How Homeowners Can Set Aside Foreclosure Sale

06 Sunday Oct 2019

Posted by BNG in Banks and Lenders, Borrower, Federal Court, Foreclosure, Foreclosure Crisis, Foreclosure Defense, Fraud, Judgment, Judicial States, Litigation Strategies, Mortgage fraud, Mortgage Laws, Non-Judicial States, Note - Deed of Trust - Mortgage, Pleadings, Pro Se Litigation, State Court, Trial Strategies, Your Legal Rights

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What are the Reasons a Foreclosure Sale May Be Set Aside

Generally, to set aside a foreclosure sale, the homeowner must show:

– irregularity in the foreclosure process that makes the sale void under state law
– noncompliance with the terms of the mortgage, or
– an inadequate sale price that shocks the conscience.

Sometimes homeowners are not aware that a foreclosure sale has been scheduled until after it has already been completed. Even if your home has been sold, there are some instances where you might be able to have the foreclosure sale invalidated, though this is uncommon. This post will discuss how to set aside a foreclosure sale and the circumstances that might warrant it.

Irregularity in the Foreclosure Process

State statutes lay out the procedures for a foreclosure. If there are irregularities in the foreclosure process—meaning, the foreclosure is conducted in a manner not authorized by the statute—the sale can potentially be invalidated.

Some examples of irregularities in the foreclosure process are:

The loan servicer does not send notice to the borrower.
A state statute requires notice by advertising the sale in a newspaper, but the servicer does not place the advertisement.
The foreclosing lender did not get an assignment of the mortgage.

Example. In U.S. Bank v. Ibanez, the Massachusetts Supreme Judicial Court invalidated two foreclosure sales where the mortgages were assigned to the lender after the completion of the foreclosure sale. The court decided that the foreclosures were void because the lenders lacked legal authority to foreclose.

However, in some states, courts are reluctant to set aside a foreclosure sale based upon violations of foreclosure statutes unless the violation resulted in actual prejudice (harm) to the homeowner. For instance, the homeowner may have to show that the lender’s failure to follow the statutory requirements chilled the bidding at the foreclosure sale and, as a result, the homeowner was liable for a larger deficiency judgment.

Noncompliance With Terms of the Mortgage

If the lender or servicer fails to comply with the terms of the mortgage contract, this may constitute sufficient reason to set aside a foreclosure sale.

Example. Many mortgages and deeds of trust require that the lender or servicer send the borrowers a breach letter giving them 30 days to cure the default before starting a foreclosure. If the servicer doesn’t send a breach letter, this may provide grounds for invalidating the foreclosure.

Inadequacy of Sale Price

Inadequacy of sale price might justify setting aside a foreclosure sale if the price is so low that it “shocks the conscience” of the court. It is often difficult to get a sale set aside on this basis. Usually to get a sale invalidated for inadequacy of sale price, you will also need additional circumstances that warrant voiding the sale.

For instance, courts are more likely to set aside a sale if there is an inadequate sales price combined with:

some irregularity (such as if the sale was advertised to take place at 3:00 p.m., but was actually held at 11:00 a.m.), or
unfairness (like if the lender re-sold the property for a much higher price right after the foreclosure sale, which demonstrates that it could have received a higher price at the foreclosure sale).

Though keep in mind that some courts might be hesitant to void the sale unless the violation resulted in actual prejudice to the homeowner.

How to Set Aside the Foreclosure Sale

The procedures to set aside a foreclosure sale depend on whether the sale was judicial (where the lender forecloses through the state court system) or nonjudicial (which means the lender does not have to go through state court to get one).

Setting Aside a Sale in a Judicial Foreclosure

Attempting to invalidate the sale in a judicial foreclosure can typically be done in the following ways, depending on state law:

If the foreclosure case stays open through completion of the sale process, then you can raise an objection to the legitimacy of the sale in that case.
If the state judicial process terminates once the foreclosure judgment is entered (and not appealed), then you must either file a motion to reopen the case or file a separate action to void the sale.

The actual process is generally determined by statute, rule, or case law.

Setting Aside a Sale in a Nonjudicial Foreclosure

If the property was foreclosed non-judicially, the homeowner will usually have to file a lawsuit in state court to void the sale. It may also be possible in some instances to file bankruptcy and ask that the sale be set aside as part of the bankruptcy case.

There are a few nonjudicial foreclosure states that require a court to confirm the sale. In those states, the homeowner can sometimes raise objections to the sale in the confirmation process. However, in some states the confirmation process is limited to determining whether or not the property sold for fair market value at the foreclosure sale and the court will not review other issues.

What Happens if the Sale Is Set Aside?

If the foreclosure sale is set aside as void, title to the property is typically returned to the homeowner while the mortgage and other liens generally are re-established. However, if the property has been resold to another party following an invalidated sale, some state statutes provide that the subsequent sale to a good faith purchaser eliminates the foreclosed homeowner’s right to challenge the sale on procedural grounds. In these types of cases, the homeowner might be able to seek damages against the lender or servicer.

The reasons that justify, as well as, the procedures for, invalidating a foreclosure sale are complicated. So, if you are considering trying to set aside a foreclosure sale, the earlier you begin the fight using the content found within our package, the better chance of succeeding.

[The views expressed in this document are solely the views of the Author. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance]

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

Home owners should wake up TODAY! before it’s too late by mustering enough courage for “Pro Se” Litigation (Self Representation – Do it Yourself) against the Lender – for Mortgage Fraud and other State and Federal law violations using foreclosure defense package found at https://fightforeclosure.net/foreclosure-defense-package/ “Pro Se” litigation will allow Homeowners to preserved their home equity, saves Attorneys fees by doing it “Pro Se” and pursuing a litigation for Mortgage Fraud, Unjust Enrichment, Quiet Title and Slander of Title; among other causes of action. This option allow the homeowner to stay in their home for 3-5 years for FREE without making a red cent in mortgage payment, until the “Pretender Lender” loses a fortune in litigation costs to high priced Attorneys which will force the “Pretender Lender” to early settlement in order to modify the loan; reducing principal and interest in order to arrive at a decent figure of the monthly amount the struggling homeowner could afford to pay.

If you find yourself in an unfortunate situation of losing or about to lose your home to wrongful fraudulent foreclosure, and need a complete package that will show you step-by-step litigation solutions helping you challenge these fraudsters and ultimately saving your home from foreclosure either through loan modification or “Pro Se” litigation visit: https://fightforeclosure.net/foreclosure-defense-package/

If you have received a Notice of Default “NOD”, take a deep breath, as this the time to start the FIGHT! and Protect your EQUITY!

If you do Nothing, you will see the WRONG parties WITHOUT standing STEAL your home right under your nose, and by the time you realize it, it might be too late! If your property has been foreclosed, use the available options on our package to reverse already foreclosed home and reclaim your most prized possession! You can do it by yourself! START Today — STOP Foreclosure Tomorrow!

If you are a homeowner already in Chapter 13 Bankruptcy and needs to proceed with Adversary Proceeding to challenge the validity of Security Interest or Lien on your home, Our Adversary Proceeding package may be just what you need.

How Homeowners Can Use Ibanez Case to Fight a Wrongful Foreclosure

26 Monday Mar 2018

Posted by BNG in Bankruptcy, Banks and Lenders, Case Laws, Case Study, Federal Court, Foreclosure Crisis, Foreclosure Defense, Fraud, Judicial States, Legal Research, Litigation Strategies, Loan Modification, MERS, Mortgage Laws, Mortgage mediation, Mortgage Servicing, Non-Judicial States, Pro Se Litigation, Securitization, State Court, Your Legal Rights

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Many homeowners who found themselves in wrongful foreclosure situation may have a valid defense, against the perpetrators of these crimes.

How much does it cost to get justice, when a bank forecloses on your house illegally? Thousands of ex-homeowners don’t pursue their rights to a financial settlement because they assume they couldn’t pay the legal fees.

In fact, it costs less than you fear. Consumer lawyers take a few cases at no charge. More likely, you’ll pay fees — upfront or on a monthly plan — tied to the lawyer’s estimate of the time it will take and your ability to pay. If they win your case, they’ll collect from the financial institution, too.

Before readers attack the “greedy lawyers” for defending “deadbeat” clients who couldn’t repay their mortgage loans, let me quote from a groundbreaking decision of 2011 by the Massachusetts Supreme Court. The court reversed two foreclosures because the banks — Wells Fargo and U.S. Bancorp, acting as trustees for investors — couldn’t prove that they actually owned the mortgages. Judge Robert J. Cordy excoriated them for their “utter carelessness.” The fact that the borrowers owed the money was “not the point,” he wrote. The right to deprive people of their property is a powerful one and banks have to prove they have the legal standing to do so.

American law cannot allow property seizures based on backdated, incomplete, or fraudulent documentation, no matter what the circumstances are. Otherwise, no one’s home is safe. Courts enforce private property rights through the cases brought before them. In other words, lawyers.

