WESLEY W. STEEN, United States Bankruptcy Judge.
In this contested matter, the Court must determine whether to grant retroactive relief from the automatic stay. Only minutes after this bankruptcy case was filed, Elbar Investments, Inc. ("Elbar") made the high bid at a constable's sale of the Debtor's homestead. The constable has declined to issue a deed to the property until this court determines the effect of the automatic stay. Elbar asks the Court to annul the § 362 automatic stay retroactively and to direct the constable to issue a deed to Elbar. For reasons set forth below, and by separate written order issued this date, the Court declines to annul the stay retroactively. Other issues are reserved to determination in a separate adversary proceeding.
JURISDICTION
This contested matter (i) arises in a case under title 11, and (ii) arises under title 11 of the United States Code. The United States District Court has jurisdiction under 28 U.S.C. § 1334(b) and (d). By Order dated August 9, 1984, under authority granted by 28 U.S.C. § 157(a), the United States District Court for the Southern District of Texas referred all such proceedings to the bankruptcy judges for the district. This is a core proceedings as defined by 28 U.S.C. § 157(b)(2). The bankruptcy judge may hear and may determine core proceedings, 28 U.S.C. § 157(b)(1). No party has objected to the exercise of core jurisdiction by the bankruptcy judge.
FACTS
Stephanie Pierce ("Debtor") failed to pay all of the real property taxes on her home. The taxing authorities obtained a judgment and began proceedings to sell the property at a constable's sale. The Debtor was current on her mortgage payments, but when the mortgagee learned of the pending constable's sale, the mortgagee gave its own notice of foreclosure for nonpayment of taxes. The Debtor then made arrangements with the mortgagee to pay the deficiency. The mortgagee forwarded a check to the Constable. Unfortunately, the mortgagee did not include the name of the Debtor, nor any description of the property. The Constable could not determine which property was involved, so it returned the check to the mortgagee. By that time, the date of the advertised sale had arrived. Minutes before the sale, the Debtor filed this bankruptcy case under chapter 13 of the Bankruptcy Code. Without knowledge of the bankruptcy filing, Elbar made the high bid of $31,000 for the Debtor's residence.
Office of Constable Glen Cheek, Precinct 5.
There is no evidence that the Debtor filed the case in bad faith. It is uncontroverted that she thought that she had resolved the tax delinquency. There is no indication that she has filed multiple bankruptcy petitions or that she intended to abuse the automatic stay. There is no indication that she knew that she would be unable to complete a chapter 13 plan. In a rare debtor/creditor alliance, the mortgagee has appeared in this proceeding as a party in interest and has objected to annulment of the § 362 stay.
Elbar is in the business of purchasing property at foreclosure and tax sales. Its representative, Mr. Bustamente, testified that he reviews over a thousand properties each month, that he attends tax and foreclosure sales each month, and that he buys property at almost every sale. Elbar offered the high bid at the Constable's sale, $31,000. No evidence was presented concerning whether the Debtor has, or does not have, equity in the property. Neither the Constable nor Elbar had knowledge of the bankruptcy filing prior to the sale.
The Constable's conduct has been exemplary. The records of its office are excellent, and those records clearly show the thorough, careful, thoughtful work of his employees.
It is not clear when Debtor's counsel contacted the Constable's office to notify them of the bankruptcy filing. The Constable's records show that the first written communication was received by his office on August 3, two days after the sale. The Constable had not yet issued a deed to the property and had not disbursed the sale proceeds. When the Constable learned of the bankruptcy filing, the Constable informed all parties that he would take no further action until directed by court order.
On August 15, 2000, Elbar filed an adversary proceeding and this motion for relief from stay. The Constable deposited the $31,000 into the registry of the Court. In the motion for relief, Elbar requests that the Court grant retroactive relief to the date the case was filed in order to validate the sale. In the adversary proceeding, Elbar requests a judgment: 1) releasing the $31,000 to satisfy the judgment and expenses of the tax sale and 2) directing the Constable to issue a tax sale deed.
In an earlier ruling after the hearing, the Court issued findings and conclusions and a decision disposing of both the contested matter and the adversary proceeding. Elbar filed a motion to vacate that prior opinion and those orders, asserting that parts of the Court's decision were premature because the adversary proceeding had not been properly postured for disposition. The Court granted that motion and issued a scheduling order for the adversary proceeding. This opinion disposes of the contested matter (relief from the stay) and the Court's prior dismissal of the chapter 13 case.
While these matters were pending, the bankruptcy case went on. Although the Court concludes that the Debtor did not file the case in bad faith, her prosecution of the case was far from adequate. She failed to attend two § 341 meetings, and she also failed to attend the debtor education class scheduled by the chapter 13 trustee. She did not make all of the payments that her plan required her to make to the chapter 13 trustee. Therefore, on at least two occasions, the Court determined to dismiss the case and the Court took steps to dismiss the case.
The Debtor testified that she did not attend the creditors' meeting and the education classes because she did not receive timely notice of the creditors' meetings or of the education classes. She testified that her subdivision suffers from persistent incorrect mail delivery. She testified that she fell behind on her payments to the trustee because she was caring for her aged mother who has Alzheimers disease. She testified that she had extraordinary medical expenses. The Debtor's testimony was uncontroverted.
