Wilmington Sav. Fund Soc'y, FSB v. Fairbanks (In re Fairbanks)

• Decision Date: 12 August 2021
• Docket Number: Bk. 3:20-bk-42304-BDL,WW-21-1019-FBS
• Citation: Wilmington Sav. Fund Soc'y, FSB v. Fairbanks (In re Fairbanks), Bk. 3:20-bk-42304-BDL, WW-21-1019-FBS (B.A.P. 9th Cir. Aug 12, 2021)
• Parties: In re: JACARAE LEA FAIRBANKS, Debtor. v. JACARAELEA FAIRBANKS, Appellee. WILMINGTON SAVINGS FUND SOCIETY, FSB, as Owner Trustee of the Residential Credit Opportunities Trust V-C, Appellant,
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

In re: JACARAE LEA FAIRBANKS, Debtor.

WILMINGTON SAVINGS FUND SOCIETY, FSB, as OwnerTrustee of the Residential Credit Opportunities Trust V-C, Appellant, v. JACARAELEA FAIRBANKS, Appellee.

No. WW-21-1019-FBS

Bk. No. 3:20-bk-42304-BDL

United States Bankruptcy Appellate Panel of the Ninth Circuit

August 12, 2021

NOT FOR PUBLICATION

Appeal from the United States Bankruptcy Court for the Western District of Washington Brian D. Lynch, Bankruptcy Judge Presiding

Before: FARIS, BRAND, and SPRAKER, Bankruptcy Judges.

MEMORANDUM^[*]

INTRODUCTION

After appellantWilmington Savings Fund Society, FSB("Wilmington") conducted a nonjudicial foreclosure auction under Washington law, but before the foreclosure trustee executed and delivered a deed to the purchaser, the borrower, appelleeJacarae Lea Fairbanks, filed a chapter 13^[1] bankruptcy petition.The bankruptcy court held that the postpetition execution, delivery, and recordation of the foreclosure trustee's deed violated the automatic stay and denied Wilmington's request for retroactive annulment of and prospective relief from the automatic stay to validate or redo those acts.

We conclude that (1) Ms. Fairbanks still had legal title to her home when she filed her bankruptcy case, (2) the recordation of the foreclosure trustee's deed violated the automatic stay, and (3)the bankruptcy court did not abuse its discretion in denying annulment of the stay.We AFFIRM those parts of the bankruptcy court's decision.However, we hold that the bankruptcy court did not properly evaluate the request for prospective stay relief, so we VACATE and REMAND on that issue.

FACTS

A. Prepetition Foreclosure Efforts

In November 2006, Ms. Fairbanks executed a deed of trust on her home in Puyallup, Washington.Wilmington is the beneficiary of the deed of trust.

Beginning in 2015, Ms. Fairbanks struggled to make her mortgage payments.She unsuccessfully sought a loan modification and was unable to cure her defaults.At some point, she entered into an agreement with Home Matters, USA.Home Matters advised her that it was communicating with the foreclosure trustee and that because of the COVID-19 pandemic, Wilmington could not foreclose on her property as a matter of law.Home Matters told Ms. Fairbanks that it would take care of all matters relating to the loan and that she should not contact her lender.But Home Matters did not do what it had promised, so Wilmington proceeded with the foreclosure.

On October 2, 2020, the foreclosure trustee conducted a foreclosure sale of the property.A third party bid $353, 100, which exceeded the total debt on the property by about $7, 000.

Because Ms. Fairbanks was relying on Home Matters to solve her problem, she only became aware of the foreclosure the day after the sale occurred.She then immediately retained bankruptcy counsel.

B.Bankruptcy Case and Recording of Foreclosure Trustee's Deed

Ms. Fairbanks filed a voluntary chapter 13 petition on October 8, 2020.Her counsel notified the foreclosure trustee of the bankruptcy petition the next day.Three days later, the foreclosure trustee executed the Trustee's Deed Upon Sale.The third-party purchaser recorded the foreclosure trustee's deed on October 15, 2020.

About a month later, Wilmington filed a Motion for Retroactive Annulment of the Automatic Stay and Validation of Execution, Delivery and Recording of Trustee's Deed.Wilmington requested that the court either annul the stay retroactively to validate the foreclosure trustee's postpetition acts or grant prospective relief from the stay so the foreclosure trustee could redo those acts.Wilmington argued that the execution, delivery, and recordation of the foreclosure trustee's deed were "ministerial acts" excepted from the automatic stay and that cause to lift the stay existed because (among other reasons) the debtor's interest in the property at the petition date, if any, was insufficient to allow her to reorganize the property in a chapter 13 case.

