FILED AUG 12 2021 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: BAP No. WW-21-1019-FBS JACARAE LEA FAIRBANKS, Debtor. Bk. No. 3:20-bk-42304-BDL
WILMINGTON SAVINGS FUND SOCIETY, FSB, as Owner Trustee of the Residential Credit Opportunities Trust V-C, Appellant, v. MEMORANDUM* JACARAE LEA FAIRBANKS, Appellee.
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.
INTRODUCTION
After appellant Wilmington Savings Fund Society, FSB
(“Wilmington”) conducted a nonjudicial foreclosure auction under
Washington law, but before the foreclosure trustee executed and delivered
* This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. a deed to the purchaser, the borrower, appellee Jacarae 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
1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, all “Rule” references are to the Federal Rules of Bankruptcy Procedure. 2 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
3 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. BAP 2003).
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. §§ 1334 and
4 157(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. BAP 2010). 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. BAP 2013). “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 re
5 MILA, 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. (quoting
United 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. See Oregon v. Braker (In re Braker), 125 B.R. 798, 801 (9th Cir. BAP 6 1991) (“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
7 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
passed to the buyer when she filed her petition. That interest, whatever its
nature, became property of the bankruptcy estate.
The second sentence of the statute is a “relation back” provision. It
says that the sale is “final” when the bid is accepted at the sale, so long as
the foreclosure trustee’s deed is recorded within fifteen days after the sale.
In this case, the foreclosure trustee accepted the bid before Ms. Fairbanks
filed her bankruptcy petition, and the deed was recorded within the
fifteen-day period. But this provision does not save the foreclosure sale. By
the time the buyer recorded the foreclosure trustee’s deed, Ms. Fairbanks
was in bankruptcy and the automatic stay was in place. The recording of
the deed violated the automatic stay because it was an “act to . . . enforce
any lien against property of the estate,” § 362(a)(4), and to “collect . . . or
recover a [prepetition] claim against the debtor,” § 362(a)(6). Acts taken in
violation of the automatic stay are void. Schwartz v. United States (In re
Schwartz), 954 F.2d 569, 571 (9th Cir. 1992). Therefore, “relation back” did
not occur because the predicate event—recordation of the deed—was void.
Decisions from other bankruptcy courts sitting in Washington and
applying Washington law are in accord with this view. See, e.g., In re Lopez,
596 B.R. 371, 373 (Bankr. E.D. Wash. 2019) (“The relation back to date of
8 sale clause is premised upon delivery of the deed. In other words, if the
[foreclosure] trustee’s deed is not physically delivered, there was no
conveyance of the real property under Washington law.”); In re Betchan,
524 B.R. 830, 834-35 (Bankr. E.D. Wash. 2015) (holding that there was no
valid transfer of an interest in real property where the trustee’s deed was
delivered postpetition).
Wilmington cites cases holding that, under California law, the
automatic stay does not block a foreclosure sale in circumstances like these.
See, e.g., Bebensee-Wong v. Fed. Nat’l Mortg. Ass’n (In re Bebensee-Wong), 248
B.R. 820 (9th Cir. BAP 2000); Lucore v. US Bank, NA (In re Lucore), BAP No.
SC-12-1604-JuBaPa, 2013 WL 2367800 (9th Cir. BAP May 30, 2013); Hamilton
v. Hernandez (In re Hamilton), BAP No. CC-04-1434-MaTK, 2005 WL 6960211
(9th Cir. BAP Aug. 1, 2005). But, as the bankruptcy court observed, the
California statute is materially different from RCW 61.24.050. The relevant
California statute, Cal. Civ. Code § 2924h(c), provides that “the trustee’s
sale shall be deemed final upon the acceptance of the last and highest
bid, and shall be deemed perfected as of 8 a.m. on the actual date of sale if
the trustee’s deed is recorded within 18 calendar days after the sale . . . .”
By contrast, the Washington statute provides that title does not pass until
the foreclosure trustee delivers the deed. “[S]ince the Washington Deeds of
Trust Act contains a specific clause that requires physical delivery of a deed
to transfer an interest in real property, Washington law requires a different
result.” In re Betchan, 524 B.R. at 835.
