By: Scott B. Riddle, Esq.

In re Howard, 351 B.R. 251, Adv. No. 05-5160, 2006 Bankr. LEXIS 2319 (Bankr. M.D. Ga. September 21, 2006)(Hershner).   Prior to the filing of the debtor’s Bankruptcy petition, a foreclosure sale was conducted on debtor’s residence. The purchaser was the high bidder, and arranged to meet the lender’s attorney at the lender’s office the next morning to pay the purchase price and obtain the foreclosure deed. It is not disputed that the purchaser had sufficient funds on deposit with the lender to pay the purchase price.  On the same day as the foreclosure sale, the purchaser obtained insurance on the property and visited the residence to tell the debtor that he had purchased the property. The debtor informed the purchaser that the property could not have been sold because the debtor had filed bankruptcy.  Based on this, the purchaser did not go to the lender the next morning as scheduled.  Instead, the purchaser gave the lender a check and obtained a foreclosure deed over a week later.  In fact, the debtor had not filed a Bankruptcy petition prior to the foreclosure and then the purchaser visited him, but instead filed the day after the sale.  The debtor sought to set aside the foreclosure as violating the automatic stay.

The Court set aside the sale. The language of the Deed to Secure Debt (which was not the standard Fannie Mae/Freddie Mac form) provided that the debtor would be divested of his rights and equity when the lender gave the purchaser "good and sufficient title in Fee Simple."  It was undisputed that the Bank gave the purchaser title over a week after the sale, and after the Bankruptcy petition was filed. The lender is bound by the terms of of its deed to secure debt, and therefore, the debtor was entitled to summary judgment and the  foreclosure sale was set aside.

Update: Motion for Interlocutory Appeal filed by the Bank was denied.  The Citizens Bank of Cochran and Herbert Davis v. Howard, No. 5:06-CV-357,  2006 U.S. Dist. LEXIS 87898 (M.D. Ga. December 5, 2006).