The Massachusetts case began not with consumers, but with the banks themselves. They asked the courts to affirm that the foreclosures were valid so they could get title insurance. That pulled the borrowers — Antonio Ibanez and Mark and Tammy LaRace — into the fray. When the horrified courts looked at how the foreclosures had gone down, they said, “no way,” and gave the former owners their property back.

Ibanez, a special ed teacher, bought the home for investment in 2005 and defaulted in 2007 on a $103,500 loan, according to the court papers. Even since, the house has been boarded up. Ibanez filed a Chapter 7 bankruptcy, so he now has title to the home and no obligation on the debt. The mortgage investors will take the loss.

The LaRaces borrowed $103,200 to buy their home in 2005 and also defaulted in 2007. They had an offer on their home, but the servicer foreclosed anyway. (During the trial, the foreclosing law firm admitted that servicers are graded on how quickly they can liquidate a mortgage.)

The LaRaces have moved back into their long-unattended home, but first they had to clean up mold, fix plumbing, and make other repairs. They would gladly resume payments on the mortgage, their lawyer Glenn Russell says. But the trustee bank doesn’t own the loan. The investors don’t own it because the mortgage was never transferred properly. The original lender, Option One, no longer exists. So whom do they pay?

This important case opens the door to thousands of foreclosure do-overs in Massachusetts at the time, and continuing and equally influenced courts in other states, as well. But there hasn’t been a rush by lawyers to get involved, probably because the field is complex and not especially remunerative. No class actions have been certified, as at that time or shortly thereafter, so the cases proceeded one by one. The financial trail can be hard to track (the Massachusetts documents were unwound by mortgage-fraud specialist Marie McDonnell). The lawyer — often, a sole practitioner — is up against the awesome resources of major financial institutions.

Neither Ibanez nor the LaRaces were charged for their lawyer’s services. Collier had file a claim for wrongful foreclosure and was paid from any settlement. Russell did the same. At the time, Russell also thinks the LaRaces are owed something for the cost of repairing their home.

Very few cases start as pro bono, however. Lawyers who defend consumers have bills to pay, just as the banks’ corporate attorneys do. You may opt to fight it Pro Se using the package from our website, or if you want to fight an unfair foreclosure, you might be offered one of several arrangements:

An upfront fee. “Many of my clients were formerly very successful individuals,” Russell says. On average, the value of the homes of the people who contact him is “somewhat north of $500,000.” He suggests a fee based on their means.

Monthly payments. If you’re not making monthly mortgage payments, some portion of that money could be applied to legal expenses. Collier says he puts the payments into escrow and retains them if he gets the house back (he says he always does, in predatory lending cases).

Bankruptcy payment plans. The clients of North Carolina bankruptcy attorney Max Gardner are usually in a Chapter 13 monthly repayment plan. Each state sets the maximum attorney’s fee, payable as part of the plan.

Mostly, the attorneys get paid by suing the financial institutions, who settle claims or suffer court judgements due to their own illegal activity. People who beat up on consumer lawyers scream that they bring frivolous cases just for the fees. But consumer lawyers only get paid if their case is good, so they’re pretty rigorous about whom they choose to represent. “I was called crazy for practicing in this area of law, as in ‘I would be broke’ by not getting enough fees,” Russell says. “Three years later, I am still here and still living my motto of helping people first.”

Most homeowners are successful fighting there case Pro Se using the package we offer for fighting Foreclosure, as your interest is at stake, and you have the most to lose, not Attorneys. They gets paid whether you win or lose. However, homeowners equally have options when fighting wrongful foreclosure.

If you think you have a case, your toughest challenge isn’t fees, it’s finding a lawyer with the expertise to press your claim successfully, Gardner says. If you don’t have a personal reference for a qualified lawyer, the best place to look is the website of the National Association of Consumer Advocates. Next best: the National Association of Consumer Bankruptcy Attorneys. In either case, ask if the lawyer has won other securitization, mortgage servicing, and foreclosure cases. “They have to know what documents to ask for,” Gardner says. That’s what wins.

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

How Florida Homeowner’s Counsels Can Effectively Use Stay of Proceedings to Delay Monetary Restitution Judgments after Foreclosure Pending Appeal or Wrongful Foreclosure

01 Friday Jan 2016

Posted by BNG in Foreclosure Defense, Litigation Strategies, Pleadings, Pro Se Litigation, State Court, Trial Strategies

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Counsels, Florida Homeowners, Foreclosure Pending Appeal, Judgments after Foreclosure, Monetary Restitution, Stay of Proceedings, wrongful foreclosure

What are your options should a money judgment be entered against your client? Aside from payment, there is appeal. But how do you stop the execution of the judgment during the appeal? What are your options if the order is one not solely for the payment of money, or is not a final order? A stay is a tool that the court uses to manage litigation and protect the rights of parties during appeals. This article discusses the use of stays in Florida’s state court system.

Stays Involving Appellate Review

Stays are commonly sought by the losing party either to maintain the status quo during interlocutory appeals or to suspend the execution of money judgments. To determine your options after an order or final judgment has been entered against your client, start with Fla. R. App. P. 9.310. This rule controls all proceedings in the Supreme Court and the district courts of appeal, and all proceedings in which the circuit courts exercise their appellate jurisdiction over decisions of the county courts, “notwithstanding any conflicting rules of procedure.”¹

First, you will see Rule 9.310 applies only to orders that are appealed. Stays of orders that are not appealable are not controlled by this rule. Second, this rule divides the universe of appealable orders into those that are judgments solely for the payment of money and all others. The rule opens with the following prescription applicable to all those other orders: “A party seeking to stay a final or non-final order pending review shall file a motion in the lower tribunal, which shall have continuing jurisdiction, in its discretion, to grant, modify, or deny such relief. A stay pending review may be conditioned on the posting of a good and sufficient bond, other conditions, or both.”

Let’s take apart this dense language and examine its pieces.

First, the trial court, the “lower tribunal,” has the power to stay its own orders.² That makes sense. Florida’s constitution creates the right to appeal orders of various kinds in art. V, §4(b)(1). The party’s right to appeal an order would be empty if orders and judgments could not be stayed pending review.

With limited exception, the decision to grant, modify, deny, or craft the conditions of a stay is a discretionary act entrusted to the trial court, but the discretion is not unfettered. No matter whether the judgment is one for the payment of money, declaratory, or injunctive relief, the lower tribunal cannot require an appellant to file a supersedeas bond as a precondition of the appeal.³ The right to appeal is guaranteed by the state constitution and may not be abridged by a trial court. Rule 9.310(f) gives the appellate court the power to review a trial court’s stay order when an appeal has been commenced. This, too, makes sense. The subject matter of the appellate court’s jurisdiction could be mooted if the parties’ legal positions were inexorably altered by the execution of the judgment before the appeal was concluded.

A wide range of orders is subject to appellate review, and all those orders are subject to Rule 9.310. This includes final orders, the appealable nonfinal orders listed in Fla. R. App. P. 9.130, and orders reviewable by way of petition for writ of certiorari, prohibition, or mandamus.

Final orders end the trial court’s labor in an action, and they come in many forms. They may be money judgments, declaratory judgments, or decrees. They can all be stayed. Nonfinal orders that may be immediately appealed, and, therefore, that may be stayed by the operation of Rule 9.310, include orders that concern

• Venue;

• Injunctions;

• The determination of the jurisdiction of the person;

• The determination of the right to immediate possession of property, including orders pertaining to writs of replevin, garnishment, or attachment;

• The determination of the right to immediate monetary relief or child custody in family law matters;

• The determination of the entitlement of a party to arbitration, or to an appraisal under an insurance policy;

• Workers’ compensation immunity;

• The certification of a class;

• Immunity in a civil rights claim arising under federal law;

• Whether a governmental entity has taken action that has inordinately burdened real property;

• The appointment of a receiver.

A stay during the appeal of a nonfinal order may be necessary because “[i]n the absence of a stay, the trial court may proceed with all matters, including trial or final hearing,” provided that no final order may be entered until the appellate proceedings are concluded, pursuant to Rule 9.130(f). Finally, Rule 9.310 empowers the trial court to stay its nonfinal orders that are immediately reviewable by way of a petition for writ of certiorari, prohibition, or mandamus. If the circumstances of your case warrant the filing of such a petition, then they likely would justify the entry of a stay of the challenged order pending appellate review.

Asking the Trial Court for a Stay Pending Appellate Review
If your client’s situation requires a stay of the order while the appellate court reviews it, then you need to fashion a motion for stay and file it with the trial court. The trial court’s order or judgment is not stayed by the mere filing of a notice of appeal or petition for writ of certiorari,⁴ and, except for money judgments, a stay pending appeal is a matter entrusted to the trial court’s discretion.⁵ The trial court has the continuing jurisdiction to grant your stay, to lift it, or to modify it. The trial court may impose conditions, and it may alter those conditions in its discretion for the duration of the appellate proceedings.⁶

There are limits to the trial court’s discretion. The trial court cannot require, as a condition of the stay, the payment of the judgment holder’s attorneys’ fees.⁷ Only when fees are otherwise recoverable by contract or statute may the trial court condition a stay on the payment of attorneys’ fees in the event the appellant fails to prevail on appeal.

