What Happens When A Cotenant In A Tenant In Common Ownership Agreement Does Not Pay

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In many large cities like San Francisco the only way to afford purchasing a home is to purchase a property in which you are tenants in common with other owners of the property. Sadly some of the same issues described here can occur with condominium associations also. In San Francisco there many multi-floor homes that have been separated into individual beautiful homes for purchase. The circumstances I will be discussing in this article arise when there is a single mortgage for the entire property and the tenants in common are all responsible for paying the entire mortgage.

Unfortunately this is a long one given how much took place and the litigation is still ongoing. This will last for over a decade most likely.

Hopefully your tenant in common property has separate mortgages for each separate livable part of the property and there are a few small shared expenses. Yes, all tenants in common are usually responsible for the entire mortgage payment each month regardless of who is paying or not by agreement upon purchase if there is only one mortgage for the entire building. That means your agreement to purchase your portion or percentage of the property will include language that the other owners and you are responsible for paying the entire mortgage each month even if one of the other tenant in common does not pay their portion. The following is how thousands of dollars in mortgage payments and attorneys’ fees and costs will result from one tenant in common not paying their percentage of the monthly mortgage payment then arguably following the law to protect their rights. This case is still actually ongoing and the attorneys’ fees and costs are still piling up. At this point the attorneys’ fees and costs are around three times the real world actual damages …… Something you should think about before retaining an attorney.

Tenants In Common Agreements

A tenant in common agreement is like owning a unit in a condominium building and is a great way to get into a real estate market for less than purchasing a free standing single-family home. You must consider that you will never have complete control over your property though and the other owners or tenants in common can always affect your property and mess with your life. Under California law, co-owners of real property holding undivided interests, such as tenants in common, are considered “cotenants.” In re Fazzio, 180 B.R. 263, 268 (Bankr. E.D. Cal. 1995); Harry D. Miller & Marvin B. Starr, California Real Estate § 11.1 (4th ed. 2017) (“Miller & Starr”). While tenants in common generally each have an equal right to occupy the property, tenants in common in multi-unit residential buildings may agree to give each owner an exclusive right of occupancy in particular dwelling units pursuant to which each may respectively exclude the others from their private residential unit. Tom v. City & Cty. of S.F., 120 Cal. App. 4th 674, 676 (2004). The issue is when there is a single mortgage for the entire property and not each undivided interest.

The tenants in common agreement I will be discussing provided that the three tenants in common agreed to pay a certain percentage of the mortgage for the entire property depending upon their portion of the building occupied. The three original cotenants entered into this agreement in 2003. The property was split up into not equal square footage so the mortgage payments were apportioned by percentage occupied. Fair enough. The original tenant in common agreement of 2003 also provided that if one cotenant did not pay their share of the mortgage the other cotenants were required to pay the non-paying cotenant’s share in addition to their own share. In the case I am discussing one of the original three co-tenants sold their share in 2004 and an amended tenant in common agreement was entered into by the two remaining original cotenants and the new 2004 purchasing cotenant with the same terms as the original three cotenants had. Begs the question why one of the original 2003 cotenants decided to sell in a year or less after original purchase and entering into the 2003 tenants in common agreement? Did the original cotenants all know each other? Was there problems brewing already? Did the value increase that much that selling resulted in walking away with a lot of money? Now an unknown third party purchased one of the original cotenants’ interest a year later. That is life though and how it works. To muddy the waters a little more another of the remaining two original cotenants sold their interest in 2007 for cash. Luckily the purchaser paid with cash, so this resulted in the other two cotenants receiving cash distributions from the sale proceeds and that eliminated the new purchaser’s obligation to pay any part of the remaining mortgage. No doubt the value of this San Francisco property increased significantly allowing the selling cotenant to make this happen and walk away with a great profit. What about the remaining two cotenants still responsible for the mortgage? This left one cotenant, the 2004 purchaser responsible for 25.765% of the monthly mortgage payment and the other cotenant, the last remaining original cotenant responsible for 74.23% of the monthly mortgage payment.

A Cotenant Does Not Pay Their Share As Agreed

So finally we get to the problems. The cotenant discussed with the obligation to pay 25.765% of the mortgage stopped making their share payment of the mortgage in 2011, or four years after the other cotenant sold their interest for cash and 7 years after their original purchase.

