In re: John K. Reed
CC-16-1028-DKiF
| 9th Cir. BAP | Dec 2, 2016Background
- Reed purchased a Santa Barbara home in 2005 secured by a note and deed of trust; New York Community Bank (the Bank) succeeded to the loan after Ohio Savings Bank failed.
- Reed defaulted and the Bank began nonjudicial foreclosure; Reed made repeated transfers of ownership interests (to a trust and fractional beneficiaries) and filed multiple bankruptcy cases to impede foreclosure.
- In 2015 Reed inspected the Bank’s original loan documents with a forensic examiner who opined they were fabricated; Reed reported suspicions but took no legal action challenging the documents prior to filing.
- Reed filed a third chapter 13 in November 2015 asserting no debts or encumbrances on the property and proposing token plan payments; the Bank moved for relief from the automatic stay and for in rem relief under § 362(d)(4).
- The bankruptcy court excluded the examiner’s report as unauthenticated hearsay, found the Bank had a colorable claim and that Reed filed in bad faith as part of a scheme to hinder foreclosure, and granted stay relief including in rem relief; the chapter 13 was later dismissed and Reed appealed.
Issues
| Issue | Reed's Argument | Bank's Argument | Held |
|---|---|---|---|
| Mootness of appeal | Appeal moot because bankruptcy case dismissed so stay relief is ineffective | Not moot because in rem order, if recorded, bars stay in future cases for two years | Appeal not entirely moot; limited to in rem relief issue |
| Standing to seek stay relief | Bank lacks standing; Loan Documents are invalid | Bank has a colorable claim and was harmed by continuation of the stay | Bank had standing; showing a colorable claim is sufficient |
| Appropriateness of in rem relief under § 362(d)(4) | Reed argued he was protecting property he believed the Bank stole; transfers/filings were legitimate defensive actions | Bank argued Reed engaged in a scheme (unauthorized transfers, multiple filings) to hinder foreclosure | Court properly found scheme, bad faith, transfers/filings — in rem relief affirmed |
| Due process / notice / evidence exclusion | Insufficient notice of hearing; court improperly excluded forensic report; alleged judicial bias | Notice was adequate; report was unauthenticated hearsay; court impartial | No due process violation; notice adequate; exclusion proper; no bias shown |
Key Cases Cited
- Johnson v. Righetti (In re Johnson), 756 F.2d 738 (9th Cir. 1985) (stay-relief hearings are summary; validity of underlying claim need not be finally adjudicated)
- In re Thorpe Insulation Co., 677 F.3d 869 (9th Cir. 2012) (standards for constitutional and equitable mootness in bankruptcy appeals)
- JPMCC 2007‑C1 Grasslawn Lodging, LLC v. Transwest Resort Props., Inc. (In re Transwest Resort Props., Inc.), 801 F.3d 1161 (9th Cir. 2015) (equitable mootness factors and when complex transactions preclude relief)
- First Yorkshire Holdings, Inc. v. Pacifica L 22, LLC (In re First Yorkshire Holdings, Inc.), 470 B.R. 864 (9th Cir. BAP 2012) (purpose of § 362(d)(4) to address bankruptcy schemes to thwart foreclosure)
- Veal v. Am. Home Mtg. Servicing, Inc. (In re Veal), 450 B.R. 897 (9th Cir. BAP 2011) (standing to seek stay relief is lenient; colorable claim suffices)
- Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (1950) (due-process notice must be reasonably calculated to inform interested parties)
- Liteky v. United States, 510 U.S. 540 (1994) (judicial rulings alone rarely establish bias)