Zeoli v. RIHT Mortg. Corp.

• Decision Date: 05 January 1993
• Docket Number: Civ. No. 92-506-M.
• Citation: 148 BR 698
• Parties: Sherrill R. ZEOLI v. RIHT MORTGAGE CORP.
• Court: U.S. District Court — District of New Hampshire

148 B.R. 698 (1993)

Sherrill R. ZEOLI v.RIHT MORTGAGE CORP.

Civ. No. 92-506-M.

United States District Court, D. New Hampshire.

January 5, 1993.

Leonard G. Deming, II, Nashua, NH, for plaintiff.

Jeffrey C. Haus, Manchester, NH, for defendant.

ORDER

McAULIFFE, District Judge.

I.Introduction

This appeal from a decision of the Bankruptcy Court questions whether a secured creditor may postpone a previously scheduled foreclosure sale after a debtor has filed for protection, without violating the automatic stay provisions of the Bankruptcy Code. 11 U.S.C. § 362(a)(1991).

The Bankruptcy Court(Goodman, J.) determined that the act of postponing a foreclosure sale is a "continuation . . . of a judicial, administrative, or other action or proceeding against the debtor," and so, violates the automatic stay provisions.Bankruptcy Code,11 U.S.C. § 362(a)(1)(1991).

Because RIHT Mortgage Corp.("RIHT") took action to postpone the foreclosure sale of Sherrill R. Zeoli's ("Zeoli") property after she filed for protection in the Bankruptcy Court, the Court granted Zeoli's Motion to hold RIHT in Contempt for violating the automatic stay provisions.The Court imposed a sanction requiring RIHT to pay modest attorney's fees related to the contempt motion.While the Bankruptcy Judge determined that postponement of the sale itself might adversely affect marketability of the property at a later date, because he found no actual damage to either the estate or the debtor in this case, no other sanctions were imposed and no other damages were assessed.

For the reasons set forth below, the decision of the Bankruptcy Court is reversed and vacated.

II.Facts

RIHT held a mortgage on Zeoli's residence.On June 1, 1992, Zeoli filed a Petition in Bankruptcy under the provisions of Chapter 7, United States Bankruptcy Code.Prior to her filing, RIHT had scheduled a non-judicial foreclosure sale of Zeoli's property on June 3, 1992, at 11:00 a.m. Two days before the sale, counsel for RIHT was informed of Ms. Zeoli's personal bankruptcy status.Counsel presumably was aware of the automatic stay provisions of 11 U.S.C. § 362(a).

In preparation for the anticipated June 3 foreclosure sale, RIHT had already published the three notices required by applicable New Hampshire law.N.H.REV.STAT. ANN. § 479:25(1991).Despite Zeoli's personal bankruptcy status, and without regard to the automatic stay provisions, RIHT attended the scheduled foreclosure sale on June 3, 1992.Its actions were limited, however, to reading and posting a notice of postponement of sale to a future date certain, i.e. July 22, 1992.RIHT sent a copy of the notice of postponement to all parties who had initially received notice of the sale, again as required by applicable New Hampshire law.N.H.REV.STAT. ANN. § 479:25.On June 22, 1992, RIHT filed a Motion for Relief from Stay in the Bankruptcy Court.On August 6, 1992, the Bankruptcy Court granted relief from the automatic stay provisions with respect to Zeoli's property.

On July 8, 1992, Zeoli's counsel filed a Motion for Contempt against RIHT.Zeoli argued that RIHT's act postponing the foreclosure sale violated the stay provisions.A hearing on the motion was held on August 19, 1992, at which the Bankruptcy Court concluded that the automatic stay provisions extend even to action by a creditor to postpone a previously scheduled foreclosure sale.However, since no damage to the debtor or her estate occurred as a result of RIHT's postponement, the Bankruptcy Court limited its sanction to imposition of modest attorney's fees related to the contempt motion.

On August 16, 1992, RIHT took an appeal to this Court, which exercises jurisdiction under 28 U.S.C. § 158(a)(1992).

III.Discussion

In reviewing a Bankruptcy Court's decision, a District Court will not disturb findings of fact unless they are clearly erroneous.Briden v. Foley,776 F.2d 379, 381(1st Cir.1985);Bank.R. 8013.Questions of law, on the other hand, are subject to plenary review.Robb v. Schindler,142 B.R. 589, 590(D.Mass.1992)citingIn re G.S.F. Corp.,938 F.2d 1467, 1474(1st Cir.1991).The facts of this case are not in dispute, and the question presented is entirely one of law.Accordingly, this Court will redetermine the issue.

