536 B.R. 264
Bankr. E.D. Ark.2015Background
- Jimmy Wells and Sandra Wells executed promissory notes secured by a mortgage on residential real property in Mississippi County, Arkansas (the Residence).
- Farmers Bank obtained a judicial foreclosure decree finding redemption rights waived and was awarded in rem and in personam judgments; the Residence was sold at sheriff’s sale on June 20, 2014, with Farmers Bank the high bidder.
- Wells filed a Chapter 13 petition on June 30, 2014 while in possession of the Residence; the commissioner’s deed to Farmers Bank was recorded the same day after the petition.
- Wells proposed and the bankruptcy court confirmed a Chapter 13 plan (proposing regular and arrearage payments to Farmers Bank); Farmers Bank did not object to confirmation.
- Farmers Bank moved for relief from the automatic stay to evict Wells, arguing the Residence was not estate property because foreclosure and redemption rights terminated pre-petition.
- Wells argued the confirmed plan binds Farmers Bank (res judicata/11 U.S.C. §1327) and that the automatic stay protects his possessory interest; the court heard stipulated facts and denied the motion.
Issues
| Issue | Plaintiff's Argument (Farmers Bank) | Defendant's Argument (Wells) | Held |
|---|---|---|---|
| Whether the Residence was property of the bankruptcy estate on the petition date | Foreclosure sale and decree terminated legal and equitable interests and redemption rights pre-petition, so the Residence is not estate property | Debtor conceded no legal title but relied on possessory interest and subsequent confirmed plan treatment | Residence was not estate property because Arkansas foreclosure and waived redemption extinguished debtor’s legal/equitable interest |
| Whether the automatic stay protects Wells’ possession and bars eviction | Stay should not protect the Residence because it is not estate property | Possession (tenancy at sufferance) is a protected, possessory interest invoking §362(a) | Debtor’s possessory interest (tenant at sufferance) invoked the automatic stay; eviction is stayed absent relief from stay |
| Whether relief from stay should be granted despite pre-petition loss of title | Order confirming plan did not revest title; plan confirmation cannot create estate property where none existed | Confirmed plan binds creditor under §1327 and res judicata; creditor’s failure to object means it is bound to plan’s treatment (effectively a lease) | Plan confirmation and res judicata bind Farmers Bank; creditor’s failure to object created/acquiesced tenancy-for-plan-term and denial of relief from stay was appropriate |
Key Cases Cited
- Cuffee v. Atl. Bus. & Cmty. Dev. Corp., 901 F.2d 325 (3d Cir. 1990) (possessory tenancy at sufferance can be property of the estate and is protected by the automatic stay)
- Hickman v. Union Nat’l Bank of Ark. (In re Hickman), 154 B.R. 730 (Bankr. W.D. Ark. 1993) (creditor’s failure to object to plan treating post-foreclosure possession creates/acquiesces to a lease for the plan term)
- Stoll v. Gottlieb, 305 U.S. 165 (U.S. 1938) (confirmation orders have res judicata effect and cannot be collaterally attacked by state courts)
- Impac Funding Corp. v. Simpson (In re Simpson), 240 B.R. 559 (8th Cir. BAP 1999) (confirmed plan binds creditors who received proper notice; appeal is creditor’s remedy)
- In re Ausburn, 524 B.R. 816 (Bankr. E.D. Ark. 2015) (Arkansas law: debtor’s interest in property is terminated after foreclosure and expiration/waiver of redemption rights)