9 Wilmington cites Laffranchi v. Lim, 190 P.3d 97 (Wash. App. 2008),
abrogated on other grounds by MHM & F, LLC v. Pryor, 277 P.3d 62 (Wash.
App. 2012), for the proposition that, in 1998, the Washington state
legislature added the fifteen-day provision found in RCW 61.24.050 “to
deal with the circumstance where a borrower or grantor filed a bankruptcy
action between the date of the trustee’s sale and the recording of the
trustee’s deed.” Id. at 101-02. We reject this argument for three reasons.
First, Laffranchi did not address the issue at stake here. In Laffranchi,
the owners of the property did not file for bankruptcy. See id. at 98-100. The
Laffranchi court did not have to decide the effect of a bankruptcy filing after
the auction but before recordation.
Second, the Laffranchi court’s statement about the purpose of RCW
61.24.050 was unnecessary to its decision. In that case, the purchaser at a
nonjudicial foreclosure sale brought an unlawful detainer action to remove
the borrower and a tenant in possession from the property but did not
name the tenant as a defendant. Id. at 98. The court held that, because the
tenant was not named as a defendant, the trial court lacked subject matter
jurisdiction, so the appellate court reversed the judgment and remanded
the case. Id. at 101. Laffranchi’s interpretation of RCW 61.24.050 is therefore
dictum.
Third, the Laffranchi court relied on an incorrect description of the
legislative history. After reversing the judgment for want of jurisdiction,
the court went on to address an issue that it thought would likely arise on
10 remand: the date on which the purchaser became entitled to possession. Id.
Under RCW 61.24.060, the purchaser is entitled to possession twenty days
after the sale. In Laffranchi, the tenant argued that, if the foreclosure
trustee’s deed is not recorded within fifteen days after the sale, the twenty-
day period begins to run not on the date of the auction, but rather when the
trustee’s deed is recorded. Id. The appellate court disagreed, stating that
the fifteen-day rule was added by the legislature
to deal with the circumstance where a borrower or grantor filed a bankruptcy action between the date of the trustee’s sale and the recording of the trustee’s deed. Before this amendment, a debtor could avoid the trustee’s sale by filing a bankruptcy proceeding before the trustee’s deed was recorded. The 15-day window provides a grace period for recording the trustee’s deed, protecting the purchaser from any intervening claims of third parties. Id. at 101-02.
The only source for Laffranchi’s statements about the legislative
history is a secondary source: 27 Marjorie D. Rombauer, Washington
Practice: Creditors’ Remedies–Debtors’ Relief § 3.68 (Supp. 2007-08). See 190
P.3d at 102 n.18. The legislative history itself contains no such statement.
The Final Bill Report and other Bill Reports for the 1998 bill that added the
fifteen-day relation-back provision to the statute mention bankruptcy only
twice, and neither of the legislature’s vague comments supports Laffranchi’s
11 assertion about the legislative history. 2
In any event, the Laffranchi court chose to address the issue of when
the purchaser becomes entitled to possession. We have a different issue
before us: when the borrower loses all interests in the property. Thus,
Laffranchi does not support the result advocated by Wilmington.
2. The exception for a “ministerial act” does not apply. Wilmington relies on court decisions that recognize an extra-
statutory exception to the automatic stay and hold that “ministerial acts”
do not violate § 362.
“[W]hen an official’s duty is delineated by, say, a law or a judicial
decree with such crystalline clarity that nothing is left to the exercise of the
official’s discretion or judgment, the resultant act is ministerial.” Soares v.
Brockton Credit Union (In re Soares), 107 F.3d 969, 974 (1st Cir. 1997). The
exemption for ministerial acts should be confined “to those actions which
are essentially clerical, as opposed to judicial . . . .” Id. at 974-75.