In 2011 the 2004 purchaser that ended up with the percentage of 25.765% ($1,215.15 a month) after the cash buyout stopped making their monthly payment. The 74.23% ($3,489.50 a month) cotenant was forced to pay the nonpaying cotenants share pursuant to the amended tenants in common agreement and more importantly to avoid potential foreclosure proceedings. It is unclear whether the total monthly mortgage payment of approximately $4,704.65 includes property tax and insurance. It most likely does include property tax and insurance given there is no additional litigation over direct payment of property tax and insurance in the various court filings.

What Do If A Cotenant Stops Paying?

In the case I am discussing the 74.23% cotenant decided to seek arbitration first. By the way, the 25.765% cotenant’s portion of the mortgage payment is $1,215.15 each month if that was not clear above and the 74.23% cotenant has to pay $3,489.50 each month. It is not clear what happened in this case before the paying cotenant took the not paying cotenant to arbitration. It is possible, since they live in the same building; the cotenants spoke directly to resolve this. Maybe a letter was sent first? It is unclear the steps taken in this case leading up to the “lawyering up,” but ultimately arbitration was chosen as the means to enforce the breached amended tenant in common agreement. It is possible the amended tenant in common agreement required arbitration to resolve disputes.

The arbitrator found in favor of the paying 74.23% interest cotenant. What defense did the 25.765% not paying cotenant have? Did you sign the amended tenant in common agreement upon purchase? Yes. Did you stop making your percentage payment as required by the amended tenants in common agreement? Yes. The arbitrator awarded and ordered the nonpaying cotenant to pay the paying 74.23% cotenant $9,136.26 for the payments they made on the mortgage on behalf of the not paying 25.765% cotenant, that the 25.765% cotenant start paying their portion of the mortgage again and awarded the paying 74.23% cotenant attorneys’ fees and costs of $58,369.29. So we have an amended tenant in common agreement and proof of payments made by the 74.23% cotenant to prove there is a problem here and this resulted in $58,369.29 attorneys’ fees and costs to get to, “you are right and have been wronged in the principal sum of $9,136.26.” The point here is that when things go wrong it gets expensive quickly to arbitrate or litigate the problem. As this issue continues it only gets more expensive also.

What Happened After The Arbitration Award?

After an arbitration award the arbitration award can be entered as a judgment by order. The 74.23% now with their arbitration award did in fact request the Superior Court for the State of California to enter judgment. The judgment entered against the not paying 25.765% cotenant was $68,656.07 ($9,136.26 + $58,369.29 + interest) plus the attorneys’ fees and costs totaling $4,214.50 for having the Superior Court for the State of California enter the judgment on the arbitration award. The proper procedure under the law to enforce a judgment when the defendant owns real property is to record the abstract of judgment with the county the defendant owns real property so the judgment attaches as a judgment lien to the property. The 74.23% owner did just that and recorded an “Abstract of Judgment” totaling $72,870.57 with San Francisco County. After the cost of arbitration, entering of the arbitration award as a judgment and then recording the abstract of judgment nothing become simple as you will read below….

The 25.765% Cotenant Fought the Judgment and Sale of the Property in State Court

The not paying 25.765% cotenant spent the next two years fighting the 74.23% cotenants attempts to enforce the judgment and avoid paying the share of the monthly mortgage payment. The 74.23% continued to follow the law and procedure to enforce their rights and eventually obtained a California Superior Court order to sell the nonpaying 25.765% cotenant’s share of the property to satisfy the judgment lien. Of course the continued litigation costs money and the 74.23% cotenant’s attorneys added more missed payments by the not paying 25.765% cotenant and requested the Superior Court of California add an additional $35,074.40 in attorneys’ fees and costs to the judgment. The Superior Court of California said no, the arbitration award and the judgment you drafted and provided the Court to enter does not include a provision for post-judgment attorneys’ fees and costs. The paying 74.23% cotenant’s attorneys now have to amend the judgment to include post-judgment attorneys’ fees and costs…… In the meantime the 74.23% cotenant is still enforcing their rights and a sheriff’s sale of the 25.765% cotenant’s interest was scheduled. The 25.765% owner filed a motion to quash the sale and then appealed the Superior Court for the State of California’s denial of the motion to quash or stop the sale. The California Court of Appeals denied the not paying cotenant’s 25.765% appeal.

In the meantime on June 9, 2014, a day before the June 10, 2014, sheriff’s sale the not paying 25.765% cotenant filed for bankruptcy protection under Chapter 7 of the Bankruptcy Code.

