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Ninth Circuit BAP Affirms Dismissal of Bankruptcy Case Filed to Stop Foreclosure Sale - Leafty v. Aussie Sonoran Capital

October 12, 2012

Vincent Howard and our Moreno Valley foreclosure defense attorneys were interested to see a recent decision in our home circuit dismissing a bankruptcy apparently filed to stop a foreclosure sale. The debtor in Leafty v. Aussie Sonoran Capital, Anna Leafty, went into foreclosure on her Arizona home in 2008, then filed for Chapter 13 bankruptcy after loan modification negotiations failed. When the owner of the note on her home won relief from the stay and went ahead with the foreclosure sale, she dismissed her bankruptcy case and filed a second one on the morning of the sale. The bankruptcy court ultimately dismissed her second bankruptcy, finding her ineligible for Chapter 13 relief because of the timing of the second case. The BAP of the Ninth U.S. Circuit Court of Appeals upheld that ruling.

Leafty bought her Scottsdale home in 2007 and went into default 14 months later. Aussie Sonoran Capital ended up being assigned the mortgage rights at the same time that the bankruptcy court granted relief from the automatic stay to ASC's predecessor in interest. Meanwhile, the foreclosure sale was scheduled for March 1, 2011. On that morning, Leafty voluntarily dismissed her bankruptcy, re-filed it 35 minutes before the foreclosure sale, then faxed a copy of the filing to the counsel for ASC. The sale went ahead before notice was received, and ASC later moved to dismiss the bankruptcy, confirm the first stay or dismiss the second stay. The bankruptcy court confirmed the first stay, and later dismissed the second bankruptcy, ruling that Leafty was ineligible for bankruptcy because she had dismissed a recent bankruptcy case after a creditor requested relief from the stay.

After further litigation in both bankruptcy court and state court, resulting in Leafty's eviction, Leafty timely appealed to the Ninth Circuit BAP. That court affirmed the dismissal of Leafty's second bankruptcy, as well as the order confirming the relief from stay from the first bankruptcy. Leafty was not eligible to file for bankruptcy a second time, the panel said, under a provision of law designed for precisely this situation: when a debtor has had a case pending within the last 180 days, has a creditor request relief from the stay, then dismisses the case. The purpose of the rule is to prevent abusive filings, the panel noted, that could endlessly delay foreclosures. The panel also found no abuse of discretion in the confirmation of ASC's relief from stay. Because she was ineligible for the second bankruptcy, it said, the relief from stay was still in effect and no second stay was issued. And for the same reasons, the panel said, the court was right to deny Leafty's motion for reconsideration. Thus, it upheld the bankruptcy court on all counts.

Vincent Howard and our Lake Forest foreclosure defense lawyers appreciate what Leafty was trying to accomplish with her bankruptcy--but we would not advise a client to dismiss and re-file the way she did. The BAP was correct that rules exist to prevent bankruptcy filers from doing exactly what Leafty did: dismissing and re-filing to keep renewing the automatic stay, thus effectively putting off foreclosure forever. The opinion notes that Leafty was also pursuing relief through an Arizona state court lawsuit. Vincent Howard and our Chino foreclosure defense attorneys file foreclosure defense and predatory lending lawsuits fairly often, and these can be successful even where bankruptcy court is not (or does not apply).

If you're in danger of foreclosure or already there, but you believe you were pushed into it by predatory lending or other lender misbehavior, Howard Law, P.C., may be able to help. For a consultation with an experienced attorney, call us toll-free at 1-800-872-5925 or send us a message through our website.

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