BANKRUPTCY CORNER
Bankruptcy Cannot Undo Every Foreclosure
JASON S . RIGOLI
One constant that still exists in bankruptcy is filing to stop , delay , or undo the foreclosure of a debtor ’ s real property . Sometimes bankruptcy cannot be used to undo a foreclosure as Judge Isicoff explained in Nunez v . Wilmington Savings Fund Society ( In re Nunez ), 21-01157 , 2021 Bankr . LEXIS 3109 , 2021 WL 5236874 ( Bankr . S . D . Fla . Nov . 10 , 2021 ).
Relevant Facts and Procedural Background
In Nunez , the debtor had defaulted on her loan , and the bank filed a complaint in state court to foreclose the mortgage encumbering the real property . “ On January 27 , 2021 , the [ s ] tate [ c ] ourt entered a final judgment of foreclosure against debtor in the amount of $ 150,164.85 ( the " Final Judgment "). [ The real p ] roperty was sold pursuant to the Final Judgment on April 13 , 2021 ( the " Foreclosure Sale "). [ The bank ] was the successful bidder at the Foreclosure Sale with a credit bid of $ 69,100.00 . On April 27 , 2021 , a certificate of sale was filed in the Foreclosure Action .” Nunez , 2021 Bankr . LEXIS 3109 at * 2 .
“ On May 4 , 2021 , Debtor filed an objection to the Foreclosure Sale . After a hearing on May 18 , 2021 , the State Court entered an order on May 20 , 2021 , denying Debtor ' s objection and ordering the clerk to issue a certificate of title .” Id .
“ Also on May 18 , 2021 ( the " Petition Date "), Debtor filed a petition for relief under chapter 13 of the Bankruptcy Code 1 in this Court . On May 19 , 2021 , Debtor filed her Complaint to Avoid a Preference Pursuant to 11 U . S . C . § 547 ( b ) and Other Related
Relief ( ECF # 1 ) ( the " Original Complaint "), initiating this adversary proceeding . Thereafter , on June 25 , 2021 , Debtor filed the Amended Complaint to Avoid a Preference Pursuant to 11 U . S . C . § 547 ( b ) and Other Related Relief ( ECF # 9 ) ( the " Amended Complaint ").” Id . at * 2-3 .
Relevant Statutes
The debtor in Nunez filed her bankruptcy to try and avoid the Foreclosure Sale as a preference under section 547 ( b ) of the
Bankruptcy Code . In order to recover a preference under § 547 ( b ) “ a plaintiff must allege , and prove , that the transfers : 1 ) were of an interest of the debtor in property ; 2 ) were on account of an antecedent debt ; 3 ) were to or for the benefit of a creditor ; 4 ) were made while the debtor was insolvent ; 5 ) were made within ninety days prior to the commencement of this bankruptcy case ; and 6 ) enabled [ the defendant ] to receive more than it would have received if the transfers had not been made and it had asserted its claim in a chapter 7 liquidation .” Id . at * 5-6 .
And , as Judge Isicoff stated :
When a foreclosure sale occurs there are two transfers . The first transfer is a transfer of the foreclosed property to the successful bidder at the sale . In Florida , this is a twopart process — a certificate of sale is issued " promptly " following the foreclosure sale . Fla . Stat . § 45.031 ( 4 ).
If there is no timely challenge to the sale , or the challenge has been resolved against the challenger , the certificate of title is issued . See Fla . Stat . § 45.031 ( 5 ); Fla . Stat . § 45.031 ( 6 ). At the time of the foreclosure sale , the winning bidder pays ( or electronically advances ) funds to the court for the purchase of the property . See Fla . Stat . § 45.031 ( 3 ). Once the certificate of title is issued , then the proceeds of sale are distributed to the foreclosing lienholder ( less any sale costs ) and , if applicable , any subordinate lienholders , capped at the full amount of the judgment debt . See Fla . Stat . § 45.031 ( 7 )( a ). This payment to the foreclosing party is the second transfer .
Nunez , at * 8-9 .
Analysis
In Nunez , however , because the bank was the winning bidder through its credit bid , there was no second transfer . The bank as the successful bidder did not receive the property as payment on its antecedent debt , the bank was the purchaser of the property . As a purchaser , the transfer of the property to the bank could therefore not be avoided as a preference under § 547 ( b ) of
PBCBA BAR BULLETIN 10
the Bankruptcy Code . Conclusion
Timing is everything under the Bankruptcy Code and the factual circumstances of each case will dictate the applicability of the provisions of the Bankruptcy Code .
This article was submitted by Jason S . Rigoli , Furr and Cohen , P . A ., 2255 Glades Road , Suite 419A , Boca Raton , FL 33431 , jrigoli @ furrcohen . com
1
11 U . S . C . §§ 101-1532 .
LEADING PRACTICE MANAGEMENT SOFTWARE 10 % Discount for Bar Members
You can access your firm from anywhere — at any time — with Clio ’ s mobile app . Bring your matters , documents , notes , and calendar with you wherever you go , all on your mobile device . And , take 10 % off all Clio products with your exclusive PBCBA member discount .
Visit www . clio . com / pbcbar to learn more and use promo code PBCBAR to claim your discount .