Order for Relief From the Automatic Stay in Husband's Bankruptcy Case Enforced in Wife's Subsequent Case

On behalf of Macdonald Fernandez LLP on Friday, December 13, 2013.

In Alakozai v. Citizens Equity First Credit Union (In re Alakozai), 2013 Bankr. LEXIS 4380, NC-12-1470-PaDJu (9th Cir. BAP Oct. 2, 2013), the Bankruptcy Appellate Panel of the United States Court of Appeals for the Ninth Circuit ("BAP") affirmed a bankruptcy court order granting relief from the automatic stay to proceed with an unlawful detainer action against the debtor notwithstanding the filing of the sixth bankruptcy case involving her residence. The BAP also ruled that the lender's prior foreclosure on the debtor's real property during the fifth case did not violate the automatic stay because the lender's order granting relief from the automatic stay in the fourth case (filed by her husband only) was effective in rem under Bankruptcy Code Sections 362(d)(4) and (20). Debra Alakozai held a community property interest in certain real property encumbered by a promissory note in her husband's name secured by a deed of trust. Her husband defaulted on the note and a trustee's sale was scheduled. Thereafter, Alakozai and/or her husband variously filed a total of six bankruptcy cases. The lender obtained relief from the automatic stay in the fourth case under Bankruptcy Code Section 362(d)(4) pursuant to an order providing that it was effective as to the property for 180 days. The lender recorder the order after the case was dismissed. Alakozai filed her fifth case within the 180-day period, and later that day the lender obtained title to the property at trustee's sale. The case was dismissed a month later, but Alakozai and her husband refused to vacate. The lender commenced an unlawful detainer action. Several months later, Alakozai and her husband filed the sixth case. The lender obtained relief from the automatic stay to prosecute its unlawful detainer action, and Alakozai appealed. Alakozai argued that the bankruptcy court in the fourth case, which was filed by her husband, did not make the necessary findings of fact to support in rem relief. Therefore, she argued, the bankruptcy court's subsequent order in the sixth case was void. On the contrary, the BAP found that the prior order was effective when the fifth case was filed and Alakozai could not challenge the factual findings by collaterally attacking the unappealable and final order. Bankruptcy Code Section 362(d)(4) provides that "if the court finds that the filing of the petition was part of a scheme to delay, hinder, or defraud creditors that involved . . . multiple bankruptcy filings affecting such real property" and the creditor records the order, it "shall be binding in any other case under this title purporting to affect such real property filed not later than 2 years after the date of the entry of such order." Bankruptcy Code Section 362(b)(20) provides that the automatic stay does not bar a lienholder from enforcing its lien if Section 362(d)(4) applies. Alakozai argued that she was not a debtor in her husband's bankruptcy case, in which the prior order was entered. However, the court ruled that an order under Section 362(d)(4) binds any party asserting an interest in the affected property, including "every non-debtor, co-owner, and subsequent owner of the property."
Section 362(d)(4) was added to the Bankruptcy Code as part of the Bankruptcy Abuse Prevention and Consume Protection Act of 2005 ("BAPCPA") for the apparent purpose of curbing serial filings. It will be interesting to see whether the BAP's broad language aids that goal or gives rise to I intended consequences, such as frustrating the reorganization efforts of an arms-length buyer.