In an unpublished opinion, In re Oya, 2019 Bankr. LEXIS 3303, the Bankruptcy Appellate Panel for the Ninth Circuit sustained the bankruptcy court’s granting of retroactive annulment of the stay under 11 U.S.C. § 362(d)(1) so that neither the foreclosing creditor, Wells Fargo, nor its servicer, which had notice of the bankruptcy filing prior to foreclosure, would face sanctions for violating the stay when the foreclosure trustee had nevertheless proceeded with the sale and sold the property.

Oya is a good reminder for bankruptcy debtors and creditors that a violation of the automatic stay can be erased by retroactive annulment of the automatic stay in the right circumstances.  Oya followed Ninth Circuit case law established by Fjeldsted v. Lien (In re Fjeldsted), 293 B.R. 12 (BAP 9^th Cir. 2003) and National Envtl. Waste Corp. v. City of Riverside (In re National Envtl. Waste Corp.), 129 F.3d. 1052 (9^th Cir. 1997).  But Oya is different in that the buyer at the foreclosure sale obtained an order validating the sale notwithstanding the debtor’s filing of a bankruptcy petition, so Wells Fargo was seeking annulment for the sole purpose of avoiding sanctions. 

The debtor and her husband had not made a payment to Wells Fargo for four years prior to the foreclosure sale at issue.  In response to at least two previously scheduled foreclosure sales, they had filed a series of five alternating, individual chapter 13 cases within less than two years, at least two of which were filed the day before the scheduled foreclosure sale.  All five cases were dismissed for failure to file required documents or a chapter 13 plan.  When Wells Fargo’s loan servicer set a third foreclosure sale, one of the borrowers, Aki Oya, filed the sixth chapter 13 bankruptcy petition between them.  The sixth filing lacked schedules, a statement of financial affairs, or a plan.  Approximately two hours before the scheduled foreclosure sale, the loan servicer talked to the debtor, who told the loan servicer that she had filed a bankruptcy case three days earlier and would call back with an update.  The debtor did not provide the bankruptcy case number to the loan servicer.  The foreclosure trustee conducted the sale and sold the property, but Wells Fargo rescinded the sale the next day.  The sixth bankruptcy case was dismissed two weeks later, for failure to file required schedules, statement of financial affairs, or chapter 13 plan, and the debtor failed to get the case reinstated. 

The buyer refused to accept that the sale had been rescinded, and moved to annul the stay.  The court granted an annulment and validated the sale.

The debtor and her husband commenced a civil action against Wells Fargo and its servicer seeking damages for willful violation of the automatic stay.  Wells Fargo then filed its own motion for annulment, solely so it and its servicer would be protected from the civil action. 

After determining that the foreclosure sale was a willful violation of the stay under 11 U.S.C. §§ 362(a) and (3), the Ninth Circuit BAP applied the two-part test under National Envtl. Waste Corp. and the multi-factor analysis under Fjeldsted in granting annulment.  The debtor and her husband had made serial bankruptcy filings, and the sixth bankruptcy was “simply another bad-faith case filed as part of a scheme to hinder or delay the sale.”  Oya, at *20.

Oya is a good reminder that while a willful violation of the automatic stay of 11 U.S.C. § 326 is a very serious matter, it may be subject to annulment in certain circumstances.  Oya applies existing case law to annul the automatic stay, even if the annulment is sought solely to avoid sanctions for violating the automatic stay.