In re Guy
This matter comes before the court upon the Motion for Relief from Automatic Stay ("Motion") filed by Lori Parker ("Ms. Parker") on April 24, 2018 and the Response thereto filed by Brian Joseph Guy ("Debtor") on May 11, 2018. The court conducted a hearing on June 21, 2018 in New Bern, North Carolina. Russell C. Alexander, Esq. appeared for Ms. Parker, Janice Joyner Panza, Esq. appeared for the Debtor, and Ashley Baxter Curry, Esq. appeared on behalf of Chapter 13 trustee Joseph A. Bledsoe III, Esq. ("Trustee"). Based upon the evidence presented and arguments of counsel, the court makes the following findings of fact and conclusions of law:
BACKGROUND
The Debtor filed a voluntary petition for relief under Chapter 13 of the United States Bankruptcy Code
Prior to the Debtor's bankruptcy petition, Ms. Parker was preparing to file with the Craven County Superior Court a petition to partition the Property by forced judicial sale. The Debtor's bankruptcy filing stalled those efforts. She now seeks relief from the automatic stay imposed by § 362 so that she can proceed with pursuing the partition action in state court. Ms. Parker contends that the Property, which contains a residential building, cannot be divided without substantial injury to the value; therefore, she is entitled to seek a judicial partition by sale under state law. Ms. Parker resides next to the Property and has an interest acquiring sole ownership of the Property through this process.
In response, the Debtor notes that he filed his petition in part to stay a foreclosure sale of the Property initiated by Bank of America, believing that a private sale would generate greater value. The Debtor previously listed the property for sale without engaging a real estate broker and received two offers that were never consummated. The parties admittedly are estranged, and the Debtor alleges that Ms. Parker is frustrating sale efforts by damaging the Property, removing "for sale" signs, and harassing potential buyers. The Debtor does not oppose Ms. Parker ultimately purchasing his interest in the Property, but he contends that she has been unwilling to pay him a fair price. He believes that his estate's interest will be better protected by a sale occurring under the provisions of the Bankruptcy Code. The Trustee suspects that equity exists in the Property for the benefit of unsecured creditors and is concerned that a forced judicial sale is not in the estate's best interest.
DISCUSSION
This matter is a core proceeding pursuant to
Upon the filing of a bankruptcy petition, the automatic stay imposed by § 362(a) operates to stay, inter alia , "the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under the title ...."
In Robbins , the Fourth Circuit recognized three factors for courts to consider when deciding whether to lift the automatic stay to allow continuance of a judicial action against the debtor commenced before the filing of the petition:
(1) whether the issues in the pending litigation involve only state law, so the expertise of the bankruptcy court is unnecessary;
(2) whether modifying the stay will promote judicial economy and whether there would be greater interference with the bankruptcy case if the stay were not lifted because matters would have to be litigated in bankruptcy court; and
(3) whether the estate can be protected properly by a requirement that creditors seek enforcement of any judgment through the bankruptcy court.
In support of the Motion, Ms. Parker tendered an unpublished opinion from the neighboring United States Bankruptcy Court for the District of South Carolina which presented a similar factual scenario. In re Eichelberger , No. 09-09040-JW (Bankr. D.S.C. May 31, 2011). In this case, the Chapter 13 debtor and her nephew owned tenant in common interests in unencumbered real properties which they obtained as beneficiaries of the estate of the debtor's mother, who was also her nephew's grandmother. The debtor, who resided on one of the properties, filed her petition to prevent a tax foreclosure of that property. She proposed a Chapter 13 plan to pay the equivalent of the non-exempt equity in the property to her unsecured creditors over five years. The nephew entered into an agreement with a third party for the sale of his interests in the properties. That sale was conditioned upon the release of the properties from the bankruptcy court's jurisdiction and provided that the purchaser would pursue purchase of the remaining interests in the properties through negotiations or a state court partition action. The nephew and potential purchaser moved for relief from the automatic stay to consummate their contract for the purchase and sale of the nephew's interest in the properties and to institute and prosecute a state court partition action.
