In this case, homeowner David Coletta secured a note for $60,000 with mortgages on two properties in favor of mortgage holder Nicholas Mattera. After the homeowner defaulted on payments on the note, Mattera filed a foreclosure action in the county court.

The homeowner’s response failed to conform to the court’s rules, and he was given an extension of time to respond appropriately. Instead of responding, the homeowner filed a Chapter 11 bankruptcy action, which automatically stayed the foreclosure proceedings. His attorney was unable to provide evidence that he notified Mattera of this bankruptcy filing. The homeowner failed to follow through with the bankruptcy case, and it was dismissed.

In this case, homeowner David Coletta secured a note for $60,000 with mortgages on two properties in favor of mortgage holder Nicholas Mattera. After the homeowner defaulted on payments on the note, Mattera filed a foreclosure action in the county court.

The homeowner’s response failed to conform to the court’s rules, and he was given an extension of time to respond appropriately. Instead of responding, the homeowner filed a Chapter 11 bankruptcy action, which automatically stayed the foreclosure proceedings. His attorney was unable to provide evidence that he notified Mattera of this bankruptcy filing. The homeowner failed to follow through with the bankruptcy case, and it was dismissed.

When the homeowner failed to file a conforming response, the county court entered a default judgment in favor of Mattera, who attempted to collect by scheduling the properties for foreclosure sale. The day prior to the scheduled sale, the homeowner filed a Chapter 13 bankruptcy action, again automatically staying the foreclosure.

Mattera requested that the bankruptcy court lift the stay and expressed that this was his first notice of either bankruptcy proceeding. The bankruptcy court lifted the stay and allowed Mattera to foreclose on the properties. Mattera then purchased both properties at the foreclosure sale. The homeowner again failed to follow through with this bankruptcy case, and it was dismissed.

After the sale, the homeowner returned to the county court and requested that the default judgment and foreclosure sale be set aside, because they violated the automatic stay of the initial Chapter 11 bankruptcy filing.

Mortgage holder Mattera argued that the automatic stay of the foreclosure on these two properties from the homeowner’s initial bankruptcy filing should be retroactively annulled. The bankruptcy court ordered the automatic stays retroactively annulled; on appeal, the district court upheld the annulment.

On this second level of appeals, the Court of Appeals upheld the lower court’s ruling to retroactively annul the automatic stays. The court found that the bankruptcy court did not abused its discretion in finding that Mattera likely was unaware of the initial bankruptcy filing. The factors that should be considered, explained the Court of Appeals, for retroactively annulling an automatic stay are "whether a creditor violated the automatic stay inadvertently and in ignorance of a pending bankruptcy and whether the debtor acted in bad faith."

The bankruptcy court in this matter analyzed the proper factors and found that it was more likely that the homeowner’s attorney failed to notify Mattera of the Chapter 11 bankruptcy filing than it was that Mattera’s attorney ignored the bankruptcy filing, especially given that the homeowner’s attorney could not produce a fax cover sheet or copy of a letter notifying the mortgage holder, according to court records.

Accordingly, the bankruptcy court did not abuse its discretion in finding that mortgage holder’s violation of the stay was "innocent," the court found. Further, as the bankruptcy court pointed out, the homeowner was "chargeable with inequitable conduct because he allowed an inordinate amount of time (eight months) to elapse before he raised the violation of the automatic stay."

Given the weight of the evidence showing the innocence of Mattera’s violation of the automatic stay, and the wide latitude of authority possessed by the bankruptcy court to order an automatic stay retroactively annulled, the Court of Appeals ruled that the lower court did not abuse its discretion and upheld the retroactive annulment of the stays with respect to the foreclosure actions on the two properties at issue.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.

***

What’s your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.

Show Comments Hide Comments
Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Success!
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription
×