Experience – Transparency – Professionalism – Tenacity

None Of Your Beeswax

None of Your Beeswax
Violations of the Automatic Stay, Voidness And Standing Bank of New York Mellon v. Enchantment at Sunset Bay Condo. Ass’n[1]

 Written by: Edmond J. Ford, Ford, McDonald & Borden, P.A.
Portsmouth, NH

The childhood riposte “none of your beeswax” has legal analogs among them the doctrine of standing.  Standing is one of several doctrines that limit the scope of legal rules. One such rule is the automatic stay.[2]  It is said that acts in violation of the automatic stay are not voidable but void.[3]  If so, who may assert that voidness and when?

The Ninth Circuit has addressed the issue of standing to assert the consequences of a stay violation in multiple opinions the most recent of which conclude (for the majority) that a non-debtor has standing to assert the state law consequences of stay violation voidness.[4]

The facts of Bank of New York Mellon v. Enchantment at Sunset Bay Condo. Ass’n, are quotidian.  Debtor was in arrears on condominium homeowner’s association assessments. Assessment lien notices were filed. Debtor filed a Chapter 13 case.  The Debtor did not list the association as a creditor.[5] The association, in July 2014,[6] foreclosed on its lien without obtaining relief from the automatic stay and sold to a purchaser.  The bank did not dispute that it received notice of the foreclosure.[7] Under state law, in the absence of a stay violation, the association’s foreclosure would convey title free of the bank’s mortgage.

The plan was confirmed by order dated September 22, 2014.  The plan required the surrender of the property to the bank in full satisfaction of its secured and unsecured claims.[8]  The Plan terminated the stay as to the condominium on confirmation.[9] Three years later the bank sued the purchaser and homeowner’s association to declare among other things, the association’s foreclosure  a violation of the automatic stay and void.

The trial court held that the bank did not have standing to assert the violation of the stay and granted judgment to the purchaser and association.[10]  The bank appealed.  The Ninth Circuit panel reversed.

The Ninth Circuit issued three opinions.  The Court, Judge VanDyke writing for himself and Judge Rawlinson, limited Ninth Circuit precedent saying:

“The Bank argues that the district court misapplied In re Pecan Groves and incorrectly used that bankruptcy case to prevent the Bank from raising the voidness of the foreclosure sale in this diversity action in federal court. We agree that the district court indeed erred because the Bank had standing to make the argument that the HOA foreclosure sale occurred in violation of the bankruptcy stay and was thus void.” [11]

The Court appeared to limit In re Pecan Groves[12], to “whether a creditor had standing to appeal a bankruptcy order”[13]

The concurring opinion, also written by Judge VanDyke, but for himself alone, emphasized that standing derives from the now accepted doctrine (in the Ninth Circuit) that acts in violation of the automatic “stay are void, not merely voidable.”[14]  In Judge VanDyke’s view, a standing limitation that bars any affected party from challenging a “void” act through standing is “trying to reconcile the irreconcilable.”[15]  He says the earlier caselaw (such as In Re Pecan Groves) arose at a time when the Ninth Circuit had not declared that acts in violation of the automatic stay were void, but instead were merely voidable.[16]  Since then, the circuit has come firmly down with the rule that acts in violation of the stay are void.  A void act “is as if it never existed.”[17]

If the associations foreclosure never existed then there could have been no conveyance free of the bank’s mortgage and the bank had standing to so assert in the state law quiet title action.

Judge Forrest dissented.  She wrote that the Ninth Circuit precedent on standing did not allow the bank standing to assert a violation of the automatic stay even in a state law quiet title action.[18]  She wrote that the doctrine of voidness was more nuanced than Judge VanDyke allowed:

“The concurrence argues that this reasoning upends the void-not-voidable rule. Maybe if ‘void’ were viewed in absolute terms. But our caselaw, taken as a whole, does not apply the void-not-voidable rule in this way. If conduct violating the automatic stay were truly void ab initio, prudential standing would be immaterial—the conduct would have no legal effect as to anyone, period.”[19]

With that declaration Judge Forrest appears to acknowledge that if an act in violation of the stay is, in fact, void ab initio, then standing excludes no person injured by the act.[20]

The Ninth Circuit’s opinion makes clear the connection between standing and the doctrine that acts in violation of the stay are void.

