names of Margaret Mitchell and Bob Mitchell Associates, not Cloud 9.[7] The Purchaser ended up filing a motion for summary judgment on the Cloud 9 claims on the basis that Cloud 9 did not own the underlying security instruments until March 14, 2023—nearly two years after the three claims were filed.

Cloud 9 assigned its claims to Bay United Holdings, LLC (“Bay United”) on August 9, 2023. That same day, Bay United filed affidavits from an estate-planning attorney and Debtor’s representative explaining inadvertent failures to transfer notes and security instruments to Cloud 9 back in 2015, and that the mortgages and notes "have always been in the Mitchell family."[8] However, because neither the affidavits nor any other evidence established that Cloud 9 owned or held the note for the subject claims by the April 28, 2021 claims-filing date, the bankruptcy court disallowed all three claims. Summary judgment was entered in favor of Purchaser, and Cloud 9’s claims were deemed untimely since Cloud 9 did not have an interest in the underlying notes and mortgages at the time of claims filing.[9] Bay United appealed to the Middle District of Florida.

In the appeal, the district court affirmed the bankruptcy court’s ruling, holding that claimed rights to payment must be enforceable at the time the claim is filed;[10] Bay United failed to provide the requisite evidence that Cloud 9 had enforceable rights at the time of filing. Bay United further appealed to the Eleventh Circuit, which affirmed the bankruptcy court and district court’s rulings.

Conclusion

It is important to remember that the validity of a claim in bankruptcy is governed by state law, and a claim will not be allowed if that same claim would not be enforceable outside of bankruptcy.[11] The claimant must own the underlying security instruments and debt at the time of filing a claim, not some time thereafter, as required under Florida law in order to foreclose.[12]

FOOTNOTES

[1] In re Aegis Asset Mgt., LLC, No. 25-10331, 2026 WL 2131679, at *4 (11th Cir. July 24, 2026) (citing Raleigh v. Illinois Dept. of Revenue, 530 U.S. 15, 20 (2000)).

[2] Id. (citing Sorrell v. U.S. Bank Nat. Ass’n, 198 So. 3d 845, 847 (Fla. Dist. Ct. App. 2016)).

[3] Id.

[4] Id.

[5] Id. at *1.

[6] Id. On all three claims, Cloud 9 attached each property’s payoff letter and mortgage; one mortgagee was listed as Margaret Mitchell, and the other two properties’ mortgagee was Bob Michell Associates.

[7] Id. at *2.

[8] Id. at *2.

[9] Id.

[10] Id. at *3 (“[O]nly one with the right to payment may lawfully enforce it . . . .”).

[11] Id. at *4 (quoting In re Sanford, 979 F. 2d 1511, 1513 (11th Cir. 1992).

[12] Id.