The 25.765% Cotenant’s Bankruptcy Case Under Chapter 7 of the Bankruptcy Code

So at some point the not paying 25.765% cotenant consulted a bankruptcy attorney. To keep the story as short as possible I will summarize the events of the Chapter 7 bankruptcy case as best I can without leaving out important information. The not paying 25.765% cotenant filed their own bankruptcy case, then hired one bankruptcy attorney, then substituted in another bankruptcy attorney and then ended up representing themselves in the Chapter 7 bankruptcy case. The Chapter 7 case progressed and eventually the Chapter 7 Trustee filed the notice of no distribution which provides the trustee does not believe there are any assets to be disbursed to creditors. The not paying 25.765% chapter 7 bankruptcy is therefore progressing as a no asset chapter 7 bankruptcy case. At some point the 74.23% cotenant decided to file a motion for relief from stay to continue to enforce their state court law rights to sell the 25.765% interest in the building to satisfy their judgment/arbitration award. An order was entered by the Bankruptcy Court confirming the automatic stay was terminated was entered on June 5, 2015. More attorneys’ fees and costs are added to the 74.23% cotenant’s enforcement of their rights.

After the Chapter 7 bankruptcy case was discharged and closed on October 3, 2016, the 25.765% cotenant/debtor requested the Chapter 7 case be reopened to seek sanctions against the 74.23% cotenant under Section 524 of the Bankruptcy Code for violating the order of discharge they received. The 25.765% cotenant/debtor also filed an adversary proceeding lawsuit, a bankruptcy court lawsuit, against the 74.23% cotenant alleging the abstract of judgment for their arbitration award/judgment from the California Superior State Court is deficient and therefore the 74.23% cotenant has no secured debt or valid lien that passes through the Chapter 7 bankruptcy case. Now this is extremely interesting given valid liens recorded against real property will survive the order of discharge in a Chapter 7 case. The 25.765% cotenant/debtor is trying to discharge all that took place previously by the 74.23% cotenant to enforce their rights. In the bankruptcy adversary proceeding lawsuit the Bankruptcy Court held that the abstract of judgment did not comply with the requirements of California Civil Procedure Section 674(a) and therefore there is no valid judgment lien securing the arbitration award regarding the unpaid mortgage payments or attorneys’ fees and costs. This is a huge development and could have enormous implications to the 74.23% cotenant’s ability to collect for all that took place previously leading up to the filing of the Chapter 7 bankruptcy case. The 74.23% paying cotenant appealed this decision by the Bankruptcy Court and the appeal is still pending.

So after 7 plus years, over $80,000 is attorneys’ fees and costs incurred by the paying 74.23% cotenant the not paying 25.675% cotenant may erase all that took place previously by obtaining the Chapter 7 bankruptcy discharge. It will be interesting to see what takes place moving forward in this case. What is fascinating if the vigorous enforcement of rights by both sides in this case. Arguably both are merely following the law as it exists under the circumstances. What is unfortunate is how much time and money has been spent as a result of a tenant in common agreement going bad for whatever reason.

This is what can happen when you put your lot it with others and you can never completely control their choices. It is something to consider long and hard before purchasing a condominium or entering into a tenant in common agreement.

What Can I Do If I Cannot Afford My Monthly Vehicle Loan Anymore?

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What can I do if I cannot afford my monthly vehicle loan payment anymore? The problem is you have a vehicle loan payment that is too high and causing you problems each month with your bills. What can you do about it? There are any numbers of options to try and reduce the payment or get rid of the vehicle in the real world. Most of them end with the vehicle loan company sending you a bill once the vehicle is gone. This article focuses on forcing a set of terms, more favorable loan terms, on loan companies by filing for bankruptcy protection.

Depending upon the circumstances bankruptcy can reduce the principal amount owed on a loan and reduce the loan percentage rate thereby reducing your vehicle loan payment amount each month. The entire point of filing for bankruptcy protection is to eliminate, reorganize and reduce debts. Here we are talking about redeeming a vehicle for its fair market value in a Chapter 7 bankruptcy or cramming down on a vehicle loan in a reorganization case under Chapter 13, 9, or 12 by filing a motion to value the collateral of the secured loan.

So What Are The Savings To You?

