In re Richter
MEMORANDUM DECISION ON RUSTLING OAKS, LLC’S MOTION FOR RELIEF FROM THE AUTOMATIC STAY (UNLAWFUL DE-TAINER)
Before the Court is a motion by Rustling Oaks, LLC (“Rustling Oaks”) for relief from the automatic stay to commence an unlawful detainer proceeding against the debtor Michael Lynn Richter (“Debtor”) and evict Debtor from his residence, which Rustling Oaks purchased at a prepetition foreclosure sale. The sale, however, was subject to Debtor’s postsale right of redemption under California law, which is available to the prior owners of real property sold in a nonjudicial foreclosure by a homeowners’ association on its lien for delinquent assessments. Debtor confirmed a Chapter 13
For the reasons set forth below, the Court will regrettably grant Rustling Oaks’ motion. The automatic stay as to the property will be annulled retroactively to validate certain actions taken by the foreclosure trustee, and Rustling Oaks will be entitled to begin its unlawful detainer proceeding to gain possession of the property.
In 2000, Debtor purchased a condominium unit within a country club in Palm Desert, California (the “Residence”). As part of a common interest development, the Residence is subject to a set of covenants, conditions, and restrictions (the “CC & Rs”) enforced by the development’s homeowners’ association, Marrakesh Community Association (“MCA”); one of those CC & Rs requires the condo owner to pay various assessments to MCA. If assessments are not paid, the CC & Rs allow a trustee designated by MCA to initiate a nonjudicial foreclosure of the Residence.
Debtor became delinquent on his assessments. The delinquencies prompted MCA to execute and record a Notice of Assessment Lien in February 2013, indicating that it had a lien in the amount of $7,206.08 for unpaid assessments, interest, and related fees. In the Notice, MCA designated the law firm Wayne S. Gural-niek, APLC (“Guralnick”) to act as the foreclosure trustee.
The delinquencies continued, so Gural-nick, on behalf of MCA, began the nonjudicial foreclosure process by recording in May 2013 a Notice of Default and Election to Sell Pursuant to Assessment Lien and the Provisions of the Declaration of Restrictions. Guralnick then recorded a Notice of Trustee’s Sale in September 2013, which stated that the Residence would be sold at public auction on October 10, 2013.
The auction took place as scheduled. By this date, the total unpaid debt to MCA reached $18,836. At the auction, Rustling Oaks, a third party unrelated to MCA, became the highest bidder, purchasing the Residence for $36,000. After Rustling Oaks paid the purchase price,
On January 8, 2014, the final day of the redemption period, Debtor filed his Chapter 13 petition. Formal notice of the bankruptcy filing was provided to MCA and Guralnick, but not to Rustling Oaks. These three entities did not file a proof of claim or otherwise participate in Debtor’s bankruptcy case.
Using this district’s mandatory form, Debtor then proposed a Chapter 13 plan that he believed was sufficient to redeem the Residence from the foreclosure sale (the “Plan”). Debtor listed MCA in Class 2 of the Plan, which is intended for the “cure and maintenance” of claims secured by a debtor’s principal residence. In this class, Debtor proposed to directly pay MCA the ongoing postconfirmation assessments (the maintenance) outside of the Plan and to pay MCA through the Plan a total of $18,836 over 60 months (the cure).
Although Debtor’s intention was to exercise his right of redemption through the Plan, nothing on the face of the Plan (other than possibly the mere inclusion of MCA’s name in Class 2) signaled this intention. The Plan’s miscellaneous provisions, where a debtor is permitted to add his own custom language, did not mention Rustling Oaks, the prepetition foreclosure sale,- or Debtor’s right of redemption.
MCA began receiving payments from the Chapter 13 trustee and Debtor. But Guralniek, on MCA’s behalf, returned the checks in May 2014 and informed the trustee and Debtor that MCA could not accept payments for delinquent or ongoing assessments because MCA had been paid in full from the sale proceeds and Rustling Oaks was the new owner of the Residence. Up until then, the trustee was apparently unaware that the Residence had been sold in a prepetition foreclosure sale.
Debtor’s counsel then exchanged emails with Guralniek, in which she insisted that her client had successfully redeemed the Residence through the Plan and that she would initiate an adversary proceeding to redress the alleged violations of the automatic stay if this situation between Debtor, Guralniek, MCA, and Rustling Oaks could not be resolved. In response to counsel, Guralniek explained its position, that “the Chapter 13 plan providing [for] the HOA prepetition payments [made] no sense” and that “[i]f [Debtor] wanted to redeem the property, he would need to pay [Rustling Oaks] in full at the time of redemption so that [Rustling Oaks] receives all [of] its funds back.” Although nothing was resolved between the parties, Debtor never filed an adversary proceeding.
