Opinion
Case No. 01-1-8715-DK, Chapter 13.
August 13, 2001
MEMORANDUM OF DECISION
As set forth on the record at a hearing held on August 3, 2001, this court does not have the jurisdiction to decide the motion to reconsider the order vacating order authorizing resale that is pending in the Circuit Court for Montgomery County or the ejectment action pending in the District Court of Maryland for Montgomery County. Nor does this court sit as a court of appeal for actions and orders from those state courts. This court is prohibited from reviewing decisions of state courts under the Rooker-Feldman Doctrine. See, e.g., District of Columbia Court of Appeals v. Feldman, 607 U.S. 462, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983); Rooker v. Fidelity Trust Co., 263 U.S. 413, 44 S.Ct. 149, 68 L.Ed. 362 (1923). With that said, this court can and does decide issues necessary to whether or not relief from stay should be granted in this bankruptcy case.
The relevant facts are undisputed. There was a deed of trust granted to the lender by the borrowers, to secure a deed of trust note. An action was commenced in the Circuit Court of Maryland for Montgomery County, case no. V-206767, to foreclose the equity of redemption under the deed of trust. A foreclosure auction was conducted and the property was struck down to the highest bidder (the "Bid Purchaser").
Subsequent to the conclusion of the auction, the borrowers filed exceptions to ratification of the foreclosure sale. The Circuit Court denied the exceptions and entered an order of ratification. Subsequent to ratification, the substitute trustees under the deed of trust, filed in the Circuit Court a motion to resell the property at the sole risk of the Bid Purchaser. Such a motion is permitted where the original bid purchaser defaults under the contract established by the auction. Maryland Rule 14-305(g).
Borrowers are Mary G. and Delair D. Ali, the Respondents in this lift stay action.
Also the substitute trustees filed a motion to substitute purchaser, which is permitted by Maryland Rule 14-207(f) and was granted by order of the Circuit Court. Thereafter a settlement occurred and a deed conveying title was executed and delivered by the substitute trustees to the substitute purchasers.
On or about the same time, the motion to resell was granted. Apparently, that order was subsequently vacated. A motion is now pending in the Circuit Court by the borrowers asking that the Circuit Court reconsider the order that vacated the order authorizing the substitute trustees to resell at the sole risk of the original contract Bid Purchaser.
An action for detainer and forcible ejectment has also been initiated against the borrowers in the District Court of Maryland for Montgomery County.
11 U.S.C. § 362(a)(1) stayed the actions in state courts from going forward. Even though the outstanding motion to reconsider in the Circuit Court is a motion brought by the debtor, the underlying foreclosure action is an action brought by a creditor and it is the underlying action that governs whether the stay applies. See e.g. Simon v. Navon, 116 F.3d 1, 4 (1997) ("[T]he fact that it was the debtor, rather than a creditor, who took this particular step of filing a motion, does not alter the fact that it constitutes a `continuation' of an `action or proceeding against the debtor' within the terms of § 362.") However this court finds that there is cause to lift the stay and allow the state court actions to continue to conclusion in both the Circuit and District Courts.
As this court has opined in its decisions in In re De Souza, 135 B.R. 793 (Bankr.D.Md. 1991) and Homeside Lending v. Denny (In re Denny), 242 B.R. 593 (Bankr.D.Md. 1999) and as Maryland law for some 200 years or more has established, upon the granting of a deed of trust, legal title is granted to the deed of trust trustees under the deed of trust. The borrowers/mortgagors retain equitable rights in the property, that is the right to possession and the right to redeem the equity and void the conveyance of legal title. If all amounts due and owing under a mortgage or under a note secured by a deed of trust are paid, then the conveyance of legal title under the deed of trust becomes void and the legal title revests in the borrowers. Therefore, at the point of the beginning of the foreclosure action, the deed of trust trustees held legal title to this property and the borrowers held equitable rights as above described.
When a properly conducted foreclosure auction is concluded (sometimes known as the falling of the gavel), at that instant all equitable rights to redeem are terminated. Thereafter, the borrowers cannot come forward to the lender and tender the full repayment of all monies due under the mortgage note or deed of trust note and redeem the property and void the deed of trust. See, e.g., In re Denny, 242 B.R. at 597; In re De Souza, 135 B.R. at 796. The only remaining right the borrowers have is to challenge the legality of the foreclosure, known as taking exceptions to ratification. If the exceptions are sustained and ratification of the sale is denied, then the auction sale becomes a nullity and the equitable rights held prior to the auction are restored to the borrowers. But if the ratification is granted and any exceptions denied, the loss of the right of redemption which occurred at the falling of the gavel remains and is final. That is what occurred in the Circuit Court. Thereafter, borrowers held no interest in the property whatsoever.
Until settlement, the bid purchasers hold equitable title with legal title held by the substitute trustees. The right of possession is then conveyed by the deed of trust trustees at the time a deed conveying legal title is signed, witnessed, acknowledged, delivered and recorded. But the mortgagors/borrowers do not hold any right to possession, or any other right in the subject premises after ratification.
As to the motion to resell, the order granting that motion and its effect upon any settlement to a substitute bid purchaser, this question this court must leave to the Circuit Court for Montgomery County. But the issue is solely between the deed of trust trustees, the original bid purchaser and the substituted purchaser. Even if the Order granting the motion to resell was an Order which prohibited settlement to a substituted purchaser, it did not re-establish any rights in the borrowers in the premises.
For the reasons set forth above, those rights were terminated by foreclosure upon the falling of the gavel and sustained by the ratification. Therefore, the borrowers would not be necessary parties to adjudication of the motion to substitute purchaser or adjudication of the motion to resell at the sole risk of the original Bid Purchaser.
Having reached these legal conclusions, because the borrowers hold no interests in the property, relief from stay should and in fact must be granted. 11 U.S.C. § 362(c); In re De Souza, 135 B.R. at 797. Of course, the stay remains in effect to prohibit any action in personam for any deficiency. The action in rem, however, may be completed as to the foreclosure issues and as to any ejectment, eviction or possession. An Order consistent with these findings will be entered.