Ninth Circuit Limits Ability of Holdover Occupants to Delay Eviction by Filing Bankruptcy

01.21.16

Martin W. Taylor

Penelope Parmes

Matthew D. Murphey

Meghan Canty Sherrill

On January 8, in the case of Eden Place, LLC v. Perl (In re Perl),the Ninth Circuit issued a published opinion, overturning the decision of the Bankruptcy Appellate Panel (“BAP”) and previous case law regarding application of the automatic stay to eviction proceedings when the occupant files bankruptcy after an unlawful detainer judgment has been entered and a writ of possession issued, but before a lock-out occurs. The Ninth Circuit found that the occupant no longer had any legal or equitable interest in the real property at issue once a writ of possession was issued against him, and as such, the property was not part of the bankruptcy estate and the lock-out did not violate the automatic stay.

Sholem Perl (“Debtor”) defaulted on his mortgage loan and the lender commenced foreclosure proceedings against the real property securing the loan (“Property”). Eden Place, LLC (“Buyer”) purchased the Property at the nonjudicial foreclosure sale and timely recorded the trustee’s deed. Buyer then commenced unlawful detainer proceedings, obtaining a judgment for possession of the Property, and the court issued a writ of possession. Before the Sheriff completed a lock-out, however, Debtor filed for bankruptcy. The scheduled lock-out went forward, despite Debtor’s bankruptcy filing. The bankruptcy court found that Buyer had violated the automatic stay by completing the lock-out after the bankruptcy case was filed. The BAP affirmed that decision, but the Ninth Circuit reversed. The Court’s reasoning and holding is summed up on the last page of the opinion, as follows: “The unlawful detainer judgment and writ of possession. . . bestowed legal title and all rights of possession upon [Buyer]. Thus, at the time of the filing of the bankruptcy petition, [Debtor] had been completely divested of all legal and equitable possessory rights that would otherwise be protected by the automatic stay. Consequently, the Sheriff’s lockout did not violate the automatic stay because no legal or equitable interests in the property remained to become part of the bankruptcy estate.” Eden Place, LLC v. Perl (In re Perl), Case No. 14-60039, 2016 U.S. App. LEXIS, at *20-21 (9th Cir. Jan. 8, 2016) (internal citations omitted).

The Court’s holding has potentially far-reaching consequences, as the Court did not limit it to the facts of the case or even to just residential properties. The decision will limit the ability of a borrower who remains in the property after foreclosure to stay a legal eviction once a writ of possession has issued. The Court indicates in its opinion that the proper vehicle to obtain a stay under these circumstances is to request it through the state court and follow the procedures and conditions imposed by California law to obtain such a stay.

If you have any questions, please do not hesitate to contact Martin Taylor, Penelope Parmes, Matthew Murphey, or Meghan Sherrill.

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