On May 4, 2001, the Court held a hearing on Elbar's request for termination of the stay. At that hearing, the Debtor testified that she now no longer has the expense of her mother's illness and that she has received a pay raise. She testified that she would therefore be able to complete a chapter 13 plan. That testimony was apparently a surprise to everyone except the Debtor. The mortgagee supported reinstatement of the case, and Elbar indicated a willingness to allow the Debtor to re-enter chapter 13, provided that Elbar could continue to prosecute its claim that the tax sale was valid and binding on all parties.
The Court had earlier dismissed both the case and the adversary proceeding. But the Court reconsidered those rulings on Elbar's request.
CONCLUSIONS
Bankruptcy Code Section 362
There is no dispute that the Debtor's home was property of the estate at the moment that the bankruptcy case was filed. When a bankruptcy case is filed, section 362 of the Bankruptcy Code automatically and immediately imposes a statutory stay of the enforcement of any judgment obtained before the commencement of the case and a stay of any act to enforce any lien against property of the estate. The stay is not a judicial injunction that depends on notice. The stay is effective upon the filing of the case, regardless of notice. Retroactive Relief from the § 362 Automatic Stay
Bankruptcy Code Section 341.
See In re Calder, 907 F.2d 953 (10th Cir. 1990), cited with approval; In re Jones, 63 F.3d 411, 412 FN,3 (5th Cir. 1995); Smith v. First America Bank, N.A., 876 F.2d 524 (6th Cir. 1989). See also Collier on Bankruptcy, ¶ 362.02 (15th ed. rev. 1999) ("Formal service of process is not required and no particular notice need be given in order to subject a party to the stay.")
The bankruptcy court has the power to terminate, to annul, to modify, or to condition the automatic stay. To grant relief from the stay, the Court must find that there is "cause." Annulment of the stay has the effect of eliminating it (or terminating it retroactively).
Bankruptcy Code § 362(d).
Id.
See Sikes v. Global Marine, Inc., 881 F.2d 176 (5th Cir. 1989). "The power to annul authorizes retroactive relief even unto the date of the filing of the petition giving rise to the automatic stay." Id. at 178.
The Court does not find that there is sufficient cause to terminate the stay retroactively in this case. Although the Debtor failed to prosecute her case adequately, the Court believes that the decision about retroactive relief in this case should be based on facts as they existed when the case was filed. The Court is persuaded by a preponderance of the evidence that the Debtor was in good faith at the time the case was filed. She thought she had resolved the foreclosure and tax delinquencies and simply needed time to sort out the errors and confusion, mostly attributable to the mortgagee. A preponderance of the evidence persuades the Court that the Debtor did not intend to abuse the bankruptcy process. No doubt there are cases in which a debtor's postpetition conduct could evidence an improper motive in filing the case or other abuse of the bankruptcy process that would justify relief from the stay. However, this is not such a case. The Debtor's postpetition defalcation was explained, and not controverted. More important, all of the parties (including Elbar) want the Debtor to continue in chapter 13. If the Debtor's conduct was not bad enough for the creditors to support dismissal, it is hard to conceive that it warrants annulment of (or retroactive relief from) the stay.
Violations of the § 362 Automatic Stay: Void or Voidable
Elbar argues that the Constable's sale is not void, but is voidable. Elbar argues that the Debtor must avoid the sale, and that the Debtor cannot do so because Bankruptcy Code section 549 applies to this determination. Therefore, Elbar argues, if it is a good faith purchaser, the sale must stand.
Although the Court believes that the Court of Appeals for the Fifth Circuit has ruled, as a matter of law, that a transfer that violates § 362 has no legal effect unless the stay is annulled to give retroactive relief, and that § 549 does not apply when there is no effective transaction to avoid, Elbar has requested that this ruling be made separately after the Debtor files a motion to dismiss and after one final opportunity to brief the issue. The Court accepts the validity of Elbar's procedural issue and therefore has granted its request. Therefore the Court will not rule this date on the effect of the constable's sale that violated § 362 of the Bankruptcy Code. This opinion is limited to whether the stay is annulled retroactively and whether the case is allowed to continue.
Dismissal of the Debtor's Bankruptcy Case
At least twice, the Court decided to dismiss this case because of the Debtor's failure to attend the creditors' meeting, her failure to attend debtor education classes, and her failure to make all required payments timely to the chapter 13 trustee. But all parties (the Debtor, Elbar, and the mortgagee) ask the Court to allow the case to continue. No party seeks dismissal. Elbar either wants title to the residence or wants an appellate ruling on its § 549 claim (or both). The Debtor wants to keep her home. The mortgagee wants, for whatever reason(s) to allow the case to continue. No creditor favors dismissal. Therefore the Court will not dismiss the case, provided that the Debtor diligently fulfills her duties during the remainder of the case.
ORDER DENYING RELIEF FROM STAY
For reasons set forth separately in writing this date, it is ORDERED that the motion for relief from the stay filed by Elbar Investment is DENIED.