When to Move for a Stay — Timing Is Important

Rule 9.310(a) requires you to file a motion, and the language implies the motion be in writing. In practice, however, strict compliance with the rule may be unworkable. The trial court may issue an order granting relief to your opponent within a time frame shorter than would accommodate the filing and setting of a motion to stay. If you find yourself at a hearing and the judge rules against your client, and you conclude the ruling would cause substantial, irreparable injury to your client, then move ore tenus for a stay. Be sure to get a ruling on the record. Promptly get a written order.

Better yet, be prepared. If you know the hearing may result in an order that your client would appeal, file a conditional motion for stay. Notice it for hearing. Bring alternative proposed orders granting and denying your motion for stay. Head to court and argue for the best outcome, but be prepared to deal with the worst. If the trial court grants immediate relief against your client, then argue your motion for stay then and there. If the trial court denies your motion to stay, make sure you get the ruling on the record and a written order from the court. This will perfect your right to apply to the appellate court for a stay.

Remember, the rule provides for a stay only if you seek appellate review of the order. If you obtain a stay order, but you do not ultimately pursue an appellate remedy, then the authority supporting the stay provided by Rule 9.310 would end. Your opponent would have a very good argument to dissolve the stay that you have obtained because the court’s authority to do so, under this rule, ended on the last day you had to file your notice of appeal or your petition. An order from the lower tribunal staying the effect of its judgment or order is a nullity unless a notice of appeal or petition is actually filed.⁸

What Justifies Stay of Order Pending Appellate Review

The trial court’s wide discretion in crafting a stay is an invitation to be creative in your request for a stay. The remedy you request must suit your client’s needs, of course. The trial court anticipates that you will suggest a stay that does so. But it will more readily grant your request if the conditions in your proposed stay do no harm to your opponent and do not unduly delay the proceedings. Reasonable conditions may include that you file your notice of appeal or petition promptly, perhaps faster than permitted by the appellate rules; that other aspects of the litigation proceed unabated; or that you protect property, documents, or evidence in your possession from spoliation.

To obtain a stay from the appellate court, you should demonstrate that your client will likely prevail on appeal, and your client will suffer some substantial injury if the order is not stayed.

The appellate court applies this standard when deciding whether to issue a stay order.⁹ Following this outline makes for a strong argument in the trial court as well. The checklist for your motion to stay should include:

• Informing the trial court that it is empowered by Rule 9.310 to stay the order it has just entered;

• Notice to the court that you intend to file a notice of appeal or petition and the date you intend to file;

• A summary of the legal and factual grounds for the appeal;

• A discussion of the harm that will befall your client should the stay not be granted;

• Evidentiary support in the form of affidavits from your client attesting to any facts justifying the stay;

• A discussion of the effect of the stay on the progress of the case and specific proposals to keep other parts of the case moving forward;

• A demonstration that the stay will not harm your opponent.

A stay motion with these elements would be compelling. The affidavit can be used to authenticate papers, letters, emails, or other documents that you submit in support of your motion. Documents that are unauthenticated are generally not admissible, and the court may find they have no evidentiary weight.¹⁰

Finally, move for relief promptly and get a ruling as soon as possible. Although there is no time frame for making a motion to stay set within Rule 9.310, time does matter, and earlier is better than later. Waiting for weeks to ask for a stay undercuts your argument that the order imposes a substantial burden or injury on your client.

If Trial Court Denies Request for a Stay, Ask the Appellate Court

Rule 9.310 gives the trial court the power to issue or deny stays, but it also gives the appellate court the power to review those rulings. You must apply to the trial court first, though.¹¹ If the lower tribunal refuses to grant the motion to stay, then review is sought in the appellate action by motion.¹² The appellate court will review the lower tribunal’s order for an abuse of discretion.¹³ The trial court is presumed to know the case well, and the question to stay usually involves a mixture of fact and legal questions that the trial court is well-suited to decide.

Your appellate motion for stay should be filed as soon as possible, preferably as soon as your appellate case is commenced. To determine what should be included in your motion to the appellate court, consider what would convince the appellate judges that your client deserves a stay. First, they will need to see your trial court motion and the order denying it. They will need a succinct statement of the facts that apprises them of the nature of the appellate case and a discussion of the course of proceedings. They will need to know the legal question that you will ask them to resolve. To warrant issuance of a stay, for the purpose of preserving the status quo during the appellate proceeding, the movant must demonstrate a likelihood of success on the merits and the likelihood that harm would result if the stay were not granted.¹⁴

You will need to provide the appellate court an appendix of documents from the trial court file that includes the order on appeal, the pertinent hearing transcripts, and the moving and opposition papers related to the stay order. Include a progress docket report from the trial court. Take care to bind the documents with tabs or, better yet, number the pages. Mind the specific court’s requirements for submissions of appendices. You’ll find each district court’s requirements set out on their websites. If you have a question, call the clerk’s office at the appellate court.

Watch your timing. An appellate court cannot consider a motion if no appellate case has yet been commenced. Therefore, the notice of appeal or the filing of the petition must coincide with or precede your filing of the appellate motion to stay. Only once the appellate court establishes its own case are you free to file your motion. Filing a motion in the appellate court does not automatically suspend any order of the trial court, so be aware of your time limitations. If the motion is time-sensitive, say so in the motion, and inform the appellate court of the deadline by which you must act.

When Does the Stay End?

If the order is a final judgment, your stay will remain in effect until the conclusion of all appellate proceedings. Appellate proceedings typically conclude when the appellate court issues its mandate. The appellate clerk issues the mandate 15 days after the court issues its decision or “as may be directed by the [appellate] court.”¹⁵ So, if you intend to try an appeal to the Supreme Court, then you must consider whether to ask the appellate court to withhold issuance of its mandate until the Supreme Court either rejects your jurisdictional papers, or takes jurisdiction of the case and completes its review.¹⁶ Alternatively, you may ask the trial court to issue a new stay pending completion of Supreme Court proceedings.

Stays Not Involving Appellate Review

A trial court is invested with the power to stay the effect of any of its interlocutory orders, even if they are not appealable.¹⁷ But that power is not established by Rule 9.310. Rather, it is part of its inherent power to manage the case. The trial court may grant or deny a stay, and it can craft unique conditions for the stay and modify them as a case management tool. Whether it does so, and what conditions it imposes, is a matter for its broad discretion.¹⁸ If your client is on the receiving end of such a stay and objects to it, you may seek appellate review of that stay. But the jurisdiction of the appellate court to do so is not established by Rule 9.310(f), and review is not by motion. Instead, the appellate court reviews the trial court’s stay order by means of a petition for writ of certiorari. By demonstrating to the appellate court that the trial court’s stay has substantially curtailed some important right of your client, you can establish the appellate court’s jurisdiction to review the order. You’ll need to show the order departs from the essential requirements of law (meaning the order lacks a legal or factual basis), and you’ll need to show the stay causes a serious, irreparable injury to your client, one that cannot be remedied on appeal from the final judgment.¹⁹

What to Do with a Judgment Solely for Payment of Money

Trial courts have the power to stay execution of money judgments on a showing of “good cause” pursuant to Fla. R. Civ. P. 1.550(a). This is a discretionary decision, of course. But an automatic stay of a money judgment can be obtained under Fla. R. App. P. 9.310(b). This appellate rule requires the filing of a “good and sufficient bond” issued by a surety company authorized to do so in Florida. Rule 9.310(b) sets the amount of the bond as the principal amount of the judgment, plus two years of interest calculated at the statutory rate.²⁰ Filing the bond dispenses with the need for filing a motion or obtaining a court order.²¹

Pursuant to Rule 9.310(b)(2), the state, or a public officer in their official capacity, or a board, commission, or other public body seeking review, is entitled to a stay without bond in most circumstances. The right is not absolute, but if you represent a government entity or official, you must keep this valuable right in mind.

A “good and sufficient bond” is one that is issued by an insurer authorized by the Office of Insurance Regulation to do so in Florida. A bond is commonly obtained through a commercial insurance broker. Brokers can be useful intermediaries to guide you through this process. The Office of Insurance Regulation maintains a website listing the scores of sureties authorized to conduct such business in Florida.²² Beware that unless you represent a substantial, established corporation, surety companies generally require posting 100 percent collateral in the form of an irrevocable letter of credit or a cash deposit.

A proper bond will contain the following elements: It will identify the surety, the principal, and the judgment holder, who is the obligee. The face of the bond will recite the surety’s undertaking to be bound to the court for the amount of the judgment, plus the two years of statutory interest up to the amount of the bond. The usual condition stated by the surety on the face of the bond is that if the judgment is satisfied or reversed on appeal, then the bond becomes void. The bond will be signed by both the principal and the surety.

