Singleton v. Abusaad (In Re Abusaad)Singleton v. Abusaad (In Re Abusaad)
MEMORANDUM OPINION
Does a post-petition sheriffs sale of real property of a debtor conducted without
Facts and Procedural History
The debtor in this bankruptcy case, Maher Abusaad (“Debtor”), owned certain real property located at 3111 Debra Court, Garland, Texas which was subject to homeowners association dues owed to Spring-park Homeowners Association, Inc. (“Springpark”). Prior to the petition, the Debtor became delinquent on his homeowners dues. Springpark sued the Debtor in state court and obtained a default judgment on January 27, 2003. On August 12, 2003, the state district court issued an order of sale, ordering the sale of the Debra Court property in satisfaction of the judgment. The sheriffs sale of the Debra Court property was scheduled for November 4, 2003. In accordance with Texas law, notice of the proposed sale was provided to the Debtor.
The day before the scheduled sale the Debtor filed a petition for relief under Chapter 13 of the Bankruptcy Code. Notice of the bankruptcy filing was sent that day via facsimile to counsel for Spring-park. Apparently, counsel for Springpark did not become aware of the fax until after the sheriffs sale of the Debra Court property the following day. Neither a copy of nor notice of the bankruptcy petition was filed in the real property records prior to the sheriffs sale. Ben Singleton, d/b/a Equity Investments Group (“Singleton”) purchased the Debra Court property at the sheriffs sale for $11,600.00. A Sheriffs Deed was filed in Dallas County on the day of the sale. Singleton did not have notice at the time that he purchased the property of the filing of the bankruptcy petition by the Debtor.
After learning of the bankruptcy, Springpark filed a motion in state court to rescind the sheriffs sale. In this court purchaser Singleton filed a motion to lift the stay to allow him to take possession of the Debra Court property. Singleton also filed this adversary proceeding seeking a declaratory judgment that his purchase of the property was protected under § 549(c) of the Bankruptcy Code. The parties stipulated to the facts and requested the Court to hear the adversary and the motion to lift stay at the same time.
Legal Analysis
1. Did the Post-petition Transaction Violate the Automatic Stay?
The general purposes of the automatic stay are “to protect the debtor’s assets, provide temporary relief from creditors, and further equity of distribution among the creditors by forestalling a race to the courthouse.”
Reliant Energy Servs., Inc. v. Enron Canada Corp.,
2. The Effect of A Transaction That Violates the Automatic Stay
Singleton argues that even if the transfer violated the stay, the provisions of § 549(c) of the Bankruptcy Code prevent the recovery of the post-petition transfer from him because he purchased the property in good faith without knowledge of the commencement of the case and for present fair equivalent value. The Debtor argues that § 549(c) does not apply because the transfer that violated the automatic stay was null and void — in essence, there is nothing to recover because the transfer is treated as never having occurred.
The Debtor’s argument is perhaps based on the Supreme Court’s decision in
Kalb v. Feuerstein,
Our decision today does not conflict with the Supreme Court’s holding in Kalb v. Feuerstein,308 U.S. 433 ,60 S.Ct. 343 ,84 L.Ed. 370 (1940) .... When the Supreme Court decided Kalb in 1940, bankruptcy referees had the express statutory power to modify or terminate the automatic stay. The power to annul the stay had not been authorized. Accordingly, where the violation of the stay was statutorily proscribed and an applicable exception did not exist, the viola-tive action was void. That scenario no longer exists.
Id.
at 179, n. 2. The power of the bankruptcy court under the Code to retroactively annul the automatic stay, thus validating an act that would otherwise have violated the stay, requires the treatment of an act violating the stay as “voidable” and not “void.” This is because, as the Fifth Circuit pointed out in
Sikes,
a “void” act is defined as an act that is “nugatory and of no effect and cannot be cured” whereas a “voidable” act is an act that “may be either voided or cured.”
Id.
at 178 (citing
Black’s Law Dictionary,
1411 (5th ed.1979) and
In re Oliver,
In subsequent cases, the Fifth Circuit reiterated that actions taken in violation of the automatic stay are “voidable,” not “void.”
See Picco v. Global Marine Drilling Co.,
One must not bog down too much in the “void” v. “voidable” contest. Regardless of the label placed on the effect of an action taken in violation of the stay, it is clear that such an action is invalid and of no effect unless and until the action is made valid by subsequent judicial action annulling the automatic stay. See
Elbar Investments, Inc. v. Pierce (In re Pierce),
Although both “void” and “voidable” both deal with transactions or occurrences that were not valid when they occurred, the distinction between them is that if the transaction is absolutely “void”, it can never become valid. If it is “voidable” it can be made valid by subsequent judicial decision. Until that decision is rendered, however, it is not valid.... The important point is that both words deal with events that were invalid when they occurred.
