July 11, 2013

A Federal Bankruptcy Judge in Colorado has entered an Order permitting a homeowner to pursue her Declaratory Judgment action in state court while the bankruptcy remains pending. The result is that the stay remains in place against any threat of a sale pending the disposition of the homeowner’s case in state court. The homeowner is represented by Jeff Barnes, Esq. in the state court action, and Randall Pearce, Esq. in her Bankruptcy case.

The homeowner had filed an action in state court seeking Declaratory and Injunctive Relief against HSBC Bank USA National Association as the claimed “trustee” of a securitized mortgage loan trust, and the Public Trustee which was scheduling the non-judicial foreclosure sale. The state court had not ruled on the homeowner’s motion for a TRO to stop the sale before the sale date. The homeowner thus filed a petition for Bankruptcy protection, and also filed a Motion for modification of the automatic stay to permit her to continue her challenge to the foreclosure in state court pending the bankruptcy.

The Bankruptcy Court granted the Motion. The language of the Order is significant:”The court finds that the declaratory judgment action in the State Court will result in a resolution of the standing of HSBC to prosecute a foreclosure action against the Debtor’s residence and will also determine whether or not HSBC is properly a secured creditor of the Debtor. Allowing the state court action to proceed will not interfere with the Bankruptcy Case and that the State Court has the expertise to hear such a declaratory judgment action. Allowing the litigation to proceed in the state court to continue will not prejudice the interest of other creditors and will help define the legal relationship between the Debtor and HSBC as those rights relate to her residence. Allowing the State Court action to proceed will reduce the cost of litigation for the parties and promote the interest of judicial economy, because that case was pending at the time the bankruptcy case was filed.”

This language is more than significant. By Federal Court Order, the Bankruptcy Court has determined that the homeowner can challenge HSBC’s claimed rights in her state court case, including whether HSBC is in any way a secured creditor. As such, this Order prevents HSBC from seeking stay relief to foreclose, and eliminates the need for the homeowner to post a bond as a condition of any TRO or injunction to prevent any sale pending the disposition of the state court case, as the stay against any sale remains in place as a result of 11 USC sec. 362(a) and the intent of this Order of the Bankruptcy Court, which also permits the homeowner to seek a judicial declaration on a series of standing-related issues.

Jeff Barnes, Esq., www/ForeclosureDefenseNationwide.com