Appellants Devon McKenna and Cynthia McKenna ("McKennas") appeal the bankruptcy court's Order Granting Relief from Stay ("Relief Order"), which terminated the automatic stay as to PNC Bank, N.A. ("PNC") based on § 362(d)(1) and (2).
The McKennas filed a chapter 7 bankruptcy petition on October 21, 2011. Prior to their bankruptcy filing, Commonwealth United Mortgage ("Commonwealth") foreclosed on the McKennas' residence ("Property") and purchased the Property at the trustee's sale. The trustee's deed conveying the Property to Commonwealth was recorded on June 3, 2008.
The McKennas attempted to have the foreclosure sale deemed void in federal and state court actions, but were unsuccessful.
After more than three years of litigation surrounding the foreclosure, the McKennas continued to reside in the Property and filed for bankruptcy. In the interim period between the foreclosure and bankruptcy filing, PNC had become the successor in interest to Commonwealth through multiple mergers.
On November 29, 2011, PNC filed a motion for relief from the automatic stay as to the Property. That motion was denied on February 6, 2012.
PNC filed a second motion for relief from stay ("Relief Motion") on July 12, 2012. PNC requested relief from stay under § 362(d)(1) and (2) so that it could pursue unlawful detainer and evict the McKennas.
PNC argued that cause existed for stay relief under § 362(d)(1) because the McKennas no longer held an interest in the Property after the trustee's sale. Because they were no longer the Property's owners, the McKennas could not have equity, and their continued occupation of the residence inhibited PNC from preserving the Property.
As to relief being warranted under § 362(d)(2), PNC again asserted that the McKennas had no equity in the Property and noted that the Property could not be necessary to an effective reorganization because they had no interest in it.
Several supporting documents were attached to the Relief Motion. The recorded trustee's deed evidencing the Property's conveyance to Commonwealth was attached. There was also a declaration of Trisha Payton ("Payton"), an employee and authorized signer of PNC. In the declaration, Payton stated that she was trained in reviewing PNC's business records regarding loans. She further attested that Commonwealth was a division of National City Bank ("NCB") Indiana, which merged into NCB Ohio, effective July 22, 2006. NCB Ohio merged with PNC, effective November 6, 2009. To support her assertions, Payton attached the official certification of the Comptroller of Currency detailing the mergers and a Federal Deposit Insurance Corporation history for NCB Indiana, which identifies NCB Indiana as a part of PNC.
The McKennas opposed the Relief Motion, arguing that (1) Payton's declaration was inadmissible because of her lack of personal knowledge and because it was false, (2) PNC was not their lender and had no standing to move for relief, (3) PNC had violated the Truth in Lending Act ("TILA"), (4) the deed of trust and trustee's sale were void, and (5) there had been an appeal to this Panel of the bankruptcy court's order dismissing their wrongful foreclosure claim, therefore, ruling on the Relief Motion would be improper.
The bankruptcy court heard PNC and Mr. McKenna's arguments regarding the Relief Motion on August 8, 2012.
The bankruptcy court entered the Relief Order on August 14, 2012, which the McKennas appealed.
On appeal, the McKennas argue that PNC's counsel was improperly allowed to argue the Relief Motion without a representative of PNC being present. They contend this violated their right to confront their accuser and contravenes
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(b)(1) and (b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.
A. Did PNC have standing to seek relief from the automatic stay?
B. Did the bankruptcy court commit reversible error by granting PNC relief from stay based on § 362(d)(1) and (2) when the McKennas' residence had been sold at a trustee's sale more than three years before they filed for bankruptcy?
We review standing de novo.
Orders granting relief from the automatic stay are subject to abuse of discretion review.
Whether the correct legal standard was applied is reviewed de novo.
Factual findings are clearly erroneous if they are illogical, implausible, or unsupported by the record.
Standing is required in every federal case and determines whether the court may entertain the proceeding. Veal, 450 B.R. at 906. Standing has both constitutional and prudential dimensions.
"Constitutional standing requires an injury in fact, which is caused by or fairly traceable to some conduct or some statutory prohibition, and which the requested relief will likely redress."