The original bond is filed with the trial court under a notice of filing bond prepared by the lawyer. It is upon the filing of the bond that the automatic stay takes effect. If execution proceedings have already commenced, the filing of the bond does not act to undo the orders or negate the motions already filed or adjudicated. The filing of the bond at that late point only stays further execution.²³

This procedure secures the judgment holder’s ability to collect its principal and interest, and it preserves the judgment creditor’s right to appeal. Beware that an automatic stay under this rule may, under certain conditions, be dissolved.²⁴ In general, though, the discretion of the court to modify the terms of a bond is extremely limited. The lower tribunal may not increase or decrease the amount of the bond as set out in the rule or otherwise prejudice the creditor’s realistic chances of recovery at the conclusion of the appeal.²⁵ When the appellate proceedings are concluded and the judgment is paid or reversed, be sure to obtain a written order from the trial court declaring that the bond is void, and the surety’s obligation is released.

Conclusion

The effective litigator will know how to use stays to the client’s advantage. Stays can be used to limit the effect of an order or stop the execution of a judgment. Trial courts have wide discretion in whether to grant or deny a stay and what conditions to put on a stay. Your client needs you to know how to obtain stays from the trial and appellate courts when their judgment day comes.

¹ Fla. R. Jud. Admin. 2.130.

² Holman v. Ford Motor Co., 239 So. 2d 40, 43 (Fla. 1st D.C.A. 1970) (“It seems well settled that interlocutory judgments or orders made during the progress of a case are always under the control of the court until final disposition of the suit, and they may be modified or rescinded upon sufficient grounds at any time before final judgment.”).

³ Fitzgerald v. Addison, 287 So. 2d 151 (Fla. 2d D.C.A. 1973).

⁴ Thames v. Melvin, 370 So. 2d 439 (Fla. 1st D.C.A. 1979).

⁵ Eicoff v. Denson, 896 So. 2d 795, 799 (Fla. 5th D.C.A. 2005) (affirming decision of trial court to deny motion to stay a judgment that restrained homeowner from violating restrictive deeds pending appeal).

⁶ Fla. R. App. P. 9.310(a).

⁷ City of Coral Gables v. Geary, 398 So. 2d 479 (Fla. 3d D.C.A. 1981).

⁸ State v. Budina, 879 So. 2d 16 (Fla. 2d D.C.A. 2004).

⁹ Perez v. Perez, 769 So. 2d 389 (Fla. 3d D.C.A. 1999).

¹⁰ Fla. Stat. §90.901 (“Authentication or identification of evidence is required as a condition precedent to its admissibility.”).

¹¹ Mitchell v. Leon County School Board, 591 So. 2d 1032 (Fla. 1st D.C.A. 1991).

¹² So. Fla. Apartment Ass’n v. Dansyear, 347 So. 2d 710 (Fla. 3d D.C.A. 1977).

¹³ Fla. R. App. P. 9.310(a). The lower tribunal has “continuing jurisdiction, in its discretion, to grant, modify, or deny such relief.”

¹⁴ Perez v. Perez, 769 So. 2d 389 (Fla. 3d D.C.A. 1999).

¹⁵ Fla. R. App. P. 9.340(a).

¹⁶ Fla. R. App. P. 9.310(e).

¹⁷ Holman v. Ford Motor Co., 239 So. 2d 40, 43 (Fla. 1st D.C.A. 1970) (“It seems well settled that interlocutory judgments or orders made during the progress of a case are always under the control of the court until final disposition of the suit, and they may be modified or rescinded upon sufficient grounds at any time before final judgment.”).

¹⁸ REWJB Gas Invs. v. Land O’ Sun Realty, Ltd., 643 So. 2d 1107, 1108 (Fla. 4th D.C.A. 1994) (granting stay of eviction proceedings pending determination of declaratory judgment action on terms of lease).

¹⁹ Verlingo v. Telsey, 801 So. 2d 1009, 1010 (Fla. 4th D.C.A. 2001).

²⁰ Fla. Stat. §55.03; Florida Department of Financial Services, Statutory Interest Rates, http://www.myfloridacfo.com/aadir/interest.htm (statutory rate of interest).

²¹ Wintter & Cummings v. Len-Hal Realty, Inc., 679 So. 2d 1224 (Fla. 4th D.C.A. 1996) (entry of court order is not necessary for bond to become effective as supersedeas bond); Fla. Coast Bank of Pompano Beach v. Mayes, 433 So. 2d 1033 (Fla. 4th D.C.A. 1983), petition for review dismissed, 453 So. 2d 43 (rule applies when the only relief granted is for payment of money).

²² Florida Office of Insurance Regulation, Company Directory, http://www.floir.com/companysearch (search the list of authorized lines of business for sureties).

²³ Freedom Insurors, Inc. v. M.D. Moody & Sons, Inc., 869 So. 2d 1283 (Fla. 4th D.C.A. 2004).

²⁴ Mitchell v. State, 911 So. 2d 1211 (Fla. 2005).

²⁵Platt v. Russek, 921 So. 2d 5 (Fla. 2d D.C.A. 2004); see also PS Capital, LLC v. Palm Springs Townhomes, LLC, 9 So. 3d 643 (Fla. 3d D.C.A. 2009) (bond must be in the amount set forth in the rule).

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

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How Homeowners Can Effectively Use Automatic Stay Provisions of the Bankruptcy Code

27 Sunday Dec 2015

Posted by BNG in Bankruptcy, Case Laws, Case Study, Foreclosure Crisis, Foreclosure Defense, Judicial States, Non-Judicial States, Pro Se Litigation, Your Legal Rights

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I. Introduction.

A. Scope.

1. Section 362(a) of the Bankruptcy Code (the “Code”) contains a broad
statutory stay of litigation and lien enforcement, effective automatically on the commencement of a bankruptcy case. 11 U.S.C. § 362(a) (“. . . a petition [commencing a case] . . . operates as a stay, applicable to all entities . . .”.).

2. Purpose – Time to Reorganize. This automatic stay gives a trustee or
chapter 11 debtor-in-possession1 a breathing spell from creditors by stopping all collection efforts, harassment, and all foreclosure actions, allowing a debtor to attempt a reorganization plan. See, e.g., In re Siciliano, 13 F.3d 748, 750 (3d Cir. 1994) (“[t]he purpose of the automatic stay provision is to afford the debtor a ‘breathing spell’ by halting the collection process. It enables the debtor to attempt a repayment or reorganization plan with an aim toward satisfying existing debt.”);
Maritime Electric Co., Inc. v. United Jersey Bank, 959 F.2d 1194, 1204 (3d Cir. 1991) (“automatic stay allows debtor breathing spell from creditors and stops collection efforts”); In re Peregrine Systems, Inc., 314 B.R. 31, 44 (Bankr. D. Del. 2004) aff’d in part, rev’d in part on other grounds, 2005 WL 2401955 (D. Del. Sept. 29, 2005) (automatic stay is a “fundamental protection provided to a debtor for the purpose of stopping all creditor collection efforts and harassment of the debtor and to provide … a fresh start.”); Shaw v. Ehrlich, 294 B.R. 260, 267 (W.D. Va. 2003), aff’d, 99 Fed. Appx. 466 (4th Cir. 2004) (“stay protects debtors, as well as creditors, by providing debtors a breathing spell from collection efforts”).

3. Policy Rationale – Debtor Asset Protection. Behind the stay is a clear
policy rationale: “to grant complete, immediate, albeit temporary relief to the debtor from creditors, and also to prevent dissipation of the debtor’s assets before orderly distribution to creditors can be effected.” S.E.C. v. Brennan, 230 F.3d 65, 70 (2d Cir. 2000) (quoting Penn Terra Ltd. v. Department of Envtl. Resources, 733 F.2d 267, 271 (3d Cir. 1984)). See also Reliant Energy Services, Inc. v. Enron Canada Corp., 349 F.3d 816, 825 (5th Cir. 2003) (“purposes of the bankruptcy stay under 11 U.S.C. § 362 ‘are to protect the debtor’s assets, provide temporary relief from creditors, and further equity of distribution among the creditors by forestalling a race to the courthouse.'”) (quoting GATX Aircraft Corp. v. M/V Courtney Leigh, 768 F.2d 711, 716 (5th Cir. 1985)); Mann v. Chase Manhattan Mortgage Corp., 316 F.3d 1, 3 (1st Cir. 2003) (“automatic stay provision is designed to forfend against the disorderly, piecemeal dismemberment of the debtor’s estate outside the bankruptcy proceedings”).

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1 Code § 1107(a) gives a chapter 11 debtor-in-possession the “rights,” “duties” and “powers” of a trustee.
See NLRB v. Bildisco & Bildisco, 465 U.S. 513, 517 n. 2 (1984). See also Fed. R. Bankr. P. 9001(10) (“‘Trustee’ includes a debtor in possession in a Chapter 11 case.”).

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4. Procedural Safeguards for Secured Creditors. The Code still imposes
procedural safeguards for the benefit of the secured creditor (e.g., “adequate protection” against erosion of collateral value; time limits on stay modification requests; limits on counterclaims against secured lender seeking stay modification). As shown below, it attempts to reconcile the rights of the secured creditor with the needs of the debtor and its unsecured creditors. See United Savings Assn. of Texas v. Timbers of Inwood Forest Associates, Ltd. (In re Timbers of Inwood Forest Associates, Ltd.), 484 U.S. 365, 376 (1988) (“ . . . lack of any realistic prospect of effective reorganization will require” modification of stay of lien enforcement”).

