On August 4, 2023, the bankruptcy court for the District of Oregon determined that proposed actions by a lender to enforce a pre-bankruptcy petition foreclosure judgment and evict a borrower—after the borrower filed for bankruptcy—were in violation of the automatic stay. The court, however, did allow the lender the ability to pursue sanctions, criminal charges, and civil claims against the borrower for refusing to relinquish possession of the property after the bankruptcy filing (In re Natache D. Rinegard-Guirma, Case No. 22-31651-dwh13 (Bankr. D. Or. 2023)). This decision serves as a reminder of the broad protections of the automatic stay, while providing some avenues for relief for lenders far down the foreclosure and eviction process.
In 2011, a bank commenced a judicial foreclosure action against its borrower in state court. In September 2013, the state court entered a General Judgment of Foreclosure in favor of the bank, foreclosing the trust deed and granting the bank immediate possession of the property (including remedies to secure possession on demand to the borrower). Five years later, the bank obtained a writ of execution in the foreclosure action, directing the sheriff to sell the property. The sheriff ultimately executed the writ and sold the property to the bank at auction.
After taking title to the property, the bank brought a separate eviction action against the borrower, and in August 2020, the state court issued a notice of restitution for possession of the property. The state court also issued an order directing the sheriff to break, enter, and use necessary force to remove the borrower and other occupants from the property. In June 2022, the sheriff executed the eviction writs and ousted the borrower from the property. The borrower, however, returned the next day.
Later that fall, after returning to the property, the borrower filed for Chapter 13 bankruptcy. In the Chapter 13 case, the bank filed a motion for an order declaring the automatic stay terminated and discharge injunction inapplicable. Specifically, the bank asked the bankruptcy court to find that certain actions would not violate the stay or discharge injunction because the foreclosure had been completed prior to the bankruptcy filing. Those actions include: (i) obtaining an additional writ from the state court to remove the borrower from the property; (ii) actually removing the borrower and her personal possessions from the property; and (iii) pursuing sanctions, criminal charges, and civil claims against the borrower in state court for failing to relinquish possession.
With respect to obtaining a new writ for possession, the bankruptcy court held that such action by the lender would violate the automatic stay. The bankruptcy court determined that the bank’s request for a writ of assistance constitutes enforcement against the borrower of its pre-petition foreclosure judgment and is a continuation of the action giving rise to said judgment in violation of the automatic stay. Consistently, the bankruptcy court likewise determined that if the bank were to request enforcement of its earlier writs obtained in the eviction action, this too would be in violation of the automatic stay.
As to removing the borrower from the property if it did obtain a new writ, the bankruptcy court again found such an act in violation of the automatic stay on the same basis.
With respect to seeking sanctions against the borrower for violating the prior writs, however, the bankruptcy court reached a different conclusion. Under an exception to the automatic stay, the bankruptcy court held that the bank would not violate the stay by pursuing against the borrower sanctions, criminal charges, or civil claims for possessing the property after the petition date or for refusing to relinquish possession of the property after the petition date, providing a potential avenue for relief to the bank.
The decision reinforces the common advice that lenders should stop any activity to enforce a pre-petition foreclosure and eviction judgment once a borrower files for bankruptcy. Importantly, however, lenders that have obtained writs for possession prior to a bankruptcy filing are not left without recourse. In these cases, a lender may be able to pursue sanctions, criminal charges (such as trespass), or civil claims for possessing or refusing to relinquish possession of the property after a bankruptcy filing, which could “encourage” the borrower to vacate.