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Scura, Wigfield, Heyer, Stevens & Cammarota Blog

Retaining Your Property after a Foreclosure Sale?

[fa icon="clock-o"] April 3, 2018 [fa icon="user"] David E. Sklar [fa icon="folder-open'] Bankruptcy

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Has your property recently been foreclosed upon at a sheriff sale leaving you scrambling to try to retain it? There is an avenue of the law that may provide you with a potential solution through a preference action in a bankruptcy proceeding. However, as this blog will explore, it is an unsettled area of the law meaning that different parts of the country have ruled in different ways on this issue. Despite the uncertainty, pursuing this legal avenue may be your last best hope.

How Can a Preference Action Benefit you in Avoiding a Sheriff Sale?

Section 547 of the Bankruptcy Code provides the statutory framework for preference actions by stating that the trustee may avoid any transfer of an interest of the debtor in property— (1) to or for the benefit of a creditor; (2) for or on account of an antecedent debt owed by the debtor before such transfer was made; (3) made while the debtor was insolvent; (4) made— (A) on or within 90 days before the date of the filing of the petition; or (B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and (5) that enables such creditor to receive more than such creditor would receive if— (A) the case were a case under chapter 7 of this title; (B) the transfer had not been made; and (C) such creditor received payment of such debt to the extent provided by the provisions of this title.

 

Pursuant to 11 U.S.C. § 547(f), “the debtor is presumed to have been insolvent on and during the 90 days preceding the date of the filing of the petition.”

 

The New Jersey Bankruptcy Court in In re Berley Associates, Ltd was persuaded by the legal analysis in Norwest Bank Minn., N.A. v. Andrews which found that a pre-petition sheriff sale could be avoided by a preference action if the secured party’s claim is substantially less than the foreclosed upon property’s fair market value. In re Berley Associates, Ltd., 492 B.R. 433, 444 (Bankr. D.N.J. 2013) quoting Norwest Bank Minn., N.A. v. Andrews, 262 B.R. 299, 306 (Bankr.M.D.Pa. 2001). This decision was premised upon the reasoning that the secured party is receiving more “by way of the prepetition foreclosure than that creditor would have received and been entitled to in a Chapter 7 liquidation.” Id. Thus, the Court in In re Berley Associates, Ltd. found that the reasonable value of the property would need to be established before the Court could render a decision on this issue.

 

Counter Authority stating that a Sheriff Sale cannot be Avoided

 

The Court in In re Veltre disagreed with the In re Berley Associates, Ltd. Court in finding that the secured lender “could not and did not “receive more” for purposes of §547(b)(5) because it purchased the Property at a regularly-conducted, non-collusive sheriff sale.” In re Veltre, 562 B.R. 890, 894 (Bankr. W.D.Pa. 2017). Therefore, this Court held that “[s]heriff’s sales executed in compliance with the applicable state law must be final and the rights created and extinguished by them cannot be disturbed by the filing of a bankruptcy petition.” Id. Based on the fundamental disagreements that courts are having in ruling on this issue, it seems that higher courts, perhaps even the United States Supreme Court, will need to weigh-in on this issue soon. As it stands right now, pursuing a preference action through the bankruptcy court may be your best avenue to undo a foreclosure sale pre-petition foreclosure sale. Just remember that you must file the bankruptcy within ninety days of a foreclosure sale and the property must be worth substantially more than the claim than the party foreclosing on the property in order to have a chance at success.

 

If you are considering filing for bankruptcy to avoid a sheriff sale, it is important to contact an experienced New Jersey Bankruptcy attorney to guide you through your options and present you with the potential pitfalls. For questions regarding a potential bankruptcy, call the law firm of Scura, Wigfield, Heyer, Stevens & Cammarota, LLP for a free consultation.

 

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