Maintaining Foreclosure Status Quo Does Not Violate Automatic Stay

Where foreclosure is commenced pre-petition, continuance of the state foreclosure process does not violate the automatic stay. Witkowski v. Knight (In re Witkowski), No. 14-34, __ B.R. __ (B.A.P. 1st Cir. Nov. 13, 2014).

After defaulting on the promissory note secured by their residence, the debtor and her husband filed several individual bankruptcies all of which were dismissed in the early stages. Each time one of them filed bankruptcy, the lender cancelled or continued the foreclosure proceedings he had begun. Within one year of the dismissal of her previous filing, the debtor filed the current bankruptcy case. This time, because of the pending bankruptcy, the lender continued the pending foreclosure sale according to state law. He advertised the final foreclosure date while the bankruptcy was pending. The debtor filed a motion seeking sanctions for violation of the stay.

The Bankruptcy Court found that the lender merely maintained the status quo of the state proceedings, and, therefore did not violate the stay.

On appeal, the Bankruptcy Appellate Panel began its analysis with section 362(c)(3)(A) which provides that when a debtor files a second bankruptcy within one year of the dismissal of a previous bankruptcy, the automatic stay terminates with respect to the debtor “on the 30th day after the filing of the later case.” To determine whether the stay applied to the debtor’s residence after the 30 day period, the panel referred to Jumpp v. Chase Home Fin., LLC (In re Jumpp), 356 B.R. 789 (B.A.P. 1st Cir. 2006), where the court reasoned that had Congress wanted to completely remove the stay after 30 days, it could have simply left out the language “with respect to the debtor.” The Witkowski panel agreed, finding that the stay terminated automatically only with respect to the debtor, and that it remained in force with respect to the residential property which was part of the bankruptcy estate.

(The court noted but rejected the opposing view that the language of section 362(c)(3)(A) is meant to distinguish between debtors and innocent third parties rather than between types of property (i.e. property of the debtor versus property of the estate)).

That did not end the inquiry however. The case ultimately turned on the court’s finding that continuation of foreclosure proceedings begun prior to the bankruptcy filing, did not violate the automatic stay. The court distinguished between taking new action against the debtor and “maintaining the status quo” by continuing a foreclosure in accordance with state law. Concluding that the weight of authority permits the latter, the court stated: “The activity that occurred postpetition was limited to the continuation of the January 28, 2014, February 18, 2014, and March 18, 2014 foreclosure dates, and the advertising incident to those continuances . . . Knight did not take additional steps in the foreclosure process beyond these continuances and the advertising necessitated by the continuances. The record does not establish that these preparatory acts revived the financial pressures on the Debtor or harassed her.”

The panel affirmed the finding of the bankruptcy court that the lender’s actions did not violate the automatic stay.

Witkowski BAP 1st opinion