Defendants Filing Bankruptcy to Stall Sheriff Sale Confirmation

[Nicole R.]

Hello BP Members,

I recently bid on and "won" a property at an auction that occurred this past early March.  Prior to bidding, I did my due diligence and felt comfortable bidding (i.e. ensuring it was a 1st mortgage, taxes in good standing, etc.).  It turns out, however, that the homeowners haven't paid a mortgage payment since early 2015 and instead just pay an attorney to continue to stall/keep them in the house for as long as possible.  

This lack of payment for a substantial amount of time resulted in a personal deficiency judgement against the Defendants (almost $400K) and the house is only worth $200k. They first attempted to file a motion to vacate the sale by arguing that the sale price was unconscionable (i.e. the auction sales price was too low given the amount outstanding and the bank should not have sold it for so low). This bought them additional time in the house because the judge granted them a "long" date to respond.  In late June, the confirmation hearing (where the judge was going to rule) date finally came. As some of you may be aware, it is difficult to prove that a sale is unconscionable when its purchased by an independent third party (so they were almost out of luck) and would have to start planning to leave the home. 

In keeping with their stall/delay tactics, however, only one of the defendants (the husband) filed for Chapter 7 bankruptcy the day before the confirmation sale hearing.  This means that he is surrendering the home, but the personal deficiency judgment would be wiped out. Interestingly, he listed the other defendant (his wife) as one of his debtors.  Now, the bankruptcy filing automatically stays the state court confirmation hearing, so the judge continued our motion generally until the bankruptcy is sorted out in federal court.

Our next step is to file for a motion for relief from the stay and get back into state court to get the sale confirmed and then start the process to obtain possession/evict the occupants. My concern is that because the wife is listed as a debtor in the husband's bankruptcy, she may either (i) have a claim against the property or (ii) file for bankruptcy once we get back into state court for the foreclosure hearing which would set us back an additional 3-4 months. 

Keep in mind that, once we get the sale confirmed, if ever, we will have to go through the possession/eviction process not only with these two debtors but also with their adult children who are residing at the home (but were not on the foreclosure documents).

We have been accruing attorneys fees throughout this process, so I wanted to reach out to see if anyone had any recommendations or has been in a similar situation before. 

Many thanks!

[Bob Floss II]

@Andy Mirza The process has changed a bit over the last couple years. With fewer foreclosures the Court has time to review each file a bit more closely. I practiced foreclosure defense several years ago and it wasn't uncommon to have a file where I delayed the process for over a year. I had a few clients that I kept in properties for several years. In the current climate, files should take closer to 6 to 10 months. 

The game playing happens at the very end when the client is willing to pay for any options to buy more time in the house. The most desperate option is a Motion to Quash, saying the entire foreclosure is invalid for a variety of reasons, but most often for failure to properly serve the defendant. It's possible to win these motions, but it's also possible to win the lottery, you have about the same chances of winning either. The easiest delay is getting an offer on the property and filing a Motion to Stay Sale to give the homeowner time to work out a short sale. However, that's only before the Sheriff Sale. 

If the Sheriff Sale has occurred, the homeowner has extremely limited options. They can still file a Motion to Quash but its an extreme long shot and the judge knows it. You need iron clan evidence you were not served. The homeowner can file bankruptcy but the part I don't understand about @Nicole R. story is the delay from bankruptcy. When we filed Chapter 7 for a client, we would get the advantage of the Stay from the bankruptcy court, but once that ran out, the client was out of luck. The reason is Chapter 7 is the debtor asking from personal relief from all debt. Judge's would tell clients if they are no longer personally liable for the debt, then there is no reason to delay the court proceeding any further and the sale would be confirmed. 

I agree that before bidding on any property at sheriff sale, you need to review the court records. I've had several properties that looked great but I did not bid because there were several years worth of motions filed by the homeowner. You can be sure any homeowner fighting that hard to keep the house will fight hard to prevent you from evicting them. 

I can go more into detail on the foreclosure defense process but its quite lengthy.