A California federal district court recently affirmed a bankruptcy court’s order lifting the automatic stay in a Chapter 13 proceeding, finding that the matter in question was not subject to the automatic stay under one or more exceptions found in the Bankruptcy Code at 11 U.S.C. § 362(b). The district court’s most recent ruling on the issue referenced two earlier orders: In re Silva, No. 2:15-cv-02061, order denying appellant’s motion for stay pending appeal (“Silva I”) (C.D. Cal., Apr. 24, 2015); order denying appellant’s ex parte motion for reconsideration (“Silva II”) (May 1, 2015). The court incorporated those orders’ reasoning in the most recent order (“Silva III”), issued on June 22, 2015. The various orders draw on dense statutory language in the Bankruptcy Code, which frequently defines exceptions to the automatic stay entirely by reference to other code sections.
The debtor/appellant has, according to the court, lived in her home since 1988. She and her husband/co-debtor borrowed $125,000, secured by a first-mortgage lien on the property, in 2004. They took out a second mortgage the following year for $30,000. At some point, they began to discuss modifying the first mortgage loan, but they then defaulted on the second mortgage in 2008. The second-mortgage lender sold the property to a family trust (the “Buyer”) in a foreclosure sale in August 2009. Several weeks later, an employee of a property management company owned by the Buyer (the “Company”) went to the residence to inform the debtor of the sale, but the debtor reportedly did not believe him because of the ongoing loan modification negotiations with the first-mortgage lender.
Although the Buyer had an executed trustee’s deed, it did not record the deed right away, opting “to allow [the debtor] and her husband to remain in the property rent-free until the property increased in value.” Silva I at 3. In April 2010, the first-mortgage lender recorded a foreclosure notice. The debtors filed for Chapter 13 bankruptcy in August 2010, but no one recorded a notice of the bankruptcy proceeding in the property’s chain of title. In October 2014, the Buyer recorded the trustee’s deed and then executed and recorded a quitclaim deed transferring title to the Company. Neither party was aware of the pending bankruptcy proceeding at the time.