American Bankruptcy Institute
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ARIZONA
In re |
Chapter 13 CASE NO. 03-00360-PHX-RJH OPINION DENYING MOTION |
When
is a trustee’s sale complete? Facts Secured creditor Susan
Naifeh is the holder of the beneficial
interest under a deed of trust recorded
against the principal residence of
Denise Benson (hereafter “Debtor”).
A trustee’s sale was noticed
for and held on January 8, 2003. The
high bidder at that sale was not the
secured creditor but rather a third
party purchaser, Capital Realty Services,
LLC (“Capital”), for a
bid of $63,531.53.2
At the time of the sale, Capital provided
the trustee under the deed of trust
a $1,000 deposit, as required by Arizona
law. Arizona’s Trustee’s Sale Statutes In Arizona, security
for debts secured by real property
can be documented either as a mortgage
or a deed of trust. The principal
difference is in the foreclosure process.3
The deed of trust
is frequently used instead of a mortgage
because its foreclosure process is
generally simpler, cheaper and quicker. Trustee’s Sales Are Complete Only When the Bid Price is Paid The statutory detail of the trustee’s sale procedure fairly clearly indicates that the sale is not complete until the bid price is paid.6 A.R.S. § 33-810(A) provides: The sale shall be completed on payment by the purchaser of the price bid in a form satisfactory to the trustee. The subsequent execution, delivery and recordation of the trustee’s deed as prescribed by § 33-811 are ministerial acts. If the trustee’s deed is recorded in the county in which the trust property is located within fifteen business days after the date of the sale, the trustee’s sale is deemed perfected at the appointed date and time of the trustee’s sale. There are at least two negative implications
from those statutory provisions. First,
the fact that the sale is deemed “completed
on payment by the purchaser of the
price bid” implies that the
sale is not completed until such payment.
Second, designating the subsequent
delivery and recordation of the trustee’s
deed as “ministerial acts”
creates the negative implication that
the payment of the bid price is not
a ministerial act, which implies that
it is an essential part of the sale
process. This agrees with common sense. The trustee’s deed [which § 33-811(B) requires the trustee to issue within seven business days after payment of the bid price] shall operate to convey to the purchaser the title, interest and claim of the trustee, the trustor, the beneficiary, their respective successors in interest and all persons claiming the trust property sold by or through them, including all interest or claim in the trust property acquired subsequent to the recording of the deed of trust and prior to delivery of the trustee’s deed. That conveyance shall be absolute without right of redemption and clear of all liens, claims or interests that have a priority subordinate to the deed of trust and shall be subject to all liens, claims or interests that have a priority senior to the deed of trust. In fact, however, the implications of that statutory provision favor the Debtor rather than Capital. While it is true there is no right of redemption after a trustee’s sale, this statutory provision actually provides that the cutoff of the right of redemption occurs upon the delivery of the trustee’s deed, rather than upon the fall of the hammer. That conclusion is reinforced by the specification of what intervening liens and other interests are foreclosed by the trustee’s sale. The statute provides that the intervening liens that are foreclosed are those arising “prior to delivery of the trustee’s deed,” rather than only those prior to the date and time of the trustee’s sale. That implies that the sale is not deemed complete, the deed of trust foreclosed, and title passed to the high bidder until the delivery of the trustee’s deed. This is consistent with the common law notion that title passes upon delivery of the deed, rather than upon the earlier payment of the purchase price or the later recordation of the deed.7 Effect of § 1322(c)(1) Both parties have also made arguments
based on § 1322(c)(1), which
provides that a Chapter 13 plan may
cure a default in a debt secured by
the Debtor’s residence “until
such residence is sold at a foreclosure
sale that is conducted in accordance
with applicable nonbankruptcy law.”
It is at least theoretically possible,
and probably some courts have concluded,
that this statute implies a federal
rule for determining when a residence
is “sold” at a foreclosure
sale. The leading treatise on Chapter
13 has fifteen pages of footnotes
listing cases construing the meaning
of “sold at a foreclosure sale.”
2 KEITH M. LUNDIN,
CHAPTER 13 BANKRUPTCY
§ 130.1, at 130-13 through 130-28
(3d ed. 2002). Effect of Steiner Both parties make arguments based
on this Court’s previous opinion
in LR Partners, L.L.C. v. Steiner
(In re Steiner), 251 B.R. 137
(Bankr. D. Ariz. 2000). In that case,
the trustee’s sale had been
held on April 17, the bid price was
paid on April 18, and the trustee’s
deed was executed and delivered on
April 24, significantly prior to the
filing of the bankruptcy case on May
1. The issue in Steiner arose
from the fact that although the bid
price had been paid and the trustee’s
deed executed and delivered, the trustee’s
deed was not recorded until May 2.