The simplest answer is the savings will be the difference between what your vehicles is worth and what is owed on the vehicle loan, plus any reduction in the loan percentage rate. The larger the gap between the value and loan balance the larger the savings. If you vehicle is only worth $10,000 and the balance on your loan is $18,000 filing bankruptcy can reduce the amount you have to pay back to what your vehicle is worth ($10,000), not what is owed on the vehicle loan. So in our example the difference or savings is potentially $8,000. See below for issues that could make the savings less though.

Redeeming A Vehicle For Its Retail Value or Fair Market Value In Chapter 7 Bankruptcy

In a Chapter 7 the result is substantially the same as in a Chapter 13 reorganization case, but the law is different in reducing the vehicle loan. In Chapter 7 liquidation cases vehicle loans are reduced by redeeming the vehicle for its fair market value with new financing. A new loan is obtained for the retail or fair market value of the vehicle, as in our example $10,000, and the old loan company is forced to take the $10,000 in satisfaction of the original $18,000 vehicle loan. This is a 722 redemption. A motion has to be filed with the court and depending upon the jurisdiction a hearing may have to be held. In the Northern District of California we can notice motions on scream or die notice and seek a default if no opposition or request for hearing is filed with the court. The motion should cost anywhere from $500 – $1,400 depending upon your bankruptcy attorneys. The catch here is usually the new financing, new loan to pay off old loan, has a high percentage rate and there are process and origination fees usually. I have to say I am not a fan of redeeming vehicles for their fair market value under 722 of the Bankruptcy Code.

Courts have previously articulated its general approach to redemption under § 722 in the case of In re Lopez, 224 B.R. 439 (Bankr. C.D. Cal. 1998). Under that approach, the proper date for valuation of property under Bankruptcy Code §722 is the date of the hearing on the redemption motion. In re Lopez, 224 B.R. at 444. But see In re Eagle, 51 B.R. 959, 962 (Bankr. N.D. Ohio 1985) (date of valuation is petition date).

Cramming Down A Vehicle Loan In A Reorganization Case

In a Chapter 13 or some other reorganization case a motion to value the collateral, the vehicle, is filed and the value of the collateral is determined. This is the amount that has to be paid through the chapter 13 plan to the original vehicle loan company. Again, in our example a motion to value the vehicle would be filed valuing the vehicle at $10,000. What many bankruptcy attorneys do not tell you is you have to add in the attorneys’ fees and the chapter 13 trustee fee to truly calculate the savings via a chapter 13 case and chapter 13 plan. In our example I will use attorneys’ fees of $4,000 [$67 of the monthly chapter 13 plan payment] and the chapter 13 trustee gets a percentage of the monthly plan payment. I will use $67 a month for the chapter 13 trustee too, or $4,000 over the life of the chapter 13 plan. Even if the savings is not huge, no matter what, the monthly payment will decrease significantly since the chapter 13 plan will re-amortize the loan in the three to five year chapter 13 plan. For example the original loan in our example has a principal balance owed of $18,000 at 17% interest. The total amount financed is $28,841 and the monthly vehicle loan payment is $447 a month for five years. After filing for chapter 13 bankruptcy and valuing the vehicle/collateral at $10,000 with percentage rate of only 5% the total payoff is reduced to $11,323 and the monthly vehicle loan payment is reduced to $189, a reduction of $258 each month. For many people this reduction allows them to keep the car and pay their other living expenses on time each month without stress.

How To Value The Vehicle Under The Bankruptcy Code?

There is no absolute formula when determining the value of a vehicle. Courts will generally begin with determining the retail value figure based upon the year, make, model and mileage for the vehicle.

As a general principle, absent unusual circumstances, the retail value of a vehicle should be calculated by adjusting the Kelley Blue Book or N.A.D.A. Guide retail value for a like vehicle by a reasonable amount in light of any additional evidence presented regarding the condition of the vehicle and any other relevant factors. See In re Coleman, 373 B.R. 907, 912-13 (Bankr. W.D. Mo. 2007); In re Carlson, No. 06-40402, 2006 WL 4811331, at *2 (Bankr. W.D. Wash., Dec. 8, 2006); In re Eddins, 355 B.R. 849, 852 (Bankr. W.D. Okla. 2006).

There are usually competing appraisals provided to the bankruptcy court. One from N.A.D.A. or another from KBB. Or two different valuations from KBB. Regardless the court has to make a determination of what value to start at. After that the bankruptcy court should look at the specific condition of the vehicle as of the date the petition for bankruptcy protection was filed. If the vehicle in excellent (less than 5% of vehicles) good or fair condition. The will then make a reasonable adjustment to the starting point valuation discussed above.

