Bankruptcy Court Says HOA Foreclosure Sale Stands Due to Late Filing of Chapter 11 by Property Owner

US Bankruptcy Court, Eastern District of New York decision (January 6, 2015)

In this case, the owner of property sought to have a foreclosure sale conducted by the community homeowners association approximately two and one-half hours prior to the filing of a Chapter 11 bankruptcy set aside by virtue of the automatic stay caused by the filing of the bankruptcy.

The owner sought an order from the bankruptcy court that “retroactively” applied the automatic stay that was triggered when the bankruptcy petition was filed back to the time of the foreclosure sale which was conducted earlier in the morning on the same day the bankruptcy was filed. The owner contended that the tardy bankruptcy filing was due to excusable neglect and inaccessibility of the Clerk’s office at the Bankruptcy Court. To remedy the late filing, the owner requested the court to grant “nunc pro tunc” relief (a Latin term referring to a court’s inherent powers to enter an order having retroactive effect) to regard the bankruptcy petition as having been filed at a time earlier than the foreclosure sale in order to give the owner the benefit of the automatic stay prior to the time the sale was conducted.

In denying the requested relief, the court ruled that “nunc pro tunc” relief is an extraordinary remedy that may not be used to revise history, but is to be used to correct inaccurate records. The relief is not available to alter substantive rights. The court stated that the granting of the relief sought by the owner would have unquestionably altered substantive rights. The HOA’s foreclosure sale, which was conducted over 2 hours prior to the bankruptcy filing, extinguished the owners interest in the property. As such, the property was not a part of the bankruptcy estate when the bankruptcy petition was filed and the automatic stay caused by the filing had no effect on the foreclosure sale. The court also denied the owner’s attempts to avoid the late bankruptcy filing based on Federal and/or Bankruptcy rules that are used to grant relief from late filings by distinguishing between situations that involve a computation of time after a case has been filed from the situation in this case. Lastly, the court ruled that the owner’s claims that the late filing resulted from the inaccessibility of the courthouse were misplaced.

See case decision: In_re_Buckskin_Realty_Inc._(