Two months later, in July, Guralniek sent letters to Debtor’s counsel and the trustee informing them of its intention to record the Trustee’s Deed. Receiving no response, Guralniek executed the Trustee’s Deed on July 28, 2014, and then recorded it on August 1, 2014, perfecting Rustling Oaks’ legal title in the Residence.
On October 7, over six months after confirmation, Rustling Oaks filed its motion for relief from the automatic stay, which Debtor vehemently opposed. An initial hearing on the motion was held on October 29, where the Court heard oral argument and allowed the parties to submit supplemental briefs. Following the submission of those briefs, the Court entertained final oral argument at the continued hearing on December 17.
2. JURISDICTION.
This memorandum decision contains the Court’s findings of fact and conclusions of law required by Federal Rule of Civil Procedure 52(a), made applicable to this contested matter by Bankruptcy Rules 7052 and 9014(c). The Court has jurisdiction under 28 U.S.C. § 1334 and 11 U.S.C. § 362, and this is a core proceeding under 28 U.S.C. § 157(b)(2)(G).
3. DISCUSSION.
3.1. Introduction.
An entity seeking to evict a debtor from and gain possession of real property must first obtain relief from the automatic stay under § 362(d) because the stay protects the debtor’s physical occupation of real property, a possessory interest under California law. See Eden Place, LLC v. Perl (In re Perl),
Debtor contends that stay relief is not warranted for a number of reasons. His opposition and supplemental brief can be boiled down to essentially three major arguments: (1) That the Bankruptcy Code allows Debtor to redeem the Residence through the Plan; (2) that the Plan’s res judicata effect precludes Rustling Oaks from moving for stay relief; and (3) that Rustling Oaks’ title is premised on a void Trustee’s Deed recorded postpetition, making stay relief for an unlawful detainer proceeding premature at this time. The Court considers each argument below.
3.2. The Unexpired Statutory Right of Redemption in a Chapter 13 Case.
3.2.1. The Right of Redemption under California Law.
In California, an owner facing foreclosure of his real property is entitled to redeem it. There are, however, two separate rights of redemption available to him.
Before the property is sold in the foreclosure sale, the pwner has an equitable right of redemption (or equity of redemption), which allows him tb pay the entire debt owed to the foreclosing lienholder “at any time prior to the sale to avoid loss of the property.” Knapp v. Doherty,
Following the foreclosure sale, a statutory right of redemption (or statutory redemption) may be available under certain circumstances, which gives the now-former owner “an opportunity to regain ownership ,of the property by paying the foreclosure sale price [to the purchaser], for a period of time after foreclosure.” Alliance Mortg. Co. v. Rothwell,
The statutory right of redemption under California law though does not exist in all foreclosure scenarios. While a judicial foreclosure sometimes provides the prior owner with this right, a nonjudicial foreclosure generally does not. See Alliance Mortg.,
It is undisputed that Debtor did not equitably or statutorily redeem his Residence in accordance with applicable California law. He did not pay the entire amount of the delinquent assessments pri- or to the foreclosure sale, and he did not pay the purchase price of the Residence in full within 90 days of the sale. Instead, Debtor filed his petition before the statutory redemption period expired and then proposed and confirmed his Plan that pays MCA, the homeowners’ association, the amount of the delinquent assessments over a 60-month term. Debtor characterizes this as his lawful redemption through the Plan. In response, Rustling Oaks contends that the Bankruptcy Code does not allow a plan to do this.
The first issue in this matter is whether the Bankruptcy Code permits Debtor to do what his Plan has proposed.
To alleviate further confusion, the Court believes that the following question better expresses the heart of the first issue: When a foreclosure sale of a debtor’s principal residence has occurred prepetition and the debtor then files a Chapter 13 petition before his statutory right to redeem expires, what are his options under the Bankruptcy Code to save his residence?
3.2.2. The Curing of Defaults Under § 1322tb)(3) and (b)(5).
Debtor contends that one option to save the Residence is found in the broad cure
Debtor argues that these cure rights are available to him so long as, on the petition date, he retains an interest in the Residence or his right to redeem has not yet expired. However, he fails to acknowledge § 1322(c)(1), a limitation placed on § 1322(b)(3) and (b)(5), that states,
(c) Notwithstanding subsection (b)(2) and applicable nonbankruptcy law—
(1) a default with respect to, or that gave rise to, a lien on the debtor’s principal residence may be cured under paragraph (3) or (5) of subsection (b) until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbank-ruptcy law....
11 U.S.C. § 1322(c)(1) (emphasis added). The provision was added to the Bankruptcy Code in 1994, see Bankruptcy Reform Act of 1994, Pub.L. No. 103-394, § 301, 108 Stat. 4106, 4131, as a way for Congress to reconcile a circuit split and address when a debtor’s right to cure a default under § 1322(b)(3) or (b)(5) is extinguished,
Under this provision, the right to cure a default involving a lien on a debtor’s principal residence is permitted but only “until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law.” 11 U.S.C. § 1322(c)(1). Courts are split on when a “residence is sold at a foreclosure sale,” with many adopting the “gavel rule” and others adopting the “deed-delivery rule.”