What Evidence Should I Present To Prove Value?

I am of the opinion that more is more and not more is less under these circumstances. A picture does speak a thousand words. Take a picture of each scratch in the pain and each dent. That could result in 30 pictures of every little scratch or dent. So be it. Take pictures of the interior of the vehicle and each and every discoloration or stain on the upholstery. Every crack in windows and even measure what is left on the tire tread. Does the timing belt need to be changed? When was the last oil change? Are the windshield wipers new or in need of replacement? You can sure assume the vehicle loan company will provide value of the vehicle as if everything is perfect on the vehicle. Declarations describing the condition of the vehicle and pictures showing the condition of the vehicle is essential. Then there are the vehicles currently being sold and advertised prices. There is what KBB and N.A.D.A. says about value and then there is the real world. Just because KBB says the retail value is one number does not mean the real world market agrees. Review advertisements for the sale of vehicles similar to your own. Are the retail advertisements higher or lower than what KBB or N.A.D.A. says your vehicle is worth? The bottom line here is to leave nothing out for the Bankruptcy Court to consider in determining the value of your vehicle.

A debtor may also wish to submit photographs of the vehicle and evidence as to the retail values of other like vehicles for sale by retail merchants in the debtor’s geographic area. Evidence of this nature will assist the court in determining whether an adjustment to the guide retail value is warranted.

At the very minimum include the following basic information:

(1) a description of the vehicle, including any options installed and special features;
(2) a description of the condition of the vehicle as of the petition date, including any damage, general deterioration, and past or necessary repairs;
(3) the vehicle’s mileage as of the petition date; and
(4) the age of the vehicle as of the petition date.

If I Do Not Pay My Property Tax Will The County Take My Property?

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If you do not pay your property taxes for quite a few years your county can conduct a tax lien sale to sell your house out from under you to pay back the unpaid property taxes. When does a property owners’ legal and equitable interests in their property terminate so that filing for bankruptcy protection cannot stop a tax lien sale in California? To ask the question a different way, when can a homeowner file bankruptcy and stop the tax lien sale of their home? This article will focus on California property tax law and how real property can be sold to pay unpaid property taxes.

California Property Tax Law

In California real property taxes (land) are secured by and serve as a lien on the real property for which they are assessed. Property taxes that are secured that remain not paid at the end of the fiscal year (June 30 of each year) are deemed to be in default. See California Revenue and Tax Code Section 3436. For residential properties if the property taxes are defaulted and not paid for five years then the county has the right to satisfy the outstanding defaulted taxes by selling the property at a tax lien sale. See California Revenue and Tax Code Section 3691. For a nonresidential commercial property only three years has to go by before the county and sell the real property. The real property will be sold at public auction, which now includes the internet, to the highest bidder.

Homeowners that are behind on their property taxes have a right to redeem the property by paying all prior defaulted taxes in full with penalties, costs and fees. When does the right to redeem terminate? California Tax and Revenue Code Section 3707 governs termination of the redemption period. Section 3707(a)(1) provides the right of redemption terminates at the close of business on the last business day prior to the date of the sale. After the tax lien sale is determined or deemed complete a homeowner’s right to redeem the tax defaulted real property cannot be revived under California Tax and Revenue code Section 3707. After the tax lien sale is completed the county tax collector will execute a deed to the purchaser. This tax deed will convey title to the purchaser free of all encumbrances (loans or other liens) of any kind existing before the sale.

What Is California Law Regarding Voluntary and Involuntary Foreclosure Sales?

This question can is answered by looking further at California law as it relates to the Bankruptcy Code. As soon as a bankruptcy petition is filed the automatic stay takes effect stopping any and all collection activity including tax liens sales if the bankruptcy filer still has the right to redeem the property. Section 541 of the Bankruptcy Code governs what is property of the bankruptcy estate upon the filing of a petition for relief. A bankruptcy filers right to redeem their real property is a distinct property right from the bankruptcy filers legal and equitable interests in the real property. See Harsh Inv. Corp. v. Bialac (In re Bialac), 712 F.2d 426, 431 (9th Cir. 1983). Section 541 provides the definition of property of the bankruptcy estate is very broad. The California Tax and Revenue Code says that legal title to a tax defaulted real property will transfer after the tax sale with the recording of a tax deed by the tax collector. California Tax and Revenue Code unfortunately does not provide when equitable title to the tax defaulted real property transfers to the purchaser during the tax lien sale process.

