Alakozai v. Citizens Equity First Credit Union (In re Alakozai)
Alakozai v. Citizens Equity First Credit Union (In re Alakozai), 499 BR 698 (9th Cir. BAP 10/2/13). The Bankruptcy Appellate Panel of the Ninth Circuit ("BAP") affirmed the bankruptcy court’s order in the debtor’s sixth bankruptcy case granting a lender relief from stay to continue with its state court unlawful detainer action. The BAP found that the lender’s foreclosure on the debtor’s real property during the fifth case did not violate the automatic stay and was not void because the lender’s relief from stay order in the debtor’s fourth bankruptcy case was effective as to the property.
Facts
Mohamed Alakozai (Husband) executed a promissory note secured by a deed of trust on California residential real property owned by the Husband. Debra Alakozai (Wife) held a community property interest in the property. Husband defaulted on the note, a notice of default was recorded and a trustee’s sale was scheduled. The property then became the subject of six bankruptcy cases filed between 2008 and 2012; three were filed jointly by Husband and Wife; two were filed by Husband; and one was filed by Wife.
After Husband filed the fourth bankruptcy case, the lender requested and was granted relief from the automatic stay under 11 U.S.C. § 362(d)(4). The order granting relief provided that it was binding upon the property for 180 days after entry of the order and upon the Husband (the "In Rem Order"). No appeal was filed. Shortly after the fourth case was dismissed, the lender recorded the In Rem Order in the county recorder’s office.
Wife then filed a fifth case and, later the same day, the lender purchased the property at a trustee’s sale. The foreclosure sale was held within 180 days after entry of the In Rem Order as required by such order. A month later, the bankruptcy court dismissed the fifth case. Husband and Wife refused to vacate the property and the lender commenced an unlawful detainer action in state court.
Approximately seven months later, Husband and Wife filed a sixth case. The lender filed a motion for, and was granted, relief from stay to continue to prosecute its state court unlawful detainer action. Wife appealed this relief from stay order.
Wife’s only argument on appeal was that the bankruptcy court in the fourth case (filed by Husband only) did not make the necessary findings of fact to support in rem relief. Wife argued that, as a result, the bankruptcy court in the sixth case erred in granting the lender relief from stay to continue with its unlawful detainer action because the foreclosure sale during the fifth bankruptcy case violated the automatic stay and was void.
Reasoning
The BAP found that the bankruptcy court did not abuse its discretion when it granted the lender relief from stay to to continue with its unlawful detainer action. Under the BAP’s reasoning, the In Rem Order was effective against the property when Wife filed the fifth bankruptcy case. Moreover, the BAP opined, Wife could not challenge the factual findings by collaterally attacking the prior, final and unappealed In Rem Order in Husband’s fourth case.
The BAP discussed the special relief fashioned by Congress when BAPCA added Sections 362(d)(4) and 362(b)(20) to the Bankruptcy Code to protect creditors against serial bankruptcy filings. Section 362(d)(4) provides that "if the court finds that the filing of the petition was part of a scheme to delay, hinder, or defraud creditors that involved . . . multiple bankruptcy filings affecting such real property" and the creditor records such order "in compliance with applicable State laws governing notices of interests or liens in real property" such order "shall be binding in any other case under this title purporting to affect such real property filed not later than 2 years after the date of the entry of such order. . . ." Id. For such two year period, under section 362(b)(20), the automatic stay imposed in a bankruptcy case does not prohibit a creditor from enforcing its lien that is the subject of a 362(d)(4) order entered in a prior case. Alakozai at ∗15.
In response to Wife’s argument that she was not a debtor in Husband’s bankruptcy case when the In Rem Order was entered, the Court made clear that an order under Bankruptcy Code section 362(d)(4) "binds any party asserting an interest in the affected property, including every non-debtor, co-owner, and subsequent owner of the property." Alakozai at ∗14.
Author’s Comment
This case demonstrates precisely why Congress amended the Bankruptcy Code to provide for in rem relief from stay as to real property. Once granted, the relief remains effective for two years after the in rem order is entered, so long as the creditor records the order where real property liens are recorded under state law. This prevents a debtor, co-owner or purchaser of such real property from reimposing the automatic stay in subsequent bankruptcy filings for such two-year period except upon "changed circumstances or for other good cause shown, after notice and a hearing." 11 U.S.C. § 362(b)(20). Here, Husband and Wife were "tactical serial filers" who used bankruptcy as a means to prevent the lender from enforcing its lien.
Any lender obtaining in rem relief should make sure that it records the order in the real property records in accordance with state law as soon as possible. Otherwise, it may find itself subject to the automatic stay in a subsequent bankruptcy filing by the debtor, co-owner, or subsequent purchaser of the property.