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Eighth Circuit BAP Holds Couple Must Convey Real Estate to Bank - Kelley v. Centennial Bank

February 8, 2013

Vincent Howard and our San Bernardino County foreclosure defense attorneys were interested to see a bankruptcy case that gave rise to a dispute about an order to "abandon" real estate to a bank. In Kelley v. Centennial Bank, Raymond and Karen Kelley of Arkansas appealed from an order requiring them to convey several pieces of real estate to Centennial Bank. The Kelleys had filed for Chapter 13 bankruptcy and converted to Chapter 11, but the bank objected to the plan. The objection led to an agreement to "abandon" certain real estate to the bank if it didn't sell in a year. When the time expired, however, the Kelleys didn't convey the property--which the bankruptcy court agreed was meant by "abandon." The Eighth U.S. Circuit Court of Appeals BAP agreed.

The bank originally objected to the Kelleys' bankruptcy plan and moved to dismiss the case altogether. The parties came to an agreed order in bankruptcy court, which required the couple to file an amended plan incorporating that order. The order said the two parties would jointly market six properties for one year after the plan was effective. These included two parcels of land, two car washes and two vacant lots next to the car washes. If the properties did not sell during the one-year period, the Kelleys agreed to abandon them to the bank. In return, the bank would withdraw its motion to dismiss and objection to their bankruptcy plan. However, after the one-year period ended with no sale, the Kelleys did not convey the property to the bank. The bank petitioned for an order and the Kelleys argued that "abandon" should mean "remove from the bankruptcy estate." The bankruptcy court disagreed.

On appeal, the Kelleys renewed their argument that "abandon" should have been interpreted as abandonment from the bankruptcy estate. This, they said, would revert the property to its pre-bankruptcy status, giving the bank relief from the automatic stay but keeping it as their property. The Bankruptcy Appellate Panel of the Eighth Circuit was not impressed. Noting that the bankruptcy court is in the best position to interpret its own orders, the panel declined to find any abuse of discretion. Its logic was sound, the panel said, and amply supported by the record. It agreed that "abandonment" as used in the Bankruptcy Code does not make sense in the context of the agreement, which said the properties were to be abandoned to the bank, not abandoned from the bankruptcy estate. Thus, it affirmed the bankruptcy court.

At Howard Law, P.C., our Santa Ana foreclosure defense lawyers are sympathetic to property owners facing foreclosure--but we must agree that the meaning of the bankruptcy court was clear. Though the record doesn't go into detail, it seems likely that the agreement arose originally because the bank had the right to foreclose on the properties at the beginning of the bankruptcy case. Many of the clients served by Vincent Howard and our Temecula foreclosure defense attorneys see this in the context of a short sale, which is often complicated by foot-dragging by the bank--even though a sale is usually the best outcome for both parties. We help clients negotiate with the bank to make short sales and other foreclosure prevention plans go through.

If you're facing foreclosure in California and you'd like to discuss your rights and your legal options with an experienced attorney, contact Vincent Howard and the team at Howard Law. You can send us an email or call 1-800-872-5925.

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