In an ordinary non-tax lien sale of a piece of real property to a third party under California law provides the transfer of legal title at the time of execution of the contract of sale, the grantee acquires an equitable title to the estate being sold and the person selling the property, the grantor, retains the legal title as security for the purchase price. The legal title passes to the purchaser, grantee, at the time of their completion of the conditions precedent…..

In an involuntary sale like a foreclosure sale equitable title under California law is transferred to the purchaser at the foreclosure auction with acceptance of the highest bid and at the time a trustee’s sale is completed. See In re Richter, 525 B.R. 735, 745 (Bankr. C.D. Cal. 2015) (citing Nguyen v. Calhoun, 105 Cal. App. 4th 428, 441 (Cal. Ct. App. 2003). These cases provide the trustee’s sales is completed upon acceptance of the highest bid. Legal title remains with the owner or debtor and if the owner/debtor files for bankruptcy protection after the foreclosure sale there are grounds to not allow the bankruptcy to stop or stay the foreclosure sale process to allow the equitable owner to obtain legal title to the foreclosed real property. Bankruptcy attorneys have to find out the exact sequence of events to determine the debtor’s legal rights at the time the bankruptcy case is filed.

At What Point Can A Homeowner File Bankruptcy But Not Stop the Tax Lien Sale?

So, at what point can a homeowner file bankruptcy but it will not stop the tax lien sale? The Ninth Circuit Bankruptcy Appellate Panel on February 3, 2017, published an opinion, In re RW Meridian, LLC; BAP Case No. SC-16-1227-JuFY, that addresses this question. The bankruptcy petition has to be filed prior to the tax lien sale being completed.

The 9th Cir. BAP held that the bankruptcy filer was not divested (lost) of its legal or equitable interests in the underlying real property by operation of law upon the expiration of the bankruptcy filers right to redeem the real property under California law. The Court further held t6hat before a bankruptcy filer (debtor’s) equitable interests in the real property could transfer the tax lien sale process requires the taxing collector to hold an auction, and at the very least accept the highest bid, or at most, the tax collector receive the purchase price before the sale can be considered “complete.” California Tax and Revenue Code Section 3707(c) says that a tax sale is not complete until the purchase price has been paid in full which is a later point in time than in a foreclosure sale when it is acceptance of the highest bid which passes equitable title.

SO, if the auction or there is no acceptance of the highest bid before the bankruptcy petition is filed the tax lien sale was not completed and the bankruptcy filer can stop the tax lien sale. In the RW Meridian, LLC, bankruptcy case the Ninth Cir. BAP held neither the auction or acceptance of the highest bid took place prior to the property owner filing for bankruptcy protection. There was no transfer of the debtors/bankruptcy filers legal or equitable interests in the real property prior to filing the bankruptcy petition by the owners bankruptcy lawyer. The 9th Circuit Bankruptcy Appellate Panel held that there are no provisions of the California Tax and Revenue Code about tax lien sales provides that the expiration of the right to redeem prevents a bankruptcy filer of their equitable or legal interests in the real property upon filing of bankruptcy protection.
The key to all of this is that the alleged tax lien sale took place after the real property owner filed for bankruptcy protection.

County Argued Ministerial Acts Exception to The Bankruptcy Automatic Stay

Given the 9th Cir. BAP concluded the bankruptcy filer had equitable and legal interests in the real property the tax collector county violated the automatic stay that took effect when the bankruptcy case was filed. The county tax collector argues the postpetition sale of the real property falls within the narrow ministerial exception to the automatic stay. The Ministerial Acts exception says the automatic stay does not prohibit ministerial acts or automatic occurrences that entail no deliberate, discretion or judicial involvement on the part of the actor. See McCarthy, Johnson & Miller v. N. Bay Plumbing, Inc. (In re Pettit), 217 F.3d 1072, 1080 (9th Cir. 2000). The Ministerial Acts exception can apply to the simple recording of a tax deed after a tax lien sale was completed after a bankruptcy petition is filed. Completing the actual tax lien sale process by accepting the highest bid is not a ministerial act.

If The Person or Company I Sued Filed Bankruptcy Can I Continue My State Court Lawsuit?

