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FORECLOSURE, TRUSTEE SALES AND TAX LIEN FORECLOSURE IN BANKRUPTCY

IMPORTANT: THIS FIRM MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR CURRENT STATUS OF ANY LAW, CASE, ARTICLE OR PUBLICATION CITED HEREIN OR LINKED TO.  WARNING – SOME OF THESE REFERENCES ARE PRE-BAPCPA.

In re RW Meridian LLC, 564 B.R. 21 (9th Cir. BAP 2017).  The Ninth Circuit Bankruptcy Appellate Panel considered whether the pre-petition expiration of the Debtor’s right of redemption for unpaid taxes permitted the tax authority to complete a tax sale post-petition without obtaining relief from the stay. The BAP held that the automatic stay applied, voiding the sale.  The BAP noted that on the petition date, Debtor held “equitable and legal interests in the property” and that those interests, “including legal title and possession”.  Despite that the right of redemption expired pre-petition, there was a remaining “contingent right” under Cal. Tax Code §3707(d), which provides: “The right of redemption revives if the property is not sold.” Further, although the “date of the sale” under Tax Code § 3692.1 is the date the sale is commenced, §3707(c) provides that the sale is complete when full payment has been received by the tax collector. In the case at bar the full payment had not been received by the tax collector prior to petition date.

In re Tracht Gut LLC, 14-60007 (9th Cir. Sept. 8, 2016)  The Ninth Circuit joined the Fifth and Tenth by holding that a tax sale conducted in accordance with state law cannot be set aside as a fraudulent transfer for less than reasonably equivalent value.

A company owned real property but did not pay real estate taxes for years. The company filed a chapter 11 petition a month after the county sold the property in a tax sale. The newly minted debtor in possession immediately sued the county and the buyer to set aside the tax sale as a fraudulent transfer under the Bankruptcy Code and California law.

HICKS v. E. T. LEGG & ASSOCIATES (05/25/01 – No. D034398) Civil Code 2924c(e), and 2924g(d) do not prohibit the postponement of a foreclosure sale for successive periods of five of fewer business days during the period a sale is on hold because of an injunction or bankruptcy stay. Bankruptcy of Wytch, USBAP 9th, Nos. 97-1089 and 79-1145, 7/1/98: 11 U.S.C. Section 349(b) does reinstate a debtor’s prepetition property rights by invalidating specified bankruptcy court orders, Section 349(b) does not vacate orders for relief from the automatic stay under 11 U.S.C. Section 362(d). real property sold 2 hours after BK filed (chapter 7) property purchased by TP with no knowledge of BK, LR brought action to annul stay, no objection , relief granted. Case inadvertently dismissed, then reinstated, DR’s argued that set aside earlier Order lifting stay – BK Court and BAP did not agree – Order lifting stay stands.

In re Turner (vs Wells Fargo) No. 15-60046 BAP No. 14-1139 (9th Cir. Ct App aff’d BAP)

  • After the bankruptcy court granted relief from the automatic stay to allow a foreclosure to proceed, the debtors filed an adversary proceeding alleging that the transfer of a deed of trust for their property to a mortgage-backed security trust, which was securitized pursuant to a Pooling and Servicing Agreement, was void and a breach of the Agreement because it was not effectuated within the ninety-day period established by the Agreement.
  • The panel held that the debtors failed to state a claim for wrongful foreclosure under California law. Under Yvanova v. New Century Mortg. Corp., 365 P.3d 845 (Cal. 2016), a home loan borrower has standing to claim a nonjudicial foreclosure was wrongful because an assignment by which the foreclosing party purportedly took a beneficial interest in the deed of trust was not merely voidable but void. The panel held that the fact that the assignments of the deed of trust were made well after the ninety-day time frame merely rendered the transfer voidable, not void. Accordingly the debtors lacked standing to claim wrongful foreclosure.
  • The panel held that the debtors did not properly allege a claim for breach of contract or breach of the implied covenant of good faith and fair dealing because, as borrowers, they were not third-party beneficiaries of the Pooling and Servicing Agreement.

In re SNTL Corp., 571 F.3d 826, Bankr. L. Rep. ¶ 81,515 (9th Cir., June 23, 2009), pages 154, 183 (case no. 08-60001) The Ninth Circuit Court of Appeals, in a unanimous panel decision, affirmed, and adopted as its own, In re SNTL Corp., 380 B.R. 204 (9th Cir. B.A.P. 2007), holding that an unsecured creditor may include, as part of its claim, attorney’s fees incurred postpetition but based on a prepetition contract. The opinion reasoned that (1) Code § 506(b), permitting an oversecured creditor to recover postpetition attorney’s fees, speaks only to the secured status of a claim, and not to its allowability; (2) the claim for attorney’s fees exists on the petition date, although it is contingent and unliquidated, as the “right to payment” exists on the petition date; thus, the claim is not disallowed under Code § 502(b)(1), requiring a bankruptcy court to “determine the amount of such claim … as of the date of the filing of the petition”; and (3) neither United Sav. Ass’n of Texas v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365, 108 S. Ct. 626, 98 L. Ed. 2d 740 (1988) (holding that an undersecured creditor could not receive postpetition interest on the unsecured portion of its debt) nor public policy mandated disallowance of such a claim.