In re Hills

• Decision Date: 02 December 2002
• Docket Number: Adversary No. 01-1235.,Bankruptcy No. 01-03850-PHX-SSC.
• Parties: In re Joseph HILLS, Debtor. Joseph Hills, Plaintiff, v. OCWEN Federal Bank, FSB: Fidelity National Title Insurance Company; AHG Equities Limited Partnership, an Arizona limited partnership; 402 Property Wholesalers, L.L.C.,an Arizona limited liability company; Johan and Jane Does I-V; Black and White Entities I-V, Defendants.
• Court: United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Arizona

299 B.R. 581

In re Joseph HILLS, Debtor.

Joseph Hills, Plaintiff, v. OCWEN Federal Bank, FSB: Fidelity National Title Insurance Company; AHG Equities Limited Partnership, an Arizona limited partnership; 402 Property Wholesalers, L.L.C.,an Arizona limited liability company; Johan and Jane Does I-V; Black and White Entities I-V, Defendants.

Bankruptcy No. 01-03850-PHX-SSC.

Adversary No. 01-1235.

United States Bankruptcy Court, D. Arizona.

December 2, 2002.

Josephine E. Piranio, Moss, Pite & Duncan, LLP, El Cajon, CA, for defendants.

Robert C. Mothershead, Robert Mothershead, P.C., Phoenix, AZ, for plaintiff.

MEMORANDUM DECISION

SARAH SHARER CURLEY, Chief Judge.

I. INTRODUCTION

On March 11, July 29 and July 30, 2002, this Court conducted an evidentiary hearing on AHG Equities Partnership Limited's Motion for Relief from Stay and on the underlying issues in the adversary proceeding concerning the validity of a trustee's sale of certain real property, which sale ultimately occurred on October 15, 2001. Joseph Hills was directed to file a post-trial brief, which he did. The Defendants chose, and relied solely on, oral arguments presented at the close of trial.

In this Memorandum Decision, the Court has set forth its findings of fact and conclusions of law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure. The issues addressed herein constitute a core proceeding over which this Court has jurisdiction. 28 U.S.C. §§ 1334(b) and 157(b) (West 2002).

II. FACTUAL BACKGROUND

In 1990, the Plaintiff obtained title to real property located at 5119 East Shaw Butte Drive, Scottsdale, Arizona via a Joint Tenancy Deed recorded on September 28, 1990. The Plaintiff failed to remit timely payments to the Secured Creditor, OCWEN Federal Bank, as required by the Note and Deed of Trust. Accordingly, a trustee's sale was scheduled by OCWEN for March 30, 2001. The Plaintiff filed a bankruptcy petition on March 30, 2001, the day of the scheduled foreclosure sale.

OCWEN postponed the sale from month-to-month during the pending bankruptcy. On September 14, 2001, an order was entered dismissing the Plaintiff's bankruptcy due to the Debtor's failure to make Plan payments. On October 4, 2001 OCWEN, through their foreclosure outsourcing group, Moss, Codilis, Stawiarski, Morris, Schneider & Prior, LLP ("Moss Codilis")¹ advised Cameron & Dreyfus, a California law firm, to postpone the trustee's sale until October 10, 2001 to allow Moss Codilis to provide them with bidding instructions.² On October 10, 2001, the Plaintiff advised OCWEN that he had filed Chapter 7 bankruptcy. Consequently, Moss Codilis instructed Cameron & Dreyfus to postpone the trustee's sale until October 12, 2001 in order for OCWEN to confirm whether a new bankruptcy petition had been filed.

On a related issue as to the October 10 trustee's sale, Mr. Hills alleged that the trustee's sale was not appropriately continued under Arizona law, by stating that a "phantom" continuance occurred; that is, no one was there on the courthouse steps on October 10, at the appropriate time, to announce orally a continuance. However the testimony of disinterested third parties, who had intended to bid on certain properties and were there on October 10 at the appropriate time, reflects that an appropriate continuance occurred as to Mr. Hills' property to October 12, 2001.

After discovering that no new petition had been filed by Mr. Hills on October 10, 2001, and to allow for the receipt of updated bidding instructions by 9:00 a.m. the day prior to the sale, Moss Codilis and Cameron & Dreyfus agreed to have the trustee's sale postponed from October 12, 2001 to October 15, 2001, a Monday.

On October 12, 2001, Moss Codilis, in Florida, commenced the process to get the bidding instructions to Cameron & Dreyfus in California in a timely manner. Both parties knew that the bid amount, or the then due and owing principal, interest and other allowable fees and costs of OCWEN, the secured creditor, must be available to the public by 9:00 a.m. Phoenix time on October 12, 2001, for a trustee's sale to occur on October 15, 2001.

