Eviction Is Violation of Stay even after Pre-Petition Foreclosure Sale

Posted by NCBRC - July 14, 2014

A debtor’s possessory interest in property sold through foreclosure is sufficient to support a cause of action for violation of the automatic stay even though that interest may have been insufficient to withstand a motion for relief from stay. Eden Place v. Perl (In re Perl), No. 13-1328 (B.A.P. 9th Cir. May 30, 2014).

Eden Place purchased the debtor’s residence at a trustee’s sale, recorded the deed, and served the debtor with a 3-day notice to quit. The debtor responded with a suit in state court alleging, among other things, wrongful foreclosure. The state court issued a Writ of Possession in favor of Eden Place and Eden Place instituted “lockout” proceedings. In the meantime, the debtor filed a pro se skeletal chapter 13 petition. Eden Place filed a motion for relief from stay but before the motion was decided, the Sheriff went forward with eviction proceedings against the debtor and his wife.

Finding that the automatic stay was broad enough to encompass “the opportunity to seek some relief,” the bankruptcy court found that debtor’s eviction violated the stay, reserving judgment on damages to await state court resolution of the debtor’s state court claims. Ultimately, the debtor failed to file the remaining portion of the chapter 13 petition and the bankruptcy case was dismissed. Eden Place appealed the order of stay violation.

The BAP affirmed.

Section 541(a) defines property of the estate in terms of “legal and equitable interests” and section 362(a)(3) applies the automatic stay to estate property. Therefore the court looked to whether the debtor had any interest protected by the stay. It began its analysis with a determination that under California law “title to the Residence passed to Eden Place free and clear of any right, title or interest of Perl’s about three months before he filed his chapter 13 bankruptcy petition,” thereby eliminating the debtor’s ownership interest in the property. Furthermore, because the debtor had no legal interest in the property once the foreclosure deed was recorded, there was “cause” to lift the automatic stay to permit eviction. However, the court made a distinction “between the analyses required for stay relief matters and violation of stay matters.” In the former analysis, the court is required to examine the relative strengths of the debtor’s and creditor’s interests in the property (i.e. owner vs. squatter), whereas, in the latter analysis, the court need only determine whether the debtor has any interest in the property which is subject to protection. That interest may be as nominal as squatting rights.

Reviewing a variety of opinions touching on similar issues, the court relied on In Williams v. Levi (In re Williams), 323 B.R. 691, 699 (9th Cir. BAP 2005), aff’d, 204 F. App’x. 582 (9th Cir. 2006), for the conclusion that mere occupancy of a residence after foreclosure sale created an interest protected by the automatic stay. (Extending the holding of In re Butler, 271 B.R. 867 (Bankr. C.D. Cal. 2002) from “tenants” to “squatters”). Thus, the precipitous action of the Sheriff, and therefore by Eden Place, of continuing lockout proceedings (changing the locks on the Residence, locking inside Perl’s personal property), after the debtor filed for bankruptcy impacted a protected interest and violated the stay.

Finally, the court found that the California law that requires execution of a writ of detainer despite a subsequent bankruptcy filing (CAL. CODE. CIV. P. § 715.050) was preempted by federal bankruptcy law.

Eden Place has appealed this decision to the Ninth Circuit, Case No. 14-60049.

Perl opinion


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