In this case, PNC suffered an injury in fact because the automatic stay restricted its pursuit of remedies to obtain possession of the Property. Causation existed between the stay and PNC's inability to evict the McKennas and gain possession. The Relief Order addressed and remedied PNC's injury.
Prudential standing is implicated in the real party in interest requirement under FRCP 17.
Commonwealth was conveyed title to the Property prepetition. By the time the McKennas filed for bankruptcy, PNC had become owner of the Property, based on mergers tracing from Commonwealth to PNC. Thus, PNC was asserting its own rights when it sought relief from the stay.
To summarize, PNC had both constitutional and prudential standing to file the Relief Motion. It was not a reversible error for the bankruptcy court to allow PNC to prosecute the motion as Commonwealth's successor.
A party moving for relief from stay must demonstrate that it has a colorable claim to enforce its rights against estate property.
Here, PNC met its burden to establish a colorable claim by proving that Commonwealth acquired ownership interest in the Property as grantee, and that PNC was Commonwealth's successor in interest.
A bankruptcy court must grant relief from the automatic stay when a party in interest demonstrates cause under § 362(d)(1). Cause for relief exists "[w]hen state law foreclosure proceedings have been completed prepetition," and the new owner seeks to obtain possession of the property, for example, through an eviction action.
In addition, pursuant to § 362(d)(2), relief from stay is warranted when the debtor lacks equity in the subject property and the property is not necessary to an effective reorganization. The party seeking relief from stay bears the burden of showing a lack of equity, but the debtor carries the burden of demonstrating the necessity of the property to an effective reorganization. § 362(g)(1) and (2).
If a debtor loses ownership interest in property through foreclosure, there is no claim to equity in that property.
The bankruptcy applied the correct standards under § 362(d)(1) and (2) when determining if cause existed to grant PNC relief from stay, and if the McKennas had equity in the Property or if it was necessary for effective reorganization.
The question is then whether the bankruptcy court's factual findings to support granting relief from stay under those provisions were clearly erroneous. We find that they were not.
The court found that the McKennas were still living in the Property more than three years after foreclosure. It also noted that PNC was the successor in interest to Commonwealth, who obtained title to the Property by trustee's deed. These facts could be drawn from Payton's declaration and supporting documentation regarding the mergers from Commonwealth to PNC and the trustee's deed.
The McKennas argued in their opposition to the Relief Motion and at the hearing on the motion that Payton lacked personal knowledge regarding the matters she attested to, and that she was not a person who could make a declaration on behalf of PNC because she was not a party. The bankruptcy court's determination to allow Payton's declaration into the record over the McKennas' objection is an evidentiary ruling to which we grant considerable deference.
Also at the hearing, Mr. McKenna expressed confusion as to how Payton could be both a non-party and authorized signer for PNC. The explanation is that Payton is not personally a party to the Relief Motion, but PNC authorized her to sign on its behalf for purposes of the motion. Her lack of personal involvement with the matter did not make her ineligible to submit a declaration as employee of PNC, and sign on PNC's behalf as authorized.
Based on the foregoing, none of the bankruptcy court's factual findings as to whether cause existed to grant stay relief were illogical, implausible or unsupported by the record.
In addition, the bankruptcy court's findings that the McKennas lacked equity and that the Property was not necessary to an effective reorganization logically followed from the evidence of the prepetition foreclosure sale and the fact that the McKennas are in a chapter 7 bankruptcy.
In conclusion, the bankruptcy court did not abuse its discretion when it granted PNC relief from the automatic stay pursuant to § 362(d)(1) and (2).
The bankruptcy court did not err by allowing PNC's counsel to argue the Relief Motion without a representative from PNC present. PNC, as a corporation, was required to appear by counsel,
Moreover, neither
As to their next argument, the McKennas had no right to confront their purported accuser, PNC, because the bankruptcy proceeding and the Relief Motion were civil matters, and the Sixth Amendment right to confrontation of witnesses only applies in criminal cases.
The McKennas' final argument is without merit because they failed to bring attention to any actions by the bankruptcy court evidencing prejudice.
For all of the reasons set forth above, we AFFIRM the bankruptcy court's Relief Order.
