MIKE K. NAKAGAWA, Bankruptcy Judge.
On June 5, 2019, the court heard Paradise Harbor Place Trust and Vendange Place Trust's Motion to Retroactively Annul the Automatic Stay ("Annulment Motion"). The appearances of counsel were noted on the record. After arguments were presented, the matter was taken under submission.
On September 1, 2010, Justice David Ward and Autumn Beth Ward ("Debtors") filed a voluntary, joint Chapter 7 petition ("Petition"), along with their schedules of assets and liabilities ("Schedules"), statement of financial affairs ("SOFA"), and Chapter 7 individual debtor's statement of intention ("Statement of Intention"). (ECF No. 1). On the Petition, Debtors listed their residence as 2601 Vendange Place, Henderson, Nevada 89044 ("Residence"). The case was assigned for administration to Joseph B. Atkins as Chapter 7 bankruptcy trustee ("Trustee").
On their Schedule "A", Debtors listed the Residence as having a value of $266,000. On their Schedule "C", Debtors did not claim an exemption in the Residence. On their Schedule "D," Debtors listed the Residence as being subject to liens in favor of Bank of America Home Loans ("BOA"), the City of Henderson, and Madeira Canyon, c/o Associated Professional Services.
On the same date the Petition was filed, a Notice of Chapter 7 Bankruptcy Case, Meeting of Creditors, and Deadlines ("Bankruptcy Notice") was filed and served on all parties in interest. (ECF No. 7).
On September 4, 2010, a Certificate of Notice was filed attesting that the Bankruptcy Notice was sent by first class mail and by electronic transmission to various parties. (ECF No. 9). BOA and Madeira HOA are included on the certificate, but not the Movants.
On December 7, 2010, Debtors received their Chapter 7 discharge ("Discharge Order"). (ECF No. 20).
On December 9, 2010, a Certificate of Notice was filed attesting that the Discharge Order was sent by first class mail and by electronic transmission to various parties. (ECF No. 21). BOA and Madeira HOA are included on the certificate, but not the Movants.
On September 1, 2011, Debtors filed a notice that they had changed their address to 1502 W. Horseshoe Bend in Rochester Hills, Michigan. (ECF No. 33).
On January 27, 2012, the Trustee filed a notice of his final report and request for compensation ("TFR"), and of the deadline for filing objections. (ECF No. 36).
On February 1, 2012, a Certificate of Notice was filed attesting that the TFR was sent by first class mail and by electronic transmission to various parties. (ECF No. 37). BOA and Madeira HOA are included on the certificate, but not the Movants.
On February 28, 2012, an order was entered approving the final report. (ECF No. 39).
On May 22, 2012, a final decree was entered discharging the Trustee from any further duties and closing the case.
On April 30, 2019, an order was entered granting an ex parte request to reopen the bankruptcy case. (ECF No. 44).
On May 1, 2019, the instant Annulment Motion
On May 22, 2019, opposition was filed on behalf of BOA ("Opposition") accompanied by the Declaration of Jamie Combs ("Combs Declaration").
On May 31, 2019, Movants filed a reply ("Reply").
During the Chapter 7 case, Madeira HOA recorded a notice of delinquent assessment lien with respect to the Residence. Thereafter, it recorded a notice of default and election to sell the Residence. It then recorded a notice of sale. Madeira HOA took these actions without obtaining relief from stay from the bankruptcy court and while the Residence was still property of the bankruptcy estate.
After the Chapter 7 case was closed, Madeira HOA completed its foreclosure sale. The Residence was purchased at the foreclosure sale by Vendange Place. A trustee's deed upon sale was recorded in the county records. Thereafter, the Residence was transferred to Paradise Harbor. A grant deed was recorded in the county records.
On March 2, 2016, BOA commenced a civil action in the United States District Court for the District of Nevada ("USDC") against Madeira HOA, Vendange Place, Paradise Harbor, and Nevada Association Services, denominated Case No. 16-cv-00444-APG-NJK ("Federal Case").
On August 18, 2016, the USDC entered an order denying without prejudice Madeira HOA's motion to dismiss. The order also temporarily stayed further proceedings in the action pending the outcome of various appellate proceedings involving the Ninth Circuit's divided opinion in
On September 21, 2018, the USDC entered an order lifting the stay of the civil action in light of certain rulings entered in connection with the
On December 4, 2018, the USDC entered a scheduling order setting various deadlines for further proceedings, including the submission of a joint pretrial order no later than April 12, 2019.
On March 13, 2019, in accordance with the scheduling order, various motions for summary judgment were filed.
On May 1, 2019, the instant Annulment Motion was filed before this bankruptcy court, after which the briefing on the summary judgment motions was completed in the USDC.
The automatic stay arises only upon the filing of a bankruptcy petition and is applicable to "all entities." 11 U.S.C. § 362(a). The automatic stay applies, inter alia, to any act to "obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate." 11 U.S.C. § 362(a)(3). The automatic stay also applies to any act to "enforce any lien against property of the estate." 11 U.S.C. § 362(a)(4). The stay of acts against property of the estate continues until the property is no longer property of the bankruptcy estate.
