Bankruptcy – Foreclosure – Automatic Stay – Equity of Redemption – 10th Day – Normal Business Hours

In Re Sarver. (Lawyers Weekly 10-05-0945, 7 pp.) (William L. Stocks, J.) M.B.N.C.

Holding: A purchaser at a non-judicial foreclosure sale is entitled to obtain and record a deed and to recover possession of real property where the debtor filed his bankruptcy petition at 5:01:36 p.m. on the 10th business day after the foreclosure sale and where the clerk of superior court’s regular business hours in the county in which the property is situated ended at 5 p.m.

Facts

The debtor owned a one-half interest in a parcel of residential real property subject to two deeds of trust under which the State Employees Credit Union (SECU) was beneficiary.

At the time the debtor filed his bankruptcy petition, the property was subject to a foreclosure proceeding initiated by SECU. SECU was the highest bidder at the foreclosure sale, and no upset bids were submitted.

The 10th and last day upon which upset bids could have been submitted was a Sunday. As of the next day – Monday, June 14, 2010, at 5 p.m. – SECU argued, the debtor’s right of redemption expired and title to the property vested in SECU, subject to the substitute trustee’s conveyance by deed.

The debtor filed his bankruptcy petition at 5:01:36 p.m. on June 14, arguing that the upset bid period had not expired and that that he still had an interest in the property and should be allowed to cure his default as a part of his Chapter 13 reorganization.

SECU moved for removal of the automatic stay of the foreclosure proceeding.

Analysis

Matters involving property rights of contested parties in a bankruptcy case are generally controlled by state law.In this case there is no overarching federal interest that requires a departure from N.C. law in resolving the dispute between the debtor and SECU regarding their interests in the property.

Under G.S § 45-21.27, an upset bid may be submitted following a non-judicial sale under a deed of trust for a period of 10 days following filing of the report of sale with the clerk of superior court. If no upset bid is filed during the 10-day period, the rights of the parties to the sale become fixed under G.S. § 45-21.29A, and the debtor loses his right to the equity of redemption of the real estate.

A debtor’s right to cure a default in a home mortgage under federal bankruptcy law is tied to the expiration of the 10-day upset bid, under 11 U.S.C. § 1322(c)(1). The issue here is whether the 10-day period had expired when the bankruptcy petition was filed.

Under N.C. case law, a debtor’s equity of redemption is lost if the bankruptcy petition is not filed by the close of normal business hours on the 10th day of the upset bid. The normal business hours of the clerk of superior court in the county in which the real estate is situated in this case are from 8:30 a.m. to 5 p.m. The bankruptcy petition was not filed on until 5:01:36 p.m. on the 10th day, which was after the expiration of the upset bid period.

The rights of the parties involved in the foreclosure process had become fixed before the petition was filed. The debtor had no right of redemption and no right to cure pursuant to 11 U.S.C. § 1322. SECU is entitled to obtain and record a deed to the property and to recover possession of the property pursuant to an order obtained under G.S. § 45-21.29.

The automatic stay should be modified to allow SECU to enforce such rights.