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A California bankruptcy court recently ruled on a motion to lift the automatic stay in a Chapter 13 case by a company that purchased real property at a foreclosure auction. In re Richter, No. 6:14-bk-10231, mem. dec. (Bankr. C.D. Cal., Jan. 20, 2015). The purchaser sought to initiate an unlawful detainer proceeding, commonly known as an eviction, in order to take possession of the property. The debtor argued that he had a right of redemption under California law, which allowed him to recover the property by paying the amount owed to the lienholder. The court expressed sympathy for the debtor but ruled that his right of redemption had expired under both California law and the Bankruptcy Code.

The debtor owned a condominium in Palm Desert, California. Since it was part of a common interest development, the property was subject to covenants, conditions, and restrictions (CC&Rs) enforced by a homeowner’s association (HOA). When the debtor fell behind on assessments, the HOA commenced nonjudicial foreclosure. Under state law, a property owner has a 90-day right of redemption after the sale of a property in a nonjudicial foreclosure by an HOA. Cal. Civ. Code § 5715(b), Cal. Civ. Proc. Code § 729.035.

A trustee appointed by the HOA conducted a foreclosure auction in October 2013. The purchaser bought the property for $36,000, which more than covered the debtor’s $18,836 assessment arrearage. The foreclosure trustee notified the debtor of his 90-day right of redemption. On the last day of the redemption period, in January 2014, the debtor filed for Chapter 13 bankruptcy. According to the court, he intended to use the Chapter 13 bankruptcy plan to exercise his right of redemption. The HOA refused to accept his payments, however, arguing that the sale of the property was complete. The foreclosure trustee recorded the trustee’s deed in August 2014, perfecting the purchaser’s title. In October, the purchaser moved to lift the automatic stay.

In a Chapter 13 bankruptcy, a debtor may propose a plan that provides for “the curing of any default,” 11 U.S.C. §§ 1322(b)(3), (5), or that modifies the rights of secured lienholders, id. at § 1322(b)(2). The debtor argued that the “cure” provisions of § 1322 were available to him because he still held an interest in the property when he filed his bankruptcy petition and the automatic stay took effect. The court noted, however, that § 1322(c)(1) limits the application of these provisions when a foreclosure sale has already taken place. It also held that § 1322(b)(2) did not apply because the purchaser only had an equitable claim against the debtor, not a monetary claim.

The debtor could have exercised his right of redemption, the court found, within 60 days of his petition date under 11 U.S.C. § 108(b), but he did not do so. The court held that the purchaser had shown good cause for relief from the automatic stay, 11 U.S.C. § 362(d)(1), and that the foreclosure trustee was permitted to file the trustee’s deed under the “perfection of interests” exception to the automatic stay, id. at § 362(b)(3).

Foreclosure attorney Devin Sawdayi has represented Los Angeles individuals and families in Chapter 7 and Chapter 13 bankruptcy cases for 17 years. To schedule a free and confidential consultation with a knowledgeable and experienced consumer advocate, contact us today online or at (310) 475-9399.

More Blog Posts:

Violation of Automatic Stay Can Result in Emotional Distress and Punitive Damages, According to Ninth Circuit Ruling, Los Angeles Bankruptcy Lawyer Blawg, April 12, 2015

Debtors Allowed to Sue Loan Servicer for Charging Unapproved Fees During Chapter 13 Bankruptcy, Los Angeles Bankruptcy Lawyer Blawg, December 23, 2014

Ninth Circuit Considers Whether Debtor’s Attorney’s Fees Are “Actual Damages” when Creditor Violates Automatic Stay, Los Angeles Bankruptcy Lawyer Blawg, September 19, 2014