The Salazar Saga Continues

02/12/12

Bankruptcy and foreclosure lawyers everywhere have beenvitally interested in the fate of In re Salazar, 448 B.R. 814 (Bankr.S.D. Cal. 2011), which denied the lender's motion for relief from the automaticstay to complete an eviction after a pre-bankruptcy foreclosure sale.  The trust deed in Salazar named MERS as the beneficiary, but the foreclosure notices andtrustee's deed referred instead to US Bank. The opinion in Salazar concludedthat CaliforniaCivil Code section 2932.5, which states that the power of sale under a mortgage"may be exercised by the assignee if the assignment is duly acknowledgedand recorded." was not satisfied by off-record assignments under the MERSsystem.  Since the assignment toUS Bank was not recorded, the Court concluded that the Debtor had made a primafacie showing that the foreclosure was void, and declined to grant relief fromthe automatic stay for that reason.  TheCourt acknowledged, however, that the Salazars' title to their home "mustfinally be established in an adversary proceeding." 

The holding in Salazardenying relief from the automatic stay was a final order for purposes ofappeal.  It was appealed to the DistrictCourt (Case No. 3:11-cv-00907).  Thatappeal has already been briefed and submitted without argument to JudgeLorenz.  Salazar has been several timesdistinguished and was also criticized in a couple of unpublisheddecisions:  See Kurek v. America's Wholesale Lender, 2011 WL 3240482 (N.D. Cal.Jul. 28, 2012) (Magistrate Judge Zimmerman); and Forbes v. Countrywide Home Loans, 2011 WL 4985965 (Cal. App. 4thDist. Div. 2 Oct. 20, 2011). 

In the meantime, the Salazars got around to filing theiradversary proceeding to declare the foreclosure void and for damages on a varietyof theories. (Case No. 11-90441  OnJanuary 31, 2012, Judge Lorenz withdrew the reference in that adversaryproceeding.  We can therefore ultimatelyexpect to have an important ruling on the MERS issue, binding in our District untilthe Ninth Circuit speaks.  

JudgeLorenz's four page order explains that withdrawal of the reference was based onjurisdictional concerns raised by Stern v. Marshall, ––– U.S. ––––,131 S.Ct. 2594, 2601–02 (2011).  JudgeLorenz reasoned that the complaint was a "wrongful foreclosure actionwhich could have been filed in state court and would not be 'resolved in theprocess of ruling on a creditor's proof of claim.' [quoting Stern]."  This shows just how deep Stern v. Marshall maycut at the bankruptcy system. Until a short time ago, no one would have thought that a bankruptcycourt lacked jurisdiction to determine whether the debtors had title toproperty which they occupied as their home. Will we have to wait for a decision on the appeal until theto-be-expected motion for summary judgment is briefed in the adversaryproceeding? 

Copyright Dean T. Kirby 2007. All rights reserved.

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