The ministerial act exception “stems from the common-sense
principle that a judicial ‘proceeding’ within the meaning of section 362(a)
2 The Final Bill Report states that “[r]equirements are placed on participants that enhance their accessibility and ease the mechanics of the foreclosure process. The process for giving notice is streamlined and obligations are specifically defined. When a bankruptcy is also occurring, provisions are added to minimize unnecessary delay in a foreclosure sale.” F.B. Rep., S.B. 6191, 2nd Reg. Sess., at 2 (Wash. 1998). The House Report states that “[p]rocedures following the dissolving of a restraining order or bankruptcy stay on the foreclosure sale are amended.” H.R. B. Rep., S.B. 6191, 2nd Reg. Sess. (Wash. 1998). 12 ends once a decision on the merits has been rendered. Ministerial acts or
automatic occurrences that entail no deliberation, discretion, or judicial
involvement do not constitute continuations of such a proceeding.”
McCarthy, Johnson & Miller v. N. Bay Plumbing, Inc. (In re Pettit), 217 F.3d
1072, 1080 (9th Cir. 2000). In Pettit, the court determined that the judicial
proceeding ended when the judge signed the order to release the funds. As
such, “[t]he clerk of the court had no discretion as to whether to issue the
check . . . and her act was, therefore, purely ministerial.” Id.
Wilmington argues that, under RCW 61.24.050, the foreclosure
trustee has no discretion, and the delivery of the deed is a ministerial act. It
cites Udall v. T.D. Escrow Services, Inc., 154 P.3d 882, 911 (Wash. 2007),
where the Washington Supreme Court stated that “[t]he trustee’s delivery
of the deed to the purchaser is a ministerial act, symbolizing conveyance of
property rights to the purchaser.” But the term “ministerial act” has a
specific definition under federal case law. For purposes of the automatic
stay, an act is “ministerial” only if it involves “no deliberation [or]
discretion.” In re Pettit, 217 F.3d at 1080 (emphasis added). The grounds for
invalidation of a foreclosure sale listed in RCW 61.24.050(2)(a) are such that
the foreclosure trustee could not apply them without deliberating.3 Unlike
3 Under RCW 61.24.050(2)(a), the trustee, beneficiary, or authorized agent for the beneficiary may declare the trustee’s sale and deed void up to the eleventh day following the sale if: (i) the trustee, beneficiary, or authorized agent for the beneficiary
13 the court clerk in Pettit, who merely had to issue a check without any
exercise of discretion, a foreclosure trustee must exercise her professional
judgment and discretion before delivering a deed under Washington law.
Further, under the statute, the trustee is not the only party that can
invalidate the sale; the beneficiary of the deed of trust or its authorized
agent may also declare the sale void for any of the reasons listed in RCW
61.24.050(2)(a). The ability of other parties to declare the sale void indicates
that the trustee’s delivery of the deed is not a ministerial act.
We thus conclude that the trustee’s delivery of the deed is not a
“ministerial act” as that phrase is used in the bankruptcy context.
B. Ms. Fairbanks retained an interest in the property sufficient to attempt reorganization under chapter 13. Wilmington argues that, even if Ms. Fairbanks still had an interest in
her home when she filed her bankruptcy petition, her interest in the
property was insufficient to allow her to reorganize the property in chapter
13. However, Wilmington’s statement of the argument lacks legal basis.
First year law students are familiar with the metaphor describing
property rights as a “bundle of sticks” that can be allocated among
multiple people. See United States v. Craft, 535 U.S. 274, 278 (2002).
assert that there was an error with the foreclosure sale process; (ii) the borrower and beneficiary, or authorized agent for the beneficiary, had agreed prior to the trustee’s sale to a loan modification, forbearance plan, or other loss mitigation agreement to postpone or discontinue the trustee’s sale; or (iii) the beneficiary or authorized agent for the beneficiary had accepted funds that fully reinstated or satisfied the loan. 14 Wilmington argues that a debtor must have a certain number of those
sticks to address the property under a plan. But nothing in chapter 13 so
provides, and legal reasoning by metaphor is a dangerous business.