II. The Automatic Stay.

A. When Effective.

1. The stay is automatic upon filing of the petition commencing a case under Code chapters 7 (liquidation), 9 (municipal debt adjustment), 11 (reorganization),13 (individual debt adjustment), or chapter 15 (cross-border cases) with respect to foreign main proceedings. See e.g. Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210, 1214 (9th Cir. 2002) (“the automatic stay requires an immediate freeze of the status quo by precluding and nullifying post-petition actions”); Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 527 (2d Cir. 1994) (“[a]utomatic stay is effective immediately upon filing of bankruptcy petition”) (citing Shimer v. Fugazy (In re Fugazy Express, Inc., 982 F.2d 769, 776 (2d Cir. 1992));

2. The stay acts as a specific and definite court order to restrain creditors
from continuing the judicial process or collection efforts against debtor. See e.g. In re San Angelo Pro Hockey Club, Inc., 292 B.R. 118 (Bankr. N.D. Tex. 2003) (automatic stay is self-executing injunction, constituting an order issuing from bankruptcy court); In re Bottone, 226 B.R. 290, 297 (Bankr. D. Mass. 1998) (“as long as the Chapter 13 case is pending . . . the automatic stay … restrains postpetition creditors from taking action against property of the estate”) (quoting In re Woodall, 81 B.R. 17, 18 (Bankr. E.D. Ark. 1987)).

3. Unless modified by the court, the stay is effective for the duration of a
bankruptcy case, and generally cannot be waived by the debtor. Maritime Elec. Co., Inc. v. United Jersey Bank, 959 F.2d 1194 (3d Cir. 1991) (held, because automatic stay serves interests of both debtors and creditors, it may not be waived and its scope may not be limited by debtor); In re Atrium High Point Ltd. Partnership, 189 B.R. 599 (Bankr. M.D.N.C. 1995) (before enforcing a debtor’s prepetition waiver of automatic stay bankruptcy court must look at circumstancesunder which prepetition waiver arose); but see In re Excelsior Henderson Motorcycle Mfg. Co., Inc., 273 B.R. 920 (Bankr. S.D. Fla. 2002) (court enforced prepetition agreement under which chapter 11 debtor waived automatic stay).

B. Jurisdictional Basis of Injunctive Power.

1. The district court has “exclusive jurisdiction of all of the property,
wherever located, of the debtor as of the commencement of [the] case.” 28 U.S.C. § 1334(d). A bankruptcy court is a “unit of the district court.” 28 U.S.C. § 151. Section 362 implements this jurisdiction and is supplemented by § 105(a), which authorizes a court to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of the Code.

2. The broad jurisdictional base of Section 362 confirms the court’s inherent power to protect property within its jurisdiction and to prevent any divestiture of that jurisdiction. Isaacs v. Hobbs Tie & Timber Co., 51 S. Ct. 270, 282 (1931) (held, jurisdiction of bankruptcy court respecting property of debtor’s estate having attached, actions brought in other courts could not affect it). See In re Mohawk Greenfield Motel Corp., 239 B.R. 15 (Bankr. D. Mass. 1999) (“the automatic stay protects the bankruptcy court’s exclusive jurisdiction over the debtor and its property”) (citing In re Soares, 107 F.3d 969, 975 (1st Cir. Mass. 1997)).

3. Section 362(a) stays, among other things:

a. a secured creditor from collecting accounts receivable of debtor.
Matter of Pernie Bailey Drilling Co., Inc., 993 F.2d 67 (5th Cir. 1993)
(account receivables were property of the estate; court must lift stay for
creditors to gain access to receivables);

b. a creditor’s dissolution of a debtor corporation. 11 U.S.C.
§ 362(a)(3); Hillis Motors, Inc. v. Hawaii Automobile Dealers’ Assoc.,
997 F.2d 581 (9th Cir. 1993) (held, dissolution proceeding constituted
exercise of control over debtor’s property);

c. foreclosure proceedings in other courts instituted against debtor’s
property prior to commencement of bankruptcy case. 11 U.S.C.
§ 362(a)(1); see In re Vierkant, 240 B.R. 317, 322 (B.A.P. 8th Cir. 1999)
(citing Kalb v. Feuerstein, 308 U.S. 433 (1940); In re Soares, 107 F.3d
969 (1st Cir. 1997)) (post-petition state court default order signed by judge
two weeks after bankruptcy filing violated automatic stay);

d. a landlord’s proceeding to recover possession of leased premises.
11 U.S.C. § 363(a)(5); 48th St. Steakhouse, Inc. v. Rockefeller Group, Inc.
(In re 48th St. Steakhouse, Inc.), 835 F.2d 427 (2d Cir. 1987) (serving
notice of termination on assignee of restaurant lease rather than on debtor, which still had interest in the property, violated automatic stay); and

e. an IRS sale of property seized prior to commencement of case.
11 U.S.C. § 362(a)(8); United States v. Whiting Pools, Inc., 462 U.S. 198
(1983) (IRS may also be compelled to turn over levied property under
Code § 542).

f. arbitration proceedings that not only concern claims asserted
against the debtor, but also concern the debtor’s claims against a third
party. ACandS, Inc. v. Travelers Casualty and Surety Co., 425 F.3d 252
(3d Cir. 2006), cert. denied, 126 S. Ct. 2291 (2006). (although arbitration
was commenced by debtor, continuation of arbitration proceedings
violated automatic stay because, unlike trial, it is impossible in arbitration
to definitely classify arguments presented (i.e., claims and counterclaims);
arbitration award, which effectively terminated debtor’s insurance
coverage, is invalid because it diminishes estate property); In re Edwin
Epstein Jr. Operating Co., Inc., 314 B.R. 591 (Bankr. S.D. Tex. 2004)
(held, automatic stay applied, not only to prevent non-debtor party to
arbitration proceedings from asserting claims against debtor for tortious
interference and slander of title, but also to prevent arbitrators from
hearing debtor’s claims to replace this non-debtor party as operator of oil
and gas wells based on debtor’s asserted ownership interests therein).

III. Scope and Duration of Stay.

A. Scope of Section 362.

1. Property of Estate. The bankruptcy court’s injunctive power is ordinarily
limited to protecting property belonging to a debtor. Property of the estate is defined in Code § 541(a)(1) (“. . . all legal or equitable interests of the debtor in property as of the commencement of the case.”). See In re Lankford, 305 B.R. 297, 301 (Bankr. N.D. Iowa 2004) (“All recognizable interests of the debtors or the estate are afforded the protection of § 362(a)…This includes a mere possessory interest in real property without any accompanying legal interest.”). See also In re Moffett, 356 F.3d 518 (4th Cir. 2004) (held, chapter 13 debtor’s statutory right of redemption was sufficient interest in automobile that was repossessed prepetition to be included in estate property). But see In re Jasper, 325 B.R. 50, 55 (Bankr. D. Me. 2005) (credit union’s policy of revoking membership benefits of members who caused credit union a loss does not violate automatic stay); In re Santangelo, 325 B.R. 874 (Bankr. M.D. Fla. March 22, 2005) (district court did not violate automatic stay by approving class action
settlement for claims against mortgage lender; rather, court gave prospective class members, including debtor choice of remaining class members or opting out of class); In re Medex Regional Laboratories, LLC, 314 B.R. 716 (Bankr. E.D. Tenn. 2004) (proceeds of debtor’s directors’ and officers’ liability insurance policies were not property of estate and were not protected by automatic stay, even though policies also provided coverage to debtor for indemnification claims, because the debtor had not provided any indemnification to non-debtor insiders and such indemnification claims were merely hypothetical). Compare In re Arter &
Hadden, L.L.P., 335 B.R. 666 (Bankr. N.D. Ohio 2005) (proceeds of debtor’s
directors’ and officers’ liability insurance policies are property of estate because policies also provided coverage to debtor and there was no reason why direct suit against debtor is either practically or procedurally untenable).

a. Property Outside the Scope. The stay is not applicable to actions
against property that is neither the debtor’s nor the estate’s. Rodger v.
County of Munroe (In re Rodgers), 333 F.3d 64 (2d Cir. 2003) (debtor’s
mere possession of title to real property is not sufficient to find property to
be property of estate or to bar delivery of deed to purchaser by operation
of stay); Chugach Timber Corp. v. Northern Stevedoring & Handling
Corp. (In re Chugach Forest Prods., Inc.), 23 F.3d 241 (9th Cir. 1994)
(court refused to extend stay to boat that was not property of debtor’s
estate but on which assets of debtor had been transferred) (11 U.S.C.
§ 541(b)); In re Howell, 311 B.R. 173, 179 (Bankr. D. N.J. 2004)
(automatic stay does not preclude estranged spouse from seeking equitable distribution of non-estate property such as exempt property, postpetition earnings, property excluded from the estate, property abandoned by the trustee or debtor surplus); NLRB v. McDermott, 300 B.R. 40 (D. Col. 2003) (automatic stay did not protect property of debtor’s wife’s). Examples of property outside the stay’s scope are:

(i) Foreclosure. If a lender completes foreclosure before the bankruptcy filing, neither the debtor nor the estate has any interest in the property and the automatic stay does not apply. In re Theoclis, 213 B.R. 880 (Bankr. D. Mass. 1997) (held, foreclosure sale had terminated debtor’s interest in property.); In re Williams, 247 B.R. 449 (Bankr. E.D. Tenn. 2000) (when foreclosure sale of debtor’s residence became final prior to commencement of chapter 13 case, residence did not become property of estate and was not protected by automatic stay);

(ii) Abandonment. Abandonment terminates the stay as to abandoned property. In re Holly’s, Inc., 140 B.R. 643 (Bankr. W.D. Mich. 1992) (once abandonment of debtor’s property is effectuated, or foreclosure of real and personal property is completed, taxing entity is entitled to enforce its
statutory in rem rights against property.). But see In re Thompson-Mendez, 321 B.R. 814, 819 (Bankr. D. Md. 2005) (trustee’s deemed rejection of debtor’s residential lease by failure to timely assume it did constitute
abandonment such that lease was no longer protected by automatic stay).

