Of the dozens of cases that I read each month, every so often one of those cases causes me to hurt my head as it hits the ceiling. In late October, the case of In re: Rachel Sue Ulrey, Case No. 13-70645 (Bankr. W.D. Va., Roanoke Division) landed on my desk and resulted in just that – a bump on my head! In that case, the United States Bankruptcy Court for the Western District of Virginia, Roanoke Division found that the debtor could regain possession of property, which she previously lost in foreclosure, pursuant to a Chapter 13 plan.
To understand how this happened, it is necessary to walk through the facts of the case. A foreclosure sale for the debtor’s home was scheduled by the bank for April 18, 2013 at 9:45AM. No one appeared, and at 9:48AM the bank completed the sale through its foreclosure trustee, and simultaneously completed a Memorandum of Sale. The home immediately became the property of the bank; as the court indicated, “[o]nce the auctioneer’s hammer fell and a memorandum of sale was signed, the debtor retained no legal or equitable interest in the property at the time they filed their bankruptcy petition.” In re: Ulrey (quoting Abdelhaq v. Pflug, 82 B.R. 907, 810 (E.D. Va. 1988). Just after the foreclosure sale was completed, at 10:33 AM, the debtor filed a bankruptcy petition. Despite the fact that she had “no legal or equitable interest in [her previous home]” at the time of the filing of the bankruptcy petition, the debtor, seemingly, sought to get the house back by providing on her Chapter 13 plan that she would make direct mortgage payments to the bank to cure the mortgage deficiency which led to the foreclosure. The Chapter 13 plan was confirmed without objection on July 12, 2013.
Subsequent to the debtor’s Chapter 13 plan being confirmed, the bank filed a motion seeking to have the confirmation order revoked on the grounds that the debtor included real property in her bankruptcy schedules and plan, as well as property (her prior home) to which she no longer had any right. After receiving briefs, and conducting a hearing, on the matter, the court recited law from the Eastern District of Virginia, Alexandria Division indicating that “a foreclosure sale occurring prior to the filing of a bankruptcy petition cuts off the debtor’s interest in the foreclosed property.” Abdelhaq at 809. Accordingly, and as the court states, the “real estate never became property of the estate…” Id.
However, as the court says, “[t]his is not the end of the inquiry.” As asserted by the bankruptcy trustee, “because a plan was confirmed, and [the bank] did not object, that [bank] is bound by confirmation.” In agreement with the trustee, the court stated that the order confirming the debtor’s Chapter 13 plan was a “final order” from which “the bank did not appeal.” Accordingly, and “by the thinnest of margins,” the court found that the confirmation order could not be challenged and, ultimately, gave the debtor thirty days to make the payments to the bank, allowing her to recover her previously lost home.
The debtor filed her bankruptcy petition by herself, pro se, and mailed the information to a P.O box for the bank; we don’t know whether the bank ever received it. Later, after obtaining counsel, debtor’s counsel also mailed a copy of the Chapter 13 plan to the bank. Certainly, the bank was afforded due process by the debtor’s mailing the information to it, as well as by having the opportunity to object to the taking of its property (the foreclosed upon home). However, and while I do not have all of the facts, I question whether the bank ever got real notice of either the bankruptcy or the Chapter 13 plan.
What made me bang my head after reading this case isn’t that the debtor was given the opportunity to recover her home, but rather that she didn’t own it, in any capacity, at that point, and yet the court granted her rights to property that was owned by somebody else – the bank. This caused me to reflect on my law school education more than thirty years ago, during which time we were told briefly about “socialist law.” One of the hallmarks of that – socialist law – was using the legal system to take private property away from its owners, and then granting that same property to either the state or the economic classes that the state supported.
While we have hardly come to that level, when a court can simply take property away from its current owner and grant it to someone else, a reasonable person must conclude that there is some crack in the dam, and that the state considers its access to property to be above the rights of the property owners. Cue head banging on the ceiling.