Party that did Not Participate in underlying Bankruptcy Had No Standing to Reopen the Case

Party that did Not Participate in underlying Bankruptcy Had No Standing to Reopen the Case

Saticoy Bay moves to reopen the chapter 7 bankruptcy case filed by the Debtors in order to annul the automatic stay nunc pro tunc. The facts of this case are largely undisputed. On April 25, 2012, prior to Debtors’ bankruptcy filing, the Legacy Village Property Owners Association (the “HOA”) recorded a Notice of Delinquent Assessment Lien against Debtors’ real property (“Property”) for delinquent homeowners’ association dues in the amount of $1, 000.00. Subsequently, the HOA recorded a Notice of Default and Election to Sell under Homeowners’ Association Lien in the County Recorder’s Office on September 11, 2012. Nearly a year later, on August 15, 2013, Debtors filed a voluntary petition for chapter 7 relief. Debtors listed the Property on Schedule A. On Schedule D, Debtors indicated that Chase held a $252, 000.00 mortgage on the Property. Debtors listed the HOA as an unsecured creditor on Schedule F with a claim in the amount of $1, 000.00 for its delinquent dues, but did not provide for the secured HOA lien. The HOA did not file a proof of claim or object to its claim classification in Debtors’ petition. Debtors indicated their intent to surrender the Property in their Statement of Intention (“SOI”).

On August 20, 2013, five days after Debtors filed for relief under the Code, the HOA sent a Notice of Trustee’s Sale to numerous entities, including Chase and Debtors. On August 26 and 27, 2013, the HOA posted Notices of Sale in six public places and personally served the Notice upon the occupant of the premises. On August 30, 2013, the HOA recorded the Notice of Sale in the official records. Notwithstanding the automatic stay imposed by § 362(a), the HOA acted without requesting and receiving relief from the Court to lift the automatic stay pursuant to § 362(d). Debtors received their discharge on November 25, 2013. Eight days after Debtors received their discharge, Movant, Saticoy Bay, purchased the premises from the HOA at a foreclosure sale. Debtors’ bankruptcy case was subsequently closed on December 11, 2013, and Saticoy Bay recorded its deed on December 12, 2013.

Saticoy Bay commenced an action to quiet title in state court (“State Court” or “Quiet Title Action”) against Chase on January 8, 2014, seeking to quiet title and obtain a declaration that the non-judicial foreclosure sale extinguished the first position Deed of Trust held by Chase under state law. Upon Debtors’ motion and for reasons unrelated to the HOA or the Quiet Title Action, their case was reopened on November 12, 2014, but thereafter closed on February 11, 2015.

On September 21, 2016, the  State Court ruled on cross motions for summary judgment in the Quiet Title Action. Both parties have provided the Court with the hearing minutes. The State Court ordered:

[Saticoy Bay]’s Motion for Summary Judgment CONDITIONALLY GRANTED, matter SET for status check, if bankruptcy court will annul the stay[, ] then Court will enter judgment in favor of [Saticoy Bay]’s Motion for Summary

Judgment and against Defendant on all causes of action except their unjust enrichment claim, if stay is not annulled then Defendant JPMorgan Chase Bank’s Motion for Summary Judgment will be GRANTED.

Chase raises three main arguments in opposition to the Motion: (1) Saticoy Bay is not a “party in interest” entitled or permitted to reopen a case, as required by Rule 5010; (2) Saticoy Bay lacks both constitutional and prudential standing to bring the Motion; and (3) Saticoy Bay does not have sufficient “cause” to reopen, as required by § 350(b). In support of its first argument, Chase cites cases from courts around the country for the proposition that “party in interest” status should not extend to Saticoy Bay, as Saticoy Bay’s interest in Debtors’ Property did not arise until eight days after Debtors received their discharge. Next, Chase contends that Saticoy Bay lacks the required constitutional and prudential standing to bring this Motion because it is asserting the rights of a third party (the HOA), rather than its own. Finally, Chase cites supporting cases, to show that, under the totality of the circumstances, Saticoy Bay does not have sufficient “cause” to reopen.

Saticoy Bay’s principal argument in support of its position that it is a “party in interest” under Rule 5010, and thus has standing to reopen this case, is that it has a financial and/or legal stake in Debtors’ bankruptcy case and the application of the automatic stay. Saticoy Bay does not provide the Court with any case law interpreting “party in interest” as it relates to Rule 5010. Rather, Saticoy Bay’s sole argument is that it has constitutional and prudential standing because it (1) will suffer an injury-in-fact if the stay is not annulled to retroactively legitimize the HOA’s foreclosure action and (2) is seeking to enforce its own rights to the Property, rather than the third party rights of the HOA. Saticoy Bay also contends that Chase’s challenge to Saticoy Bay’s standing is made in bad faith because this standing argument conflicts with Chase’s argument made in the underlying Quiet Title Action. With respect to the substantive relief requested, Saticoy Bay urges this Court to rely upon  a case involving facts similar to those in this case regarding annulling the automatic stay nunc pro tunc.

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