Foreclosing Lenders Beware

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A new decision from recently appointed bankruptcy judge Mark S. Wallace should be of serious concern to lenders foreclosing non-judicially. Judge Wallace, who sits in the Santa Ana division of the U.S. Bankruptcy Court for the Central District of California, ruled that a pre-petition trustee's sale can be voided by a bankruptcy filed before the execution of the trustee's deed upon sale. The case, In re Gonzalez, 201 Bank.LEXIS 2892, was decided in August 2011.

In Gonzalez, the borrower was a homeowner whose house was encumbered by a loan in favor of OneWest Bank FSB. OneWest, through Quality Loan Service Corp., as trustee, conducted a non-judicial foreclosure sale. A third party called Rancho Horizon was the successful bidder. While testimony varied, it was undisputed that the sale was concluded no later than 1:27 p.m. on February 22, 2010. Gonzalez, the borrower and homeowner, filed his bankruptcy petition at 1:46 p.m. the same day. Three days later, on February 25, 2011, the trustee (Quality Loan Service) executed the trustee's deed upon sale. It was recorded with the Riverside County Recorder's office on March 2, 2011.

The buyer, Rancho Horizon, then sought annulment of the automatic stay to complete an unlawful detainer action against Gonzalez, which had been filed without knowledge of Gonzalez's pending Chapter 7. The Bankruptcy Court denied the motion, finding that Rancho Horizon did not acquire title to the property.

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Published In: Administrative Agency Updates, Bankruptcy Updates, General Business Updates, Finance & Banking Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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