In the recent Chapter 13 bankruptcy case of a debtor whose home was foreclosed on, the bankruptcy court declined to lift the automatic stay preventing the creditor from taking possession of the home.
US Bank National Association (“US Bank”), Trustee for the C-BASS Mortgage Loan Asset-Backed Certificates, Series 2006-CB2, nonjudicially foreclosed on the residence of Debtor Eleazar Salazar (“Salazar”), by exercising the power of sale under the deed of trust. At the time it foreclosed, US Bank was not the original beneficiary of record, and it had not recorded an assignment of the deed of trust conveying to it an interest in the deed of trust.
After the foreclosure, two lawsuits were filed in state court: Salazar filed to invalidate the foreclosure sale and to seek damages against US Bank and other parties, and US Bank filed to regain possession of the residence through an unlawful detainer action against Salazar. The unlawful detainer; suit was on the verge of trial when Salazar filed his chapter 13 bankruptcy case.
Ultimately the bankruptcy court ruled that it would be less damaging to both parties if the automatic stay remained in place because the foreclosure process was flawed due to the failure to record the assignment. The bankruptcy court decided to review the debtor’s Chapter 13 bankruptcy plan to see if it was feasible and if the debtor could provide adequate protection for the property while repaying the debt. If it is determined that the foreclosure was in fact illegal, the lender may be obliged to accept a Chapter 13 bankruptcy repayment plan despite their objections.
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