Point of View: Bankruptcy's Automatic Stay

The automatic stay provision of the bankruptcy code is one of the most powerful legal tools invented. Not only does it stop any collection efforts or any new liens against an estate, it stops any civil procedure that could subject the debtor to liability cold. It has the ability to stop a foreclosure sale in a single fax, or continue indefinitely any collection court proceedings with a single notice. Yes it is that strong. It is also difficult to get the stay lifted with any semblance of timeliness.

The new bankruptcy laws are aiming to limit this by provisions not staying civil paternity suits, domestic support obligations, child custody or visitation, dissolution of marriage (except to the extent that such proceedings seeks to determine the division of the property that is property of the estate) and domestic violence. The question that this article will focus on however is the effect of the automatic stay on eviction (detainer) proceedings.

In a detainer action, the plaintiff mortgage company has already foreclosed on the property and is now proceeding to evict the former owners from the property so it can be resold. In such cases, depending on the mortgage company's policy, there may be room to negotiate a move-out timeframe or possible repurchase of the property with new financing. If this is true and the property has been foreclosed, the question still remains on how the stay will affect the proceedings. The answer (in typical lawyer style) is that it depends on when the bankruptcy was filed.

Assuming that the bankruptcy was filed before the sale then the property would have to be removed from the bankruptcy estate before the sale happens. Once the property is removed from the estate the stay is lifted as to the sale and the detainer proceedings. This is the most obvious and straightforward situation.

The next situation is where the bankruptcy is filed between the sale and the detainer proceedings. The detainer proceedings should be continued if there is not time to address the post sale issues in the Bankruptcy court and the bankruptcy filings should be looked at to make sure the real property is not included. Even though there is no property interest for the debtor to claim there can be occasion where the property is included in the Chapter 13 or listed as an asset in the Chapter 7 and therefore either the plan would be objected to or a post-sale motion for relief would be filed. After the confirmation hearing or the post-sale motion, the detainer proceedings can be reset. This is more roundabout than if the bankruptcy had been filed before the sale but the results would be the same and the detainer would proceed.

The most interesting situation is a bankruptcy that has been dismissed before the date of the sale and the debtor has filed a motion to reopen the case the day before the detainer hearing arguing that the property could be used as equity for the bankruptcy estate. In this case there arguably is no stay in effect whatsoever and the detainer action can go forward that day. Here the stay was lifted once the bankruptcy case was dismissed and therefore would not affect the sale of the property nor the detainer action. The stay would not be automatically placed back into effect with the filing of the motion nor would it be retroactively effective against the foreclosure sale. On these facts at the general sessions level an order for possession is granted. This is the most unique situation in a detainer action with an automatic stay but one that would allow for resolution of the detainer action that day.

With the nature of real property and the expedited basis in which the courts take matters involving real property it is useful to see a few situations where the automatic stay may or may not affect the timeliness of the orders. (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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