The courts adopting the gavel rule, including most of the courts of appeals and the BAPs that have considered § 1322(c)(1), conclude that the statutory language is unambiguous, that when property is “sold at a foreclosure sale” refers to a specific event and not to a multistep process, and that this provision cuts off a debtor’s right to cure a default at the
In contrast, the other courts, who have adopted the deed-delivery rule, have usually concluded that § 1322(c)(1) is ambiguous and requires looking at legislative history, that when property is “sold at a foreclosure sale” refers to the entire foreclosure process, and that the debtor’s right to cure survives until title passes to the purchaser (i.e., when the debtor no longer has any interest in the property) under state law, which is typically when a deed is delivered or recorded. See, e.g., In re Jenkins,
This Court agrees with those courts adopting the gavel rule. The language in § 1322(c)(1) is clear and unambiguous. “[T]he preposition ‘at’ in ‘sold at a foreclosure sale’ signifies a discrete event, rather than an ongoing process,” Connors,
If the Court must consider “applicable nonbankruptcy law,” the result remains the same in this case: Property is “sold at a foreclosure sale” at the completion of the foreclosure auction under California law, rather than at the delivery or recordation of the trustee’s deed. In a typical trustee’s sale, every bid is “deemed to be an irrevocable offer by that bidder,” Cal. Civ.Code § 2924h(a), and the sale is “deemed final upon the acceptance of the last and highest bid,” id. § 2924h(c). Therefore, “[a]s a general rule, a trustee’s sale is complete upon acceptance of the final bid” under California law.
The addition of a statutory right of redemption to the equation, however, does not extend the point in which property is “sold at a foreclosure sale” from the date of the foreclosure auction to the end of the redemption period. Notwithstanding this postsale right, property is still sold (i.e., equitable title is transferred to the purchaser) at the foreclosure auction. Cf. Foorman v. Wallace,
Lastly,- adopting the gavel rule is a logical choice because a foreclosure sale can introduce a third-party purchaser into the relationship. The rule protects such purchasers “by avoiding an interpretation that turns § 1322(c)(1) into a federal vehicle) for divesting them of property rights acquired at foreclosure sales.” Connors,
For these reasons, this Court concludes that “§ 1322(c)(1) terminates a debtor’s right to cure a ... default when the gavel comes down on the last bid at the foreclosure sale.” Cain,
3.2.3. The Modification of Claims Under § 1322(b)(2).
Debtor has also singled out § 1322(b)(2) as another argument to save his Residence. Under this provision, a debtor is allowed to propose a plan that will “modify the rights of holders of secured claims ... or of holders of unsecured claims.”
The Bankruptcy Code defines a “claim” as either a “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured,” id. § 101(5)(A), or a “right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured,” id. § 101(5)(B). The Supreme Court has “explained that Congress intended by this language to adopt the broadest available definition of ‘claim.’ ” Johnson v. Home State Bank,
Many courts have permitted debtors to modify their postsale right of redemption that arose after a tax sale under § 1322(b)(2), concluding that the third-party purchaser at the tax sale holds a “claim” under either statutory definition.
Under the first definition, a “claim” means a “right to payment,” 11 U.S.C. § 101(5)(A), and “[t]he plain meaning of ‘right to payment’ is nothing more nor less than an enforceable obligation,” Davenport,
Courts have relied on this part of the Supreme Court’s analysis to conclude that a purchaser holds a “right to payment.” See, e.g., Bates,
A “claim” can also be a “right to an equitable remedy for breach of performance if such breach gives rise to a right of payment.” 11 U.S.C. § 101(5)(B). In other words, a right to an equitable remedy will constitute a claim if monetary payment (i.e., money damages) can be a viable alternative remedy for breach of the underlying obligation. See Top Rank, Inc. v. Ortiz (In re Ortiz),
Even assuming that Rustling Oaks’ right to receive the Trustee’s Deed after the redemption period expires without payment of the redemption price constitutes a “right to an equitable remedy for breach of performance,” this right to an equitable remedy can only become a “claim” if the underlying breach can give rise to a monetary remedy. Those courts that have concluded that a purchaser has a “claim” under § 101(5)(B) argue that a monetary remedy does exist in the form of a debtor’s payment of the redemption price. See, e.g., Francis,
To the extent a debtor’s failure to redeem within the required period constitutes a breach of performance, the only remedy that the purchaser can obtain is the right to receive the trustee’s deed. The purchaser would not be entitled to a money judgment against the debtor for the redemption price, and it would not be entitled to a right to foreclose on the property to be paid from the sale proceeds. The purchaser’s only remedy is to receive the deed and full legal title to the property. There are simply no alternative remedies, let alone a monetary one. Therefore, Rustling Oaks’ right to delivery of the Trustee’s Deed following the expiration of the redemption period is also not a “right to an equitable remedy for breach of performance if such breach gives rise to a right of payment” under § 101(5)(B).
