Author Archives: Ryan C. Wood

About Ryan C. Wood

Ryan C. Wood is a California attorney practicing primarily in the areas of Bankruptcy Law, Business Law and generally seeking justice for under represented clients in the Bay Area.

What Happens If My House Is Foreclosed On Before Filing Bankruptcy But Recording of the Trustee’s Deed Is After I File Bankruptcy?

By Ryan C. Wood

If you are trying to save your house from foreclosure the best way to avoid any confusion is to file for bankruptcy as soon as possible before your trustee sale date. Once your bankruptcy case is filed there is an automatic stay in place to prevent the sale of your home. If the trustee sale still goes through, the sale will be voided as it is in violation of the automatic stay.

What happens when you filed your bankruptcy case after the trustee sale was conducted but before the trustee’s deed is recorded with the county? Pursuant to California Civil Code Section 2924h(c), “…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 15 calendar days after the sale…”

The courts in California are divided over the interpretation of this issue. One court in the Northern District of California indicated that if the bankruptcy case was filed after the trustee’s sale but before the recording of the trustee’s deed, the recording of the trustee’s deed is not a violation of the automatic stay and the secured creditors can proceed, making the foreclosure final. In Re Garner, 208 B.R. 698 (Bankr. N.D. Cal. 1997). In the Garner case, Minnie Bee Garner defaulted on her mortgage and her home was foreclosed on March 11, 1997. She filed for Chapter 13 bankruptcy protection on March 12, 1997. The foreclosure sale deed was issued to the third party purchaser on March 13, 1997 and the third party purchaser recorded the deed with the county on March 18, 1997. The secured creditor’s bankruptcy attorney filed a motion for relief from stay and the court granted it and held that as long as the deed was recorded within 15 days of the sale, issuing the deed did not violate the automatic stay. Therefore, the third party purchaser’s interest in the property was not avoided by the filing of Ms. Garner’s bankruptcy case.

A more recent case in the Central District of California held differently than Garner above. In In re: Gonzalez, Case No. 6:11-BK-15665-MW (C.D. Cal. 2011), there was a foreclosure sale of Mr. Gonzalez’s property on February 22, 2011. Mr. Gonzalez filed for bankruptcy on the same day. The exact time of the final bid is uncertain but for purposes of the case the exact time and whether the foreclosure sale went through before or after Mr. Gonzalez filed for bankruptcy did not matter. The deed was recorded with the county recorder’s office on March 2, 2011. The judge in this case held that at the time the bankruptcy petition was filed Mr. Gonzalez still held title to the property because the deed was not recorded yet. The subsequent filing of the deed after the bankruptcy petition was filed violated the automatic stay and therefore the recorded deed is void. The judge goes on to say that the provision of the California Civil Code Section 2924h that deems the sale to be final as of 8 a.m. on the actual date of sale does not matter because the deed filed with the county was void, and execution of a voided deed is a void act and does not create or perfect title. Upon appeal of this decision to the District Court for the Central District of California the Bankruptcy Court judge’s ruling was reversed. Like in Garner, the recording of the deed of trust was not a violation of the automatic stay.

This is a perfect example of similar facts but different outcomes even though they are all from the state of California. Maybe legislation will resolve this issue in a future time so there is no more confusion. As of right now if you have any issues you should consult a bankruptcy lawyer. The best way to avoid this issue is to make sure your bankruptcy case is filed at least a day before your trustee sale date. So that is what happens if your house is foreclosed on before filing bankruptcy and the recording of the trustee’s deed is after you file bankruptcy.

Can Just One Spouse File Bankruptcy In California?

By Ryan C. Wood

A common law marriage is when a couple holds themselves out to be married but the spouses did not actually have a marriage ceremony or go through any of the formalities of a marriage. You need to obtain a marriage certificate. California does not recognize common law marriages. There are other states that do recognize some form of common law marriage, but California is not one of those states. The types of marriages that are currently recognized in California are 1) traditional marriage, 2) domestic partnership, and 3) same sex marriage.

California is a community property state, which means that all assets accumulated during marriage (whether it is a traditional marriage, domestic partnership or same sex marriage) are considered property jointly owned by both spouses even if only one spouse purchased or earned that asset (unless that asset was obtained by gift, inheritance or devise or a prenuptial was executed). The separate property of either spouse is not liable for the debts incurred by the community.

