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Margaret Kinney v. HSBC Bank USA

Summarizing by Lars Fuller

Bank of New York Mellon v. 732 Hardy Way Trust

Case Type:
Consumer
Case Status:
Reversed and Remanded
Citation:
19-17048 (9th Circuit, Jun 25,2021) Published
Tag(s):
Ruling:
A homeowners' association foreclosure sale that violates the automatic stay (11 U.S.C. § 362(a)) is void under Nevada law, and the holder of a deed of trust that was extinguished by the HOA's foreclosure sale had standing to sue and was entitled to a declaratory judgment that its lien was valid. In contrast, the dissent argued that the holder of the deed of trust was not a creditor under the Bankruptcy Code because of the foreclosure sale. The dissent asserted that the foreclosure sale "has nothing to do with the Bank's 'claim against the debtor' or 'against the estate.'"
Procedural context:
Following a homeowner's association's foreclosure on the debtor's residential property, the bank holding the deed of trust on the property filed a quit title action that also sought, among other things, a declaration that the HOA foreclosure was void because the HOA did not obtain relief from the automatic stay before foreclosing. The HOA and the bank both moved for summary judgment. The district court granted summary judgment in favor of the purchaser at the HOA foreclosure sale, holding that the foreclosure sale extinguished the bank's deed of trust on the property. The bank appealed.
Facts:
The debtor, Harold Hill, purchased property in Nevada (the "Nevada property") that was subject to covenants of a homeowner's association ("HOA"). The property was purchased with secured financing, evidenced by a deed of trust assigned to Bank of New York Mellon ("Bank"). In February 2014, after the debtor fell behind in payments to the HOA, the HOA recorded a notice of delinquent assessment. In April, the debtor filed a chapter 13 petition. The debtor's schedules identified the Nevada property as an asset . The debtor's chapter 13 plan stated his intent to surrender the Nevada property to the Bank and the HOA. On July 15, 2014, the HOA recorded a Notice of Foreclosure Sale. A few weeks later, the HOA sold the Nevada property for $6,072.29 at a nonjudicial foreclosure sale. The Bank then filed suit in federal court against the HOA seeking, among other things, a declaration that the HOA's foreclosure sale was void because it violated the automatic stay and that the Bank's lien was still valid. In a dissent, Judge Forrest argued that the Bank should lose because it was no longer a creditor under the Bankruptcy Code because of the completed foreclosure sale. While agreeing that the Bank had standing, Judge Forrest argued that the Bank had no standing to invoke the automatic stay (11 U.S.C. § 362(a)). In making this argument, Judge Forrest acknowledged that the automatic stay protected "creditors' interests in the debtor's estate" (citation omitted), but that such protection extends only to the "preserv[ation of] the debtor's estate." The dissent thus concluded that the automatic stay benefits creditors only as a class. Consequently, the dissent would rule that violations of the automatic stay may not be prosecuted by individual creditors.
Judge(s):
Johnnie B. Rawlinson, Danielle J. Forrest, and Lawrence VanDyke, Circuit Judges

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