Finally, both in his papers and arguments by his counsel at the hearings on the motion, Debtor has strenuously asserted that Rustling Oaks is not a creditor in his bankruptcy case and thus not a holder of a claim. As a result, he is now bound by that statement and estopped from asserting a contrary one. See Countrywide Home Loans, Inc. v. Hoopai (In re Hoopai),
Because Rustling Oaks, as a purchaser of property subject to a statutory right of redemption, does not hold a “claim” within the meaning of § 101(5)(A) or (B) by reason of Debtor’s right to pay the redemption price,
3.2.4. The 60-Day Extension Under § 108(b).
Although Debtor can no longer cure under § 1322(b)(3) and (b)(5) and cannot exercise and modify his statutory right of redemption under § 1322(b)(2), that does not preclude Debtor from exercising his redemption right in a Chapter 13 case entirely. Rather, the Court agrees with Rustling Oaks that § 108(b) can be an option.
This Code provision states,
(b) Except as provided in subsection (a) of this section, if applicable nonbank-ruptcy law ... fixes a period within which the debtor ... may ... cure a default, or perform any other similar act, and such period has not expired before the date of the filing of the petition, the trustee18 may only ... cure, or perform, as the case may be, before the later of—
(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or
(2) 60 days after the order for relief.
11 U.S.C. § 108(b). Exercising a right of redemption created under state law constitutes “cur[ing] a default” or “perform[ing] any other similar act,” falling within the scope of § 108(b). See Connors,
Here, the foreclosure sale took place on October 10, 2013, and California law offered Debtor 90 days, until January 8, 2014, to redeem the Residence. See Cal. Civ.Code § 5715(b); Cal.Civ.Proc.Code § 729.035. Since Debtor filed his petition on the last day of the redemption period, § 108(b) extended that period an additional 60 days. Debtor therefore had until March 9, 2014, to exercise his statutory right of redemption. But now that that date has passed without Debtor depositing the redemption price with Guralnick, the § 108(b) option has expired for Debtor as well.
3.3. Res Judicata Effect of a Confirmed Plan.
Even if the Bankruptcy Code does not permit Debtor to cure or redeem through his Plan, Debtor argues that with the Plan now confirmed without an objection or an appeal, res judicata binds Rustling Oaks to the Plan and precludes it from attacking any of the Plan’s potentially erroneous or illegal provisions.
It is well understood that “[o]nce a bankruptcy plan is confirmed, it is binding on all parties and all questions that
In support of his argument that Rustling Oaks is now bound by the confirmed Plan’s redemption of the Residence, Debtor cites to Multnomah County v. Ivory (In re Ivory),
In Ivory, the debtor became delinquent on property taxes for real property located in Oregon, so the county initiated a judicial foreclosure action and obtained a foreclosure judgment against the debtor and the property, resulting in a sale to the county subject to the debtor’s right to redeem within two years. Id. at 74. Less than a month before the redemption period would have expired, the debtor filed a petition. Id. He proceeded to file a proof of claim on behalf of the county, listing the amount of unpaid taxes as the county’s claim. Id. He then proposed a plan that “cure[d] the property tax default and redeemed] the real property,” which was confirmed by the bankruptcy court without objection. Id. After the county rejected .the trustee’s payments due to expiration of the redemption period and the preconfirmation recordation of the deed, the debtor filed a motion to compel the county to accept the payments as required by the plan. Id. at 74-75.
The bankruptcy court granted the motion, and the district court affirmed. Id. at 75. On appeal to the Ninth Circuit, the court affirmed in a short opinion, rejecting the county’s argument that “because it was no longer a creditor of the [debtor] at the time the plan was confirmed, the bankruptcy court was without jurisdiction to include the County in the plan.” Id. Rather, the court reasoned, “Even assuming that the order confirming the plan was in error ..., res judicata precludes the County from bringing what amounts to a collateral challenge to that order. This is so even if the bankruptcy court’s error was jurisdictional.” Id. (citations omitted). As a result, the county remained bound by the confirmed plan’s redemption.
While Ivory sets forth an important lesson about res judicata, the decision is not as on point for this case as Debtor suggests. As later noted by the BAP, “[t]here is no discussion in Ivory of due process, and the decision says nothing about what notice the county in that case received or how that Chapter 13 plan was worded,” Brawders,
3.3.1. Providing Notice to Affected Parties.
A confirmed plan does not have preclusive effect on a party who did not
Yet, in this case, it appears that Rustling Oaks did not receive any notice. Not only did Debtor fail to give Rustling Oaks formal notice of his bankruptcy case and his Plan by excluding Rustling Oaks from the list of creditors, but Debtor and his counsel also made no attempts to informally contact Rustling Oaks about the bankruptcy.
