Siciliano, In re, 92-1946

• Citation: 13 F.3d 748
• Decision Date: 22 September 1993
• Docket Number: No. 92-1946,92-1946
• Parties: , Bankr. L. Rep. P 75,656 In re Leonard J. SICILIANO, Debtor. Prudential Savings Bank, PaSa, Appellant. . Submitted Under Third Circuit LAR 34.1(a)
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 748

13 F.3d 748

62 USLW 2483, Bankr. L. Rep. P 75,656

In re Leonard J. SICILIANO, Debtor Prudential Savings Bank, PaSa, Appellant.

No. 92-1946.

United States Court of Appeals, Third Circuit.

Submitted Under Third Circuit LAR 34.1(a)

Sept. 22, 1993.

Decided Jan. 11, 1994.

Leonard J. Siciliano, pro se.

Jerome R. Balka, Balka & Balka, Philadelphia, PA, for appellant.

Before: STAPLETON, ROTH and LEWIS, Circuit Judges.

OPINION OF THE COURT

ROTH, Circuit Judge:

This appeal arises from a mortgage foreclosure sale that took place after the filing of debtor's second Chapter 13 petition in bankruptcy. The debtor, Leonard J. Siciliano, had repeatedly defaulted on mortgage payments owed to Prudential Savings and Loan Association (Prudential). After much maneuvering by both Siciliano and Prudential, the sheriff finally held a foreclosure sale three days after Siciliano had filed his second bankruptcy petition, without notifying either Prudential or the sheriff of this filing. Subsequently, Prudential sought relief from the automatic stay in order to validate the sale. The bankruptcy court refused to grant this relief and the district court affirmed. In this appeal, Prudential contends that the bankruptcy court should have granted retroactive relief from the automatic stay. For the reasons set forth below, we will reverse and remand this case to the bankruptcy court for further proceedings consistent with this opinion.

I.

Prudential is a savings and loan association with its principal office in Philadelphia, Pennsylvania. On September 4, 1984, Prudential secured a $17,000.00 loan to Siciliano with a mortgage on his residence located at 2027 South 24th Street, Philadelphia. Siciliano fell behind on his payments and on May 31, 1989, Prudential filed a complaint in the Philadelphia Court of Common Pleas to foreclose on the mortgaged property. In its complaint, Prudential alleged that Siciliano had failed to make his $169.00 monthly payments for the previous eight months. The debt and late charges amounted to $18,169.81. By order entered September 5, 1989, the state court awarded Prudential $19,838.99. A sheriff's sale of the property was scheduled for Monday, December 4, 1989.

On Friday, December 1, 1989, three days before the sheriff's sale, Siciliano filed the first Chapter 13 bankruptcy petition in the United States Bankruptcy Court for the Eastern District of Pennsylvania. Pursuant to the Bankruptcy Code, the petition triggered an automatic stay of all creditor proceedings. 11 U.S.C. Sec. 362(a). Thereafter, Siciliano failed to make several post-petition mortgage payments to Prudential.

On February 19, 1991, Prudential filed a motion for relief from the automatic stay. By order entered April 4, 1991, the bankruptcy court held that Prudential could proceed with its state foreclosure action if Siciliano should default again on his payments. As a prerequisite to foreclosure, Prudential had to provide Siciliano with notice and a five-day cure period. Siciliano, however, defaulted once more and by order entered June 20, 1991, the bankruptcy court granted Prudential relief from the automatic stay.

During this period, while Prudential was attempting to complete the foreclosure on the property, the United States Trustee had independently initiated steps to dismiss the bankruptcy proceeding because of Siciliano's failure to make the payments required by his Chapter 13 Plan. On October 4, 1991, the trustee filed a motion to dismiss the petition. A hearing on the trustee's motion was held on November 7, 1991, and the bankruptcy court granted the dismissal that same day.

Meanwhile, Prudential was still attempting to set up a sheriff's sale of the property. The sale was rescheduled for Monday, December 2, 1991. At that time, the mortgage debt amounted to $22,517.12. On Friday, November 29, 1991, once again just three days before the scheduled sale, Siciliano filed his second Chapter 13 bankruptcy petition. Despite this new filing, the December 2 foreclosure sale proceeded as scheduled. Prudential did not become aware of the second petition until December 4, when notice was published in a Philadelphia legal newspaper. Siciliano did not inform the sheriff of the second bankruptcy filing until December 5.

