Laws 2325

Kim Huggins

Module 9

                                                                                                                                      2-16-22

Topic Questions:

1. Since the foreclosure sale has not officially occurred, yes, in this situation my attorney can preserve the Debtor’s right to cure and keep filing the Chapter 13 petition. As noted in the following quote, “Does bankruptcy prevent foreclosure? Yes, as long as the home is not sold yet, filing for bankruptcy can help you keep your house longer. It will not stop the foreclosure proceedings completely, but it can delay them.” - Can you file Bankruptcy to Stop a Foreclosure Sale? (Use Chapter 13) (houseofdebt.org)

Additionally, since the “gavel rule” applies to the Debtor’s state, and the “gavel” has not officially fallen in this foreclosure sale, the Debtor still has a right to cure and file the Chapter 13 petition. I read the following article on this web site, First Circuit Bankruptcy Panel Affirms “Gavel Rule” as Determinative of When a Bankruptcy Debtor’s Right of Redemption Terminates | Hinshaw & Culbertson LLP - JDSupra. That article included the following passage, “The Bankruptcy Appellate Panel for the First Circuit has affirmed an earlier decision that concluded a borrower’s right to redeem terminates when the gavel falls at a foreclosure auction, and not when a deed is recorded.” Thus, since the gavel has not officially fallen, the Debtor still has a right to cure and file the bankruptcy petition.

2. In scenario 2, the Debtor would still have the right to cure and file the bankruptcy petition, as long as the gavel does not fall during the foreclosure sale, according to state law where the Debtor resides. In this case it would be referred to as an emergency bankruptcy case, as noted in the following: “An emergency bankruptcy petition (also referred to as a “skeleton case” or “bare-bones case”) may be applicable when you need to halt the foreclosure sale of your home. While this type of bankruptcy ruling will not discharge any debt (the foreclosure issue is overseen differently), the property cannot be sold while the bankruptcy remains pending. With this additional time, the homeowner has more opportunities to renegotiate a deal with their creditor.” Will Bankruptcy Stop the Foreclosure Process? Find Out Here (jaxlawcenter.com)
3. In this case with the end of the foreclosure sale and the gavel falling, yes, the Debtor would not have the right to cure and file a Chapter 13 petition. As applicable to state law, when the gavel falls the Debtor no longer will be able to recover their home from the foreclosure sale, even though the memorandum of sale or the contract have yet to be signed. The following article is an interesting discussion on this very topic When the Gavel Falls After Foreclosure Sales – DSNews. I included a quote below from the article.

“In Russell, the court determined whether, during the period of time between a foreclosure sale and the execution and delivery of the foreclosure deed from that sale, a debtor can cure his mortgage arrears through a bankruptcy plan. The court held that the “gavel rule” — which states that a debtor’s right to cure and maintain no longer exists after the foreclosure sale — remains the correct legal standard for determining a debtor’s interest in a foreclosed property.”

4. This scenario is one of those cases where it could be deemed an unethical situation based on the former auction house employee’s actions. However, when the employee actually made the purchase of the home through the auction, the employee technically was NOT an employee with the auction house. Yes, the employee had been aware of the sale and was privilege to information that the average buyer was not; but still the employee was not an employee of the auction house at the time of purchase. Thus, since the gavel fell, the Debtor would not be able to recover their home in this foreclosure auction through a right to cure or by filing a Chapter 13 petition.

However, the Debtor could possibly bring a tort claim of misrepresentation against the auction house employee in this case to possibly find some way to recover from the damage caused by the employee’s actions. The case does contain all of the elements of misrepresentation, including: 1.) A false statement of material fact or nondisclosure when a duty to disclose exists; 2.) Made with the intent to induce the plaintiff’s reliance; 3.) Justifiable reliance by the plaintiff; 4.) Causation; and 5.) Damages.

5. Initially, if the Debtor discovered the disclosures were not read at the beginning of the foreclosure sale, this could prevent the Debtor from being the subject of future lawsuits. Thus, the Debtor should definitely let their lawyer know this action was not done at the sale. Buying a Home: 8 Disclosures Sellers Must Make (investopedia.com)

However, since the gavel fell; all official documents have been filed; and all fees have been paid, the Debtor would most likely not be able to recover the home through a Chapter 13 petition or a right to cure, under state law. I did find the following article, regarding homeowners’ rights after foreclosure Rights of a Homeowner After a Home Has Been Foreclosed (sfgate.com). I found the following quote of interest in this article:

“Many states offer a right of redemption to homeowners after a judicial foreclosure whereby homeowners get a specific period to buy back the property from the bank or the new owner for the amount the property brought at the auction. Most foreclosures in California are non-judicial foreclosures where the homeowner does not get a right of redemption. While rare, judicial foreclosures are still possible in California. You get the right of redemption for 90 days after the auction if your lender utilized a judicial foreclosure proceeding to take back the property.”

Reflection Questions:

1. The details involved with foreclosure was not a topic I was familiar with, prior to this class. While I grew up in a farming community, and I unfortunately witnessed many of my parents’ friends have their farms/ranches foreclosed upon, it was interesting to read how the process works in a bankruptcy case. Growing up, I always figured that once a property was in the foreclosure process there was not a lot the Debtor could do. However, the scenarios that I researched for the Topic Questions above were remarkably interesting. It really gave me a better idea as to what a Debtor could or could not do to alleviate the situation. It was interesting to see all of the different situations that could apply in a foreclosure case.

2. When it came to foreclosure, the primary area of ethical concerns would be how some parties have used bankruptcy as a tool to keep their home, while “temporarily” avoiding payments. The following article was an interesting read on the topic Bankruptcy, Foreclosures, Loan Modifications and Ethics (blownmortgage.com). I do think there are situations when some Debtors abuse the bankruptcy system when it comes to foreclosure. However, even by filing for bankruptcy the Debtor’s debts will eventually catch up with them, despite their ethical decisions. I found the following quote from the aforementioned article quite interesting when it came to this topic:

“Today we generally don’t feel debtors deserve prison unless they commit fraud. However, bankruptcy has kept much of its stigma, associated with dishonest and untrustworthy people. This has changed with time, bankruptcy becoming in many cases a logical financial tool to be used when things go wrong. Some would argue that it has become too easy to get out of debt while, yet others would point out that current bankruptcy rules are stringent enough to make it a final resort few are happy to enter.”

3. Probably, the most challenging aspect of this week’s module was completing the Individual Project which was assigned. PowerPoint projects are not difficult, but I did spend a lot of time researching information for this assignment. I began my assignment initially focusing on the Chapter 11 Bankruptcy petition filed by my former employer, Christopher & Banks. However, I honestly could not find a lot of information on the internet about that particular Chapter 11 petition. Thus, I chose a different case to focus on for this assignment. This actually turned out to be a better case to use and provided a significant amount of information to complete this project.