Debtor argues though that he did not need to give notice to Rustling Oaks, the third-party purchaser, but instead, notice to MCA, the foreclosing lienholder and secured creditor of Debtor, and to Gural-nick, the foreclosure trustee and MCA’s agent, was all that was required. This argument, however, ignores “[t]he purpose of notice under the Due Process Clause[, which] is to apprise the affected individual of, and permit adequate preparation for, an impending ‘hearing’ ” before the individual “is finally deprived of his property interests.” Memphis Light, Gas & Water Div. v. Craft,
3.3.2. Providing Notice of a Plan’s Treatment.
Further, even if Rustling Oaks did receive notice about Debtor’s bankruptcy case, Debtor’s Plan would still not bind Rustling Oaks because the Plan’s provisions did not clearly describe what Debtor was trying to accomplish.
[A] plan should clearly state its intended effect on a given issue. Where it fails to do so it may have no res judicata effect for a variety of reasons: any ambiguity is interpreted against the debtor, any ambiguity may also reflect that the court that originally confirmed the plan did not make any final determination of the matter at issue, and claim preclusion generally does not apply to a “claim” that was not within the parties’ expectations bf what was being litigated, nor where it would be plainly inconsistent with the fair and equitable implementation of a statutory or constitutional scheme.
Brawders,
Here, the treatment provided for in the Plan is bare. All that Debtor did was place MCA in Class 2 of the Plan, where he proposed to directly pay MCA its regularly due assessments and to cure MCA’s arrearage of $18,836 over 60 months. No additional information was inserted into the Plan. And as previously mentioned, Debtor’s counsel’s confusion has made it difficult for her to articulate what the Plan is attempting to accomplish. Nevertheless, the two possibilities are both deficient.
If Debtor intended to exercise and modify his statutory right of redemption, then his Plan failed to demonstrate this entirely. First, the statutory redemption under California law is paid to the purchaser, not the foreclosing lienholder. See Cal.Civ. Proc.Code § 729.060(a) (requiring redeeming party to deposit the redemption price with levying officer); id. § 729.080(b) (requiring levying officer to then tender deposit to purchaser). Thus, the party that Debtor needed to provide for in his Plan was Rustling Oaks, not MCA.
Debtor also incorrectly stated the amount necessary to redeem in the Plan. Unlike the equity of redemption price, the statutory redemption price is not the unpaid debt owed to the foreclosing lienholder, but it is essentially the amount paid by the purchaser at the foreclosure sale, along with the purchaser’s additional costs and interest. See id. § 729.060(b), (c). Debt- or’s Plan improperly listed $18,836, the unpaid debt owed to MCA, when it should have used $36,000, the price paid by Rustling Oaks. Due to these two errors, no party could have understood that Debtor was attempting to exercise his right of redemption through the Plan.
If Debtor intended to cure the default to MCA, simply listing MCA’s name and the amount of the delinquent assessments in Class 2 was also not enough. While this would have been sufficient in most cases involving the typical cure and maintenance of a secured claim in default, the circumstances in this case (i.e., the occurrence of a prepetition foreclosure sale, the existence of a third-party purchaser, and the payment of a foreclosing lienholder’s claim in full from the sale proceeds) required more unequivocal language in the Plan. Debtor’s counsel could not rely on the form plan’s boilerplate provisions when she knew the circumstances of her client’s case were unique. At a minimum, the Plan
Due to the lack of notice, Rustling Oaks is not bound by Debtor’s confirmed Plan, and its interest in the Residence remains unaffected by the Plan’s provisions. Therefore, nothing precludes Rustling Oaks from moving for stay relief at this time.
3.4; The Postpetition Delivery and Recordation of the Trustee’s Deed.
Debtor also objects to Guralniek’s post-petition delivery and recordation of the Trustee’s Deed, actions taken to transfer and perfect Rustling .Oaks’ legal title in the Residence
Since Rustling Oaks’ ownership of the Residence is premised on what Debtor contends is an invalid Trustee’s Deed, Debtor essentially argues that title has not been perfected and that any unlawful de-tainer proceeding to evict him is premature at this time. See Cal.Civ.Proc.Code § 1161a(b)(3) (allowing purchaser to remove holdover owner from property but only if “title under the sale has been duly perfected”); see also Malkoskie v. Option One Mortg. Corp.,
3.4.1. The Ministerial Acts Exception.
First, Guralnick’s delivery of the Trustee’s Deed constitutes a ministerial act that does not violate the automatic stay. The Ninth Circuit has adopted the ministerial acts exception, which provides that the automatic stay does- not prohibit “[mjinisterial acts or automatic occurrences that entail no deliberation, discretion, or judicial involvement” on the part of
Courts have determined that this exception extends to an actor’s postpetition execution, delivery, or recordation of a deed following a prepetition foreclosure or tax sale when the applicable law obligates the actor to take those actions and provides the actor with no discretion. See, e.g., Tracht Gut, LLC v. Cnty. of L.A. Treasurer & Tax Collector (In re Tracht Gut, LLC),
This case is no different. The applicable California statute reads, “If the redemption price is not deposited pursuant to Section 729.060 before the expiration of the redemption period, ... the nonjudicial foreclosure trustee pursuant to Section 729.035 shall deliver an executed trustee’s deed and comply with the requirements of Section 2924j of the Civil Code.” CaLCiv. Proc.Code § 729.080(a) (emphasis added).
