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Court Allows Owner to Evict Tenant who has Filed Bankruptcy


Henry Chuang

by Henry Chuang on September 29, 2016

in Bankruptcy, Eviction

Sholem Perl (“Perl”) owned a duplex in Los Angeles. Perl defaulted on his loan and the property was foreclosed on in 2013. At the foreclosure sale, Eden Place, LLC (“Eden Place”) purchased the property but Perl remained in possession of the property. After buying the house, Eden began the unlawful detainer process and on June 11, 2013, obtained a judgment for possession of the property. Eden Place then sent the Writ of Possession to the sheriff who posted a lockout notice. In an attempt to prevent the eviction, Perl asked the state court for a stay of the proceedings but then failed to comply with the requirements. After failing to obtain a stay from the state court, Perl filed for bankruptcy protection. In the bankruptcy court, Eden Place moved for relief from the automatic stay in order to proceed with the eviction. However, prior to the hearing, the sheriff locked out Perl and completed the eviction. Perl then made a motion to enforce the stay to allow him to stay the property. The court granted Perl’s motion finding that someone in possession of a property has sufficient interest in the property to be protected by the automatic stay. Eden Place then appealed the order to the Bankruptcy Appellate Panel (“BAP”). There, the BAP affirmed the bankruptcy court’s decision. Eden Place once again appealed the decision.

THE DECISION:

In Eden Place, LLC v. Perl (In re: Perl), the U.S. Court of Appeals for the Ninth Circuit reversed the BAP’S decision and held that serving the writ of possession did not violate the automatic stay. The Court held that under California law, a foreclosure terminates the previous owner’s legal interest in the property. More importantly, the Court found that after a judgment in an unlawful detainer proceeding is obtained, the court has adjudicated the rights to possession between the parties to that action. As such, once the owner or landlord obtains the judgment, the tenant no longer has any interest in the property, not even an equitable possessory interest. Without any interest in the property, the landlord does not violate the automatic stay by proceeding with the eviction and trying to regain possession of the property.

WHY THIS DECISION IS IMPORTANT:

This case reverses a number of prior cases that held the opposite. Those previous cases all held that by merely being in possession of the property was sufficient to give the tenant some right in the property that was protected by the automatic stay. The Court went out of its way to note that the previous cases, starting in 2005, came to the wrong conclusion and reversed them. It is also important to note that this case has been appealed to the United States Supreme Court and should be heard in the upcoming term.

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