The automatic stay provisions were made part of the Code by the Bankruptcy Reform Act of 1978, to effect a temporary halt to all debt collection or enforcement proceedings until a court could reasonably assess the debtor's circumstances and make appropriate dispositive orders:

The automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws.It gives the debtor a breathing spell from his creditors.It stops all collection efforts, all harassment, and all foreclosure actions.It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy.

Notes of the Committee on the Judiciary, S.Rep. No. 989, 95th Cong., 2d Sess. 54, (1978), reprinted in1978 U.S.Code Cong. & Ad.News 5787, 5840.

In its 1973 report, the Commission on the Bankruptcy Laws of the United States noted its frustration with the "dismembering of estates by the foreclosures of liens instituted before the filing of a petition in bankruptcy."The Commission also lamented the courts' inability, at that time, to halt continuation of foreclosure proceedings initiated before commencement of a liquidation case.H.R.Rep. No. 137, 93rd Cong., 1st Sess. 16(1973).Congress responded by enacting 11 U.S.C. § 362(a) which provides, in pertinent part, that the filing of a petition in bankruptcy operates as an automatic stay of:

(1)The commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title;

* * * * * *

(3)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; and

* * * * * *

(6)Any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title.(emphasis added)

11 U.S.C. § 362(a)(1), (3), (6)(1991).

Applying these statutory provisions, the Bankruptcy Court construed the postponement of a previously scheduled foreclosure sale to be a "continuation" of a "proceeding against the debtor" within the meaning of 11 U.S.C. § 362(a)(1)(1991).

While the Bankruptcy Court's interpretation and application of the statutory language has merit, reasonable minds do differ on the subject.This Court finds the alternative interpretation and application of the automatic stay provisions employed by other courts to be more compelling and more consistent with the purpose of the statute.Under what appears to be the prevailing view, postponing a foreclosure sale is not violative of the automatic stay provisions.

The primary purposes of the automatic stay provisions are to effectively stop all creditor collection efforts, stop all harassment of a debtor seeking relief, and to maintain the status quo between the debtor and her creditors, thereby affording the parties and the Court an opportunity to appropriately resolve competing economic interests in an orderly and effective way.Maintaining the status quo is a repeating theme in decisions construing the automatic stay provisions.See, e.g., In re New American Food Concepts,70 B.R. 254, 258(Bankr.N.D.Ohio1987).("In litigation concerning the automatic stay, the Code generally seeks to leave matters in a status quo posture . . ., to provide a reasonable opportunity for a financially distressed debtor, its creditors and the Court to determine whether there are reasonable prospects for the debtor's survival."(citation omitted)).See alsoI.C.C. v. Holmes Transportation, Inc.,931 F.2d 984, 987(1st Cir.1991)("the automatic stay is designed to effect an immediate freeze of the status quo at the outset");In re Texaco Inc.,73 B.R. 960, 963(Bankr.S.D.N.Y.1987)(court allowed note holders to present a formal notice of tender to the debtors "in order to allow the note holders to maintain their status quo during the post-Chapter 11 period so that they might not be deprived of their rights to tender their Notes at some future time")(emphasis in original).

The Court of Appeals for the Ninth Circuit has explicitly held that postponement of a foreclosure sale does not violate the automatic stay provisions of the Code.In re Roach,660 F.2d 1316(9th Cir.1981).As recognized in Roach, postponing the date of a foreclosure sale maintains the status quo between creditor and debtor, as of the time of bankruptcy filing.Id. at 1319.No other effect is apparent, and certainly none measurably prejudicial to the debtor's economic interests.The Ninth Circuit emphasized in Roach that the postponing creditor did not "harass, interfere, or gain any advantage."Id.citingIn re Decker,465 F.2d 294, 297(3d Cir.1972)("Stays are in the nature of temporary injunctions designed to maintain the status quo.")Accordingly, the act of postponement was found by the Court of Appeals to violate neither the plain language nor the purpose of the automatic stay provisions.Roach,660 F.2d at 1319.

Other courts that have faced this and similar issues have resolved them consistently with the Ninth Circuit's analysis in Roach.See, e.g., In re Tome,113 B.R. 626, 630(Bankr.D.Cal.1990)(Postponement of a foreclosure sale by secured creditors one month at a time while bankruptcy case is pending is not violative of automatic stay.);In re Barnes,119 B.R. 552, 556(S.D.Ohio1989)(Rescheduling and advertisement of a Sheriff's sale three days after the dismissal of Chapter 13 petition is not violative of Bankruptcy Rule 7062.¹);In re Doud,30 B.R. 731, 733-734(Bankr. W.D.Wash.1983)(Creditor bank, in a Chapter 7...