2. Entities Affected by the Stay. Section 362(a) applies “to all entities,”
including any “person, estate, trust, governmental unit.” 11 U.S.C. § 101(15). This broad definition of “entity” eliminates the need to define who is a “creditor,” “secured creditor” or other person affected by the stay.

B. Duration of the Stay. Unless the court orders otherwise (i.e., unless creditor gets automatic stay modified), the stay “continues until such property is no longer property of the estate.” 11 U.S.C. § 362(c)(1). The stay of all other acts continues until case is closed or dismissed, or, if debtor is an individual, until debtor is granted or denied a discharge. 11 U.S.C. §§ 362(c)(2)(A), (B) and (C). See also In re Allen, 300 F.3d 1055, 1059 (9th Cir. 2002) (automatic stay “prohibits action against the bankruptcy estate only until the bankruptcy court confirms a plan reorganizing the debtor’s property”); Middle Tennessee News Co., Inc. v. Charnel of Cincinnati, Inc., 250 F.3d 1077 (7th Cir. 2001) (automatic stay remains in effect until bankruptcy court disposes of case or grants relief from stay); In re Spirtos, 221 F.3d 1079, 1081 (9th Cir. 2000) (“So long as there are assets in the estate, then, the stay remains in effect”); Eastern Refractories Co. Inc. v. Forty Eight Insulations Inc., 157 F.3d 169 (2d Cir. 1998) (order “terminating” automatic stay operates from date of order’s entry); Lomagno v. Salomon Brothers Realty Corp., 320 B.R. 473, 481 (B.A.P. 1st Cir. 2005), aff’d, 429 F.3d 16 (1st Cir. 2005) (automatic stay not retroactively imposed when dismissal order set aside on due process grounds); In re Peregrine Systems, Inc., 314 B.R. 31, 44 (Bankr. D. Del. 2004), aff’d in part, rev’d in part on other grounds, 2005 WL 2401955 (D. Del. Sept. 29, 2005) (automatic stay “continues until the bankruptcy case is closed, dismissed, or discharge is granted or denied, or until the bankruptcy court grants some relief from the stay.”) (citing Maritime Elec. Co., Inc. v. United Jersey Bank, 959 F.3d 1194, 1206 (3d Cir. 1991)); U.S. v. White, 466 F.3d 1241 (11th Cir. 2006) (debtor discharged and automatic stay terminates on date of confirmation of debtor’s reorganization plan even when plan contains a later effective date). If a case is filed by or against a debtor who is an individual and a case of the debtor was pending within the preceding one year period but was dismissed, the automatic stay “with respect to any action taken with respect to a debt or property securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30th day after the filing of the later case.” 11 U.S.C. § 362(c)(3)(A). See Jumpp v. Chase Home Finance, LLC (In re Jumpp), 356 B.R. 789 (B.A.P. 1st Cir. 2006) (interpreting § 362(c)(3)(A) automatic stay terminates only in regard to debtor; stay continues, though, in regard to property of estate).

As of October 17, 2005, automatic stay terminates 60 days after a request for relief from stay unless final decision on request is rendered by court within the 60-day period or period is extended by agreement or by court for specific period of time found necessary for good cause.2

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2 The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was enacted on April 20, 2005, and many of its provisions became effective on October 17, 2005.

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IV. Acts Stayed. Section 362(a) is broad in scope, but specifically lists eight categories that are subject to its injunctive power.

1. “Commencement or continuation . . . of a judicial, administrative, or other proceeding against the debtor . . . to recover on a prepetition claim against a debtor.”3 Code § 362(a)(l) (emphasis added):

a. Appeals: stay covers all proceedings originally brought against the
debtor, regardless of whether the debtor is appellant or appellee.4 Halmar
Robicon Group, Inc. v. Toshiba Int’l Corp., 127 Fed. Appx. 501, 503 (Fed.
Cir. 2005) (automatic stay only operates as against actions in which debtor
is in defensive posture); Nielson v. Price, 17 F.3d 1276, 1277 (10th Cir.
1994) (“[t]he 362(a)(1) stay applies to actions that are ‘against the debtor’
at their inception, regardless of the subsequent appellate posture of the
case”); Ellis v. Consolidated Diesel Elec. Corp., 894 F.2d 371, 373 (10th
Cir. 1990) (operation of stay should not depend upon whether district
court finds for or against the debtor). But see In re Mid-City Parking,
Inc., 322 B.R. 798 (Bankr. N.D. Ill. 2005) (debtor may unilaterally waive
protections of automatic stay by pursuing appeal without first obtaining
bankruptcy court order lifting stay; debtor could not be held liable for
damages to creditor-appellee arising from debtor’s alleged “willful stay
violation).

b. Administrative proceedings: See In re Krystal Cadillac Oldsmobile
GMC Truck, Inc., 142 F.3d 631 (3d Cir. 1998) (postpetition
determinations by Pennsylvania’s Board of Vehicle Manufacturers,
Dealers and Salespersons, ordering termination of franchise agreement
violated automatic stay); In re Best Payphones, Inc., 279 B.R. 92 (Bankr.
S.D.N.Y. 2002) (administrative law judge’s post-petition decision in
proceeding commenced pre-petition ‘but concluded after debtor’s chapter
11 filing’ was void and without effect because it violated automatic stay).
But see Board of Governors of Federal Reserve System v. MCorp
Financial, Inc., 502 U.S. 32 (1991) (Section 362(a) does not apply to
ongoing, nonfinal administrative/regulatory proceedings, and action of
Board of Governors was excepted from the stay under Section 362(b)(4)
of the Code (the “governmental unit” exception)).

c. Partnerships. Actions against partners and their property are not
protected in first instance by the filing of a partnership petition. Bankers
Trust (Delaware) v. 236 Beltway Inv., 865 F. Supp. 1186 (E.D. Va. 1994)
(automatic stay does not protect partnership debtor’s individual general
partners); O’Neill v. Boden-Wert Real Estate USA Funds I, Ltd., 599
So.2d 1045 (Fla. App. 2d Dist. 1992) (held, automatic stay did not stop action against general partner in partnership debtor or against general
partner’s general partner).

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3 “‘[C]laim against the debtor’ includes claim against property of the debtor.” 11 U.S.C. § 102(2).
4 Actions against non-debtors and against co-defendants are not stayed. See sub-section (e) infra.

d. Shareholders of corporate debtor. Bankruptcy court has no jurisdiction
over stock of corporate debtor that belongs to third party shareholders.
See e.g. In re Marvel Entertainment Group, Inc., 209 B.R. 832, 838 (D.
Del. 1997) (“automatic stay provisions of the Bankruptcy Code are not
implicated by the exercise of shareholders’ corporate governance rights.”).

e. Actions against surety, co-debtor, or guarantor are not stayed.5 See
e.g. Reliant Energy Services, Inc. v. Enron Canada Corp., 349 F.3d 816,
825 (5th Cir. 2003) (“[by its terms the automatic stay applies only to the
debtor, not to co-debtors under Chapter 7 or Chapter 11”); In re Third
Eighty-Ninth Associates, 138 B.R. 144 (S.D.N.Y. 1992) (suit against
guarantors of chapter 11 debtor was not a “back-door” attempt to acquire
assets of debtor); In re Rohnert Park Auto Parts, Inc., 113 B.R. 610
(B.A.P. 9th Cir. 1991) (automatic stay does not prevent creditors from
suing co-debtors).

f. Actions are not stayed against non-debtor co-defendants.6 See e.g.
Queenie, Ltd. v. Nygard Intl., 321 F.3d 282, 287 (2d Cir. 2003) (debtor’s
filing of bankruptcy petition stayed his appeal and that of his wholly owned corporation7, but not that of co-defendants); 555 M Mfg., Inc. v.
Calvin Klein, Inc., 13 F. Supp. 2d 719 (N.D. Ill. 1998) (automatic stay
protection not available to debtor’s solvent co-defendant in breach of
contract case). But see Woodell v. Ormet Primary Aluminum Corp., 808
N.E.2d 402, 407 (Ohio Ct. App. 2004) (automatic stay applies to claims
against debtor’s employee co-defendants only to the extent that the causes of action against them arise from their status as employees of the debtor).