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The greatest grant of power to the bankruptcy court is the automatic stay stopping any and all collection activity including lawsuits. As soon as the petition for bankruptcy is filed the automatic stay takes effect. Section 362 of the Bankruptcy Code governs the automatic stay and relief from the automatic stay to continue collection activity with the bankruptcy court’s permission. So what circumstances need to exist to obtain relief from the automatic stay and continue prosecution of a state court lawsuit?

What Is The Automatic Stay?

The automatic stay among other things, prohibits creditors from continuing to prosecute prepetition litigation against the bankruptcy filer. § 362(a)(1); see also In re Conejo Enterprises, Inc., 96 F.3d at 351. This aspect of the automatic stay protects both the debtor and the debtor’s creditors. The entire point is to not allow one creditor to continue collection to the detriment of another creditor. The assets of the bankruptcy filer, once a case is filed, if any assets, are to be distributed equally to creditors at the time the case is filed.

Grounds For Relief From The Automatic Stay To Continue State Court Lawsuit

This issue arises quite a bit under many different circumstances. The most common lawsuit that exists at the time a bankruptcy case is filed is breach of contract lawsuits. Rarely will a breach of contract case satisfy the requirements for relief from stay to continue. Relief from the automatic stay can be obtained for “cause.” The Bankruptcy Code unfortunately does not define what “cause” is though. Courts have had to interpret circumstances and create factors to evaluate. The Ninth Circuit uses the Curtis factors. See In re Curtis, 40 B.R. 795, 799–800 (Bankr. D. Utah 1984).

The Curtis factors consist of the following twelve nonexclusive factors:

(1) Whether the relief will result in a partial or complete resolution of the issues;
(2) The lack of any connection with or interference with the bankruptcy case;
(3) Whether the foreign proceeding involves the debtor as a fiduciary;
(4) Whether a specialized tribunal has been established to hear the particular cause of action and whether that tribunal has the expertise to hear such cases;
(5) Whether the debtor’s insurance carrier has assumed full financial responsibility for defending the litigation;
(6) Whether the action essentially involves third parties, and the debtor functions only as a bailee or conduit for the goods or proceeds in question;
(7) Whether the litigation in another forum would prejudice the interests of other creditors, the creditors’ committee and other interested parties;
(8) Whether the judgment claim arising from the foreign action is subject to equitable subordination under Section 510(c);
(9) Whether movant’s success in the foreign proceeding would result in a judicial lien avoidable by the debtor under Section 522(f);
(10) The interests of judicial economy and the expeditious and economical determination of litigation for the parties;
(11) Whether the foreign proceedings have progressed to the point where the parties are prepared for trial, and
(12) The impact of the stay on the parties and the “balance of hurt.”

The burden of proof on a motion to modify or for relief from the automatic stay is a shifting one. To obtain relief from the automatic stay, the bankruptcy attorney and party seeking relief must first establish a prima facie case that “cause” exists for relief under § 362(d)(1). Once a prima facie case has been established, the burden shifts to the debtor to show that relief from the stay is unwarranted. If the\ movant fails to meet its initial burden to demonstrate cause, relief from the automatic stay should be denied.

Unfortunately there are not clear guidelines for what constitutes a prima facie case given the analysis is on a case by case basis. A party’s production of enough evidence to allow the fact-trier to infer the fact at issue and rule in the party’s favor. See Black’s Law Dictionary (10th ed. 2014); see also In re Planned Sys., Inc., 78 B.R. 852, 860 n.7 (Bankr. S.D. Ohio 1987).

Congress’ legislative comments provide their desire to permit an action to proceed to completion in another tribunal may provide . . . cause” for stay relief, and “it will often be more appropriate to permit proceedings to continue in their place of origin, when no great prejudice to the bankruptcy estate would result, in order to leave the parties to their chosen forum and to relieve the bankruptcy court from many duties that may be handled elsewhere.” H.R. Rep. 95-595, 341, as reprinted in 1978 U.S.C.C.A.N. 5963, 6297

The bottom line is bankruptcy attorneys need to be aware that the bankruptcy court’s focus on whether the continuation of the state court lawsuit screws up the administration of the bankruptcy estate. In some circumstances insurance is liable for any damages if the lawsuit is successful. Therefore, none of the assets of the bankruptcy estate are at risk either way. So why not let the lawsuit continue?

Why Continue With State Court Lawsuit?

To get a judgment and hopefully paid on the judgment. The most common lawsuit that exists at the time a bankruptcy case is filed is breach of contract lawsuits. Rarely will a breach of contract case satisfy the requirements for relief from stay to continue. There are other types of issues though that can continue and not disrupt the administration of the bankruptcy estate.