The original 90-day redemption period expired on January 8, 2014, and the additional 60-day extension period under § 108(b) expired on March 9, 2014. Both deadlines passed without Debtor depositing the redemption price with Guralnick. With the statute’s condition precedent met, Guralnick, as the foreclosure trustee, was obligated by the statute to deliver the executed Trustee’s Deed to Rustling Oaks, which it did on August 1, 2014.
3.4.2. The Perfection of Interests Exception Under § 362(b)(3).
Second, Guralnick’s postpetition recordation of the Trustee’s Deed falls within the automatic stay exception under § 362(b)(3), which states that the automatic stay does not bar “any act to perfect, or to maintain or continue the perfection of, an interest in property to the extent that the trustee’s rights and powers are subject to such perfection under section 546(b) of this title.” 11 U.S.C. § 362(b)(3). Section 546(b), in turn, sets forth that the trustee’s rights and powers are subject to any generally applicable law that permits any act to perfect, or to maintain or continue the perfection of, an interest in property to be effective against an entity that acquires rights in such property before the date on which action is taken to effect such perfee
An interest in real property is not perfected until a document conveying the interest has been recorded with the county recorder. See Walker,
One such exception, commonly invoked in bankruptcy cases, is California Civil Code § 2924h(c), which provides that a purchaser’s title to real property sold at a trustee’s sale is “deemed perfected as of 8 a.m. on the actual date of sale if the trustee’s deed is recorded within 15 calendar days after the sale.” A purchaser, who records its trustee’s deed postpetition but within 15 days of the prepetition sale, would prevail over a hypothetical bona fide purchaser and would not violate the automatic stay under § 362(b)(3). See Bebensee-Wong v. Fed. Nat’l Mortg. Ass’n (In re Bebensee-Wong),
There is no comparable California statute for those who purchase real property at a trustee’s sale subject to redemption, such as Rustling Oaks.
Although the relevant statute says little about a certificate of sale,
The superiority of Rustling Oaks’ title is demonstrated by Foorman v. Wallace,
On appeal, the California Supreme Court had to address whether the defendant’s title to the real property was paramount to that of the initial transferee when the initial transferee’s deed was recorded before the sheriffs deed but after the certificate of sale. See id. at 553-54,
The court first found that the defendant, despite being a judgment creditor purchasing property at his own execution sale, was a bona fide purchaser for value. Id. at 554,
Here, the Certificate of Foreclosure Sale was recorded shortly after the foreclosure sale and almost three months before the petition was filed. Despite the postpeti
3.4.3. Retroactive Annulment of the Stay.
Lastly, Debtor ignores Rustling Oaks’ prayer for retroactive annulment of the automatic stay. Section 362(d) “gives the bankruptcy court wide latitude in crafting relief from the automatic stay, including the power to grant retroactive relief from the stay.” Schwartz,
To determine whether retroactive relief is justified, the bankruptcy court must balance the equities on a case-by-case basis. Nat’l Envtl. Waste Corp. v. City of Riverside (In re Nat’l Envtl. Waste Corp.),
Only two factors favor denying retroactive relief. First, MCA and Guralnick both knew and had notice of Debtor’s bankruptcy, but Guralnick still proceeded to record the Trustee’s Deed without obtaining stay relief beforehand. Guralnick is not a completely innocent actor. Second, restoring the parties to the status quo ante is a relatively simple exercise; all that must be done is for this Court to void the Trustee’s Deed.
To start with, Debtor’s and his counsel’s conduct, like Guralnick’s, was also not exemplary. Despite knowing that there had been a prepetition foreclosure sale, Debt- or’s counsel made no attempts to figure out who purchased the Residence and to notify the purchaser about Debtor’s bankruptcy and his Plan that supposedly impacted the purchaser’s interests. Debtor’s counsel also did not draft the Plan in a manner that unambiguously expressed Debtor’s intention to exercise his right of redemption. Additionally, Debtor’s counsel failed to proactively act to protect her client’s interests, waiting until Rustling Oaks filed this stay relief motion in October 2014 to bring all of these issues to the Court’s attention. Even though Guralnick explained its position to Debtor’s counsel in May 2014 and informed her of its intention to record the Trustee’s Deed in July 2014, Debtor’s counsel still did nothing despite previously threatening to file an adversary proceeding.