The bankruptcy court orally ruled that the foreclosure trustee's execution and delivery of the trustee's deed after the bankruptcy filing "involved the exercise of considerable discretion" and were therefore not ministerial acts within the meaning of the Bankruptcy Code.The court also declined to grant retroactive annulment of the automatic stay after considering the factors set forth in Fjeldsted v. Lien(In re Fjeldsted), 293 B.R. 12(9th Cir. BAP2003).

In a memorandum decision, the court held that "the acts of executing and delivering the deed to the purchaser and the subsequent recordation of the Trustee's Deed violated the automatic stay."It also denied Wilmington's alternative request for relief to re-execute, re-deliver, and re-record the foreclosure trustee's deed.

Wilmington timely filed its notice of appeal.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334and157(b)(2)(A) and (2)(G).We have jurisdiction under 28 U.S.C. § 158(b)(1).

ISSUES

1.Did the recordation of the foreclosure trustee's deed violate the automatic stay?

2.Did the bankruptcy court abuse its discretion when it denied Wilmington's motion for annulment of or relief from the automatic stay to allow Wilmington to record the foreclosure trustee's deed?

STANDARDS OF REVIEW

The appellant and appellee agree that "[w]hether a particular asset is estate property and whether the automatic stay is applicable to a particular situation are conclusions of law reviewed de novo."Groshong v. Sapp(In re MILA, Inc.), 423 B.R. 537, 542(9th Cir. BAP2010).The bankruptcy court's interpretation of state law is also reviewed de novo.Mele v. Mele(In re Mele), 501 B.R. 357, 362(9th Cir. BAP2013)."De novo review requires that we consider a matter anew, as if no decision had been rendered previously."Id.

"The decision to grant or deny relief from the automatic stay is committed to the sound discretion of the bankruptcy court, and we review such decision under the abuse of discretion standard."Benedor Corp. v. Conejo Enters., Inc.(In re Conejo Enters., Inc.), 96 F.3d 346, 351(9th Cir.1996).

To determine whether the court abused its discretion, we follow a two-step process."First, we determine de novo whether the bankruptcy court identified the correct legal rule to apply to the relief requested."In reMILA, Inc., 423 B.R. at 542."If it did, we next determine whether the bankruptcy court's application of the correct legal standard to the evidence presented was (1) illogical, (2) implausible, or (3) without support in inferences that may be drawn from the facts in the record."Id.(quotingUnited States v. Hinkson, 585 F.3d 1247, 1262(9th Cir.2009)(en banc))(internal quotation marks omitted)."If any of these three apply, only then are we able to have a 'definite and firm conviction' that the district court reached a conclusion that was a 'mistake' or was not among its 'permissible' options and thus conclude that the court abused its discretion by making a clearly erroneous finding of fact."Hinkson, 585 F.3d at 1262.

DISCUSSION

A.Recording the foreclosure trustee's deed was a violation of the automatic stay.

1.Ms. Fairbanks had an interest in the property at the petition date that the automatic stay protected.

This appeal turns largely on whether the property became property of the estate when Ms. Fairbanks filed her bankruptcy petition.If it was property of the estate, the automatic stay of § 362 protected it.If not, the automatic stay did not apply.

The estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case," subject to certain limited exceptions.§ 541(a)(1).This provision means that any property interests that the debtor lost before filing the petition do not become part of the estate.SeeOregon v. Braker(In re Braker), 125 B.R. 798, 801(9th Cir. BAP1991)("The code neither creates nor enhances the rights a debtor brings into the bankruptcy estate.").

The Bankruptcy Code looks to state law to ascertain the nature and extent of the debtor's property interests.Butner v. United States, 440 U.S. 48, 55(1979)("Property interests are created and defined by state law.Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding.").Therefore, we look to Washington law to determine whether Ms. Fairbanks still had an interest in her home when she filed her chapter 13 petition.

The relevant statute is Revised Code of Washington("RCW") 61.24.050.It provides:

Upon physical delivery of the trustee's deed to the purchaser . . . the trustee's deed shall convey all of the right, title, and interest in the real and personal property sold at the trustee's sale. . . .Except as provided in subsection (2) of this section, if the trustee accepts a bid, then the trustee's sale is final as of the date and time of such acceptance if the trustee's deed is recorded within fifteen days thereafter.

RCW 61.24.050(1)(emphases added).

The first sentence of this statute provides that title to real property sold at the foreclosure trustee's sale passes to the purchaser when the foreclosure trustee delivers the deed.This is consistent with another Washington statute, RCW 64.04.010, which provides that a deed is generally necessary to pass title to real estate.Thus, the transfer to the purchaser is not completed, and the owner retains at least some rights in the property, until the foreclosure trustee executes and delivers the deed.

Hence we conclude from the first sentence of RCW 61.24.050(1) that Ms. Fairbanks retained some interest in the property that had not yet...