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Bankruptcy Appellate Panel Grants Lender That Has Already Foreclosed Relief From Stay - Edwards v. Wells Fargo Bank

September 12, 2011

As Rancho Cucamonga foreclosure defense attorneys, we frequently write here about the possibility of filing for bankruptcy to stave off a foreclosure. Because all bankruptcies include an automatic stay -- a court order telling creditors collecting a debt to back off -- this can at least give the borrower some breathing room. It might also help in the long run if the mortgage lender has an imperfect claim on the property or has broken predatory lending laws. However, as the Ninth Circuit's Bankruptcy Appellate Panel ruled in Edwards v. Wells Fargo Bank, N.A., filing for bankruptcy is not the right path for debtors whose foreclosures have already finished. In this case, the panel upheld the bankruptcy court's choice to grant relief from stay to Wells Fargo, the purchaser of a home once owned by Lupi Paulo Edwards despite her Chapter 7 bankruptcy filing.

Edwards, of Long Beach, filed for bankruptcy in August of 2010. Wells Fargo quickly moved for relief from the automatic stay. In its filing, it included a copy of a Trustee's Deed Upon Sale dated May 17, 2010. That deed showed that Wells Fargo was the high bidder for the property. The bank filed its deed three days later and filed paperwork and a lawsuit to evict Edwards in May and June. In her response, Edwards -- representing herself -- said the property belonged to her and was unencumbered. She wrote that Wells Fargo's foreclosure and eviction were unlawful and it had no standing to move for relief form the stay; and that an adversary proceeding was pending in the bankruptcy court. In fact, she filed no adversary proceeding until the day of the hearing on Wells Fargo's motion. Nothing was attached that proved her allegations. At the hearing, Edwards argued that Gold Country Escrow was the trustee for the property and only that company had the right to foreclose. The relief from stay motion was granted, and Edwards appealed.

The panel started by discarding documents from both parties that they apparently brought up for the first time on appeal. Edwards argued that Wells Fargo had no standing because it had no interest in the property; she contended that Gold Coast is the trustee on her Deed of Trust and thus, the companies conducting the foreclosure were not lawfully allowed to do so. The panel described this contention as "baseless." Wells Fargo's paperwork shows that it had title free and clear pursuant to the foreclosure sale, and had it before Edwards filed her bankruptcy case. Under California law, the debtor who was foreclosed upon is the one who no longer has an interest in the property, and that is enough to establish cause for granting the purchaser relief from the bankruptcy stay. Thus, the bankruptcy court did not abuse its discretion in granting relief. The panel also dismissed Edwards's argument that relief was inappropriate because she had an adversary proceeding pending, arguing that the foreclosure sale and attempts to evict her were unlawful. The panel noted that it wasn't clear whether that proceeding had been filed by the time of the hearing -- but in any case, the bankruptcy court has the discretion to grant relief regardless of any adversary proceeding. Finally, the court noted that California law does not allow litigants to argue that a foreclosure was unlawful after they have already lost an unlawful detainer case, as Edwards had before the bankruptcy. Thus, it confirmed the bankruptcy court.

Our Newport Beach foreclosure defense lawyers appreciate what Edwards was trying to do -- but we advise potential bankruptcy filers to talk to us before trying the same thing. Her argument that the foreclosure was unlawful was best made before the foreclosure sale took place, before Wells Fargo had the title and the legal rights that go with it. As Temecula foreclosure defense attorneys, we frequently file lawsuits during this phase of foreclosure, arguing that a foreclosure violates California or federal law, or rules under the Home Affordable Modification Program. For the same reasons, it's also best to file for bankruptcy before a foreclosure sale, so the bankruptcy court will still have the authority and motivation to sort through any genuine issues of predatory lending or ownership disputes. Filing for bankruptcy may have helped Edwards avoid moving out of the home for slightly longer, but if it cost any money -- which she could use to move to another home and start over -- it may not be worthwhile.

Based in Anaheim, Howard Law, P.C., represents clients across California who are fighting to hold on to their homes even when their mortgage servicers are trying to rush them into foreclosure. If that sounds familiar and you'd like to talk to an experienced lawyer about your situation, call us today at 1-80-872-5925 or send us a message through our website.

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