_____________________________________

5 In limited circumstances, courts have asserted their equitable powers under 11 U.S.C. § 105(a) to enjoin the continuation of litigation against non-debtors when the debtor’s trustee demonstrates that continuation of litigation against non-debtors imminently and irreparably threatens the debtor’s reorganization prospects. E.g. In re United Health Care Org., 210 B.R. 228, 233 (S.D.N.Y. 1997) (staying action against non-debtor principals and officers of debtor when enforcement of judgment imminently and irreparably threatened non-debtors’ ability to fund debtor’s plan); North Star Contracting Corp. v. McSpeedon (In re North Star Contracting Corp.), 125 B.R. 368, 370-71 (S.D.N.Y.1991) (staying action against non-debtor president of debtor when, among other things, continuation of action would distract vital non-debtor and there was no distinct cause of action against him, but merely an action commenced solely to circumvent the stay).

6 Courts may stay actions against a non-debtor third-party defendant under “unusual circumstances” when “there is such identity between the debtor and third-party defendant that the debtor may be said to be the real party defendant and that a judgment against the third-party defendant will in effect be a judgment … against the debtor.” A.H. Robins Co. v. Piccinin, 788 F.2d 994, 999 (4th Cir. 1986). See also In re Nat’l Century Fin. Enter., 423 F.3d 567 (6th Cir. 2005) (commencement of civil action to recover accounts receivable held in collection account in debtor’s name violated automatic stay even though debtor was not named as defendant because action sought to recover estate property); Global Industrial Technologies, Inc. v. Ace Prop. & Cas. Ins. Co. (In re Global Industrial
Technologies), 303 B.R. 753 (W.D. Pa. 2004), vacated in part, modified in part on other grounds, 2004 WL 555418 (Bankr. W.D.Pa. Mar. 19, 2004) (held, state court action brought by insurers for declaratory judgment regarding non-debtor’s rights in insurance policies it shared with debtor violated automatic stay even though debtor was not named as defendant in state court action because outcome of state action could affect debtor’s rights in shared insurance); Teachers Ins. & Annuity Assoc. of America v. Butler, 803 F.2d 61, 65 (2d Cir. 1986) (referred to A.H. Robins decision as case with “unusual circumstances”). Compare In re Transervice Logistics, Inc., 304 B.R. 805 (Bankr. S.D. Ohio 2004) (declining to extend automatic stay to non-debtor co-defendants because, unlike situation
in A.H. Robins, defendant-debtor only faced one suit, not thousands, and thus would not be barraged by discovery and litigation).

——————

g. Proceedings or claims arising post-petition are not subject to automatic
stay, although successful plaintiff must obtain relief from stay if it seeks to enforce judgment against estate.8 Bellini Imports, Ltd. v. Mason & Dixon Lines, Inc., 944 F.2d 199 (4th Cir. 1991) (automatic stay did not bar
institution of action arising out of alleged postpetition breach of contract);
Erickson v. Polk, 921 F.2d 200 (8th Cir. 1990) (lessor of farmland did not
violate automatic stay when it retook possession of property following
postpetition expiration of lease); In re Dominguez, 312 B.R. 499 (Bankr.
S.D.N.Y. 2004) (prepetition lapse of debtor-taxpayer’s redemption period
may constitute “cause” for lifting stay to allow tax authority to exercise its
rights in debtor’s real property; it did not relieve taxing authority’s
obligation to move first for modification of stay).

h. Automatic stay does not apply to post-petition defensive actions in a
prepetition lawsuit brought by a debtor. Stanwyck v. Beilinson, 104 Fed.
Appx. 616 (9th Cir. 2004).

2. Enforcement of prepetition judgment against debtor or its property (11
U.S.C. § 362(a)(2)). See generally Delpit v. Commissioner, 18 F.3d 768 (9th Cir. 1994) (held, appeal to enforce pre-petition judgment was subject to the automatic stay).

3. “[A]ny act” to obtain possession of debtor’s property, or to exercise
control over such property. 11 U.S.C. § 362(a)(3).

__________________________________

7 The court ignored its own precedent in coming to this bizarre result, but justified it by reasoning that adjudication of a claim against the wholly-owned corporation would have an “immediate adverse economic impact” on the debtor. But see Feldman v. Trustees of Beck Ind., Inc. (In re Beck Ind., Inc.), 725 F.2d 880 (2d Cir. 1973) (court cannot enjoin suit against solvent independent subsidiary of debtor merely because stock is held by debtor in reorganization); In re Unishops, Inc., 374 F.Supp. 424 (S.D.N.Y. 1974) (bankruptcy court lacks jurisdiction to grant
a stay of court proceedings against subsidiaries).

8 Judiciary Code, 28 U.S.C. § 959(a), provides relief to holders of postpetition claims against a debtor from having to obtain leave from bankruptcy court to pursue claims arising from “acts or transactions in carrying on business connected with [estate] property.” 28 U.S.C. § 959. Section 959’s exception to the automatic stay is limited to postpetition claims arising from operation of the debtor’s business, and does not include acts associated with liquidation or administration of the bankruptcy estate. See In re Crown Vantage, Inc., 421 F.3d 963, 971-72 (9th Cir. 2005) (postpetition claim against trustee arising from liquidation of estate not subject to § 959 because not related to business operation); Carter v. Rogers, 220 F.3d 1249, 1254 (11th Cir. 2000); In re DeLorean Motor Co., 991 F.2d 1236 (6th Cir. 1993) (malicious prosecution claims against trustee arising from avoidance actions are not based on acts arising from business operation and thus not subject to § 959).

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a. A credit union that accepts and retains postpetition deductions from
chapter 13 debtor’s salary violates automatic stay. See, e.g., Town of
Hempstead Employees Federal Credit Union v. Wicks, 215 B.R. 316
(E.D.N.Y. 1997) (credit union’s four-month-long administrative hold on
chapter 13 debtors’ savings accounts violated automatic stay).

b. Letters of Credit. See, e.g., In re Kmart Corp., 297 B.R. 525 (N.D. Ill.
2003) (letters of credit are not property of debtor’s estate subject to
automatic stay; beneficiary not prevented from drawing on letter of credit
when account party is in bankruptcy); In re A.J. Lane & Co., Inc., 115
B.R. 738 (Bankr. D. Mass. 1990) (held, payment by third party on letter of
credit not stayed because it did not involve a transfer of debtor’s assets).

c. Creditors’ actions against debtor to obtain property fraudulently
transferred by debtor prior to bankruptcy are barred by the automatic stay.
See, e.g. Constitution Bank v. Tubbs, 68 F.3d 685 (3d Cir. 1995) (bank’s
action against guarantors for fraudulent conduct triggered automatic stay
when each guarantor filed a bankruptcy petition during fraud action).

d. Mortgagees’ postpetition foreclosure against real property subject to
deed naming debtor’s spouse a sole owner violated automatic stay because, although debtor only had arguable interest in the property, the
determination should be made by bankruptcy court before mortgagees
foreclosed. In re Chesnut, 422 F.3d 298 (5th Cir. 2005).

e. Debtor’s Tax Benefits. Circuits apparently are split regarding whether
a debtor’s tax benefits (e.g., net operating losses) are property of the estate, thus subject to the automatic stay. See In re UAL Corp., 412 F.3d 775
(7th Cir. 2005) (finding bankruptcy court’s injunction restricting trading in
debtor’s securities to protect tax benefits to be “problematic on the merits,” and questioning court’s reliance on Bankruptcy Code §§ 105(a) and 362 as basis for trading procedures order). Compare In Prudential Lines, Inc., 928 F.2d 565 (2d Cir. 1991) (finding debtor’s tax benefits to be estate property, and that automatic stay thus enjoined debtor’s parent from taking worthless stock deduction on parent’s tax return).

4. Any act to create, perfect, or enforce any lien against debtor’s property
(but not the perfection of mechanic’s lien9 — §§ 362(b)(3) and 546(b) — or when perfection occurs within the 10-day period after the time of effective transfer of the property, under §§ 362(b)(3), and 547(e)(2)(A)). 11 U.S.C. § 362(a)(4). See In re Fuller, 134 B.R. 945 (B.A.P. 9th Cir. 1992) (held, automatic stay prevents creation or perfection of lien, even by operation of law).

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9 The mechanic’s lienor will ordinarily be able to perfect its lien after bankruptcy for work performed prior to bankruptcy. See generally, In re Yobe Electric, Inc., 728 F.2d 207, 208 (3d Cir. 1984) (per curiam) (service of notice of intent to file mechanic’s lien did not violate stay since under state statute “perfection of mechanic’s lien ‘relates back’ to the installation of the first material”); In re Lionel Corp., 29 F.3d 88 (2d Cir. 1994) (held, no automatic stay violation resulted from mechanics’ lienors’ post-petition serving notice of lien upon lessors and
chapter 11 debtor lessee, when New York law permitted perfection of filed mechanics’ lien after another entity had acquired rights to the property).

