Scott v. Bierman

Summarized by Elizabeth Gunn , United States Bankruptcy Court, District of Columbia
14 years 9 months ago

Citation:

No. 10-1483 (4th Cir. May 12, 2011)

Tag(s):

4th Circuit

Ruling:

On direct appeal, the Fourth Circuit affirmed the Bankruptcy Court for the District of Maryland's holding that property (i) sold at a properly noticed foreclosure sale, (ii) with the foreclosure sale ratified by the state court, and (iii) conveyed to the purchaser pre-petition and not timely contested by the debtor was not part of Debtor's Chapter 13 bankruptcy estate even though the state court order ratifying the sale was subject to a motion to rescind under Md. Rule 2-535(b).

Procedural context:

Interlocutory appeal from order determining property was not property of debtor's estate pursuant to section 541.

Facts:

Prior to the petition date, the Debtor owned a parcel of real property as joint tenants with his mother. Upon default, the secured lender initiated foreclosure proceedings under Maryland state law. The debtor and his mother were provided with all required notices of the foreclosure sale. The foreclosure sale took place in March 2009 and counsel for the secured lender issued the required notice of sale. Pursuant to Maryland state law, thirty days after the issuance of the notice of sale, the Maryland state court entered an order of ratification of the sale, providing a final resolution of all matters relating to the foreclosure sale (the "Ratification Order"). Pursuant to the Ratification Order, the Trustee for the secured lender conveyed the property to the purchasers. Three months after the entry of the Ratification Order, the debtor and his mother filed a "Motion to Reconsider, Set Aside, Vacate, and Rescind" the Ratification Order pursuant to Maryland Rule 2-535(b) (the "Motion to Rescind"). The Motion to Rescind was pending when the debtor filed his Chapter 13 petition in December 2009. The debtor filed an adversary proceeding seeking, inter alia, a declaration that the property was part of the debtor's bankruptcy estate due to the fact that the Motion to Rescind was still pending as of the petition date. The Bankruptcy Court held, and the Fourth Circuit affirmed, that because the debtor held neither equitable nor legal title as of the petition date, the property was not property of the estate. Under Maryland law, equitable title was transferred to the purchaser immediately after the foreclosure sale and legal title passed to the purchaser after ratification of the sale by the state court and the conveyance of the property to the purchaser. Maryland Rule 2-535(b) permits a party to file a motion requesting a court to exercise its power to revise a judgment, but a court's discretionary power is limited for motions filed more than 30 days after entry of a judgment to cases involving extrinsic fraud, jurisdictional mistake, or irregularity of process or procedure previously unknown to the moving party. The Court found that the debtor’s pending motion under Rule 2-535 did not revive a legal or equitable interest in property for the debtor. Because the debtor did not timely contest the foreclosure sale combined with the entry of the Ratification Order and the conveyance of the property, the debtor was completely divested of any interest in the subject property prior to the filing of his Chapter 13 case.

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