Further, although Debtor will suffer irreparable injury if retroactive relief is granted (i.e., losing his Residence), Debt- or’s loss is an inevitable one. Rustling Oaks successfully purchased the Residence subject only to Debtor’s right of redemption. Since Debtor has not redeemed within the required time and he cannot and has not confirmed a plan that effectively redeems the Residence, there is nothing that Debtor can do, at this point, to save his Residence indefinitely. Rustling Oaks is ultimately entitled to have title to the Residence.
The denial of retroactive relief would only offer Debtor temporary relief; it would not somehow undo the foreclosure sale. Rather, if annulment is denied, that would just mean that Guralnick has to file its own stay relief motion in order to redeliver and re-record the Trustee’s Deed, a motion that would certainly be granted. Debtor would have no basis for arguing for the denial of that motion because Rustling Oaks is entitled to have legal title to the Residence and to have the Trustee’s Deed delivered and recorded. Granting retroactive relief now, as a result, promotes judicial economy by saving Guralnick the costs and efforts of filing and litigating a new stay relief motion.
Based on a consideration of the relevant factors, retroactive annulment of the automatic stay is appropriate. If Guralnick’s postpetition delivery and recordation of the Trustee’s Deed were somehow acts that violated the automatic stay and were not covered by any exception, these otherwise void acts are now valid.
3.5. Cause for Relief from the Automatic Stay under § 362(d)(1).
The Court having rejected each of Debt- or’s arguments, the only remaining issue is whether there is cause under § 362(d)(1) to grant Rustling Oaks relief from the automatic stay to initiate its unlawful de-tainer proceeding against Debtor.
Cause is not defined by the Bankruptcy Code, so it must be determined on a case-by-case basis. Christensen v. Tucson Estates, Inc. (In re Tucson Estates, Inc.),
A prepetition foreclosure sale of the Residence took place, but it was subject to Debtor’s statutory right of redemption. Debtor filed his petition prior to the redemption period expiring and prior to the delivery and recordation of the Trustee’s Deed. Yet, Debtor did not exercise his right of redemption before the original deadline under California law or the extended deadline under bankruptcy law. He also did not confirm a plan that effectively redeemed the property or set aside the foreclosure sale. He has therefore lost his right of redemption.
Further, given the Court’s ruling that the delivery and recordation of the Trustee’s Deed either do not violate the stay or are validated by retroactive annulment of the stay, legal title to the property has been transferred and perfected. Debtor no longer has a title interest in the property-
All that remains is Debtor’s possessory interest in the property. But because the redemption period has expired, Debtor is no longer entitled to legally possess the property. See First Nat’l Trust & Sav. Bank of San Diego v. Staley,
4. CONCLUSION.
For the foregoing reasons, the Court will grant Rustling Oaks’ motion. Cause exists under § 362(d)(1) to grant relief from the automatic stay, and retroactive annulment of the stay is appropriate under the circumstances. The postpetition delivery and recordation of the Trustee’s Deed by Guralnick, acting on behalf of MCA, are not void acts. Rustling Oaks, as the entity holding valid title to the Residence, is permitted to initiate an unlawful detainer proceeding against Debtor. But due to a high probability of an appeal by Debtor, Rustling Oaks’ requested waiver of the fourteen-day stay under Bankruptcy Rule 4001(a)(3) will be denied.
Counsel for Rustling Oaks is to lodge an order consistent with this memorandum decision within seven days.
Notes
. Unless otherwise indicated, all chapter, section, and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
. The total debt owed to MCA was paid in full from the sale proceeds.
. The operative language of the Plan specifically provided, "The postconfirmation monthly mortgage payment will be made by the Debtor directly to ... [MCA],'' and, "The Debtor will cure all prepetition arrearages for the primary residence through the Plan Payment as set forth below,” then listing MCA and the $18,836 arrearage.
. Debtor did specifically reference his Residence in the Plan by inserting the following language into one of the Plan's form provi
. Rustling Oaks did not request relief under § 362(d)(2). Therefore, the Court does not need to consider Debtor’s arguments regarding his equity in the Residence and how the Residence is necessary to his reorganization.
. If property within a common interest development is subject to assessments, then a homeowners’ association in charge of managing that development is entitled to a lien on the property for the amount of any delinquent assessments. See Cal. Civ.Code § 5675(a). The homeowners' association can enforce the assessment lien by a trustee’s sale (i.e., a nonjudicial foreclosure). See id. § 5700(a) (stating that lien “may be enforced in any
. Citing Multnomah County v. Ivory (In re Ivory),
. As a matter of fairness to Debtor and because the Court is sympathetic to Debtor’s plight of losing his primary residence, the Court will consider every possible argument that can be extracted from Debtor’s papers.
