In re Richter
525 B.R. 735
| Bankr. C.D. Cal. | 2015Background
- Debtor purchased a condominium in 2000; the homeowners association (MCA) foreclosed nonjudicially on assessment arrears and sold the unit at auction on October 10, 2013. Rustling Oaks bought the property at the sale for $36,000 and a Certificate of Foreclosure Sale (noting a 90‑day statutory redemption right) was recorded prepetition.
- Debtor filed chapter 13 on the last day of the 90‑day redemption period and proposed a standard chapter 13 plan that listed MCA in the cure-and-maintenance class and proposed paying $18,836 (the arrearage to MCA) over 60 months; Rustling Oaks received no notice of the bankruptcy or plan.
- The plan was confirmed without objection. MCA initially accepted trustee payments, then returned them and refused postconfirmation payments after asserting it had been paid in full from the sale proceeds and that Rustling Oaks was the new owner.
- Guralnick (the foreclosure trustee) executed and recorded the Trustee’s Deed postpetition (July/August 2014). Rustling Oaks then moved for relief from the automatic stay to pursue unlawful detainer against Debtor.
- The bankruptcy court adjudicated whether (1) the debtor could redeem or cure the prepetition foreclosure through his confirmed plan, (2) the confirmed plan bound Rustling Oaks, (3) the postpetition deed/perfection violated the stay or was saved by exceptions, and (4) cause existed to lift the stay.
Issues
| Issue | Debtor's Argument | Rustling Oaks' / Trustee's Argument | Held |
|---|---|---|---|
| Whether a chapter 13 plan can redeem the property or cure the foreclosure arrearage after a prepetition trustee’s sale but before the statutory redemption period expired | Plan treated MCA’s arrears over 60 months and Debtor contends that federal law permits redemption reorganized in chapter 13 | §1322(c)(1) cuts off cure at the foreclosure sale; the plan did not properly effect statutory redemption | Plan could not cure or redeem under §1322(b)(3)/(b)(5) after the sale (gavel rule adopted) and §1322(b)(2) cannot be used because purchaser is not a “holder of a claim” under §101(5) |
| Whether the confirmed plan has res judicata effect against Rustling Oaks (i.e., binds purchaser) | Debtor: confirmation is res judicata (citing Ivory); plan binds all creditors | Rustling Oaks: it received no notice and the plan did not clearly state an intent to undo the sale or provide for purchaser’s interest | Plan does not bind Rustling Oaks: lack of notice and plan ambiguity mean res judicata/due process do not preclude stay relief |
| Whether postpetition execution/recordation of the Trustee’s Deed violated the automatic stay and rendered Rustling Oaks’ title void | Debtor: deed/recordation were postpetition acts in violation of §362(a) and therefore void; unlawful detainer premature | Rustling Oaks/Guralnick: delivery/recordation were ministerial or fall within §362(b)(3)/§546(b) perfection exception; alternatively, court should annul the stay retroactively | Delivery/recordation either did not violate stay (ministerial and perfection exceptions) or are validated by retroactive annulment of the stay |
| Whether there is cause under §362(d)(1) to grant relief from stay for unlawful detainer | Debtor: still entitled to protections via plan confirmation; title defective if deed void | Rustling Oaks: Debtor failed to redeem or properly provide for purchaser; debtor is a holdover occupant (squatter) | Cause exists; stay is annulled retroactively; Rustling Oaks may pursue unlawful detainer (14‑day Federal Rule waiver denied) |
Key Cases Cited
- Connors v. Fishell, 497 F.3d 314 (3d Cir. 2007) (adopts the "gavel rule"—foreclosure sale is complete at auction for purposes of §1322(c)(1))
- Cain v. Wells Fargo Bank, N.A., 423 F.3d 617 (6th Cir. 2005) (holds §1322(c)(1) bars cure after conclusion of foreclosure auction)
- Multnomah County v. Ivory, 70 F.3d 73 (9th Cir. 1995) (confirmed plan can bind a foreclosing purchaser who received notice and was treated in the plan)
- Schwartz v. United States (In re Schwartz), 954 F.2d 569 (9th Cir. 1992) (bankruptcy court has power to annul the automatic stay retroactively)
- United States v. Ron Pair Enters., Inc., 489 U.S. 235 (1989) (statutory language governs; no need to consult legislative history when clear)
- Davenport v. (case name omitted in opinion), 495 U.S. 552 (1990) (definition of "claim" as "right to payment" and discussion of enforceability)
- McCarthy, Johnson & Miller v. N. Bay Plumbing, Inc. (In re Pettit), 217 F.3d 1072 (9th Cir. 2000) (ministerial acts exception to the automatic stay)
- Foorman v. Wallace, 75 Cal. 552 (Cal. 1888) (certificate of sale evidences purchaser’s equitable interest and imparts constructive notice)