Deutsche Bank Nat’l Tr. Co. as Tr. for Holders of BCAP LLC Tr. 2007-AA1 . v. Madeira Canyon Homeowners Ass’n (9th Cir.)

The following is a case update written by Todd Turoci, of The Turoci Firm, regarding a recent case of interest.

SUMMARY

In Deutsche Bank Nat’l Tr. Co. as Tr. for Holders of BCAP LLC Tr. 2007-AA1 . v. Madeira Canyon Homeowners Ass’n, 819 F. App’x 565, 566 (9th Cir. 2020) , the United States Court of Appeals for the Ninth Circuit reiterated the precept that creditors lack standing to challenge violations of the automatic stay in the Ninth Circuit.  To view the memorandum, click here.

FACTS

Plaintiff, Deutsche Bank National Trust Co. (“Deutsche Bank”), sued Defendant, Madeira Canyon Homeowners Association (“Madeira”), in the United States District Court for the District of Nevada, in order to set aside a foreclosure sale, contending that the sale violated the automatic stay in an underlying bankruptcy case.  On summary judgment the District Court ruled in favor of Madeira finding that pursuant to the holding in Pecan Groves, Deutsche Bank, a creditor, did not have standing to challenge a stay violation. In re Pecan Groves of Arizona, 951 F.2d 242, 246 (9th Cir. 1991). The Ninth Circuit Court of Appeals reviewed and affirmed the district court’s judgment.

REASONING

The question raised in the instant case is whether creditors have standing to challenge violations of the automatic stay.  The Ninth Circuit, along with the “majority of jurisdictions that have considered standing under the automatic stay provision, have concluded that Section 362 is intended solely to benefit the debtor’s estate.” Magnoni v. Globe Inv. And Loan Co., 867 F.2d at 559 (9th Cir. 1989). “A creditor has no independent standing to appeal an adverse decision regarding a violation of the automatic stay.” See Pecan Groves, 951 F.2d at 246.  “If the trustee does not seek to enforce the protections of the automatic stay, no other party may challenge acts purportedly in violation of the automatic stay.” Washington Mut. Sav. Bank v. James (In re Brooks), 79 B.R. 479, 481 (B.A.P. 9th Cir. 1987), aff’d, 871 F.2d 89 (9th Cir. 1989). 

Here, although Madeira violated the stay, Deutsche Bank was a creditor of the estate, and therefore lacked standing to attack the violation of the automatic stay. Deutsche Bank’s attempt to narrow the holding in Pecan Groves to a Nevada HOA litigation issue, does not work here. Prior to 2015, under Nevada law, an HOA with a statutory lien against a property for unpaid assessments had priority over a first deed of trust (aka the “superpriority” lien). Madeira’s superpriority lien status therefore extinguished Deutsche Bank’s first deed of trust in the foreclosure Madeira held while the underlying bankruptcy case was pending.  Many opinions by the Ninth Circuit and Nevada Supreme Court have attempted to chip away at the effects of an HOA foreclosure on behalf of mortgage lenders in this ongoing conflict, but using a violation of the automatic stay has been fruitless.

AUTHOR’S COMMENTARY

There is over 30 years of precedent and the question seems quite settled. Trustees and debtors are tasked with challenging Section 362 automatic stay violations, not creditors.

These materials were authored by ILC member Todd Turoci, of The Turoci Firm (todd@theturocifirm.com), with editorial contributions from ILC member Aaron E. de Leest of Danning, Gill, Israel & Krasnoff, LLP.