As an attorney who protects my clients against foreclosure, I am very familiar with the concept of filing a Chapter 13 or Chapter 7 bankruptcy stop the foreclosure sale. Since the filing of a bankruptcy petition includes an automatic stay – a court order prohibiting all creditors from collecting against debts held by the debtor – the filing often results in providing the bankruptcy client with some temporary or even permanent relief.
The Chapter 7 or Chapter 13 bankruptcy can even help a debtor in the long run if the bankruptcy allows the debtor to catch up on any arrearages and reorganize their unsecured debts. This may also work in the event that a mortgage lender has a flawed claim on the property held by the debtor or has broken some sort of predatory lending law. However, as the Ninth Circuit Bankruptcy Appellate Panel ruled in Edwards v. Wells Fargo Bank, N.A., filing bankruptcy is not the right avenue to pursue for a debtor whose property has already been foreclosed against. In Edwards, the appellate Panel upheld the bankruptcy court’s decision to grant relief from stay to the bank.
Lupi Paulo Edwards, from Southern California, filed a Chapter 7 bankruptcy petition in August of 2010. Her home lender, Wells Fargo, moved the court for relief from stay shortly thereafter. Wells Fargo included a copy of the Trustee’s Deed whereby they purchased the property at a sale on May 17, 2010. Wells Fargo then began proceedings to eject Edwards from the property. Edwards attempted to oppose the bank and argued that Wells Fargo had no standing to request that the court allow it to begin the foreclosure proceedings.
In their decision, the Panel noted that under California law, a debtor no longer has an interest in the property after the foreclosure sale. Since Wells Fargo acquired title to the property on May 17, 2010 they had standing to request that the court permit them to proceed with the eviction despite the automatic stay granted in August. Edwards then argued that since she filed an adversary proceeding against Wells Fargo to determine whether they had legally foreclosed against her that the court should not have dissolved the automatic stay against Wells Fargo. The Panel disagreed with her and re-iterated that a bankruptcy court has the discretion to grant relief regardless of any adversary proceeding. Lastly, the Panel noted that California law does not permit a litigant to make arguments that undermine the legality of a foreclosure sale once they have lost the unlawful detainer case. In short, the Panel affirmed the bankruptcy court’s actions.
As a Sacramento Bankruptcy Attorney I try to avail myself of the multiple options to keep my client in his or her house for as long as possible when they are behind on their mortgage and foreclosure is on the horizon. If there is one piece of advice I can give to anyone regarding foreclosure and bankruptcy that is that an individual must file their bankruptcy before any foreclosure sale in order to maximize his or her position to save their house. Once the foreclosure sale occurs and title vests in another individual or entity, it becomes almost impossible to keep the debtor from losing the residence.