When the Debtors filed their Chapter 7 bankruptcy petition, the Residence was property of the bankruptcy estate protected by the automatic stay. The relevant timeline for the instant dispute is as follows:
There is no dispute that the Residence was property of the bankruptcy estate until the case was closed and at no time did Madeira HOA seek or obtain relief from the automatic stay to enforce its assessment lien. As a matter of law, the recording of the NODAL, NOD and NOS were void ab initio,
Under Nevada law, certain portions of HOA assessment liens have priority over residential mortgages.
Also, as mentioned above, the Quiet Title Claim now alleged in the Federal Case seeks a declaration that the HOA Foreclosure was void for several reasons, including: (1) that the underlying Nevada foreclosure statute is unconstitutional,
Where the automatic stay has been violated, a party in interest may seek an order from the bankruptcy court to annul the automatic stay for "cause" under Section 362(d)(1).
In this case, neither BOA nor the Movants are parties to the Chapter 7 proceedings that the automatic stay is designed to protect, i.e., the Debtors and their assigned bankruptcy trustee. In this circuit, however, a party asserting an ownership interest in property of a bankruptcy estate
Whether "cause" exists under Section 362(d)(1) to annul the stay is determined under a "balancing of the equities" test.
Five of these factors (1, 2, 4, 6, and 11) focus solely on the debtor ("debtor factors"); three of these factors (3, 5, and 10) focus solely on non-debtors ("non-debtor factors"); three of these factors (7, 8, and 9) focus on both the debtor and non-debtor parties ("common factors"); and one factor (12) looks to judicial interests ("neutral factor"). All twelve factors ("Fjeldsted Factors") simply provide an analytical framework and any one factor may be dispositive in comparison to the others.
In this instance, the previously categorized debtor factors favor retroactive relief from stay. Debtors do not have a history of repeat bankruptcy filings that might suggest a malign intent to delay or hinder creditors. Debtors obtained their Chapter 7 discharge by complying with the applicable requirements of bankruptcy law, and no party in interest has questioned their good faith. More important, rather than causing irreparable injury to the Debtors, it appears that retroactive relief from stay will prevent them from losing the benefit of their bankruptcy discharge. If the HOA Foreclosure sale was void and title to the Residence did not pass to Vendange Place, then title remains in the Debtors' names and in their bankruptcy estate. When they filed their bankruptcy petition, neither sought to reside in the Residence and they did not claim it as their homestead. Both Debtors stated their intention to surrender the Residence. Because the Debtors have made no payments on the underlying obligation for approximately a decade, they would be subject to a renewed foreclosure of the Residence occurring well after they received their Chapter 7 discharge. The post-discharge damage to the Debtors' new credit history is likely to be significant and certainly detrimental to their fresh start through Chapter 7.
The non-debtor factors also favor retroactive relief. There is no suggestion in the record that the Movants had notice or actual knowledge of the bankruptcy case, or knew that the HOA Foreclosure sale was in violation of the automatic stay. In fact, the record demonstrates that Vendange Place was never listed as a creditor or interested party in the bankruptcy proceedings at any time. Thus, the evidence in the record infers that Vendange Place did not know of the automatic stay and did not take steps to continually violate the stay. Moreover, both Movants sought retroactive relief from stay soon after BOA resumed prosecution of the Federal Case where it asserted the protection of the automatic stay. Because Vendange Place apparently was a bona fide purchaser of the Residence, the prejudice to its successor in interest was greater than that of a lender who would have had an opportunity to tender payment of any delinquent HOA assessments to prevent a foreclosure sale.
The common factors also support retroactive relief from stay. As already discussed, if the foreclosure sale is void, legal title to the Residence never left the Debtors' bankruptcy estate. Restoration of the "status quo ante," however, means not only that legal title to the Residence remains in the Debtors, but that Madeira HOA would have an unpaid priority assessment lien, the Debtors would be in substantial default on the loan, and BOA's deed of trust against the Residence would be restored.
The remaining "neutral factor" also favors retroactive relief. This is a Chapter 7 case that was reopened for the limited purpose of allowing the Annulment Motion to be pursued. There are no other pertinent proceedings in this bankruptcy court involving the parties to this matter and the Federal Case is currently pending before the USDC. Debtors have been given notice of the retroactive relief from stay requested by the Movants and have not filed or presented any opposition to such relief. Moreover, notice of the relief requested by the Movants also has been given to the UST which also does not oppose, nor has the UST taken steps to appoint another Chapter 7 trustee to respond to the Annulment Motion. On the other hand, the Federal Case remains before the USDC where other controversies may be litigated between the Movants and BOA, including any remaining issues as to the validity of the Nevada HOA foreclosure statute. Judicial economy supports allowing the parties to return to the USDC to resolve those issues, if any.
Based on the foregoing, the court finds that the Fjeldsted factors taken as a whole — the debtor, non-debtor, creditor, and neutral factors — favor retroactive relief from stay for cause under Section 362(d)(1). The court concludes that the automatic stay that arose on September 1, 2010, should be annulled to include all steps necessary after the commencement date to complete the HOA Foreclosure sale of the Residence.
