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In Re: Syreeta D. Corbitt v. Aurora Loan Services

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT


March 9, 2011

IN RE: SYREETA D. CORBITT, DEBTOR. SYREETA D. CORBITT, APPELLANT,
v.
AURORA LOAN SERVICES, LLC, APPELLEE.

Appeal from the United States Bankruptcy Court for the Eastern District of California Honorable Ronald H. Sargis, Bankruptcy Judge, Presiding Bk. No. EC-10-37534-RHS

SUSAN M SPRAUL, CLERK

U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

MEMORANDUM*fn1

Argued and Submitted on February 17, 2011 at Sacramento, California

Filed - March 9, 2011

Before: KIRSCHER, DUNN, and HOLLOWELL, Bankruptcy Judges.

Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. See 28 9th Cir. BAP Rule 8013-1.

Appellant, chapter 13*fn2 debtor Syreeta D. Corbitt ("Corbitt"), appeals an order from the bankruptcy court granting relief from the automatic stay to appellee, Aurora Loan Services, LLC ("Aurora"), to proceed with its unlawful detainer action against Corbitt in state court. Because the bankruptcy court did not abuse its discretion in lifting the stay, we AFFIRM.

I. FACTS AND PROCEDURAL BACKGROUND

A. Prepetition Events.*fn3

In November 2005, Corbitt obtained a loan for $557,100 from Universal American Mortgage Company ("Universal") to purchase a home in Vallejo, California (the "Property"). In exchange for the loan, Corbitt executed a note, which was secured by a first deed of trust on the Property in favor of Universal. Sometime thereafter, Corbitt obtained a second loan on the Property from Ocwen Loan Servicing ("Ocwen") for $137,000. In or around early 2006, Universal sold Corbitt's loan to Aurora. Corbitt kept the Aurora loan current until April 2008. Corbitt admittedly stopped making payments to Aurora after August 2008. Corbitt's payment history to Ocwen is unknown.

A Notice of Default was recorded against the Property on August 15, 2008, in Solano County, California. Aurora was the successful bidder at a non-judicial foreclosure sale on the Property on December 11, 2008, paying $303,160 for it. By that time, Corbitt owed approximately $587,000 on the Aurora loan. According to a 1099-A Form (Acquisition or Abandonment of Secured Property) Aurora sent to Corbitt, as of December 11, 2008, the Property had a fair market value of $167,200. Aurora recorded its Trustee's Deed in Solano County on December 19, 2008.

Aurora filed an unlawful detainer complaint ("First UD Action") against Corbitt in Solano County Superior Court ("State Court") in January 2009, commencing Aurora Loan Services, LLC v. Corbitt, Case No. VCM104344. For reasons not entirely clear from this record, the First UD Action was dismissed with prejudice on November 13, 2009. On December 8, 2009, Aurora moved to set aside dismissal of the First UD Action, which the State Court denied on or around December 21, 2009.

Meanwhile, on April 17, 2009, Corbitt filed suit against Aurora (and others) in State Court for wrongful foreclosure, commencing Corbitt v. Aurora Loan Services, LLC et al., Case No. FCS033344. After the filing of numerous motions, the State Court dismissed Corbitt's wrongful foreclosure suit with prejudice as to Aurora on or around May 3, 2010.*fn4

On December 30, 2009, Aurora served Corbitt with a Notice to Quit requiring her and all other occupants to vacate the Property in three days. Because Corbitt failed to timely vacate, Aurora filed another unlawful detainer complaint ("Second UD Action") against her in State Court on January 15, 2010, commencing Aurora Loan Services, LLC v. Corbitt, Case No. VCM108334. Before filing an answer, Corbitt, represented by counsel, filed a demurrer alleging issue preclusion, claim preclusion, malicious prosecution, and intentional infliction of emotional distress.

Corbitt's demurrer was overruled on April 30, 2010 ("Judgment").

In the Judgment, the State Court determined that Aurora's Second UD Action was not barred by issue or claim preclusion because the First UD Action was not heard on the merits; it was involuntarily dismissed, and the parties were not afforded a full and fair opportunity to litigate the issues. Further, the State Court found that the Notice to Quit filed in the Second UD Action constituted a new claim.

B. Post-petition Events.

Corbitt filed a petition for relief under chapter 13 on May, 25, 2010, thereby imposing a stay on the Second UD Action.

Corbitt filed a Notice of Bankruptcy with the State Court about two months later on July 28, 2010. In the meantime, Aurora had filed a motion for summary judgment in the Second UD Action on June 8, 2010. However, once Aurora found out about the bankruptcy, it ceased all further action in that case.

On July 29, 2010, Aurora moved for relief from the automatic stay under section 362(d)(2) so it could continue litigation in the Second UD Action (the "Motion"). Aurora contended that, prepetition, it had obtained title to the Property at a foreclosure sale and recorded its Trustee's Deed, it had served Corbitt with a Notice to Quit, and it had commenced an unlawful detainer action against her in State Court. Therefore, Aurora contended that it was entitled to relief because Corbitt had no equity in the Property and it was not necessary for an effective reorganization. The Motion was set for hearing on August 31, 2010.