A number of e-mails were produced from the internal records of Moss Codilis and Cameron & Dreyfus reflecting that the parties commenced communications back and forth around 7:30 a.m. Pacific Daylight Savings Time ("DST"), which would be 10:30 a.m. Eastern DST.³ By 9:00 a.m. Pacific DST, Cameron & Dreyfus had the appropriate information and placed the bid amount on its system in time for the public to obtain.⁴ Since Phoenix, Arizona is on Mountain Standard Time all year around, when Cameron & Dreyfus placed the bid on its automated telephone system in California before 9:00 a.m. Pacific DST, that was making the information available to the public before 9:00 a.m. Phoenix time as required.⁵

Mr. Hills does not challenge the e-mails and the times reflected thereon. He does challenge the facsimile which was sent from Moss Codilis to Cameron & Dreyfus. The bidding instructions show a bid amount was placed on a sheet which had stamped at the top "Oct. 12, 2001 12:04 EST." If this were the only evidence as to when the bid amount was transferred to Cameron & Dreyfus in California, the Court would be concerned. However, the e-mails reflect that the bid amount was actually being transferred much earlier in the day. Also, as outlined previously, Florida was on Eastern DST at the time, so the "EST" on the facsimile makes no sense. Other facsimiles introduced into evidence reflect that the time entries on the Moss Codilis facsimile machine were as much as 40 minutes fast during the relevant time period. Moreover, an individual who was present at the trustee's sale on October 15, 2001, and was the unsuccessful bidder for Mr. Hills' property did not have an independent recollection of the bid being posted late on October 12, 2001.⁶

Mr. Hills did call as a witness a Mr. Kamber who tracks trustee's sales in Arizona. In some cases, Mr. Kamber bids at the trustee's sales to purchase the property for himself, as an investment, or to assist individuals who are about to lose their properties at trustee's sales.⁷ Mr. Kamber testified that he was unable to keep track of the many continuances of the trustee's sale as to Mr. Hills' property. He also conceded that he was tracking many properties at the time, which is typical for people who bid at trustee's sales, and simply may have lost track of Mr. Hills' property. He testified that he did not know whether the bid amount for Mr. Hills' property was posted past 9:00 a.m. MST, or Phoenix time, on October 12, 2001.

Mr. Hills, who was generally not credible when he testified, only stated that he called the Cameron & Dreyfus telephone line "numerous times" on October 12, 2001, and could never get through to obtain the bid amount to provide to Mr. Kamber. Other individuals who tracked trustee's sales did not agree with him. Although the bidders also called the toll-free automated number to get the bid information, and noted that the Cameron & Dreyfus line was occasionally busy on other days, none of the bidders noted a problem getting the bid information as to Mr. Hills' property on October 12, 2001.⁸ Therefore the Court disregards the testimony of Mr. Hills as to the availability of the bid information to the public on October 12, 2001.

On October 15, 2001, the trustee's sale of Mr. Hills' property did occur. 402 Property Wholesalers, LLC was the successful bidder at the sale.⁹

On October 25, 2001, 402 Property Wholesalers recorded their Trustee's Deed upon Sale and simultaneously quit-claimed the property to AHG Equities Limited Partnership ("AHG"). The Quit Claim Deed was also recorded on October 25, 2001. In the interim, after the trustee's sale, on October 19, 2001 the Plaintiff filed another Chapter 13 bankruptcy petition.¹⁰ Subsequently on October 29, 2001, AHG filed a Motion for Relief from Stay. On November 1, 2001, the Court dismissed the second case and reinstated the original Chapter 13.¹¹ Shortly thereafter, on November 15, 2001, the Plaintiff filed this adversary action alleging that AHG was not a bona fide purchaser who acquired the property without notice or actual knowledge as to any defects concerning the sale of Mr. Hills' property. The Court proceeded to consolidate the adversary proceeding and Motion for Relief from Stay, and the matters were tried.

Finally, and of note, Mr. Hills did call Mr. Lee Crosby of Crosby & GATT at his expert witness on Arizona trustee's sales. Mr. Crosby focused on the relatively recent requirements under Arizona law that the bid information should be available to the public at 9:00 a.m., one business day prior to the trustee's sale. He noted two reasons for the requirement: (1) from a market standpoint, to allow the public to compare the amount of secured debt encumbering a parcel versus the value of the real property to determine whether the property may serve as an investment; and (2) from the standpoint of the borrower, to reinstate the loan prior to the sale, or to have another purchase the property at the trustee's sale for the benefit of the borrower. The expert did not opine as to whether an out-of-state agent, such as Cameron & Dreyfus, could fulfill the requirements of Arizona law.

III. DISCUSSION

The Plaintiff challenges the October 15, 2001 trustee's sale on the basis that (1) the information as to the initial bid on the property was not available 24 hours ahead of time, so that one might bid on the property, as required by Arizona law; and (2) even if the information was available, he was unable to contact Cameron & Dreyfus on October 12, 2001 to obtain the appropriate bid information; hence, the information was not available to the public. Finally, the Plaintiff alleges that the continuance of the trustee's sale from October 10, 2001 to October 12, 2001 did not occur.

Plaintiff Cannot Set Aside the Trustee's Sale Against a Bona Fide Purchaser for Value Without Notice...