In re Fairbanks, Case No. 20-42304-BDL

• Decision Date: 25 January 2021
• Docket Number: Case No. 20-42304-BDL
• Citation: In re Fairbanks, Case No. 20-42304-BDL (Bankr. W.D. Wash. Jan 25, 2021)
• Court: U.S. Bankruptcy Court — Western District of Washington
• Parties: In re: Jacarae Lea Fairbanks, Debtor.

In re: Jacarae Lea Fairbanks, Debtor.

Case No. 20-42304-BDL

UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF WASHINGTON AT TACOMA

January 25, 2021

Below is a Memorandum Decision of the Court.

MEMORANDUM DECISION ON MOTION FOR RETROACTIVE ANNULMENT OF THE AUTOMATIC STAY AND VALIDATION OF EXECUTION, DELIVERY, AND RECORDATION OF TRUSTEE'S DEED

Wilmington Savings Fund Society, FSB, as Owner Trustee of the Residential Credit Opportunities Trust V-C ("Wilmington"), filed a motion on November 12, 2020 seeking an order for retroactive annulment of the automatic stay and validation of the execution, delivery, and recordation of a trustee's deed issued by a foreclosure trustee after a nonjudicial foreclosure of the home of the debtor Jacarae Lea Fairbanks("Fairbanks").Dkt. No. 21.Attached to the motion were Declarations of the foreclosure trusteeMichelle Ghidotti and an attorney from the Ghidotti | Berger LLP law firm, Nancy Tragarz.Fairbanks filed a Response to the Motion for Retroactive Annulment and Relief from Stay and Declarations of Fairbanks and her attorney David C. Smith.Dkt.Nos. 29-31.Wilmington filed a Reply and a Supplemental Declaration of Nancy Tragarz.Dkt. No. 32.

The original motion sought annulment of the stay retroactive to October 12, 2020, the date the trustee's deed was executed, or, in the alternative, an order terminating the automatic stay for cause under 11 U.S.C. § 362(d)(1) to allow "Movant," presumably the foreclosure trustee Ms. Ghidotti, to re-execute and rerecord the Trustee's Deed.Wilmington also argued that the recording of the Trustee's Deed fell under the "ministerial act" exception to the automatic stay.In the Reply, Wilmington raised a new argument that the automatic stay does not apply to the execution, delivery, or recordation of a trustee's deed when the actual foreclosure sale was completed before Fairbanks filed her bankruptcy under RCW 61.24.050.

On January 13, the parties argued the motion.The Court rendered an oral ruling denying annulment of the stay based upon the factors laid out in Fjelsted v. Lien et al.(In re Fjeldsted), 293 B.R. 12, 24(B.A.P. 9th Cir.2003); holding that the execution, delivery, and recordation of the Trustee's Deed did not fall under the "ministerial act" exception to the automatic stay; and denying relief from stay on the grounds that the foreclosure bid was for $7,000 more than what Wilmington was owed, and Wilmington had not produced admissible evidence to suggest that it was not adequately protected by the equity in the property and Fairbanks's proposed plan.But the Court reserved ruling on the argument in the Wilmington Reply that the automatic stay does not apply to the execution, delivery, or recordation of a trustee's deed under Washington law.

FACTS

Fairbanks has owned and lived in the property in Puyallup for 14 years.She is a single mother of three children.She got behind in payments on the Wilmington note and deed of trust in 2017.As a result, the appointed foreclosure trustee on the Wilmington deed oftrust, Michelle Ghidotti, an attorney located in Southern California but a "duly appointed Foreclosure Trustee in the State of Washington," recorded a Notice of Trustee's Sale on March 25, 2019.In September 2019, Fairbanks entered into a Trial Modification Plan on her Wilmington loan providing for a monthly trial plan payment of $2,139.05 for 12 months, starting September 2019.Fairbanks made five of the payments but defaulted on the trial payments for February 2020 through April 2020 when she lost her job and went on unemployment.

In May 2020, Ms. Ghidotti reset the trustee's sale for August 28.In an effort to save her house, Fairbanks contacted and entered into an agreement with Home Matters USA, a company that promotes itself as helping consumers obtain loan modifications and forbearances.Home Matters USA advised her that they were communicating with the Trustee and that because of COVID-19 the lender could not proceed with foreclosure as a matter of law.Home Matters USA also told her not to contact the lender and that they would be the point of contact.Wilmington points out that, on June 22, a HUD Certified Housing Counselor emailed the parties where she said that she had told Fairbanks that Home Matters USA was a scam.The foreclosure sale was continued from August 28 to October 2.