So what does this mean if you are filing bankruptcy? When you file for bankruptcy you need to list all assets owned personally by you and also all community property assets if you are filing bankruptcy without your spouse. A lot of our clients think that just because they are filing bankruptcy by themselves they only need to list their own assets and their own income on their bankruptcy petition. This is not true and that can get you in trouble if you do not tell your bankruptcy attorney about all of the assets that are owned by both you and your spouse. Your spouse’s assets can be subject to liquidation if you file a Chapter 7 bankruptcy case unless your bankruptcy lawyer protects those assets by properly exempting them in your bankruptcy schedules. Since California is a community property state that means you need to list joint assets and household income and expenses. The theory behind this is that when you are married everything is joined together and owned fifty-fifty. Even if one party makes $1,000 a month and the other party makes $10,000 a month both parties join their incomes together to pay household expenses and for the benefit of the community.

On the flip side if you are not married but are living together with your significant other you do not need to list any of your significant other’s assets in your bankruptcy petition since it is not considered community property. Your assets are only considered community property if there was a legal marriage and California does not recognize common law marriages. This also means that your creditors will not be able to go after your significant other’s assets even if you have lived together for 10 plus years. There are always exceptions to the general rule of course but if your case is more complicated I recommend that you seek the services of an experienced bankruptcy attorney to discuss your case.

Chapter 7 Trustees Can Demand Turnover of Property No Longer in a Party’s Possession

By Ryan C. Wood

The Ninth Circuit Court of Appeals recently decided a case that has very troubling results for bankruptcy filers. In Shapiro v. Henson (In re Henson), No. 11-16019 (9th Cir. Jan. 9, 2014), the court held that bankruptcy trustees have the power to recover bankruptcy estate property and the trustee’s power is not restricted to just property of the bankruptcy estate at the time the motion for turnover is filed.

In the Henson case, Barbara Henson filed for Chapter 7 bankruptcy protection with $6,955.19 in her checking account. She also wrote several checks that had not cleared her checking account yet on the day she filed. The checks did not clear her bank account until sometime after her bankruptcy petition was filed. Brian Shapiro (the bankruptcy trustee in the case) demanded Ms. Henson turnover all the funds in her checking account to him except for the $800 that was exempted/protected. Ms. Henson refused to turn over the funds because she indicated the checks were now cleared and the funds were no longer in her possession for her to turnover. One of the checks was written out to her bankruptcy lawyer for fees related to her bankruptcy case. The trustee deducted that amount from the amount Ms. Henson owed and instead went after the bankruptcy attorney directly to get the funds back. The trustee filed a motion to turnover the remaining funds under §542(a) but the bankruptcy court denied the trustee’s motion because Ms. Henson did not have possession of the funds at the time the motion was filed. The trustee appealed this decision to the U.S. District Court, District of Nevada. The result was the same as the bankruptcy court’s decision so the trustee appealed that decision yet again to the Ninth Circuit Court of Appeals.

Under 11 U.S.C. §542(a), an entity that is in possession, custody, or control of the bankruptcy estate property or property that may be exempted, during the case, needs to deliver the property or value of the property to the trustee. The Ninth Circuit ruled in favor of the trustee, stating that the trustee may request for a turnover of the property against an entity that has or had possession of the property at any time during the bankruptcy case even if they no longer have possession of the property at the time the motion for turnover is filed. If the entity cannot turn over the property because it is no longer in the entity’s possession, the entity may turnover the value of such property. Therefore, Ms. Henson may need to turnover property that is not part of the bankruptcy estate (post-petition funds earned) to the trustee to satisfy the motion for turnover. This results in Ms. Henson having to pay twice for the same thing: once when she wrote checks for her bills prior to filing for bankruptcy but cleared out of her bank account after her filing and the second time is when she has to pay the trustee the amount that was in her checking account at the time she filed for bankruptcy even if she no longer has those funds.

At the end of the day the lesson to be learned from this is to be sure to let your bankruptcy attorney know what checks you have outstanding at the time you file your bankruptcy case. Failure to do so may result in you having to pay your bills twice.

Will There be Lien Stripping in Chapter 7 Cases in the Future

By Ryan C. Wood

In most jurisdictions today, the bankruptcy courts will not allow consumers to strip their junior mortgages in Chapter 7 cases. This lien stripping process is only available in Chapter 13 and Chapter 11 bankruptcy cases in most jurisdictions. Lien stripping is available in Chapter 13 bankruptcy cases when junior mortgages are wholly unsecured. This means that the value of the home must be worth less than the senior mortgages. For example if your house is worth $250,000 but your first mortgage is $300,000 and your second mortgage is $60,000 then you can file a Chapter 13 bankruptcy case to strip off the second mortgage or equity line of credit of $60,000. Once your Chapter 13 plan is successfully completed your junior mortgage is stripped off and the underlying debt is discharged in your bankruptcy case (depending upon circumstances) and you will no longer be liable for that debt.

