Opinion ID: 4542853
Heading Depth: 2
Heading Rank: 2

Heading: Violation of the Automatic Bankruptcy Stay

Text: Citi’s complaint included the allegation that Corte Madera’s foreclosure sale violated the automatic bankruptcy stay. Specifically, the complaint alleged that the sale was void and must be set aside because the notice of delinquent assessment lien, recorded on July 2, 2013, and the notice of default, recorded on October 11, 2013, were actions taken in 16 CITIMORTGAGE V. CORTE MADERA HOA violation of the automatic bankruptcy stay that arose pursuant to 11 U.S.C. § 362(a) when Horton filed her bankruptcy petition. Acts that violate the automatic stay include “any act to create, perfect, or enforce any lien against property of the estate.” § 362(a)(4). Citi’s complaint alleges that the Danborough Court property became property of the estate on the day Horton filed her chapter 7 petition, February 29, 2012, but the complaint also suggests the notices may have constituted acts to “create, perfect, or enforce” a lien against property of the debtor pursuant to § 362(a)(5). The complaint does not specify which provision—§ 362(a)(4) or § 362(a)(5)—the notices allegedly violated. Citi did not raise an issue regarding the bankruptcy stay in its summary judgment briefing, but the district court’s order granting summary judgment included a sua sponte ruling that the foreclosure sale did not violate the stay. The court relied on the date of the foreclosure sale to conclude that the complaint’s contention failed, reasoning that, “[a]ccording to the complaint, the foreclosure sale did not take place until May 16, 2014—after the borrowers received a discharge in bankruptcy [on] May 30, 2012 and after the bankruptcy case was closed [on] October 17, 2013.” Relying on the complaint’s recitation of this sequence of events, the district court concluded “the foreclosure sale will not be set aside as it did not violate the automatic bankruptcy stay under 11 U.S.C. § 362(a).” On appeal, Citi reiterates the complaint’s allegation that the notices themselves violated the automatic stay, that the notices must be deemed void as a result, and that the subsequent foreclosure sale must be set aside for lack of adequate notice. See Schwartz v. United States (In re Schwartz), 954 F.2d 569, 571 (9th Cir. 1992) (“[V]iolations of the automatic stay are void, not voidable.”). CITIMORTGAGE V. CORTE MADERA HOA 17 The filing of a bankruptcy petition automatically stays “actions by all entities to collect or recover on claims” against the debtor and the property of the estate. Burton v. Infinity Capital Mgmt., 862 F.3d 740, 746 (9th Cir. 2017). The stay is “effective against the world, regardless of notice.” Morris v. Peralta (In re Peralta), 317 B.R. 381, 389 (B.A.P. 9th Cir. 2004). We have said that “[g]enerally, the filing of bankruptcy will stay all proceedings relating to a foreclosure sale.” Mann v. Alexander Dawson, Inc. (In re Mann), 907 F.2d 923, 926–27 (9th Cir. 1990). Our court has not had occasion to decide whether notices filed pursuant to Nevada’s non-judicial foreclosure statute constitute acts to create, perfect, or enforce liens for purposes of § 362(a). But we have held that acts that “immediately or potentially threaten the debtor’s possession of its property” violate the stay, Morgan Guar. Tr. Co. of N.Y. v. Am. Sav. & Loan Ass’n, 804 F.2d 1487, 1491 (9th Cir. 1986), and at least one bankruptcy court has recognized that the stay bars recording notices of default or delinquent assessments “that would lead to foreclosure of property of the debtor’s estate,” In re Capital Mortg. & Loan, Inc., 35 B.R. 967, 971 (Bankr. E.D. Cal. 1983). The district court misperceived the contention in Citi’s complaint and mistakenly focused on the foreclosure sale rather than on the notices of delinquent assessment and default. But we cannot agree with Citi that it is necessarily entitled to prevail on this claim. With some exceptions inapplicable here, § 362(a)(4) stays remain in effect “until such property is no longer property of the estate,” § 362(c)(1); see also Bigelow v. Comm’r, 65 F.3d 127, 129 (9th Cir. 1995) (per curiam); 3 Collier on Bankruptcy ¶ 362.06. Citi’s complaint alleged that the Danborough Court 18 CITIMORTGAGE V. CORTE MADERA HOA property remained property of the bankruptcy estate until the Trustee abandoned it on October 17, 2013. But the complaint, and Citi’s brief on appeal, both suggest that Citi contends the Danborough Court property was either property of the estate or property of the debtor. If the Danborough Court property was property of the debtor, the stay lifted on the earliest of the case closure, case dismissal, or bankruptcy discharge. See § 362(c)(2). Of those three dates, the earliest was the bankruptcy discharge on May 30, 2012, before Corte Madera filed any of its foreclosure-related notices. Under this scenario, the notices would not have violated the stay. We therefore remand for the district court to consider whether the property was property of the debtor or of the estate, to determine whether the notices violated the bankruptcy stay, and to address whether Citi has standing to challenge the alleged violation. AFFIRMED IN PART, REVERSED IN PART, AND REMANDED. The parties shall bear their own costs on appeal.