. Specifically, Congress intended to supersede the rule from In re Roach,
. Even if the Court considered it, the legislative history is inconclusive as to Congress's intent as some courts have concluded. See, e.g., McCarn,
. Further, the owner's right to cure under ' state law in the form of an equity of redemption also ends when the foreclosure sale occurs, rather than at a later time. See Cal. Civ.Code § 2903 (allowing owner to redeem "before his right of redemption is foreclosed”); Stockwell v. Barnum,
. Debtor has not raised any issues with the foreclosure process. Thus, the Court assumes
. Debtor's position is, once again, confusing and contradictory because in the Plan, he purports to treat the claim in dispute as a claim secured only by a security interest in real property that is his principal residence.
. Although Debtor referenced § 1322(b)(2) in his supplemental brief, as will be discussed in Part 3.3.2, Debtor’s Plan did not demonstrate a modification of his statutory right of redemption.
. Other courts have disagreed and have not allowed such modifications based on different rationales. See, e.g., Tax 58 v. Froehle (In re Froehle),
. The courts' consideration of this right as an interest in property that becomes property of the estate, rather than an obligation, is also telling. See, e.g., United States ex rel. Block v. Aldrich (In re Rigden),
. Not only is the interpretation of a statutory right of redemption as a "claim” unsupported
. Although § 108(b) only grants rights to a "trustee,” courts have extended these rights to a Chapter 13 debtor. See, e.g., Frazer,
. To the extent Debtor attempts to argue that he could not ascertain the identity of the purchaser of his Residence, this argument would fail. Debtor could have easily reached out to Guralnick, who knew due to conducting the foreclosure auction. Further, the Certificate of Foreclosure Sale, which clearly identified “Rustling Oaks, LLC” as ,the purchaser, was recorded right after the sale, so Debtor’s counsel could have also easily discovered the purchaser’s identity at the recorder’s office.
. These deficiencies demonstrate why Ivory has no application in this case. In Ivory, the county was the.foreclosing lienholder and the purchaser, and the amount of the debt was the same as the purchase price. See
. In a nonjudicial foreclosure sale under California law, tide to real property is transferred to the purchaser typically by delivery of the trustee’s deed, see Dover Mobile Estates v. Fiber Form Prods., Inc.,
. The record only shows that Guralnick executed the Trustee’s Deed on July 28, 2014, and recorded it on August 1, 2014, but there was no declaration or other evidence concerning when Guralnick delivered the Trustee’s Deed to Rustling Oaks. Nevertheless, since Guralnick and Rustling Oaks do not contest the fact that the Trustee’s Deed has been delivered, the Court will assume that the delivery took place no later than the date of recordation.
. California Civil Code § 2924h(c)’s 15-day relation-back period obviously cannot apply because the earliest a trustee's deed in a trustee’s sale subject to redemption can be recorded is 90 days after the foreclosure sale when the right of redemption expires. Cf. Cal. Civ.Code § 5710(a) (making only California Civil Code §§ 2924, 2924b, and 2924c applicable in a trustee's sale by a" homeowners’ association on its assessment lien).
. All that California Code of Civil Procedure § 729.040 provides is (1) that following a purchaser's payment of its successful bid, a foreclosure trustee must "execute and deliver a certificate of sale to the purchaser and record a duplicate of the certificate of sale in the office of the county recorder,” Cal.Civ.Proc. Code § 729.040(a), and (2) that the certificate of sale must include a description of the property sold, the date of the foreclosure sale, the price paid for the property, and a statement that the property is subject to a right of redemption, see id. § 729.040(b), (c).
.Section 729.040, governing the certificate of sale issued in foreclosure sales, is modeled after former § 700a of the California Code of Civil Procedure, which was in effect until 1983 and governed the certificate of sale issued in execution sales. See Legis. Comm. Comments to Cal.Civ.Proc.Code § 729.040 (1982) (stating that § 729.040 "continues the substance of a portion of subdivision (a) of former Section 700a”).' Since there are no published decisions examining certificates of
. The Ninth Circuit BAP has formulated twelve factors for this analysis: (1) the number of bankruptcy filings; (2) whether the circumstances of a repeat filing indicate an intention to delay or hinder creditors; (3) prejudice to creditors or third parties, including bona fide purchasers, if stay relief is not retroactive; (4) the debtor’s overall good faith conduct; (5) whether the creditors knew of the stay but nevertheless took action; (6) whether the debtor is complying with the Bankruptcy Code and Rules; (7) the relative ease of restoring the parties to the status quo ante; (8) the costs of annulment to the debtor and creditors; (9) how quickly creditors moved for annulment, or how quickly the debtor moved to set aside the violative conduct; (10) whether creditors, after learning of the bankruptcy, proceeded to continue violating the stay or moved expeditiously to gain relief; (11) whether annulment will cause irreparable injury to the debtor; and (12) whether stay relief will promote judicial economy or other efficiencies. Fjeldsted v. Lien (In re Fjeldsted),
. At the second hearing on the motion, Rustling Oaks' counsel stated that Rustling Oaks incurred additional costs after the foreclosure sale. However, no evidence of those costs was submitted, so they are not part of the Court's record at this time.