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Connecticut: Judicial Foreclosure Sale Frustrations Caused by New Interpretation of Bankruptcy Stay

Posted By USFN, Friday, August 29, 2014
Updated: Tuesday, October 13, 2015

August 29, 2014

 

by James Pocklington
Hunt Leibert – USFN Member (Connecticut)

Connecticut is a judicial foreclosure state with two forms of foreclosure. While the majority of foreclosures in the state go through the strict foreclosure process, when there is either equity in the property or the United States is a party, the court will order a judicial sale. Connecticut’s judicial sales are conducted by a “Committee for Sale,” an attorney appointed by the court to act as the agent of the court. Committees are bound be a number of standing orders affecting their responsibilities, expectations, timelines, and even permissible reimbursement.

In the recent judicial decision, Equity One, Inc. v. Shivers (150 Conn. App. 745l, 2014 Conn. App. LEXIS 254), which may be familiar to readers through prior decisions on standing, Connecticut’s Appellate Court reversed a lower court ruling that had awarded fees and costs to a committee awarded during a bankruptcy stay. This has created a substantial delay in court-agent reimbursement and a public policy concern.

As the reader is no doubt aware, the automatic stay provision in 11 U.S.C. § 362(a) prevents a judicial sale from proceeding. Historically, committees would bring a motion for approval of their interim fees and costs to be reimbursed for their expenditures as an agent of the court. Until Shivers, these fees and costs would be approved as, pursuant to Conn. Gen. Stat. 49-25, fees and costs for the cancelled sale are to be borne by the foreclosing plaintiff.

In Shivers, the court interpreted 49-25’s provision that says expenses “be taxed with the costs of the case” as the type of indemnification discussed in In re Metal Center, 31 B.R. 462, and determined that awarding interim fees for a cancelled sale, even if they are statutorily required to be paid by the plaintiff, to be action against the debtor in violation of the stay.

The impact of Shivers is still being felt. Connecticut’s committees for sale are volunteer appointment agents of the court, not dissimilar from guardians ad litem, and are now being forced to wait extended periods before being reimbursed for expenses incurred. While it is unclear if there will be a judicial or legislative response to this new interpretation, it may also impact the willingness of qualified applicants to volunteer, if they may not see a repayment of their expenses for significant time.

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