If such acts are void, how fare creditors such as the association to whom notice of the bankruptcy was not given, or the purchaser at the foreclosure sale with still less notice? Is justice yet done?  In Bank of New York Mellon, is the story complete and the bank victorious?  One would think not.

One would think not, because the association and the purchaser may yet seek an order from the bankruptcy court annulling the stay.[21] Stay annulment can be retroactive.[22]  If the stay were to be retroactively annulled, the associations foreclosure sale would be revived and the Bank could still recover nothing.

July 31, 2021
Ford, McDonald & Borden, P.A.
10 Pleasant Street,
Suite 400
Portsmouth, NH  03801

[email protected]

[1] 2 F.4th 1229 (9th Cir. 2021).

[2] 11 U.S.C. §362(a)

[3]  E.g., Void: In re Soares, 107 F.3d 969 (1st Cir. 1997); In re Schwartz, 954 F.2d 569, 571 (9th Cir. 1992); Raymark Indus., Inc. v. Lai, 973 F.2d 1125, 1131 (3d Cir. 1992); Ellis v. Consol. Diesel Elec. Corp., 894 F.2d 371, 372 (10th Cir. 1990).  Merely voidable: Bronson v. United States, 46 F.3d 1573 (Fed. Cir. 1995) (IRS assessments voidable); Easley v. Pettibone Michigan Corp., 990 F.2d 905 (6th Cir. 1993) (voidable, and shall be voided absent limited equitable circumstances)

[4] Bank of New York Mellon v. Enchantment at Sunset Bay Condo. Ass’n, 2 F.4th 1229 (9th Cir. 2021).

[5] Bank of New York Mellon as Tr. for Certificateholders of CWALT, Inc., Alternative Loan Tr. 2005-54CB, Mortg. Pass-Through Certificates Series 2005-54CB v. Hill, No. 217CV01916RFBEJY, 2019 WL 4781838, at *1 (D. Nev. Sept. 30, 2019), rev’d and remanded sub nom. Bank of New York Mellon v. Enchantment at Sunset Bay Condo. Ass’n, 2 F.4th 1229 (9th Cir. 2021).

[6] Id.

[7] Bank of New York Mellon as Trustee for Certificateholders of CWALT, Inc., Alternative Loan Trust 2005-54CB, Mortgage Pass-Through Certificates Series 2005-54CB, 2019 WL 4781838, No. 217CV01916RFBEJY, Transcript, ECF Docket Entry 56, Lines 12-15.

[8] In Re Harold J. Hill,  Bk No. 14-22675, United States Bankruptcy Court for the District of Utah, Central Division, ECF Docket Entry 42, p. 8.

[9] Id. Plan, ECF Docket Entry no. 27, p. 3 ¶(e)

[10]  “The Court finds In re Pecan Groves of Arizona controls and that Bank of New York Mellon does not have standing to challenge the foreclosure sale as a violation of the automatic bankruptcy stay because it was neither a party, a debtor, or a trustee in Hill’s bankruptcy matter.” Bank of New York Mellon as Tr. for Certificateholders of CWALT, Inc., Alternative Loan Tr. 2005-54CB, Mortg. Pass-Through Certificates Series 2005-54CB v. Hill, 2019 WL 4781838 (D.Nev.), 3

[11] Bank of New York Mellon v. Enchantment at Sunset Bay Condo. Ass’n, 2 F.4th 1229, 1232 (9th Cir. 2021)

[12] In re Pecan Groves of Arizona, 951 F.2d 242 (9th Cir. 1991).

[13] Id. at 1232.

[14] Id. At 1235.

[15] Id.

[16] Id. At 1236 (“because the older bankruptcy standing cases the dissent cites were either directly or indirectly based on the now-rejected rationale that such transactions were merely voidable, not void.”)

[17] Id. At 1236

[18] Id. At 1239 – 1241.