Corbitt opposed the Motion arguing that it was barred by issue and claim preclusion because the State Court had dismissed the First UD Action with prejudice. Corbitt further argued that: (1) Aurora's Motion was brought in violation of her Notice of Unavailability filed on July 20, 2010; (2) it was a non-core proceeding; (3) it was barred by the automatic stay; (4) Aurora lacked standing because it had failed to file a proof of claim; and (5) Aurora had violated the Fair Debt Collection Practices Act ("FDCPA") by foreclosing on the Property. Corbitt also asked for sanctions due to Aurora's bad faith.

The bankruptcy court heard Aurora's Motion on August 31 as scheduled; Corbitt did not appear. On that same date, the bankruptcy court entered Civil Minutes setting forth its findings and conclusions. The court determined that Aurora had established its ownership of the Property prepetition; therefore, Aurora was entitled to relief under section 362(d)(2) because Corbitt had no equity in the Property and it was not necessary for reorganization. The court rejected all of Corbitt's arguments.

25 Specifically, it found that: (1) the Judgment clearly determined 26 that Aurora's Second UD Action was not barred by issue or claim 27 preclusion; (2) Corbitt had failed to serve her Notice of 28 Unavailability on Aurora, assuming even such a notice was 1 enforceable; (3) a proceeding to terminate, annul or modify the 2 automatic stay is plainly a core proceeding under 28 U.S.C. 3 § 157(b)(2)(G), and seeking relief from stay was not a violation 4 of the stay; (4) Aurora was not required to file a proof of claim 5 because it offered a Trustee's Deed establishing its interest in 6 the Property, thus Aurora had standing; (5) Corbitt's accusation 7 that Aurora violated the FDCPA was not properly before the court; 8 such a matter needed to be litigated in an adversary proceeding or 9 brought before the district or state court; and (6) Corbitt was 10 not entitled to sanctions because she failed to plead any facts 11 showing that Aurora's motive in filing the Motion was anything 12 other than to protect its interest.

13 Corbitt's premature Notice of Appeal filed on September 3, 14 2010, was deemed timely once the bankruptcy court entered a Civil 15 Minute Order granting the Motion on September 7, 2010. Rule 16 8002(a). On October 8, 2010, the motions panel issued an order 17 denying Corbitt's emergency motion for stay pending appeal. On 18 October 13, 2010, the motions panel issued an order denying 19 Corbitt's motion to reconsider the October 8 order.

On 20 November 2, 2010, the motions panel issued an order denying 21 Corbitt's second motion to reconsider the October 8 order. 22 II. JURISDICTION 23 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 24 and 157(b)(2)(G). An order granting or denying a motion for 25 relief from the automatic stay is a final, appealable order. 26 Centofante v. CBJ Dev., Inc. (In re CBJ Dev., Inc.), 202 B.R. 467, 27 469 (9th Cir. BAP 1996). Therefore, we have jurisdiction under 28 28 U.S.C. § 158.

III. ISSUE

2 Did the bankruptcy court abuse its discretion in granting 3 relief from stay to Aurora? 4 IV. STANDARD OF REVIEW 5 We review the bankruptcy court's decision to grant relief 6 from the automatic stay for an abuse of discretion. Kronemeyer v. 7 Am. Contractors Indem. Co. (In re Kronemeyer), 405 B.R. 915, 918 8 (9th Cir. BAP 2009). In applying an abuse of discretion test, we 9 first determine de novo whether the bankruptcy court identified 10 the correct legal rule to apply to the relief requested. United 11 States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009). If it 12 did, we then determine whether its "application of the correct 13 legal standard [to the facts] was (1) illogical, (2)implausible, 14 or (3) without support in inferences that may be drawn from the 15 facts in the record." Id. (internal quotation marks omitted). If 16 the bankruptcy court did not identify the correct legal rule, or 17 its application of the correct legal standard to the facts was 18 illogical, implausible, or without support in inferences that may 19 be drawn from the facts in the record, then the bankruptcy court 20 has abused its discretion. Id.

V. DISCUSSION

The Bankruptcy Court Did Not Abuse Its Discretion When It Granted Aurora's Motion For Relief From The Automatic Stay.

A. Section 362(d)(2).

Section 362(d)(2) provides that "on request of a party in interest and after notice and a hearing, the court shall grant relief from the stay . . . with respect to a stay of an act against property . . . if - (A) the debtor does not have an equity in such property; and (B) such property is not necessary to an 2 effective reorganization[.]" The party requesting relief has the 3 burden to prove a debtor's lack of equity, and the debtor has the 4 burden as to all other issues. Section 362(g). 5 "The proper definition of 'equity' for purposes of 6 § 362(d)(2)(A) is the difference between the value of the property 7 and all the encumbrances upon it." Sun Valley Newspapers, Inc. v. 8 Sun World Corp. (In re Sun Valley Newspapers, Inc.), 171 B.R. 71, 9 75 (9th Cir. BAP 1994)(citing Stewart v. Gurley, 745 F.2d 1194, 10 1196 (9th Cir. 1996)). As for section 362(d)(2)(B), a debtor must 11 show that there is "a reasonable possibility of a successful 12 reorganization within a reasonable time." United Sav. Ass'n v. 13 Timbers of Inwood Forest Assoc. Ltd., 484 U.S. 365, 376 (1988).