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a. Sections 362(b)(3) and 546(b)(1)(A), read together, set the
boundaries of this exception.

(i) Section 362(b)(3) subjects a creditor’s right to “perfect, or
to maintain or continue the perfection of, an interest in property” to
Section 546(b) of Code. 11 U.S.C. §362(b)(3).

(ii) In turn, Section 546(b) limits the trustee’s powers to avoid statutory liens by providing that they “are subject to any generally applicable law that permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of perfection.” 11 U.S.C. §546(b)(1)(A) (emphasis added); see, e.g., In re AR Accessories Group, Inc., 345 F.3d 454, 458 (7th Cir. 2003) (held, priming statute need not contain language expressly providing for retroactive perfection in order to trigger exception provided in 11 U.S.C. §546(b)(1)(A)); In re
Hayden, 308 B.R. 428 (B.A.P. 9th Cir. 2004) (held, towing operator did not violate automatic stay in refusing to surrender possession of debtor’s vehicle, which was towed prepetition, unless debtor first paid towing charges because towing operator was merely acting to maintain or continue possession of its lien, not to enforce it).

5. Any act to create, perfect, or enforce a lien against debtor’s property for
prepetition claims. 11 U.S.C. § 362(a)(5). See, e.g., In re Birney, 200 F.3d 225
227 (4th Cir. 1999) (Section 362(a)(5) prohibits “any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title”).

6. “Any act to collect, assess, or recover a prepetition claim against the
debtor.” 11 U.S.C. § 362(a)(6). Pertuso v. Ford Motor Credit Co., 233 F.3d 417,
423 (6th Cir. 2000) (a course of conduct violates § 362(a)(6) if it “(1) could
reasonably be expected to have a significant impact on the debtor’s determination as to whether to repay, and (2) is contrary to what a reasonable person would consider to be fair under the circumstances”) (quoting In re Briggs, 143 B.R. 438 453 (Bankr. E.D. Mich. 1992)); see also In re Diamond, 346 F.3d 224, 227-28 (1st Cir. 2003) (settlement negotiations challenging Chapter 7 debtor’s discharge do not violate the automatic stay per se, but creditor’s threat to seek revocation of debtor’s real estate license during negotiations was coercive, thus dismissal of debtor’s complaint proper); In re Optel, Inc., 60 Fed.Appx. 390 (3d Cir. March 25,
2003) (sale agreement between creditor and debtor provided that debtor either pay $6 million lump sum payment or, if creditor requested, $10 million over time; held, automatic stay prohibited creditor from requesting the $10 million deferred payment, therefore creditor was only entitled to distribution on $6 million claim); In re Jamo, 283 F.3d 392, 399 (1st Cir. 2002) (“a creditor may engage in post petition negotiations pertaining to a bankruptcy-related reaffirmation agreement so long as the creditor does not engage in coercive or harassing tactics”).

7. Setoffs of any prepetition debt owing to the debtor. 11 U.S.C. § 362(a)(7).
See Newbery Corp. v. Fireman’s Fund Ins. Co., 95 F.3d 1392 (9th Cir. 1996)
(right of setoff is subject to automatic stay provisions of chapter 11); Citizens Bank of Maryland v. Strumpf, 516 U.S. 16 (1995) (temporary administrative freeze by bank not a stay violation or setoff; intent to settle accounts permanently is required for setoff within meaning of automatic stay provisions). Compare Jimenez v. Wells Fargo Bank, N.A., 335 B.R. 450 (Bankr. D. N.M. Dec. 21, 2005) (temporary administrative freeze by bank, without right of setoff, violated automatic stay); In re Calvin, 329 B.R. 589 (Bankr. S.D. Tex. 2005) (bank’s administrative freeze of debtor’s account violated automatic stay when bank was not creditor of debtor and thus had no right of setoff); In re Cullen, 329 BR. 52 (Bankr. N.D. Iowa 2005) (bank’s administrative freeze of account jointly held by debtor and debtor’s father violated automatic stay because freeze was intended to continue indefinitely until bankruptcy case was closed; bank did not have valid
right of setoff because funds in account were property of debtor’s father and mutuality requirement for setoff thus was lacking).

a. N.B.: The automatic stay, however, does not prevent a creditor
from exercising its right of recoupment.10 See, e.g., In re Slater Health
Center, Inc., 398 F.3d 98 (1st Cir. 2005) (right of recoupment entitled
government to recoup prepetition overpayments to debtor-health care
provider by reducing postpetition payments to debtor); In re Holyoke
Nursing Home, 372 F.3d 1 (1st Cir. 2004) (same); In re Anes, 195 F.3d
177 (3d Cir. 1999) (held, doctrine of recoupment did not apply so as to
permit pension plans to deduct loan payments from debtors’ postpetition
paychecks because the payments were not part of the same transaction); In
re Delicruz, 300 B.R. 669 (Bankr. E.D. Mich. 2003) (“recoupment reduces
or extinguish[es] a debt arising from the same transaction, and is not
stayed by the bankruptcy”). But see York Linings Int’l, Inc. v. Harbison-
Walker Refractories Co., 839 N.E.2d 766 (Ind. App. 2005) (although
automatic stay does not bar creditor from exercising right of recoupment,
stay does prevent creditor from asserting counterclaim for recoupment in
litigation because such a counterclaim seeks affirmative relief).

_____________________________________

10 “Recoupment” has been defined as follows: “. . . so long as the creditor’s claim arises out of the identical transaction as the debtor’s, that claim may be offset against the debt owed to the debtor, without concern” for the Code’s setoff limitations. In re University Medical Center, 973 F.2d 1065, 1080 (3d Cir. 1992). Recoupment in bankruptcy has been narrowly construed by courts because it violates the basic bankruptcy principle of equal distribution. In re B & L Oil Co., 782 F.2d 155, 158 (10th Cir. 1986) (“[a] fundamental tenet of bankruptcy law is that . . . [once] a petition is filed, debts that arose before the petition may not be satisfied through post-petition transactions. This is seen in bankruptcy restrictions on setoffs [and recoupment].”); In re McMahon, 129 F.3d 93,
97 (2d Cir. 1997) (“in light of the Bankruptcy Code’s strong policy favoring equal treatment of creditors, recoupment . . . should be narrowly construed”).

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8. Commencement or continuation of a proceeding before the United States Tax Court concerning the debtor. 11 U.S.C. § 362(a)(8). See, e.g., Halpern v. C.I., 96 T.C. 895 (U.S. Tax Ct. 1991) (held, automatic stay bars commencement or continuation of any proceeding in Tax Court, regardless of whether claim relates to prepetition or postpetition tax year deficiencies).

As of October 17, 2005, § 362(a)(8) is limited to proceedings
concerning corporate debtor’s tax liability for taxable period the
bankruptcy court may determine or, if debtor is individual, to tax
for taxable period ending before date of order for relief.

9. Only affirmative acts are stayed. Section 362 applies only to affirmative
acts against the debtor or its estate.

a. The automatic stay does not affect, and the court may not exercise
its equitable powers to stay or toll, the automatic transfer of rights such as
that occurring by the expiration of a statutory period of redemption.
Canney v. Merchants Bank (In re Frazer), 284 F.3d 362 (2d Cir. 2002)
(did not stay mortgagee’s act of recording a certificate of non-redemption;
held, expiration of statutory period is not an “affirmative act” and
automatic stay did not apply).

b. Omissions and waivers are not stayed by the Code because they
are not affirmative acts. See e.g. Mann v. Chase Manhattan Mortg. Corp.,
316 F.3d 1, 6 (1st Cir. 2003) (mortgagee’s failure to submit
preconfirmation request, pursuant to bankruptcy statute governing rights
of oversecured creditors, to have its postpetition attorney fees included in
its allowed secured claim was not sort of overt, affirmative act that
violates stay).

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

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Tag Archives: wrongful foreclosure

How Homeowners Can Set Aside Foreclosure Sale

Irregularity in the Foreclosure Process

Noncompliance With Terms of the Mortgage

Inadequacy of Sale Price

How to Set Aside the Foreclosure Sale

Setting Aside a Sale in a Judicial Foreclosure

Setting Aside a Sale in a Nonjudicial Foreclosure

What Happens if the Sale Is Set Aside?

How Homeowners Can Use Ibanez Case to Fight a Wrongful Foreclosure

How Florida Homeowner’s Counsels Can Effectively Use Stay of Proceedings to Delay Monetary Restitution Judgments after Foreclosure Pending Appeal or Wrongful Foreclosure

How Homeowners Can Effectively Use Automatic Stay Provisions of the Bankruptcy Code

Irregularity in the Foreclosure Process

Noncompliance With Terms of the Mortgage

Inadequacy of Sale Price

How to Set Aside the Foreclosure Sale

Setting Aside a Sale in a Judicial Foreclosure

Setting Aside a Sale in a Nonjudicial Foreclosure

What Happens if the Sale Is Set Aside?

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