Like in the present case, a partition action was not pending at the time of the debtor's petition in Eichelberger , but the court concluded that the Robbins factors would nonetheless govern the motion seeking relief from the automatic stay to commence the action. Id. at *5. Applying these factors, the court found cause to grant the motion. The court first noted that actions for partition of property are equitable actions
With the exception of her continued use of the residence on the Lake Murray Property, there is no evidence in the record indicating that the Debtor's full use and enjoyment of the Properties, to the exclusion of [her nephew], is necessary for her reorganization or that a fair and equitable partition of the Properties would be detrimental to her creditors. The estate's interest in the Properties can be protected by a requirement that any proceeds due to the Debtor as a result of the partition action to be paid the Chapter 13 Trustee, who will distribute such proceeds to Debtor's creditors.
Id. at **6-7.
In North Carolina, laws governing the partition of real property are codified in
[s]ubject to G.S. 46-22.1(b), the court shall order a sale of the property described in the petition, or any part, only if it finds, by a preponderance of the evidence, that an actual partition of the lands cannot be made without substantial injury to any of the interested parties, after having considered evidence in favor of actual partition and evidence in favor of a sale presented by any of the interested parties.
A significant difference between this case and Eichelberger is that the Debtor does not oppose a partition through sale of the Property, and he has already marketed the Property. He wants the Property sold. With the consent of the Debtor, a partition by sale can be effected under the guidance of the Bankruptcy Code which provides that "[t]he trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate
the trustee may sell both the estate's interest, under subsection (b) or (c) of this section, and the interest of any co-owner in property in which the debtor had, at the time of the commencement of the case, an undivided interest as a tenant in common, joint tenant, or tenant by the entirety, only if-
(1) partition in kind of such property among the estate and such co-owners is impracticable;
(2) sale of the estate's undivided interest in such property would realize significantly less for the estate than sale of such property free of the interests of such co-owners;
(3) the benefit to the estate of a sale of such property free of the interests of co-owners outweighs the detriment, if any, to such co-owners; and
(4) such property is not used in the production, transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat, light, or power.
In Belyea , similar to the present case, the debtor and his sister jointly owned real property they inherited from their mother. The debtor's Chapter 13 plan proposed to partition the property through sale pursuant to § 363(h), and his sister objected to confirmation, seeking to have the matter litigated in the state court where prior to the debtor's bankruptcy she filed a petition for partition. Id. at 313-14. The Belyea court allowed the debtor to seek partition of the jointly owned property through confirmation of his Chapter 13 plan, finding that the burden in state court would be similar to that under § 363(h), and it appeared the result would be the same. Id. at 315-16. Likewise, the Property can be partitioned by sale either pursuant to § 363(h) or
Perhaps most important, the Trustee has valid concerns that releasing the Property from the protection of this court is not in the estate's best interest. In addition to favoring a sale of the Property, the Debtor does not object to Ms. Parker purchasing his interest if she pays a fair price. Ms. Parker's alleged attempts to sabotage a private sale of the Property to a third party and her desire to force a judicial sale suggest that she is not interested in negotiating directly with the Debtor. It appears she would prefer to obtain the Property at a reduced cost through a forced judicial sale. The Property appears to have equity available for the benefit of the Debtor's unsecured creditors. An efficient and reasonable sale procedure will ensure that anticipated equity will not diminish. A proposed
CONCLUSION
Although the Property can be partitioned in state court without the necessity of expertise from this court, judicial economy and protection of the estate favor a comparable partition occurring under the provisions of the Bankruptcy Code. The Debtor has indicated an intention to pursue sale of the Property pursuant to § 363(h) ; however, should he delay or be unsuccessful in this effort, then Ms. Parker may renew the Motion for subsequent consideration; now therefore,
It is ORDERED, ADJUDGED, and DECREED that the Motion be, and hereby is, denied without prejudice.
SO ORDERED.
Notes
Except for within formal citations, references to the Bankruptcy Code,
No dispute exists that the Property constitutes property of the Debtor's bankruptcy estate, which includes "all legal or equitable interests of the debtor in property as of the commencement of the case."