A creditor can obtain retroactive stay relief just to avoid liability under Section 362(k) for a willful stay violation, the Ninth Circuit Bankruptcy Appellate Panel held in ruling on an issue of first impression in the Ninth Circuit and in the BAP.
The debtors stopped paying their mortgage in 2014. Between 2016 and 2018, they filed five chapter 13 petitions, all designed to halt foreclosure. Two of the petitions were filed the day before a scheduled foreclosure sale. All of the petitions were dismissed for failure to file required documents.
The debtors filed their sixth chapter 13 petition on a Friday, before a foreclosure sale to occur the following Monday. Two hours before the sale, the debtors spoke with a bank representative and said they had filed bankruptcy, but they did not pass along the case number or the court.
The lender proceeded with foreclosure but rescinded the sale the next day, Tuesday.
The debtors filed suit in district court, alleging that the lender committed a willful stay violation. Five months after the foreclosure sale, the lender sought an annulment of the automatic stay, admittedly to avoid liability under Section 362(k) for committing a willful stay violation. If there were liability, the court could impose actual damages on the lender, along with the debtors’ attorneys’ fees and punitive damages, “in appropriate circumstances.”
The lender was not asking the bankruptcy court to validate the foreclosure sale that it had rescinded.
The bankruptcy court granted the lender’s motion to annul, thus retroactively modifying the stay.
The debtors appealed to the BAP, contending that the court may not annul the stay when the creditor committed a willful stay violation.
In a per curiam opinion on October 18 not intended to have precedential effect, the BAP agreed there was a willful stay violation, simply because the lender had been told about the bankruptcy filing. But based on multiple prior BAP opinions, the panel held that knowledge of the stay is only one factor in ruling on a motion to annul the stay. In other words, someone who commits a willful stay violation is not automatically barred from annulling the stay.
Having lost their argument for a per se rule, the debtors next argued that an annulment is not available to avoid Section 362(k) liability if the debtor was not also seeking to validate a foreclosure sale conducted in violation of the stay.
Reacting incredulously to the argument, the BAP said it “defies logic to say that a bankruptcy court can validate by annulment the sale but not the creditor’s act of commencing the sale that subjected it to Section 362(k) liability.”
The BAP continued, “If a void sale can be blessed, so can the creditor’s actions surrounding the sale. In fact, that is exactly what retroactive annulment does.”
In the Ninth Circuit, courts are obliged to weigh at least 12 factors in ruling on an annulment motion. The BAP found no erroneous findings nor an abuse of discretion in granting the motion.
Finally, the debtor contended that the lender was guilty of laches and unclean hands. The BAP dispatched the argument, saying that the creditor’s six abusive chapter 13 filings outweighed the lender’s five-month delay in filing the annulment motion.
A creditor can obtain retroactive stay relief just to avoid liability under Section 362(k) for a willful stay violation, the Ninth Circuit Bankruptcy Appellate Panel held in ruling on an issue of first impression in the Ninth Circuit and in the BAP.
The debtors stopped paying their mortgage in 2014. Between 2016 and 2018, they filed five chapter 13 petitions, all designed to halt foreclosure. Two of the petitions were filed the day before a scheduled foreclosure sale. All of the petitions were dismissed for failure to file required documents.
The debtors filed their sixth chapter 13 petition on a Friday, before a foreclosure sale to occur the following Monday. Two hours before the sale, the debtors spoke with a bank representative and said they had filed bankruptcy, but they did not pass along the case number or the court.
The lender proceeded with foreclosure but rescinded the sale the next day, Tuesday.
The debtors filed suit in district court, alleging that the lender committed a willful stay violation. Five months after the foreclosure sale, the lender sought an annulment of the automatic stay, admittedly to avoid liability under Section 362(k) for committing a willful stay violation. If there were liability, the court could impose actual damages on the lender, along with the debtors’ attorneys’ fees and punitive damages, “in appropriate circumstances.”