The process above is assuming that your bankruptcy attorney filed the correct motions or adversary proceedings with the court to strip off the junior mortgages or equity line of credit. It is not advisable that you try to take this on if you are representing yourself in a Chapter 13 case as it is very complicated and you have a lot to lose if you file the motions or adversary proceedings incorrectly. As indicated previously the process above is also only available in Chapter 13 bankruptcy cases in most jurisdictions. That may be about to change. A petition for certiorari has been filed with the Supreme Court of the United States to address the question of whether lien stripping will be allowed in a Chapter 7 bankruptcy case.

Bank of America filed the petition for certiorari to review the judgment in the Eleventh Circuit U.S. Court of Appeals in Bank of America, N.A. v. Sinkfield. In this case, Mr. Sinkfield filed a Chapter 7 bankruptcy case. Mr. Sinkfield had two mortgages on his home. Mr. Sinkfield’s first mortgage was under water and therefore his second mortgage was completely unsecured. The court in this case allowed the junior mortgage to be stripped in his Chapter 7 case using the Folendore v. Small Bus. Admin., 862 F.2d 1537 (11th Cir. 1989) case. This case allowed the junior mortgage to be stripped from the property. Bank of America alleges that this runs afowl of the Dewsnup v. Timm case, 502 U.S. 410 (1992). The Sinkfield court indicated that the Folendore case was on point in this case and not Dewsnup.

Unfortunately, just because Bank of America petitioned the Supreme Court to review the case does not necessarily mean that the Supreme Court will agree to hear it. Hopefully the Supreme Court will decide to tackle this issue and provide an answer as to whether a junior lien can be stripped off in a Chapter 7 bankruptcy case. This will give bankruptcy lawyers another tool to help people with overwhelming debts.

Mortgage Company Legal Fees in Bankruptcy

By Ryan C. Wood

Mortgage companies have an obligation to notify their customers who are in an active bankruptcy case that their mortgage payments have changed and/or provide notice if there have been any fees, expenses or charges added to their mortgage account or balance. Failure to do so may result in the bankruptcy court awarding appropriate expenses or attorney fees to the customers who are in the active bankruptcy case. See Federal Rules of Bankruptcy Procedure Rule 3002.1.

In a lot of cases we run into clients that have incurred numerous fees from their mortgage companies due to the fact that they have been late in paying their mortgage. A lot of fees and expenses are racked up and sometimes it is difficult to weed out what fees are appropriate. In the case of In Re: Olga Roife, Case No: 10-34070 (Bankruptcy Court for the Southern District of Texas) the mortgage customer fought back against some of these fees. In this case, Ms. Roife objected to the Notice of Post-Petition Mortgage Fees, Expenses and Charges that her mortgage company (Midfirst) filed with the court. Midfirst provided the Notice of Post-Petition Mortgage Fees, Expenses and Charges to her under Rule 3002.1. The Notice included late fees in the amount of $142.26 and legal fees in the amount of $125.00. Midfirst contended that their bankruptcy attorneys were entitled to their legal fees in preparing the Notice because the Bankruptcy Code requires that they send out the Notice and that failure to do so will result in sanctions for Midfirst. The bankruptcy court in this case agreed with the cases In re Boyd, 2013 WL 1844076 (Bankr. S.D. Tex. 2013) and In re Carr, 468 B.R. 806, 807 (Bankr. E.D. Va 2012). The Boyd case indicated that fees should not be charged for filing a Fee Notice because the creditor has a duty under non-bankruptcy law to inform their customers of the amounts due under a mortgage. In the Carr case the court decided that no fees should be charged because the Fee Notice can be easily derived and can be obtained from the creditors records with no significant burden on the creditor, that the Fee Notice is a business function and the preparation of the notice is not a practice of law and does not require any legal analysis.

The moral of the story is to always look through the documents that your bankruptcy attorney provides you to be sure the fees are correct. The mortgage companies may try to slip in a few expenses or fees they are not entitled to, such as fees to prepare notices required by the court. If you do not look at the documents you may end up paying more than you should be for your mortgage payments. If your mortgage payments include the payment of property taxes and insurance be sure to verify the amounts listed. You look through your property tax statement to see that it is consistent with what the mortgage company sends you. If you are lazy and decide to not double-check these figures you may end up overpaying.