Should I Try Some Sort of Debt Consolidation?

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No. Hell no. Absolutely no. Just spend some time on the Federal Trade Commission website and read all of their warnings. It is more than likely just a scam. You have no idea who you are doing business with and when they rip you off you are not going to sue them in the state they are doing business in. You are going to call me to file bankruptcy for you and have wasted anywhere from $1,000 – $6,000 of your hard earned money. That is what we see, as bankruptcy attorneys, time and time again. Here are four simple rules of thumb to avoid ever getting scammed by a debt relief company of any kind.

1. Do not do business with any company you hear about on the radio or has a television commercial regarding debt relief;
2. Do not do business with any company that is not doing business in your general area; that means never ever do business with a debt relief company that is from another state;
3. Do not do business over a website with a company that does not even list what state they are doing business in;
4. Do not do business with a debt relief company that will not put in writing when you will be 100% debt free; and if you are not 100% debt free they will give you all of your money back.

Fortunately the Federal Trade Commission continually fights for your rights and shuts down these fraudulent debt and mortgage relief companies. The FTC recently shut down some companies from Florida that ripped off people in need of debt relief for millions of dollars. Go to: https://www.ftc.gov/system/files/documents/cases/160907paydayorderirby.pdf the stipulated judgment. The FTC charged PSC Administrative, LLC f/k/a Payday Support Center, LLC, Coastal Acquisitions, LLC d/b/a Infinity Client Solutions, Infinity Collect, LLC, Jared Irby, an individual, and Richard Hughes, an individual with violation of the Telemarketing and Consumer Fraud and Abuse Prevention Act; 15 U.S.C. Section 6101. The defendants in this case, instead of admitting fault, entered into a stipulated settlement agreement with the FTC. The agreement provided the defendants are permanently restrained and enjoined from advertising, marketing, promoting, offering for sale, or selling, or assisting others in the advertising, marketing, promoting, offering for sale, or selling, of any secured or unsecured debt relief product or service. The laws regarding debt consolidation just be to be more stringent.

California State Attorney General

Student Loan Debt Consolidation Scams

https://oag.ca.gov/news/press-releases/attorney-general-kamala-d-harris-issues-consumer-alert-student-loan-debt

Telemarketing Fraud

https://oag.ca.gov/news/press-releases/attorney-general-lockyer-announces-189-million-settlement-telemarketing-fraud

Your Credit Rating

https://oag.ca.gov/consumers/general/your_credit

Coping With Debt

Based upon my real world experience and a bankruptcy attorney involved in thousands of bankruptcy cases I do not agree with everything in this list. But it is sure better than getting ripped off. https://www.consumer.ftc.gov/articles/0150-coping-debt

Advertising and 2016

Every time I hear a commercial on the radio or a commercial on the television about debt relief it makes me sick. The station airing the station is making money off of airing the criminals commercial and the criminal advertising their fraudulent services makes money because advertising like that unfortunately works. If you have never been told this before here we go: “The worst attorneys and businesses have to advertise their services over and over again to get new clients.” They do not build a real business based upon the goodwill of their past clients. There are none to be found. So these criminals have to spend thousands of dollars a month to get new people to rip off to stay in business and make money. Sadly it works. Every now and again there becomes a critical mass of ripped off people and the bad reviews on the internet and possible prosecution from the angels at the Federal Trade Commission or the Consumer Financial Protection Bureau shut down the criminals forever. Many times unfortunately, before the heat gets too hot, the criminals just change the company name and contact information to keep the ball rolling. It is just horrible.

What We Do For People In Need of Debt Relief

Not every case is easy for different reasons. At least all we have to do IS BE HONEST WITH OUR CLIENTS AND HOW BANKRUPTCY CAN HELP THEM TO OBTAIN A DISCHARGE OF THEIR DEBTS OR REORGANIZATION OF THE DEBTS BASED UPON THE LAW, THE BANKRUPTCY CODE. How wonderful is that? Some debts are dischargeable. Some are not. Some debts can be reorganized to make the terms of repayment more favorable for our clients. It all depends upon your income, expenses, assets and debts. All you have to do is be truthful and honest about your income, expenses, assets and debts and you are entitled under the law to have debt relief. It is wonderful. Debt consolidation is completely unregulated and is the wild, wild west. There is little recourse when you are fooled out of your hard earned money.