B. Analysis.

15 The bankruptcy court determined that because Aurora purchased 16 the Property at the foreclosure sale and recorded its Trustee's 17 Deed prepetition, neither Corbitt nor the estate had any equity in 18 the Property pursuant to section 362(d)(2)(A). For this same 19 reason, the bankruptcy court determined that Corbitt was unable to 20 show that the Property was necessary for a successful 21 reorganization pursuant to section 362(d)(2)(B). 22 First, Corbitt disputes the bankruptcy court's finding that 23 she lacked equity in the Property. Corbitt contends that she in 24 fact has equity in the Property, including her initial down 25 payment of approximately $22,000, mortgage payments she made to 26 Aurora from November 2005 to April 2008, funds she spent on 27 various improvements, and attorneys fees she incurred.

Although

28 Corbitt raises this issue for the first time on appeal, we will -8- 1 consider it because this issue was raised sufficiently for the 2 bankruptcy court to rule on it. O'Rourke v. Seaboard Sur. Co. 3 (In re E.R. Fegert, Inc.), 887 F.2d 955, 957 (9th Cir. 1989). 4 Corbitt's argument lacks merit.

5 Bankruptcy courts must look to state law to determine whether 6 and to what extent the debtor has any legal or equitable interests 7 in property as of the commencement of the case. Butner v. United 8 States, 440 U.S. 48, 54-55 (1979). Under California law, a 9 trustee's sale is deemed final upon the acceptance of the last and 10 highest bid. CAL. CIV. CODE 2924h(c). The successful bidder "at a 11 non-judicial foreclosure sale receives title under a trustee's deed 12 free and clear of any right, title or interest of the trustor." 13 Wells Fargo Bank v. Neilsen, 100 Cal. Rptr. 3d 547, 554 (Cal. Ct. 14 App. 2009).

15 Here, the bankruptcy court had uncontroverted evidence that 16 Aurora was the successful bidder at a non-judicial foreclosure sale 17 of the Property held on December 11, 2008, and that Aurora 18 recorded its Trustee's Deed on December 19, 2008. Corbitt filed 19 bankruptcy on May 25, 2010. Under California law, title to the 20 Property passed to Aurora free and clear of any right, title or 21 interest of Corbitt's more than one year before she filed 22 bankruptcy. Thus, at the time Aurora filed its Motion, neither 23 Corbitt nor her estate had any ownership interest or right in the 24 Property. Corbitt could not have equity in property she does not 25 own. At this point, Corbitt is effectively a squatter.*fn5

Even if we accepted Corbitt's argument that she has an interest in the Property, at the time of the foreclosure sale Corbitt owed over $587,000 on the Aurora loan, plus it appears that she owed at least $137,000 on the Ocwen second loan; the fair market value of the Property was $167,200. She has not made any further payments to Aurora for over two years. Therefore, regardless of whatever down payment, mortgage payments, or improvements Corbitt made on the Property, she has (or had) no equity in it. Accordingly, the bankruptcy court did not err when it determined that Corbitt lacked equity in the Property under section 362(d)(2)(A).

Corbitt also disputes the bankruptcy court's finding that the Property was not necessary to a successful reorganization under section 362(d)(2)(B) because she listed Aurora and Ocwen as secured creditors in her Schedule D, and because she is making payments to both Aurora and Ocwen in her chapter 13 plan. Again, Corbitt raises this issue for the first time on appeal, but we will consider it because this issue was raised sufficiently for the bankruptcy court to rule on it. E.R. Fegert, Inc., 887 F.2d at 957. This argument also lacks merit.

Whether Corbitt listed Aurora and Ocwen on her Schedule D is irrelevant; she no longer owned the Property at the time and, presumably, no longer owed any debt on at least the Aurora loan because under California law she was not responsible for any deficiency. CAL. CIV. PROC. § 580d.*fn6 Further, according to Corbitt's chapter 13 plan, she has not made any payments to Aurora, and she has attempted to strip off Ocwen's second lien. Without any interest in the Property, it cannot be necessary for Corbitt's successful reorganization. Consequently, the bankruptcy court did not err when it determined that the Property was not necessary for reorganization under section 362(d)(2)(B).*fn7

VI. CONCLUSION

As the bankruptcy court noted, granting relief from stay does not determine the parties' rights in the matter; it merely permits them to go to state court to determine their respective rights.

Nothing in the bankruptcy court's order granting Aurora relief from the automatic stay is illogical, implausible, or without support in inferences that may be drawn from the facts in the record. Accordingly, we conclude that the bankruptcy court did not abuse its discretion, and we AFFIRM.*fn8


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