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Postpetition rights of Lender re: mistaken prepetition trust deed reconveyance?
Mark:
We're missing some facts here I think: what position was the reconveyed deed of trust before it was reconveyed? What are the timelines, e.g., is the bankruptcy filed yet, is it over? I take it no cancelation has been recorded yet. Also, what are the values of the property, the balances on the deeds of trust? I'm just not getting a complete picture here, although it sure seems like an interesting problem.
Speaking in general: There are no relief from stay issues if they just wait for the bankruptcy to be over. Then the discharge injunction applies as to collecting the debt, but not on the enforcement of its property interest in the collateral. That can all be addressed in state court. The collateral is no longer property of the estate.
If there is equity in the property sufficient to fight with them, I'll bet you can get a great deal for your client even if you cannot completely capitalize on their mistake. That depends to some degree whether the reconveyance was covered by title insurance.
Steve Lever
The post was migrated from Yahoo.
Lender (acting as both trustee and beneficiary of the deed of trust) recorded a full reconveyance of security interest 5 years prior to chap 7 petition being filed. There were no subsequent recorded liens. Postpetition, lender claims this reconveyance was executed and recorded in error. The property is underwater related to the first trust deed so a trustee is not interested in administering it. While recording a cancellation of the full reconveyance pursuant to CA Civil Code 3412 and Duley v. Westinghouse Electric Corp. 97 Cal.App.3d 430 (1979) may have been an available option prepetition, doing so postpetition violates bankruptcy code 362(a)(4) and the emedy under the bankruptcy code to somehow cancel the reconveyance and revive the erstwhile unenforceable trust deed security interest?
Can the lender successfully file an adversary complaint or a motion for relief from the automatic stay allowing it to seek an order in state court, allowing it to record a cancellation of the full reconveyance based upon equitable grounds? I cannot find any bankruptcy case law addressing the issue of a creditor's postpetition right to seek cancellation of a prepetition mistakenly recorded reconveyance in a no asset case.
Mark Jessee
The post was migrated from Yahoo.