In a precursor of what we may see more often in a fragile economy for many mortgagors, together with a hot real estate market in this area, the foreclosure sale proceeded on October 2, 2020, and the prevailing bidders were third-party purchasers Ladder Properties LLC and Eastside Funding.According to Ms. Tragarz's declaration, Eastside Funding was the bidder "for security purposes only," an intimation that it was the lender to Ladder Properties LLC, which Mr. Rabi, a principal in Ladder Properties LLC, had told Fairbanks's Mr. Smith in their call.The bid was for $353,100 per the Trustee's Deed, approximately $7,000more than what was owed to Wilmington.When she learned of the sale the following day, Fairbanks promptly contacted Home Matters USA, who told her that the sale could not have and had not proceeded.When she realized that Home Matters USA was not telling her the truth, she contacted lawyers and found her attorney Mr. Smith on October 7.

Before filing bankruptcy, Mr. Smith talked to Mr. Rabi, who declined to discuss any options that would allow Fairbanks to retain the property.Fairbanks filed this bankruptcy on October 8, 2020.Within an hour of filing, Mr. Smith emailed Ms. Ghidotti, Mr. Rabi, and attorney Michael Malnati who represented Eastside Lending advising them of the bankruptcy and attached a copy of the bankruptcy petition.Ms. Ghidotti acknowledged "Received" to Mr. Smith on October 9, 2020 at 8:13 a.m.Notwithstanding the bankruptcy notice, on October 12, 2020, Ms. Ghidotti executed a trustee's deed.It is not clear whether the trustee or the buyer Ladder Properties LLC recorded the trustee's deed, but it was recorded on October 15, 2020.Mr. Smith learned of the execution, delivery, and recordation of the Trustee's Deed on October 22, 2020.

ISSUES

1.Whether Wilmington was required to obtain relief from stay before executing, delivering, and recording the Trustee's Deed?

2.Whether Fairbanks retained an interest in her residence at the time she filed bankruptcy sufficient to allow her to propose a plan to retain her residence?

DISCUSSION

I.Relief from stay from a bankruptcy intervening between a nonjudicial foreclosure sale and execution, delivery, and recordation of a trustee's deed is necessary under Washington law.

Wilmington's new argument in its Reply is that, under RCW 61.24.050, a foreclosure trustee can execute, deliver, and record a trustee's deed, without receiving relief from stayfrom a pending bankruptcy of the property owner, if the trustee completed the sale by accepting a bid before the bankruptcy was filed and records the deed within 15 days thereafter.It cites the following language in Laffranchi v. Lim, 146 Wash. App. 376, 385-86, 190 P.3d 97(2008): "The legislature added this provision [RCW 61.24.050] in 1998 to deal with the circumstance where a borrower or grantor filed a bankruptcy action between the date of the trustee's sale and the recording of the trustee's deed."

Laffranchi, in a footnote at the end of the sentence, cites to an article by Professor Marjorie Rombauer in the 27 Washington Practice: Creditors' Remedies - Debtors' Relief, § 3.68, at 54 (Supp. 2007-08).190 P.3d at 102 n.18.To be clear, Laffranchi is a post-foreclosure eviction case, does not involve a bankruptcy, and contains no mention much less discussion of 11 U.S.C. § 362.Nor does it cite to the actual legislative history.It cites to California case law regarding the effect of the statute.Id. at 102 n.20.The following is the quote from Professor Rombauer: "The 1998Amendments also attempt to deal with the situation where a bankruptcy action is filed by a borrower or grantor between the trustee's sale is conducted and the trustee's deed is recorded."27 Wash. Prac., Creditors' Remedies - Debtors' Relief§ 3.68(emphasis added).The Court has looked at the Final Bill Report and other Bill Reports for the 1998bill regarding the Deed of Trust Act, S.B. 6191, and the only line that mentions bankruptcy states: "When a bankruptcy is also occurring, provisions are added to minimize unnecessary delay in a foreclosure sale."S.B. Rep. 55-6191, Reg. Sess., at 2(Wash.1998).

Most importantly, no reported case in Washington state or federal courts holds that the statute means that the trustee does not need relief from stay in the intervening bankruptcy before executing, delivering, and recording the trustee's deed.Two of the cases holding thatrelief from stay is necessary in very similar settings, In re Betchan and In re Lopez, are discussed infra.Even the only other case that is somewhat analogous, In re Nelson, No. 16-44597, 2017 WL 745595, at *3-4(Bankr. W.D. Wash.Feb. 24, 2017), which Wilmington cites as providing support, specifically required relief from stay and held that the delivery of the trustee's deed during an intervening bankruptcy did not come within the "ministerial act" exception to 11 U.S.C. § 362(a), violated the stay, and would therefore be a void act.

The only case law cited by Wilmington for the proposition that the automatic stay does not apply when a bankruptcy intervenes are California cases citing California law.See, e.g., In re Bebenesee-Wong, 248 B.R. 820(B.A.P. 9th Cir.2000);In re Lucore, No. BAPSC-12-1604, 2013 WL 2367800(B.A.P. 9th Cir.May 30, 2013).The California statute at issue in those cases is California Civil Code § 2924h(c), which provides in pertinent part:

[T]he trustee's sale shall be deemed final upon the acceptance of the last and highest bid, and shall be deemed perfected as of 8 a.m. on the actual date of sale if the trustee's deed is recorded within 15 calendar days

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