Continuing a Sheriff's Sale - a Stay Violation?
The filing of a Bankruptcy acts as a stay that prevents any pending state court action to recover a claim from moving forward against a borrower. The question recently before the Bankruptcy Court for the Eastern District of Pennsylvania added a wrinkle - is filing a motion to continue a sheriff's sale of a property in Bankruptcy a stay violation?
The Automatic Stay
The Automatic Stay, 11 U.S.C. 362(a), is a major part of Bankruptcy, and provides the debtor relief so that they can effectively re-organize its estate. It also halts any further proceedings in state court litigation, and typically prevents a case initiated by another party from moving forward to recover a claim. A recent opinion from the Eastern District of Pennsylvania tackles the automatic stay as it relates to a Sheriff's Sale. In Billings v. Portnoff Law Associates, LTD. Judge Eric L. Frank notes that 11 U.S.C. 362(a)(1) stays "continuation...of a judicial, administrative, or other action or proceeding against the debtor...that was commenced before the commencement of the case under this title...to recover a claim against the debtor that arose before the commencement of the case under this title". Simplified, while the stay is in place a judgment creditor cannot seek to recover a claim in state court. Failure to abide by the automatic stay can result in financial sanctions.
A Sheriff's Sale is one of the final acts of collection in a foreclosure case. For a property to be listed for Sheriff's Sale there has to have been a foreclosure action, that was subsequently reduced to judgment. The Sheriff's Sale functions as a way to enforce that Judgment, by selling the subject property. After the property is sold, the successful bidder can take possession. Often situations will arise that necessitate a Sheriff's Sale to be postponed. This schedules the sale for a future Sheriff's Sale date.
Previously, the Third Circuit had issued an opinion relating to the continuation of a Sheriff's Sale of a property in Bankruptcy. This was handed down in Taylor v. Slick. The court in Taylor held that it was not a stay violation to announce at a sheriff's sale that a sale had been continued.
The question before the court was whether filing a motion to continue a Sheriff's Sale to another date was a stay violation. Ultimately the court held that it was not a violation of the Stay. Judge Frank, relying on the rationale expressed in Taylor held that this act is permissible as there are "a limited circumstance in which it is permissible - where the creditor seeks only to maintain the status quo with respect to an already scheduled execution sale and does not attempt, in any way, to advance its position in the pending litigation". Here, postponing the sale was not intended to advance the action, or to gain an advantage. To the contrary, the actions of postponing the sale prevented the sale of the property, and maintained the status quo via motion.
A stay violation is one of the easiest ways to run afoul of the Bankruptcy Code. Knowing what actions are allowable under the code allow for effective litigation. This is one small example of the many intricacies of the Bankruptcy Code, and its interplay with civil litigation.