There is a Bankruptcy Code provision, however, that could support
Wilmington’s position. A chapter 13 debtor may propose a plan that
provides for the cure of defaults within a reasonable time and maintenance
of payments on any secured claim where the final payment is due after the
date of the final plan payment. § 1322(b)(5). But the debtor’s right to
propose “cure and maintenance” treatment has an important limitation: “a
default with respect to . . . a lien on the debtor’s principal residence may be
cured . . . until such residence is sold at a foreclosure sale that is
conducted in accordance with applicable nonbankruptcy law.” § 1322(c)(1)
(emphasis added). In Oregon v. Hurt (In re Hurt), 158 B.R. 154 (9th Cir. BAP
1993), this Panel considered when a property is “sold” within the meaning
of § 1322(b)(5). We observed that the case law supported multiple
definitions. We expressly rejected definitions that looked to state law to
determine when the debtor’s title or the mortgage contract was
extinguished, “in the interests of establishing uniformity within the
circuit . . . .” Id. at 159. We concluded that the right to a cure and
maintenance plan is cut off at the foreclosure sale, even if the debtor retains
rights in the property (such as a right of redemption or legal title) after that
event under state law. Id. at 160.
15 In this case, Hurt establishes that Ms. Fairbanks’ property was “sold
at a foreclosure sale” for purposes of § 1322(b)(5) when the auction
concluded, even though Ms. Fairbanks retained an interest in the property
under state law until a later date. The consequence is that Ms. Fairbanks
cannot confirm a plan that provides for cure and maintenance of
Wilmington’s secured claim that Wilmington does not accept.
This does not mean that Ms. Fairbanks’ chapter 13 case is doomed. A
cure and maintenance plan is only one way in which a chapter 13 debtor
can address a secured claim. Ms. Fairbanks might propose a plan that
provides for her to pay off the secured claim by way of a new refinancing
loan, that provides for a sale of the property, or that is based on another
arrangement that Wilmington is willing to accept. We cannot say whether
Ms. Fairbanks could obtain confirmation of such a plan; the bankruptcy
court has not ruled on plan confirmation. For present purposes, it is
enough to say that the impossibility of a “cure and maintenance” plan does
not automatically require the bankruptcy court to grant stay relief.
C. The bankruptcy court did not abuse its discretion when it denied retroactive annulment of the automatic stay. Wilmington argues that the bankruptcy court erroneously refused to
annul the stay retroactively so as to validate the execution and delivery of
the deed. We disagree.
“A bankruptcy court has authority to make exceptions to, and to
annul, the automatic stay under § 362(d). This authority includes
16 annulment providing retroactive relief . . . .” Fjeldsted v. Lien (In re Fjeldsted),
293 B.R. 12, 21 (9th Cir. BAP 2003). In Fjeldsted, this Panel concluded “that
the proper standard for determining ‘cause’ to annul the automatic stay
retroactively is a ‘balancing of the equities’ test.” Id. at 24 (quoting Nat’l
Envtl. Waste Corp. v. City of Riverside (In re Nat’l Envtl. Waste Corp.), 129 F.3d
1052, 1055 (9th Cir. 1997)). We set forth factors for bankruptcy courts to
consider when deciding whether to annul the automatic stay. 4 Id. at 25.
The bankruptcy court considered the Fjeldsted factors in its denial of
the motion for annulment of the automatic stay. Thus, the court identified
the correct legal rule. The court also based its decision on facts in the
record.