Steiner did not raise an
issue as to whether the trustee’s
sale had been completed, because as
noted above A.R.S. § 33-810 expressly
provides that “the sale shall
be completed on payment by the purchaser
of the price bid,” which had
occurred long before the bankruptcy
case. Rather, the issue in Steiner
was whether the debtor could avoid
the completed sale using the strong-arm
powers of § 544, which were available
to the Chapter 13 debtor pursuant
to § 522(h), because the completed
conveyance had not been recorded prior
to the bankruptcy. This Court concluded
that there could be no hypothetical
bonafide purchaser whose rights would
trump those of the purchaser at the
trustee’s sale, both because
the recorded notice of sale was constructive
notice to the world of the pendency
of the sale, and because the perfection
of the purchaser’s title is
effectively made retroactive to the
date of the sale. Effect of the Automatic Stay Based on this analysis, the Court
concludes that a trustee’s sale
is not complete until the bid price
is paid. That leaves the question
of what is the status of the sale
here, when in fact the bid price was
paid albeit subsequent to the filing
of the bankruptcy. Conclusion For the foregoing reasons, Capital’s
Motion for Relief From the Stay is
denied.
/s/ Pat Denk Footnotes: 1
Except as otherwise noted, all statutory
citations are to the United States
Bankruptcy Code, 11 U.S.C. §§
101-1330. 2
Debtor claims the property is worth
$110,000 and there are no other liens
against it. 3
Strictly speaking, a trustee’s
sale is not a “foreclosure”
of the deed of trust. Arizona statutes
refer to the trustee’s sale
as the exercise of “a power
of sale [that] is conferred upon the
trustee of a trust deed.” A.R.S.
§33-807(A). This is distinct
from a “foreclosure,”
because the beneficiary of a deed
of trust also has the option to “foreclose”
it “in the manner provided by
law for the foreclosure of mortgages
on real property.” Id.
Nonetheless, practitioners commonly
refer to a trustee’s sale as
being a “foreclosure”
of the deed of trust, and the alternative
for a true judicial foreclosure of
a deed of trust is almost never used. 4
Arizona Revised Statutes hereinafter
abbreviated as “A.R.S.” 5
This period may be shortened to 30
days if the foreclosure judgment determines
that the property was abandoned and
not used primarily for agricultural
or grazing purposes. A.R.S. §
12-1282(A). The redemption right may
also be lost if the debtor seeks a
post-sale hearing to determine the
value of the property sold, which
may be sought to reduce the amount
of a deficiency judgment in cases
where there may be liability for the
deficiency. A.R.S. § 12-1566(C).
These provisions are incorporated
into the mortgage foreclosure statutes
by A.R.S. § 33-725(B). The redemption
rights run from “the date of
the sale,” A.R.S. § 12-1282(A)
& (B), and there is no language
similar to that in the deed of trust
statutes specifying that the sale
is “complete” upon payment
of the bid price. 6
There is no Arizona case law defining
when the trustee’s sale is complete. 7
See A.R.S. § 33-401(A)(“No
estate of inheritance, freehold, or
for a term of more than one year,
in lands or tenements, shall be coveyed
unless the conveyance is by an instrument
in writing, subscribed and delivered
by the party disposing of the estate,
or by his agent thereunto authorized
by writing.)(emphasis added); Roosevelt
Sav. Bank of City of New York v. State
Farm Fire & Cas. Co., 27
Ariz. App. 522, 524, 556 P.2d 823,
825 (App. Div. One 1976)(“Under
Arizona law, a deed to real property
does not vest legal title in the grantee
until it is delivered and accepted.
[citations omitted] Execution of the
deed without delivery is legally insufficient
to transfer title.”). 8
This question may arise after a judicial
mortgage foreclosure sale. As noted
above, debtors generally have six
months after such a sale in which
to redeem, but they have no right
under state law to cure the default
and reinstate the mortgage during
that time. It could be argued that
the foreclosure sale is deemed to
be complete, under state law, on the
date of sale or on payment of the
bid price even though the sheriff
does not deliver a deed until expiration
of the redemption periods. A.R.S.
§ 12-1286. Does § 1322(c)(1)
nevertheless create a cure and reinstatement
right during this period? Colon
does not appear to answer that
question, but instead assumes it will
not often arise under the Illinois
procedures. 319 F.3d at 920. Similarly
we need not answer it here, and it
may never arise due to the infrequent
use of residential mortgages in Arizona. 9
This statement is made only to elucidate
Capital’s position vis-à-vis
the Debtor and property of the estate,
not to determine the rights as between
the secured creditor, the trustee
and the high bidder. Thus, for example,
this Court is not determining whether
the secured creditor or the trustee
can hold the high bidder to his bid
under the present facts. Bidders at
trustee’s sales can largely
avoid the risks of the result here
by coming prepared to pay the bid
price immediately upon the fall of
the hammer rather than the next day. |