REBECCA B. CONNELLY, Bankruptcy Judge.
Before the Court is a motion to annul the automatic stay filed by CLMG Corporation ("CLMG") and a response to the motion filed by the debtor, William Allen Dyer. ECF Doc. Nos. 12, 19. The Court held a hearing on February 14, 2019, at which counsel for both parties appeared and presented arguments to the Court. Following the conclusion of the hearing, the Court took the matter under advisement. For the following reasons, the Court grants the motion to annul the automatic stay.
On August 6, 2018,
Over a month after CMLG filed the unlawful detainer action, Mr. Dyer, by counsel, filed a voluntary chapter 7 petition on October 31, 2018. ECF Doc. No. 1. Although he did not file all the required schedules and statements at that time, Mr. Dyer did include with his "bare bones" petition a list of creditors. The list of creditors filed with the petition did not include CLMG. Fourteen days after filing the petition, on November 14, 2018, Mr. Dyer filed the balance of schedules. See ECF Doc. No. 10. Mr. Dyer did not list CLMG as a creditor, party in interest, or party to be notified on any of his schedules. See Schedules D, E/F, G, & H, ECF Doc. No. 10, at 13-28. Further, in response to question 10 of the Statement of Financial Affairs, which simply asks "[w]ithin 1 year before you filed for bankruptcy, was any of your property repossessed, foreclosed, garnished, attached, seized, or levied?", Mr. Dyer answered "No." See ECF Doc. No. 10, at 36. Not only that, when asked if he was a party to "any" court action including collection suits or unlawful detainer actions, Mr. Dyer answered "No." Id.
The state district court granted CLMG a judgment for possession of the property at a hearing held on November 16, 2018.
On January 22, 2019, CLMG filed a motion to annul the automatic stay. ECF Doc. No. 12. Mr. Dyer filed his response to the motion on February 13, 2019. ECF Doc. No. 19.
Counsel for Mr. Dyer and counsel for CLMG appeared at a hearing held on February 14, 2019. Counsel for CLMG reiterated the facts and arguments contained in CLMG's motion. Counsel emphasized the lack of notice and knowledge of the bankruptcy filing at the time CLMG obtained the judgment for possession. Further, counsel for CLMG noted that Mr. Dyer did not inform the state court of the bankruptcy at the hearing which resulted in the judgment for possession.
Counsel for Mr. Dyer argued that the Court should deny CLMG's request because Mr. Dyer may have a claim that the foreclosure sale was not properly conducted.
In this case, CLMG asks this Court to annul the automatic stay so that the judgment for possession entered by the state court on November 16, 2018, is not void as a result of the automatic stay.
Section 362(a) of the Bankruptcy Code provides an automatic stay which prohibits certain actions, including the continuation of judicial proceedings against the debtor. 11 U.S.C. § 362(a)(1). Section 362(d), however, mandates that a bankruptcy court "shall grant relief from the stay . . . such as by terminating, annulling, modifying, or conditioning such stay" for, among other reasons, "cause." 11 U.S.C. § 362(d)(1) (emphasis added). The inclusion of "annulling" in this subsection emphasizes that the Court may grant relief from stay retroactively. This means that actions, which would otherwise be void as a violation of the automatic stay, may be validated by the bankruptcy court in annulling the stay. See, e.g., Wiencko v. Ehrlich (In re Wiencko), 99 Fed. App'x. 466, 469 (4th Cir. 2004) ("Under § 362(d), bankruptcy courts have the discretion to annul the automatic stay retroactively for cause in order to rehabilitate stay violations.").
Generally, a bankruptcy court should annul the stay to validate actions when the party taking such action was unaware of the existence of the bankruptcy case and thus of the automatic stay. "Examples of when it is proper for courts retroactively to annul the automatic stay include when there is merely a technical violation of the automatic stay or when the creditor lacks knowledge of the automatic stay." Sexton v. Dep't of Treasury (In re Sexton), 508 B.R. 646, 666 (Bankr. W.D. Va. 2014).
CLMG obtained the judgment for possession on November 16, 2018, but Mr. Dyer filed his petition on October 31, 2018. CLMG therefore obtained the judgment for possession in violation of the automatic stay. The Court, however, may retroactively annul the stay for cause, thus validating the judgment obtained. Indeed, CLMG requests that the Court take this action.
The Court finds that CLMG acted in good faith
It is all the more appropriate to annul the automatic stay in this chapter 7 no-asset case, because it would be pointless otherwise. If CLMG had notice of the bankruptcy case in the first place, and had CLMG filed a motion for relief from stay to continue the unlawful detainer action, grounds existed at the time to grant such relief. The foreclosure sale had already occurred almost three months prior to the filing of the petition. Ownership of the Property transferred to CLMG 86 days before Mr. Dyer filed his chapter 7 petition. As of the petition date, Mr. Dyer had no legal interest in the Property. Likewise, Mr. Dyer admitted in his bankruptcy petition that he had no intention of paying the mortgage debt secured by the Property, which makes sense since the Property secured by the mortgage had been foreclosed upon before he filed his bankruptcy petition. See Statement of Intention for Individuals Filing Under Chapter 7, ECF Doc. No. 10, at 41 (not providing for any intention in relation to the Property). As noted at the February 14, 2019 hearing, Mr. Dyer was in default on his mortgage and had not been making payments at the time of foreclosure. These facts and circumstances demonstrate cause, which compels the Court to grant relief from stay to pursue the unlawful detainer action. See 11 U.S.C. § 362(d). For all these reasons, if the Court did not annul the stay, the Court would inevitably relieve the stay permitting a hearing on the eviction action. Because CLMG had no notice of the bankruptcy when it obtained the judgment for possession and yet had grounds to request and obtain relief from the stay had it known of the existence of the automatic stay, it is appropriate to annul the stay to give effect to the judgment obtained unknowingly in violation of the automatic stay.
The Court grants the motion to annul the automatic stay and concludes that the judgment for possession obtained by CLMG is not void as a result of the imposition of the automatic stay. Further, the Court will grant CLMG relief from the automatic stay to address the appeal filed by Mr. Dyer.
The Court will contemporaneously issue an Order consistent with the findings and ruling of this Memorandum Opinion.
A copy of this Memorandum Opinion shall be provided to the debtor, debtor's counsel, counsel for CLMG Corp., the chapter 7 trustee, and the Office of the United States Trustee.
