Many clients face eviction from their homes after foreclosure. At first glance, even a bankruptcy filing might not help, since § 362(b)(22) of the Bankruptcy Code states that there is no automatic stay of eviction where a pre-filing judgment for possession has been entered. Such clients may be safe, however. The plain language of this section does not apply to post-foreclosure evictions, and lenders/servicers/foreclosure purchasers instead must file for and obtain relief from the automatic stay before they can proceed with an eviction.
Section 362(b)(22) states:
The filing of a petition…does not operate as a stay subject to subsection (l), under subsection (a)(3), of the continuation of any eviction, unlawful detainer action, or similar proceeding by a lessor against a debtor involving residential property in which the debtor resides as a tenant under a lease or rental agreement and with respect to which the lessor has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor.
(Subsection (a)(3) provides that proceedings trying to get possession of or exercise control over estate property are prohibited. Subsection (l) provides for an imposition and extension of the stay if rent arrearages are brought current, and the first month’s post-petition rent is escrowed with the Court.)
In other words, if (b)(22) applies, there is no automatic stay whatsoever. If this section applies to a post-foreclosure eviction, a bankruptcy filing would not prevent the lender/servicer/foreclosure purchaser from proceeding with an eviction. (There would also be no ability to extend the stay by a cure under subsection (l), since you can not bring current “rent arrearages” when there is no rent or lease.) But does (b)(22) even apply to a post-foreclosure eviction?
Based on a plain reading of the Code, no.
Parsing the language of (b)(22) makes clear its limited applicability:
A proceeding by a lessor…
In the absence of a lease or rental agreement, a loan servicer, mortgage holder or foreclosure purchaser is not a lessor, rendering the section inapplicable to most post-foreclosure eviction situations.
…against a debtor involving residential property…
The exception does not apply in cases of commercial property.
…in which the debtor resides as a tenant…
It is somewhat unclear whether a (former) homeowner whose property has been foreclosed upon is residing as a tenant. It might be argued that state law makes one who fails to vacate property under such circumstances a “tenant holding over.”
In the case of investment property, if the debtor does not live in that property as a tenant, the section does not apply.
…under a lease or rental agreement…
A former homeowner whose home has been foreclosed upon might be a tenant residing in residential property, but such residence is not under a lease or rental agreement. Under this portion of the subsection, therefore, (b)(22) is inapplicable.
…and with respect to which the lessor…
Again, without a lease or rental agreement, a servicer, foreclosure purchaser or lender is not a lessor. Under this portion of the subsection as well, (b)(22) is inapplicable.
…has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor.
It is necessary for there to be an actual judgment for possession, that is, an eviction action where the Court has actually entered a judgment.
In short, the plain language of §342(b)(22) does not apply to a typical post-foreclosure eviction situation.
This question has received slight attention in reported decisions. Judge S. Martin Teel, Jr. of the District of Columbia Bankruptcy Court stated in In re McCray, 342 BR 668, 669 (Bankr. D.C. 2006), “Because [Movant] has not alleged that it was McCray’s lessor, or that it had a lease or rental agreement with her, §362(b)(22) does not apply.” McCray does not deal with a post-foreclosure eviction, however. See In re McCants, No. 12 B 14406 (ALG) (S.D.N.Y. 2012); In re Andreson, 341 BR 365, 371 n. 7 (Bankr. D.C. 2006). See also Down and Out and Now Kicked Out: Lease Evictions and the Automatic Stay, Keith-Bolden, Sarah, 23 Emory Bankr. Dev. J. 585 (2006-2007).
Henry J. Sommer, Consumer Bankruptcy Law and Practice, Eighth Edition, §126.96.36.199 n. 183 states:
The prepetition judgment for possession must relate to rental property in which the debtor resides under a lease or rental agreement. It does not apply, for example, to an eviction judgment obtained by a purchaser or property at foreclosure who does not have a lease or rental agreement with a debtor occupying the property. See In re McCray, 342 BR 668, 669 (Bankr. D.C. 2006).
Professor Sommer (who is also the Editor-in-Chief of Collier on Bankruptcy) accurately states the application of this section. Clients who are facing post-foreclosure eviction may continue to take advantage of the additional time afforded by a bankruptcy filing without fear of a §342(b)(22) exception to the automatic stay.
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Last modified: August 22, 2014