The debtor failed to make mortgage payments and the bank initiated foreclosure proceedings. The trial court granted summary judgment in favor of the bank. Despite this judgment, the debtor filed a series of motions and proceedings in Ohio state court and eventually federal court seeking to prevent the enforcement of the foreclosure judgment. The debtor then filed for Chapter 13 bankruptcy. The proceedings delayed the foreclosure process for eight years. The creditor filed a motion for relief from the stay in the bankruptcy case under 11 U.S.C. § 362(d), which was granted. The debtor filed a motion seeking reconsideration of the order granting stay relief, which the bankruptcy court denied. The debtor then challenged the denial of its motion for reconsideration, arguing: (1) the court erred in finding cause to grant the stay because the creditor was not entitled to adequate protection payments, (2) the first-to-file doctrine, and (3) that “[t]he underlying state court foreclosure judgment is a nullity and void.”
In Lundeen v. Wells Fargo Bank, N.A. (In re Lundeen), No. 24-8005, 2024 Bankr. LEXIS 2008 (B.A.P. 6th Cir. Aug. 28, 2024) (unpublished opinion), the United States Bankruptcy Appellate Panel for the Sixth Circuit upheld the bankruptcy court’s granting of stay relief and its denial of the debtor’s motion for reconsideration. The court noted that a creditor could request relief from an automatic stay “for a lack of equity in the property… when the property is not necessary for an effective reorganization, and ‘for cause.’” 11 U.S.C. § 362(d)(1). Further, courts have discretion to determine whether relief from a stay should be granted because “cause” is not expressly defined under § 362(d)(1). Laguna Assocs. Ltd. P’ship v. Aetna Cas. & Sur. Co. (In re Laguna Assocs. Ltd. P’ship.), 30 F.3d 734, 737 (6th Cir. 1994). In this case, the bankruptcy court had granted the creditor relief “based on cause” through the following findings: lack of equity, absence of post-petition payments, and the existence of a pending state court case where the creditor could proceed. The court then addressed the debtor’s three arguments. First, the debtor argued that because the bankruptcy trustee did not seek or provide evidence of the creditor’s need for adequate protection payments, there was no “cause” for granting relief from the stay. The court disagreed, stating, "[a]lthough a lack of adequate protection may constitute cause… cause is not limited to a lack of adequate protection.” The court explained that "cause" for granting relief from the automatic stay “is a broad and flexible concept” and that courts should consider the hardship on the parties and the overarching goals of the Bankruptcy Code when determining whether there is “cause” to grant relief. In re Jeffers, 572 B.R. 681, 684 (Bankr. N.D. Ohio 2017). The appellate panel reviewed the entire record and concluded that the bankruptcy court did not abuse its discretion by granting relief to the creditor. Second, the panel rejected the debtor's argument regarding the first-to-file doctrine. In applying the first-to-file rule, courts are permitted to consider evidence of “bad faith” and “anticipatory suits.” Certified Restoration Dry Cleaning Network, L.L.C. v. Tenke Corp., 511 F.3d 535, 551-52 (6th Cir. 2007). Here, the debtor had exhibited bad faith and engaged in anticipatory litigation, having filed a district court action followed by a bankruptcy case in “an attempt to use the automatic stay to prevent [the creditor] from executing on its [f]oreclosure [j]udgment.” Third, the debtor argued that the bankruptcy court should have exercised its “inherent equitable powers” under 11 U.S.C. § 105(a) to determine that the underlying state foreclosure judgment was void. However, due to the Rooker-Feldman doctrine, federal courts are precluded from reviewing state court judgments. VanderKodde v. Mary Jane M. Elliott, P.C., 951 F.3d 397, 402 (6th Cir. 2020). Thus, the bankruptcy court and the appellate panel were unable to review the state foreclosure judgment. Ultimately, the debtor’s motion for reconsideration was deemed insufficient to persuade the panel to overturn the judgment. The panel found the arguments repetitive and lacking in showing any abuse of discretion by the bankruptcy court and upheld its judgment.
By Daniel Ngendahayo: [email protected]
Edited By Nura Elhentaty: [email protected]
Edited By Kristin Meurer: [email protected]
Edited By Hayden Mariott: [email protected]