In re Figured, Case No. 09-03251-8-JRL (Bankr.E.D.N.C. 8/31/2009), Case No. 09-03251-8-JRL.
| Decision Date | 31 August 2009 |
| Docket Number | Case No. 09-03251-8-JRL.,Case No. 09-06490-8-JRL. |
| Court | U.S. Bankruptcy Court — Eastern District of North Carolina |
| Parties | IN RE: WILLIAM JEROME FIGURED, Chapter 13, Debtor. WILLIAM JEROME FIGURED, Chapter 13, Debtor. |
The matters before the court are the motions of Roger D. Haagenson, Facundo Bacardi and Sherry Haagenson as Trustees of the Bacardi Foundation (the "Bacardi Foundation") to determine inapplicability of automatic stay, to compel accounting and segregation of cash collateral, and for show cause and contempt, and the motion of the debtor to set aside order lifting stay. On August 19, 2009, the court conducted a hearing on these matters in Wilmington, North Carolina.
Prior to filing bankruptcy, the debtor owned and operated a convenience store and certain real property in Carolina Beach, North Carolina. The Bacardi Foundation is the holder of a promissory note in the original principal amount of $700,000.00 and security agreement which the debtor executed on June 5, 2007 (the "Note and Security Agreement"). The Bacardi Foundation also holds a deed of trust and security agreement and assignment of rents which the debtor executed on June 5, 2007 (the "Deed of Trust"). Both the Note and Security Agreement and the Deed of Trust grant to the Bacardi Foundation a security interest in all of the debtor's inventory, general intangibles, and equipment, including all after-acquired collateral and proceeds which was perfected upon the filing of a UCC-1 financing statement with the North Carolina Secretary of State on June 8, 2007. In addition, the Deed of Trust grants to the Bacardi Foundation a security interest in certain real property located in Carolina Beach, North Carolina on which the debtor operates a convenience store (the "Real Property"). Under the terms of the Note and Security Agreement, the sum of $84,000.00 was withheld from loan proceeds at closing and placed in an escrow account to be applied toward the monthly installments of accrued interest on the debt. The maturity date on the Note and Security Agreement was June 5, 2008. On February 18, 2009, the Clerk of Superior Court for New Hanover County entered an Order of Sale authorizing the substitute trustee under the Deed of Trust to conduct a foreclosure sale of the Real Property. The foreclosure sale was scheduled for April 24, 2009 but was stayed when the debtor filed bankruptcy.
On the date of hearing the debtor had two bankruptcy cases pending before this court. The debtor filed his first petition for relief under chapter 13 on April 22, 2009, which was two days prior to the scheduled foreclosure sale of the Real Property. The schedules filed by the debtor showed net monthly income of $1,569.93 per month and net monthly expenses of $3,888.59 per month. The schedules further showed total secured debt of $1,103,648.00 and total unsecured debt of $969,376.21. On June 8, 2009, the Bacardi Foundation moved for relief from stay as well as for a show cause order for the debtor's failure to appear at a scheduled Rule 2004 examination. The debtor did not file a response to the motion for relief from stay and on June 30, 2009 the court entered an order lifting the automatic stay as to the Bacardi Foundation. Subsequently, the Bacardi Foundation re-commenced foreclosure proceedings on the Real Property and a foreclosure sale was scheduled for July 24, 2009. At the foreclosure sale, the Bacardi Foundation was the high bidder. At 5:01 p.m. on the last day of the 10-day upset bid period, the debtor filed his second petition for relief under chapter 13.
The Bacardi Foundation filed motions to determine inapplicability of the automatic stay, for show cause and contempt, and to compel accounting and segregation of cash collateral. At hearing, the Bacardi Foundation asserted that it would withdraw its motion for show cause and contempt and its motion for an accounting and segregation of cash collateral if the court determined that the automatic stay in the debtor's second bankruptcy case was inapplicable to stay the foreclosure action instituted by the Bacardi Foundation. The court therefore begins its analysis by considering the motion to determine inapplicability of the automatic stay.
The first issue before the court is whether the foreclosure sale of the Real Property was stayed by the filing of the debtor's second bankruptcy petition. A bankruptcy petition operates as an automatic stay of "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate." 11 U.S.C. § 362(a)(3). Except as provided in §§ 541(b) and (c)(2), property of the estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). It follows that the foreclosure sale was not stayed unless the debtor had an interest in the Real Property at the time the petition was filed.
In North Carolina, upon the default of the debtor the trustee may initiate a foreclosure sale of the real property pursuant to a power of sale provision within the deed of trust. N.C. GEN. STAT. § 45-21.1 to .34 (2007). Once the foreclosure sale is conducted, a 10-day upset bid period commences during which any person may bid on the real property. Id. § 45-21.27. An upset bid is effective if the required deposit is made and notice of upset bid is filed "by the close of normal business hours on the tenth day after the filing of the report of the sale or the last notice of upset bid . . . ." Id. § 45-21.27(a) (emphasis added). The upset bid period is suspended if the debtor files a bankruptcy petition within that period. In re Lordship Dev., LLC, 403 B.R. 772, 773 (Bankr. E.D.N.C. 2008) (citing Beneficial Mortgage Co. of N.C. v. Barrington and Jones Law Firm, 595 S.E.2d 705, 709 (N.C. Ct. App. 2004).
The Bacardi Foundation argues that the automatic stay is inapplicable to the foreclosure sale because the debtor failed to file his second petition during the upset bid period. In support of its position, the Bacardi Foundation established that the foreclosure sale was conducted on July 24, 2009 and a Report of Foreclosure Sale was filed with the Clerk of Superior Court for New Hanover County on the same date. As a result, the 10-day upset bid period expired on August 3, 2009. The Bacardi Foundation further established that New Hanover County requires that an upset bid must be placed, and a deposit must be made, "before 5:00 p.m. on the 10th day [of the upset bid period]." Additionally, the Bacardi Foundation established at hearing that the New Hanover County Courthouse closed for business on weekdays at 5:00 p.m. Based on this evidence, the Bacardi Foundation argued at hearing that the debtor's second bankruptcy petition failed to stay the foreclosure sale because it was filed after 5:00 p.m. on the last day of the upset bid period. Consequently, the Bacardi Foundation argued that it possessed ownership rights in the property after 5:00 p.m. on August 3, 2009.
In response, the debtor argued that his petition operated to stay the foreclosure sale. First, the debtor argued that the deadline for submitting an upset bid did not expire until 11:59 p.m. on the last day of the upset bid period. The debtor based this theory on Rule 5001 of the Federal Rules of Bankruptcy...
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