Specifically, the court found that the Fjeldsted factors militated against
annulling the stay because (1) Ms. Fairbanks’ chapter 13 case was her first
bankruptcy filing, (2) she had filed schedules and a plan to deal with the
4 The factors are as follows: (1) the debtor’s number of filings; (2) whether, in a repeat filing case, the circumstances indicate an intention to delay and hinder creditors; (3) the extent of prejudice to creditors or third parties if the stay relief is not made retroactive, including whether harm exists to a bona fide purchaser; (4) the debtor’s overall good faith (totality of circumstances test); (5) whether creditors knew of the stay but nonetheless took action; (6) whether the debtor has complied, and is otherwise complying, with the Bankruptcy Code and Rules; (7) the relative ease of restoring parties to the status quo; (8) the costs of annulment to debtors and creditors; (9) how quickly creditors moved for annulment, or how quickly debtors moved to set aside the sale or violative conduct; (10) whether, after learning of the bankruptcy, creditors proceeded to take steps in continued violation of the stay, or whether they moved expeditiously to gain relief; (11) whether annulment of the stay will cause irreparable injury to the debtor; and (12) whether stay relief will promote judicial economy or other efficiencies. Fjeldsted, 293 B.R. at 25. 17 mortgage on the property, (3) she acted promptly once she learned of the
foreclosure sale to obtain an attorney and proceed with the bankruptcy,
showing no lack of good faith, (4) the foreclosure trustee knew of the
bankruptcy filing but took actions to execute and deliver the trustee’s deed
four days after receiving notice of the bankruptcy filing, (5) it is “relatively
easy” to rescind a foreclosure trustee’s deed and reconduct the sale, so the
cost to the mortgage provider would likely be minimal, (6) Wilmington
was adequately protected by the equity in the property, as the winning bid
at the foreclosure sale exceeded the amount of the debt by $7,000 and the
real estate market in the surrounding area was “very hot,” and (7) Home
Matters USA, ostensibly acting on Ms. Fairbanks’ behalf, had in fact
exacerbated her problems. The court also contrasted the harm to the
parties, noting that the third-party purchaser would receive his bid back
from the foreclosure trustee or lender if the sale were rescinded, whereas
annulment of the stay would cause the debtor to lose her home.
The bankruptcy court identified the correct legal rule and based its
decision to deny retroactive annulment of the automatic stay on facts in the
record; therefore, we cannot say that its decision was an abuse of
discretion.
D. The bankruptcy court should revisit the question of prospective relief from the automatic stay. The bankruptcy court denied Wilmington’s request for prospective
relief from the stay to allow the foreclosure trustee to redo the delivery of
18 the deed. It should reevaluate that request in light of this decision.
“Relief from the stay is a discretionary matter decided on a case-by-
case basis.” Cannery Row Co. v. Leisure Corp. (In re Leisure Corp.), 234 B.R.
916, 921 (9th Cir. BAP 1999). Reasonable minds could differ with the
bankruptcy court’s decision. But as a reviewing court, “we may reverse a
discretionary trial court factual finding [only] if we are ‘left with the
definite and firm conviction that a mistake has been committed’” and
“must give the district court’s findings deference.” United States v. Hinkson,
585 F.3d 1247, 1262 (9th Cir. 2009) (quoting United States v. U.S. Gypsum Co.,
333 U.S. 364, 395 (1948)).
Even applying this deferential standard of review, we are concerned
that the bankruptcy court collapsed the examination of cause for
prospective relief from stay with its analysis of retroactive annulment.
Looking backwards, the bankruptcy court did not err in denying an
annulment of the stay. But the court also concluded that these same factors
negated a finding of cause going forward. Yet the court appears to have
overlooked a crucial factor. Ms. Fairbanks filed this case to save her home.
The typical method that chapter 13 debtors use to accomplish this result is
a cure and maintenance plan. But our published decision in Hurt constrains
us to hold that Ms. Fairbanks cannot confirm a cure and maintenance plan
unless Wilmington accepts it.
Ms. Fairbanks’s options to save her house in the chapter 13 are
limited by the unavailability of the traditional cure and maintenance
19 plan. This is a significant factor as her proposed plans referenced an intent
to seek yet another loan modification and stated that payments would not
be made until “legal issues” and the “foreclosure issues” were resolved.
The bankruptcy court should evaluate in the first instance whether the
impossibility of a chapter 13 cure and maintenance plan provided “cause”
for relief, especially coupled with the very small amount of equity that the
bankruptcy court found, Ms. Fairbanks’ poor track record of payments,
and her failed attempts at loan modifications.
CONCLUSION
We hold that the execution, delivery, and recordation of the
foreclosure trustee’s deed under RCW 61.24.050 was a violation of the
automatic stay. We further hold that the bankruptcy court did not abuse its
discretion when it denied Wilmington’s motion for retroactive annulment
of the automatic stay and validation of the trustee’s deed. But the
bankruptcy court failed to identify all of the correct legal principles when it
denied Wilmington prospective relief from the stay to complete the
foreclosure sale process. Accordingly, we VACATE the court’s decision on
prospective relief from the stay and REMAND for further proceedings on
that issue, and we AFFIRM the bankruptcy court’s decision in all other
respects.