Id. at 207 n. 21. In this case, the post-petition sale of the Debtor’s property violated the automatic stay and was thus invalid when it occurred.
8. The Interplay Between § 862 and § 519: Does § 5J/.9 Save the Good Faith Transferee?
If the transfer of the Debtor’s property at the sheriffs sale was invalid, what effect, then, does § 549(c) of the Bankruptcy Code regarding post-petition transfers have on the transaction? Section 549(c) provides, in part, “The trustee may not avoid under subsection (a) of this section a transfer of real property to a good faith purchaser without knowledge of the commencement of the case and for present fair and equivalent value .... ” The Debtor argues that because the transfer of the property is invalid, § 549 never comes into play. Springpark, on the other hand, argues that § 549(c) is either an exception to § 362 or that it somehow transmogrifies an otherwise invalid transfer into a valid transfer. For the following reasons, this Court finds that § 549(c) does not apply to protect Springpark.
As Judge Steen pointed out in
Pierce,
it is “the debate between ‘void’ and ‘voidable’ [that] causes great mischief [and] seduces one to think that § 549(c) should be considered in this analysis.” However, if an action is taken in violation of the automatic stay and there is no subsequent judicial determination that the action should be made valid by the annulling of the automatic stay, that action is invalid and of no effect at the time of its occurrence. Because the Fifth Circuit does not require that an action be brought to “avoid” a transaction that has occurred in violation of the stay,
see Pierce,
Furthermore, this Court rejects Spring-park’s argument that § 549(c) constitutes
As several other courts have pointed out in recent cases, § 362 and § 549 apply to two completely different types of transactions.
See 40235 Washington Street Corp. v. Lusardi,
Section 549(a) allows a trustee is avoid certain
voluntary
transfers that occur post-petition and that were not otherwise
authorized
by the court pursuant to any of the applicable provisions of the Code.
See Lusardi,
4-. Plain Meaning Triumphs
Although this Court agrees with the analysis set forth by the courts in Lusardi and Ford, a more compelling argument that § 549(c) does not apply to protect Springpark in this case is the fact that Congress chose to provide protection in § 549(c) only to a good faith “purchaser.” A “purchaser” is defined in the Bankruptcy Code as a “transferee of a voluntary transfer, and includes immediate or mediate transferee of such a transferee.” 11 U.S.C. § 101(43) (emphasis added). The express language of § 549(c), then, determines the answer. Section 549(c) provides protection to a purchaser in a voluntary transaction with the debtor. A Texas sheriffs sale is a far cry from a voluntary sale of real property. Therefore, Spring-park is not a transferee of a voluntary transfer and thus not a “purchaser” under the statute. The protections of § 549(c) do not apply to the present situation where the property was bought at a forced sale.
Conclusion
For the foregoing reasons, this Court finds that the post-petition involuntary transfer to Springpark of the Debtor’s homestead at the sheriffs sale violated the automatic stay and is, therefore, invalid and of no effect. The Court does not find that sufficient cause has been presented to annul the automatic stay. The Court further finds that the provisions of § 549(c) do not apply to the transfer in question and that Springpark, as transferee, is not protected by such provisions.
IT IS ORDERED that counsel for the Debtor shall prepare an order and judg
FINAL JUDGMENT
On the 3rd day of February, 2004 this Court heai’d oral argument from the parties. On March 18, 2004, this Court issued a Memorandum Opinion. For the reasons stated in the Memorandum Opinion the Court is of the opinion that this Judgment should issue.
It is ORDERED, ADJUDGED AND DECREED that the Sheriffs Deed dated November 4, 2003 and recorded at Vol. 20033218, Page 04039 of the Deed Records of Dallas County, Texas is declared null and void.
It is further ORDERED ADJUDGED AND DECREED that title to the following property is hereby vested in Maher Abusaad:
3111 Debra Court, Garland, Dallas County, TX, Lot R65, Block 1 of Spring-park Central First Addition, an Addition to the City of Garland according to the Plat recorded in Volume 86070 Page 1831 Map Records of Dallas County, Texas and more commonly known as 3111 Debra, Garland, Dallas County, TX