On December 23, 1991, Prudential filed a motion for relief from the automatic stay triggered by the November 29, 1991, petition. On January 6, 1992, while Prudential's motion was pending, the bankruptcy court dismissed Siciliano's second Chapter 13 petition because of Siciliano's failure to file the required documents. The court subsequently dismissed Prudential's motion for relief from the stay as moot.

On March 3, 1992, the bankruptcy court held a hearing to consider Siciliano's request for an opportunity to file a Chapter 7 petition, which the court construed as a motion to reconsider the January 6, 1992, dismissal of his second Chapter 13 petition. As a result of that hearing, the court entered an order on March 5, 1992, holding that any sale of the property on December 2, 1991, was void and that the dismissal of the bankruptcy petition would stand. ¹ Prudential filed a motion to reconsider the order and for retroactive relief from the automatic stay in order to validate the sheriff's sale of the mortgaged property. After a hearing, the court denied Prudential's motion. On appeal, the district court affirmed the bankruptcy court order. Prudential's timely appeal followed. Siciliano is appearing pro se in this appeal.

II.

The bankruptcy court had federal subject matter jurisdiction pursuant to 28 U.S.C. Sec. 1334(a)-(b). The district court had jurisdiction under 28 U.S.C. Sec. 158(a). We exercise appellate jurisdiction pursuant to 28 U.S.C. Sec. 1291 and 28 U.S.C. Sec. 158(d). We apply, like the district court, a clearly erroneous standard to the bankruptcy court's factual findings and a plenary standard to legal issues. Meridian Bank v. Alten, 958 F.2d 1226, 1229 (3d Cir.1992). See also In re Allegheny Int'l, Inc., 954 F.2d 167, 172 (3d Cir.1992); Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 101-02 (3d Cir.1981).

The bankruptcy court dismissed Prudential's motion for relief from the automatic stay as moot stating that, if a sale had occurred in violation of the stay, the sale was void ab initio. Moreover, it held that Siciliano did not exhibit any bad faith to warrant an annulment of the stay. The court questioned Prudential's good faith, noting that it had made no effort to remedy the consequences of the sheriff's sale.

On appeal, Prudential maintains that relief from the automatic stay could apply retroactively to validate the sheriff's sale. Furthermore, it submits that such relief is warranted because Siciliano has acted in bad faith in an attempt to frustrate the collection process. Because we find that authority for the bankruptcy court to validate the foreclosure sale was available under 11 U.S.C. Sec. 362(d), we do not go on to consider the issue of good faith.

After careful consideration of the relevant statutory provisions of the Bankruptcy Code, we find that the bankruptcy court erred when it dismissed Prudential's motion on the basis that the foreclosure sale was void, not merely voidable. While the court correctly articulated the general principle that any creditor action taken in violation of an automatic stay is void ab initio, see Maritime Electric Co. v. United Jersey Bank, 959 F.2d 1194, 1206 (3d Cir.1991), we find that the instant case falls within an exception to that rule.

The Bankruptcy Code states that a bankruptcy petition operates as a stay of all enforcement proceedings against the debtor. 11 U.S.C. Sec. 362(a). The purpose of the automatic stay provision is to afford the debtor a "breathing spell" by halting the collection process. It enables the debtor to attempt a repayment or reorganization plan with an aim toward satisfying existing debt. Maritime Electric Co., 959 F.2d at 1204. See also H.R.Rep. No. 595, 95th Cong., 1st Sess. 340 (1978), reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 6296-97 (stating that the automatic stay is designed to relieve the debtor of "the financial pressures that drove him into bankruptcy").

It is undisputed that Prudential violated the automatic stay when it proceeded with the sheriff's sale of the mortgaged property after Siciliano filed his Chapter 13 petition. Prudential contends, however, that there is relief available to cure the violation.

Prudential relies on the portion of the Code which states

(d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying or conditioning such stay-- ...

(2) with respect to a stay of an act against property under subsection (a) of this section, if--

(A) the debtor does not have an equity in such property, and

(B) such property is not necessary to an effective reorganization.

11 U.S.C. Sec. 362(d) (emphasis added). This provision...