[19] Id. At 1243

[20] Such standing is a proposition many state courts have accepted: See, e.g., Doe v. Fireman’s Fund Ins. Co., 287 Neb. 486, 843 N.W.2d 639 (2014) (Non-debtor insurer granted summary judgment against non-debtor personal injury plaintiff because default judgement against debtor was entered in violation of the automatic stay); Krondes v. O’Boy, 69 Conn. App. 802, 812, 796 A.2d 625, 631 (2002) (Judgment against non-debtor spouse reversed because of stay violations before trial, even though trial was after discharge: “If the acts in question properly are construed as having no legal effect, they could have had no efficacy at trial.”); In re Cty. Treasurer & Ex Officio Cty. Collector of Cook Cty., 308 Ill. App. 3d 33, 45–46, 719 N.E.2d 143, 152 (1999) (Appeal of judgment in favor of non-debtor bank and against non-debtor tax sale purchaser dismissed because: “…, both the motion to reconsider and the notice of appeal were stayed under section 362(a)(3) as acts to obtain or control property of the estate. Accordingly, those actions were without effect even with respect to the Bank.”); Foresta v. Previte, No. 13 MISC 476508 (RBF), 2014 WL 5323066, at *5 (Mass. Land Ct. Oct. 20, 2014) (Non-debtor trust prevails in title dispute over non-debtor heirs: “Because the Superior Court Judgment violated the automatic stay, it is void ab initio. … The automatic stay imposed by Bankruptcy Rule 401 is an exercise of federal power. In issuing the Superior Court Judgment, the Superior Court directly contradicted federal law. Any judgments by a state court entered in violation of the stay are ‘beyond [the court’s] power, void, and subject to a collateral attack.’”) (quoting, Kalb, 308 U.S. 433); SNR Dev., LLC v. 126 Henry St. Inc., 65 Misc. 3d 1071, 1074, 112 N.Y.S.3d 478, 480 (N.Y. Dist. Ct. 2019) (Non-debtor tenant defeats non-debtor landlord’s eviction proceeding because tax deed in to Landlord was void ab initio in prior owner’s bankruptcy).  Many bankruptcy courts have likewise accepted non-debtor standing to challenge void stay violative acts. In re Teleservices Grp., Inc., 463 B.R. 28, 32 (Bankr. W.D. Mich. 2012) (Non-debtor fraudulent conveyance defendant has standing assert automatic stay voidness); In re Lesick, No. 03-00038, 2006 WL 2083655, at *5 (Bankr. D.D.C. July 19, 2006) (Purchaser of estate property has standing to challenge tax deeds as stay violation).  Even cases in the 9th Circuit permit non-parties to the bankruptcy to assert automatic stay voidness.  See, e.g., Lewis v. Daybreak Grp., Inc., No. E042364, 2008 WL 4801647, at *4 (Cal. Ct. App. Nov. 5, 2008) (non-precedential) (Successor in interest to purchaser at foreclosure sale can assert automatic stay violation voidness against mortgage recorded in violation of the stay).

[21]  11 U.S.C.A. § 362 (d)(West) (“On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay-…”) (emphasis added)

[22] In re Myers, 491 F.3d 120, 127 (3d Cir. 2007) (“this and other courts have held that actions in violation of the stay, although void, may nevertheless be reinvigorated through a retroactive annulment of the stay”); In re Soares, 107 F.3d 969, 976 (1st Cir. 1997) (“We now confirm Smith ‘s adumbration, holding that 11 U.S.C. § 362(d) permits bankruptcy courts to lift the automatic stay retroactively and thereby validate actions which otherwise would be void.”);   In re Nat’l Env’t Waste Corp., 129 F.3d 1052, 1056 (9th Cir. 1997) (“We conclude, in light of all of the factors involved, that the bankruptcy court did not abuse its discretion in granting the City retroactive annulment of the automatic stay.”); In re Albany Partners, Ltd., 749 F.2d 670, 675 (11th Cir. 1984) (“Accordingly, we hold that § 362(d) permits bankruptcy courts, in appropriately limited circumstances, to grant retroactive relief from the automatic stay.”);