546 B.R. 223
Bankr. D.N.M.2016Background
- Debtors (Steven and Beverly Schumann) filed Chapter 7 on March 25, 2011, listing their primary residence at 1502 Plaza Encantada NW and stating intent to retain the property and seek a loan modification.
- Prior to the bankruptcy, Deutsche Bank (through its servicers) had pursued a state-court foreclosure; a Summary and Default Judgment was entered in state court on March 31, 2011 after a hearing held March 30, 2011.
- The Bankruptcy Noticing Center mailed bankruptcy notices around March 30, 2011; Deutsche Bank and its counsel did not have actual notice of the bankruptcy before the March 30–31 state-court actions.
- Deutsche Bank sought annulment of the automatic stay to validate the state-court judgment; Debtors opposed only by asserting ongoing loan-modification negotiations and did not offer substantive foreclosure defenses.
- The bankruptcy case closed (Debtors received discharge) July 7, 2011; Deutsche Bank reopened the case in 2015 to pursue the annulment motion; the court held an evidentiary hearing in January 2016.
Issues
| Issue | Plaintiff's Argument (Deutsche Bank) | Defendant's Argument (Schumann) | Held |
|---|---|---|---|
| Whether the automatic stay should be annulled nunc pro tunc to validate the state-court foreclosure judgment | Bank argued it lacked notice of the bankruptcy when it pursued and obtained the state-court default/summary judgment and therefore annulment is warranted to validate that judgment | Debtors argued they sought a loan modification and raised no other substantive defense; implicit reliance that stay should remain intact | Court granted retroactive annulment to March 29, 2011 (day before state judgment) to validate the judgment |
| Whether Deutsche Bank had actual or constructive knowledge of the bankruptcy when it acted | Bank maintained it had no actual notice before March 31, 2011 and BNC mailing could not have given same-day notice | Debtors did not claim Bank had actual notice; emphasized ongoing negotiations | Court found Deutsche Bank and counsel did not know of the bankruptcy before the judgment; this favored annulment |
| Whether Debtors acted in bad faith or remained “stealthily silent” to trap the creditor | Bank implied no bad faith by Debtors; focused on creditor’s ignorance | Debtors argued they did not conceal the filing and pursued modification in good faith | Court found no bad faith or stealthy silence by Debtors; this favored Debtors but was not dispositive |
| Whether creditor would be prejudiced if annulment denied and timeliness of creditor's motion | Bank argued denial would force restart of foreclosure, causing prejudice; it filed for annulment promptly after learning but delayed reopening the case for years due to settlement talks | Debtors argued delay in prosecuting the motion and benefit to Debtors during the delay (they remained in home) | Court found prejudice to Bank if annulment denied and that earlier relief likely would have been granted; despite delay in final prosecution, annulment was appropriate |
Key Cases Cited
- Franklin Sav. Ass’n v. Office of Thrift Supervision, 31 F.3d 1020 (10th Cir. 1994) (recognizes bankruptcy courts’ authority to annul the automatic stay and notes retroactive annulment is rare)
- Albany Partners, Ltd. v. Westbrook, 749 F.2d 670 (11th Cir. 1984) (annulment may have retroactive effect to validate post-petition actions)
- In re Schwartz, 954 F.2d 569 (9th Cir. 1992) (retroactive relief under § 362(d) cures stay violations)
- Ellis v. Consol. Diesel Elec. Corp., 894 F.2d 371 (10th Cir. 1990) (actions taken in violation of automatic stay are void)
- In re Calder, 907 F.2d 953 (10th Cir. 1990) (debtor not entitled to stay protections if debtor is stealthily silent while creditor unknowingly violates stay)
- In re Johnson, 575 F.3d 1079 (10th Cir. 2009) (automatic stay prevents creditors from continuing prepetition actions except through bankruptcy court)